Demystifying terms in insurance contracts
Insurance lingo is all too often thrown around, but for those not involved in the industry, it may be more of a struggle to understand insurance and how it affects you.
Daniel Waters, director of Mavco Insurance Group, says getting beyond the jargon and understanding the type of cover your business needs can be challenging.
“I think a lot of the insurance jargon that’s well understood by the industry, but not by the individual business owner, can cause some confusion,” he says.
“So, it’s about taking the time to go through the specifics and definitions of the contract. Be aware of all the conditions and exclusions clauses, and to make sure that it’s understood and appropriate for the businesses.”
Every business is different, and therefore insurance needs to be tailored to suit a client’s specific needs.
Waters says it’s a good idea for a company to get professional advice from an insurance broker who can guide them through the jargon and select the right product.
“People can find themselves in a scenario where there is confusion about what is insured under a policy.
“People need to get clear facts up front, so they are not left in an awful position of finding they are not properly covered down the track when it is too late.”
He says part of the problem is that insurance contracts are notoriously lengthy and challenging to read.
“Every insurance company has slightly different terms, conditions, exclusions, for each of the various policies that are out there,” he says.
“So, the devil is always in the detail, and I guess the key is to make sure you’ve reviewed and understood. This is especially important when it comes to conditions and exclusions in commercial industry policies, which aren’t well understood.”
Insurance terms that cause confusion
- Actuary is the mathematical/statistical sum of the evaluated risk of something happening, how much it costs to finance that risk, and how much your premium should cost?
- Agreed value is the amount for which you and your insurer agree to insure you.
- Cooling-off period allows you to cancel your policy if you change your mind about your purchase and have any money you have paid refunded. You have a minimum 14-day cooling-off period for most general insurance products.
- Duty of utmost good faith is an agreement between each party to the insurance contract to act with fairness and honesty in their dealings with one another.
- Exposure is the amount of loss you might experience under your policy in the event of a claim.
- Peril is something or a situation that might cause harm or loss, for example, a cyclone.
- Pooling of premiums is when a group of people with similar risks share resources by combining their premiums so that everyone benefits.
- Reinsurance is insurance for insurance companies. It can be used to cover different risks for insurers.
- Resilience is the ability or capacity of a person, an object (such as a building) or a community to withstand stress and catastrophe.
- Uncertain risk is a risk that is identifiable but not easily quantifiable, such as a storm (it’s difficult to know where, when and how severe it will be).