Understanding frequently used insurance terms & concepts
Confused about insurance?
Insurance terminology can be quite complex and confusing, which can be quite frustrating when you are trying to decipher your policies! So we've put together a short overview of the most common terms & concepts for you.
Whether you are new to the world of insurance or not, it isn't always easy to understand some of the more commonly used terms and concepts. So to help you clarify certain points and make more informed decisions concerning your insurances, here is a short overview of some of these terms.
What is the Insurance Contract Act?
Every insurance policy is a contract between the customer and the insurance provider and is governed by the Insurance Contracts Act 1984. This Act is designed to protect the customer's rights, but also requires them to provide true and accurate information to the provider.
What is the difference between risk and insurance?
Insurance covers the loss of assets or valuables, whether through theft, accidental loss or damage (for example home, property or vehicle insurance), but you can also take out insurance against injury to your employees (worker's compensation), data breaches (cyber insurance) or interruption to your business due to a fire or flood (business insurance).
When you take out an insurance policy, you transfer the risk of loss, damage or injury to another party, essentially your insurance provider, who takes on this risk in exchange for money (premiums).
What is the duty of disclosure?
To calculate their risk, an insurance provider relies on customers providing accurate information, which if later is found to be inaccurate or misleading, can result in claims being refused; customers therefore, have a duty of disclosure to their providers.
What is the PDS?
The PDS or Product Disclosure Statement is a fairly large legal document that contains all the details of what your policy actually covers and is designed to protect against any misunderstandings between the customer and the provider.
What is a Certificate of Insurance?
Also known as a Policy Renewal or a Renewal Schedule, this is a much shorter document than the PDS and gives you the essential details of your policy including your premiums, excess payments in the case of a claim and payment schedule. It is issued when you first take out your policy and every time it is renewed.
What is the sum insured?
This is the maximum amount of money you will receive if you make a claim against a policy. For example, in the case of home contents insurance, it's important that you accurately estimate the value of your home's contents, otherwise if your home burns down, you might not receive enough money to furnish your new home, simply because you were underinsured.
What are exclusions, premiums, excess payments and specified limits?
Exclusions are included in the PDS and clearly state when a claim cannot be made, so it is important to read your PDS before selecting your provider. Premiums are the payments you make to your provider to take on your risk and excess payments are the amount of money you are prepared to pay to shoulder some of this risk yourself. Lastly, specified limits are sometimes included in insurance policies to limit the payouts for certain specified items, such as jewellery or valuable equipment.
What is a claim?
When you make a claim against an insurance policy, you are asking your provider to reimburse you for loss, damage or theft (depending on the policy).
For help deciding which type of insurance is suitable for your situation, talk to us today!
General Advice Warning The information on this website is general advice only and does not take into account your personal circumstances, financial situation or needs. Please connect with an insurance broker to discuss your specific needs.
Advisr does not provide advice and does not hold a financial service license (AFSL). All information above has been provided by Gail Findlay.