Insurance

Contributed by PhilippaMartin and current to 1 May 2016

Introduction

Insurance companies collect premiums from their customers to use to pay those customers who make claims under their insurance policies. Insurance is about the assessment of risk - the likelihood that a particular event will take place. Insurers need to receive enough money in premiums to cover the amount that they will have to pay out when they have agreed to provide cover for a particular event. The money collected by way of premiums belongs to the insurer, not the customer. Insurance is regulated by federal legislation and common law. That legislation includes:

• Insurance Contracts Act 1984 (ICA) and Insurance Contracts Regulations 1985 (ICR)
• Life Insurance Act 1995 (LIA)
• Corporations Act 2001(Corps Act)
• Financial Services Reform Act 2001 (FSRA)

Not all types of insurance are covered by the ICA: marine insurance, health insurance and workers compensation are among the types not covered.

Consumer Protections

The insurance industry is regulated by the Australian Securities and Investments Commission (ASIC) and the Australian Prudential Regulation Authority (APRA).

Consumer protections have improved significantly over the years. However it is essential that consumers understand the terms of the policy that they are buying and carefully consider whether the insurance offered is suitable and necessary before they sign up to the policy.

Section 15 of the ICA states that the ICA is the Act which determines all legal remedies in insurance contracts. This means that the unfair contract provisions in the Australian Consumer Law do not apply to insurance.

Industry Codes of Practice

The General Insurance Industry Code of Practice 2014 sets out the standards of service that general insurers must meet. The Code sets standards for insurers in their dealings with consumers and third parties e.g. that they must be open, fair and honest. There are set timeframes within which insurers must respond to claims and requests for information. The Code also sets procedures for insurers in how to deal with financial hardship and natural catastrophes. There is a Code Governance Committee that monitors compliance with the Code via the Financial Ombudsman Service Code Compliance and Monitoring team. The Code is available at http://codeofpractice.com.au/.

The Code applies to general insurance it does not cover life insurance. It also applies differently to Wholesale and Retail Insurance. Retail insurance is defined to include the following insurance products: motor vehicle; home building and contents; sickness and accident; consumer credit; travel; and personal and domestic property. This follows the definitions in the Corporations Regulations 2001.

Chapter 10 of the Code sets standards for complaints handling and dispute resolution.

The Insurance Brokers Code of Practice 2014 (IBCP) sets standards of service for insurance brokers and agents. It sets out obligations for brokers and agents around fair dealings, conflicts of interest and making it clear to the consumer on whose behalf they are acting - consumer or insurer. The IBCP sets out the mechanisms for internal dispute resolution and external dispute resolution. Compliance with the IBCP is monitored through a separate arm of the Financial Ombusman Service called the Code Compliance and Monitoring Team. The current IBCP is available at https://www.niba.com.au/codeofpractice/NIBA_Code_2014.pdf.

Rights of third party beneficiaries

Third party beneficiaries are people who may be entitled to receive some money from the insurer even though they did not purchase the insurance policy e.g. a person whose car was damaged in an accident when the other driver (the policyholder) was at fault. Third party beneficiaries have rights under the ICA (e.g. to ask the insurer whether they admit that the policy applies to their claim and whether they will become involved in negotiations about the claim). Third party beneficiaries also have rights under the Code of Practice.

Chapter 8 of the Code requires insurers to consider financial hardship in decisions about pursuing debts of either consumers or third party beneficiaries. This includes being flexible about demands for payment (e.g. extending the time to pay, allowing for payment by instalments) as well as to waive the debt altogether. Where a dispute arises about the payment of the money the insurer is claiming, consumers or third party beneficiaries can purse that dispute through internal and external resolution processes.

Insurance and discrimination

Commonwealth and Northern Territory anti-discrimination law makes some types of discrimination in the provision of services unlawful. Under this legislation, insurers as service providers are required not to discriminate when they decide to enter into an insurance contract with a consumer (provide cover to a consumer) or to refuse a claim on the basis of an exclusion in the policy. Anti discrimination legislation outlines a wide range of discrimination which is unlawful (including discrimination on the grounds of race, sex, sexual preference, and disability) and provides dispute resolution options for people who want to make a complaint (see Discrimination)

One of the most common areas of insurance disputes which may also give rise to a claim for unlawful discrimination on the ground of disability is where an insurer refuses to provide cover (e.g. for life or health insurance) or to pay a claim on the basis of a pre-existing medical condition. People with serious medical conditions such as HIV/AIDS have been refused life insurance and people with a history of mental illness have had their claims refused.

