Study 4: From Quote to Policy - Application Question

Question 1

Mei is a broker presenting an underwriter’s policy wordings to her client, Daniel. She wants to make sure
that Daniel understands the different parts of the policy so he will feel equipped to look over the
documents himself before bringing queries to her. In her discussion outlining the policy wordings, what
information will Mei include regarding each of the following?
a. What are the names and a brief description of the standard parts of a policy that Mei will present
to her client? (5 marks)
b. What information is included in the declarations or coverage summary and why is that information
needed? (5 marks)

c. Describe each item that is presented in detail in the insuring agreement. (5 marks)

Answer 1

Answers:
a. Parts of a policy (any five of the following)
• Declarations: Statements included in a policy that are agreed to by the insured and form the basis
of the contract of insurance
• Insuring agreements: This part explains what is covered and for how much
• Deductibles: An agreed specified amount that the insured must pay on a claim before the
insurance company will cover the rest of the claim
• Conditions: If a condition is breached by the insured, the policy may be void or voidable (a void
contract), or a claim arising out of the breach may be denied by the insurer, depending upon the
condition involved
• Warranties: Statement or stipulation or promise in an insurance contract, the breach of which may
nullify the contract
• Signature clause: The policy is signed by the insurers only; the insured’s signature is not required

b. Declarations and their importance (any five of the following)
• The names of the insured and the insurer (the parties to the contract)—it is important to state
correctly the legal name and address of the insured; a policy is a personal contract and cannot be
transferred to another without the consent of the insurer except in special cases
• The effective and expiry dates and policy term (for example, 12:01 a.m. Standard Time at the
address of the named insured as stated on the policy). Generally, a policy is for one year; it can,
however, be written for other terms agreed to by the parties involved, particularly when used in
commercial insurance or by non-standard markets
• The names and addresses of any loss payees and mortgagees
• The total premium and rate
• The amounts insured—although this may also appear as part of the insuring agreements
• The deductibles applicable to each coverage—although this may also appear as part of the
individual wordings

c. Insuring agreements (any five of the following)
• The subject matter of the insurance—description of the property covered
• The coverages applicable
• The term of the policy (if not shown on the declarations page)
• The perils against
o When read in conjunction with the exclusions, this describes the coverage that is provided
• The exclusions
o These restrict the perils insured (whether any of these would bring hardship to the client
should be considered; if so, alternative cover may need to be arranged)
• The circumstances under which the insured will receive payment of the proceeds for claims