Understanding insurance, your rights and how to make claims or complaints.
In Australia, the law requires people to have at least one level of insurance on any owned motor vehicle. Other types of insurance aren’t compulsory, but it’s also common to have insurance on people’s health and homes as well.
The challenge with each form of insurance is that it comes with its own unique requirements, costs, benefits, and drawbacks. How to know what’s right for you and do you even need it? In this article, we explore the essentials.
What is insurance?
Insurance is designed to protect you, financially. If something goes wrong, it covers you so things can be repaired, replaced, or paid for. You pay for insurance with a regular fee (called a ‘premium’). When claims are made, the insurance company draws on the money paid in premiums by other insurance holders to pay your ‘benefit’.
Financial risks
There are some risks involved with insurance:
- you may end up paying too much for poor coverage.
- some insurance plans have clauses that make it difficult to access funds when you need them.
- the costs of some insurance plans may be so high that you can’t afford to keep the plan, especially for insurance on homes in areas prone to natural disasters.
What if you aren’t insured?
There are also risks involved with not having insurance on certain things. For example, if you’re in an accident and you don’t have more than the compulsory level of car insurance, you may not be able to afford the cost of damages.
How do you know what’s right for you?
Even for the best informed, insurance can be complex and confusing. And the question of how much cover is enough is complicated, in part because the answer is tailored to who you are, which includes your needs, wants and ability to pay.
Before signing up with any insurer, it’s important to ask them to explain anything that needs it in everyday language. It’s within your rights to know what to expect when you pay a premium for insurance.
Types of insurance and their pros and cons
Insurance as part of superannuation
Taking out insurance through super is common in Australia and there is a trio of insurance options you can choose from.
| Type of cover | What it’s for | |
| Life cover or death | Pays a lump sum or income stream to your beneficiaries when you die. | |
| Total and Permanent Disability (TPD) | Pays you a benefit if you become seriously disabled and are not likely to work again. | |
| Income protection or salary continuance | Pays you a regular income for a specified period if you can’t work due to temporary disability or illness. | |
The insurance options available through super are also available elsewhere. Like any financial decision, it helps to shop around first.
The problem with inactive super and insurance
One thing to watch out for is insurance on inactive superannuation accounts. If there are no contributions going into the account, the cost of the premiums will eat into the remaining balance.
How to protect your super?
There are some industry protections to help you minimise costs like unnecessary insurance premiums coming out of your account(s).
What the law says:
The law requires super funds to cancel insurance on inactive super accounts that haven’t received contributions for at least 16 months.
Some super funds:
Super funds may have their own rules that require the cancellation of insurance on super accounts where balances are too low. You’ll be notified if your life insurance plan is ending due to this.
Steps you can take:
If you have more than one superannuation fund and would like to merge them, you can do so through the MyGov website:
- go to my.gov.au
- log in or create an account
- link your myGov account to the ATO
- select ‘Super’ and then ‘Manage’
- select ‘Transfer super’ (this option will only appear if you have more than one super account)
For more on insurance through your superannuation fund, including a discussion of the pros and cons, see the Moneysmart website: Insurance through super – Moneysmart.gov.au
Car insurance
Car insurance protects you financially if your car is involved in an accident or is stolen, damaged or causes damage to other people, vehicles or property. Everyone in Australia must have a base level of car insurance by law – Compulsory Third Party.
| Type of cover | What it’s for | |
| Compulsory Third Party (or Green Slip) | Covers injuries to other people and legal costs. This type of insurance is mandatory and is included in the registration costs of vehicles in all states except NSW, where it is purchased separately. | |
| Third Party Property Damage | Covers damage to other people’s property when an accident is your fault. | |
| Third Party Property, Fire and Theft | Covers property damage and your car, if your car is stolen or damaged by fire. | |
| Comprehensive | Covers repairs to your car and repairs to other cars, even if the accident is your fault. It also covers your car if it’s stolen or damaged by fire, flood or vandalism. Comprehensive insurance is the most expensive form of insurance but offers the best cover. | |
Visit Moneysmart for more information on car insurance and making a claim.
