What Can Be Insured?

An insurance contract or policy is basically a bet between the insured person and an insurer that something, called the ‘defined event’ will or will not occur. To distinguish insurance from gambling the concept of ‘insurable interest’ was devised. There must be some kind of stake held by the insured in the subject matter of the insurance. For example, if racehorse owners bets a bookmaker that a horse will win at odds of 100 to 1: the transaction is a pure bet. If, on the other hand, the owners insure the horse against breaking its leg in the same race, the transaction is a contract of insurance. The owners have a property interest in the horse, the subject matter of the event. In placing a bet, the owners have nothing to lose except the stake and may gain 100 times that. Insuring the horse will not bring any gain to the owners, but will bring compensation if the horse breaks its leg.

Life Insurance

Not surprisingly, a person has an insurable interest in their own life. An insurable interest is also held by:

  • a parent or person acting as a parent, in the life of a child under 21 years of age;
  • a husband in the life of his wife;
  • a wife in the life of her husband;
  • any person in the life of another person upon whom they are wholly or partially dependent for support or education;
  • a company in the life of a company officer or employee; and
  • a person who has a financial interest in the duration of the life of another person. A creditor, for example, has an insurable interest in the life of a debtor, and a debtor has an insurable interest in the life of a joint debtor, but a debtor cannot insure the life of a creditor.

Health Insurance

There are several statutes - all Commonwealth, that govern health insurance. These are the National Health Act 1953; the Health Insurance Act 1973; the Private Health Insurance Act 2007; and the Medicare Levy Act 1986. Anyone who can afford health insurance can purchase health insurance. The premium (what you pay to secure health insurance) costs vary depending on the age and health of the applicant.

There are a number of health insurance providers in Australia. Some are more popular in different States. For example, St Luke’s is a popular health care provider in Tasmania, while HCF is predominantly based in NSW. There are common factors between all health insurance providers.
There are different types of cover – single, couple, single parent, and family cover. Each of these in turn can feature different excess amounts. Excess is how much you will need to pay if you are admitted to a private hospital. Excess is typically $250 or $500. The insurance amount is less for a higher excess.

Aside from different excess amounts, insurance cover can be either hospital cover or extras cover, or a combination of both. Common extras are dental. This means that you pay a weekly, fortnightly, monthly or yearly sum as your insurance and in return you may have subsidised dental visits, or free of charge visits every 6 months at dental clinics affiliated with your health care provider. The general characteristic of extra cover with health insurance is that they will pay part of your bill when you attend the dentist. This extends to other extras such as chiropractic, massage, osteopathy, and physiotherapy.

The prices of health insurance go up with the level of cover you want. The cheapest health insurance is basic hospital with a $500 excess, and goes all the way up to extras plus. Of course, the price also increases with the number of people who are insured. Each health insurance company has different packages and small variations in price. It is best to consult their websites, or visit an office.

The benefits of private health insurance include:

  • private rooms or nicer meals in some private hospitals
  • the choice of a particular doctor or a particular hospital and some or all of the expense being covered
  • access to elective care in private hospitals without long waiting periods. Elective treatments include hip replacement, cataract removal, and hernia or ligament repair. Public hospitals have waiting lists for elective care that can be long and may require living with a difficult condition for many months.
  • Partial or full cover for services not paid for by Medicare, such as chiropractic and dental care.

There are seven basic types of cover:

