Insurance terms glossary

When you make an insurance claim, you may come across unfamiliar legal terms. Here we provide a brief explanation of the most common terms you may read in your insurance documents…

ab initio: Literally ‘from its inception’; a breach of a condition which may lead an insurer to treat a policy as null and void.

adjustment: The amount a loss adjuster reduces your claim after they have taken into account any under-insurance, policy limits, overstatement, etc.

‘all risks’ insurance: A type of insurance which is designed to protect the policyholder against loss or damage, whatever the cause. Despite the name, however, there are usually some restrictions.

average clause: A clause in an insurance policy which states that if, at the time of the loss, the sum insured is lower than the value of the property insured, then the settlement will be scaled down in proportion to that level of under-insurance.

betterment: When a policyholder decides to replace a lost or damaged item with something that is ‘better’. The policyholder is responsible for the difference between the original item’s value and the cost of the new item.

breach: Failure to comply with a condition in the policy, for example with a security requirement.

excess: The amount of each and every claim which is to be paid by the policyholder and is therefore deducted from the final claim settlement.

ex gratia: A payment which isn’t strictly due under the terms of the policy.

inception: The date on which the policy commenced.

indemnity: Legal requirement for the policyholder to be compensated for loss or damage, or for legal liabilities they may have incurred. An indemnity is paid when a claim is accepted under the terms of the insurance policy. Is also used as the term when, in the event of underinsurance, the insurer pays for the replacement cost of damaged items less an allowance for wear, tear and depreciation: this is described as ‘reverting to indemnity’.

index linking: Automatic adjustment of the sum insured to match a certain index: for example, the House Rebuilding Cost Index is used to calculate increases to the buildings sum insured.

insured peril: An event which is covered by a specific policy: for example, fire is a standard ‘insured peril’ in most policies.

loss adjuster: A claims specialist employed by an insurance company to represent their interests by investigating and adjusting claims and reaching the most economical settlement.

loss assessor: A claims specialist employed by the policyholder to protect their interests. Will prepare, present, manage and negotiate the claim to achieve the maximum settlement under the terms of the insurance policy.

misrepresentation: Meaning misstatement of facts; this may entitle the insurer to declare your policy void or to refuse a claim.

non-disclosure: When an important but previously undisclosed fact comes to the insurer’s attention which may entitle them to declare your policy void or refuse a claim.

policy liability: An obligation to recompense the policyholder under the terms of the insurance contract.

proximate clause: The primary or principal reason for or cause of a particular loss. This is not necessarily the first or last cause in a chain of events.

quantum: The actual amount the insurer pays as a settlement of a claim.

repudiated: The insurance company has refused to accept liability and as a result the insurance claim has been rejected.

salvage: Items which formed part of a claim and for which the policyholder has been paid. These damaged, lost or stolen items then become the property of the insurer who is then entitled to keep the full proceeds from any sale of these goods, as long as the policy has received the full value of the goods as settlement of the claim.

subrogation: Taking over responsibility from the policyholder for seeking recovery, usually by the insurer. The insurer is then responsible for any costs incurred in achieving recovery. For example, if a negligent motorist damages a garden wall and the household insurer meets the claim for the wall, then this insurer has subrogated rights of recovery against the motorist.

sum insured: The maximum amount payable to the policyholder under the terms of the policy.

third party: Someone who is directly involved in the event which has led to a claim, but is not a party to the policy. For example, if a plumber has caused an escape of water in a property, they would be a third party in the context of the claim.
under-insurance If the sum insured is less than the correct cost/value of rebuilding or replacing the building or item insured.

underwriter: The person who decided whether a risk is insurable and if so at what cost/premium.

value-at-risk: The full value of a property or item which could be the basis of a claim under a policy. This will vary according to the type of cover: for example, if it is new for old, value at risk would be calculated on this basis.

void: When a policy is regarded as if it never existed, through for example non-disclosure or misrepresentation.

warranty: A condition of a policy which must be complied with for the cover to operate.

without prejudice: An enquiry, proposal or offer of settlement made without admission of liability. The words are used either verbally or in writing to ensure no admission of liability is implied.