Home and contents insurance
Home and contents insurance is cover you can take out to safeguard your property and the things in it in the case of damage or theft.
Who is it for?
It’s mainly used by people who own and live in their own homes. Renters can choose to have contents-only insurance policies, and landlords may take out ‘landlord insurance’ on top of building (or ‘home) insurance for the dwelling.
What does home and contents cover?
| Usually covered | Not usually covered |
| Damage from fire Damage from storms Damage from impacts (like falling trees) Damage from water leaksTheft | General wear and tear Deliberate neglect or damage Mould, termites or verminAsbestos |
How is the cover amount decided?
When you first take out cover, you’re asked to choose between a sum-insured or replacement cover. Sum-insured is the most common and least expensive of the two.
Sum-insured cover – an estimate of how much it would cost to rebuild your home if it was completely destroyed. Any payout value is an agreed value that you calculate yourself when signing up for the insurance.
Total replacement cover – what it would cost to repair or rebuild your home to the same standard. Any payout is calculated by the market value.
What you should know
When taking out sum-insured cover, you’re asked to value your property and the cost of repairing or replacing it if it is completely destroyed. This is the sum that the insurer is agreeing to pay out if that happens.
The issue, however, is that it can be very difficult to value everything correctly, a challenge that has been largely left to consumers to figure out on their own. Even the experts in insurance admit that they struggle to do this themselves.
Underinsurance
When the value of a property is insured for less than the value it would cost to replace or repair it, this is called being ‘underinsured’. About 23% of Australian homes are not insured at all, and ASIC says that 80% of homes are underinsured.
To avoid underinsurance, you can:
- use an online calculator to find the correct sum (contents or building)
- keep a list of your items to get a clear idea of what should be included
- check what events you’re covered for in your insurance policy
- consider a sum insured safeguard or total replacement cover.
Is it fair?
There’s also the question of equitable access for people on a low income.
As a hypothetical example:
- A person on a low income purchases a home they can afford, in a location cheaper than elsewhere, made affordable because the area is at risk of events like floods or other natural disasters.
- Insurers are reluctant to offer a good deal on insurance because of the higher likelihood that they will have to pay out to the customer in the at-risk location later.
- So the person on a low income may not be able to afford insurance to cover them if something goes wrong due to their at-risk location.
Health insurance
Private health insurance covers the cost of healthcare not covered by Medicare – which is Australia’s free public health insurance scheme under which all Australians and some overseas visitors can receive free healthcare for most hospital treatments and doctor’s consultations.
What isn’t covered by Medicare?
The procedures and services not provided by Medicare include the following:
- any ‘gap’ between the cost of a doctor’s visit covered by Medicare and the fees the doctor chooses to charge
- ambulance services
- private hospital costs
- hospital procedures deemed ‘unnecessary’ like cosmetic surgery
- glasses and contact lenses
- most dentistry
- hearing aids
- physiotherapy
- most psychology services
- medicines not on the Pharmaceutical Benefits Scheme
- acupuncture not performed as part of a doctor’s consultation
- occupational therapy, speech therapy
- chiropractic services
- podiatry
- most prostheses
- and more
More reasons people go private
One of the big issues for Australians is that procedures under Medicare are performed by the public health system, which is always overstretched. Waiting times for procedures covered by Medicare can be very long, even if they seem urgent. By helping to pay for healthcare at private hospitals, private health insurance allows people to receive treatment faster.
For this reason, some people choose to take out private health cover to help pay for private hospital care. It gives them the ability to choose where they receive healthcare, and they can receive it faster. Some plans also include extras like free glasses replacement and dental check-ups.
