Types of insurance

Insurance comes in flavours, one for each kind of expensive surprise. You will not need all of them at once. You will meet most of them within a decade of leaving school, so here is the map.

Car insurance: three layers

• Compulsory third party, or CTP: comes with registration in every state, green slip in NSW. Covers injuries to people hurt in an accident. It never covers damage to vehicles or property.
• Third party property damage: optional, and covers damage you cause to other people's property, most importantly their cars. Your own car is not covered.
• Comprehensive: covers damage to other people's property and to your own car, including theft, fire and storm damage.

The three layers stack. Every registered driver has the first. The real decision, which the case study at the end of this topic works through in dollars, is between the second and third.

Health insurance

Medicare covers every Australian for public hospital treatment and subsidised doctor visits. Private health insurance sits on top: it can cover you as a private patient, help with things Medicare does not, like most dental and optical, and give more choice about who treats you and when. For most students, Medicare does the heavy lifting. Private cover becomes a real question later, when income rises.

Medicare is a form of insurance too, just a compulsory national one, and it is funded partly by the Medicare levy, which for most taxpayers is 2 percent of taxable income. So you help pay for the pool through your tax, and in return the pool is there when you need a hospital. Private cover changes the calculation later for two reasons. Higher earners who go without it can pay an extra tax surcharge, and the government prices private premiums to rise with the age at which you first take out hospital cover. Neither of those bites while you are a student on a casual wage, which is why the honest answer for most people your age is that Medicare is enough for now.

Cover for your stuff and your plans

Contents insurance covers your belongings, laptop, clothes, furniture, against theft, fire and other listed events, and it is not just for homeowners. Renters and share house residents can insure just their own things, usually for a surprisingly small premium. Travel insurance covers medical bills, cancellations and lost bags when you are away, and matters most overseas, where a hospital stay can cost more than a car.

Cover for your income, later

Further down the track come income protection, which replaces part of your pay if illness or injury stops you working, and life insurance, which pays your dependants if you die. Many Australians hold basic versions of these inside their super fund without knowing it. They matter most once someone else relies on your income.

That super point is worth pausing on, because it can quietly cost or save you money. When you open your first super account through a job, the fund often switches on default life and income cover and pays the premiums out of your balance, which is fair enough once you have dependants but is money leaking out of a small balance if you have none. So it is worth checking, and the same fact cuts the other way later, when that default cover can be the simplest protection you own.

The word comprehensive is not a promise

The most common misreading of this whole menu is the belief that comprehensive means everything is covered. It does not. Comprehensive is simply the name of the top layer of car cover, the one that adds your own car to the list, and it still carries exclusions, limits and an excess like any other policy. The same trap waits in every type: a name on the front of a policy tells you the category, not the contents. What is actually covered lives in the fine print, which is why a later lesson in this topic is about reading it.