Young drivers - Compare car insurance

Do young drivers need car insurance?

Car insurance is not a legal requirement in New Zealand, but it’s definitely something you should consider, even if you’re driving around an old bomb.

Car insurance isn’t just there to cover damage to your car, it can also cover damage you cause to other cars and property. As young drivers are statistically more likely to be involved in an accident, this is important to remember.

If you got into a fender bender with another car and weren’t insured, you would have to pay to fix your own car and the car you bumped into. You could be really out of luck if you dented a more expensive car, like a Mercedes or an Audi.

If you want to save as much money as possible, taking out third party car insurance as a minimum is a good idea. With third party cover you won’t be insured for damage to your own car, but you will for damage you cause other vehicles. This means you won’t be on the hook for an unwanted repair bill if you accidentally bump into another vehicle when you’re out and about.

Are you a student in New Zealand? Check out our guide to student car insurance.

Getting on a parent’s car insurance

Getting listed as a named driver on a parent’s car insurance can be a great, but fairly short-term, way of getting cover when starting out driving.

This is only an option if you will be driving a parent’s car, rather than your own. It will also result in your parent’s insurance premium going up, but the increase won’t be as much as an individual policy you took out on your own car.

Your parent will have to inform their insurer that someone under 25 years of age will be driving their vehicle on a regular basis from that point on. This is important as not informing the insurer may result in a claim being denied down the line, or the cover even being declared void.

Fronting — what it is, and why you shouldn’t do it

Because car insurance is often significantly more expensive for young drivers, some have been tempted to get an older driver (often a parent) to claim they are the main driver of their vehicle, resulting in cheaper cover. This is called ‘fronting’ and it’s a bad idea.

Firstly, fronting is illegal. The older, main driver could find themselves in court accused of insurance fraud if they were discovered.

It’s also almost certain that the cover would be invalidated. Any claim you make would be declined, the policy would be declared void, and you could have trouble getting your car insured in the future.

In short, while fronting may seem like a good way to cut the price of your car cover, it’s just not worth the risk. Instead, focus on getting the best deal you can for yourself.

Why is car insurance more expensive for young drivers?

It can feel unfair that we are asked to pay more for our car insurance at a point in our adult lives when we’re least likely to have much money, but there is a sensible reason for it: risk.

Car insurance costs more for young and less experienced drivers simply because they are much more likely to be involved in an accident.

According to Waka Kotahi NZ Transport Agency, those on a restricted licence are 7 times more likely to be involved in a fatal or serious crash than other drivers. Data from the insurer AMI shows that drivers under 25 are just over a quarter more likely to have an accident when compared to other age ranges.

We are also more likely to be involved in a crash in the first year of getting our restricted licence than at any other time in our lives.

Young drivers are much more likely to need to claim on their insurance, and so insurers charge them higher premiums. Charging higher premiums means insurers can continue to cover drivers under 25 and ensure they can pay out on claims when they need to.

5 top ways young drivers can get cheaper car insurance

These are some of the best ways young drivers can get the cheapest car cover.

1. Get multiple quotes

Some of us look for recommendations to identify the cheapest insurer, but there is no substitute to comparing car insurance quotes yourself.

Each insurer has its own pricing model and each of them takes different factors into account when assessing customers. This means it’s very likely that the cheapest car insurance you find will be different to that of another young driver in a different car, living in a different part of the country or city.

The more quotes you get, the more confident you’ll be that you’ve found the cheapest cover for you. Aim for quotes from at least 3 separate insurers for an idea of how much cover will cost you, and how much prices can differ between insurers.

2. Choose your car wisely

The car you drive can have a huge impact on how much your insurance will set you back. It’s not just about the car’s value — its specifications, features and even reputation play a major part in how big your insurance premiums will be.