As one of the underlying principles of insurance is the assessment of risk, insurers need to properly and fairly assess the risk and therefore, decisions to enter into a policy and provide cover or to accept or refuse a claim, must be based in actuarial (statistical) data that is available at the time.

It is reasonable for life insurers and disability insurers to assess risk and to take into account whether a consumer is involved in 'risky' behaviour. Consumers may be asked a series of questions, which can be quite intrusive - especially if the risk is seen to relate to sexual behaviours (ie in the case of HIV/AIDS). If these questions are not reasonably required to assess risk, the insurer may be engaging in discrimination.

Buying Insurance

It is worth shopping around to find the right cover at the right price. Some insurance companies offer a variety of policies in any particular area. Choice magazine ( www.choice.com.au) regularly reviews some of the most common types of insurance products. Both Choice and the ASIC MoneySmart (www.moneysmart.gov.au ) websites have information on what to consider when buying insurance as well as updates on legal and consumer issues relating to insurance. There are also a number of websites which enable consumers to compare different insurance products. The cost of the policy is not always connected to the quality of the cover.

Checklist for buying insurance

When purchasing insurance, you should keep in mind the following:

• Check the amount of coverage being provided; for example, with a motor vehicle is it insured for an agreed amount or the market price which will depreciate over time; or are there any caps on payouts for particular items or events.
• Find out about the speed of the company's claims procedure and its reputation within the industry - consumers can read the annual reports on compliance with the industry code available on the Financial Ombudsman Service website.
• Check what events or acts are excluded under the policy and make sure you read and understand the definitions of those events or acts.
• Review the amount of insurance on a regular basis.
• Decide who should be included in the policy - the policy documents must list the names of all people covered by the policy.
• Review the policy each time you renew the policy and check that it is still good value for you money.
• Use the 14 day cooling off period from the date that a policy is signed. The policyholder has 14 days in which to cancel it to receive a full refund.
• Keep a copy of the original contract, copies of any correspondence exchanged with the insurer and any other documents related to the policy. All communication with the insurer should be in writing.

Who can sell insurance?

You may purchase insurance:

• direct from the insurer, either over the counter, by phone, through mail or over the internet
• from an intermediary, such as an agent, broker, or other intermediary as governed by the Corporations Act 2001 and the Financial Services Reforms Act 2001(FSRA).

Intermediaries

There are two main types of intermediaries that sell insurance: insurance agents who act on behalf of an insurer, and insurance brokers who act on behalf of the consumer or policyholder.

The FSRA deals with the responsibilities of agents, brokers and insurers and provides for licensing arrangements and disclosure requirements. Standards of service are covered by the Insurance Brokers Code of Practice.

Agents need to have a written authorisation from an insurer (or number of insurers) to act on their behalf and brokers must be licensed before they can carry on business.

There are two types of documents which much be given to consumers of domestic (ie non commercial) insurance. These are the Financial Services Guide (FSG) and the Product Disclosure Statement (PDS). The FSG contains information about commissions paid to the broker or agent and the dispute resolution process and the PDS contains information about the policy itself and should assist the consumer decide whether to buy the policy.

If an insurer, agent or broker is recommending a particular policy, the FSRA requires them to give the consumer a 'statement of advice' which outlines the reasons for the recommendation and any potential conflicts of interest.

As a condition of their licence, brokers must take out professional indemnity insurance. A broker can be held liable for any loss or damage suffered by a policy holder if that loss was caused by the broker's negligence in arranging or failing to arrange insurance. When buying insurance through an intermediary it is important to know who is responsible for disclosures required by the policy.

Types of Insurance Policies

There are three types of insurance policies:

• Property damage policies insure specific items such as a house and contents, motor vehicle or boat against damage sustained from a variety of causes such as hailstones, theft, fire etc.
• Liability policies cover a policyholder's personal legal liability to pay damages if they are negligent. For example, such a policy could provide cover for property damage caused to another driver's car or to a houseguest injured on the insured's premises.
• Income protection policies pay a fixed benefit, either periodically or as a lump sum, when certain circumstances occur, such as when the policyholder cannot work due to sickness or accident, becomes unemployed or dies. Life insurance policies are within this category.

