An insurance policy is essentially a product that you buy either directly from an insurer or through a broker. Faced with a hefty policy document and unfamiliar insurance definitions, it can be daunting trying to make sense of it. Like any product that you purchase, it’s important to understand exactly what it is that you are buying.
An insurance policy is a legal contract
An insurance policy is a legally binding contract between you and the insurer. This is not only to protect you if you need to make a claim but to ensure that you are fully aware of what is included in your cover and what is not.
It’s not uncommon to hear stories of people who thought they were insured for an unexpected adverse event but weren’t because they didn’t read the terms and conditions or simply didn't understand the terminology.
When a broker presents a policy based on information you have provided, the onus ultimately lies with you to read the fine print before you commit, whether it’s simply third party insurance for your car, basic home and contents insurance or a comprehensive life or business insurance policy.
What a policy document covers
There are a few steps involved in taking out insurance, from the initial filling in of a proposal form with your personal details to receiving acceptance from your insurer. Most policies include coverage details, the policy terms and conditions and a declarations page. Included in the acceptance will be details of the premiums you will need to pay and what the insurer will pay out if you need to make a claim.
Every policy is different and has been tailored to your circumstances so you can’t assume that if you’ve read one policy, you’ve read them all. This is important to keep in mind when it comes to the duty of disclosure. This section is put in place to ensure that you are completely honest with the information you disclose to your insurer.
Your insurer uses this information to evaluate their risk of providing you with insurance, in addition to calculating your monthly premiums and the sum they agree to pay you in the event you make a claim. If you haven’t understood this part of the policy wording, and make errors in what you declare, any claims you make may not be paid out at claims time.
An insurance broker can explain what your policy wording means
Thankfully, there have been vast improvements in recent years in how insurance policy wordings are written to help the general public better understand the complex terminology used in agreements. However, if you are new to insurance and taking out your first policy, or are not confident with reading legal documents, then it’s recommended that you consult a broker to assist you.
Ensuring that there are no hidden details buried in the fine print that you have missed or failed to understand can sometimes be the difference between whether you are successful in the event that you need to lodge a claim or not.
Brokers are experts in their field and have the knowledge to be able to explain in simple terms what your contract includes and what fine print details you need to be aware of. They will also take the time to talk you through the various sections and answer all your questions, so that you can be confident that you know exactly what product you are agreeing to buy.
Contact an NZbrokers member to discuss your policy wording and how they can help.