Glossary of Insurance Terms
Insurance which pays benefits in the event of an accident. Items typically covered are medical expenses and loss of earnings. If, for example, the insured sustains the loss of a limb or an eye, a specified lump sum is payable.
Accidental Death Insurance:
Insurance which pays a lump sum in the event of death of the insured being caused by an accident.
Act of God (Vis Major):
An unpreventable and unpredictable event which could cause loss or damage to buildings, land, vehicles etc.
Unexpected or unintended physical damage caused by sudden or external means.
The person responsible for contact with the customers and the handling of their insurance arrangements.
The person who is responsible for the placing and administration of a customers insurance arrangements
A document setting out agreed alterations to an insurance contract. (See endorsement).
A further premium payable by the insured as a result of policy amendment, that may have increased the risk or changed the policy conditions or sum insured.
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.
Term used to describe insurance against loss of or damage to property arising from any fortuitous cause except those that are specifically excluded.
A clause in insurance policies whereby, in the event of under-insurance, the claim paid out by the insurer is in proportion to any under insurance.
A policy with a single sum insured covering a number of separate items without being divided up amongst them, i.e. fire insurance for several buildings.
A regulated independent intermediary who acts as an agent for various insurers on behalf of the policyholder.
Business Interruption Insurance:
Insurance covering the loss of profits of a business and certain other costs resulting from fire or other insured events. Also known as consequential loss insurance.
Terminating a policy before it is due to expire. There may be a cancellation clause in a policy setting out the conditions under which the policy may be cancelled by notice. The period of notice could be anything from 48 hours to 3 months. In most cases this will result in a return premium being paid by the insurer to the insured.
Certificate of Insurance:
A document that provides evidence that insurance is in force - certificates are particularly used for compulsory insurances (such as motor and employers liability) or where individuals are covered under group policies.
Policy condition that sets out the policyholder's duties and responsibilities when making a claim.
How many claims a policyholder or group of policyholders has made, and for what monetary value.
A section of the insurance policy (or other legal document)
Types of insurance written for businesses instead of individuals, e.g. fire, business interruption and liability insurance.
An insurance company whose head office is in a member state of the European Union.
Cover for a wide range of risks - e.g. accidental damage, fire, theft, third party injury and third party property under motor insurance.
Insurance cover that is required by law, e.g. employers' liability, motor insurance.
Deliberate suppression by a proposer for insurance of a material fact relating to a risk, usually making the contract null and void.
Consequential Loss Insurance:
Insurance covering the loss of profits of a business and certain other costs resulting from fire or other insured events. Also known as Business Interruption Insurance.
Contract Works Insurance:
Insurance for construction works covering damage to property on the site and third party liability. Also known as Contractors All Risks.
The right of a customer to cancel a policy within a set time.
A document issued by the insurer (or its agent) to the proposer or policyholder to confirm the main details of the cover that has been arranged, e.g. motor insurance. This is usually because the policy and/or certificate of insurance have yet to be prepared.
Insurance cover against the financial default of the policyholders' customers.
Critical Illness Insurance:
A policy that pays a lump sum benefit to the policyholder upon the diagnosis of a critical or terminal illness. Also known as dread disease insurance.
A signed statement by the proposer or policyholder, usually at the foot of a proposal form or claim form, certifying that the information provided is accurate.
A deductible is essentially a very large excess. Only the amount which is in excess of the deductible will be paid.
Directors and Officers (D&O) Insurance:
Insurance covering the personal interests of directors and officers of a company against lawsuits claiming they committed wrongful acts.
The date from which cover begins under a policy and from which the insurer is on risk. Also known as the inception date.
A compulsory form of insurance that protects companies from claims made by employees who are injured or become ill as a result of their work.
An amendment or alteration to a policy, which then becomes an integral part of that policy.
Insurance of plant and machinery against losses caused by perils such as explosion, collapse, breakdown etc as well as liability towards third parties.
Errors and Omissions (E&O) Insurance:
A form of professional indemnity insurance that protects the policyholder against any loss sustained due to an error or oversight on their part. E.g. an insurance agency would purchase this type of cover to protect itself against losses from errors such as failing to issue a policy.
