How to read an insurance policy
Insurance policies can look complicated at first. They usually contain multiple sections, detailed explanations, and specific defined terms.
This is intentional. Insurance policies are legal contracts designed to clearly explain the agreement between the insurer and you, the customer. Insurance policies are detailed by design so that both the insurer and the policyholder understand the agreement.
They set out what is covered, what is not covered, and how claims will be assessed. Taking the time to review your policy schedule, policy wording, and definitions can help you understand how your cover works before you ever need to make a claim.
Once you understand the structure of a policy, it becomes much easier to navigate.
Key takeaways
- Insurance policies explain what is covered, what is excluded, and how claims are settled.
- Your policy wording and policy schedule should always be read together.
- Key sections to review include cover (sometimes known as the insuring clause), exclusions, limits, excess, and policy conditions.
- Important terms such as excess, sum insured, and accidental damage are usually defined in the policy.
- AI tools can help explain insurance wording, but the policy document itself is always the final authority.
- If anything is unclear, it is always best to confirm details with your insurance provider.
Who this guide is for
This guide is designed for New Zealand homeowners and landlords who want to better understand their insurance policy. Whether you are reviewing your cover for the first time or simply want to understand how your policy works, knowing where to find key information in your policy schedule and policy wording can make the process much easier.
Understanding your policy schedule and policy wording
Your insurance policy is made up of two key documents that work together: the policy schedule and the policy wording.
The policy schedule contains the details specific to your cover, such as the insured address, sum insured, excess, and any specified items.
The policy wording explains how the policy works. It outlines what events are covered, what exclusions apply, and the conditions of the insurance. Both documents need to be read together to fully understand your cover.
Policy schedule
This is the personalised summary of your cover. It includes details such as:
- the insured risk (property address or vehicle details)
- the type of cover you have
- the sum insured
- your excess
The schedule tells you what applies to your specific policy.
Policy wording
The policy wording explains how the insurance works. It includes the rules of the policy, such as:
- what events are covered
- what exclusions apply
- how claims are settled
- policy conditions and definitions
Think of it this way: The schedule shows your cover. The policy wording explains how that cover works.
The key sections to check in an insurance policy
Insurance policies follow a fairly consistent structure. Instead of reading every page straight away, it can help to focus on the sections that explain the most important parts of the cover.
1. What you are covered for
This section explains the events the policy protects you against. For example, many home and contents policies cover sudden and accidental loss or damage to your property that occurs during the period of cover.
This part of the policy (sometimes referred to as the insuring clause) outlines the main purpose of the cover and the types of incidents that may trigger a claim.
When starting an insurance claim, in the first instance, you need to provide enough information to support that the claim is covered by the policy (called a prima facie claim). In the above situation, you’d need to demonstrate that something caused 1) sudden and unintended, 2) loss or damage (which is often defined as physical loss or physical damage), 3) to property which belongs to you, and 4) that the damage occurred during the period of cover. This is why you need to understand each of the criteria of what you are covered for.
2. What you are not covered for
The exclusions section explain situations where cover does not apply. These sections are important because they define the boundaries of the cover. Common exclusions across many insurance policies include:
- wear and tear or gradual deterioration
- corrosion or rust
- damage caused intentionally
- pest or vermin damage
- damage linked to construction work
These exclusions help both the insurer and the policyholder understand where the cover begins and ends.
3. What the policy will pay
This section explains how claims are settled. Depending on the policy, the insurer may:
- repair the damage
- replace the item
- pay the present value of the item
This section will also outline limits that apply to certain items or categories.
For example, some policies set maximum limits for jewellery, bicycles, or collections unless they are specified separately on the policy.
4. Policy conditions
Policy conditions explain the responsibilities that come with having insurance. These include obligations such as:
- taking reasonable care to prevent damage
- notifying the insurer if circumstances change
- providing accurate information when applying for cover
- notifying the insurer as soon as possible after a loss
- additional obligations of landlords
These conditions help ensure that the policy continues to operate as intended.
5. Definitions
Insurance policies often use defined terms to keep the wording clear and consistent throughout the document. Words with specific meanings are usually bolded in the policy and explained in the definitions section of the policy wording.
