6 steps to help you choose the right insurance
The contents provided on this page are for informational purposes only and do not constitute financial advice. Consider your personal circumstances and objectives before making any financial decisions.
Did you know you could once purchase Alien Abduction Insurance? This unique insurance type was offered to Americans in 1987 and sold about 100,000 policies!
While extraterrestrial kidnapping might not be on you list of concerns, taking out insurance could help you protect you and your finances in a range of everyday situations, from driving to unexpected illnesses.
If you're wondering how to make sure you're choosing the right insurance policy, keep reading because we've got tips that could help! In this article we break down:
- Why you might want to consider purchasing insurance
- Common types of insurance
- Technical insurance terms
- Things to check before taking out an insurance plan
1. Consider what you might need insurance for
Insurance is like a financial safety net for life's unexpected curveballs. Imagine your home getting hit by a natural disaster, your car being stolen, or losing your luggage overseas.
Having insurance could help prevent you from having to cash out all your money to replace or fix things that are covered by your policy.
Some additional reasons why you might consider buying insurance include:
- Compliance: Every Aussie car owner needs to have compulsory third party insurance (CTP) to drive on the roads (Forbes). Different states may have different requirements - see what auto insurance requirements exist for your state here.
- Location: If your area has a history of natural disasters, you might want to consider insurance that covers the costs and bills associated with those events.
- Assets: Don't forget about what you own. If you have a home or valuable items, you might need extra insurance to protect them. For example, if you work out at home you may consider getting contents insurance to protect your equipment.
2. Understand common types of insurance
Life insurance can provide financial protection to your family in case of your death or terminal illness. If you are the main financial caregiver It ensure your loved ones are taken care of when you can no longer provide for them.
What does it cover?
Life insurance covers the financial needs of your loved ones including funeral expenses, paying off debts, and maintaining their standard of living. For extra help you can use this life insurance calculator to see how much life cover you might need.
What are different life insurance covers?
There are many types of covers included in life insurance policies such as:
- life cover
- total and permanent disability cover
- income protection
- trauma cover.
You can find out more information on each you can check out here.
While Australia’s public healthcare system, Medicare, provides basic medical coverage to all citizens and permanent residents (e.g. doctor visits, hospital stays), health insurance can give quicker access to medical services.
What does it cover?
- Hospital costs: This includes accommodation, surgery, and other in-hospital services.
- Medical costs: Covers specialist consultations and medical treatments.
- Extra services: Often includes extras like dental, optical, physiotherapy, and chiropractic care.
What are the different types of health insurance covers?
When considering private healthcare insurance, you can explore options from various insurers, including:
- Hospital treatment cover
- Extra and ambulance cover.
Car insurance, and motor vehicle insurance in general, provides financial protection against accidents and unexpected events. These might be expenses related to injuries or medical compensation.
What does it cover?
Car insurance can cover personal injury claims resulting from car accidents. It helps pay for medical expenses, rehabilitation, and compensation for lost income, disability, or death caused by the accident.
Your level of coverage depends on the type of car insurance, or other type of motor vehicle insurance, you choose.
What are the different types of car insurance covers?
There are two most common types of car or motor vehicle insurance:
- Comprehensive car insurance: Covers damage to others' property and your own vehicle from events like collisions, floods, storms, fire, and theft.
- Third party property damage: Covers the expenses for damage to the other party's vehicle, but it does not cover damage to your own vehicle.
Home insurance protects your house itself, including things like plumbing and built-in cabinets. It can also cover legal costs if someone gets hurt on your property. You could also consider contents insurance, which covers items inside your home, like furniture and TV.
What does it cover?
- Home Insurance: Provides protection from damage caused by events like fires, storms, or vandalism.
- Contents Insurance: Provides protection for your personal belongings from theft, fire, or damage.
What are the different types of home insurance covers?
- Home Building Insurance: Covers your home's structural elements like walls, roof, and permanent fixtures.
- Contents Insurance: Protects your personal items within your home.
- Combined Home and Contents Insurance: Bundles both coverages for comprehensive protection.
