By Allison Tait, ninemsn Finance
No matter how you feel about paying for insurance, the past few months have shown us, on a worldwide scale, that life can hold a lot of surprises - and it helps to be prepared.
From home and contents, to life, to health, to income-protection, to pets there's not much that can't be insured these days and every financial expert worth their salt will tell you that insurances are the cornerstone of any financial plan.
And it's a big but. As the Queensland floods demonstrated, it's important to understand your insurance policy. You must know exactly what you're covered for. Does "flood cover" mean "flash flooding" or "storm damage" or "riverine flooding"? And it's not just home insurance that has grey areas.
Here are 10 essential points to consider when planning your insurance needs.
1. Everyone makes a contribution
Often in families where one parent stays at home with the children, the only parent with life insurance is the working parent. A family that loses a stay-at-home parent quickly find itself in a financial hole, having to pay for all the things that parent does. It soon adds up.
2. Don't overlook income protection insurance
It's tax deductible, costs you less each year than the Medicare levy and will pay you 75 per cent of your income up to the age of 65, yet we still ignore it, thinking that we'll manage with savings and luck if we're unable to work for a while. Don't. Income protection insurance ensures you have the money you need to pay all those regular bills that keep our lives ticking over. Your income is your greatest asset so such insurance should be the cornerstone of any financial plans you may have for the future.
3. Don't be confused by what's covered
Income protection insurance does not cover you if you lose your job or get fired. It does, however, come into its own if you're unable to do your usual occupation due to illness or accident. Similarly, mortgage insurance, which can equal thousands of dollars when you take out a new loan, does not insure you against missing a payment - it ensures your lender will get paid no matter what.
4. Planning a baby? Plan your private health insurance
Waiting periods for obstetrics-related services in private health insurance can be anywhere from 12 months to three years, depending on your insurer. You must serve that waiting period before your baby's due date to be covered. It's also a good idea to check the excess that relates to your cover, and to consider reducing it before you become pregnant.
5. You may be covered - but is your baby?
When it comes to private health insurance and pregnancy, it's also vital that you know exactly what's covered. If you choose a private obstetrician in a private hospital, you expect to be covered for the accommodation, the labour ward, the delivery suite fee and the obstetrician. Healthy babies are not admitted, and therefore incur no fees. Be aware, however, that if your baby needs to be admitted for any reason, there will be additional costs. Check your policy carefully to ensure you are covered.
6. Health insurance can have quite a 'gap'
Focus on the "gap" between the scheduled fee and what you're going to be charged for any service. Policies pay the gap between scheduled fee and the Medicare rebate not the gap between the actual fee and the Medicare rebate. If you plan to use specialist services regularly, research the gap payments. Some policies pay more than others.
7. Fudging details fools no-one
According to the Financial Ombudsman Service, more than 98 percent of insurance claims are paid without dispute. If a claim is disputed, it may be because the claimant did not give an accurate description of the asset in question in the first place. When it comes to home and contents insurance, for instance, the onus is on you to accurately answer those questions that insurers - you know, the boring ones: How old is the home? What material is the roof? Do you have key locks on all the windows?
8. Be aware of the limitations of your insurance
Compulsory third party insurance, for instance, does not cover the cost of repairing your car. It provides compensation for bodily injury caused by the car. That insurance is in place to protect the other party in an accident.
9. Just because it wasn't your fault doesn't mean you keep your 'no claim' bonus
In a nutshell, it doesn't matter who was at fault. If you make a claim, you may lose your no-claim bonus. It depends on your insurer. Ask about it when you take out your policy.
10. Not all insurance brokers are created equal
While it's tempting to leave all your insurance decisions in the hands of an insurance broker, resist. You need to research your broker as carefully as you might research your insurance policy. How many companies does that broker represent? How is that broker paid? What is the basis for their recommendations - price alone, or more?