Policy wording – Bigger isn’t always better

8 June 2018

What’s a better policy wording? One with many pages or one that is short?

Good question! Unfortunately it’s one that doesn’t have a definitive answer but I will try and give some guidance.

If we look at an insurance policy at its very foundation, we find that it’s essentially a promise to cover an insured for losses they may suffer.

If we just had a policy which said the sentence above, we would probably have too broad a level of cover because basically it covers ANY losses. As nice as this would be for an insured, it could cause an insurer some issues with profitability!

It is therefore essential for insurers to reduce the likelihood of all eventualities being covered and they do this by creating policy wordings which should outline what is covered and what is excluded.

Let’s compare a 100-page policy wording and then one with 10 pages.

It is this author’s opinion that a shortened policy wording is preferable for the client. Most insured and most brokers are not lawyers and we have a natural preference for easy-to-understand text with a simple set of conditions.

It is likely that the 100-page document will be trying to restrict cover for specific eventualities. The longer document could also be trying to re-introduce extra layers of cover although arguably the first explanation is the more likely.

When comparing policies, don’t be afraid to ask your broker on their opinion of the policy wording. Expert advice is, after all, why you use a broker.

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