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

Understanding Life Insurance: How to Determine Coverage Amounts
Understanding Life Insurance: How to Determine Coverage Amounts
Life insurance is a cornerstone of financial planning, offering peace of mind to you and security for your loved ones. It's a contract between you and an insurance company: in exchange for regular premiums, the insurer agrees to pay a sum of money to designated beneficiaries upon your passing. This vital tool ensures that your family's financial needs can be met during an incredibly difficult time. - read more
How to Prepare for a Hassle-Free Life Insurance Claim
How to Prepare for a Hassle-Free Life Insurance Claim
Being prepared when it comes to life insurance claims can make a world of difference. Proper preparation helps you prevent delays and denials, ensuring that your loved ones receive the financial support promised by your policy without unnecessary hold-ups. By paying attention to the details, you can streamline the claims process, giving you and your family peace of mind during what is already a stressful time. - 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
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

Insurance News

CHU Enhances Strata Insurance Capacity for Larger Developments
CHU Enhances Strata Insurance Capacity for Larger Developments
21 Dec 2025: Paige Estritori
CHU, Australia's leading strata insurance underwriting agency, has significantly increased its capacity to underwrite individual strata risks, now offering coverage up to $690 million. This substantial rise from the previous limit of $300 million is a strategic response to the evolving landscape of strata developments, which are becoming larger and more complex. - read more
ICA Advocates for Strata Law Reforms to Mitigate Rising Insurance Costs in Victoria
ICA Advocates for Strata Law Reforms to Mitigate Rising Insurance Costs in Victoria
21 Dec 2025: Paige Estritori
The Insurance Council of Australia (ICA) has called for significant reforms to Victoria's strata legislation, citing a direct link between inadequate governance and escalating insurance premiums for residents. With approximately one in five Victorians living in strata-titled properties, the need for effective management and oversight has become increasingly critical. - read more
Significant Reductions in Australian Construction Insurance Premiums
Significant Reductions in Australian Construction Insurance Premiums
20 Dec 2025: Paige Estritori
The Australian construction insurance market has experienced a notable shift in 2025, with premiums decreasing across various lines due to intensified competition among insurers. According to Marsh's Construction Insurance Market Update 2025, the first half of the year saw average premium reductions ranging from 5% to 15%, marking a significant departure from the upward trend observed in 2024. - read more
Elevated Construction Costs Prompt Reassessment of Insurance Strategies
Elevated Construction Costs Prompt Reassessment of Insurance Strategies
20 Dec 2025: Paige Estritori
Australia's construction sector continues to grapple with elevated cost pressures, prompting builders to reassess their insurance and risk management strategies. Gallagher reports that overall construction costs have increased by over 30%, influenced by supply chain disruptions, inflation, and labour shortages. - read more
South Australia Strengthens Homeowner Insurance Amid Rising Builder Insolvencies
South Australia Strengthens Homeowner Insurance Amid Rising Builder Insolvencies
20 Dec 2025: Paige Estritori
The South Australian Government has taken decisive action to bolster homeowner protection in response to a surge in builder insolvencies. Effective from 1 October 2025, the maximum insurance payout for homeowners will increase from $150,000 to $250,000. This measure aims to provide greater financial security to homeowners left with incomplete or defective properties due to builder failures. - 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
Elimination Period:
The time period between an injury and the receipt of benefit payments from an insurer, particularly in disability insurance.