Insurance Definitions

We have created a glossary of insurance terms for a small selection of insurance covers which we hope you will find useful including public liability insurance and employers liability insurance.

If you require any further assistance or advice understanding the information shown below please feel free to contact us

Ab initio

This Latin term means "from the beginning". An insurance policy may be cancelled 'ab initio' if the insurer felt that there had been a non disclosure serious enough to not wish to proceed with the policy at all. Normally the insurer would refund the premium paid.

Accident

An unforseen event, unexpected and undesigned, which occurs suddenly and may be insured against.

Accidental Damage Cover

Insurance that protects against damage to goods rather than loss or theft. Not always included as part of motor cover, but sometimes applies to vehicle contents, it will replace possessions that are stolen or damaged, but it doesn't protect against more minor hazards.

Act of God

An accident or event which happens independently of human intervention, usually due to natural causes such as storm or earthquake, which no human foresight can provide against. Suggesting that an event was an "act of God" may be a defence in English law against a claim for liability since it may be held that it could not have been foreseen or safeguarded against. One of the reasons why it can be inadvisable to drive your vehicle in adverse or dangerous weather condtions.

All Risks

An insurance policy that covers all risks - except those not listed under its exclusions.

Any Driver

Insurance that allows anyone to drive a vehicle, not just the owner, so long as they have permission to use the car.

Assurance

Generally used in connection with life cover as assurance implies the certainty of an event (in that case death) and insurance the probability.

Average

If you are found to be under-insured, the insurer's liability will be limited to that proportion where the amount of cover is compared to the value at risk. This ratio is then applied to your loss. In simple terms, if you have bought only half the cover you should have, your insurers will only pay you half your assessed loss.

Bona Fide Sub Contractor

The term is used to describe sub contractors who operate using their own tools and carry their own insurance and are paid by means on invoice. For a definition of the difference between Bona Fide Sub Contractors and Labour Only Sub Contractors please visit our definition of sub contractors

Business Interruption

This insurance covers a business in the event of the loss rendering the business inoperable or hindered by an event such as a fire or a breakdown of machinery. The policy will define the gross profit and uninsured working expenses within the policy wording, which will be subject to increased costs of working and savings.

Claimant

An insured party who has undergone a loss, which they believe to entitle them for compensation under the terms of their insurance policy.

Consequential Loss

A financial loss occurring as the result of some other loss. Also known as an indirect loss.

Contract

Any contract or agreement for the performance of work in connection with the business or trade of the insured party.

Contractors All Risks Insurance (CAR)

A policy which covers contract works, such as new buildings in the course of construction, usually on an 'All Risks' basis. Sometimes referred to as 'Contract Works Insurance'. In addition cover can be included for tools, plant owned by the policy holder or plant hired in. This type of insurance is especially useful for builders and similar tradesmen and is often purchased along with public liability insurance but can be bought as a seperate policy.

Contractual Liability

Contractual liability is defined as liability that does not arise by way of negligence, but by assumption under contract or agreement.

Critical Illness Cover

Insurance that pays a lump sum if you're diagnosed with a specified critical illness covered by your policy.

Deductible

The specified amount a loss must exceed before a claim is payable. Only the amount which is in excess of the deductible is recoverable.

Duty of Disclosure

The duty of any person applying for an insurance policy to tell the insurer all relevant information affecting the risk, such as prior claims history.

Employers Liability Insurance

Compulsory insurance for all employers. Employers liability insurance is required in case any employees pursue their employer for compensation in the event that they suffer injury or disease in the course of their employment.

Excess

This is the amount the policyholder must pay in the event of a claim being made. The amount will differ from insurer and the type of insurance. For example an excess under a public liability insurance policy could range from £100 to £500 for some trades. For van insurance this amount is recoverable if you are involved in a non fault accident.

Exclusions

The insurance policy will have certain exclusions and restrictions to the cover being offered which need to be made clear to the policyholder before cover is arranged.

Fire & Theft

A form of cover for motor vehicles offered as an extension to a basic third party only policy which indemnifies the policyholder for damage caused to other people's property and injury that may be caused to others. The additional 'fire' and 'theft' offers compensation to the policyholder if the insured vehicle is destroyed or damaged by fire and/or theft.

First Loss

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 sum insured, without application of average.

Financial Services Authority

The FSA regulates financial services companies, including insurance companies. The FSA can advise you on making a complaint against an insurance company.

Fully Comprehensive

For motor insurance, a policy that covers damage to the owner's vehicle as well as to others'

Gross Profit

Defined within an insurance policy. In simple terms: sales, less purchases, adjusted for opening and closing stock.

Income Protection Insurance

Insurance that pays you a monthly income if you're unable to work due to illness or injury, until you are able to return to work, or retirement, whichever is the sooner. Learn more about income protection insurance.

Indemnity

The principle under which a claimant is restored (so far as possible) to the same financial position that they were in immediately prior to the insured loss. As account is taken for age, wear, tear, and depreciation, this differs from “New for Old”.

