Jargon Buster

The insurance industry uses a number of technical terms, usually for reasons of precise meaning, which are not necessarily easily understood by the layperson:

ADDITIONAL PREMIUM
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.

ADVANCE LOSS OF PROFITS INSURANCE
Business interruption insurance of the expected profits of a new enterprise or an extension to an existing business.

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.

ASSURANCE
A term interchangeable with insurance but generally used in connection with life cover.

AVERAGE
A clause in insurance policies whereby, in the event of underinsurance, the claim paid out by the insurer is restricted to the same proportion of the loss as the sum insured under the policy bears to the total value of the insured item. (Also see UNDERINSURANCE)

CANCELLATION
Termination of a policy before it is due to expire. There may be a cancellation clause in a policy setting out the condition 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.

CLAIMS
Injury or loss to the insured arising so as to cause liability to the insurer under a policy it has issued.

COMMON LAW
The common law consists of the ancient customs and usages of the land, which have been recognised by the courts and given the force of law. It is in itself a complex system of law, both civil and criminal, although it is greatly modified and extended by statute law and equity. It is unwritten, and has come down in the recorded judgements of judges who for hundreds of years have interpreted it.

CONCEALMENT
Deliberate suppression by a proposer for insurance of a material fact relating to the risk, usually making the contract null and void.

CONSEQUENTIAL LOSS
Insurance of loss following direct damage e.g. loss of profits; loss of use insurance, loss of rent and/or revenue.

COVER NOTE
A document issued to the insured confirming details of the insurance cover placed. Some cover notes are a legal requirement, e.g. motor.

DEDUCTIBLE
The specified amount a loss must exceed before a claim is payable. Only the amount which is over the amount of the deductible is recoverable. It can either be for an amount or time period. (See also EXCESS)

DEFERRED PREMIUM
The part of a premium which, following agreement with underwriters, is payable by installments, usually quarterly or half yearly.

EMPLOYERS LIABILITY INSURANCE
Insurance by employers in respect of their liability to employees for injury or disease arising out of and in the course of their employment. With some exemptions this insurance is compulsory in the UK, and can only be provided by an authorised insurer.

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.

EXCESS
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. (See also DEDUCTIBLE)

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 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 accepted first loss sum insured, without application of AVERAGE.

GROSS PREMIUM
A term normally applied to gross written premiums before deduction of brokerage and discounts.

HAZARD
A physical or moral feature that introduces or increases the risk.

INCEPTION DATE
The date from which, under the terms of a policy, an insurer is deemed to be at risk.

INCREASE COST OF WORKING
Under a business interruption policy some cover is provided for additional expenditure incurred by the insured solely as a result of a claim incurring.

INDEMNITY
A principle whereby the insurer seeks to place the insured in the same position after a loss as they occupied immediately before the loss (as far as possible).

INDEMNITY PERIOD
Under a business interruption insurance the period during which cover is proved for disruption to the business following the occurrence of an insured peril (such as fire, theft storm etc).

INSURABLE INTEREST
For a contract of insurance to be valid the policyholder must have an financial interest in the insured item that is recognised at law whereby they 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.

INSURABLE VALUE
The value of the insurable interest which the insured has in the insured occurrence or event. It is the amount to be paid out by the insurer (assuming full insurance) in the event of total loss or destruction of the item insured.

INSURANCE BROKER/INTERMEDIARY
An insurance agent who advises their clients and arranges their insurances. Although they acts as the agent of the client, they are 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 Conduct Authority (FCA).

FINANCIAL OMBUDSMAN SERVICE (FOS)
A bureau established by major insurance companies to oversee the interests of policyholders whose complaints remain unresolved through normal 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 they wish to.

INSURANCE PREMIUM TAX
The Finance Act 1994 introduced this new tax on most general insurance risks located in the UK.

INSURED
The person, entity, company or organisation whose property is insured or in whose favour the policy liabilty 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.

LAPSE
The non-renewal of a policy for any reason.

LATENT DISEASE
An illness which lies dormant for some years before manifesting itself.

LIMIT OF INDEMNITY
The insurer’s maximum liability under an insurance, which may be expressed ‘per accident’, ‘per event’, ‘per occurrence’, ‘per annum’, and/or in the aggregate, normally in any one year.

LLOYD’S (OF LONDON)
A Society, incorporated under Act of Parliament of 1871 and known as the Corporation of Lloyd’s, which provides a wide variety of services, administrative staff and other facilities to enable the Lloyd’s market to carry on insurance business efficiently. The Lloyd’s insurance market traditionally provides specialist insurance coverage globally.

LLOYD’S BROKER
A broker approved by the Council of Lloyd’s and thereby entitled to enter the underwriting room at Lloyd’s and place business direct with underwriters. Lloyd’s brokers must meet the Council of Lloyd’s stringent requirements as to integrity and financial stability. They have to file annually with the Council of Lloyd’s a special accountant’s report concerning their financial position.

LOSS
Another term for a claim.

LOSS ADJUSTER
Independent qualified loss adjusters are appointed 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 they are an impartial professional body and make their judgement on the amount to be paid in settlement solely on the basis of established market practice. It is their task to negotiate a settlement which is within the terms of the policy and equitable to both the insured and insurer. Should they not be an expert in a particular discipline (such as forensics), which is necessary or desirable to pursue their negotiations, they will consult or employ such an expert.

LOSS ASSESSOR
A person who, in return for a fee (usually a percentage of the amount claimed), acts for the claimant in negotiating the claim on their behalf.

