Glossary of Terms

Ab Initio
A term meaning from the start/ beginning.
Accident
An event or occurrence that is unintended, unforeseen and unexpected.
Accidental Bodily Injury
Bodily injury to a person or persons that has been caused accidentally and with unforeseen results.
Accidental Damage
Unexpected and unintended physical damage caused by sudden and external means.
Adjustable Premium
An adjustable premium is usually charged for commercial (business) insurance policies, for example under a Liability policy.  An estimated annual premium is charged at renewal, subject to adjustment (alteration), which means that after the period of insurance, the policyholder must submit a declaration, which confirms the actual Turnover and Wages figures during that period.
The declaration is submitted to the policyholder’s insurance broker, who checks and forwards this onto the insurance underwriter, who will check whether the policyholder needs to be charged an extra premium or is in fact due a premium refund. Such amounts are usually carried forward and offset against any amounts due or to be returned at an agreed date.
Agent
Someone who acts on behalf of another party, with that person’s authority, for example, a broker arranging an insurance company’s policy for a policyholder.
Aggregate Limit of Indemnity
The maximum amount payable by an insurer under a liability policy, for all valid claims in total, arising during a specified period of insurance.
Agreed Value
The amount a policyholder states their property is worth, for example, a motor vehicle, by providing a professional valuation at the inception of their insurance. Very few policies are written on this basis. However if the insurers agree to the valuation, this figure is recorded as the sum insured and will be the amount paid in the event of a total loss by accident, fire or theft less any applicable excess.
All Risks
Covers loss by an accidental cause, which is not specifically excluded in the policy.
Annuity
An arrangement by which an insurance company pays someone a regular income, usually for life, in return for a lump sum. Many pension arrangements involve an annuity.
Arbitration
The hearing and settlement of a dispute by an impartial referee acceptable to both parties.
Assets
All the property and resources of a business
AssociationOf British Insurers (ABI)
A trade body for UK Insurance Companies and Underwriters of whom 95% are members (except for Lloyd’s).
Assurance
A traditional term used in marine insurance and is commonly used to describe life insurance.
Automatic Reinstatement
The process of restoring the sum insured on property to its previous level. After a loss has been paid or the damaged property restored, the sum insured would stand to be reduced by the amount paid. Most policies provide that the amount of insurance will automatically return to its original amount. Some policies are reduced by the amount of the loss but can be reinstated upon payment of an additional premium.
Average
A policy condition whereby a claim payment can be proportionately reduced if property is not insured for its full value or replacement cost.
Cancellation Notice
Notification issued to a policyholder when an insurer decides to cancel the policy before the agreed and contracted expiry date. Insurers usually state in the policy wording the process involved should they or the policyholder cancel the policy mid- term (before expiry).
Caveat Emptor
Term meaning Let the Buyer Beware.
Certificate
A document providing evidence of insurance, for example, a motor insurance certificate shows cover is in force to meet the requirements of the law.
Chartered Insurance Institute
Professional and educational organisation for the insurance and financial service industries.
Claim
A demand made by the Insured, or the Insured’s beneficiary for the payment of the benefits provided by the policy.
Claim Settlement
Full payment or repair or replacement of the lost or damaged insured item or reimbursement for the insured loss, made by the insurer, to settle the policyholder’s or third party’s claim.
Claims and Underwriting Exchange (CUE)
This is an industry – wide database, established to detect and combat fraudulent personal insurance claims, such as household, personal possessions – travel policies etc. CUE is usually referred to and explained on proposal forms and insurance claim forms.
Co-insurance
When more than one insurer covers a risk. Usually, each insurer decides which part on the risk they will underwrite and on what terms. They do not have to follow any other co-insurer. Each co-insurer separately insures their part of the risk and each is a separate contract.
Commission
The payment by an insurance company to an agent or broker or intermediary for the work involved in arranging insurance and providing on-going service to the client.
Comprehensive Cover
A term used in motor insurance. This is the widest form of cover and provides the legal minimum Third party Only insurance PLUS cover for the car if it suffers accidental loss or damage by an accident fire or theft.