Insurable Interest

A person has an insurable interest in "something" when loss of or damage to that "something" would cause the person/business to suffer a financial loss or other kind of loss.

Insurance Company

The company who has undertaken to cover the risk of the policyholder, so that, in the event of any loss as stated in the contract, the insured party is recompensed for their loss. The insurance company effectively bets the insured party that the risk will not happen.

Insurance Contract

This is a legally binding agreement enforceable at law and made between two parties whereby one party pays the premium and the other undertakes to pay a sum of money following the occurrence of a specified risk.

Insurance Policy

A legal contract, which states the terms of the agreement between the insured party and the insurance company. This document will contain exclusions of warranties and other clauses, which may require to be interpreted by professionals.

Insurance Premium Tax (IPT)

A Government tax charged as a percentage of insurance premiums.

Insured

A person or business covered by an insurance policy.

Investment Backed Life Insurance

Life insurance which has two roles: to protect you, and to act as an investment. These include Whole-of-Life insurance, With-profits bonds, Income and growth bonds, Endowment policies and Maximum Investment plans.

Joint Life

Typically, life-cover to protect a family in the event of either or both parents dying.

Labour Only Sub Contractors

A sub contractor who is self employed for tax reasons but works a set pattern for one or more main contractors and is paid by the hour, day, week or month. See our definition of sub contractors

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Latent Disease

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

Legal Expenses Insurance

There are different types of legal expenses insurance, commercial policies and those that are attached to motor and home insurance policies. They usually cover legal costs for disputes such as contract or employee disputes

Liability Insurance

An insurance which covers the insured against third party claims or, in the case of employer’s liability insurance, claims by employees.

Limit of Indemnity

Insurance policies normally contain a limit stating the maximum amount insurers will pay. This could be for any single event, or for all events occurring in a single policy period depending on the type of policy wording. Limits of indemnity under a public liability insurance policy should be checked carefully to ensure they are high enough for your requirements.

Loss Adjuster

Usually employed by the insurance company, the loss adjuster investigates the claim and gives his confidential opinion of the amount of compensation the insurance company should offer to the claimant under the terms of the policy. The Loss Adjuster is paid by, and reports to the Insurance Company.

Loss Assessor

Employed by the claimant to ensure that they receive their full entitlement of compensation for their loss. The loss assessor does the same research as the loss adjuster, but with the claimants' interests in mind. The Loss Assessor will negotiate with the Loss Adjuster until he or she is satisfied that sufficient compensation is being offered in settlement of the claim.

Material Fact

Information that would affect an insurance company's willingness to accept a policy, or the premium it would charge, such as previous driving convictions. Failing to disclose a material fact could invalidate a policy.

Minimum & Deposit Premium

The premium payable at the start of the policy will be the minimum the insurer will collect and no refunds are permitted for reductions in cover or cancellation. Additional premiums may still be charged.

Mortgage Protection Insurance

Accident, sickness and unemployment insurance (or payment protection insurance) used to cover your mortgage payments.

Non disclosure

When a policyholder does not disclose a material fact.

Peril

A contingency, of fortuitous happening, which may be covered or excluded by a policy of insurance.

Policyholder

The person or business who is insured under a contract of insurance.

Policy Schedule

A document that details how much cover you have (the sum insured), and the premiums you have to pay.

Premium

The price charged by an insurer in order to grant insurance cover.

Professional Indemnity Insurance

This type of cover protects a business's interests against claims for error, omissions, professional neglect for both the principles and their employees.

Proposer

The person who "proposes" the insurance, ie. takes out/ arranges the cover.

Reinstatement

To return the insured to the pre-loss situation.

Reinsurance

The practice whereby one insurer transfers part or all of the risk it has accepted to another insurer (the reinsurer).

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.

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.

Sum Insured

The maximum amount that an insurer will pay under a contract of insurance. Under insurance can lead to the insurers applying the average clause.

Term Insurance

Life insurance giving protection for a specific amount of time (the 'term').

Territorial Limits

The geographical limits within which your policy is valid, usually Great Britain, Northern Ireland, The Isle Of Man and the Channel Islands, including travel between any of these.

Third Party

Someone other than the insured or their insurer.

Third Party Insurance

This is the minimum level of motor insurance required to drive on UK roads. Third party covers damage to others' cars but not to your own, nor does it provide cover against fire or theft.

Third Party Fire & Theft Insurance

A relatively cheap form of motor insurance. Like third party coverage, but with cover against fire or theft.

Uninsured Loss Recovery (ULR)

An additional insurance protection that you should consider purchasing. Where a motor accident was the fault of a third party, your insurers will attempt to recover your uninsured losses including repair costs, policy excess, loss of use, hire costs of alternative vehicle, transport costs, etc.

Under Insurance

If you fail to provide the insurance company with the correct value of the items you are insuring you are under insured. The insurer's will then apply the average clause to your claim

Underwriter

The person within the insurer who evaluates the risk being proposed and decides whether to sign off (underwrite) the risk. The term derives from the practice at Lloyd's of each person willing to accept a portion of the risk writing his name under the description of the risk.

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.