Government incentives for private health
Through a number of incentives, the Australian Government encourages people to take out private insurance as a way to take pressure off the public health system.
| Charging the surcharge | The Medicare Levy Surcharge is charged to people on higher incomes without private health insurance. It’s different to the ‘Medicare Levy’ (which is charged at 2% of ALL taxable incomes). | |
| Applying lifetime loading | Lifetime Health Cover loading (LHC) is charged to people at a higher rate on private health insurance premiums if they choose to take out cover later in life. How it works is that if you don’t take out private health insurance before you reach the age of 31, you pay 2% extra on your insurance premiums if you subsequently decide to take out private health insurance: This increases by 2% each year you don’t take out insurance after age 31 for a period of 10 years. The extra charge is removed after 10 years on an appropriate private health insurance plan. Use the Lifetime Health Cover calculators to figure out the lifetime health cover (LHC) loading payable on hospital cover. | |
| Offering the rebate | Offering the private health insurance rebate, depending on age and income. | |
Do you need private cover?
Despite the above government measures and benefits of private health cover, there are still reasons people might choose not to get cover. For example, if you’re OK to wait, or you’re young and healthy, or you have a pre-existing condition.
OK to wait
Medicare provides adequate healthcare coverage if you are willing to wait a little longer.
Young and healthy
If you’re young and healthy, you might be less likely to use your health insurance, and even with optional extras that you regularly take advantage of, private health insurance might end up costing you more in the long run than any one-off costs you have for health emergencies without insurance.
Insurance premiums may still cost you more in the long run, unless you earn a high income (around $100,000 or more per year), and must pay a significant amount via the Medicare Levy Surcharge.
Pre-existing condition
If you have an existing condition, it might be difficult to get affordable healthcare that covers everything you need.
What to do instead of private health?
An alternative to private health insurance is to regularly put aside money in an emergency fund. This way, you can pay out of pocket for health procedures not covered by Medicare, or pay for care at a private hospital only when you need to.
Ultimately, the choice is yours and should be made based on your specific circumstances.
Where to find information
Moneysmart – health insurance and choosing a policy
Ombudsman – comprehensive, independent private health insurance information
Department of Health and Aged Care – the private health insurance industry
Life insurance
Life insurance can help you or your loved ones financially if unexpected things happen, with different life insurance products protecting you from different life events.
For example:
- Life cover
- Total and Permanent Disability (TPD) insurance.
- Trauma Insurance
Calculate your life insurance needs and see how to make life insurance claims.
Other forms of insurance
There are various other forms of insurance designed for more specific circumstances.
- travel insurance
- income protection
- pet insurance
- funeral insurance
- business insurance
- landlord insurance
- and more types of insurance
Choosing insurance
There are a few factors to keep in mind when searching for a good deal on insurance.
- know your needs and only insure what you need to
- when it comes time to renew, shop around to see if there are better deals
- increase your excess payments for cheaper premiums (the downside is that if you make a claim and must pay your excess, you’re paying more)
Where to find information
Learn about choosing car insurance or home and contents insurance, and see what the ombudsman has to say.
Using comparison websites
You may have seen comparison websites for things like home loans, credit cards, insurance or superannuation funds. These sites offer explanations of products, customer reviews and ratings, and price comparisons. They can also help you to decide what’s best for you. Though before you act on any recommendation, it’s important to know how comparison websites work.
- they are there to make a profit – the sites often take money from banks and other service providers to advertise their products at the top of lists, so make sure you’ve had a look to see how they’re rating and reviewing products.
- they might not be comprehensive – the sites might not have a list of everything that’s available, which means you might want to look at multiple sources before deciding.
Finding affordable insurance
Good Shepherd runs Good Insurance, affordable insurance programs partnering with insurance firms. This is offered to people who are experiencing financial and other forms of hardship.
Insurance consumer rights
Insurance in Australia is regulated by a set of laws that are meant to ensure consumers are treated fairly and honestly. These laws are regulated by the Australian Securities and Investments Commission (ASIC).
