Policy Wording, Cover and Conditions
Anatomy of a policy
Candidates must be able to navigate a policy document: recitals, definitions, insuring clauses, exclusions, conditions, warranties, limits and endorsements. The definitions section is the most common source of exam traps because words like 'accidental', 'sudden', 'building' and 'employee' carry precise meanings.
Cover and conditions
Distinguish sum insured (the maximum payable) from sum insured basis (reinstatement vs indemnity). Understand average and underinsurance, excess versus franchise, and the difference between aggregate limits and any one occurrence limits. Conditions include notification, claims cooperation, subrogation, contribution, salvage and prevention of loss.
Traps in questions
- Treating a franchise as an excess - with a franchise, no payment is made at all if the loss is below the threshold.
- Forgetting that a definition can override the insuring clause; always read definitions first.
- Missing that endorsements prevail over the standard wording where they conflict.
Worked example
A policy has a £500 excess and a 10% average clause. A building insured for £800,000 suffers a £200,000 loss; the value at risk is £1,000,000. Average applies: £200,000 × (800,000 ÷ 1,000,000) = £160,000, then the excess is deducted: £159,500 payable.