The first part of each and every claim that the policyholder must pay - excess may be voluntary (usually allowing the policyholder a premium discount) or compulsory (applied by the insurer due to the nature of the risk). Also known as a deductible.
A provision in a policy that excludes the insurer's liability in certain circumstances or for specified types of loss.
Fidelity Guarantee Insurance:
A policy covering the risk of dishonesty by an employee who holds a position of trust, e.g. a stock controller
Financial Ombudsman Service:
A bureau established by major insurance companies to oversee the interests of policyholders whose complaints remain unsolved through normal company channels of communication. The service is available to all those holding personal cover with the insurers who have joined the scheme. The decision of the ombudsman is binding on the insurer, although the insured may appeal to the court if he so wishes.
Insurance cover for property caused by fire as well as additional perils such as explosion and weather losses.
A single motor insurance policy covering a number of vehicles - premiums are usually charged at a rate per vehicle based on the overall claims experience for that fleet. The pricing for some fleets some smaller fleets (also known as mini fleets) may be based on the normal Premium for the vehicles, to which a percentage fleet discount is applied.
Non-life insurance mainly concerned with protecting the policyholder from loss or damage caused by specific risks. Examples include motor insurance, household insurance and business or commercial lines insurance. Normally renewable annually. Also known as non life insurance. Known in some markets as property and casualty insurance.
Goods in Transit Insurance:
Insurance for property being transported other than purely by sea. The goods themselves can be covered as well as the carrier's liability for them.
A term normally applied to gross written premiums before deduction of brokerage and discounts.
A physical or moral feature that introduces or increases the risk.
The date from which, under the terms of a policy, an insurer is deemed to be at risk.
Increased Cost of Working (ICOW):
Under a business interruption insurance policy some cover is provided for additional expenditure incurred by the insured solely for the purpose of reducing the shortfall in profit following an insured event.
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).
Under a business interruption insurance the period during which cover is proved for disruption to the business following the occurrence of an insured peril.
Independent Financial Advisor (IFA):
A broker or other independent intermediary authorised to transact life, pensions and other financial services business, for example, unit trusts. IFA's are regulated by the financial services authority (FSA) and must not be tied agents of any particular insurer or financial services product provider.
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.
A contract whereby a sum of money or some other benefit is payable upon the happening of an insured event which involves a degree of uncertainty, either as to the happening of the event or as to the date on which the event will occur.
An insurance intermediary who advises his clients and arranges their insurances. Although he acts as the agent of his client, he is normally remunerated by a commission (brokerage) from the insurer. An insurance broker is a full-time specialist with professional skills in handling insurance business. Since January 2005 intermediaries and brokers must be registered with and regulated by the Financial Services Authority.
Insurance Premium Tax (IPT):
The Finance Act 1994 introduced this new tax on most general insurance risks located in the uk.
The person whose property is insured or in whose favour the policy is issued.
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.
Cover to protect a business against financial loss caused by the death/disablement of a person whose work has a material and significant effect on the firm's profitability.
Insurance to cover the liability of the policyholder, subject to any limitations expressed in the policy.
Limit of Indemnity (LOI):
The maximum sum an insurer will pay under a policy or section of a policy. This can be expressed in different ways, e.g. per annum, per claim, per occurrence ect.
Limit of Liability (LOL):
The maximum sum an insurer will pay under a policy or section of a policy. This can be expressed in different ways, e.g. per annum, per claim, per occurrence ect.
Lloyd's of London:
The world's main market in marine aviation and unique risks. Lloyds is organised into underwriting syndicates comprising names (private investors) and corporate members. Can trace its origins to Edward Lloyds coffee house in late-17th century London, where the owner attracted merchants, ship-owners by posting the latest shipping information.
An alternative term for a claim.
Independent qualified loss adjusters are used by insurers for their experience and expertise necessary to carry out detailed and in some instances prolonged investigations of complex and large losses. Although the adjuster's fees are invariably paid by the insurers he is an impartial professional person and makes his judgement on the amount to be paid in settlement solely on the basis of established market practice. It is his task to negotiate a settlement which is within the terms of the policy and equitable to both insured and insurer. Should he himself not be an expert in a particular discipline which is necessary or desirable to pursue his negotiations, he will consult or employ such an expert.
Loss of Licence Insurance:
Cover against the financial consequences of losing a licence, e.g. the selling of alcohol.
