You want to do some DIY mods to your ride, and that's okay. But, do you know you will have to pay for more than just the extra car parts? You will have to churn out more for insurance as well. "But my car was valued at X AUD, and I'm only making some generic modifications!" Well, that 'non-significant mod' might do more than improve the aesthetics of the car; it may affect its functionality.
If the modification affects the car's functionality, the premiums will either be reduced or increased, depending on the circumstances. If it makes the car more of a risk, the premiums increase, and vice versa. It's not as straightforward as that, though, so we've broken it down for you. As preliminaries, let's discuss the categories of insurance first.
Types of Insurance Coverage
- Compulsory third-party (CTP) insurance – In Australia, CTPs are mandatory for all cars. It covers cases of bodily injuries inflicted by the vehicle to other people (third party).
- Third-party only (TPO) insurance – this type covers damage caused to other vehicles and is the cheapest form of insurance you can get.
- Fire and theft – a special type of insurance that covers damages caused by fire and compensates you after a theft. It does not cover collisions, making it cheaper also.
- Damage and theft – also referred to as comprehensive insurance. It covers damage to vehicles (both malicious and caused by weather), theft, and collision. Comprehensive insurance is the most expensive and may, at times, cover damage caused to other vehicles.
Custom Car Parts & Insurance
Insurance companies are strict about the parts used on your car and the modifications made therein. Remember, for the insurance to continue being valid, the vehicle must be 'street legal.' Some changes may affect the car's street-legal status, which will result in the cancellation or voiding of the policy. In extreme instances, the warranty may also be voided.
What types of modifications are covered and not covered?
Modifications require custom car parts. The insurance policy may cover the car after what is considered as ‘mainstream’ modification, including:
- Adding alloy wheels
- Improved audio systems
- Adding bull bars
- Installing chrome exhaust systems
Modifications that will not be covered include:
- Installing nitro
- Adding racing harness
- Adding wheel spacers
- Adding roll bars
These are just examples; the list may differ from one insurer to another. For this reason, you are advised to inform the insurer before making any significant changes to your car.
Will modification affect my insurance premiums?
Yes. The insurer determines premiums based on the probability of risk occurrence. If the mod or change introduces an increase in the risk of damage or theft, it’s enough reason for the insurer to impose a higher insurance premium.
Let's take the example of a car with no alarm system. Since it is at high risk of being stolen, insurers will charge a higher premium. If you install an alarm system, you reduce the risk of the car being stolen, and you may pay lower premiums.
Conversely, if the mod includes a nitro boost system to increase the engine’s power and torque output, it increases the risk of damage due to collisions and accidents. The insurer may increase the premium or refuse coverage altogether.
Changes that affect the performance and aesthetics (such as custom paints) will either not be covered or if covered will attract higher premiums. If you add custom parts, the value of the car increases its appeal to thieves which increases the premiums.
Will my age affect the premiums?
You're in your mid-20s and would like to modify your car. The best advice I would give is, don't. Young people in their 20s who modify their cars will themselves pay higher premiums. In some instances, insurance companies shun young people who own modified cars because they are considered high-risk individuals.
Does this mean modified cars are not insured?
No, certainly not. There are special insurers who specialise in modified cars. They only cover the vehicle if the modifications are legally compliant. If the changes you made to the engine, chassis or suspension do not affect the car's street-legal status, then they will cover.
But even these specialist insurers will most times shun from covering young drivers. In instances where they do agree to insure you, they will charge heftier premiums. If the changes affect the performance by increasing the power by say 12 per cent, you pay higher premiums, too.
Bottom line
Insurance companies are strict about the parts used on vehicles insured with them. The car part must be designed to be used as a replacement as stipulated by the Australian Consumer Law. What this means is that the auto parts must be safe to use and perform their intended purpose. Learn more from our blog about filing insurance claims long before an accident happens. We can also help you locate high-quality replacement auto parts through our Car Part Finder at Carpart.com.au. Get a quote today!