LML4805
Assignment 1
Semester 1
Due 10 March 2026
, 1. Difference between an insurance contract, insurance policy,
proposal form and cover note
An insurance contract is the agreement between insurer and insured in terms of which
the insurer undertakes to indemnify or pay a benefit upon the occurrence of an
uncertain future event in return for a premium. It is the legally binding contract created
once consensus on the essential terms has been reached.¹
An insurance policy is the written document that records and evidences the insurance
contract. It is not the contract itself but prima facie proof of the terms agreed upon.² For
example, when a vehicle is insured, the policy document lists risks covered, exclusions
and insured value.
A proposal form is completed by the prospective insured before conclusion of the
contract. It contains material information used by the insurer to assess risk and decide
whether to accept the risk and on what terms.³ Statements in the proposal form may
become terms or representations forming part of the contract.
A cover note is a temporary document issued by the insurer as interim proof of
insurance before the final policy is issued. It provides immediate but provisional cover
subject to the terms of the future policy.⁴
Example: A person applies for car insurance (proposal form), the insurer accepts the
risk and issues a temporary cover note for immediate protection, and later sends the
formal policy which records the insurance contract.
2. Contra proferentem rule and its exceptions
The contra proferentem rule provides that ambiguous terms in an insurance contract
are interpreted against the party who drafted or relied on them, usually the insurer.⁵ This
protects the insured, who normally has weaker bargaining power and did not draft the
wording.
Assignment 1
Semester 1
Due 10 March 2026
, 1. Difference between an insurance contract, insurance policy,
proposal form and cover note
An insurance contract is the agreement between insurer and insured in terms of which
the insurer undertakes to indemnify or pay a benefit upon the occurrence of an
uncertain future event in return for a premium. It is the legally binding contract created
once consensus on the essential terms has been reached.¹
An insurance policy is the written document that records and evidences the insurance
contract. It is not the contract itself but prima facie proof of the terms agreed upon.² For
example, when a vehicle is insured, the policy document lists risks covered, exclusions
and insured value.
A proposal form is completed by the prospective insured before conclusion of the
contract. It contains material information used by the insurer to assess risk and decide
whether to accept the risk and on what terms.³ Statements in the proposal form may
become terms or representations forming part of the contract.
A cover note is a temporary document issued by the insurer as interim proof of
insurance before the final policy is issued. It provides immediate but provisional cover
subject to the terms of the future policy.⁴
Example: A person applies for car insurance (proposal form), the insurer accepts the
risk and issues a temporary cover note for immediate protection, and later sends the
formal policy which records the insurance contract.
2. Contra proferentem rule and its exceptions
The contra proferentem rule provides that ambiguous terms in an insurance contract
are interpreted against the party who drafted or relied on them, usually the insurer.⁵ This
protects the insured, who normally has weaker bargaining power and did not draft the
wording.