Agreed value, market value and new for old

The majority of insurance contracts, with the exception of life insurance, are indemnity contracts. Under an indemnity contract, the insurer undertakes to indemnify the insured to the extent of their loss rather than for a specific sum. This is often offset by the market value of the policyholder's property on the date of loss. For example, the policyholder's motor vehicle cost $15,000 to purchase new and had a market value of $12,000 when it crashed and was written off three months later; the insurer will only pay $12,000.

Insurance companies also offer:

• Agreed value policies: the value of the policyholder's property is agreed and stated in the policy.
• New for old policies: the insurer undertakes to pay the replacement cost of the property instead of its market value. For instance, the depreciated market value of an old building (valued separately from its land) may not be enough to cover the cost of rebuilding should it be destroyed. This type of reinstatement policy pays for a new building in place of the old one.

Most domestic policies covering house and/or contents provide new for old generally and carry higher premiums than simple indemnity policies.

Obligations in Insurance law - consumers and insurers

The duty of utmost good faith

The duty of utmost good faith, which requires both the insurer and the consumer or policyholder to act towards each other in a way that is fair, reasonable and decent with respect to all matters arising from the contract of insurance [ICA s.13].

The duty of utmost good faith requires an insurer to:

• assess claims properly
• not delay paying claims without proper cause
• not refuse to pay claims without proper cause (for example, preferring a GP's medical opinion over that of a specialist)
• in some circumstances, specifically advise the consumer of the risk covered or exclusions under the policy [ICA s.37].

The duty of utmost good faith requires an consumer to:

• disclose all facts that would be relevant to an insurer's decision to accept the risk and fixed premium [ICA s.21]
• not make a false claim on the policy
• not exaggerate a claim in any respect
• cooperate with the insurer when the claim is being assessed
• cooperate with the insurer when it is trying to recover losses from any third party.

If an insurer or an policyholder commits a breach, the other party may be entitled to refuse to honour their obligation under the contract or to bring a claim for damages. For example, if there was an unusual exclusion clause and the insurer did not bring it to the attention of the policyholder, the insurer may not be allowed to rely on to refuse the policyholder's claim.

The duty of good faith also extends to third party beneficiaries [ICA s.13(4)]

Consumers' duty of disclose

Anyone applying for insurance, including applications for cover notes and renewals, must give the insurer all information that would be relevant to any decision it would make about whether to provide insurance and, if so, on what terms [ICA s.21]. It is extremely important for consumers to understand the extent of this duty as a failure to comply with it may result in claims being refused.

The duty of disclosure requires that all relevant information must be disclosed to the insurer (or other agent) before entering the insurance contract. A person applying for insurance must:

• answer in full, all questions on the proposal form. Special care should be taken when answering any questions that are very general or open-ended
• be precise when answering any questions requiring detailed information
• attach a page with additional information if there is not enough space in the form
• include additional information if there is a tick-the-box question and no category provided to correctly describe the situation.

The test as to whether certain information is relevant to the risk is whether a reasonable person could be expected to know that it would be relevant to an insurer's decision to accept the risk taking into account the nature and extent of the policy.

What is a relevant fact?

A relevant fact may be anything that might show dishonesty or an inability to be reliable, such as:

• conviction for an offence involving dishonesty or some other deceptive criminal conduct
• another insurer's rejection of an application for insurance or cancellation of insurance
• the same risk is insured with other insurance companies
• serious financial difficulty.

A relevant fact can also be particular to the risk covered, for example:

• conviction for a relevant road traffic offence (such as dangerous driving or speeding), when applying for car insurance.
• illness suffered or existing medical conditions when applying for health insurance, income protection and life insurance.

Disclosure made to a third party

Often where insurance is sold through a third party, such as a car dealer or travel agent, the proposal form is completed in a rush and the agent may not record all the information passed on to them by the insured. The agent is usually taken to be the insurer's agent. Therefore any verbal statements made to the car dealer or travel agent are treated as disclosures to the insurer even if the insurer has no record of it in the application form. However, if the information is given to an insurance broker and the broker failed to tell the insurer, the insured person only has a remedy against the broker as the broker is generally the agent of the policyholder.

