Frequently Used Insurance Terms
Accident: An unplanned and unexpected event which occurs suddenly and at a definite place.
Act of God: An event arising out of natural causes with no human intervention which could not have been prevented by reasonable care or foresight. Examples are windstorm, lightning, and earthquakes.
Actual Total Loss: A form of total loss deemed to occur in one of three ways:
(1) Where the insured item is totally destroyed,
(2) Where it is so damaged that it can no longer be classed as the type of object originally insured and
(3) Where the insured is irretrievably deprived of the insured item.
Adjuster: A representative of the insurer who seeks to determine the extent of the firm’s liability for loss when a claim is submitted.
All Risks: A term used where the cover is not restricted to specific events such as fire, storm, flood etc. The cover is for loss, destruction or damage by any cause not specifically excluded. The exclusions will often be inevitabilities such as wear and tear.
Average (condition of): This term (in non marine insurance) relates to the practice of scaling down the amount of a claim by applying the ratio of the actual sum insured to the amount deemed to have been the appropriate sum insured.
Business interruption/Loss of Profits/Consequential Loss Insurance: Insurance cover for financial losses arising following damage (e.g. a fire) to business premises.
Catastrophe: In the context of general insurance, a catastrophe is a single event which gives rise to exceptionally large losses e.g. losses arising from a wind storm.
Certificate: The law requires that everyone in control of a Motor Vehicle on a public road must have in his/her possession a Certificate of Insurance as evidence that the vehicle is insured.
Claim: A request by a policyholder for payment following the occurrence of an insured event. A claim does not necessarily lead to a payment.
Commercial lines: Classes of insurance for businesses, commercial institutions and professional organizations.
Common Law Liability: Responsibility based on common law for injury or damage to another’s person or property which rests on an individual because of his actions or negligence. This is opposed to liability based on statutory law.
Comprehensive Cover: Covers liability for death or injury to Third Parties and damage to Third Party property and loss of, or damage to the insured vehicle by accident, fire or theft subject to an excess.
• Roadside Assistance – Beacon Rescue is a complimentary roadside assistance service for clients with comprehensive cover, offering various benefits and discounts from service providers.
Optional cover:
• Windscreen – For an additional premium, the Policy can be extended to cover any claim by the Insured for the cost of reinstating any glass in the Windscreen or in the windows of the Motor Vehicle following breakage of such glass (provided there is no further damage to the Motor Vehicle) up to a specified amount.
Any payment made under this endorsement shall be deemed not to be a claim for the purpose of the No Claim Discount Clause.
• Special Perils – This option covers loss or damage due to the perils: flood, typhoon, hurricane, volcanic eruption, earthquake or other convulsion of nature, strike, riot and civil commotion subject to special conditions and exclusions.
Constructive Total Loss: Where the insured abandons the damaged item because an “actual total loss” is unavoidable or because the costs of preventing a total loss exceed the value saved.
Cover note: Cover Notes are issued to provide an insured with evidence of cover prior to the issuing of the Certificate of Insurance. It is usually temporary and issued at the underwriter’s discretion.
Cover note: A note issued by an insurance company to confirm the existence of insurance cover pending the issue of formal policy documentation. An cover note is particularly useful where the policyholder is under a statutory obligation to be covered by insurance and may be required to show evidence of cover, for example third party motor insurance.
Deposit premium: A premium paid at the start of a period of cover, which may be followed by an adjustment premium when all the relevant rating data are known. E.g. the declaration of annual wages paid.
Endorsement: Some change to the policy wording, usually following a change in the risk covered, which takes effect during the original period of insurance. Usually, but not necessarily, accompanied by an alteration in the original premium.
Event: An occurrence, usually one that may lead to one or more claims. For example a fire, storm, etc. Events may be insured or uninsured.
Excess: An excess is an agreed amount of money that you will be required to bear in the event of a claim situation. The excess is the contribution that you make in the event of a claim. If a claim is not deemed to be your fault, it is usually possible to reclaim the excess paid from the third party involved.
Exclusion: An event, peril or cause defined within the policy document as being outside the scope of the cover.
Exposure: This term can be used in three senses: the state of being subject to the possibility of loss; the measurable extent of risk or the possibility of loss to insured property caused by its surroundings.
