How to read a PDS and understand the policy – Part 1
Most Australians understand the importance of insurance, particularly for their car, home and life. But that doesn’t mean they always understand some of the statements in the paperwork their insurer sends them, particularly the Product Disclosure Statement (PDS).
This becomes an even greater issue when you realise the serious underinsurance gap impacting many Australians. So, if you think there’s too much jargon in a PDS, think again! Here are some helpful tips to make understanding insurance documents easier. You can read Part 2 of this series here.
What is a PDS?
A PDS (sometimes called a Policy Document, Policy Wording, or Policy Booklet) may seem like a boilerplate legal document that you don’t need to read, but it actually clarifies everything you need to know about your policy. By reading it, you’ll understand what you’re covered for, what you’re not, as well as any mitigating circumstances where the policy may not cover you.
It’s important to read all sections of a PDS
While it’s important to read and understand the entire document, there are a number of parts that you may want to especially focus on understanding. After you’ve finished reading the PDS, you should know:
- what your duty is to disclose to your insurer before getting cover — this is known as your ‘duty of disclosure’
- exactly what you’re covered for, and just as importantly, what you’re not covered for (known as ‘exclusions’ or ‘provisions’)
- when your cover starts and ends
- the length of your cooling off period
- how to change or update your insurance policy
- the steps you need to take if you need to make a claim
- how to make a complaint or resolve a dispute
- what all the special terms mean (usually in the glossary section)
Below, we explain what the above sections mean:
- Duty of disclosure: This clarifies exactly what you need to disclose to your insurer before starting a policy. Your insurer relies on factual information that you provide when applying for your policy, so they can assess the risk to insure you, and on what terms you’ll be insured if your application is accepted. Failure to disclose information, or providing false information, could mean that the insurer may deny or reduce a claim.
- Inclusions: Everything you’re covered for in your current policy and under what terms.
- Exclusions: Everything you’re not covered for.
- Start and end dates: These dates will show when you’ll be covered by your policy, with any incidents that occur outside these dates not covered.
- Cooling off period: Within this period, you’ll be able to cancel your policy if you change your mind, and you may get a refund of any premiums you’ve already paid, assuming you haven’t made a claim
- Policy updates: Your circumstances can change at any time, and so may your required level of cover. It’s important that you know how to make changes to your policy so that you’ll always have the right level of cover for your needs. This section of the PDS will explain how you can update or amend your cover.
- Making a claim: Ensure you understand the steps you need to take when making a claim with your insurance provider, such as gathering all the required paperwork.
- Complaints: You have rights, and if you need to make a complaint or resolve a dispute over an outcome you’re not satisfied with, this section of the PDS will provide contact details and explain the steps you need to take.
- Glossary: A PDS will usually have certain words that are used frequently within the document (usually they’re capitalised, bolded, underlined, or italicised to make them stand out). These are defined terms and the meaning of these words forms part of your insurance contract, so it’s important that you understand what the special terms mean. The glossary includes all the special words used in the policy and their meaning, so you can refer to it as a guide for greater clarity.
We hope Part 1 of this series on understanding a PDS has been enlightening and helpful. You can also learn more by reading Part 2 of this series.
And once you’ve finished our series, it’s worth reviewing your various insurance policies to make sure they offer the right level of cover for your needs.
21 May 2020