The technical terms used within the insurance industry can be elaborate and confusing, which can make it incredibly challenging to determine the best policy to suit your needs. We’ve compiled a short list explaining the meaning of some of the most common key words and phrases that you’re likely to encounter in insurance policies and documents.
Accidental Damage
Accidental damage is a term most often used in building and contents insurance policies. It refers to unexpected damage or harm caused to property, belongings, or a person. For example: spilling paint or bleach on a carpet or upholstered furniture; dropping an expensive mirror; kicking a football through a window; hammering a nail into a pipe behind a wall; or putting your foot through a ceiling when you’re in the attic. Accidental damage is usually a voluntary extra that you will need to add to your standard building and contents insurance cover.
Act of God
This term is sometimes called ‘Act of Nature’, ’Vis Major’ or ‘Force Majeure’. These terms refer to unpreventable and unpredictable events that cause loss or damage to land, buildings, and belongs through no fault of any individual person. For example, storms, floods, fire caused by lightening, natural disasters, etc.
In Nugent v Smith (1876), an Act of God was defined as “Natural causes directly and exclusively without human intervention and that could not have been prevented by any amount of foresight and pains and care reasonably to have been expected.”
Claim
A claim is simply a request or demand for compensation payment from your insurance provider under the particular terms stated in your insurance policy, or the policy of a third party who is responsible for any harm or damage caused to you, your home, or your belongings.
Excess
Almost all insurance policies have compulsory and/or voluntary excess applied to them. This is the initial sum of money you will be required to pay toward any claim for compensation that you make against your insurance policy. Higher excess usually results in lower monthly or annual premiums.
For example, if you make a claim of £1,000 to your insurance company and the excess is £150, you will be required to pay the first £150 (your excess) and the insurance provider will pay out the remaining £850.
You don’t have to give the excess to the insurance company unless the claim is compensation for a third party. If the claim is for damage to your own property or belongings, the insurer will simply pay the total compensation sum to you (or the person/business that replaces the loss or fixes the damage), minus the excess.
If the loss or damage experienced is less than your excess, you will be required to meet the cost yourself. However, for certain policies, such as pet insurance, it is sometimes possible for individual claims below the excess to be combined and claimed as a whole, providing they all relate to the same condition.
Compulsory excess is set by the insurance provider and the amount will vary depending on the information provider when the policy is put in place. Voluntary excess is optional and chosen by the policy holder (i.e. you) to reduce the amount you have to pay each month or year for the insurance cover. In the event of any claim, voluntary excess must be paid in addition to any compulsory excess that may be in place.
Indemnity
Indemnity is the security or protection against loss or damage in the form of compensation, which seeks to replace or restore (in so far as possible) the state or financial position of the affected persons(s) prior to the loss or damage. As the central principle of insurance, most policies are essentially contracts of indemnity – with the exception of life insurance and personal injury/accident policies.
Policy
A ‘policy’ is the name of the insurance cover agreed between the you (the ‘policy holder’) and the insurance provider. The terms of your insurance policy are based on the information provider by you to the insurer when you set up the cover.
The information will dictate how much you pay each month or year (the ‘premium’) for the insurance cover, the types of loss or damage that are covered by the policy, and also the amount of compensation you can claim from the insurance provider in the event of any loss, harm or damage to you, your property, or any third party who may be affected.
Premium
This is the sum of money charged to the policy holder (you) by an insurance provider for the cost of the cover provided to you. Premiums can normally be paid annually or in monthly instalments. If you choose to pay for 12 months’ insurance up front, your premium will usually work out cheaper than paying in monthly instalments.
Rebuild value
This term is found in Buildings Insurance policies. It refers to the total cost of rebuilding your property in its existing state if it is destroyed beyond repair. The vast majority of buildings insurance policies are based on the rebuild value, as opposed to the current market value or sale price of the property.
When working out the rebuild value of your property, it is important to take into consideration any outbuildings you may have. This includes patios and terraces, garages, sheds, perimeter fences and boundary walls, and anything else within the grounds of the property.
Schedule
Insurance policy documents provided to the policy holder by an insurance company generally consists of policy wording (to explain the meaning of each term and provision within the agreement) and a policy schedule.
The schedule will outline important information that is specific to your policy, including: the type of cover taken out, your personal details, the period of cover (start and end dates), total sum insured (the amount of financial cover you have), monthly or annual premium, compulsory and voluntary excess, any discounts applied, restrictions and exclusions (i.e. the types of claims that are not covered by the policy), and the procedure for making a claim.
Third party
Third party refers to any individual involved in a claim who is not the policy holder or the insurance provider. It is a term commonly used in many types of insurance, including vehicle insurance, buildings cover, professional indemnity, public liability, and employers’ liability insurance. For example, if you hit another vehicle with your car, the driver of that vehicle is the third party.