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Insurance Jargon Buster
Act of God – this is an event arising from a natural event (such as storm damage or an earthquake) rather than by human intervention. Contrary to popular belief, acts of God are not generally excluded from insurance policies. The policy document sets out what risks – including so-called acts of God – are covered and what is excluded.
Buildings insurance – cover which protects the structure and fabric of a building against defined risks.
Business interruption insurance – following an insured event, the damage may be sufficient to cause loss of business revenue, business interruption insurance provides an element of compensation for this loss.
Combined home insurance policies – the combination is of the other separate elements of building insurance and contents insurance in a single home insurance policy, typically providing a discount on the premiums payable when both policies are combined.
Compulsory excess – an excess is the first part of any successful insurance claim for which you remain financially responsible. It is effectively an uninsured loss. A compulsory excess is the amount set by the insurer and enforced in the event of any claim.
Contents insurance – this protects the contents of a property as distinct from the building and its fixtures and fittings. If you could pick up the property and turn it upside down, the contents are all the things that would fall out of it.
Convicted driver – insurers take into account previous motoring convictions when assessing the risks involved in motor cover. As these are so-called “material facts”, “unspent” convictions need to be declared on your insurance proposal. If you have previous convictions, convicted driver insurance is a niche product, typically offering suitably favourable terms.
Cooling off period – if you have arranged insurance (for your car or home, let’s say), your insurer is obliged by law to offer you a cooling off period during which you may decide to cancel the policy for any reason you choose.
Depreciation – this is an accounting term which refers to the inevitable reduction if value of a business asset or your personal belongings over time, typically as the result of wear and tear. It is usually taken into account by an insurer when determining the level of settlement made on claims for loss or damage to the insured item.
Discounts – the cost of insurance premiums is determined according to the insurer’s assessment of risk. That price may be offered at a discount for a large number of reasons: in recognition of a claims-free record (no claims discount), for including more than one insured item under the same umbrella insurance (vehicle fleet insurance, for example), for referring friends or family members to the insurer or for promotional reasons.
Employer’s liability insurance – subject to a very few exceptions, if you employ anyone at all to help run your business (even on an unpaid or voluntary basis), the Employers’ Liability (Compulsory Insurance) Act of 1969, and its amendments require that you hold employer’s liability insurance to a value of at least £5 million. Failure to do so may result in a daily fine of up to £2,000.
Escape of water – escape of water is a commonly insured risk related to the leakage of water from pipes or fixed installations (such as your water storage tank) or appliances (such as a washing machine), because of a failed connection, for example, or following a burst pipe after freezing weather.
Exclusions – as important as what is covered by your insurance policy is what is not. These excluded risks are known as exclusions.
Financial Conduct Authority – the FCA is the official regulator of the financial services industry in the UK. Formerly called the Financial Services Authority, the FCA is an independent regulator, with responsibilities for registering and authorising all insurance business in the country.
High net worth – an individual or family of high net worth (HNW) is wealthy and the term is widely used throughout the financial services industry, although there is no fixed definition of just how rich you to be in order to be called high net worth. People who require HNW insurance may require higher value property insurance or more niche insurance such as yacht insurance or cover for art or antiques.
Index linking – in times of fluctuating values and prices, it is important that the level of insurance cover is automatically updated in line with those changes. This is provided by adjusting insurance cover according to one of a number of indices – the retail price index, for example, or in the case of home insurance, the index relating to rebuilding costs or the replacement value of its contents.
Insurance broker – this is an individual or a firm in the business of arranging and placing its customers’ insurance needs with insurers. Brokers are adept at matching individual customers’ needs and requirements to appropriate insurance products in a cost effective and price competitive way. They may also act in the capacity of intermediaries or agents in the provision of such services as the design or negotiation of contract, risk management, and claims handling.
Insurance premium tax – insurance premium tax, or IPT, was first introduced in 1994. It is a charge at a given percentage of the insurance premiums themselves and applies to all forms of general (non-life) insurance.
Insurer – an insurer enters a contract with the insured in which the promise is given, in return for the payment of a premium, to provide compensation to the insured in the event of a defined risk occurring. There needs to be uncertainty about whether the insured event or events might ever happen or, in the case of an inevitable event such as death, just when it might happen.
Intellectual property rights – these grant you the rights of ownership over ideas, designs and other works you have created using your mind. Notable examples of intellectual property include trademarks, designs, patents and copyright.
Key facts document – the key facts document, also known as a key features document, is one that the regulatory authority (the FCA) requires to be issued in relation to any financial product or scheme, including insurance policies. In the case of insurance, the key facts document sets out the main features, risks covered and exclusions of the policy being offered.
Landlord – the term defines an individual or company enjoying the ownership of property (a building, land or accommodation) and allows another individual to use and occupy that property in return for a fee (typically called the rent). The person occupying the property is a tenant and the contract between landlord and tenant is known as a lease or rental agreement.
