Income Insurance Australia :: Articles

Insurance: The Absolute Basics

What are the basic principles of insurance and why is it important?

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

The information on this website is general in nature and does not take into account your objectives, financial situation, or needs. Consider seeking personal advice from a licensed adviser before acting on any information.


Life Insurance Articles

Navigating Pre-existing Conditions in Income Protection Insurance
Navigating Pre-existing Conditions in Income Protection Insurance
Income protection insurance is a safety net that many Australians rely on to secure their financial future in the event of illness or injury preventing them from working. It's a type of policy that provides a replacement income if you are unable to earn your regular income due to a health-related absence from the workplace. - read more
Income Protection Insurance vs. Total Permanent Disability: What’s the Difference?
Income Protection Insurance vs. Total Permanent Disability: What’s the Difference?
When life throws unexpected challenges your way, being financially prepared can make all the difference. This is where Income Protection Insurance and Total Permanent Disability (TPD) Insurance come into play. These two types of insurance provide a crucial safety net, ensuring that you and your family remain financially stable even when you're unable to work due to illness or injury. - read more
The Essential Role of Income Insurance in Your Financial Plan
The Essential Role of Income Insurance in Your Financial Plan
An income insurance policy, often referred to as income protection insurance, is a financial safety net designed to provide you with a steady income stream if you're unable to work due to illness or injury. It ensures that you can still support yourself and your family, even when unforeseen medical conditions prevent you from earning a salary. This policy typically covers a percentage of your pre-tax income, helping to alleviate the financial burden during recovery periods. - read more
Breaking Down Common Income Protection Insurance Terms
Breaking Down Common Income Protection Insurance Terms
Income protection insurance is designed to provide financial support if you're unable to work due to illness or injury. It aims to replace a portion of your income during such times, ensuring you can maintain your lifestyle and meet financial obligations. - read more
Understanding Income Protection Insurance: A Comprehensive Guide for Australians
Understanding Income Protection Insurance: A Comprehensive Guide for Australians
Income protection insurance is an essential component of financial security for Australians, designed to provide a safety net by replacing a portion of your income if you're unable to work due to illness or injury. Despite its critical role in safeguarding livelihoods, it's often overlooked in personal financial planning. - read more

Insurance News

AFCA Urges Insurance Industry to Improve Premium Explanations to Reduce Disputes
AFCA Urges Insurance Industry to Improve Premium Explanations to Reduce Disputes
23 Oct 2025: Paige Estritori
The Australian Financial Complaints Authority (AFCA) is calling on insurers to enhance their communication regarding premium increases to help resolve disputes more effectively and fairly. The authority suggests that offering flexible payment options could also aid in managing disputes. - read more
TAL's $4.7 Billion Payout Reflects Rising Insurance Claims in Australia
TAL's $4.7 Billion Payout Reflects Rising Insurance Claims in Australia
23 Oct 2025: Paige Estritori
Leading Australian life insurer TAL has reported a substantial $4.7 billion in life insurance claims paid over the 12 months ending March 31, 2025. This figure underscores the significant role life insurers play in providing financial support to Australians during challenging times. - read more
Encompass Protection Recognized as Best Income Protection Provider in 2025
Encompass Protection Recognized as Best Income Protection Provider in 2025
23 Oct 2025: Paige Estritori
Encompass Protection has been honored with the Income Protection Insurance Award at the 2025 Money Magazine Life Insurance Awards. This accolade reflects the company's commitment to providing exceptional coverage and service to Australians seeking income protection solutions. - read more
Marinex Underwriting: A New Era in Australian Marine Insurance
Marinex Underwriting: A New Era in Australian Marine Insurance
23 Oct 2025: Paige Estritori
In a significant development for Australia's marine insurance sector, Rhodian Group has unveiled its latest venture, Marinex Underwriting. This new agency is set to provide specialised marine insurance products tailored to the unique needs of the Australian market. - read more
Network Marine Insurance Strengthens Ties with Marina Industries Association
Network Marine Insurance Strengthens Ties with Marina Industries Association
23 Oct 2025: Paige Estritori
Network Marine Insurance has recently elevated its commitment to Australia's marina industry by becoming a Bronze Sponsor of the Marina Industries Association (MIA). This partnership underscores the company's dedication to supporting the growth and sustainability of marinas across the nation. - read more

Start Here !
disability protection
Apply now for your free Insurance assessment and price comparisons!

Start Here

Monthly Income Benefit:
Postcode: