Life Insurance Australia :: Articles

Insurance: The Absolute Basics

What are the basic principles of insurance and why is it important?

Insurance: The Absolute Basics

The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.

Insurance has often been considered by many as a necessary evil. But for the majority of people, insurance offers real security, peace of mind and forms a fundamental platform for a more certain financial future. Understanding the basics of insurance and how it works will be enlightening for many.

What is an insurance policy?

An insurance policy is a contract that establishes a binding legal relationship that is regulated by both the common law and legislation.
In other words, in some situations the law has been derived from precedents established in courts; in other situations the contract is specifically regulated by laws passed by Parliament.
There is also regulation by independent statutory authorities.
The insurance company is known as the "insurer"; the person who holds the policy is known as the "insured".
Consumer insurance is usually either General insurance or Life insurance.

Transfer of risk

The basis for insurance is "transfer of risk".
Time for a 2nd opinion on your Home & Contents Insurance?
Image for Time for a 2nd opinion on your Home & Contents  Insurance?We now offer a nation-wide panel of specialist Household Insurance brokers ready to help you lock down the best value home and contents insurance solution - tailored to your individual needs and guaranteed to save you money!
This means that the insurer agrees to compensate you if you suffer a loss.
Without the insurance you would have to pay for that loss yourself.
Obviously this contract is made on the basis that the insurance company calculates the risk that you, or the total number of people buying insurance, will cost more in payouts than what is received in premiums.
This is determined by the use of statistics and the information you disclose on your application for insurance.

General insurance

This includes ...
Home contents.
It can either be "defined event" i.e. the policy covers loss or damage from a list of "defined" events, e.g. storm or fire; or "accidental loss or damage" i.e. all accidental loss with some exclusions.
Motor vehicle.
It can either be "comprehensive" i.e. it covers any damage to your car as well as damage to the other car or another person's property; "third party property" i.e. it covers damage caused by your car to another person's property. This type of insurance will not cover you for the cost of repairs to your own car; "third party fire and theft" i.e. it covers damage partly for damage caused by your car to another person's property, and restricted cover for damage to your car cause by theft or fire.
Public liability.
States and Territories now have laws which limit an injured person's common law rights to sue for negligence, place thresholds and caps on damages for pain and suffering, and limit the payouts for economic losses.
Travel.
Make sure the policy and the underwriter will be recognised in the countries in which you travel, otherwise you may face difficulties in receiving medical assistance.
Life insurance.
This is a contract where the insurance company is bound to pay an agreed sum on the death of the person who is insured.
Income protection.
With this type of insurance the insurer agrees to pay you a specified amount of money, usually in monthly payments, in the event that you become disabled and unable to work.
Trauma insurance
This provides a lump sum on diagnosis of one of a number medical traumas such as a heart attack, stroke and cancer.
Some life insurance policies are more in the nature of an investment product, where the company takes your premiums and invests them to add value to the policy.

Using a broker

Under the law an insurance broker must be licensed and registered by the Australian Securities Insurance Commission. This establishes standards that ensure:
* their professional identity is truthful;
* they do not try to pressure you into a policy you don't want;
* they follow certain accounting practices that protect your premiums;
* disputes will be handled in an appropriate manner.

Types of cover

Make sure you understand the types of cover that you will receive from the policy. For instance, home insurance can either be:
* defined event i.e. the policy covers loss or damage from a list of "defined" events, e.g. storm or fire;
* accidental loss or damage i.e. all accidental loss with some exclusions.
Just because a defined event is covered in your policy is not a guarantee that you will be covered no matter how (or why) the event took place.
This partly depends on the way the events are described in the policy, and any exclusions that are made in the policy regarding the circumstances of the event.
Therefore it is always important to carefully read the policy.
Accidental loss or damage policies cover all accidental losses, but it will nevertheless be subject to stated exclusions.