  • Public hospital cover: this covers a person for treatment as a private patient in a public hospital. This insurance does not provide any cover for treatment in a private hospital.
  • Basic hospital: this form of insurance excludes cover for certain treatments or conditions, and in return the member pays a lower premium. This is often called basic hospital cover, rather than full. Funds often exclude private hospital cover for obstetrics or heart surgery as part of a basic package.
  • One hundred per cent hospital cover with partial medical cover: this covers total hospital costs at hospitals with an agreement with the health fund. A gap payment for doctors’ fees that exceed the schedule fee may have to be paid.
  • Excess cover: in return for lower premiums (the amount paid for insurance) the member agrees to pay a certain amount up front if they use their private health insurance. For example, a member with a $250 excess will be required to pay the first $250 of the hospital bill if they use their insurance.
  • Extras or ancillary cover: extras cover is for non-hospital services such as chiropractic, physiotherapy, dental treatment, and optical treatment. Extras cover can be a separate insurance, or in addition to hospital cover.
  • Combination cover: combinations of cover can be purchased. For example, it would be possible to purchase a policy with hospital cover with $500 excess with extras cover for dental only.
  • Co-payment policies: co-payment policies require the the member contribute a certain amount per day of the total cost for their care while in hospital.

Complaints can be directed to the Private Health Insurance Ombudsman, if attempts at resolving complaints directly with a private health insurance provider have failed.

Liability Insurance

Examples of liability insurance are:

  • insurance against the legal liability of the occupier of property;
  • insurance against accidental damage to others for which the insured is legally liable, such as personal injury and property damage caused by driving motor vehicles;
  • insurance against liability for injury to an employee; and
  • products liability insurance - a manufacturer or distributor insures against the risk that their products will be defective, and against their liability to pay damages in respect of those defects.

An insurable interest exists if the insured will be subject to some legal liability if the defined event occurs. In two of the most important areas of possible liability, personal injury from the driving of motor vehicles (‘compulsory third party’) and work-related injuries to employees, insurance is compulsory.

Property Insurance

To obtain property insurance, a person must have a legal or equitable interest in the property. Thus, a person buying a car on hire purchase, although not the legal owner, has an equitable interest in the car which can be insured against loss. A person merely leasing a car (a ‘bailee’) can insure the full value of the car, even if that is more than the legal liability under the lease agreement. Other people with an insurable interest in property are:

  • mortgagors (the borrowers of money) and mortgagees (the lenders of money) of property;
  • trustees;
  • any other holder of a legal or equitable interest in property; and anyone in possession of property (the ‘bailee’) in circumstances where they may suffer economic disadvantage if the property is lost or damaged. For example, a dry-cleaner could insure against damage to clothes in their possession.

An indemnity policy is by far the most common type of insurance policy and yet its effect is often misunderstood. The insurance company agrees to make up the loss the insured has suffered, up to the ceiling stated in the policy. If a car, which has cost $14,000 new and had a second-hand value of $10,000 were to be destroyed, the insurance company would pay out only $10,000 even if the premium had been calculated on a value of $14,000. The policy basis for this seemingly sharp practice is the notion that people should not be encouraged to recover more than their monetary loss and that it is undesirable to allow a profit to be made by the insured out of the policy. Home buyers should check their house policy to find whether it is an indemnity policy.

The shortcomings of indemnity policies, especially in such 'consumer' insurance areas as motor vehicle property and householder's insurance, have led to a number of companies offering agreed value policies, often at higher premiums than comparable indemnity policies. Under an agreed values policy, the insurer agrees to pay the stated value of the car if it is stolen, or if the cost of repairs made necessary by an accident exceeds the stated value (should the repair cost be less than the agreed value the insurer agrees to pay the amount of damage or to repair the car). Some house and contents policies offer a similar deal.

Explicit words are necessary to create an agreed value policy - a rule which reflects the law's distaste for ‘profit making’ by means of insurance.
A replacement policy (sometimes called a New for Old policy) is a variation on the agreed value policy. The insurer undertakes to meet the full cost of replacement of anything covered by the policy which is stolen or destroyed. However, most policies of this type require the owner to insure goods for their full value, or at least 80% of the full replacement cost.

Owners who have under-insured their goods are subjected to ‘averaging’ when they make a claim.

Other Insurance

Commonplace examples of other insurances include personal accident and sickness policies (when the insurance company undertakes to pay a fixed weekly or monthly sum to a person who can't work because of injury or illness), fidelity insurance (when a person insures against the risk that an employee will defraud them), and travel insurance. There is really almost no limit to the kinds of risks against which someone can insure.

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