Lesson 5.2

Insurance 101: How to choose the right insurance for you

Whether it’s to cover your car, home, or life, insurance is a key component of how we protect ourselves financially.

Of course, it doesn’t stop the bad stuff from happening. But being properly insured means you can enjoy valuable peace of mind that you can handle whatever life throws at you.

While some people may have sufficient savings or family money to rely on in challenging times, with insurance you can ensure your finances are not stretched too far by certain insurable events.

In this lesson, you will learn about the most common types of insurance and the key terms you need to understand.

Insurance jargon busted

Insurance works by people paying ‘premiums’ to an insurance company. In turn, the insurance company promises to pay out an ‘agreed sum’ to the ‘policy holder’ in the event of a ‘claimable event’.

Phew, that’s a lot of jargon. Let’s break it down.

• Policy holder: That’s you! And whomever you nominate to be covered by the insurance, such as people who regularly drive your car.
• Insurance Certificate:  When you buy insurance, you essentially buy an agreement between yourself and the insurance company. This agreement lays out the circumstances in which they will pay out money to you. So, it’s important to understand the terms of that agreement you are buying.
• Premiums: These are your regular ongoing payments to your insurer to keep your agreement valid. You can generally choose the frequency of your premium payments, such as monthly or annually.
• Sum insured: This is the amount the insurer agrees to pay you in the event of a claim.
• Claimable event: A set of circumstances outlined in your policy which the insurer agrees to cover. These could include, for example, a collision with another vehicle or a home break-in.
• Product Disclosure Statement: You will be sent a document along with your Insurance Certificate disclosing all the details of your policy. Read it carefully.
• Excess: This is a sum of money you agree to pay to the insurer in the event of a claim. The higher excess you agree to pay, the lower your ongoing premium payments.

Protect your people, pets and things

There are two main types of insurances that are relevant to consider for most people: insurance for people and things.

Protecting ‘things’ ensures you have money to replace something that might be lost or damaged. Common examples of things you can insure include:

• Car insurance: to cover repair or replacement of your vehicle (or other vehicles you may damage in the case of third-party insurance)
• Home and contents insurance: to replace damaged items in your home, including structures, fixtures and items
• Landlord insurance: owners of investment properties can take out policies to cover those properties, too

Protecting ‘people and pets’ helps you pay for required medical bills, lost income and other expenses incurred in the event a person, or pet, is injured, gets sick or dies.

Of course, people (and pets!) are irreplaceable, but consider if you need:

• Health insurance: to cover medical bills and some preventative treatments
• Pet Insurance: coverage to help reduce out-of-pocket veterinary costs
• Travel insurance: can be for both people and things, including your medical bills overseas and items you take with you that are lost or damaged (also options to cover losses from cancellations caused by certain events)
• Third-party car insurance: covers injury you cause to others in the event of a collision (and is compulsory in Australia)
• Life insurance: so that you or your family receive a payment in the event of your death
• Trauma insurance: to help cover expenses should you fall seriously ill, such as cancer, or suffer severe injury
• Total and permanent disability (TPD) insurance: to be paid should you become disabled
• Income protection: to help protect your income earning ability, should you become unable to work

Explore a range of insurance products.

3 tips to get the most out of your insurance