The following factors will play a major role in the price of your insurance premium:

• Power: Other things being equal, a low-power car will be cheaper to insure than one with a larger engine. More powerful cars can reach faster speeds, may be harder to control for inexperienced drivers, and so are more expensive to cover.
• Security: Features including car alarms and engine immobilisers lower the risk of your car being stolen, and so result in lower premiums.
• Theft statistics: Insurers factor in stats on car theft in their pricing models. If a particular type of car has historically been the subject of theft in the past, it will be more expensive to insure.

Accessories and modifications will also play a role in how much you pay for your cover. They will likely increase the value of your car and some will affect its power output.

3. Combine with your contents cover

Lots of drivers under 25 are also flatting and so may also have contents insurance (sometimes known as renters’ insurance). With many insurers offering a multi-policy discount that can be as high as 20%, bundling your cover with one insurer can be a great way to save.

Multi-policy discounts usually apply to car, house, and contents policies. If you’re fortunate enough to also own your own home, or have a second car, you can bundle these together too for an even larger discount.

The following NZ car insurers offer multi-policy discounts:

• AA Insurance
• AMI
• ANZ
• ASB
• MAS
• State
• Tower
• Trade Me Insurance
• BNZ
• Kiwibank

4. Choose third party instead of a comprehensive policy

There are three tiers of car insurance, ranging from least to most expensive:

• Third party: Third party car insurance covers you for damage you accidentally cause to other vehicles or property. It won’t payout for repairs to your car if in an accident, but it will mean you won’t have to pay for the damage to the other car. 
• Third party, fire and theft: This policy will cover you for damage you cause to others, plus you’ll be able to claim if your own car is stolen or damaged in a fire.
• Comprehensive: Comprehensive policies cover all of the above plus more. You will also be covered for repairs or replacement to your own car if it’s damaged in an accident or some other way.

Comprehensive car insurance provides the broadest protection, but it’s also the most expensive option. It’s also the most popular type of car insurance with around 80-90% of NZ drivers choosing comprehensive.

If your car isn’t especially valuable and you want to save as much as possible, consider a third party policy. You won’t be able to claim for damage to your own car, but you won’t be on the hook for a hefty repair bill if you bump into someone else’s.

Learn more about third party car insurance and compare.

5. Buy online

It’s cheaper for insurers to sell you insurance online instead of over the phone or in a store. As a result, many insurers will give you a discount if you get a quote and buy your insurance online through their website.

Online discounts can take different forms and insurers market them differently. Some insurers will simply apply a discount (of around 10%) to your quoted price. Others will give you either discount your premium by a set amount, depending on the policy you take out.

Some might even offer some other kind of reward: Airpoints, Flybuys and Prezzy Cards have all been used to entice insurance shoppers online in the past.

Key car insurance terms explained

It’s true that insurance can be confusing, but getting to grips with the terminology involved will make things much easier.

• Excess: An excess is an amount of money you need to pay when you make a claim before your insurer will cover the rest. You can usually choose what your excess is, but it has a correlation with your premium payments: the lower the excess, the higher your premiums (and vice versa)
• Insurance premium: Your premium is what you pay for your insurance. With many insurers you can choose if you pay your premium in regular, small instalments (such as monthly), or in one lump sum for the year. Lots of NZ insurers will give you a discount for paying in one annual payment.
• Policy: Your policy is a document that describes what you’re covered for. Remember that not all policies are the same — check what yours covers you for.
• Market value: A market-value policy will cover your car up to the value it has at the point at which you need to claim. As cars depreciate in value over time, the market value of your car will likely be lower when you make a claim compared to when you first took out the cover.
• Agreed value: An agreed-value policy covers your vehicle up to a value you agree upon with your insurer when you take out your cover (within a range). Agreed-value policies are usually more expensive than market-value policies.
• Legal liability: Legal liability refers to your responsibility if you damage someone’s property (including their car) or harm them physically. All car insurance policies should have legal liability cover included.
• No claims bonus: If you have not made an insurance claim in the last few years, your insurer will likely give you a discount on your cover — this is called a no claims bonus.