Published: Sunday, 1st Aug 2021
Author: Paige Estritori


Life Insurance Articles

Trauma Cover: Calculating Adequate Protection for Life's Unexpected Moments
Trauma Cover: Calculating Adequate Protection for Life's Unexpected Moments
The financial fabric of our lives consists of both planning and safeguarding against the unforeseen. Trauma cover, a lesser-known but crucial aspect of personal insurance, provides this protection by offering a lump sum payment upon diagnosis of specific serious illnesses or injuries. In the tapestry of financial planning, it acts as a vital safety net, ensuring that unexpected health crises do not lead to monetary distress. - read more
How Life Insurance Provides Financial Security for Your Loved Ones
How Life Insurance Provides Financial Security for Your Loved Ones
Life insurance is a crucial part of any comprehensive financial plan, providing peace of mind that your loved ones will be financially secure in the event of your passing. - read more
Understanding the Role of Life Insurance in Financial Security
Understanding the Role of Life Insurance in Financial Security
Life insurance can seem complex at first, but understanding the basics can help demystify this important financial product. At its core, life insurance is a contract between you and an insurer, where the insurer promises to pay a designated beneficiary a sum of money upon your passing, in exchange for premium payments. - read more
Life After You: Planning Ahead With Quality Life Insurance for Your Family
Life After You: Planning Ahead With Quality Life Insurance for Your Family
Life insurance is a fundamental component of a robust financial plan, yet its significance is often underestimated. It serves as a safety net, ensuring that your loved ones are financially secure in the event of your absence. Understanding life insurance is the first step towards safeguarding your family’s future. - read more
A Millennial's Guide to Life Insurance
A Millennial's Guide to Life Insurance
For many millennials, navigating the complexities of personal finance and future planning can feel like a bewildering journey. Among these financial responsibilities, life insurance emerges as a paramount consideration. More than just a safety net, life insurance can be the cornerstone of a sound financial strategy, providing peace of mind for both the policyholder and their loved ones. - read more

Insurance News

Significant Increase in Health Insurance Premiums Anticipated for 2026
Significant Increase in Health Insurance Premiums Anticipated for 2026
21 Jan 2026: Paige Estritori
Health insurance premiums are set to experience a substantial increase in 2026, with projections indicating a global rise of 10.3%. This marks the third consecutive year of significant hikes, following increases of 10% in 2025 and 9.5% in 2024. These figures are highlighted in WTW's 2026 Global Medical Trends report, underscoring the persistent inflationary pressures affecting insurers and employer-sponsored health plans worldwide. - read more
Private Health Insurers Under Scrutiny for Profits Amid Rising Premiums
Private Health Insurers Under Scrutiny for Profits Amid Rising Premiums
21 Jan 2026: Paige Estritori
Recent analyses have brought to light significant concerns regarding the profit margins of private health insurers in Australia, especially in the context of rising premiums. The Australia Institute has highlighted that major insurers are reporting substantial profits while simultaneously increasing premiums, a situation that has sparked criticism and calls for greater transparency within the industry. - read more
Health Minister Puts Private Health Insurers on Notice Over Pricing Practices
Health Minister Puts Private Health Insurers on Notice Over Pricing Practices
21 Jan 2026: Paige Estritori
Health Minister Mark Butler has issued a stern warning to private health insurers in Australia, cautioning them against employing underhanded tactics to increase premiums. This comes in response to findings from the Commonwealth Ombudsman, which revealed that some insurers have been closing old policies and introducing more expensive new ones, effectively circumventing regulatory limits on premium hikes. - read more
AUSactive Unveils Comprehensive Insurance Solution for Fitness Professionals
AUSactive Unveils Comprehensive Insurance Solution for Fitness Professionals
21 Jan 2026: Paige Estritori
AUSactive, Australia's leading body for the exercise and active health sector, has announced the launch of a new insurance product tailored specifically for fitness professionals. This initiative, developed in collaboration with global insurance broker Marsh, aims to provide enhanced protection while offering lower premiums compared to existing market options. - read more
Health Insurers to Include Natural Therapies in Coverage from 2026
Health Insurers to Include Natural Therapies in Coverage from 2026
21 Jan 2026: Paige Estritori
In a significant policy shift, Australian health insurers will begin offering rebates for a range of natural therapies, including Yoga, Pilates, Tai Chi, Shiatsu, Naturopathy, Western herbal medicine, and the Alexander Technique, starting early 2026. This change follows legislative amendments allowing these therapies to be covered under private health insurance for the treatment of health conditions or as part of health management programs. - read more

Start Here !
life insurance
Apply now for your free Insurance assessment and price comparisons!

Start Here

Life Cover Amount:
Postcode:

All quotes are provided free and without obligation by a Specialist from our National Broker referral panel. See our Privacy Statement for more details.


Knowledgebase
Term Life Insurance:
A form of life insurance that is a pure protection policy with no cash or maturity value which lasts for a specific length of time, called a term.