Insurance Glossary: Key Terms Explained

A – D

Act of God. An event caused by natural forces that could not have been prevented — such as a lightning strike, earthquake, or severe storm. While this term is sometimes used colloquially, modern insurance policies typically list specific perils rather than relying on this phrase.

Aggregate limit. The maximum total amount an insurer will pay for all claims during a policy period. Once the aggregate limit is reached, no further claims will be paid, even if individual claims are within the per-claim limit.

Average (condition of). A clause that applies when the sum insured is less than the actual value of the property. If average applies, the insurer will only pay a proportionate share of any claim. For example, if a property worth £200,000 is insured for £100,000 (50%), the insurer will only pay 50% of any claim.

Broker. An intermediary who arranges insurance on behalf of the client. Unlike an agent (who represents the insurer), a broker acts for the client and has a duty to find suitable cover. In the UK, insurance brokers must be authorised by the Financial Conduct Authority (FCA).

Buildings insurance. Cover for the physical structure of a property — the walls, roof, floors, foundations, and permanent fixtures. This is distinct from contents insurance, which covers moveable items within the building.

Business interruption. Cover for the loss of income that results when a business cannot operate due to an insured event (such as a fire or flood). The policy pays for lost gross profit and additional costs incurred to minimise the disruption.

Claims-made basis. A type of policy that responds to claims first made during the policy period, regardless of when the incident occurred. Professional indemnity insurance typically operates on a claims-made basis. Compare with "occurrence basis."

Contents insurance. Cover for moveable items within a property — furniture, equipment, stock, and personal belongings. For businesses, this may include fixtures, fittings, machinery, and trade stock.

Contribution. The principle that if two or more policies cover the same risk, each insurer pays a proportionate share of the claim. This prevents the insured from recovering more than the actual loss.

Deductible. See "Excess." The terms are often used interchangeably, though "deductible" is more common in commercial insurance.

E – I

Employers' liability. Insurance that covers an employer's legal liability for injury or illness suffered by employees in the course of their employment. This is a legal requirement in the UK for any business that employs one or more people, with a minimum cover of £5 million.

Endorsement. A change to the standard policy terms — either adding, removing, or modifying cover. Endorsements are attached to the policy schedule and form part of the contract. Common endorsements include adding additional insured parties or excluding specific risks.

Excess. The amount the policyholder must pay towards each claim before the insurer pays the remainder. A voluntary excess is chosen by the policyholder (usually in exchange for a lower premium), while a compulsory excess is set by the insurer.

Exclusion. A specific risk, event, or circumstance that is not covered by the policy. Exclusions are listed in the policy wording and should be read carefully to understand the limits of cover.

FCA (Financial Conduct Authority). The UK regulator responsible for overseeing the conduct of financial services firms, including insurance companies and brokers. All insurance intermediaries in the UK must be authorised by the FCA.

Goods in transit. Insurance that covers goods while they are being transported from one location to another. This is particularly relevant for couriers, hauliers, and businesses that deliver products to customers.

Gross profit. In the context of business interruption insurance, gross profit is typically defined as turnover minus variable costs (such as purchases and direct materials). This is the figure used to calculate the loss during a period of interruption.

Indemnity. The principle that insurance should restore the policyholder to the same financial position they were in before the loss — no better and no worse. Most insurance policies operate on an indemnity basis, though some (such as buildings insurance) may operate on a reinstatement basis.

Insurable interest. A legal requirement that the policyholder must have a financial interest in the subject matter of the insurance. You cannot insure something in which you have no financial stake.

L – P

Liability insurance. A broad category of insurance that covers the policyholder's legal liability to pay compensation to third parties. Types include public liability, employers' liability, product liability, and professional indemnity.

Loss adjuster. An independent professional appointed by the insurer to investigate and assess a claim. The loss adjuster determines the cause and extent of the loss and recommends a settlement amount to the insurer.

Loss assessor. A professional appointed by the policyholder (not the insurer) to help prepare and negotiate a claim. Loss assessors work on behalf of the claimant and charge a fee, usually a percentage of the settlement.

Material fact. Any information that would influence an insurer's decision to accept a risk or set the terms and premium. Policyholders have a duty to disclose all material facts when applying for insurance. Failure to do so can result in the policy being voided.

Occurrence basis. A type of policy that responds to incidents that occur during the policy period, regardless of when the claim is made. Public liability and employers' liability policies typically operate on an occurrence basis. Compare with "claims-made basis."

Peril. A specific cause of loss or damage — such as fire, storm, flood, theft, or subsidence. Insurance policies list the perils that are covered (named perils) or cover all perils except those specifically excluded (all risks).

Premium. The amount paid by the policyholder to the insurer in exchange for insurance cover. Premiums may be paid annually, monthly, or in other instalments depending on the policy terms.

Product liability. Insurance that covers the policyholder's legal liability for injury or damage caused by products they manufacture, supply, or sell. This is particularly relevant for food businesses, manufacturers, and retailers.

Proposal form. The application form completed when applying for insurance. The information provided forms the basis of the insurance contract, and inaccuracies can affect the validity of the policy.

Public liability. Insurance that covers the policyholder's legal liability for injury to members of the public or damage to their property arising from the policyholder's business activities.

R – U

Reinstatement. The basis of settlement where the insurer pays the cost of repairing or replacing the damaged property to its pre-loss condition, without deduction for wear and tear. Buildings insurance typically operates on a reinstatement basis.

Reinstatement value. The cost of completely rebuilding a property from scratch, including demolition, site clearance, professional fees, and compliance with current building regulations. This is the figure used to set the sum insured on a buildings insurance policy.

Renewal. The process of extending an insurance policy for a further period (usually 12 months) at the end of the current policy term. Insurers typically issue renewal terms 21 days before the expiry date.

Schedule. The document that sets out the specific details of your insurance policy — including the policyholder's name, the property insured, the sums insured, the premium, the excess, and any endorsements. The schedule should be read alongside the policy wording.

Subrogation. The right of an insurer, after paying a claim, to pursue recovery from a third party who was responsible for the loss. For example, if your property is damaged by a negligent contractor, your insurer may pay the claim and then pursue the contractor for reimbursement.

Sum insured. The maximum amount the insurer will pay in the event of a claim. It is the policyholder's responsibility to ensure the sum insured is adequate — if it is too low, the condition of average may apply.

Underinsurance. A situation where the sum insured is less than the true value of the property or risk. This can result in the insurer applying average, meaning they will only pay a proportionate share of any claim.

Underwriter. The person or team within an insurance company who assesses risks and decides whether to accept them, and on what terms. The underwriter sets the premium, excess, and any conditions or exclusions.

Utmost good faith (uberrima fides). The legal principle that both parties to an insurance contract must act honestly and disclose all material information. Under the Insurance Act 2015, the duty on commercial policyholders is to make a "fair presentation of the risk."

V – W

Void. When a policy is declared void, it is treated as if it never existed. This can happen if the policyholder has failed to disclose material facts or has made a fraudulent claim. A voided policy provides no cover, and any claims will be declined.

Waiver. A voluntary relinquishment of a right. In insurance, a waiver may occur when an insurer agrees not to enforce a particular policy condition — for example, waiving a security requirement in specific circumstances.

Write-off. When the cost of repairing damaged property exceeds its value (or a specified percentage of its value), the insurer may declare it a write-off and pay the insured value instead of repairing it. This is most common in motor insurance but can apply to other types of property.