Protecting Me

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An important aspect of financial wellbeing is Protecting Yourself – reducing both the chance of things going wrong and the cost if they do. Take some time to think about any risks that you need to manage and how you can mitigate that risk through good financial practice and insurance.

    Definitions for this topic are provided by the Insurance Council of Australia. A full glossary of terms may be viewed on their website Understand Insurance

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    Managing and insuring against risk

    In your everyday life, there are inherent risks everywhere – that means that there are a range of possible outcomes for every situation.

    Decisions you make can help to reduce the chance and/or impact of something going wrong. For example, by obeying the road rules and wearing a seat belt when you drive your car, you are reducing the likelihood of an accident and injury. By paying for car insurance, you are reducing the cost to you of an accident if it did happen.

    For the big things in life –  such as your health, income, finances, identity, assets – it makes sense to protect them. You could choose to:

    • Manage the risk, that is, reduce the chance of something going wrong by making conscious decisions to, for example:
      • Set up an emergency fund to cover unexpected expenses
      • Obey road rules
      • Enjoy a balanced diet and stay physically active
      • Use strong passwords for your data and store them safely
      • Be aware of your rights as an employee
      • Be actively involved in the management of your finances
      • Check your transactions regularly.
    • Insure the risk, that is, reduce the cost of something going wrong by taking out an insurance policy to cover specific events such as,
      • Third party and comprehensive insurance for your car
      • Home and contents insurance for your home
      • Pet insurance for vet bills
      • Income protection insurance for unexpected loss of income
      • Health insurance for major medical expenses

    A combination of managing and insuring may be appropriate for some risks. You choose what works best for you based on your personal circumstances and how you could cope with each scenario.

    There may be some situations that you encounter can’t insure against, such as credit card fraud. You may not be able to prevent or insure against such incidents but there are things you can do to manage the situation in a way that minimises your loss.

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    Definitions

    Duty of disclosure

    When you apply for an insurance policy, or renew or extend your existing policy, you have to tell the insurer everything about you and your situation that is relevant to the insurer’s decision to insure you.

    Excess

    Excess (also called a deductible) is the amount of any loss or damage that you must pay before your insurance policy starts to kick in. In effect, you are accepting a small part of the financial risk yourself. Your excess is stated on your certificate of insurance. You can often negotiate a cheaper premium if you accept a higher excess.

    Insurance

    Insurance helps you to manage a risk if something happens to you or your property and helps you recover from the difficulties and financial hardship caused by unexpected events that cause injury and/or a financial loss. Your contract with the insurance company is called a policy. The insurance company who issues the policy to you promises it will compensate you under certain loss or damage circumstances as set out in the policy.

    Premium

    A premium is the amount of money you pay to your insurance company for your insurance policy.

    Product Disclosure Statement

    A Product Disclosure Statement is a document that insurance companies must give you by law, which describes in clear terms the terms and conditions of your policy. It’s important to take the time to read and understand it.

    Settlement (also known as benefit)

    This is what you receive from your insurer when your claim is agreed and processed. You may have the damage to your property repaired, or the insurer may give you the money. It may also be called a benefit or payout.

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    Insurance

    Insurance is a way to reduce the financial impact of something going wrong. The insurance company charges you a fixed amount (the premium) and promises to cover all or part of the costs of things going wrong. Sometimes, your insurance policy also includes an excess – this is an extra amount you will need to pay if something does go wrong and you need to make a claim on your insurance. Policies often include an excess as a way of making the premiums cheaper ie you pay less up front (the premium), but pay extra (the excess) only if something does go wrong.

    You need to check your insurance policies carefully to make sure you know what is covered e.g. some home owners have been caught unawares by flood damage, believing that their insurance covered this when unfortunately it didn’t. Similar to the providers of other financial services, insurance providers must provide a Product Disclosure Statement (PDS) that includes information about the product’s key features, fees, commissions, benefits, risks etc. Make sure that you check both the PDS and the detail of your policy so that you know exactly what your insurance covers.

    You can find more information to help you understand insurance and risk at KnowRisk

    Car

    Third party insurance covers damage to someone else’s property

    Comprehensive insurance covers damage to my car as well as to other people’s property

    Health

    Private health insurance provides cover for private patients in hospitals and can cover medical expenses not included in Medicare such as dental, optical, physiotherapy and chiropractic services.

    Travel

    Travel insurance provides cover for a range of things that could go wrong on a holiday such as lost items, missing luggage, flight cancellations and medical expenses.

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