How to Read your House Insurance Policy
Reading and understanding your house insurance policy is important. But wordings are often complex and too hard to read. No wonder a 2018 UK study found just 20% of people were able to understand their insurance policy.
We believe insurers need to do more to help customers understand their policies. This guide will help you better understand your policy by breaking it down into four parts, and going over some helpful tips.
Four Main parts of a Policy
All insurance policies are a different in some way but they generally follow the same core features. This is what we found was consistent across house insurance policies in New Zealand:
Part 1. – What’s Covered?
All policies begin with an insuring clause. This outlines the risks taken on by the insurer and the scope of the cover.
|Insuring Clause Example
“You’re covered for sudden and accidental loss to the home that occurs during the period of cover.”
For house insurance, this will be a blanket statement that says something along the lines of “all accidental losses during the policy period are covered”.
Definition of the Home
The insuring clause will often be followed by a section that outlines the definition of the home. This is important to read. It will say what is and isn’t counted as part of the cover. As an example, gardens, driveways and patios might not be included in the insurer’s definition of a house.
Part 2. – What’s Excluded?
The insuring clause will say that all losses are covered. In reality we all know this is not true. Wordings will then exclude cover in a few ways:
“Losses not Covered” or “What we will not Pay”
Below the insuring clause you will typically find a small list of things ‘not covered’. Examples include things like losses from structural alterations, or exclusions for intentional acts of damage.
These apply to the entire wording and will be listed towards the end of the wording.
These will be consistent across insurers. Think things not typically covered by insurance such as Wear and Tear, and losses from War or Terrorism.
Not included in the Definition
Cover can also be excluded when something is not included in a definition. As an example, the driveway may not be included in the definition of a home and is therefore excluded from cover.
This is why knowing (and reading) definitions are important.
Pro Tip: If you have a good understanding of the definition of a home; and know the exclusions that apply, you will have a good idea of what’s going to be covered by your policy.
General Rule: If something is not excluded in an insurance policy then it’s covered. So look out for exclusions and don’t be afraid to ask your insurer which exclusion applies, or how something is not included in the cover.
Part 3. – What Additional Cover Applies?
Wordings then will have a section for additional policy benefits. These might also be called something like ‘Bonus Cover’.
Examples include Alternative Accommodation, Hidden Gradual Damage, or Keys & Locks cover. These are separate to the house cover itself and are paid over and above the sum insured.
Important Tip: Extensions overwrite exclusions!
If there’s an exclusion for intentional damage, but a landlord extension that covers intentional tenant damage – you are actually covered.
People often make this mistake when they see that their policy excludes natural disasters. There will actually be an extension for natural disasters that overwrites the exclusion and brings the cover back in.
Look on your summary schedule to see what additional benefits apply to your policy.
Part 4. – What do I have to do?
Last but not least, there will be conditions that apply to your cover. These can also be called ‘Responsibilities’ or ‘Obligations’.
If the conditions of a policy are not met a claim could be declined so you should have a good idea of these. Some will be general, such as your ‘Duty of Disclosure‘ while others are property specific like your Landlord Obligations when insuring a rental property.
A good way to guide yourself when reading through a policy is to think:
|1. What’s included in the description of the ‘house’?|
|2. What are the ‘losses not covered’ and the hard policy exclusions?|
|3. Which of the additional benefits actually apply to my policy and bring cover back in?|
|4. What conditions do I have to meet?|
Definitions are Important
Wordings often include bolded words. This tells you the word is important and has a definition which you can read in full at the end of the wording. Definitions will often determine how cover applies and can act to reduce or sometimes expand the cover.
A good example is the definition of ‘Hidden Gradual Damage’. The extension provides cover, but the definition actually narrows the cover down to certain scenarios. It’s not as simple as saying ‘I’m covered for all forms of hidden gradual damage’. Learn more about how defining Hidden Gradual Damage.
This is why referring to definitions are important. Not sure if your contents policy covers your lawnmower? Go to the definitions section and read the definition of contents. This will tell you exactly what is and isn’t included.