Non-disclosure and misrepresentation

Both the insurer and the policyholder can avoid their obligations under the policy if either one was induced to sign up by the other's misrepresentation of a relevant fact. When a person takes out a policy, they are required to fill in a proposal form which includes a number of questions. Each answer given in the proposal form is a representation. Therefore, a false or misleading statement becomes a misrepresentation. The proposal form and the answers supplied usually form part of the insurance contract.

An incorrect statement is not regarded as a misrepresentation if the policyholder was reasonably unaware the statement would affect the insurer's decision to accept the policy or its terms or if they honestly and reasonably believed that the statement was true (an innocent statement) [ICA s.26]. Where a person has given an obviously irrelevant answer to a question or where they fail to answer a question altogether and the policy is then processed, the insurer loses the right which arises from the policyholder's duty of disclosure. In other words, unless the insurer seeks further information, it cannot later rely on an irrelevant or misleading answer to refuse a claim [ICA s. 21].

Where the policyholder has not complied with their duty of disclosure, the extent to which an insurer may refufse to pay a claim, will depend on the significance of the undisclosed or misrepresented fact [ICA s. 28].

If the non-disclosure or misrepresentation was a simple mistake, an insurer's liability may be reduced to what it would have been if the insured person had given all the facts before the policy was taken out.

If an insurer can show that the policy would have been refused had all the facts been known, it will not have to pay.

If an insurer can show that an excess clause (e.g. that the insured should bear the first $100 of any claim) would have been included in the policy, it can deduct the amount of excess, but must pay the balance of the claim.

If the insurer can show that a higher premium would have been charged, it can deduct the difference in the premium but must pay the balance of the claim.

With life insurance policies, when the policyholder has withheld material facts, the insurer can reduce the amount of cover to the amount it would have agreed to if there had been proper disclosure.

If the non-disclosure or misrepresentation was fraudulent, the insurer will not have to pay.

In practice many insurers will forgive and waive truly innocent non-disclosures or misstatements, particularly if the premium or policy condition would have been much the same had the relevant fact been disclosed or correctly stated. This is required as part of the insurer's duty of good faith.

Continuing nature of disclosure

Each insurance policy is a new contract, requiring fresh disclosure. As each renewal is a new insurance policy, the policyholder must disclose any information that has arisen in the preceding 12 months that may or will be relevant to the insurer's assessment of risk. For example, if a person has had a motor vehicle claim refused after taking out a home contents policy, they must disclose that fact when the home contents policy is renewed.

Insurers' duty of disclosure

The Insurance Contracts Act 1984 (ICA) requires insurers to specifially point out some terms in insurance policies to consumers:

• the duty of disclosure. An insurer must provide information clearly and in writing. If it does not, the insurer will not be able to use a policyholder's failure to comply with the duty as reasons to reject a claim; unless it can be proved that the policyholder's failure to disclose was fraudulent [ICA s.22]
• Insurers must advise consumers about the requirements of the duty of disclosure before the contract starts. If there is more than a two month gap between the first disclosure and the contract starting insurers need to send a reminder.
• where the cover is not standard cover (see below Understanding the policy document) [ICA s.35]. Any unusual term in a non-standard policy must also be notified and explained [ICA s.37]
• any averaging clause included in the policy [ICA s. 44].

If the insurer does not point out the terms realting to non standartd cover or averaging, the insurer loses the right to enforce those terms.

Insurers' duty of disclosure is enlivened each time the policy is renewed.

The Financial Services Reform Act sets out the disclosure requirements for all financial service providers -including those providing insurance. Insurance consumers are required to be given information that sets out the terms of the insurance contract (how long, the cost of the premiums, the items and events covered by the insurance, the parties to the contract) and information about the dispute resolution mechanism. This information must be given before or shortly after the insurance is purchased and it may be in more than one document. In most insurance policies this information is contained in a Certificate of Insurance and a Product Disclosure Statement (PDS). Home building and home contents insurance documents are now required to include a Key Facts Sheet outlining the main features of the policy in plain English. (ICA s33A and ICR Division 4). A Key Facts Sheet must be available on request.

Understanding the insurance documents

Anyone who has difficulty understanding insurance policy documents, should approach the insurer, agent or seek legal advice.

Once an inquiry is made by a consumer, the insurer will forward a proposal in writing. The proposal will require the consumer to provide answers to a number of questions. The complete proposal document is used by the insurer to form the insurance contract. The contract is contained in a formal document called the policy. The policy and any other written records expressly mentioned in the policy, for example, the proposal form and any other documents forwarded by the consumer, are the only records of contract and accordingly, any negotiations which are not contained in the policy document, have no effect.