Loss of Profits:
Insurance against the loss of profits following an insured event such as fire. Also known as business interruption insurance.
Physical damage to property as opposed to consequential loss, liability ect.
Any piece of information that may influence an underwriter in their acceptance of a risk, or in deciding what premium to charge or what terms and conditions to apply.
Maximum Possible Loss:
The largest loss thought possible under an insurance or reinsurance contract.
Maximum Probable Loss (MPL):
An insurer's best estimate of the maximum loss it is likely to face should a single insured event occur. Consideration is only given to probable events, rather than those that are extremely remote. Also known as estimated maximum loss.
Mechanical Breakdown Insurance:
Insurance cover against the cost of breakdowns of household appliances or motor vehicles.
The lowest price that an insurer will charge for a particular insurance policy - a minimum is usually set to recognise a level of overheads involved in administrating the policy, even where the insurance risk is minimal.
All risks cover for banknotes, coins, cheques etc. In transit, on the policyholders premises or in the homes of employees. Cover is usually subject to specific limitations for the overnight premises risk. Extensions include personal accident benefits for assaults on staff and damage to their clothing.
Generic term for insurance of vehicles, including private cars, motorcycles and commercial vehicles. Cover to meet the requirements laid down by the road traffic acts is compulsory, but the main covers offered are comprehensive, third party, fire and theft and third party only.
Perhaps the most common form of tort. In Blyth v Birmingham Waterworks Co. (1856) it was 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'. Gives rise to civil liability.
Term variously used to mean gross premiums net of reinsurance premiums payable, or commission, brokerage, taxes, or any combination of these.
New for old:
Where insurers agree to pay the cost of property lost or destroyed without deduction for depreciation.
No Claims Bonus (or discount):
A rebate of premium given to an insured person by an insurer where no claims have been made by that insured. Very common in motor insurance.
The failure by the insured or his broker to disclose a material fact or circumstance to the underwriter before acceptance of the risk.
Non Standard Construction:
A term used in fire insurance to denote that a property does not meet the rules for the minimum grade of construction.
A motor insurance policy that has no restrictions on who may drive the car, provided they are not disqualified.
The part of a policy wording that outlines the cover being provided by the policy.
The cause of a possible Loss, e.g. fire, theft, flood.
Period of Insurance:
The duration of the Policy (usually 12 months) - usually shown in the Policy Schedule
Permanent Health Insurance (PHI):
An Insurance Policy that pays a replacement income where the Insured is unable to work. Also known as Income Protection Insurance or Income Replacement Insurance.
Permanent Partial Disablement (PPD):
A Lump Sum Benefit payable under a Personal Accident Insurance Policy, where an Insured permanently suffers an accident that prevents them from following parts of their normal occupation.
Permanent Total Disablement (PTD):
A Lump Sum Benefit payable under a Personal Accident Insurance Policy, where an Insured suffers an accident or sickness that permanently prevents them from following their normal occupation.
Personal Accident Insurance:
A Policy that pays specified benefits if the Policyholder is injured in an accident. Depending on the type of disability, the payments may be made weekly for a set period, or as a Lump Sum Benefit. Cover is sometimes extended to include sickness.
Personal Liability Insurance:
Cover for an individual's Liability to others when causing injury or damage by Negligence, other than through the use of a motor vehicle - such cover is usually provided under Household Insurance Policy.
Any Hazard arising from the material, structural, or operational features of the Risk itself apart from the persons owning or managing it.
A Policy providing covers against Losses arising as a result of bad weather, e.g. the cancellation of a village fete.
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 his 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 evidence by the renewal receipt.
Stipulations that form part of an Insurance Policy, with which the Policyholder must comply. Failure to comply may lead to the Insurers refusing to pay a Claim.
Events not covered by an Insurance Policy. Some exclusions are generic whilst others are specific to the class of Insurance and/or the individual Policyholder.
The person in whose name the policy is issued. (see also insured and assured).
The consideration paid for a contract of insurance.
Private Medical Insurance (PMI):
Provides cover against Loss from illness or bodily injury. Can pay for medicine, visits to the doctor, hospital stays, other medical expenses and loss of earnings, depending on the conditions covered and the benefits and choices of treatment available on the Policy.
