Structure of an Insurance Policy

An insurance policy is a contractual document which expresses the agreement between your organisation (the insured) and the insurer. The policy contains a number of provisions which are designed to achieve a particular purpose. Most insurance policies can be broken down into the following components:

Title - indicates the class or type of policy and the name and address of the insurer.

Recital Clause (sometimes referred to as the 'preamble') - serves to:

• Establish the necessary conditions precedent (before) the completion of a valid contract has been fulfilled;
• Identify the parties i.e. the insured and the insurer; and
• Identify the business or occupation of the insured.

Operative Clause (sometimes referred to as the 'insuring clause' or 'insuring agreement') - defines the obligations incurred by the insurer. It outlines the agreement of the insurer to indemnify the insured subject to the terms, exclusions, limitations and conditions which are expressed elsewhere in the policy. This clause merely states the general nature of the insurer's obligations.

Schedule - this personalises the policy by outlining the particulars relevant to the individual contract. The schedule usually contains: the name of the insurer; the policy number; the insured's name and address; insured's business or profession; products manufactured, sold or supplied; period of insurance; limit of indemnity; premium payable; variations or extensions; and signature of the insurer's authorised official.

Exclusions - most important that you read this section carefully - this lists the events/things that the insurer is not prepared to cover. The purpose of the exclusion clause is to: eliminate cover that is available under another policy; assist in the management of the moral hazards; eliminate cover for risks which are considered unsuitable for insurance; and eliminate cover requiring special underwriting consideration.

Conditions - these are the various qualifications that the insurer attaches to the promises contained in the policy. They create duties on the part of the insured which must be fulfilled if the insured wish to avail themselves to the protection provided by the policy.

Endorsements - are used to vary the printed wording of the policy to record modifications to the cover provided by the policy. Endorsements are used to: effect changes in the details appearing in the schedule; extend, restrict or otherwise modify the cover provided in the basic policy; delete an exclusion contained in the exclusions section of the policy.
Example - If you wanted cover for a particular event that was specifically excluded in the basic policy wording, or you carry on some activity that is not included in the basic policy, you would need to seek an endorsement from the insurer to have this exclusion removed or cover added. Endorsements agreed to by the insurer usually incur an additional premium.

Attestation Clause (sometimes referred to as the 'signature clause') - this clause authenticates the document with the signature of the insurer's authorised officer. Usually in the form of "Signed for and on behalf of the company".

Expiry of Policy - under the Insurance Contracts Act insurers are only required to give 14 days notice of whether they intend to renew the policy or not.