When considering whether to take out insurance everyone should carefully read the proposal form, policy document and any other document provided by the insurer, before signing the policy or within the cooling off period. (see below Cancelling a policy)

A policy will also contain a schedule with the insured's details, the maximum sum payable under the policy and other relevant details such as an excess. In some cases, the schedule will also set out parts of a standard form insurance policy document that apply to a particular situation or event which is insured.

Traditionally, policies are either:

• broad form policy: describes generally what is covered by the policy and contains a large exclusion clause that describes what is not covered
• defined event policy: sets out specific circumstances which the insurance covers with the generally fewer exclusions than with a broad form policy.

Standard cover

The ICA created a concept of minimum coverage in respect of certain types of insurance such as motor vehicle, home, building and contents, sickness and accident, consumer credit and travel insurance [ICA s. 35(1) and ICR Part 5 ]. An insurer who offers less than the minimum standard coverage or a different cover must clearly and in writing, tell the consumer about the shortfalls or differences before they enter into the contract. This usually means giving a copy of the policy document to the consumer [ICA ss. 35(2), 37].

Exclusion clauses

Insurance policies do not provide cover against all losses and contain exclusion clauses which limit the insurer's liability.

Consumers should read exclusion clauses very carefully and check the definitions or dictionary sections for key terms.

An exclusion clause will not necessarily apply if the policyholder is able to prove that the event which is excluded under the policy did not cause or contribute to the loss. An insurer may only refuse to pay the claim if the policyholder's actions are within the terms of the exclusion and caused the loss [ICA s.54].

The operation of an exclusion clause for a pre-existing defect, sickness or disability may be limited if the policyholder was unaware of the defect, sickness or disability, at the time the policy was taken out [ICA ss. 46, 47].

After signing

After the policyholder signs the contract and pays the premium, the insurer should send them a copy of the policy documentr. If the policy does not arrive within a reasonable time, the insurer should be informed in writing. Documents should be checked as soon as they are received. The insurance policy is an important document and should be kept in a safe place.

Cover notes

A consumer who requires insurance cover to begin from the time they fill in a proposal form, may ask the insurer to issue a cover note (also known as an interim contract of insurance [ICA s38]) validating their cover for a short period of time.

Cover notes may be issued upon request and may be arranged over the telephone for certain types of insurance such as motor vehicle insurance. If this is the case, make a note of the cover note number. Most insurance companies will forward a copy of the cover note to the policyholder. The cover note will remain in force until the policy is issued, until the insurer informs the insured of its refusal to provide insurance, or until the period specified in the cover note expires. An insurer may decide not to accept a proposal if it is of the view the policyholder is not a good risk. The insurer is not liable from the time it informs the policyholder of its decision to refuse cover.

The cover note is a contract of insurance and accordingly the consumer or policyholder has a duty to disclose material facts. The insurer issuing the cover note is required to advise the holder of their duty of disclosure.

Automatic renewal

Under the ICA, policies that are generally renewed annually such as motor vehicle or household policies do not automatically expire on the date shown at the end of the period of insurance. These policies expire if the insurer notifies the policyholder or their broker that the policy is to expire on a certain date, and asks whether they are prepared to negotiate, renew or extend the cover. Notice to this effect must be given no later than 14 days before the end of the period of insurance.

If the insurer fails to notify in this way and the policholder does not arrange alternative insurance, the policy is considered to be automatically renewed [ICA s.58]. In the case of a dispute, the insurer would have to prove notification was sent in writing.

A renewed policy continues on the same terms as the original policy for the same length of time or until the insured obtains another policy, whichever is the earlier. A premium is required to be paid if there is a claim.

Cancelling a policy

When the insurer may cancel

An insurer may only cancel a policy in the following circumstances:

• the policyholder did not comply with the duty of utmost good faith by failing to disclose a material fact or making a false representation
• the policyholder has not complied with any provisions of the contract, for example by not paying the premium
• the policyholder has made a fraudulent claim against the policy or any other current insurance pol
• the policyholder did not notify the insurer of a fact the policy states is required.