First loss: A form of insurance cover in which the sum insured is less than the full value of the insured property, so that the policyholder has to bear any loss in excess of the sum insured. It is appropriate in circumstances where the policyholder considers that a loss in excess of the sum insured is extremely unlikely or the item is effectively priceless. It is commonly used in burglary insurance.
Fleet: A group of vehicles, ships or aircrafts that are insured together under one policy. They are most times rated differently from individual risks.
Hazard: A specific situation that increases the probability of the occurrence of loss arising from a peril, or that may influence the extent of the loss. For example, accident, fire, flood, liability, burglary, and explosion are perils. Slippery floors, unsanitary conditions, unguarded premises, and uninspected boilers are hazards.
Homeowner: Owns and insures a residential building.
Householder: Does not necessarily own the building, but insures the household contents.
Indemnity: The principle whereby the insured is restored to the same financial position after a loss as before the loss. This is typical of most types of insurance. This contrasts with the new-for-old basis of settlement, often used in home contents insurance, under which the insured is entitled to the full replacement value of the property without any deduction for depreciation or wear and tear.
Independent Adjuster: An adjuster who works as an independent contractor, hiring himself out to insurance companies or other organizations for the investigation and settlement of claims.
Insurable Interest: Any interest a person has in a possible subject of insurance, such as a car or home, of such a nature that a certain happening might cause him financial loss.
Liability: A duty or contract to fulfill an obligation to another person or organization.
Loss: What the policyholder may suffer and what insurance is designed to cover.
Moral hazard: The risk that an insured may attempt to take an unfair advantage of the insurer, for example by suppressing information relevant to the assessment of risk or by submitting a false claim.
Negligence: Failure to use that degree of care which an ordinary person of reasonable prudence would use under the given or similar circumstances. A person may be negligent by acts of omission or commission or both.
New-for-old: A basis of cover where the insurer pays the cost of replacing the insured item with a similar but new item.
No Claim Discount (NCD): A discount allowed off the basic premium of a motor policy at renewal based on the number of years accident-free. It is usually subject to a maximum percentage based on whether the vehicle is used for private or business purposes.
Partial Loss: A loss covered by an insurance policy which does not completely destroy or render worthless the insured property.
Peril: A type of event that may cause a loss that may or may not be covered by an insurance policy. An insured peril is one for which insurance cover is provided. Examples of perils that may be covered are fire, theft, accident, windstorm earthquake, riot and civil commotion.
Personal Lines: Classes of insurance offered to individuals, as opposed to commercial lines business or group business. It includes private motor, domestic household, private medical, personal accident, travel insurance etc.
Rating: The process of arriving at a suitable premium for an insurance risk. It is sometimes synonymous with underwriting, though it is strictly just one part of the underwriting process.
Recoveries: Amounts received by insurance companies to off set directly part of the cost of a claim. Recoveries may be made from several different sources, e.g. reinsurers, other insurers, salvage, liable third parties.
Reinstatement: The restoration of full cover following a claim.
Replacement: A basis of cover where the insurer pays the cost of replacing the insured item with a similar but new item.
Salvage: Amounts recovered by insurers from the sale of insured items which had become the property of the insurer by virtue of the settling of a claim.
Subrogation: The right of an insurer who has taken over another’s loss also to take over the other person’s right to pursue remedies against a third party.
Third Party: Liability for death or injury to Third Parties and damage to Third Party’s property. No excess is applicable to Third Party Policies.
Total Loss: A loss of sufficient size whereby nothing of value remains, the complete destruction of the property. The term is also used to mean a loss requiring the maximum amount a policy will pay.
Uberrima fi des: Latin for “utmost good faith”. This honesty principle is assumed to be observed by all parties to an insurance contract.
Underinsurance: There is said to be underinsurance when the sum insured is less than the actual value of the property insured. In such an instance average may be applied to claim amounts.
Underwriter: An individual who assesses risks and decides the premiums and the terms and conditions on which they can be accepted by the insurer.
Underwriting: The process of selecting risks and classifying them according to their degrees of insurability so that the appropriate rates may be assigned. The process also includes the recommendation of measures which will improve the frequency and severity of losses and the rejection of those risks that do not qualify.