Insurance is a plan for when things go wrong. If something happens that your insurance covers, it helps you pay for the cost of repairing or replacing the insured item.
Insurance can be tricky for everyone, so read on to learn more about how it works.
What is insurance?
Insurance is a plan that can be used if something happens to an item that’s important to you. General insurance includes cover for physical things like your house, car, boat or TV.
Insurance can help to replace or repair something that gets damaged in an accident, or something else outside your control.
Some insurance covers a lot of things that can go wrong, but others only cover a few specific things. All insurance has rules about when you can use your plan. It’s important to check these rules before you decide to take out insurance – to make sure it will cover you for what you need.
You make regular payments (called ‘premiums’) to an insurer to keep your plan in place. If you don’t pay the premium when it’s due, your insurance could be cancelled.
Not all insurance works the same. Find out more about how life insurance and health insurance work.
Get help with insurance if you need it
Insurance words and what they mean
There are some common words used in insurance that you will see often. Some of them include:
Policy
The agreement between you and the insurance company. This includes the Product Disclosure Statement, and the Policy Schedule or Certificate of Insurance.
Product Disclosure Statement
A guide that summarises the insurance policy, how it works, what is covered and what isn’t, and any limits on the cover.
Premium
The payments you make to keep your insurance, either in one lump sum or in monthly or fortnightly instalments.
Claim
Asking the insurer to pay for something your policy covers.
Asset
The item that’s important to you and you want to protect. For example, your car, your boat, your house (if you own your home), or the things inside your house (the ‘contents’)
Covered event/s
The situation (or usually a range of situations) that are covered by your insurance and you can claim for. For example, if your car is stolen, or a flood ruins your house or the things inside.
Excess
The amount that you have to pay when you make a claim (and the insurer covers the rest). There can be different excess amounts for some situations.
Exclusion
Something the insurance policy does not cover.
Inclusion
Something the insurance policy does cover.
Renewal
When your insurance policy finishes, your insurer will usually contact you to ask if you’d like it to continue.
How to decide if you need insurance
Not everyone needs or should have insurance, so it’s important to weigh up if it’s right for you.
It’s important to ask yourself some questions.
Can I get insurance, and can I afford it?
Insurers can decide not to offer insurance to people, and the cost of your premium will be different based on individual circumstances.
Is it worth getting insurance?
If the item is old, not worth very much, or easily replaced, you may not need it.
Are there other ways I could manage without having insurance?
- Could you stay with family if something happened to your house?
- Could you walk places if something happened to your car?
- If the item was damaged, could you afford to repair or replace the item cheaper than the cost of an insurance premium or any excess payable?
Would insurance cover me for what I want it for?
- Make sure you are covered for the types of events you want cover for – if you want to be covered for accidents at home, or when other people are driving your car, you need to make sure your policy covers those events.
How much does insurance cost
The cost of insurance depends on the level of risk that things will go wrong, and how expensive it will be to fix. Insurers will think about:
- how likely you are to use your plan – this includes where you live, such as if you live somewhere with more floods, fires or even crimes. The more likely, the more your policy will cost.
- how much the insurer will have to pay if you end up claiming – if it costs them more to cover the repairs or replacement, the insurance will cost you more.
Other things that may impact the cost and if you can get insurance could be things about your personal situation. This may include if you have:
- had a lot of claims paid on other insurance policies, or a recent claim for a thing that you’re wanting to cover
- a medical condition, or be in a life stage that might make it more likely for you to be involved in an accident, for example while driving
- been in trouble with the law – you might be offered cover that is more expensive or there are limits to what you can get
How to choose insurance
It can be hard to tell if insurance will be useful or not by advertisements and sales talk. Do some research and look around at different options.
For detailed steps see how to choose insurance.
Insurance will only work well for you if it meets your needs – so it’s important to know exactly what the policy will cover and what it won’t.
Using your plan: making a claim
When something goes wrong that is covered by your policy – that’s when it’s time to think about asking your insurer about using your plan – also called ‘making a claim’.
Follow the steps on making an insurance claim.