Policy conditions

What it means

Policy terms and conditions are the insurer’s set of rules forming part of the insurance contract. They are split into general conditions for the whole class of insurance and special or contractual terms for a particular product or client. In a conflict, what is agreed in the contract itself prevails.

The terms define what is insured, which risks are covered, what the exclusions are, how the claim payment is calculated, the excess, and the insured’s duties before and after a loss. In practice they decide whether the insurer pays.

The policy schedule itself is usually short, naming the policyholder, the subject, the sum insured and the premium. The substance of the deal lies in the terms, which often run to dozens of pages. The policyholder confirms receiving and accepting them, even if they never actually read them.

How it works in practice

When reviewing a client’s insurance, we focus on exclusions, the definition of an insured event and the insured’s obligations. That is where the difference usually hides between two offers that look identical in price and sum insured.

It helps to list the specific obligations the company must meet, such as premises security requirements, electrical inspections or deadlines for reporting a loss. If the company fails to comply, the insurer may reduce or refuse the claim.

For more complex cover, it pays to work with an independent insurance broker who compares several insurers’ terms and negotiates amendments. Standard terms are not always set in stone, especially for larger companies.

What to watch out for

The insurer can change the terms on renewal. If the policy rolls over automatically, the new terms may add exclusions or lower limits. Changes should be checked and, if unacceptable, cancellation of the policy considered.

A frequent mistake is a wrongly set sum insured that, under the terms, results in underinsurance. The payout is then reduced in proportion to the sum insured versus the actual value, even when the loss is only partial.