According to ASIC, insurers are expected to:
- offer insurance efficiently, honestly and fairly
- employ qualified staff who are trained to perform their role
- use advertising to inform consumers rather than to mislead them
- give consumers the proper product disclosures and do so at the right time
- treat customers honestly and fairly
- always put customers’ interests before their commercial interests
- only offer customers products and services that deliver value for money
- assess insurance claims promptly and pay eligible claims
- compensate customers if they conduct themselves poorly and customers incur losses as a result.
If you feel that you have not been treated fairly and honestly by your insurer according to these rights, see how to make a complaint.
Making an insurance claim
Making a claim on your insurance is when you tell the insurance company that you have suffered a loss or damage that you understand to be covered by your policy.
The process you need to follow when making a claim will differ based on your insurer and the type of insurance you’re claiming – though there are some commonalities between the providers.
General guide to making a claim
| Gather the information | Gather all the information you can about the event and have all the details of your insurance policy at hand | |
| Make a claim | Contact your insurer and make a claim, which could mean providing proof of the event | |
| Wait for an answer | The insurer reviews your claim and judges if the event is covered by the policy | |
| Success? | If the claim is accepted, the insurer covers the cost of replacement or repair of your property or payout to you according to the terms of your policy | |
| Keep a record | It’s recommended to keep a record of all interactions with your insurer | |
What’s an excess?
Depending on your policy and the circumstances of your claim, you may need to pay an ‘excess’. The excess is a set amount of money that you will pay in the event of making a claim. Not every policy includes an excess, and not every type of claim will require payment of an excess. The amount is also set out in your policy.
Read more from the Financial Rights Legal Centre on how to make claims, what to expect from different types of insurance, and where to go for further help.
Hardship and insurance
Insurers usually run ‘hardship’ departments that are staffed by people whose job it is to help their customers through times when they’re having difficulty paying for premiums or an excess on an insurance claim.
Good to know
The law requires insurers to give fair treatment to customers, whatever their circumstances. Even if payment comes late, insurers would rather they are paid for their product and retain you as a customer than cut you off or chase you for a debt.
What you can do
There are options available to you that could help you reduce, postpone, or spread out bill payments. You can ask your insurer for help with:
- payment extensions
- payment plans
- payment matching
- concession information
- financial counselling service referrals.
Where to find information
Negotiating payment terms – pointers from the National Debt Helpline
Template letter for if you can’t pay your excess – pre-written letters from the Financial Rights Legal Centre
When contacting providers, it’s wise to keep a record of when you called, who you spoke with, and what you discussed.
Disaster relief
It’s often during times of natural disaster that people need access to their insurance, especially home and contents insurance. It’s also a time when a lot of people find that they’re underinsured, or that their insurer has previously unknown clauses that make it difficult to secure the replacement or repair of lost belongings.
Payments and insurance
Australian Government support – services and payments during and after a disaster
Support services and payments run by the state or territory governments
Disaster insurance claims guide – making insurance claims and what to do if things go wrong (National Debt Helpline)
Flood damage – Financial Rights Legal Centre’s flood Insurance fact sheet
Making a complaint
If you feel you haven’t been treated fairly by your insurer, you have a choice of pathways to making a complaint.
Insurance – make a complaint to the Australian Financial Complaints Authority (AFCA)
Private health insurance – contact the Commonwealth Ombudsmen
AFCA and the Commonwealth Ombudsmen are independent agencies that help resolve disputes between people and financial institutions, companies or government agencies. These are free and independent services. It’s important to remember that while the process can be lengthy, it will lead to a resolution.
This information was last updated on 5 June 2023.
The links and resources in this article have been compiled and reviewed by the Brotherhood of St. Laurence. We aren’t responsible for what you’ll find at the links, though we do hope you find the information useful. See our disclaimer if you’d like to know more.
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