Insurance Definitions

Please note that this list gives some broad descriptions of terms and these will vary between different insurers.

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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.
Average: A clause in insurance policies whereby, in the event of under-insurance, 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.
Claims: Injury or loss to the insured arising so as to cause liability to the insurer under a policy it has issued.
Comprehensive (Motor): This cover gives the same level of cover as third party fire and theft but also gives cover for damage to the policyholder's vehicle. The cover also usually includes cover for the repair or replacement to the insured's windscreen.
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.
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 so to pay.
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.
Inception Date: The date from which, under the terms of a policy, an insurer is deemed to be at risk.
Indemnity: 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).
Insurable Interest: 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.
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 Premium Tax: The Finance Act 1994 introduced this new tax on most general insurance risks located in the UK.
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.
New For Old: Where insurers agree to pay the cost of property lost or destroyed without deduction for depreciation.
Non-disclosure: The failure by the insured or his broker to disclose a material fact or circumstance to the underwriter before acceptance of the risk.
Peril: A contingency, of fortuitous happening, which may be covered or excluded by a policy of insurance.
Sum Insured: The maximum amount payable in the event of a claim under contract of insurance.
Third Party Fire and Theft (Motor): This cover gives fire and theft cover in addition to third party cover. The third party section of the cover is limited to the damage caused by the policyholder to other persons and property if the policyholder is found to be at fault and does not give any cover to the policyholder's vehicle other than for fire and theft.
Third Party Only (Motor): This cover is basic cover offered by insurers and covers the policyholder's minimum legal requirements for driving on the public highway. The cover is limited to the damage caused by the policyholder to other persons and property if the policyholder is found to be at fault and does not give any cover to the policyholder's vehicle. This cover is fairly rare now and may not be the best priced form of cover due to the limited market of insurers.
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.
Voluntary Excess: The voluntary excess is a way of reducing the premium by increasing the level of excess that you will pay in the event of a claim. It is worth noting that if you select a voluntary excess this will be in addition to any standard policy excess that may already apply.
Warranty: A very strict condition in a policy imposed by an insurer. A breach entitles the insurer to deny liability.
Windscreen Excess (Motor): The windscreen excess is usually a different excess from that of the standard policy excess and would usually only apply if the windscreen requires replacing. In addition to the reduced windscreen excess the no claims bonus is normally unaffected by windscreen claims.