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The Imperative of Guaranteed Wordings in an Insurance Policy

Insurance isn't just a contract; it's a pact of trust. A commitment to stand by the insured during unforeseen adversities. But, what if the foundations of this trust - the policy wordings - change without a forewarning? A recent incident involving Southern Cross underlines why guaranteed wordings in a policy aren't just preferable; they're crucial.

The Fragility of Uninformed Change

Insurance advisers were taken aback when they discovered that Southern Cross had discreetly removed a $60,000 a year benefit for non-surgical hospitalisation. Not only were the advisers kept in the dark, but so were the policyholders. While it's within the legal rights of Southern Cross to adjust their offerings, the absence of clear communication is a stark reminder of potential pitfalls in the insurance realm.

This underscores the importance of guaranteed wordings in insurance policies. These wordings ensure that the policy can only be enhanced, never degraded. In simple terms, you're assured that your cover remains robust and any changes will only be to your advantage, especially if these enhancements come at no additional premium.

The Tangible Consequences

A particular client's experience paints a telling picture of the impact of such unannounced changes. This client had previously availed the now-removed benefit for multiple treatments related to a severe infection. Although they hadn't claimed this benefit since 2020, the sudden discovery of its omission was both surprising and distressing.

Building Transparent Trust

Beyond the removal of a benefit, this incident underscores a broader issue: the pivotal role of transparency and trust in insurance. While Southern Cross did communicate changes, the manner was arguably cryptic, emphasising new offerings but omitting mention of the dropped cover.

Why Guaranteed Wordings Matter

Guaranteed wordings are more than just contractual clauses. They signify an insurer's unwavering commitment to its policyholders. They ensure that the promise extended at the beginning remains undiluted over time. In essence, guaranteed wordings shield consumers from abrupt and unfavourable changes. They promise that there will be no denigration to the cover, only enhancements.

Graeme Lindsay of Strategy Financial Services aptly encapsulated the sentiment, suggesting that though changing wordings might be legally permissible, doing so without adequate advisement borders on the unethical. It's about holding insurers accountable and ensuring policyholders are never left disadvantaged.

In conclusion, when assessing or revising an insurance policy, the presence of guaranteed wordings is paramount. They're your safeguard, ensuring that the protective umbrella of your insurance only gets sturdier with time, never the opposite.

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Steve Munro
5 September 2023