MATERIAL DAMAGE WARRANTY
A warranty in a commercial combined insurance policy stipulating that for the insurance to become effective there must be a housekeeping policy in force in respect of the provision of cover and any claim paid or admitted thereunder for such damage caused by an insured peril would be subject to the adherence of any warranties applied to the policy.

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.

MINIMUM AND DEPOSIT PREMIUM
These types of premiums are used mainly by liability insurers. Traditionally, liability insurers have calculated premiums by applying rates to estimated wageroll and/or turnover at the beginning of the year and then adjust the premium based on a year-end declaration. The adjustment may produce additional premiums depending on whether the year-end declaration is more than the estimates used to calculate the original premium.

There is no return premium payable upon mid-term cancellation as the premium is calculated on a minimum premium basis.

NAME
Another term for an underwriting member of Lloyd’s.

NEGLIGENCE
Is civil liability arising from doing something, or failing to do something, to another person, which a reasonable person in your position would have done differently. It is the basis of a number of policies, including, Public, Products & Employers Liability, which protects you against allegations of negligence which has caused bodily injury or property damage and Professional Indemnity, which protects you against allegations of negligence, in providing professional services such as advice, which has caused financial loss.

NET PREMIUMS
Term variously used to mean gross premiums net of 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.

NON-DISCLOSURE
The failure by the insured or their broker to disclose a material fact or circumstance to the underwriter before acceptance of the risk. Common examples are unnotified claims, criminal records or trading activities not divulged at the inception of the policy.

PASSENGER LIABILITY
The liability of a carrier to passengers.

PERIL
An event, of fortuitous happening, which may be covered or excluded by a policy of insurance (such as fire, storm, theft, terrorism, flood earthquake etc).

PERIOD OF RISK
The period during which the insurer can incur liability under the terms of the policy.

PERMANENT HEALTH INSURANCE
Term used to describe contracts of insurance providing continuing benefits in the event of prolonged illness of disability.

PERSONAL ACCIDENT AND SICKNESS INSURANCE
Insurance for fixed benefits in the event of death or loss of limbs or sight or loss of use of any part of the body by accident and/or disablement by accident or sickness. Accident and sickness may be insured together or separately. These policies would not cover death from illness.

POLICY
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 their 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.

POLICY HOLDER
The person in whose name the policy is issued. ( See also INSURED and ASSURED).

PREMIUM
The consideration paid for a contract of insurance.

PRE – EXISTING MEDICAL CONDITIONS
You should tell your broker or insurer about any illness you are currently suffering from, or have already had, even in the past. . These are known as pre existing medical conditions. For Private Medical Insurance, you will not normally be covered for these conditions, but for Travel Insurance, the Insurer may be able to offer cover, sometimes for a higher premium.

PRODUCTS LIABILITY INSURANCE
These policies cover the insured’s legal liability for bodily injury to persons, or loss of or damage to property caused by defects in goods (including containers) sold, supplied, erected, installed, repaired, treated, manufactured, generated, and/or tested by the insured.

PROFESSIONAL INDEMNITY INSURANCE
This policy protects a professional organisation or individual against their legal liability towards third parties for injury, loss, or damage, arising from their own professional negligence or that of their employees.

PROPOSAL FORM
A form sent by an insurer to a person or organisation 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.

PROXIMATE CAUSE
The result of a direct action and cause of loss to property that sets in motion a chain of events that is unbroken and causes damage, injury and destruction with no other interference. The loss is the result of one event such as an INSURED PERIL such as fire, storm or explosion etc.

QUOTE
A statement by an insurer of the premium they will require for a particular insurance.

REINSTATEMENT
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.

RENEWAL
The process of continuing an insurance from one period of risk to a succeeding one.

RISK
The PERIL insured against or an individual exposure.

RISK MANAGEMENT
The identification, measurement and economic control of risks that threaten the assets and earnings of a business or other enterprise.

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.

SCHEDULE
The part of a policy containing information peculiar to that particular risk. The greater part of a policy is likely to be identical for all risks within a class of business covered by the same insurer.

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.

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.

SUBROGATION
An insurance company can seek reimbursement from the person or entity legally responsible for an accident or loss after the insurer has paid out money on behalf of its insured.  After paying the claim, the insurer is subrogated to the rights of your policy and can sue the negligent party on your behalf.

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

THIRD PARTY
A person claiming against an insured. In insurance terminology the first party is the insurer and the second party is the insured.

THIRD PARTY LIABILITY
Liability of the insured to persons who are not parties to the contract of insurance and are not employees of the insured.

UNDERINSURANCE
Inadequate insurance cover by a policyholder. In the event of a claim, underinsurance may result in economic losses to the policyholder, since the claim would exceed the maximum amount that can be paid out by the insurance policy. (Please refer to AVERAGE for the consequences of underinsurance)

UNDERLYING INSURANCE
The primary insurance as distinct from excess insurance.

UNDERWRITER
A person who accepts business on behalf of an insurer. (See also LLOYD’S UNDERWRITER).

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.

WARRANTY
A very strict condition in a policy imposed by an insurer. A breach entitles the insurer to deny liability.

WEAR AND TEAR
This is the amount deducted from claims payments to allow for any depreciation in the property insured which is caused by its usage.

WITHOUT PREJUDICE

  1. Term used in discussion and correspondence. Where there is a dispute or negotiations for a settlement and terms are offered ‘without prejudice’ an offer so made or a letter so marked and subsequent correspondence cannot be admitted in evidence without the consent of both parties concerned.
  2. Term also used by an underwriter when paying a claim which he feels may not attach to the policy.  Any such payment must not be treated as a precedent for future similar claims.
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