Compulsory Excess
An amount of money, which the policyholder must pay towards any claim made under the policy. Compulsory excesses are imposed by the insurer in contrast to voluntary excesses, which are requested by the policyholder to obtain a lower premium.
Condition
A clause in a policy stating that certain requirements must be met by the policyholder, for example the duty to take reasonable care to protect property or to report claims to the insurance company promptly.
Consideration
For a contract to be valid in English law, each party to the contract must exchange something of value. In the case of an insurance contract, the policyholder will pay a premium to the insurer in return for the insurer’s promise to insure.
Contract
A legally binding agreement.
Contract of Insurance or Insurance Contracts
A contract of insurance is an agreement between a Policyholder and insurer, whereby, in return for the payment of a premium by the policyholder, the insurer promises to insure the subject matter in accordance with the policy terms.
Contribution
When a loss is insured under more than once insurance policy, in the event of a claim, the two insurers share the cost. A common example is under Household and Travel policies.
Courtesy Car
Most insurance companies who provide Comprehensive cover policies, provide a free loan vehicle (subject to the hire car company or garages’ availability) following insured accidental damage to the policyholder’s vehicle. A loan car is usually supplied to the policyholder for a limited period, up to a maximum of 14 days, whilst the repairs are carried out by an approved repairer and may take a couple of days to organise. The loan car is normally a small saloon and therefore not necessarily of the same quality of the damaged car. A courtesy car is not normally offered in the event of a total loss, or if it has been stolen and unrecovered.
Cover
To insure against loss from a specified risk.
Cover Note
A document giving temporary evidence of cover for a limited period only, pending issue or alternation of a policy. Cover cannot be backdated in any circumstances.
Damages
In law, is the money paid or claimed as financial compensation for damage, loss or injury, awarded by a court.
Declaration
A statement made by the insured or proposer (and usually signed) to confirm certain things, for example, the truth, to the best of their knowledge of the answers on a proposal form.
Deductible
Used mainly in commercial insurance. It is the specified amount that the loss must exceed before a claim becomes payable. Only the amount above the deductible is payable by the Insurer.
Deposit Premium
A payment made in advance of the underwriter calculating the actual annual premium required to insure a risk. This deposit amount will usually be deducted from the annual premium, leaving the balance to be paid.
Disclosures
The duty of disclosure arises from common law. The duty of the proposer to advise the insurer of all material facts which could influence the acceptance or premium rating of a risk.
Effective Date
The date from which the insurance is in force.
Employers’ Liability
Compulsory insurance in the UK for employers to cover them against claims from their employees who are injured at work.
Endorsement
A written document issued by insurers to amend the policy cover, or to show changes to the information previously noted.
Endowment Policy
A life policy which pays a sum of money after an agreed period or upon death of the policyholder, whichever happens first.
Errors and Omissions Insurance
Insurance against losses arising out of unintentional errors and omissions. Also known as Professional Indemnity insurance.
Escalator Clause
A clause usually applying to Contractors or Builders policy, to allow for a possible increase in the sum insured for the property under construction, for example, inflation or other cost increases, such as an increase in the cost of building materials.
Excess
An amount of money the policyholder must pay in the event of an insured claim. This amount will vary depending on the type of policy.
Exclusion
A provision in a policy that excludes the Insurers liability in certain circumstances for specified types of loss.
Ex-Gratia Payment
A payment made to a policyholder following a loss, which is not strictly covered under the policy. Normally only provided in exceptional circumstances.
Fidelity Guarantee
Insurance for employers, which covers losses arising from the dishonesty of employees. Also known as Theft by Employee cover.
Financial Compensation Scheme
The statutory arrangement by which policyholders can be compensated in the event that their insurance company becomes insolvent.
Financial Ombudsman Service (FOS)
A new all encompassing ombudsman service established by law under the Financial Services and Markets Act 2000, to resolve individual disputes between private individuals and small businesses with an annual turnover of less than £1 million and financial institutions, providing such services as insurance, mortgages, pensions and banking.
Financial Services Authority (FSA)
The independent non-government body given legal powers by the Financial Services and Markets Act 2000 to regulate the UK financial services industry.
