Need some help cutting through the jargon? Please see the glossary of insurance terms below.
Ab initio – Latin meaning “from the start”. An insurer facing a claim from an insured who had deceived the insurer regarding a material fact, would claim that the insurance contract was void ab initio; that it was null and void from the beginning and that since there was no legally enforceable contract, the insurer ought not to have to pay.
Addendum – A document setting out agreed alterations to an insurance contract. (See endorsement).
Additional Premium – A further premium payable by the insured usually as a result of a policy amendment, that may have increased the risk or changed the policy conditions or sum insured.
Adjustment – A device used by loss adjusters to reduce your claim after they have taken into account under-insurance, policy limits, overstatement, etc.
Aggregate Limit of Indemnity – The maximum amount an insurer will pay under a policy in respect of all accumulated claims arising within a specified period of insurance.
All Risks – Term used to describe insurance against loss of or damage to property arising from any fortuitous cause except those that are specifically excluded.
Alternative Accommodation – Commercial premises or residential accommodation, usually a house, flat or hotel, rented soon after an insured event in order to accommodate the insured whose property has been rendered uninhabited due to an insured event.
Average – A clause in insurance policies whereby, in the event of under-insurance, the claim paid out by the insurer will be scaled down in proportion to the level of underinsurance. For example if you insured to the half the real value of the item your insurers will only pay you half your assessed loss.
Betterment – It is a principle of insurance that the policyholder’s position must not be better as a result of the claim, compared to before the claim. If the policyholder decides to replace a lost or damaged item with something that is ‘better’. The policyholder is responsible for the difference between the cost of replacing the original item and the cost of the new item.
Beyond Economic Repair (BER) – Insured items are deemed to be BER when the cost of repairing them exceeds their value. In such cases insurers may pay the claimant the market value of the insured items at the date of loss, subject to the terms of the policy.
Breach – Failure to comply with a policy condition or warranty, for example failing to lock windows and door where that is a security requirement.
Business Interruption – Insurance covering loss of income suffered by a business when damage to its premises by an insured event causes a slowdown or suspension of its operations during the time required to reinstate or replace the damaged property
Certificate of Insurance (see Policy Schedule) Claimant – An insured party who has experienced a loss, due to an insured event, which they believe entitles them for compensation under the terms of their insurance policy.
Concealment – Deliberate suppression by a proposer for insurance of a material fact relating to the risk, usually making the contract null and void.
Endorsement – Documentary evidence of a change in the wording of or cover offered by an existing policy or qualification of wording if the policy is written on restricted terms. (See also Addendum).
Excess (or Deductible) – The first portion of a loss or claim which is borne by the insured. An excess can be either voluntary to obtain premium benefit or imposed for underwriting reasons.
Exclusion – A provision in a policy that excludes the insurer’s liability in certain circumstances or for specified types of loss.
Ex-Gratia Payment – A payment made by an insurer to a policyholder where there is no legal liability so to pay.
Hazard – A physical or moral feature that introduces or increases the risk.
Increased Cost of Working – Under a business interruption policy some cover is provided for additional expenditure incurred by the insured solely for the purpose of reducing the loss following an insured event.
Indemnity Period – Under a business interruption insurance the period during which cover is provided for disruption to the business following the occurrence of an insured peril.
Indemnity – A principle whereby the insurer seeks to place the insured in the same position after a loss as he occupied immediately before the loss (as far as possible).
Insurable Interest – For a contract of insurance to be valid the policyholder must have an interest in the insured item that is recognised at law whereby he benefits from its safety, well being or freedom from liability and would be prejudiced by its damage or the existence of liability. This is called the insurable interest and must exist at the time the policy is taken out and at the time of the loss.
Insurance Company – See Insurer
Insured – The person whose property is insured or in whose favour the policy is issued.
Insurer – An insurance company or Lloyd’s underwriter who, in return for a consideration (a premium) agrees to make good in a manner laid down in the policy any loss or damage suffered by the person paying the premium as a result of some accident or occurrence.
Material Fact – Any fact which would influence the insurer in accepting or declining a risk or in fixing the premium or terms and conditions of the contract is material and must be disclosed by a proposer, or by the insurer to the insured.
Negligence – Gives rise to civil liability. It has been defined as ‘the omission to do something which a reasonable man guided by those considerations which ordinarily regulate the conduct of human affairs would do, or doing something which a prudent and reasonable man would not do’.
Non-Disclosure – The failure by the insured or his broker to disclose a material fact or circumstance to the underwriter before acceptance of the risk.
Null and Void (See Ab Initio)
Policy Schedule – The part of a policy containing information peculiar to a particular risk e.g. address details, sums insured, specified items and exclusions. The policy schedule is usually only a few pages long and must be read in conjunction with the Policy Document.
Policy Document – A document detailing the terms and conditions applicable to an insurance contract and constituting legal evidence of the agreement to insure. It is issued by an insurer or its representative for the first period of risk. On renewal a new policy may well not be issued although the same conditions would apply, and the current wording would be evidenced by the renewal receipt. The Policy Document contains exclusions of warranties and other clauses, which may require to be interpreted by professionals. The Policy Document is usually much longer that the Policy Schedule.
Policyholder – (See Insured)
Premium – The consideration paid for a contract of insurance.
Proximate Cause – The primary or principal reason for, or cause of, a particular loss. This is not necessarily the first or last cause in a sequence of events.
Quantum – The actual amount the insurer pays as a settlement of a claim.
Reinstatement – Making good. Where insured property is damaged, settlement is often effected through the payment of a sum of money to the insured. However a policy may give either the insured or insurer the option to restore or rebuild instead.
Risk – The peril insured against or an individual exposure.
Salvage – A recovery of all or part of the value of an insured item on which a claim has been paid. The insurer will normally dispose of the item and apply the proceeds to reduce the cost of the claim.
Underinsurance – where the sum insured is lower than the value of the property insured
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 repudiate liability.
Void – When a policy is regarded as if it never existed, through for example non-disclosure or misrepresentation.
Warranty – A very strict policy condition imposed by an insurer. A breach may entitle the insurer to deny liability.
1. Term also used by an underwriter when paying a claim which he feels may not attach to the policy. This payment must not be treated as a precedent for future similar claims.