Even words which have ordinary meanings, may be defined by the policy so it’s important to read through the definitions section for each policy, even for words you’re familiar with. For example “Home” has an ordinary everyday meaning, but the policy may provide its own definition to describe that when the policy says “Home”, it means: the dwelling plus fences, pools, utility connections and so on.
Some common insurance terms you may come across include:
- Excess: The amount you must contribute towards each incident before the insurer pays the remaining cost.
- Sum insured: The maximum amount the insurer will pay to repair or replace insured property after a covered loss.
- Incident: something that occurs at a particular point in time, at a particular place and in a particular way.
- Accidental: Unexpected and unintended by you as the policyholder.
- Hidden gradual damage: hidden rot, hidden mildew or hidden gradual deterioration, caused by water leaking from any internal: tank that is plumbed into the water reticulation system of the home and is permanently used to store water; or water or waste disposal pipe installed at the home.
- Present Value: the estimated reasonable cost to replace an item with an item in New Zealand that is of equivalent age, quality and capability, and is in the same general condition
Reviewing these definitions can help make the rest of the policy wording easier to understand.
The initio glossary page also explains many other general common insurance terms in more detail. Note that if a policy provides a specific definition, then that prevails over any other general definitions.
Three common mistakes people make when reading their insurance policy
When people first look at their insurance documents, it’s common to focus on the parts that feel most relevant at the time. However, this can sometimes lead to important details being missed.
1. Only reading the policy schedule
The policy schedule shows details specific to your cover, including the insured address, the sum insured, and the excess.
While this information is important, the schedule needs to be read alongside the policy wording, which explains how the cover works and what conditions apply.
2. Skipping the exclusions
Exclusions explain situations where the policy does not apply. They are not there to catch people out, but to clearly define the boundaries of the cover.
Understanding the exclusions helps you know what types of loss the policy is designed to protect against, and where other solutions or maintenance may be required.
3. Not checking the definitions
Insurance policies use defined terms that have a specific meaning within the policy.
These words are usually bolded, and are explained in the definitions section of the document. Checking these definitions can make the rest of the policy wording much easier to understand.
Taking a few extra minutes to review these sections can make a big difference in understanding how your insurance works and what you can expect if you ever need to make a claim.
Using AI to help understand insurance wording
Insurance policies contain detailed explanations and legal language. Because of this, many people now use AI tools to help explain certain sections.
For example, you might paste a paragraph from your policy wording into an AI tool and ask it to explain the meaning in simpler terms.
This can be useful for understanding unfamiliar phrases or summarising longer sections of the document.
The policy wording itself remains the official document that defines the cover. If anything appears unclear, the policy wording and your insurer’s guidance should always take priority.
Where to find your policy wording
If you want to review the full details of your cover, you can access the policy wording alongside your policy schedule.
You can view all initio insurance policy wordings here.
If you are unsure how a section applies to your situation, it is always a good idea to contact your insurance provider for clarification.
Frequently asked questions
Do I need to read my entire insurance policy?
Many people start by reviewing the key sections that explain what is covered, what is excluded, and how claims work. While you don’t have to read it all in one sitting, it is important to have a clear understanding of what you are and aren’t covered for.
What is the difference between the policy wording and the schedule?
The policy wording explains the general rules of the insurance cover which apply to everyone with the same type of policy.
The policy schedule contains the details specific to your policy, such as the insured address, limits, and excess.
Can AI explain my insurance policy?
AI tools can help summarise or explain complex wording in simpler language. However, the policy wording itself is always the final authority, and you should confirm any important details directly with your insurer.
What is the most important part of an insurance policy?
The most important sections to understand are:
- what you are covered for
- what you are not covered for
- your excess
- the sum insured
- policy conditions
Together these explain how the cover works and what you can expect if you need to make a claim.
If you are ever unsure how your policy applies to a situation, it is always best to check the policy wording or contact your insurance provider for clarification.
Written by Hannah Gabbie, Head of Claims at initio.
Hannah has been with initio since 2023, and has more than a decade of experience with fire and general claims. She is a Senior Associate CIP of ANZIIF, and has a Diploma of Loss Adjusting.
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