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Insurance Terms Explained


The insurance industry is well known for using a vast number of technical terms. These terms are often quite difficult to understand. Below you will find some of the most common insurance terms with a brief explanation of their meaning.


Common Insurance Terms

VIS MAJOR (ACT OF GOD)
An act of God is a legal term that covers events outside of human control, and for which no one can be held responsible, such as natural disasters.

ADDENDUM
A document which sets out agreed changes to an insurance contract.

ADDITIONAL PREMIUM
An additional sum payable due to a policy amendment that has either; changed the policy conditions, the sum insured or increased the risk.

ADJUSTER
An individual who assesses and investigates insurance claims. (Also known as a Claims Adjuster or Loss Adjuster).

ADVANCE PROFITS INSURANCE
Business insurance which covers any financial loss incurred as a result of a delay caused by a construction project for new enterprises or extensions to any existing business.

AGGREGATE LIMIT OF INDEMNITY
The total amount of coverage offered over the contract period regardless of the number of accumulated claims.

ALL RISKS
Insurance against loss or damage to property that arises by chance; except by causes that are specifically excluded.
          
ASSURANCE
A term usually used with regard to life cover. Assurance indicates that an event is certain to take place, whereas insurance suggests that it is only probable.

AVERAGE
If the sum insured is inadequate to cover the full value following a household insurance claim, the insurer may apply an average clause which reduces liability by adopting a proportionate approach.

BUSINESS INSURANCE
Insurance which protects all types of businesses and organisations against loss or damage in exchange for a premium payment.

CANCELLATION
The termination of a policy before its expiry date. Cancellation clauses usually stipulate a period of notice to be given prior to cancellation and insurers often demand a return premium.

CLAIMS
A demand for payment made by the insured party for payment of benefits as stipulated in the policy.

COMMERCIAL COMBINED INSURANCE
A variety of different commercial insurances combined to make a single package.

COMMERCIAL INSURANCE
Insurance which protects all types of businesses and organisations against loss or damage in exchange for a premium payment.

COMMON LAW
Common law is an unwritten law, and is a legal precedent made by judges sitting in court. Common law is constantly changing, unlike laws that are codified as Acts of Parliament.  

COMMUNITY COMPANY
An insurance company whose main headquarters are situated in a Member State of the European Economic Community.

CONCEALMENT
Intentionally concealing a material fact which relates to risk by an insurance proposer, more often resulting in the contract being declared null and void.

CONSEQUENTIAL LOSS
The amount of loss incurred as a result of being unable to use business premises or equipment; for example, loss of revenue.

COVER NOTE
An insurance document that contains details of the insurance held by the insured party.

DEDUCTIBLE
The amount of loss that the insured party pays before the insurance company contributes.

DEFERRED PREMIUM
The part of a premium which is payable by either quarterly or half yearly instalments.

EMPLOYERS LIABILITY INSURANCE
Compulsory insurance coverage to be held by an employer for injury and disease suffered by employees during the course of their work.

ENDORSEMENT
An endorsement is a written document attached to an insurance policy that modifies it by changing the afforded coverage.

EXCESS
An excess is the amount of money an insurance company asks the insured party to pay towards the cost of making a claim.

EXCLUSION
Conditions or items that are not covered by the basic insurance contract.

EX-GRATIA PAYMENT
A payment given to a policyholder when the insurance company had no legal obligation to pay.

FIRST LOSS INSURANCE
Insurance where the sum insured is accepted to be less than the value of the property but the insurer undertakes to pay claims up to the sum insured, without application of average.

GROSS PREMIUM
A term usually applied to gross written premiums prior to the deduction of discounts and brokerage.

HAZARD
An object or situation that increases the likelihood of a loss occurring.

INCEPTION DATE
The date an insurance policy commences.

INCREASE IN COST OF WORKING
The insurer will find a business suitable new premises, and supply new office equipment.

INDEMNITY
Restoration to the victim of a loss via repair, replacement or payment.

INDEMNITY PERIOD
The period during which cover is provided under a business interruption insurance policy.

INSURABLE INTEREST
An interest in property that would result in a financial loss if the property was lost or destroyed.

INSURABLE VALUE
The amount to be paid out by the insurance company if the item insured is lost or destroyed.

INSURANCE BROKER/INTERMEDIARY
An individual who gives advice with regard to insurance policies and arranges them, in return for a commission from the insurance company.

FINANCIAL OMBUDSMAN SERVICE
The Financial Ombudsman Service is an independent service set up in the UK to settle disputes between businesses who provide financial services and their customers.

INSURANCE PREMIUM TAX
The Insurance Premium Tax is a tax on general insurance premiums which was introduced in the UK in 1994. It includes a standard rate of 6% and a higher rate of 20%.

INSURED
The person who is covered by, or who obtains insurance on his or
her life, health or property.

INSURER
The party in an insurance contract who undertakes to pay compensation.

LAPSE
The non-renewal of an insurance policy.

LATENT DISEASE
Disease which lies inactive for a period of years before manifesting itself.

LIMIT
The insurer's maximum liability under an insurance policy; often expressed as ‘per event’, ‘per accident’ ‘per annum’ or ‘per occurrence’.

LLOYD'S (OF LONDON)
Lloyd's of London is an insurance market located in London's main financial district. It is not a company but a corporate body governed by the Lloyd's Act of 1871 and subsequent Acts of Parliament.