Limited mileage – this is a term you might encounter in a motor policy and refers to the maximum mileage to which you may be restricted and agree to limit yourself to, in return for reduced motor insurance premiums. The actual mileage to which you might be limited may vary considerably – being as low as 1,500 miles, for example, or as relatively generous as 7,500 miles.
New for Old – also known as replacement as new, this is a principle on which claims may be settled in the event of total loss or destruction. It is essentially self-explanatory, replacing the item that has been lost or damaged beyond repair with an entirely one, irrespective of the wear and tear or depreciation of the old item.
No claims discount – this this is probably the most valuable discount you are likely to enjoy when renewing your insurance policy or, indeed, arranging a new one. The discount is made in recognition of your having a claims-free history during the preceding years. You might also see it referred to as a no claims bonus.
Non-standard – non-standard is a way of describing niche insurance products which go that extra mile beyond the cover offered by standard policies. In the case of motor insurance, for instance, it might be used to describe the specialist form of insurance for drivers with previous motoring convictions, or in the case of home insurance, the provision of cover where there is a history of flooding or where the building itself is of non-standard construction.
Overinsurance – overinsurance results from insuring an item – your home or your motor car, for example – for a greater value than it is currently worth, with the result that you are probably paying more than you need for your insurance cover.
Period of insurance – the period of insurance is just as it says, the duration or term of the cover provided by the insurance cover you have arranged. Typically, this runs for one year, although shorter periods may be arranged in the case of unoccupied property insurance, for instance.
Policy – the insurance policy embodies the contract of insurance as agreed between insurer and the insured.
Policy schedule – the policy schedule outlines the nature, scope and extent of the cover provided under the contract of insurance between the insurer and insured. In addition, it identifies and provides basic details of the insured or policy holder.
Premium – the premium is the amount charged by the insurer for insuring the agreed risks for the insurance term or period of insurance. The amount of any premium is based on the insurer’s assessment of the likelihood of the defined risk or risks occurring and the need to cover potential claims by the insured for the loss or damage suffered.
Product liability policy – if you are in the business of selling products or supplying them as part and parcel of the services you provide, you are also liable for their being suitable for the purpose for which they were designed and free of any defect in manufacture or operation. This is in addition to any manufacturer’s warranty. A product liability policy is designed to indemnify you against such claims.
Professional indemnity insurance – if you represent yourself as a professional – providing professional services which offer advice to clients, services handling or managing clients’ data – you have a duty of care to perform those services free of mistakes and errors, in the same way as any other member of the same profession might be expected to deliver. You may face claims of professional negligence if you breach this duty of care. Professional indemnity insurance is designed to protect you against the financial losses incurred as a result of those claims;
Public liability insurance – whether you are a homeowner or are running your own business, you have a duty of care towards neighbours, members of the public, and visitors to your premises to safeguard them against personal injury or damage to their property. Public liability insurance is designed to indemnify you against claims that you have breached that duty of care.
Rebuild value – the total building sum insured to protect the structure and fabric of any property typically envisage a worst case scenario in which the building is totally destroyed by any insured event and needs to be rebuilt from the foundations up. That total sum insured therefore needs to reflect the rebuild value of the property – a value which is different to the price you may paid for the property or to its current market value.
Renewal – upon the expiry of any period of insurance, insurers typically send (but are not obliged to send) a renewal reminder, helping you avoid a situation in which a previously insured item becomes vulnerable to loss or damage on the expiry of the current cover.
Subsidence insurance – subsidence is a potentially very serious risk faced by any property where the foundations have been subject to disturbance or collapse. Since it is a risk for which many insurers may decline cover, subsidence insurance remains a niche insurance product.
Sum insured – this represents the insured value of any given item and is the maximum amount the insurer may pay in the event of a claim for loss or damage.
Third party (person) – a third party is someone who is involved in some way in an insured event, but who is neither the insurer nor the insured.
Third party insurance only (motor insurance) – a minimum level of third party motor insurance is required by law for the keeper of any motor vehicle. This is so that claims by third parties who may have been injured or whose property may have been damaged in a motoring incident involving the insured are certain to receive any compensation to which they are entitled.
TPFT (for motors) – TPFT is the acronym for third party, fire and theft motor insurance, which provides insurance cover against third party claims and loss or damage to the insured vehicle by way of fire or theft.
Underinsurance – this is when the total sum insured is insufficient to cover the potential extent and value of loss and damage suffered by an insured item. It is likely to be one of the most common failings of those arranging insurance cover.
Underwriting – underwriting involves the calculation of the risks associated with insured events and the computation of the premiums necessary to insure those risks.
Unoccupied property – unoccupied property is vulnerable to a different order of risks and perils when it stands empty and unoccupied. For that reason, most insurers severely limit or lift altogether the cover on an insured property that has been unoccupied for a month or longer. In order to restore the necessary protection for the property, specialist unoccupied property insurance is required.
Voluntary excess – in addition to the compulsory excess typically applied as a matter of course by an insurer, it may be possible for the insured to agree to a further voluntary excess, increasing the uninsured portion of any risks, and therefore typically earning a reduction in the premiums the insurer needs to charge.