Insurance World

The purpose of health insurance is to protect you from the alarming cost of medical care by providing you with insurance coverage for specified health and medical care services. Generally, you will pay a monthly premium, a deductible, and co-payments for services you receive. The cost for insurance is significantly less than if you had to pay for medical care out of your pocket. There are three basic types of health insurance, fee for service, consumer-directed, and managed care. These basic types of insurance plans cover hospital, medical, and surgical expenses, and depending on the particular plan you choose, possibly prescription drugs, mental/behavioral care, and dental.

A fee for service plan means the health care professional you choose will be paid a fee for each service provided to you. You can choose your own doctor and the insurance claim can be filed by either the doctor or the patient. A managed care plan will provide coverage to their members and offers incentives for patients who choose doctors participating in the plan’s network. The 3 types of managed care plans are HMOs, PPOs, and POS plans.

An HMO allows you to receive medical care through a network of participating physicians. You will generally select a primary care doctor, who will then refer you to a specialist when necessary. A PPO combines various features of an HMO and a fee for service plan. Members can choose from network doctors and pay lower upfront expenses, or choose any doctor they desire and pay more out of pocket expenses. A consumer-directed health plan gives members more choices and options in making health care decisions. Consumer-directed plans include a health account or fund designated for health care expenses. At the end of each year, unused funds will roll over to the next year.

A health insurance premium is the fee paid to the insurer to purchase health coverage. Premiums can be paid monthly, quarterly, or annually. Deductibles are the amount you will pay for covered services within a certain time frame, according to the terms of your plan, before you will be entitled to insurance benefits. Members with a high deductible may have to pay the first one thousand dollars of yearly medical expenses before the insurance would begin to pay, and those with a higher or lower deductibles would pay more or less, depending on the particular amounts specified in their plan. A co-payment is a stated amount or percentage that must be paid by the member along with each doctor visit, medical procedure, or prescription. For example, if your specified co-payments are $25, you will pay the first $25 of each doctor visit and your insurance would cover additional charges. Most insurance plans specify a different co-payment amount for prescriptions, doctor visits, and hospital or surgical care.

In choosing which type of health insurance plan is right for you, you must consider the affordability of doctor visits and hospital care, the amount of the monthly premium, the amount of the deductibles, and the amount of the co-payments. Make sure the plan you chose offers coverage for services you will actually use such as doctors, prescriptions, laboratory costs, treatment for preexisting conditions, and out-of-network care. Check the rating of the insurance company in question, the number of patient complaints in the past year, doctor drop out rates if the insurance plan includes a network, and the number of members who have dropped out of the plan in the past year. Health insurance that is subsidized by your employer is generally the least expensive, but if your employer does not offer health insurance, you should consider an individual health insurance policy. The cost of medical care is far too expensive to risk not having health insurance.

If you’ve ever been tempted to decrease the sum insured for your home and contents in order to obtain a lower premium, think again. You may end up paying a far higher price than you imagined.

Whenever we take out an insurance policy, we are entering into a contract with the insurer. Whether household, motor vehicle, personal accident or any other type of policy, it is a legally binding contract between the insurer and the insured.

For householders, insurance of home building and contents is vital, not merely for peace of mind but to maintain the lifestyle they are accustomed to if the unthinkable should happen.

There are several aspects to consider when purchasing household insurance.

• The insured has a duty to disclose to the insurer anything that they know or could reasonably be expected to know is relevant to the insurer’s decision to accept the risk and, if so, on what terms. For obvious reasons, this is called the Duty of Disclosure.

• Each party to the contract (i.e.: insured and insurer) has an obligation to each other in accordance with the clause of Utmost Good Faith.

Utmost good faith means that in every dealing between insured and insurer, all parties are obliged to act in a totally scrupulous manner – that is: in a spirit of Utmost Good Faith. This clause overrides all other clauses in the policy and is the measure by which the majority of insurance disputes are settled.

• The sum insured is a major consideration when taking out an insurance policy. It not only affects the cost of the premium but the insurer’s liability if a claim is made. For home building and contents insurance, the sum insured is, arguably, the most crucial aspect and the importance of “getting it right” cannot be overstated.

According to The Insurance Council of Australia, approximately 43 per cent of home building and/or contents policyholders are significantly underinsured.

Determining the Sum Insured

For many people, determining exactly how much to insure their home building and contents for is a daunting task. It needn’t be, however, with a few guidelines to follow.

Most insurance companies offer replacement cover for household policies – or “new for old” so it is important to insure the building and contents for their full replacement value, not their value after depreciation.

• Home building insurance: The sum insured is based on the total cost involved in rebuilding the property to its original or a comparative state. In addition to the actual building expenses, this includes the costs of demolition and removal of debris as well as any associated engineering, architectural and council requirements. Consultation with a professional builder or property valuer is recommended.

• Home Contents Insurance: The most effective way of determining the sum insured for contents insurance is to conduct a room-by-room inventory. Simply go into every room, listing the individual items in each. Next to each item, write down how much it would cost to buy that item brand new.

Most insurers provide literature, online information and calculators to assist with determining sums insured.

As previously stated, the sum insured determines the insurer’s level of liability in the event of a claim. If the property is underinsured, the result can turn an already traumatic event into something more devastating.

Some insurance policies contain an “average clause” or “co-insurance clause.” What this means is that in the event of a claim, if a property is found to be significantly underinsured, the liability of the insurer will decrease commensurate with the level of underinsurance.

Let’s look at a hypothetical example without the average clause:

A home is gutted as a result of bushfire. There is nothing retrievable. The homeowner had insured the building for $200,000.00 and the contents for $10,000.00. When assessors inspected the ruins and collected all the information about what was lost, it was determined that the actual replacement value of the building was $400,000.00 and for the contents, $20,000.00.

The insurer, however, was only obliged to pay a total amount of $210,000.00, less any excess, and did this. The insured could not rebuild for the amount of the claim payment and had to settle for a much more modest home, fewer household contents and a significantly reduced standard of living.

Let’s look at another scenario with the average clause:

During a wild storm a tree falls onto a house, damaging the roof and part of the living room. Again, the building was insured for $200,000.00 and the contents for $10,000.00.

As in the previous example, loss assessors deemed the building’s actual value to be $400,000.00 and that of the contents, $20,000.00. The cost to repair the living room and roof is $30,000.00 and is well within the sum insured. However, the insurer was only obliged to pay an amount commensurate with the level of underinsurance.

The underinsurance level of the building was 50 per cent and so the insurer paid 50 per cent of the repair cost – i.e.: $15,000.00. Contents to the value of $8000.00 were also destroyed during the incident, however, the insurance payment, under the average clause, will be just $4000.00.

In total, the insurer paid $19,000.00, less any excess, when repairs to the building and replacement of contents actually cost $38,000.00.

These two examples highlight the importance of placing the correct value on home building and contents insurance policies and how decreasing sums insured to save a few dollars in premium costs is really quite a gamble that could have disastrous effects.

It far better to know that should an unfortunate incident occur, we can recover what is lost.

After all, isn’t that what insurance is all about?