If you drive less than the average Australian, you are almost certainly overpaying for car insurance. The typical comprehensive policy now runs about $1,560 per year nationally, and that figure climbed 4.4% between January 2025 and January 2026. For someone who only drives a few thousand kilometres a year — perhaps a second car, a weekend vehicle, or a car used mainly for short local trips — paying that full premium feels like burning money on a car that mostly sits still. The research makes one thing clear: there is a gap between what limited-use drivers need and what the standard comprehensive policy delivers, and that gap costs real money.
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This article is general information only and does not constitute professional advice. For your specific situation, consult a qualified professional.
Infrequent drivers face a different set of trade-offs than someone commuting daily. You do not need the same level of accident cover if you clock 5,000 kilometres a year as someone who does 20,000. But the off-the-shelf policy treats both drivers the same way. The result is that many limited-use motorists either pay for protection they do not need, or they drop cover entirely to save money and risk a huge out-of-pocket cost if something happens. The basics of car insurance in Australia are worth revisiting, but the real savings come from understanding how the system penalises low-mileage drivers and what you can do about it. Here’s what you actually need to know.
The central concept here is risk-based pricing — the idea that your premium should reflect how likely you are to make a claim. Insurers use dozens of variables to calculate that risk, and annual kilometres is one of them. If you drive less, you pose less risk, but many polices do not automatically discount for it unless you ask. That is where the usage-based insurance model comes in, and it is worth understanding before you renew.
What limited use actually costs you under a standard policy
The numbers matter most at the point where the premium starts to approach the value of the car itself. If your car is worth $8,000 and you are paying $1,560 a year for comprehensive cover, you are effectively paying nearly 20% of the car’s value every year just to insure it. Over three years, that is more than the car is worth. The research backs this up: yourfinanceguide.com.au recommends comprehensive only if your vehicle is worth more than $5,000–$10,000, while Mozo puts the threshold at $10,000.
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| Cover type | What it covers for your car | Typical premium vs comprehensive | Best for vehicle value |
|---|---|---|---|
| Comprehensive | Accident, theft, fire, storm, vandalism — your car and others’ property | 100% (baseline) | Over $10,000 |
| Third party fire and theft | Fire and theft of your car; damage you cause to others | 40–60% of comprehensive | $5,000 – $10,000 |
| Third party property | Damage you cause to others’ cars and property only | Usually under 40% of comprehensive | Under $5,000 |
| CTP (compulsory third party) | Medical costs of people you injure — no vehicle damage | Included in registration; varies by state | Mandatory for all |
The premium gap between comprehensive and third party fire and theft is substantial — typically 40–60% of the comprehensive cost. For a limited-use driver with a $7,000 car, that could mean saving $600–$900 a year by dropping down a cover level. The trade-off is clear: you lose cover for accidental damage to your own car, but if that car is worth less than what you would pay in premiums over a few years, you are financially better off self-insuring that risk. What I tend to notice is that people rarely run the numbers on their own vehicle’s depreciated value — they just renew the same comprehensive policy year after year without checking whether it still makes sense.
Mistakes that cost limited-use drivers the most
Renewing without requoting
The loyalty tax is real. ASIC’s March 2026 review found that Australian car insurers charge existing customers an average of $312 more per year than new customers for the exact same policy. That is a direct $312 loss every year from simply not comparing. The fix takes ten minutes: go to your insurer’s website, fill out a new-customer quote with your own details, and see what it shows. If it is lower than your renewal, call them and ask for the new-customer price. If they refuse, switch.
Choosing the wrong excess for your actual driving
A limited-use driver who only does 5,000 km a year has a much lower chance of an at-fault accident than a daily commuter. That makes a high excess a much more attractive option. Standard excesses run from $500 to $2,000, and raising yours can cut premiums by 10–20%. On a $1,560 policy, that is $156–$312 saved per year. The catch: you need to actually have that $2,000 available if you do have a claim. If you do not have the cash, the higher excess is a gamble you cannot afford to lose.
Ignoring the pay-per-kilometre option
Pay-per-kilometre insurance is a genuine alternative for low-mileage drivers, but it is still underused. These policies charge a lower base rate plus a per-kilometre fee, meaning your total premium scales with how much you actually drive. If you cover under 10,000 km a year, the savings can be substantial. The catch: you need to install a telematics device or use a smartphone app to track your mileage, which some drivers find intrusive. But the research shows that low-mileage drivers can qualify for specific discounts that standard policies do not advertise.
