Consumer Insurance
Your home and contents
Following is a list of the most common types of personal or domestic insurance. Policies vary so it's always wise to consult a broker before deciding on your cover.
For many people, the home is the biggest and most important investment they will ever make. Not only does it represent a huge financial investment, it also carries great emotional value. It therefore makes sense to insure it properly to prevent an unexpected and unavoidable financial disaster caused by such calamities as fire, storm or burglary. In Australia an estimated 31% of homes are uninsured. Of those with insurance, 43% are severely underinsured. The tragedy is that most people who have insufficient cover don't realise this.
If you work from home, you may need separate or special cover, for contents used for business purposes and for public liability. These are not usually covered by home policies.
There are three main types of home insurance:
Building Insurance
Most policies cover the main dwelling, garage and other outbuildings, walls, gates, fences, drives, verandas, patios, in-ground swimming pools and landlord's fittings and fixtures. Check you have reinstatement and replacement cover, which is for all of the above structural items. Also check whether you have “accidental damage” policy cover, or a less expensive “defined events” policy. Accidental damage cover is, logically, more expensive because it covers more.
Also, check the policy allows for the full cost of rebuilding. There are also variations in things like depreciation costs, temporary accommodation, site clearing, etc.
Contents Insurance
The cost of replacing furniture, carpets, personal possessions, etc, can be substantial, whether your home is big or small, owned or rented. The cost of contents insurance by comparison is trivial - but policies vary greatly.
For example, some policies provide complete replacement cost as new for all contents. Others include some contribution to the claim by you, depending on the age of the items.
Items like artworks, antiques, collections and similar items have special claim limits on standard policies unless otherwise arranged. Then there is personal valuables insurance which covers personal possessions away from home - although there is usually a limit for unspecified items.
It is very important to separately value and list expensive personal items such as jewellery and furs. And if you’re travelling overseas you should ensure you have either permanent or temporary travel insurance to cover baggage, clothing, etc while you’re outside Australia.
Personal Liability
Most contents insurance automatically includes personal liability insurance. This covers you should another person be injured or have any of their property damaged while on your property - for example if someone in your house falls down the stairs. It does not cover people who work in your home, such as cleaners or contractors.
Your Car
Compulsory third party (injury) cover is compulsory if you own a car. However, broader cover can prove indispensable – as anyone who has ever had an accident will know.
Because there are so many companies and policies available, it is important you have a good understanding of the basics before you make a decision. Prices vary, and detail may vary from one to another, so your broker can provide a lot of help here.
There are four basic cover options:
Compulsory third party (injury) – insures against claims made against you for personal injuries and covers legal costs arising out of the use of your car. Commonly referred to CTP, you must obtain this insurance to register your car.
Third Party Property Damage – insures your liability for damage to another vehicle or to the property of others (a fence, for example). It covers both the damage and your legal defence. It does not include repairs to your own car if you caused an accident. If you decide you don't want or can't afford comprehensive insurance (see below), third party property is undoubtedly vital insurance to have, because a big claim could easily bankrupt you.
Third Party, Fire and Theft - insures against the events in the former category as well as fire and theft. It also insures against damage caused while the car was stolen.
Comprehensive - insures against all of the above plus damage caused by your own car by you, in an accident. If you're buying a car on an installment basis, this cover will usually be insisted upon by the finance company.
Useful information
Before buying car insurance, here is some useful information that will assist you:
Excess or Deductible
These terms mean the same thing - that you accept part of the risk yourself. Practically speaking, this means that in event of a claim, you pay a certain amount. However if the accident was not your fault, the insurer may waive your contribution or return it to you. Some insurers make the excess compulsory, while others allow policyholders to use it to reduce their annual premiums.
No Claim Bonus
A feature of comprehensive policies, this means you are rewarded on an ascending scale for each successive year without a claim. If you do claim, your bonus is reduced, although if the accident is not your fault, certain insurers will leave your bonus intact. Once you've reached the highest scale, some insurers allow you to "protect" your bonus by paying an extra premium, so you're not penalised for just one claim.
Extended Third Party Property Damage
Covers you in the event of an accident that's not your fault where the person who caused the accident has no insurance. It's not offered by all insurers and it usually has a limit of a few thousand dollars.
Market Value or Agreed Market Value
Most policies provide settlement for a total loss claim (if the car is stolen or irredeemably damaged) on a "market value" basis. This means you are entitled to an amount representing the cost of a vehicle of similar make, model, age and condition. Or, if the vehicle is less than one year old, many insurers will replace it with a new vehicle of the same make and model you lost.
An Agreed Market Value cover is especially useful for classic or vintage cars - where the insurer agrees to pay a specified amount in the event of a total loss.
Premium Rating
The premium, or cost of the insurance, is based on such factors as type of vehicle, age of the driver, driving experience, occupation, location and intended use of the vehicle. Modifications to a vehicle must be disclosed, otherwise future claims may be refused.
Making a claim
In an accident you should do two things. Firstly, ensure you comply with all legal requirements (e.g. notify the police, exchange details with the other driver, etc). Secondly, notify your insurance broker as soon as possible, preferably within 24 hours. He or she will then advise you on the steps you need to take to make a claim.
Life insurance
There are several different types of life insurance. Some are investment-type funds where you contribute over a certain time and get back your investment plus interest earnings at the maturity date.
Others are designed to cover risk - things that could happen to you. This type of insurance can provide protection for you and your family should something unforeseen and unfortunate happen.
Not all brokers deal with life insurance. If you want to find a specialist in this area, visit www.needabroker.com.au and select "Life" in the specialties list. Professional advice can help because premium costs vary considerably as do the various policies and definitions, exclusions and benefits. It pays to know what you're covered for when it comes to something as important as your life.
Income Protection Or Disability Insurance
Your earning capacity is usually your greatest asset, but not everyone thinks to insure it. This cover can insure 75% of your normal income if you are prevented from working through sickness or accident. It's particularly suitable for self-employed people, and full-time employees accidents outside working hours and sickness.
There are different policies available with different definitions of disability, some have time limits. Some include accident but not sickness and some are not guaranteed renewable when you get to a certain age. There are also different definitions of work. For example, some provide cover if you can no longer do your usual job, while others only provide cover if you are unable to do work of any kind. Some are indexed to inflation, others are not and so on.
Trauma Insurance
Unlike income protection, trauma insurance provides a lump sum when you are diagnosed with one of several specified life-threatening illnesses such as heart attack, stroke, cancer or one of the other sicknesses listed on the policy.
Some features to watch out for are: (a) the sicknesses and injuries specified vary from policy to policy; and (b) not all illnesses are covered, usually only the major terminal ones.
This cover is not a replacement for income protection, it should be viewed as an additional extra to be used to pay off debts and for rehabilitation purposes.
Term Life Insurance Or Whole Of Life Cover
This insurance pays your dependents a lump sum if you die.
Term life insurance is renewed each year and tends to increase in price as you age. Whole-of-life cover is based on level premiums throughout but is more expensive because it includes a form of compulsory saving in the premium.
Some insurers don't guarantee future premium rates and in some cases, the first year's premium may be discounted significantly.
Total And Permanent Disability Insurance
Also known as TPD, this provides a lump sum only if you are totally and permanently disabled before retirement. Because of this, it is no replacement for income protection. It is often sold as an add-on to another policy such as personal accident or provided as an extra benefit under a superannuation scheme.
Still, the conditions vary from policy to policy. Some definitions of disability are more restrictive than others, the payment is not always provided in a lump sum and sometimes comes in installments over several years. Also, life cover usually ceases if a lump sum is paid out, leaving no money for dependents.