Explainer | What is insurance and how does it work?

Life is unpredictable. Accidents happen. When things go wrong, it can get pricey. And if you’re hurt, sick or dealing with a shock, it’s best if your wallet’s not taking a beating too. 

Getting insurance is like having a financial safety net. Lots of people look to different types of insurance companies for peace of mind and protection in case something goes wrong.

But what is insurance, and how does insurance work? Let’s run through the basics in a way that (hopefully) won’t send you to sleep.

‍What is insurance?

Insurance is a product you can buy to protect your finances. It can help you recover after a nasty unexpected event, like a car crash, illness, fire or accident.

Insurance companies guarantee payments for future, risky events. When you buy an insurance policy, you enter into a legal contract with an insurer. You agree to pay them money, and in return, they agree to pay certain losses if something goes wrong in your life. People often buy insurance to cover themselves for situations that’d cause financial stress.

For instance, you might want to insure your bike so if it gets stolen or damaged you can afford to get a new one. Or if you had a car accident you’d want to have the money to get it fixed. And if you’re injured playing footy, you might have to miss work, and pay for the costs that aren’t covered by Medicare or private health insurance. In fact, Australians spend around $29B each year on health expenses that aren’t covered by Medicare or private health insurance. 

Getting the right insurance cover means not having to worry about how you’d pay these costs because your insurance company helps foot the bill (often up to certain limits, so make sure you read and understand your policy documents).

How does insurance work?

You decide what you want to cover and buy different types of insurance to suit. Then if an unexpected event happens and it’s covered by the insurance you bought, your insurer will pay whatever was agreed to in your policy. 

Before we jump into the explainer we have to lay out some fundamental insurance facts that we’ve seen confuse some people, mostly about what you can’t claim. So, across insurance you won’t be covered if:

1. You haven’t activated your insurance. With Flip that means turning your cover on and paying $7 a day, $25 a week or $40 for a monthly subscription (unless you have a cheeky promo code). With other types of insurance it might mean signing paperwork or getting through your waiting period.
2. The damage or injury existed before you took out the insurance. For example, if you broke your arm before you turned on your Flip insurance, it won’t be covered. If you had a medical condition before you took out private health insurance, it usually won’t be covered right away. If your car was dented before you took out car insurance, you wouldn’t be able to claim for the repairs.

Step 1. Do your homework

As with most things, you need to know what you're buying before you go ahead and buy it. Talk to your friends and family, check out comparison sites and online reviews, and read that fine print to decide what kind of insurance you need. Most people don’t love reading through all of this legal stuff but it’s really important to know what you’re covered for, if there are exclusions, and so you get an idea of what you might be out of pocket so you’re not caught off guard when you come to claim.

We’re different at Flip because we never try to hide the fine print. We try to make our insurance as clear and simple as possible. We can prove it - our PDS is full of helpful tips including a claim checklist and it’s only 20 pages long compared to others with over 100 pages, which in insurance terms is the equivalent of an insta story vs a full-length feature film.

Step 2. Sign up for insurance

When you buy insurance, you essentially enter into a legal contract between you and the insurer. You commit to paying a regular fee (called a premium or premium payment) in return for financial protection if something goes wrong. Some types of insurance need you to fill in detailed application forms or have medical checks before they agree to insure you. 

Flip does it differently because our sign-up process is lightning-fast and there’s no complicated process or paperwork to wade through. If you live in Australia and are aged 18-64, you can sign up with a few simple details and have accidental injury insurance with no waiting periods or medical checks in just a few minutes.

Step 3. Pay your premiums

In most types of insurance your insurer sets your premiums based on a few factors, that take into account the likelihood that the insured event may happen to you i.e. the level of risk. Usually, the higher the risk, the more expensive the premiums are. Or if your risk is too high, sometimes you can’t get covered at all. 

The premium should be a relatively small amount compared to what the damage would cost you without it. You then choose how and when you'll pay your premium, which might be an annual lump sum or monthly instalments. 

Flip does it differently with affordable cover (seriously, it’s $7 for a day, $25 for a week or $40 for a monthly subscription) that’s on-demand, meaning you can flip it on and off for as little as one day. There are no lock-in contracts, and we’ll cover you for the riskier stuff that lots of other insurers won’t, like off-piste heli-skiing, cave diving, rock climbing, bungee jumping and other extreme sports adventures. 

Flip’s cover is also super-targeted, you don’t have to pay premiums for years that cover you for things that aren’t relevant to you, just for the most common injuries on the very days you think you might get them and not the days you’re just chilling on the couch. This flips the odds in your favour - insurance just on the days you need it. 

Step 4. Make a claim

If something bad happens like you tear your ACL (and you have Flip’s accidental injury insurance), are in a car accident (and have car insurance), or someone steals your stuff (and your home and contents insurance covers theft), you put in a claim. You’ll need to show evidence to get your payout. Some insurance companies get you to jump through serious hoops at this point, with tedious claim processes that take ages to resolve. And whether it's travel, car or health insurance, it often doesn't cover everything and you’ll be left to cover some of your expenses. This is where insurance can get really complicated. Sometimes some laws limit what insurers can pay out, so make sure you fully understand what’s covered and what isn’t to avoid nasty surprises. 

Flip does it differently because we’re crystal-clear about what we cover and pay you cash that you can choose to cover some of your expenses, the way you choose. It takes less than five minutes to put in an online claim. Just give us the key details and your evidence and we’ll do the rest. 

Step 5. You (hopefully) get paid out

If you’ve met all the claim requirements and your policy covers what happened to you, you get paid. Some insurance pays doctors and hospitals, and some arranges people to fix stuff. Often there is a complex process of claiming and reimbursements from different parties like doctors, hospitals, physios, builders or panel beaters. It can be confusing what you pay for and what you get back and when, so it’s important to read the fine print so you’re across the details.

Flip does it differently. We pay cash straight to you that you can use however you like. Let’s say you need to have surgery in hospital for an injury like a broken arm, torn ACL or dislocated shoulder. We pay you $2,000 cash, end of story. Going public for your surgery? No worries. Use the money towards the physio you might need afterward, replace the gear you crushed when you had your accident or just pocket the cash. It’s totally up to you. 

Good luck out there in insurance-land

Learning about insurance isn’t everyone’s favourite hobby but it can be totally worth your time. We hope our insurance explainer has helped you on your way, and if you’ve got any questions about Flip, on-demand insurance or accidental injury cover, check out our FAQs or hit the chat button now.