When the policyholder may cancel

Policyholders have a right to cancel by simply informing the insurer. The insured is usually entitled to a refund of the part of the premium corresponding with the period of cover which has not yet expired. In some cases, the insurer will charge a short term rate for the time it has provided insurance. The rate may be higher than a pro-rata proportion of the amount of the premium remaining.

Types of Insurance

Insurance may be categorised as life insurance and general insurance.

Life insurance

Life insurance provides a payment of money on the death of the insured. The payment is made to the beneficiaries (for example family members) of the deceased who are generally named in the policy. There are some exemptions for payment under a life insurance policy, such as suicide.

Companies offering life insurance will generally have a 'trial' period of 15 days which runs from the date the policy is received. The policyholder may cancel the policy by notifying the insurer in writing and the premium is to be refunded in full.

Life insurance policies often have a surrender value, which is an amount the insurer pays if the insured person cashes in the policy. If the insured person surrenders the policy, they will no longer be covered by that policy.

Life insurance policies cover a range of events such as:

• death - the insurer pays the insured person's beneficiaries receive a set sum if they die
• total and permanent disability - cover the policyholder's expenses if they have to stop working due to illness or disability. Check the definitions of total and permanent disability as policies differ and may cover the policyholder only if they are prevented from working in their usual occupation or may extend cover to payment if the policyholder is prevented from working in any occupation;
• trauma cover (also known as critical illness or recovery); cover for extra medical costs, debt payments and provision of an income stream for certain specific common illness such as cancer or stroke; and
• income protection replacing your income if you are unable to work due to illness or injury. Check age limits as some policies will not cover the income of people over 65.

Life insurance policies are often attached to a person's superannuation.

For more information about life insurance go to ASICs MoneySmart website - pages on Life Insurance and Insurance through super. There are also calculators to help people work out whether they need life insurance and how much cover they should get. See for example lifewise.org.au

General insurance

There are many types of policies which fall under the 'general insurance' category. Different rules apply to different subsets of general insurance. The ICA does not apply to health or workers compensation insurance - these types of insurance are subject to their own legislation. The most common forms of general insurance are listed below.

Home insurance (also referred to as home building insurance)

Most home insurance policies cover losses for damages as a result of a variety of causes: natural causes such as storm, cyclone, fire, and earthquake, damage caused by other people or property such as motor vehicle crash or vandalism. Most home insurance policies also cover the owner of the property for claims by third parties: if someone is injured while on the property.

Things to keep in mind

When considering home insurance ask for a Key Facts Sheet which is meant to explain the main features of the policy in plain English. Insurers are required to provide Key Fact Sheets as part of the disclosure documents, but only if requested.

Make an informed decision about whether to buy a policy which pays out the 'replacement value' of the property or only the agreed 'sum insured'. For more information go to ASIC's MoneySmart website ( www.moneysmart.gov.au/insurance) where you will also find a link to information about how to estimate rebuilding costs.

It is tempting to reduce premiums by underestimating the value of the property in the belief that a total loss is unlikely and any claim will cover the cost of the partial loss. Insurers are aware of the practice of 'under insurance' and the majority of policies contain averaging or under-insurance clauses which require the insured to insure an item for its full value. If an item is not insured for its full value, the insurer is entitled to proportionally reduce the amount of any claim. This practice is allowed by the ICA. However if the property is insured for more than 80% of its value policyholders cannot be penalised.

Consider carefully the kind of event cover that you need and taking into account the location of your home and the risks of natural disasters. Not all policies automatically cover damage from cyclones, floods and bushfire and the extent of cover may differ between policies. Disputes commonly arise around the issue of whether the damage was caused by flooding rather than storm run off. Damage caused by storm surges may not be covered under 'storm damage' (rainwater damage) or 'flood'.

Home owners are not the only people who can take out home insurance. For example mortgagees, people who have contracted to purchase the property, and others who have an interest in the property (eg a beneficiary under a will) may take out insurance. It is often a condition of a mortgage that the property and building is insured. Lenders often require a cover note to be provided by the purchaser of a property along with other documents required as a condition of the loan. It is strongly recommended that when purchasing property you get advice on when the responsibility transfers from the vendor to the purchaser and therefore the date from which you need to insure the property.

Contents insurance

Contents insurance policies cover damage and loss to the contents of the property through events such as fire, water damages and theft. Some cover accidental damage and damage to household items which occurs outside the home.