Products Liability Insurance:
A Policy that protects businesses against Liability Claims resulting from defects in the products they sell.
Professional Indemnity Insurance:
Insurance to protect a firm employing people in professional roles against Liability resulting from them carrying out negligent work or giving wrong advice.
Cover for physical property, such as buildings structure, contents, stock, equipment etc.
A form sent by an insurer to a person requiring insurance so as to obtain sufficient information to allow the insurer to decide whether or not to accept a risk and what conditions to apply if it is accepted.
Public Liability Insurance:
Cover for Liability for accidental bodily injury or damage to the property of others.
A statement by an insurer of the premium he will require for a particular insurance.
The recommended amount (assessed by a person's property valuation) that a Policyholder should effect Home Buildings Insurance for.
Continuation of a Policy for a further term, on payment of a Renewal Premium.
The date on which an Insurance Policy expires and on which the Insurer may offer to extend the cover for a further period (usually 12 months) provided the Policyholder pays the Renewal Premium.
A document sent to the Policyholder inviting them to renew a Policy for a further period and stating the Premium payable and any changes to the Policy.
Making good. Where insured property is damaged, it is usual for settlement to be effected through the payment of a sum of money, but a policy may give either the insured or insurer the option to restore or rebuild instead.
The identification, evaluation and control of Risks faced by an Organisation. Insurance is one method of controlling those Risks - other techniques include risk improvements, Risk Transfer and Self Insurance.
Road Risks Insurance:
Cover for a motor trader for vehicles on the road or in the course of a journey, rather than when on their own premises.
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.
Part of the Policy document that sets out the main details of the Policyholder, Period of Insurance, special terms and restrictions on the cover etc.
Sprinkler Leakage Insurance:
Cover against damage to property caused by the accidental leakage of sprinklers.
Statement of fact:
An alternative to a completed proposal form. A statement provided by the insurer clarifying the basis on which insurance is accepted and what conditions apply.
Usually used when referring to Products Liability Insurance coverage. The liability that manufacturers and merchandisers may be subject to for defective products sold by them, regardless of fault or negligence. A claimant must prove that the product is defective and therefore unreasonably dangerous.
Subject to survey:
Phrase used by an insurer to signify provisional acceptance of an insurance pending inspection by a surveyor whose report is necessary to determine the rate and conditions applicable.
The amount ed by the Policyholder for all items for which cover is to be provided. This should be the full replacement value and will represent the Insurer's maximum liability where the Contract is one of Indemnity. It is the Policyholder's responsibility to main their Sums Insured at adequate and up to date levels.
Temporary Partial Disablement (TPD):
weekly benefit payable under a Personal Accident Insurance Policy, where an Insured suffers an accident that prevents them from following parts of their normal occupation.
The geographical limits in which cover provided under a Policy applies - these are defined in the Policy wording.
On a commercial Insurance Policy theft cover is normally restricted to events following entry to the premises by forcible and violent means.
A person claiming against an insured. In insurance terminology the first party is the insurer and the second party is the insured.
A person responsible for evaluating a Risk that has been proposed for Insurance and deciding whether to accept the Risk and what terms and conditions to apply.
The process used to evaluate the likelihood that an Insured Event will occur and whether the Insurer should accept the Risk, what should be charged and what special terms should be applied.
A risk where Loss is inevitable (e.g. a house already on fire or a person suffering from a terminal illness) or gradual (e.g. rust and corrosion).
Utmost Good Faith:
The principle of Insurance that requires a Proposer to give all relevant information (Material Facts) about a Risk to the Insurer. Also requires the Insurer to act reasonably and communicate clearly. Also known as Uberrima Fides.
The liability of one person for the acts or omissions of another. It usually arises from the 'servant' relationship (e.g. employer and employee).
A condition attached to a Policy that must be strictly adhered to by the Policyholder for a Claim to be paid under the Policy, e.g. that a burglar alarm must be activated when the premises are closed.
Wear and Tear:
The amount deducted from a Claim payment to allow for any depreciation in the property insured caused by its normal usage.
A term used in the handling of Claims - where there is a dispute or ongoing settlement negotiations terms can be offered 'without prejudice'. This means that any offers etc. cannot be subsequently admitted in evidence unless both parties agree.