Franchise
A franchise is similar to an excess, whereby the first set amount of a claim is excluded and is paid for by the policyholder.  If a loss occurs which is greater than the franchise, then the insurer pays for the entire loss. Franchises are normally used for Commercial risks to obtain reductions in premiums.
Inception
When the insurance policy and period of insurance cover starts.
Indemnity
A basic principle of insurance to put the insured person in a similar financial position after a loss, as immediately before it, by payment of money or by repair or by replacing the property.
Independent Financial Adviser or Advisor
A broker or other independent intermediary authorised to transact life, pensions and other Financial Services business, for example, Unit Trusts. Independent Financial Advisers (IFAs) are regulated by the Financial Services Authority (FSA) and must not be tied agents of any particular insurer or financial services product or provider.
Independent Intermediary
An intermediary who is not tied to one particular insurer and can advise on and sell policies from a range of insurers.
Index-linked
Insurance where the amount of cover changes automatically in line with an index, for example, the cost of rebuilding a house or replacing its contents.
Insurable Interest
An interest is only insurable if the person seeking insurance, stands to suffer deprivation or financial loss if the event to be insured against actually happens.
Insurance Intermediary
A person or firm who advises individuals and/or companies on their insurance needs, negotiates and arranges insurance on their behalf.
Insurance Premium Tax (IPT)
A tax introduced in 1994 for business transacted in the UK and imposed on most non-life insurance premiums. The current rate is 5%, except for travel insurance, which is taxed at 17.5%. Some Marine policies covering imported and exported goods are exempt from this tax.
Insured Loss
A loss arising during a period of insurance that is covered under the terms of a policy.
Insured Peril
A possible cause of loss against which property is covered, such as fire, lightning, flood, burst pipes, storm, malicious damage, or theft.
Lapse
The termination of a policy for various reasons ie. non payment of the premium at renewal, a default of payment for the premiums during the period of insurance and the Insurer deciding not to invite renewal.
Legal Liabilities
Are responsibilities imposed by law upon all individuals and businesses to safeguard other parties.
Long Term Agreement (LTA)
A policyholder agrees to offer their businesses to an insurer over a period of normally 3 years, in return for a premium discount. The principal is for the premium to be fixed for that period subject to any amendments in cover. Although this is a binding agreement for the policyholder the Insurer will have broken the contract if they raise the premium rates.
Loss Adjuster
An independent individual or company, instructed by an insurance company to check the details of a claim and make arrangements for appropriate settlement with the policyholder. The fee incurred will be paid by the Insurer.
Loss Assessor
An insurance expert appointed by the policyholder to negotiate and deal with a claim on their behalf for a fee.
Material Facts
A material fact is any information that could affect the underwriter’s assessment of the risk. Failure to tell the insurers all relevant information, could mean that the policy will be invalid.
Misrepresentation
An untrue or false statement. Misrepresentation can either be innocent or fraudulent, the latter being with intent to deceive for benefit, which would not have otherwise been granted. However, consequences are usually the same whether innocent or fraudulent misrepresentation has occurred. The aggrieved party is entitled to void the policy ab initio (from the beginning).
Moral Hazard
The risk arising from the character and management style of the insured or their employees. This will influence the Insurers acceptance or otherwise.
Motor Insurers’Bureau (MIB)
An organisation established to compensate victims of negligent uninsured and untraced motorists. Every insurer who underwrites compulsory UK motor insurance is a member and contributes financially to its funding.
Motoring Convictions
These are actual convictions arising from a motoring offence. Insurers will require details of any which a proposer or driver has. Insurers will also need to know about motoring offences awaiting legal proceedings. Failure to disclose convictions could invalidate the insurance cover.
No Claims Discount (or Bonus)
A reduction in a renewal premium to reflect a claims free record used most often in motor insurance.
Peril
Is the term used to describe a particular event insured by a policy. ie. fire, flood, theft.
Period of Cover/Insurance
The period during which the insurer can incur liability under the terms of the policy.
Personal Effects
Personal belongings and articles that are normally worn, used or carried. Items would include clothing, glasses, handbag contents and wallet.
Premium Finance
Where a policyholder contracts with a lender to pay the insurance premium on their behalf. The policyholder agrees to repay the lender for the cost of the premium plus interest and fees.