Things to keep in mind

Consider whether to take out a policy which pays for the value of the item or whether the cover is new for old and replaces the item. It is a good idea to take photos or make a list of all the contents of your home, estimate the value each item and keep receipts for any new items you buy.

Check whose property is covered - all members of the policy holder's household or just the policy holder.

Check what items are covered - there are often upper limits to the amount that an insurer will pay for any one particular item. This means valuable items such as jewellery, artwork and electronic equipment will need to be individually listed.

Motor vehicle insurance

There are different types of motor vehicle insurance covering personal injury and damage to the policyholder's vehicle and 'third party' damage (ie damage to other peoples' vehicles)

In the Northern Territory, personal injuries arising from a motor vehicle accident are covered by a statutory no-fault compensation scheme. This kind of insurance is compulsory and the price is included in the cost of registration.

The least expensive policies are those which cover damage to other peoples' vehicles - 'third party property damage'. These policies do not cover damage to the policyholder's own vehicle.

Comprehensive motor vehicle insurance covers the policy holder's vehicle as well as any damage caused to other people's vehicles.

Things to keep in mind

Consider which drivers you would like to cover - just yourself, or your partner or your children. Additional drivers will need to be specified in the policy.

Consumers can reduce premiums by:

• increasing the excess paid in the event of a claim
• restricting the drivers covered to nominated drivers or drivers over a certain age (this age may be different for men and women)
• not making claims - a no claims bonus provides a discount in premiums

Travel insurance

Travel insurance may be taken out for both overseas and domestic travel.

Insurance may be taken out for specific periods, specific trips or annually. Travel insurance coverage may include medical assistance, stolen goods, lost baggage, additional travel expenses and in some cases may cover legal expenses. Generally, there are strict terms around notification of claims and consumers should make themselves aware of these procedures. For example many policies require notification of an event giving rise to a claim within 24 hours. If a claim is not reported within the specified period, the claim may be denied.

The Department of Foreign Affairs (DFAT) has a travel insurance guide at http://www.smarttraveller.com.au/. It provides links to other websites that provide useful tips to consider when buying travel insurance.

Things to keep in mind

Travel insurance generally contains a number of strict exclusions. Insurer may rely on the following exclusion to refuse claims for:

• treatment for a pre-existing medical condition
• injuries which occur while you were intoxicated
• theft of items in public places
• accidents while you were driving unlicensed
• accidents while you were taking part in defined risky activities

Personal accident insurance/income protection

You may insure against incapacity to work as a result of a personal accident or illness. This type of policy enables the policyholder to receive periodic payments during the time they are off work. There will be limited circumstances in which the policyholder may make a claim under this policy and the policyholder must ensure they fully understand when a claim may be made before taking out the insurance.

Inability to work will be defined within the policy. The definition will be along the following lines:

• any occupation definition where benefits are payable - where the policyholder is unable to work in any occupation they are reasonably suited to perform due to training, experience and qualifications
• own occupation definition where benefits are payable - if the policyholder is unable to work in their usual occupation.

Clearly, the latter definition is more beneficial to the policyholder; however this may be reflected in the premium.

Long term disability contracts that provide benefits over a long period of time are usually offered by life insurance companies. Life insurance policies provide benefits for a number of years.

Benefits are usually paid on the basis of an average amount per week, calculated on the last 12 months of income. Cover is usually limited to a maximum of 12 months. These policies will not normally apply if the insured may claim statutory workers compensation benefits or motor accident compensation benefits. Advice should be obtained in respect of any effect this may have on workers compensation or motor accidents benefits.

Health insurance

Private health insurance policies cover all or part of medical and hospital expenses. The Commonwealth Government provides a 30% rebate for premiums paid for hospital cover. Generally, most health insurers provide hospital cover with or without an excess. The policyholder may also take out what is known as 'extras cover' for expenses related to treatment such as dental, physiotherapy and many other treatments. (See Health insurance).

Workers compensation insurance

Employers are required to take out workers compensation insurance in respect of liability to pay workers for injuries an employee sustains in the course of their employment, including in some instances, travelling to and from work.

Employers are required to insure all workers, the exception being contractors who provide an Australian Business Number (ABN) to the employer. Employees working outside the Northern Territory or offshore will generally be covered by the Northern Territory Work Health Scheme if their employer carries on business in the Northern Territory and the worker maintains residence in the Northern Territory. Employees should inquire as to their employer's workers compensation insurance (see Work-related injury ).