LLOYD'S BROKER
A Lloyd’s registered broker is a broker who has met certain minimum standards and has been approved by Lloyd's to do business with any Lloyd’s managing agent.

LOSS
A claim on an insurance policy.

LOSS ADJUSTER

A Loss Adjusters examines large or complicated claims on behalf of insurance companies, looking at the amount of loss or damage and deciding how much compensation the insurance company has to pay.

LOSS ASSESSOR
A Loss Assessor makes sure that policyholders receive a fair and equitable settlement and not just the minimum that a Loss Adjuster might recommend and an insurer would prefer to pay.

MATERIAL DAMAGE WARRANTY
Material damage warranty ensures the loss is not exacerbated by lack of capital on the part of the insured.

MATERIAL FACT
A fact which would influence the insurer in accepting or declining a risk or in fixing the premium or terms and conditions of the contract.

NAME
An alternative term for an underwriting member of Lloyd's of London.

NEGLIGENCE
A breach of a duty of care which results in damage.

NET PREMIUMS
The amount of premium minus the agent's commission, brokerage or taxes.

NEW FOR OLD
Where insurers agree to pay for new items to replace old ones in the event of a claim.

NO CLAIMS BONUS (OR DISCOUNT)
A discount that you receive, mainly on your car insurance premium, as a reward for not having made a claim against your policy.

NON-DISCLOSURE
Failure by the insured or his broker to disclose a material fact or circumstance to the underwriter when taking out an insurance policy.


PASSENGER LIABILITY
A Passenger Liability policy covers incidents resulting from the transportation of passengers by land, sea or air.

PERIL
Serious and immediate danger, or exposure to danger which may be covered or excluded by an insurance policy.

PERIOD OF RISK
The period during which the insurer is liable under the terms of the policy.

PERMANENT HEALTH INSURANCE
An insurance policy which pays benefits to policyholders who are incapacitated and so unable to work due to illness or an accident.

PERSONAL ACCIDENT AND SICKNESS INSURANCE
An insurance policy which pays out fixed benefits in the event of death or critical illness.

POLICY
A document which details the terms and conditions of an insurance contract, which is issued by the insurance provider.

POLICY HOLDER
The person in whose name the policy is issued.

PREMIUM
The price of insurance protection for a specified risk over a set period of time.

PRE - EXISTING MEDICAL CONDITIONS
An illness you suffer from currently, or have done previously, which may not be covered under a new policy for a specified period of time.
PRODUCTS LIABILITY INSURANCE
Insurance that covers the cost of compensating anyone who is injured by a faulty product that your business designs, manufactures or supplies.

PROFESSIONAL INDEMNITY INSURANCE
A type of liability insurance that protects professional advice and service providing companies and individuals from bearing the full cost of defending against a negligence claim made by a client, and pays any damages awarded.

PROPOSAL FORM
A form that is completed by the person applying for insurance.

QUOTE
A statement issued by an insurance company detailing the premium they require for a particular insurance policy.

REINSTATEMENT VALUE
Reinstatement value does not refer to the market value of the property, but to what it would cost to rebuild using the same materials and construction methods.

RENEWAL
The process of continuing an insurance policy from one period of risk to the next.

RISK
The likelihood that an insured event will occur, which will result in the insurer having to pay a claim

RISK MANAGEMENT
The forecasting and evaluation of economic risks, along with the identification of procedures that will avoid or minimize their impact.

SALVAGE
The scrap value of damaged property which is deducted from any loss settlement if the insured party keeps the damaged property.

SCHEDULE
A policy schedule is an outline of the cover provided under the insurance policy.

STATEMENT OF FACT
A statement provided by the insurance company which clarifies the basis on which the insurance is accepted and what conditions apply.

STATUTE LAW
A specific, written law that declares, proscribes, or commands; otherwise known as Acts of Parliament.

SUBJECT TO SURVEY
A phrase used by an insurance company to signify provisional acceptance of an insurance pending inspection by a qualified surveyor.

SUM INSURED
The maximum amount payable in the event of a claim.

THIRD PARTY
An insurance policy purchased for protection against the actions of another party. It is purchased by the insured (first party) from an insurance company (second party) for protection against another party's claims (third party).

THIRD PARTY LIABILITY
Liability of the insured party to persons who are not directly covered under the contract of insurance.

UNDERLYING INSURANCE
The basic or main layer of coverage; the initial policy that will respond to the covered loss.

UNDERWRITER
An individual who evaluates the risks of insuring a particular person or asset and uses that information to set the price of insurance premiums.

UTMOST GOOD FAITH
Insurance contracts are contracts of utmost good faith (uberrima fides), which means that both parties to the contract have a duty to disclose, clearly and accurately, all material facts relating to the proposed insurance. Any breach of this duty by the proposer may entitle the insurer to deny liability.

WARRANTY
A guarantee or promise which provides assurance by one party to another that specific facts or conditions are genuine or will happen. A breach entitles the insurer to deny liability.

WEAR AND TEAR
An amount deducted from claims payments to allow for any depreciation in the property insured caused by continued use.

WITHOUT PREJUDICE
Will not impair any existing right or claim.

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  • Top 100 UK independent broker* with Chartered Insurance Broker status
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* Top 100 Independent Brokers 2013 published by Insurance Age in association with Cornell Consulting

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