Life Insurance Australia :: Articles

Insurance: The Absolute Basics

Insurance: The Absolute Basics

Insurance: The Absolute Basics
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

Life Events That Should Trigger a Life Insurance Review for Aussie Families Life Events That Should Trigger a Life Insurance Review for Aussie Families
Life insurance is a cornerstone of financial planning for Aussie families, offering protection and peace of mind. But what happens when the bustling flow of life brings changes? This is where a life insurance review comes into play. A life insurance review is a thorough analysis of your existing policy to ensure it aligns with your current life circumstances and financial goals. - read more
The Savvy Consumer’s Guide to Purchasing Life Insurance in Australia The Savvy Consumer’s Guide to Purchasing Life Insurance in Australia
As the landscape of finance and personal security evolves in Australia, the importance of being insured has never been more prominent. In a world of changing family dynamics, economic pressures, and higher living costs, life insurance stands as a bastion of support ensuring the well-being of loved ones in the event of unforeseen circumstances. - read more
Life Insurance and Estate Planning: What You Need to Know Life Insurance and Estate Planning: What You Need to Know
Life insurance and estate planning are critical components of financial security. They ensure that your loved ones are protected financially when you are no longer around. By understanding these tools, you can take significant steps to secure your family's future. - 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
Life Insurance Comparison: Key Questions to Ask Your Insurer Life Insurance Comparison: Key Questions to Ask Your Insurer
Life insurance is a crucial consideration for middle-aged to older Australians. It provides financial security for your loved ones in the unfortunate event of your death. Understanding the various options available is vital to making an informed decision. - read more
How to Review and Update Your Life Insurance Policy as Your Family Grows How to Review and Update Your Life Insurance Policy as Your Family Grows
Life insurance is an essential safety net for families, providing financial security when it's needed the most. As your family grows, the importance of having a well-structured life insurance policy becomes even more critical. In the busy lives we lead today, it’s easy to overlook this crucial aspect of financial planning. However, ensuring your coverage meets your family's evolving needs is vital. - read more
How Pre-Existing Conditions Influence Life Insurance Premiums How Pre-Existing Conditions Influence Life Insurance Premiums
When it comes to life insurance, a pre-existing condition refers to any medical condition or illness that you have been diagnosed with before applying for a life insurance policy. - 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
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
Top 5 Reasons to Consider Life Insurance While You're Young Top 5 Reasons to Consider Life Insurance While You're Young
When you’re young, life is all about new experiences and making plans for a promising future. While factors like travel, career, and relationships often take centre stage, one aspect often overlooked is life insurance. It might seem like something to consider later in life, but starting a policy while you're young can be a savvy financial move. - read more

Insurance News

ASIC Challenges Federal Court's 'Fair Term' Ruling ASIC Challenges Federal Court's 'Fair Term' Ruling
09 Jul 2025: Paige Estritori

The Australian Securities and Investments Commission (ASIC) is appealing a Federal Court decision regarding the wording of a 'pre-existing condition' clause in certain HCF Life insurance products. The court previously determined that while the wording had the potential to mislead consumers, it did not constitute an unfair contract term under the current laws set out in the ASIC Act 2001. - read more
ICA Advocates for Strata Law Reform in the ACT to Enhance Building Management ICA Advocates for Strata Law Reform in the ACT to Enhance Building Management
08 Jul 2025: Paige Estritori

The Insurance Council of Australia (ICA) is urging the Australian Capital Territory (ACT) to adopt strata transparency regulations, aiming to enhance oversight of building repairs and maintenance by owners’ committees. This call was made during a parliamentary inquiry, where the ICA pushed for measures akin to recent legislative changes in New South Wales. - read more
Tasmanian Government Insurance Proposal Faces Industry Backlash Tasmanian Government Insurance Proposal Faces Industry Backlash
07 Jul 2025: Paige Estritori

The Tasmanian government's recent proposal to establish a state-run insurance entity has drawn significant criticism from key players in the insurance industry. The plan, spearheaded by Premier Jeremy Rockliff, aims to expand the Motor Accidents Insurance Board into a broader service named TasInsure, offering products including home and contents insurance, small business coverage, and more. The RACT, a major player in Tasmania's insurance sector, expressed considerable concern, labelling the initiative as a simplistic answer to complex problems. - read more
Asbestos Scare Leaves Hospitality Business Uninsured Asbestos Scare Leaves Hospitality Business Uninsured
04 Jul 2025: Paige Estritori

The discovery of asbestos-contaminated mulch in a Sydney park led to the cancellation of a festival, resulting in significant financial losses for a hospitality business. Despite these setbacks, the company's claim for coverage under its business interruption (BI) policy was rejected. - read more
Landmark NSW Decision: Dog Walking Costs Covered in Car Crash Injury Claims Landmark NSW Decision: Dog Walking Costs Covered in Car Crash Injury Claims
03 Jul 2025: Paige Estritori

In a groundbreaking decision by the NSW Personal Injury Commission, an insurer has been directed to cover the costs of dog walking services for a car crash victim. The commission ruled that these services classify as domestic assistance under the state’s Motor Accident Injuries Act. This case could pave the way for broader interpretations of 'attendant care services' for claimants. - 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. We respect your privacy.

Knowledgebase
Indemnity:
A legal principle that stipulates that insurance policies should restore the insured to the financial position they were in before the loss.