Not reading the PDS for limited-use restrictions
Some policies limit how many kilometres you can drive before they penalise you or void cover. If you underestimate your annual mileage and exceed the limit, your claim could be reduced or denied. The Product Disclosure Statement is the only place this detail lives. Download it from the insurer’s website before buying — it takes five minutes and can save you from a nasty surprise. Pay particular attention to the definitions section and the exclusions section.
How to set up the right policy for a limited-use vehicle
Assess the car’s actual value — not what you paid for it
If you bought the car five years ago for $25,000 and it is now worth $8,000, the old purchase price is irrelevant. Insurers will pay out either agreed value or market value (check your PDS), and on an older car, market value is almost always lower. Get a current valuation from Redbook or a similar service before you choose your cover level. If the car is worth under $10,000, third party fire and theft or even third party property is likely the better financial move. For a car worth under $5,000, you may be better off with just CTP and a savings buffer for repairs.
Choose an excess you can actually pay
This is the one decision that affects both your premium and your out-of-pocket risk. The research shows that a voluntary excess of $1,000–$2,000 is the sweet spot for most limited-use drivers — it cuts the premium meaningfully without being impossible to find if you need to claim. Do not go above $2,000 unless you have a separate emergency fund specifically for that purpose. And remember: if the repair cost is close to your excess, it is often better not to claim at all, because your premium will rise at renewal.
Compare quotes annually — and use the right details
Get at least three quotes each year, using the same driver and vehicle details. The research shows that premiums vary significantly between insurers for the same risk profile. Include your actual annual kilometres in the quote form — do not guess high. If you drive 6,000 km a year, put that number in. Some insurers offer explicit low-mileage discounts, and you will not get them if you enter a higher figure. Using a comparison site can speed this up, but always read the PDS of the shortlisted policies before buying.
Consider usage-based insurance for very low mileage
If you drive under 10,000 km a year, pay-per-kilometre policies are worth a serious look. They charge a lower fixed daily or monthly rate plus a small fee per kilometre driven. For someone driving 5,000 km a year, the total can be significantly less than a standard comprehensive policy. The trade-off is that you give up some privacy — the insurer tracks your mileage via a device or app. If that bothers you, stick with a standard policy but make sure you are getting the low-mileage discount. The usage-based insurance model is growing in Australia, and it is worth monitoring as more insurers offer it.
If you decide to stick with a standard comprehensive policy, consider picking up a simple notebook for tracking renewal dates and quotes so you never miss the annual comparison window. Keeping a paper record of each year’s quotes and premiums makes it much harder for the loyalty tax to slip past unnoticed.
Frequently asked questions about limited-use car insurance
Will my claim be denied if I drive more than I estimated? ▾
Can I get a limited-use discount on a classic or vintage car? ▾
Is pay-per-kilometre insurance cheaper than third party fire and theft? ▾
What happens if I only drive my car on weekends? ▾
Does a higher excess affect my no-claim bonus? ▾
Can I be on a family policy if I drive less than the main driver? ▾
What the research says about the direction of car insurance pricing
The 4.4% annual premium increase is being driven by rising repair costs, parts shortages, and more frequent weather-related claims. That trend is not going to reverse any time soon. For limited-use drivers, the implication is clear: standard comprehensive policies will keep getting more expensive, making the case for dropping down a cover level or switching to usage-based pricing even stronger. The voluntary safe-driving discounts available from some insurers are another avenue worth exploring, especially if you have a clean record. The research also confirms that the AFCA dispute process is a real backstop — over 32,000 general insurance complaints were resolved in 2024-25, with 38% decided in favour of the complainant. If an insurer treats you unfairly, you have a free and effective route to challenge them.
Remember: this article is general information only. For advice on your specific situation, speak to a qualified professional.
If this was useful, you might also want to read The Ultimate Car Insurance Comparison Guide for Aussie Families.
Sources and Further Reading
Understanding car insurance add-ons in Australia — A closer look at optional extras like hire car, roadside assistance, and choice of repairer, and whether they are worth the cost for limited-use drivers.
Mozo (2026). Limited Use Car Insurance Tips For Australia. 🔗
Your Finance Guide (2026). Car Insurance at a Glance. 🔗
Wealth Herd (2026). Car Insurance Australia 2026 Comparison. 🔗
