How does car insurance work in New Zealand

Even though you don’t have to insure your car in New Zealand, most people do. This article will help you to understand the benefits of having vehicle insurance. It also explains some options you can choose from to get the best insurance for your situation.

Why do most people get car insurance?

The main benefit of any insurance is peace of mind, because you don’t have to worry about how you’d cope financially if something unexpected happened.

Car insurance means you can quickly get things sorted, without having to pay a huge amount. Depending on the type of policy you choose, this can include not having to pay to repair or replace your damaged or stolen car, or the damage your car causes to someone else’s vehicle or property.

The other upside of car insurance is the way your insurer steps up to help get you back on the road as soon as possible. A good insurance company will help arrange towing and transport to get you somewhere safe, if necessary. They’ll assess the damage and organise a trusted repairer or let you know if your car is beyond repair (written off). They’ll also work with other people affected by your accident, or their insurance companies, so you don’t have to.

What are the main types of car insurance?

There are three main types of car insurance to choose from. It often comes down to how much your car is worth and what you can afford.

  • Third party only – this might suit if you could afford to repair or replace your car yourself and are more worried about having to pay for damage you cause to someone else’s expensive car or property. It only costs around $20 a month, but doesn’t cover damage to your car and won’t pay out if your car is stolen.
  • Third party, fire and theft – this gives you the same cover as third party only insurance, but also covers your car if it’s stolen or in a fire. If car theft is a thing in your area, it might be worth paying a bit extra for the fire and theft cover – particularly if you’d struggle to replace the cost of the car yourself.
  • Comprehensive – also known as full insurance, this type of car insurance covers accidental damage to your car, even if there was no other vehicle involved or your car was just parked somewhere at the time. It can cost quite a bit more than the third party options, depending on how much your car would cost to replace.

The details of each type of car insurance will vary from one insurer to another, so it’s important to read the fine print when shopping around. Look for limits on the amount of cover for some events and things that are not covered at all – these are called ‘exclusions’.

Some policies will offer optional extras that you can choose to pay a little more for, such as cover for a rental car while yours is being assessed and repaired.

How do car insurance payments and pay-outs work?

When you get car insurance, you agree to pay a fee, called an insurance premium. The amount is reviewed every year when you renew your cover. You can normally pay in weekly, monthly or annual instalments. Choosing the annual option is usually cheaper overall. If you cancel your policy before the advance payment period ends, the insurer will refund the portion of your premium that’s still unused.

Top tip: You can often get a good discount by having other policies with the same insurer, such as your home, contents or renter’s insurance.

What is a car insurance excess?

When you make a claim, you normally pay an agreed amount towards the cost of the repair. This is known as an ‘excess’. You agree to the amount when you take out your policy and it’s the same for all claims, no matter how much it costs the insurer. For example, if your excess is $500 and the repair costs $2,000, you pay $500 and the insurer pays $1,500. If the repair costs $4,000 you pay $500 and the insurer pays $3,500.

Most policies have a standard excess, but you can often choose a higher one in return for a lower premium. Just be sure you’ll always be able to pay the excess, otherwise the repairs won’t get done. Some insurance providers offer the option of no-excess glass cover. If you pay the extra for this, you won’t pay an excess to replace the glass if your windscreen is damaged or any windows are smashed.

Who decides the maximum car insurance pay-out?

Every policy has a maximum amount the insurer will pay for any claim. This is the amount your car is insured for. If your car is stolen and not recovered, or cannot be repaired for this amount, the insurer will tell you your car has been ‘written off’. They’ll keep what’s left of your car, de-register it and pay you the maximum amount, minus your excess.

Depending on your policy, the maximum possible pay-out will be decided in one of the following ways.

  • Agreed value policies are where you and the insurer agree on the maximum amount they will pay out. Each year, when your policy comes up for renewal, your insurer will normally revise this amount and give you the chance to discuss it if you wish – including the effect a different value would have on your premium. Having an agreed value means you always know how much you’ll receive if your car is written off.
  • Market value policies mean you never know exactly how much the maximum pay-out will be. Instead, you receive the ‘reasonable retail value’ of your car just before the event occurred. This can be decided by an independent registered valuer. It will take into account your car’s make, model, year, maintenance record, kilometres travelled and any pre-existing damage.

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DISCLAIMER: The information contained in this article is general in nature. While facts have been checked, the article does not constitute an insurance advice service. It is only intended to provide education about the New Zealand insurances sector. Nothing in this article constitutes a recommendation that any type of insurance cover is suitable for any specific person. We cannot assess anything about your personal circumstances, all of which are unique to you. Before making insurance decisions, we recommend you seek assistance from an insurance adviser or expert.

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