Insurance contract

What it means

An insurance contract is the insurer’s promise to pay out if an agreed event happens and the client’s promise to pay the premium for it. What is covered is set by the policy conditions attached to it, not by the product name.

Three roles sit in the contract and need not be the same person: the policyholder signs and pays, the insured is the one the event concerns, and the beneficiary receives the money. In company cover they often differ.

The policy document the client receives only confirms that the contract exists. What binds is the contract together with the general and special policy conditions and endorsements, which also set the excess and the limits. In a dispute that text decides, not the brochure or the quote once sent by e-mail.

How it works in practice

When an agenda is taken over the policies are read one by one: what they cover, up to which sum insured, when the anniversary falls and when they can be cancelled. Assets and turnover move; the policy does not update itself.

Changing the policyholder, the insured item or the sum takes a written endorsement, not an e-mail to the intermediary. Before signing, read the exclusions and the duties of the insured: those decide whether the insurer pays.

We keep a register of the client’s policies with anniversaries, sums insured and payment method, so premium payments can be matched and renewals flagged in time. When the insurer pays out, the indemnity is booked to income and the loss itself to costs separately, not netted off against each other.

What to watch out for

A policy signed when the company was founded still covers a warehouse that has since grown. The insurer then cuts the payout in the ratio of sum insured to real value: insure half of what lies in the warehouse and half of every loss stays with you.

A company changes how it uses its premises, say from office to a store of flammable goods, and does not tell the insurer. An increase in risk has to be reported; if it is not, the insurer may reduce the payout or cancel the policy, and the company learns this only at the claim, from the adjuster’s letter.