Glossary of Insurance Terms
The Insurance industry is full of tricky terms that are technical and niche for the industry. Though often used they are not always understood and can throw readers off at times, here we have a list of the terms we feel are most commonly used and misunderstood with a brief explanation of their meaning.
Common Insurance Terms
VIS MAJOR (ACT OF GOD)
This is a term that refers to an incident or occurrence that is considered 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..
A document which sets out agreed changes to an insurance contract, similar to how you would amend a mistake and an ammonium is a term for a change or correction in a contract.
This is a sum that will be payable because of a change in the policy that has either; changed the conditions of the policy or increased the risk within the policy.
Also known as a Claims Adjuster or Loss Adjuster. This individual is someone who asses and investigates insurance claims, this person will be who looks at your claim and asses how legitimate it is and then looks further into it.
ADVANCE PROFITS INSURANCE
This is a particular kind of 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. So for instance; if you look to extend the offices in your business and as a result of the construction work you must cease or delay any business and the construction runs over the initially quoted time, thus causing you financial harm, this insurance policy will cover the cost of any damages to the business.
AGGREGATE LIMIT OF INDEMNITY
This is the total amount of coverage your insurer is offering you over the period of your contract, this coverage is unaffected by the number of claims made during the contract period.
All risks insurance is taken against the loss or damage to property that arises by chance and can only exclude risks that have been specifically outlined in the contract. ‘All Risks’ meand that any risk that the contract does not specifically omit is automatically covered. For example, if an all-risks homeowner’s policy does not expressly exclude flood coverage, then the house will be covered in the event of flood damage.
A term usually used with regard to life cover. This is the coverage of an event that is certain to happen. Assurance is similar to insurance is similar to insurance (and sometimes the terms are interchangeable) the difference is that insurance protects policy-holders from events that might happen.
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.
Insurance which protects all types of businesses and organisations against loss or damage that may occur during the normal course of business in exchange for a premium payment. There are many types of business insurance, including coverage for property damage , legal liability and employee-related risks. The premium paid is decided on the businesses insurance needs based on potential risks, which can vary depending on the type of environment in which the company operates.
The termination of a policy before its expiry date. Cancellation clauses usually stipulate a period of notice to be given prior to cancellation and in the situation of an insurance policy being cancelled, often the insurers will demand a pay out to substitute the loss incurred.
A formal request to an insurance company asking for a payment based on the terms of the insurance policy. Insurance claims are reviewed by the company for their validity and then paid out to the insured or requesting party (on behalf of the insured) once approved.
COMMERCIAL COMBINED INSURANCE
Yes, these are key areas of many business insurance policies. Make sure you insure your property for its full value and keep receipts or other proof of ownership.
Any policy that covers any type of commercial property. An Insurance which protects all types of businesses and organisations against loss or damage in exchange for a premium payment. Commercial property insurance protects commercial property from such perils as fire, theft and natural disaster.
Common Law is a body of unwritten laws based on precedents established by the courts. Common law is used in deciding novel cases where the outcome cannot be determined based on existing statutes. Common Law is a legal precedent made by judges sitting in court. Common law is constantly changing, unlike laws that are codified as Acts of Parliament.
An insurance company whose main headquarters are situated in a Member State of the European Economic Community.
As it relates to insurance, the act of purposefully not reporting information that would affect the issuance or rate of an insurance contract. If the information cannot be known to the insurer and is known to be material by the insured, concealment of that information can give the insurer grounds to nullify the contract or not pay out on claim related to that material information.
The amount of loss incurred as a result of being unable to use business property or equipment. Consequential loss is considered an indirect loss (as compared to losses from the direct damage). Direct damages would be covered under different types of insurance, such as property/casual or fire insurance, but the firm still incurs the costs of lost operations.
An insurance document that contains details of the insurance held by the insured party, this is a temporary document that can be issues by an insurance company that will provide insurance coverage until a final insurance policy can be issued.