Think twice before buying

LIfe insurance

For people who are working, their employer's superannuation fund must provide a minimum level of life insurance (also known as death cover or death benefits). There may also be total and permanent disability cover and income protection insurance (together known as disability cover). Even if the only deposits to the fund are through employer contributions, consumers can choose the level of cover and the premiums are deducted from the superannuation account balance. Information about the insurance cover you have or can get can be found in your superannuation company's Product Disclosure Statement. (See Superannuation) .

Many people will find that they do not want or need to buy additional insurance such as life insurance, funeral insurance, credit insurance or income protection insurance because of the level of cover offered through their superannuation fund. For more information about insurance through superannuation go to ASIC's MoneySmart website. To consider all the pros and cons you may need financial advice.

Funeral insurance

Funeral insurance is listed as a financial hazard on the Financial Rights Legal Centre website ( http://financialrights.org.au/).

Consumers who are concerned about the leaving the costs of their funeral to their family should consider the range of options before investing in funeral insurance. The pitfalls of funeral insurance include the risks of paying out more in insurance premiums over the life of the policy than the cost of an average funeral, payments may increase over time and as you get older; and missing payments may mean you lose all the premiums already paid

Other options instead of funeral insurance include life insurance policies and policies attached to superannuation which often include the option of reimbursing families for funeral costs. For more information about options to pay for a funeral go to ASIC's MoneySmart website - page for Over 55s.

Consumer credit insurance

Consumer credit insurance, also known as loan protection or mortgage insurance, provides for payment of benefits when the policyholder is unable to meet loan or credit card repayments due to unemployment, illness, disability or death. Money is usually paid directly to the credit provider and may be paid as a lump sum or as regular payments. Instalment payments may not cover the whole of the loan repayment and may stop after a certain period. There may also be age limits on who can be covered under these policies (eg over 65s) Despite what some credit providers say, a borrower is not obliged to take out this kind of insurance; however many lenders will not provide finance without this protection. For more information see the Insurance pages on ASIC's MoneySmart website.

Add on insurance

People buying cars are often offered add-on insurance. Many consumers report that it is difficult to say no to car dealers' high pressure sales tactics. Car dealers often get significant commissions for selling these products. Before signing up, work out whether it is good value or something that is really necessary. Some common add on insurance products include consumer credit insurance, gap insurance or loan termination insurance, insurance for mechanical breakdowns, or damage to tyres, rims, paint and windscreens. Many standard insurance policies (ie life insurance policies or comprehensive car insurance) will already cover these items. For more information go to Insurance pages on ASIC's MoneySmart website.

Definitions

Many insurance policies have terms which may differ from dictionary definitions.

Some of the terms and their definitions are as follows:

Agent: a person who acts as an intermediary between the insurer and the insured; an agent usually acts on behalf of the insurer and receives a commission for any policy sold
Assessor: a person who investigates the cause and circumstances of a loss and ascertains the amount lost; an assessor is usually appointed by the insurer
Beneficiaries: the person or persons entitled to a benefit under the policy
Assurance: the same as insurance, but generally applies to life insurance
Broker: generally a person who acts as an intermediary on behalf of an insured
Claim: a demand made to an insurer for payment under an insurance policy
Cover: to insure or arrange insurance, or the insurance protection provided by a policy.
Cover note: an interim or temporary insurance contract made to cover a person while a full or long-term insurance policy is being arranged
Exclusions: the risks or events that are excluded by the terms of a policy
Indemnity: the protection provided by a policy
Insurable interest: the legal, equitable or other interest held by the insured person in property or life
Insured or insured person: the policy holder
Insurer: the insurance company
Loss adjuster: same as assessor
No claim bonus: a discount made to an insurance premium when a policy holder hasn't made a claim for a given period (usually the period since the contract of insurance was first made) or in some cases if a claim has been made the policy holder was able to show that an identifiable third party was at fault
Policy: the legal document issued by the insurer to the insured containing the terms and conditions of the contract of insurance
Premium: amount payable by the insured to the insurer under an insurance policy for the obligations it assumes
Proposal: the application form that is required to be completed by the person applying for insurance
Subrogation: a legal mechanism that allows an insurer after settling a claim to sue in the claimant's name any third party who was responsible for the loss
Underwriter: the person or company underwriting (accepting the liability for) the insurance for the insurer.