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The world of insurance can be tricky and a bit overwhelming. 

But don’t fret. It’s simpler than you think. 

The essence of insurance is to give you peace of mind in light of an unforeseen disaster. Sadly, most people don’t think of insurance until they're in a situation that begs for it. 

Thinking of buying insurance but don't know where to start? Don’t worry; we’re here to help. 

Understanding the ins and outs of insurance shouldn’t be overwhelming. This blog post will demystify the insurance world and discuss some essential insurance to consider. 

Ready to make more informed decisions? Then keep reading.

 

Insurance 101

Insurance is a contract between an insurer and a policyholder. 

The individual (policyholder) pays a premium to the insurer in exchange for coverage of specific future events. 

This contract obliges the insurer to compensate the policyholder should a catastrophic event like death, fire, accident, theft or sickness happen. 

The insurer compensates the policyholder by:

• Paying money directly to the policyholder or their beneficiary.
• Bearing the costs of repair or replacement of a particular property.

Sounds simple, right? It actually is.

Insurance serves as a safety net for unfortunate events that may arise in your life and cost you dearly. It simply takes the financial burden off you. 

 

The Most Important Types of Insurance

There are several insurance policies to safeguard you and your assets from unpredictable risks. But before choosing any insurance, ensure you understand each policy and its benefits.

Here are some important ones to consider.

Business Insurance

The business world is full of uncertainties. 

Even if your business has done well for over a decade, it's still not immune to certain business drawbacks. Unpredictable events could lead your business into financial hardship and disrupt your entire operations.

Business insurance protects your organisation, employees, income, etc., from unforeseen events that may cash-strap your business. It's essential for any business obstacle that comes your way.

Business insurance can cover the costs of repair (or replacement) of damaged physical assets like office equipment, commercial property, vehicles, etc. It can also cover lawyer fees should your business be involved in a legal battle. There are many types of business insurance, so be sure to do your research in that arena.

Auto Insurance

Auto insurance is a must if you own a car and drive regularly. And especially in Australia, where the popular mode of travel is by car, getting car insurance is a no-brainer. 

If you're involved in a car accident without having any car insurance in place, you'd be responsible for covering all costs associated with the accident. That could be thousands of dollars in medical bills, lost wages, and many more. 

So, why not have car insurance in place? 

There are four main types of auto insurance. These include

• Comprehensive Cover
• Third-Party Fire and Theft
• Third-Party Property Damage
• Compulsory Third Party Insurance (CTP)

We'll briefly explain each of them below.

Comprehensive Cover 

A comprehensive car insurance policy is the ultimate cover. 

It insures your car against theft, fire, accidents and emergency repairs, regardless of who is responsible for the incident. 

This means if you're at fault in a car accident (or not), your comprehensive insurance will cover the costs of repair (or replacement) of your vehicle and any other vehicle involved. However, this greatly depends on the extent of your coverage. 

It also means this policy will cover the repair or replacement costs if your vehicle is stolen or vandalised.

Comprehensive car insurance has the highest coverage and is usually the most expensive.

Third-Party Fire and Theft

Third-Party Fire and Theft Insurance covers any damage you cause to another person's property or vehicle while you're driving. It also compensates you for any loss or damage to your car.

Third-Party Property Damage

This insurance covers the damage you cause to someone else's property or vehicle but provides zero coverage for your car. 

This insurance covers the damage you cause to someone else's property or vehicle but provides zero coverage for your car. 

Here's how it works. 

Assuming you drive wrongly and damage another person's car or property, this insurance will only cover the other person's car. You'll have to repair or replace your car yourself.

Compulsory Third Party Insurance (CTP)

CTP covers all deaths and injuries resulting from a car accident you're responsible for. CTP insurance covers no damages on your behalf if you're also injured in the accident. The coverage is only for the other person affected.

CTP insurance is mandatory in Australia and is usually part of your car registration.

Life Insurance

Life insurance is designed to reimburse money to your loved ones in the event of your death. 

This insurance is crucial if your entire family depends on your salary alone. Going for a policy that pays out 8 to 10 times your yearly salary is advisable. 

Life insurance policy has two types:

• Term life insurance
• Permanent life insurance

Term life insurance is for a specific duration, usually between 10, 20, to 30 years. This is the most affordable life insurance, and it can cover the entirety of your children's schooling years.  

On the other hand, permanent life insurance offers lifelong protection. Although, some life insurance policies can still assist even while you're alive. They're known as death benefits, and they render financial assistance if you are diagnosed with a terminal disease.

Health Insurance

Health insurance covers the costs associated with treating injuries or terminal illnesses. In Australia, private health insurance is the most popular. 

Private health insurance offers:

• Ambulance cover: This is the most basic cover. It covers the transportation costs of an ambulance in the case of an emergency. However, some state governments cover ambulance costs for free. 
• Hospital cover: This insurance covers all the costs of staying and receiving treatments in a hospital. Although, the cost covered depends on the amount of coverage you have. Hospital cover also allows you to pick any doctor of your choice, and decide if you want to be treated at a private or public hospital. 
• Extras cover: This is also known as general or ancillary cover. It covers all costs of treatment provided by ancillary health service providers. 

This includes services like

• Physiotherapy
• Optical treatment
• Dental treatment
• Prostheses
• Chiropractic service

… and many more.

Generally, the more services covered, the more premium you'll pay. 

• Combined Cover: As the name suggests, this cover combines all other categories. This includes ambulance cover, hospital cover, extras cover, and any other specific coverage you may want. 

Also, there are two general categories of insurance:

• Health insurance offered through an employer
• Health insurance purchased independently 

So, if your job offers health insurance packages, take it with arms wide open unless you can easily afford independent health insurance. 

 

Finding the Right Type of Insurance

Don’t know the best insurance to opt for? Answer these three questions:

• What is important to you? 
• Is there anyone that can be affected by your death?
• What do you value most in life?
• Who (or what) do you need to protect the most? 

These questions will help you identify the potential risks you're exposed to, and what you should protect the most. 

After identifying these risks, determine how much protection you actually need. After all, you don't want to buy more insurance than you need. 

 

Bottom Line

Insurance gives you a backup against financial hardship and catastrophic events. It also helps you prepare for the future.

When it comes to the bigger purchases in life, sometimes it’s best to enlist the experts. At Altus, we pride ourselves in giving expert financial advice no matter your current stage in life. Contact us today to get expert advice on the best insurance for you.