Insurance is all about protecting yourself, your family and the things you own in case something goes wrong. It's the best way of protecting your money and it pays off when you need it most.
Insurance can protect you, and it's not that complicated.
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The bottom line
- Get more than one quote and compare premiums and benefits.
- A policy with an excess may have cheaper premiums but don't take an excess larger than you would be comfortable paying.
- Keep your policies up-to-date.
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How does insurance work?
Insurance can protect you from financial loss. If your DVD player is stolen, for example, your insurer may pay the cost of replacing it if it is covered by your home and contents insurance.
You buy insurance by paying a premium for a policy. You sign a contract with the insurer, who agrees to pay you a specified amount of compensation if the events covered by the contract happen. You can agree to pay part of any claim yourself - this is called the excess.
It can pay to have insurance but it's important to remember that an insurance policy is not a blank cheque. You are only covered for the losses specified in the contract. Your insurer will only pay the compensation set out in the contract. You cannot claim for things that your policy does not cover. If you buy insurance, make sure it covers the things you need to protect and will pay enough compensation for your needs.
What insurance is available?
You can buy different types of insurance to cover the things you own, your health, your income and your life. A lot of products of each type are available. They offer different levels of cover and prices vary widely. It pays to shop around not only for price but the benefit and cover you need.
You must have compulsory personal injury insurance for your car, and you can also take out third party property or comprehensive car insurance. Home and contents insurance can cover your possessions and help you repair or rebuild if your house or unit is damaged or destroyed. Travel insurance can protect you if your possessions are lost or stolen while you're on holiday. It can also give you health and accident cover when travelling.
Private health insurance can cover some or all of the costs of going to a private hospital. You can also cover visits to physiotherapists, dentists, opticians and some other health services not provided by doctors.
Life insurance can protect your family if you die. You can also get cover for a specific life threatening event, for example, a heart attack or stroke. It is also possible to get income protection insurance to protect your livelihood if you are injured or disabled and cannot work. If you have superannuation, your fund may offer some life insurance and income protection cover. You can buy additional insurance from some superannuation funds or other insurers if you want more cover than your superannuation provides.
Shop around for a good deal
It pays to shop around for insurance. You can compare premiums, excesses and details of exactly what is covered in the policy and what you have to do to make a claim.
Different policies may have different terms and conditions and different premiums and excesses. For example, when you compare two home and contents policies, you may find that one has a higher premium but a lower excess while the other has a lower premium but a higher excess.
When shopping around for an insurance policy, it's important to check exactly what the policy does and does not cover. Most insurance policies will not cover you for every possible loss. The things or events a policy will not cover are called exclusions. Every policy is different. It's important to understand the exclusions and find a policy that gives you the cover you need.
You can organise insurance through an insurance company, an authorised insurance agent, insurance broker or financial planner. It's important to do your homework and ask questions. With so many different insurers and policies on offer it is important to work out what's best for you. See Getting information and advice.
Be careful not to take shortcuts when you get insurance. Read everything you can about your policies before you sign the contracts. It's as important to make sure you have enough cover as it is to get a good price. You can lose a lot of money if you find your insurance doesn't cover what you thought it did.
Have enough cover
Deciding how much insurance you need is one of the most important steps in protecting your wealth and assets.
If you are considering home and contents insurance, don't just think about what you might lose in a burglary. What would happen if your house burnt down? Would you have enough insurance to replace everything? You might think this will never happen but every time there is a major bushfire or flood in Australia, a lot of people find they cannot rebuild because they are underinsured. It pays to be prepared for the worst and have enough cover. Take the time to get an accurate estimate of the value of your possessions. Ask a builder what your home would cost to rebuild if it were destroyed.
If you are going to take out health insurance, find a policy that is tailored for your stage in life. If you want life insurance, try to estimate how much money your family might need to live on if you die or have to stop working.
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Make it happen
- Take a walk around your home and list your contents and their value. If you have access to a video camera, record the contents, or you could take photographs of valuable items.
- Keep receipts as proof of ownership and value. They will prove very useful if you need to lodge a claim. It is also a good idea to keep a record of the serial numbers of items like televisions.
- As well as buying an amount of cover for all your home contents, you may be able to insure specific items such as jewellery. If you do, details of the items may have to be listed in your policy. Ask your insurer if you are not sure.
- You may be able to minimise the cost of your policy by reducing the risk of loss. For example, your insurer may offer a cheaper premium if you install a burglar alarm or smoke alarms in your home. In some situations, your insurer may not agree to cover you unless basic security items such as window locks are installed.
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Understand your policies
To understand an insurance policy, it is very important that you read and understand the policy document and the product disclosure statement. Your insurer must provide these by law. They are key documents. It pays to keep them in a safe place.
The policy document has to tell you:
- the premium paid
- the amount of cover
- the location and a description of what you are insuring (e.g. for home insurance, your home address or for car insurance, the make, model and identifying numbers of your car)
- optional parts of the available cover you have taken up (e.g. for home insurance, valuables as well as home contents)
- any special restrictions on the cover provided (e.g. for car insurance, that your car is only insured for drivers over 25 years of age).
The product disclosure statement has to tell you:
- the contact details of the insurance company issuing the policy
- the significant features of the insurance policy such as exclusions
- how the premium is calculated
- the benefits and risks of having the policy
- information about complaints handling and the cooling-off period.
The law requires a product disclosure statement for other kinds of financial products such as investment and superannuation products.
The law also requires a cooling-off period for many types of insurance and other financial products. This means that if you change your mind about an insurance policy you have bought, you will get your money back if you tell your insurer within the required time.
Provide full and accurate information
The most important thing to remember about any kind of insurance is to be completely honest with your insurer about your circumstances when applying for a policy. You need to answer all the questions in the application correctly and if you are not sure, you should say so, rather than guessing. If you don't, then you may have misled the insurer about the risk they are accepting and they may be able to refuse any claim you make under the policy.
Keep your insurance up-to-date
It is just as important when you renew an insurance policy to tell your insurer if your circumstances have changed.
From new possessions to full-scale renovations, the value of your home and contents is constantly changing. You may buy a new car, change your mind about an overseas trip or your health needs may change. Whether it's a small or large change, make sure your insurance policy is up-to-date.
As your circumstances change, you may want to change the amount you have insured or the level of excess. These decisions can have an effect on your premium. It can pay to look at what other insurers are offering when you are preparing to renew to see if you can get a better deal.
More information
There's a lot more that you can find out about insurance. See More information.