Is insurance really worth it?

We are betting that if you are reading this, you have some kind of insurance: maybe for your car, your house, your fur baby, or your health.

But have you ever stopped to think about what it is, how it works, and if it is even worth it?

Let’s start at the beginning – what is insurance?

Insurance is ultimately a risk transfer.

You relieve yourself of risk (and worry) and pass it over to an insurer, for a cost.

If something unexpected happens – and it is covered under the terms and conditions of your insurance contract – the insurance company pays you for the loss or damage.

What can you insure?

These days there is insurance for everything – houses, cars, pets, medical, travel…

Merv Hughes even insured his moustache for roughly $370,000 during his cricketing days.

How exactly does insurance work?

You pay an insurance company a premium (read the next question to learn more about what this is) in return for a promise that you will be covered for financial loss – as long as the loss is covered under the terms and conditions of the insurance policy you purchased.

The premium you pay joins the premiums of many thousands of other policyholders and goes into a big pool of funds.

With any luck, you won’t ever have to draw on the pool of funds.

But if you’re unlucky and affected by misfortune or disaster covered by your policy, the funds are used to help you.

Insurance ultimately works by spreading the cost of unexpected risks among a big group of people who share similar risks.

What is a premium and how is it calculated?

A premium is the amount of money you pay for a policy.

When determining a premium, insurers consider many factors and use statistics and probabilities to determine the risk of insuring a particular risk and person.

The likelihood of claiming is considered and a premium for the insurer to take on the risk is determined.

Generally, when the risk of accident, loss, theft, or catastrophe is higher, so too are the premiums.

And when the risks are lower, the premiums are too.

Is insurance worth it?

If you are a homeowner, consider what would happen if your property was severely damaged or destroyed by a fire.

Without insurance, you would be left to cover the rebuilding or replacement costs yourself.

With insurance, you have a financial safety net.

Not convinced?

Here is just one claim example that proves insurance is a wise investment:

A car lost control and travelled through the fence and lounge/kitchen walls of an EBM RentCover client.

An assessor was appointed urgently after hours and the tenants had to vacate as the property was deemed uninhabitable.

Repairs took place and there were multiple work variations and challenges due to COVID-19 lockdowns.

However, the claim was finalised in September 2021.

Payout. EBM RentCover paid out a total of $51,416.31 for the damage + loss of rent while the tenant was unable to occupy the property throughout the repairs.

Without insurance, this landlord would have had to foot the damage and loss bill out of their own pocket.

I have been paying for insurance for years and have never made a claim. Are you sure I am not wasting my money?

This is a question a lot of people grapple with, for every type of insurance.

And the truth is, you may never need to make a claim.

It’s a tricky one – we agree!

It just depends on how much value you place on a piece of mind.

Plus, the truth is, you just never know when disaster is going to strike.

Are you willing to risk it?

That is up to you to decide.

How do you know what to insure and which policy is right for you?

First up, you need to work out what assets in your life are important – the right insurance policy will help to safeguard these assets.

However, it is not one size fits all.

Insurance policies come in a variety of shapes and sizes and have different features, cover limits, and costs.

You should shop carefully and read the Product Disclosure Statement to determine if the policy suits your needs.

To summarise

Life is unpredictable.

Unforeseen accidents can leave you facing emotional and financial stress.

With insurance in place, this stress can be reduced.

Guest Author: This article was written by the team at EBM RentCover and was originally published here. EBM RentCover is one of Australia’s leading landlord insurance providers, protecting more than 150,000 rental properties across Australia.

About Guest Expert Apart from our regular team of experts, we frequently publish commentary from guest contributors who are authorities in their field.