Reading an insurance policy

Every insurance policy sold in Australia comes with a Product Disclosure Statement, the PDS. It is the legal document that sets out exactly what the policy covers, what it excludes, and what it requires of you. Nobody reads the whole thing for fun. But knowing where to look for five specific things takes ten minutes and can save you from discovering a nasty surprise inside a claim.

The five things to find

• What is covered: the listed events, like collision, theft, fire, storm. If an event is not listed, assume it is not covered.
• What is excluded: the situations where the insurer will not pay, even for a listed event.
• The excess, or excesses: many policies stack more than one. Car policies often add an extra excess for drivers under 25, on top of the standard one.
• The sum insured or limits: the maximum the policy will pay, overall and for specific items. Contents policies often cap single valuable items unless you list them separately.
• Your obligations: what the policy requires of you, like keeping the car roadworthy, locking the house, or telling the insurer when your details change.

Exclusions: where claims go to die

Exclusions are the most important pages you will skim. Common ones in car policies: driving under the influence of alcohol or drugs, an unlicensed driver, a driver not listed on the policy when the policy requires listing, and using the car for paid work like food delivery without telling the insurer. Common ones in contents policies: wear and tear, damage that happened gradually, and theft when there was no sign of forced entry. None of these are hidden. They are printed in the PDS, which is exactly why insurers are allowed to rely on them.

Exclusions are not the insurer being sneaky, they are the insurer being precise about the pool it agreed to run. Remember the premium is priced on a particular level of risk, so if the insurer priced ordinary private driving, it never collected enough to cover a car being driven for paid delivery all day, and letting that claim through would mean the careful drivers in the pool subsidising a risk they were never charged for. So the sensible way to read the exclusions is to run your own life past each one and ask whether any of them describe you. If you deliver food on weekends, the paid work exclusion is not fine print to you, it is the single most important line in the document.

Limits work the same quiet way, and they are easiest to see with an illustrative number. Suppose a contents policy has a single item limit of $1,000 and your laptop is worth $2,600. If it is stolen and you never listed it separately, the policy pays $1,000 and the other $1,600 is yours to find, even though the overall sum insured is far higher. The fix is usually to specify high value items by name, sometimes for a small extra premium, which lifts them above the single item limit. None of this is a trap. It is simply the difference between what the policy says and what people assume it says, and the whole point of reading the PDS is to close that gap before a claim rather than during one.

Cheapest is not a strategy

Two policies with the same name can be very different products. A bargain premium sometimes means a higher excess, lower limits, or a longer exclusions list. The comparison that matters is premium and excess and cover, all three together, against the way you actually live. A delivery rider comparing car policies, for example, should be reading the paid work exclusion before the price.