What is an insurance policy?
An insurance policy is a contract where an insurer agrees to cover certain losses in exchange for a premium — but the cover is defined entirely by the policy wording, not by the product's marketing name. Two policies both called "home and contents insurance" can have very different exclusions, limits and excess structures.
The full terms sit in a document usually called the Product Disclosure Statement (PDS) or policy wording, not the one-page certificate of insurance you're sent after paying. If a claim is ever disputed, it's the PDS wording that decides the outcome, not the summary document.
When you'll come across one
You'll receive a policy document when you take out or renew home, contents, car, health, travel, income protection or business insurance. Renewal terms can change year to year even if the premium and product name stay the same, so it's worth rereading rather than assuming last year's cover still applies.
It's also worth reading closely before making a claim, not just before buying — knowing what your excess is and what's excluded ahead of time avoids an unpleasant surprise at claim time.
Key terms to know
- Excess
- The amount you pay toward a claim before the insurer pays the rest. A higher excess usually means a lower premium, but check whether it applies per claim or per incident.
- Sum insured
- The maximum amount the insurer will pay out, usually set by you at the start of the policy. If it's too low to actually replace or rebuild what you're insuring, you could be significantly underinsured even with an active policy.
- Sub-limit
- A cap on how much a policy pays for a specific category of item or event, even if your overall sum insured is much higher. Common for jewellery, electronics, or specific types of event.
- Exclusion
- Circumstances or types of loss the policy does not cover at all. Reading the exclusions list is usually more informative than reading what's covered.
- Duty of disclosure
- Your legal obligation to tell the insurer about anything relevant to their decision to insure you, before the policy starts. Failing to disclose something relevant can void a claim later, even if it seems unrelated to the loss.
- Product Disclosure Statement (PDS)
- The full legal terms of the policy, including exclusions, limits and claims conditions. This document — not the certificate of insurance — governs what's actually covered.
- Cooling-off period
- A short window (commonly 14 days) after buying a policy during which you can cancel and receive a refund if you change your mind, provided you haven't made a claim.
- No-claims bonus
- A premium discount that accrues the longer you go without making a claim, and can be reduced or reset if you do make one — worth factoring into whether a small claim is worth making.
What to check before you agree to anything
A sum insured that hasn't kept pace with replacement cost
Rebuilding or replacement costs rise over time; a sum insured set years ago may no longer be enough to actually replace what's covered.
Sub-limits on high-value items
A single laptop or piece of jewellery can easily exceed a sub-limit that sits well under your overall sum insured. Check whether valuable items need to be specifically listed.
Exclusions for the situations most likely to affect you
Flood, storm surge, business use of a home, or pre-existing medical conditions are common exclusions worth checking against your actual circumstances, not just skimming past.
What you disclosed at application versus what's true now
Your duty of disclosure doesn't always end at sign-up; a change in circumstances (renovations, new drivers, a change of occupation) may need to be reported.
The claims process and required evidence
Some policies require receipts, photos taken within a set timeframe, or a police report for theft before they'll pay. Knowing this before you need to claim saves time under pressure.
Automatic renewal on changed terms
Check whether the policy renews automatically at a different premium or with different terms to last year's, rather than assuming continuity.
Questions worth asking first
- Is my sum insured based on current replacement or rebuilding cost, not what I originally paid?
- Are there sub-limits on any high-value items I own, and do they need to be listed separately?
- What exactly is excluded that could plausibly affect me?
- What evidence will I need to provide to support a claim?
- Does my duty of disclosure continue after the policy starts, and what would I need to tell you about?
Frequently asked questions
What's the difference between the PDS and the certificate of insurance?
The certificate of insurance is a short summary confirming you're covered and for how much. The PDS is the full legal document setting out exclusions, limits and conditions — it's the PDS that determines what a claim actually pays.
Can an insurer refuse a claim over something I didn't think was relevant?
Yes, if it relates to your duty of disclosure and the insurer can show it would have affected their decision to insure you or on what terms. This is why disclosure questions should be answered fully, even if something seems unrelated to a specific type of loss.
Why would my premium go up even though I haven't made a claim?
Premiums are also affected by broader factors — rebuilding costs, claims trends in your area, and insurer-wide pricing changes — not solely your individual claims history.
Is a higher excess always the better choice for a lower premium?
Not necessarily. It lowers your premium, but it also raises the amount you pay out of pocket for every claim — worth weighing against how likely you are to claim and how large a loss you could comfortably absorb yourself.
What happens if my sum insured turns out to be too low after a total loss?
Most policies pay out based on the sum insured, not the true replacement cost, meaning you could be left covering a shortfall yourself. This is why checking the sum insured against current rebuilding or replacement costs matters.
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This guide provides general information and is not professional legal, financial or other advice specific to your situation.