Table of contents - this section

• Why insure
  
• Policy structure
  - The policy title
  - The recited clause
  - The operative clause
  - The policy schedule
  - Exclusions
  - Conditions and warranties
  - Endorsements

1. Why insure

For most people, having a handful of insurance policies is a vital part of their financial peace of mind. Just what insurance one should have is the question.

At the minimum, people and businesses should insure against those losses which they cannot reasonably afford to suffer.

For example, if you own a house or car which is financed and it is destroyed by fire, you would typically still be liable for the full amount owing to your financier - with the asset now gone. As most would find this financially crippling, these major assets should usually be insured.

We would also strongly recommend you consider life and health insurance.

2. Policy structure

Not all policies will follow the same structure (or layout). In today's insurance market, policies are often written in "plain English" for ease of reference, but also in unconventional structures. It makes it difficult sometimes when comparing policies.

However, when viewed as a whole, most policies may be broken down into the following components:-

1. Title
2. Recited clause
3. Operative clause
4. Schedule
5. Exclusions
6. Conditions and warranties
7. Endorsements

2.1 The recital clause

The recital clause is designed to introduce and identify the parties and to bring the various elements of the policy together such as proposal, schedule and policy wording. This clause is often today incorporated within the operative clause (see below).

2.2 The operative clause

The operative clause (also known as the "insuring clause"), sets out in broad terms the policy coverage. The general nature of the clause is usually refined and narrowed by exclusions, conditions and so on.

2.3 The policy schedule

The policy schedule provides a place for all the "variable" information to be included in the policy, unique to an insured person or business. The schedule will often include information such as:-

• The policy number
• The full name of the insured, including ACN and/or ABN of the corporation if the insured is a company
• The business and/or occupation of the insured
• The "situation of risk" or locality of the insurance-matter
• The particulars or further description of the property to be insured
• The sum insured or limit of liability in Australian dollars
• The period of insurance, usually for a period of 12 months and expiring at 4.00 pm on the last business day of that year
• The amount of premium to be paid
• Variation or extensions
• Signature.

2.4 Exclusions

The exclusions are used to limit cover that the insurer does not wish to provide and may be used to eliminate cover:

• which is available under another class of insurance
• for risks which are considered unsuitable for insurance
• requiring special underwriting conditions.

2.5 Conditions and warranties

Policy conditions will speak about such things as:

• The duties of the insured in making a claim
• The insured's obligations where there is a change or alteration of the risk
• The effect on the policy of a fraudulent claim and/or the situation is if either party wants to cancel the policy.

The effect of warranties has been limited by the Insurance Contracts Act 1984 ("the Act"). It was formerly the case that a breach of a warranty by the insured entitled the insurer to avoid the policy altogether. Warranties may still exist in policy wordings that have not been updated.

2.6 Endorsements

An endorsement is a special clause added to the policy which alters or varies the terms of the original policy agreed by the parties. The use of endorsements prevents the need to issue a fresh policy each time authorisations are required by either the insured or insurer. It is important that endorsements are clearly drafted and as brief and to the point as possible, so that everyone knows the meaning.