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How to enter into and enforce an insurance contract

Types of insurance cover

Before you enter into an insurance contract, you need to be certain of exactly what you want cover for. There are many different types of insurance policies for a variety of areas of cover. The most common of these are:

  • medical or health
  • life
  • house and contents
  • travel
  • motor vehicle

Important factors to consider

It is important that you shop around, as not all of the policies have the same cover. Important aspects to look at are:

  • the amount of the premium
  • whether the cover duplicates what you already have
  • how soon you must notify a claim after the loss or damage occurs
  • what proof is required when you make a claim
  • how long it will take the insurance company to investigate and settle the claim
  • what rights you or the company have to cancel the policy, and the repercussions of this

Your duty to disclose relevant facts

When you enter into the policy, you have a duty to disclose any relevant information to the insurance company. If it is discovered that you withheld relevant information, or that there were relevant inaccuracies in the information that you gave, the company may be able to cancel your policy.

Brokers and agents

You may get an insurance policy through either an insurance broker or an insurance agent. Both of these work on a commission basis, paid by the insurance company; however, while an insurance agent is the agent of the insurance company, an insurance broker is the agent of you, the policy-holder. Both agents and brokers have a duty to tell you of the meaning and effect of the policy. (For brokers see How to: The duties owed by insurance brokers).

Methods of valuing your property

If you are taking out property insurance (for example, on your home or car), the common forms of determining the value of the property is by either the "agreed value" or the "averaging method". For the agreed value the amount under the policy is set at a specified value. But for the average method you insure the item for only part of its value – say, 80 percent – and you receive only this proportion back if you make a successful claim.

Temporary insurance (cover notes)

You may enter into a temporary contract of insurance called a "cover note". This will usually last for 30 days while your application is being processed and the policy is being drawn up.

Lodging a claim

You should make sure that you lodge any claim within the time period specified for this in your policy.

The company will usually appoint a loss adjuster or assessor to investigate the events, establish a value for the loss, and then either pay the claim, decline it, or negotiate a settlement with you.

You should be aware of what your policy will deliver: if you have an indemnity policy you will receive only the market value; however, if you pay a higher premium you may have a replacement policy.

What can I do if the company denies the claim or pays out an insufficient amount?

If the company declines the claim you should request a written explanation. If you believe that there are no reasonable grounds to deny your claim, you should make a complaint to the Insurance and Savings Ombudsman (see How to make a complaint to the Insurance and Savings Ombudsman). If you are not happy with the Ombudsman's findings, you have the option of taking legal action against the insurance company to enforce your policy.

If your insurance company offers you an amount that you believe is insufficient, you should challenge their offer. To do this you should get an independent person to assess the loss and then contact your insurance company's legal department and present them with this assessment. If you are not satisfied with their response, again you should consider a complaint to the Insurance and Savings Ombudsman.

Cautionary notes
  • You should not sign an insurance contract unless you fully understand the meaning of the terms of the contract.
  • If after entering into an insurance contract you feel that what you believed was covered under the policy is not in fact covered, or if you are having difficulty lodging a successful claim, it is advisable that you seek legal advice so that you are aware of your rights and obligations under the policy.

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