- Renters Insurance: For renters, it safeguards personal items, as the landlord typically covers the building.
3. Do your research about types of insurance providers?
With so many insurance companies out there, it's totally normal to feel a bit overwhelmed when you're trying to figure out where to begin. Here are some tips to get you started.
Reputation: Check for reviews or ask around to friends and families. Make sure the company is transparent about any potential risks.
Be sure to check the definitions provided by insurance companies. For instance, if you live in an area prone to flooding, it's important to understand exactly how the insurance company defines a 'flood.' Similarly, some insurers may only provide compensation for bushfires if your home was directly affected by flames.
Financial stability: How much can you afford to pay for insurance each month? And how much are you willing to pay out of your own pocket if something happens and you need to make a claim.TIP: If you would like some help with budgeting, to access extra funds to help with any unplanned expenses, remember you could also use the Beforepay app!
Price and claims paying ability: Compare the cost of the insurance policy (premiums) with coverage it provides. Ensure that the price aligns with the value you receive.
Embargoes: An embargo means that, for a specified period, your insurance might not cover certain risks, like floods or wildfires.
It's important to check your insurance policy for embargoes, as they could leave you unprotected during crucial times, especially if you live in a high-risk area. Don't wait until disaster strikes to find out!
4. Understand different insurance terms
Before diving into the world of insurance, it's essential to familiarise yourself with some key terminology that often pops up in policies.
Here are some common terms you might find when shopping around for insurance.
An insurance claim is a formal request sent from you to the insurance company asking for a payment after a covered incident. These can include anything covered by your insurance policy like a hospital stay or natural disaster.
A premium is the amount you pay a company for an insurance cover. These can be paid weekly, fortnightly or monthly depending on your agreement. The price of this reflects both the risk associated with the person being insured and the amount of coverage you desire. It can also reflect any discounts or bonuses the insurer may offer you. (Understanding insurance)
If you’ve filed more than three claims in the last year, you’ll likely face higher premiums and it may become more difficult to get insurance coverage. (Money Crashers)
An excess also known as deductible is the amount you pay for your covered services before your insurance plan starts.
For example, if you were to fix your car bumper because of an accident, there is a certain amount you have to pay first before your insurance policy covers the remaining costs.
Generally, policies with higher premiums come with lower deductibles, while those with lower premiums tend to have deductibles. (Investopedia)
5. Determine what types of insurance you really need
Having too many insurance policies may place some financial burden on you, so it could be helpful to first determine what types of insurance and coverage you really need based on your circumstances and financial situation.
Here are some things to consider to help you strike the right balance.
- Assess your needs
Begin by evaluating your insurance needs based on your life circumstances, including your home, possessions, health, and daily activities.
- Financial preparedness
Ask yourself if you have enough savings to handle potential losses, such as rebuilding your home after a fire, replacing stolen belongings, or covering your insurance payments.
- Health and medical history
Take into account your health status and any pre-existing medical conditions when considering health insurance.
6. Review your insurance over time
Sometimes, it doesn't cross our minds to review and update our insurance policies. However, it's a crucial practice to ensure that your coverage aligns with your evolving needs.
Here are two key factors you may want to check for when reviewing your different types of insurance to determine if your insurance is still right for you, or if you need to make any changes.
Life changes: A change in your lifestyle such as income increase, starting a family or cost of living stress or simply getting older.According to HCF, reviewing your cover every two years is generally a good rule.
- Claims history: Some insurers can consider a history of making several claims as high risk, while a claim-free past might show you are good at avoiding accidents.
Many insurance firms may offer discounts for having a low number of claims, so it could help you save some extra money to check on this over time and compare your insurance with other providers.
Insurance can be a good start to help you protect your finances and your personal belongings, but there are plenty of other ways to stay ready for unexpected events.
Remember it’s important to think about what you need coverage for, get familiar with the common insurance options out there, do your homework on different insurer providers and learn the lingo so you can get the most out of your plans.
Want to know more about different types of insurance, see our article How Different Types of Insurance Works.
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