Is It Worth It to Self-Insure a Car, Compared to Buying a Policy?

charlielojera
Feb 23
5 min read

Split image: Left, a man stands by a wrecked car in the rain, labeled "SELF-INSURE." Right, a happy family packs a car, labeled "BUYING A POLICY."

Buying a new or used car in Australia comes with plenty of decisions—fuel type, servicing costs, rego, and one of the biggest ongoing expenses: insurance. Some drivers wonder whether putting money aside themselves might be smarter than paying yearly premiums. On the surface, it sounds appealing. Why hand over cash to an insurer if you could keep it in your own savings account?

But the reality is more complex. Choosing to self-insure a car instead of buying a standard policy depends on your finances, risk tolerance, driving habits, and even where you live in Australia. Let’s break down the pros, cons, and real-world considerations so you can decide what makes sense for your situation.

What Does It Mean to Self-Insure a Car?

When you self-insure a car, you don’t buy comprehensive or third-party property insurance. Instead, you set aside money to cover potential accident repairs, theft, or damage yourself.

For example:

You might put $2,000–$5,000 in a high-interest savings account.
If something happens, you pay out of pocket.
If nothing happens, you keep the money.

Sounds simple, right? But it’s important to compare this approach with what a traditional policy offers.

How Car Insurance Works in Australia

Before deciding whether to self-insure, you need to understand the different types of car cover available in Australia.

1. Compulsory Third Party (CTP)

CTP insurance is mandatory when you register your car. It covers injury or death caused to others in an accident. It does not cover vehicle damage.

Each state manages CTP differently, for example, in Victoria it’s handled through the Transport Accident Commission, while NSW uses private providers.

2. Third Party Property

Covers damage you cause to someone else’s vehicle or property.

3. Third Party Fire & Theft

Adds cover if your car is stolen or damaged by fire.

4. Comprehensive Insurance

Covers your car and others’ property in most situations.

Major Australian providers include companies like NRMA Insurance, RACV Insurance, AAMI, and Allianz Australia.

These policies vary widely in price and inclusions.

Why Some Australians Consider Self-Insurance

There are a few reasons drivers think about skipping insurance altogether.

Lower Ongoing Costs

Insurance premiums in Australia can be expensive, especially for:

Young drivers
High-performance cars
Drivers in metro areas like Sydney or Melbourne
People with prior claims

Some policies cost $1,200–$3,000 per year.

Drivers ask: why not save that instead?

Older Cars With Low Value

If your car is worth $3,000 and your excess is $1,000, a policy might not make sense financially.

Good Driving History

Drivers with decades of safe driving may feel the risk of accidents is low.

When Self-Insuring a Car Might Make Sense

There are situations where self-insuring is a reasonable option.

1. Your Car Is Very Cheap

If your car is worth less than $2,000–$3,000, paying a yearly premium could exceed the car’s value.

Example:

Car value: $2,500
Insurance premium: $1,000/year

You might decide to accept the risk.

2. You Have Strong Financial Backup

You should only self-insure if you can comfortably cover:

Your car repairs
Other people’s car repairs
Towing and storage
Legal fees

A minor crash can cost $5,000. A serious crash? $50,000+.

3. You Rarely Drive

If your car sits in a garage and you drive only a few times a month, the risk is lower.

When Self-Insurance Is a Bad Idea

In many cases, self-insuring is risky.

1. You Couldn’t Afford a Major Accident

If you hit a luxury car like a BMW or Tesla, repair costs can skyrocket.

Without insurance, you could face:

$20,000+ repair bills
Legal action
Debt recovery

2. You Have a Loan on Your Car

Most lenders require comprehensive insurance. Without it, you breach the loan terms.

3. You Drive Often in Busy Cities

High-traffic areas increase accident risk.

4. You Don’t Have Savings

If you live paycheque to paycheque, one accident could be financially devastating.

Real Cost Comparison: Policy vs Self-Insurance

Let’s compare over five years.

Scenario A – Insurance

Premium: $1,200/year
Excess: $800
Total cost over 5 years: $6,000

But if you have a big accident, insurance covers most costs.

Scenario B – Self-Insurance

Save $1,200/year
Savings after 5 years: $6,000

But one crash costing $15,000 wipes you out.

It’s essentially risk vs certainty.

The Hidden Costs of Self-Insurance

Many drivers forget these expenses:

Towing fees
Hire car costs
Legal costs
Damage to public property
Medical claims beyond CTP limits

The Australian Competition and Consumer Commission warns that consumers should fully understand risks before skipping insurance, especially liability exposure.

Risk Factors That Matter in Australia

Australia has unique conditions affecting car risk.

Weather

Hailstorms in Brisbane and Melbourne
Flooding in Queensland and NSW
Bushfires in regional areas

Comprehensive insurance usually covers natural disasters.

Wildlife

Kangaroo collisions are common in rural areas.

Theft Rates

Car theft varies by state and suburb.

Self-Insurance Strategy (If You Still Want to Try)

If you decide to self-insure, follow strict rules.

Step 1: Build a Large Emergency Fund

Aim for:

$10,000 minimum
More for expensive cars

Step 2: Keep Third-Party Property Insurance

Even if you skip comprehensive, you should keep third-party cover.

This protects you from massive repair bills to other cars.

Step 3: Park Safely

Garage parking
Security cameras
Steering lock

Step 4: Drive Defensively

Avoid peak traffic
Maintain your car

Alternatives to Self-Insurance

If full cover feels too expensive, try these options.

Increase Your Excess

Higher excess = lower premiums.

Example:

Excess $500 → Premium $1,200
Excess $1,500 → Premium $800

Pay Annually

Avoid instalment fees.

Compare Insurers

Quotes vary widely between providers.

Limited Use Policies

Some insurers offer cheaper cover for low-kilometre drivers.

Case Study: Two Australian Drivers

Sarah in Melbourne

Drives a 2015 Corolla
Car worth $12,000
Drives daily

She self-insures. Gets rear-ended by a tradie ute.

Damage to her car: $6,500Damage to ute: $4,000

Savings wiped out.

Ben in Regional WA

Drives a $2,000 Falcon
Drives 2x per week
Has $20,000 savings

He self-insures. No accidents for years. He saves money.

Same idea, different outcomes.

Psychological Side of Insurance

Insurance isn’t just math, it’s peace of mind.

Some drivers prefer knowing they’re covered.

Others accept risk for savings.

Ask yourself:

Would I stress every time I park?
Could I sleep after an accident without cover?

Tax and Legal Considerations

Car insurance premiums are sometimes tax-deductible if used for business purposes.

Self-insuring removes that benefit.

Also, liability claims can lead to court costs and debt collectors.

How Australians Decide

Most Australians choose at least third-party insurance because:

Car repair costs are rising
Cars are more complex
Electric vehicle parts are expensive

Even safe drivers can be hit by someone else.

Final Verdict: Is It Worth It?

Self-insuring a car can work only if:

Your car is cheap
You have strong savings
You drive rarely
You accept the financial risk

For most Australians, especially with cars worth over $5,000, buying at least third-party insurance is safer and smarter.

Comprehensive cover may seem expensive, but compared to a $30,000 accident bill, it’s often worth every dollar.

Quick Checklist Before You Decide