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. A product for employers that protects them from major financial loss if a worker experiences a job-related injury or illness that workers compensation doesn’t cover. Employer's liability insurance can be packaged with workers compensation insurance to further protect companies against the costs associated with workplace injuries, illnesses and deaths that aren’t covered under workers compensation.
An endorsement is a written document attached to an insurance policy that modifies it by changing the afforded coverage.
An excess is the amount of money an insurance company asks the insured party to pay towards the cost of making a claim. This will often be discussed before the policy is processed and detailed within your policy.
Conditions or items that are not covered by the basic insurance contract.
A payment made to an individual by an insurer for damages or claims, but which does not involve the admittance of liability by the party making the payment. An ex gratia payment is considered voluntary, as the party making the payment is not obligated to compensate the individual. In Latin, “ex gratia” means “from favour.”
A term usually applied to gross written premiums prior to the deduction of discounts and brokerage.
An object or situation that increases the likelihood of a loss occurring.
Inception date is the date on which the policy is launched.
INCREASE IN COST OF WORKING
The insurer will find a business suitable new premises, and supply new office equipment.
A contractual agreement made between two parties, in which one party agrees to pay for potential losses or damages caused by the other party. A typical example is an insurance contract, whereby one party agrees to compensate the other or any damages or losses, in return for premiums paid by the insured to the insurer.
The length of time for which benefits are payable under and insurance policy. Also used to denote the time period for which indemnity of compensation is payable under a business interruption policy.
An interest in property that would result in a financial loss if the property was lost or destroyed.
An insurable interest is a basic requirement for an insurance company to issue a policy. Entities not subject to financial loss from an event do not have an insurable interest and cannot purchase an insurance policy to cover that event. Insurable interest is what makes an insurance contract legal and valid, and protects against intentionally harmful acts.
The amount to be paid out by the insurance company if the item insured is lost or destroyed.
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. An ombudsman can be likened to a private investigator; although the decision is not typically binding, it does carry considerable weight with those who are sanctioned to uphold the rules and regulations pertaining to each specific case. When appointed, the ombudsman is typically paid via levies and case fees.
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%.
The person who is covered by, or who obtains insurance on his or her life, health or property.
The party in an insurance contract who undertakes to pay compensation.
The cessation of a privilege, right or policy due to time or inaction. A lapse of a privilege due to inaction occurs when the party that is to receive the benefit does not fulfil the conditions or requirements set forth by a contract or agreement.
Disease which lies inactive for a period of years before manifesting itself.
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.
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.
A claim on an insurance policy.
A loss Adjuster investigates insurance claims to determine the extent of the insuring company's liability. Claims adjusters may handle property claims involving damage to structures, and/or liability claims involving personal injuries or third-person property damage. A claims adjuster reviews each case by speaking with the claimant, interviewing any witnesses, researching records (such as police or medical records) and inspecting any involved property.
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.
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.
An alternative term for an underwriting member of Lloyd's of London.
A breach of a duty of care which results in damage.
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.
Failure by the insured or his broker to disclose a material fact or circumstance to the underwriter when taking out an insurance policy.
A Passenger Liability policy covers incidents resulting from the transportation of passengers by land, sea or air.
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.
A document which details the terms and conditions of an insurance contract, which is issued by the insurance provider.
The person in whose name the policy is issued.
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.
A form that is completed by the person applying for insurance.
A statement issued by an insurance company detailing the premium they require for a particular insurance policy.
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.
The process of continuing an insurance policy from one period of risk to the next.
The likelihood that an insured event will occur, which will result in the insurer having to pay a claim.
The forecasting and evaluation of economic risks, along with the identification of procedures that will avoid or minimize their impact.
The scrap value of damaged property which is deducted from any loss settlement if the insured party keeps the damaged property.
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.
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.
The maximum amount payable in the event of a claim.
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.
The basic or main layer of coverage; the initial policy that will respond to the covered loss.
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.
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.
Will not impair any existing right or claim.
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