Proposer
A person or company who applies to take out insurance.
Pro-rata
In proportion or equally. In certain circumstances an Insurer will allow a pro-rata refund of premium for an uninsured period of cover following cancellation of a policy.
Proximate Cause
The active, efficient cause that sets in motion a train of events, which brings about a result, without the intervention of any force, started and working actively from a new and independent source.
Rates
The varying amounts set by underwriters in respect of the different risks which can be insured.
Rating Factor
A method of used by insurers to determine the price of insurance.
Re-building Costs
The costs involved to re-build a property at the time of the insured loss, which needs to take account of current day building materials, labour, removal of debris, surveyor’s and solicitors’ fees and so on.  Re-building costs are also the basis to be used when calculating the amount to insure a property for and not what was paid for it. 
Recovery
Money received usually by an insurer, in respect of a claim, thereby reducing the insurer’s overall loss. A recovery can be made from a liable third party or their insurers, subrogation, any salvage value of the insured property or reinsurance payments.
Rehabilitation of Offenders Act 1974
Legislation aimed at preventing a person being penalised Indefinitely following conviction for an offence. After a specified time, the offence cannot be considered in any assessment and need not be declared. The length of rehabilitation period depends on the sentence given – not the offence committed. The following sentences become “spent” after fixed periods from the date of conviction: 

• 1 year or the period of the order, whichever is the longer in the event of a probationary order. 
• 5 years in the event of a fine. 
• 5 years in the event of licence endorsements, including drinking and driving convictions. Licence endorsements may come off the licence after a period of 4 years but they are not considered “spent” until 5 years have elapsed. See drink driving offences below. 
• 7 years in the event of a prison sentence not exceeding 6 months. 
• 10 years in the event of a prison sentence of 6 to 30 months. 
• There is no rehabilitation period for prison sentences over 30 months. 
• In the event of a driving suspension, the offender is rehabilitated when the suspension ends but any endorsement would continue as above, except for drink driving offences (see below). 
• For drink driving offences, the endorsement remains on the licence for 11 years (Road Traffic Offenders Act 1988 S45.ii.7). However, in Power v Provincial (1998), it was resolved that such convictions only last for 5 years. The ABI took the view from the Home Office, which confirmed its intention was that the rehabilitation period should be 5 years, in such cases.

Reinstatement
Is a claim settlement option of insurers to make good insured damage property, rather than pay a monetary amount.
Reinstatement at 85% Average Clause
This is a clause commonly applied to buildings policies, whereby average is only applied to a claim settlement, if the buildings sum insured is less than 85% of the reinstatement value. A policyholder would usually be charged an additional premium by the insurer for this benefit.
Reinstatement Clause or Memorandum
A clause usually within a property policy, which states the legal Liability of the insurer, if they decide to reinstate the property in the event of an insured loss.
Reinstatement Premium
Under property insurance, is the amount of premium payable by the policyholder to restore the sum insured to its original level, following an insured loss.
Reinstatement Value
Is the cost of making good insured damaged property, rather than insurers paying a monetary amount to the policyholder.
Replacement as New
Cover for property where an item is lost or destroyed and is replaced with a brand new one, with no deduction for wear and tear.
Repudiate
If an insurer repudiates a claim, they reject it as valid and would consequently refuse to settle it.
Restrictive Covenant
A legally enforceable deed, which protects land or properties in a specified manner. ie.that the land/property cannot be used for specific purposes.
Risk
The potential for loss or damage from which insurers assess the frequency and severity of occurrence and they set the premium accordingly.
Salvage
Is insured property, which has been saved from a loss, usually damaged. Insurers will sell salvage to reduce the amount paid for the claim.
Schedule
Gives specific information about the policyholder and the scope of the insurance.
Self-insure or Insurance
When an individual or organisation decides not to arrange insurance for a certain risk, but is willing and has sufficient funds to meet any losses arising from the risk.
Sentimental Loss
Sentimental loss is not insurable and describes the emotional monetary value a policyholder would perhaps attach to an insured item, which is extremely personal and sentimental.
Short Period Rates
The rate of premium charged for a policy, which runs for less than 12 months and is not calculated pro-rata.
