It is tempting to view insurance as a one-way street. After all, we spend thousands of dollars every year on expensive premiums, but what do we have to show for it?

But as anyone who has ever had to make a claim will attest, there is nothing as precious as insurance when you really, really need it.

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“It is that old adage that as soon as you take out insurance you will never, ever make a claim,” says Senior Executive Leader of ASIC’s MoneySmart, Miles Larbey.

“It is expensive, but bear in mind that insurance really comes into its own when something happens to you. It is really an important part of a financial plan because if you don’t have it then the costs can be astronomical.”

Protect yourself

We hope they’re covered. Photo: Shutterstock

The insurance consumers need will vary from person to person, but as a general rule Mr Larbey maintains that everyone needs to make sure both their major assets and their health are protected.

“That includes travel insurance which can sometimes get overlooked as it is the last thing a person wants to organise when they are planning to go on a holiday,” he says.

“I also recommend people consider pet insurance these days because if something happens to their pet the vet bills can be in the thousands.”

Ben Smythe, from independent firm Smythe Financial Management, says he plays the “worst-case scenario” game with his clients to assess what insurance they need.

“It is a bit morbid but you do have to look at what would happen if someone in the marriage died or was unable to work for a period of time,” he notes.

Mr Smythe says while most people have a degree of death and disability support cover through their super fund, very few people think to take out income protection insurance which covers a person for up to 75 per cent of their wage if they are unable to work through illness or injury.

But he considers it extremely important.

“I ask clients how they will pay the bills if someone is unable to work, what their risk strategy is, and they tell me they don’t have one because they are healthy,” he says.

Check you are actually covered

Having multiple insurance policies may offer you peace of mind, but insurance documents are complicated beasts and Mr Larbey says it is important to read the fine print.

And he is not just talking about the annual premiums.

Insurance can be a lifesaver. Photo: Shutterstock

“You need to understand what you are covered for and make sure you read the section that details the occasions when insurers may fail to honour a policy,” he says.

“There will probably be a few things that are excluded from the policy, too, so make sure you read that section.”

He also recommends shopping around and getting quotes from at least three different insurance companies before signing up for a policy.

That policy then needs to be reviewed every year to make sure it is still competitive and that nothing needs updating, he adds.

“If you make a claim some insurers may actually raise your premiums so be aware of this and shop around,” he says.

The long-term prescription:

Mr Larbey says we should always be honest with the insurer. Trouble often arises when people attempt to keep their premiums down by fudging details on their forms or not updating their details when their circumstances change.

“Always be honest about any pre-existing conditions,” he says.

“You have a duty of disclosure to the insurer and they may simply refuse to pay out if you are not honest from the very beginning.”

Which would really make the thousands of dollars we shell out on premiums every year a one-way street.