Social Domestic & Pleasure (SDP) Use
Use of a vehicle solely for social events, shopping and pleasure with no commuting to and from the driver’s place of work, business or commercial travelling use, unless specifically stated on the schedule or certificate.
Spanish Bail Bond
A guarantee or deposit up to a specified limit following detention of the driver of a vehicle involved in an accident in Spain and/or impoundment of the vehicle by the authorities pending investigation of an accident.
Standard Construction
A building, which is generally classed as fire-proof, for example, is built of brick, stone or concrete, with a slated or tiled roof.
Statement of Fact
A form, similar to a proposal form, which states the material facts and details of an insurance contract.  A proposer is required to sign such a form, declaring that they have read and agreed that the details stated are correct, to the best of their knowledge and belief. This form like a proposal form, forms the basis of the insurance contract in law.
Statute
Law established by legislation. In the UK it is law that is passed by Parliament.
Statutory Liability
When liability attached under statute (law), for example
Employer’s Liability insurance is required under the Employer’s Liability Act of 1969 if a business has one employee or more and every motorist is required to arrange minimum Motor Insurance (Third Party Only), under the Road Traffic Act 1988.
Subject to Survey
Is when an insurer agrees to insure a property on a provisional basis, with matters such a warranties, requirements, even premium remaining outstanding, until the property and it’s risks are surveyed and reported upon.
Subrogation
The right of an insurer who has indemnified a policyholder to take over any legal rights the policyholder may have had in respect of that particular claim.
Uberrima Fides
meaning “utmost good faith”.
Ultra Vires
meaning “beyond the powers”
Under-insurance
Is when the sum insured for property insurance is less than the actual value of the subject of insurance. As insurers would not have received the full premium for the risk they are insuring, the consequences of under-insurance are significant. Most policies include a condition in the wording, which says that in the event of under-insurance, insurers have the right to reduce any valid claim paid by the same amount the property is under-insured by. So, if contents were insured for £30,000 and a claim for £1,500 was reported and upon investigation it was discovered that the contents are under-insured by 25%, insurers would reduce the claim payment by 25% and pay £1,125 less any excess applying. The industry term for this is called “average”.
Utmost Good Faith
Also known by its latin name as “Uberrima Fides”.
This is one of the basic principles of insurance and applies to insurance contracts only. Because the nature of insurance is one of risk and the proposer requesting the cover from the underwriter, knows all the risk details, the underwriter depends wholly on the proposer to be truthful. However, utmost good faith is required from the underwriter too, so the doctrine applies to both parties to the insurance contract.
Vehicle Modifications
Any alterations, which the policyholder as owner or another, has made to the vehicle, must be disclosed to insurers at the time of obtaining a quote and completing a proposal form. Such modifications can be fairly minor and could include:-

• a new engine 
• non-standard body-kit such as a spoiler or skirts 
• different headlamps 
• alloy wheels

If in doubt modifications should be disclosed as failure to disclose any modification to a vehicle, no matter how small, is serious and insurers are entitled to void the policy or refuse to pay any claim, leaving the policyholder without insurance.
Violent & Forcible Means
A condition which normally applies to all theft insurance. For a theft to be covered, the property must have been locked and secured and entry or exit to the property, must have been by forcible and violent method(s).
Void
meaning “without legal effect”.
If the terms of an insurance policy are broken or not fulfilled the aggrieved party to the contract can usually avoid the policy thereby restoring the situation to before the contract was arranged.
Waive
To give something up on a voluntary basis, usually a right or a claim.
Warranty
In an insurance policy, a warranty is a clause involving a promise by the policyholder to do or not to do something or abide by a condition, for example, remove rubbish from their premises on a daily basis. If the terms of the warranty are broken, insurers are entitled to void the cover under the policy and refuse to pay valid claims. Warranties can be either express or implied. An Express Warranty is one which is specifically set out in the policy. An Implied Warranty is one, which is not specially stated within the policy.
Write-off or Total Loss
When a car or vehicle is damaged in an accident or theft to the extent that the cost to repair it, would exceed its market value at the time of the loss or when the vehicle is so badly damaged or burned out, that repair is not possible or permitted by the DVLA under current environment legislation.