Guide to Insurance in Layman’s Terms

The insurance industry uses quite a number of technical terms, usually for reasons of precise meaning, which are not necessarily easily understood by the layman.

This section clarifies what the keywords and phrases mean that you will find in insurance documents.


Additional Premium

A further premium payable by the insured as a result of policy amendment, that may have increased the risk or changed the policy conditions or sum insured.


One who investigates and assesses claims on behalf of insurers (claims adjuster or loss adjuster).

Advance Profits Insurance

Business Interruption Insurance of the expected profits of a new enterprise or an extension to an existing business.

Aggregate Limit of Indemnity

The maximum amount an insurer will pay under a policy in respect of all accumulated claims arising within a specified period of insurance.

All Risks

The term used to describe insurance against loss of or damage to property arising from any fortuitous cause except those that are specifically excluded.


Applied in the event of claim whereby an insurer reduces the proportion of loss to that of the sum insured within the policy.

Business Insurance

Insurance for business firms, governmental units or non-profit organisations to protect against losses through unforeseen circumstances in return for the payment of a premium.



Termination of a policy before it is due to expire. There may be a cancellation clause in a policy setting out the condition under which the policy may be cancelled by notice. The period of notice could be anything from 48 hours to 3 months. In most cases, this will result in a return premium being paid by the insurer to the insured.


A document issued by an insurer as evidence that insurance is in force. Certain certificates (e.g. Motor, Employer’s Liability) are required by law.


Injury or loss to the insured arising so as to cause liability to the insurer under a policy it has issued.

Commercial Combined Insurance

A number of different commercial insurances put together as a single package.

Commercial Insurance

Insurance for business firms, governmental units or non-profit organisations to protect against losses through unforeseen circumstances in return for the payment of a premium.

Commercial Legal Expenses Insurance

This type of insurance normally covers your commercial legal expenses and provides protection against the potential costs of legal action brought by or against your business i.e. disputes with your past, present or prospective employees, and the cost of legal claims relating to property damage, nuisance or trespass. Cover normally includes a tax advice helpline, a 24/7 confidential legal helpline.

Common Law

The common law consists of the ancient customs and usages of the land, which have been recognised by the courts and given the force of law. It is in itself a complex system of law, both civil and criminal, although it is greatly modified and extended by statute law and equity. It is unwritten and has come down in the recorded judgements of judges who for hundreds of years have interpreted it.


Deliberate suppression by a proposer for insurance of a material fact relating to the risk, usually making the contract null and void.

Consequential Loss

Insurance of loss following direct damage e.g. loss of profits; loss of use insurance.

Contractors All Risks

Cover for physical loss or damage arising on the contract site during the period of insurance.

Cover Note

A temporary insurance document provided by the insurer or broker to the insured, confirming details of the cover that is in place before the actual policy documents are provided. In the case of motor insurance, it also acts as a temporary certificate.

Cyber Insurance

Is a form of cover designed to protect an individual or business from threats in the digital age, such as data breaches or malicious cyber hacks on work computer systems. Cover can be provided for first-party i.e. the business involved and third-party i.e. claims against you including damages and settlements, and the cost of legally defending yourself against claims of a GDPR breach.


The specified amount a loss must exceed before a claim is payable. Only the amount which is in excess of the deductible is recoverable.

Directors & Officers Insurance

Directors and Officers Liability Insurance, or Management Liability Insurance, is insurance cover that offers financial protection to those who are the Director, Partner or Officer of a company. It is designed to cover the cost of claims for compensation made against the insured individual.


Employers Liability

Insurance by employers in respect of their liability to employees for injury or disease arising out of and in the course of their employment. With some exemptions, this insurance is compulsory in Great Britain and can only be provided by an authorised insurer.


A policy wording that extends or restricts the cover provided or that requires compliance with stated conditions. Appears on a Policy Schedule.


The first portion of a loss or claim which is borne by the insured. An excess can be either voluntary to obtain a premium benefit or imposed for underwriting reasons.


A provision in a policy that excludes the insurer’s liability in certain circumstances or for specified types of loss.

Ex-Gratia Payment

A payment made by an insurer to a policyholder where there is no legal liability so to pay.

Financial Ombudsman Service

A bureau established by major insurance companies to oversee the interests of policyholders whose complaints remain unsolved through normal company channels of communication. The service is available to all those holding personal cover with the insurers who have joined the scheme. The decision of the Ombudsman is binding on the insurer, although the insured may appeal to the court if he so wishes.

First Loss Insurance

Insurance, where the sum insured, is accepted to be less than the value of the property, but the insurer undertakes to pay claims up to the sum insured, without application of average.

Freight Liability Insurance

Insurance for logistics service providers including freight forwarders, road hauliers and warehouse keepers. Such insurance provides legal liability protection for the loss and damage of goods in accordance with standard trading conditions, international conventions, statutes and liability at common law.


Gross Premium

A term normally applied to gross written premiums before deduction of brokerage and discounts.


A physical or moral feature that introduces or increases the risk.


Inception Date 

The date from which, under the terms of a policy, an insurer is deemed to be at risk.

Increase in Cost of Working

Under a Business Interruption policy, some cover is provided for additional expenditure incurred by the insured solely for the purpose of reducing the shortage in production following an insured event.


A principle whereby the insurer seeks to place the insured in the same position after a loss as he occupied immediately before the loss (as far as possible).

Indemnity Period

Under a Business Interruption Insurance, the period during which cover is proved for disruption to the business following the occurrence of an insured peril.

Insurable Interest

For a contract of insurance to be valid, the policyholder must have an interest in the insured item that is recognised at law whereby he/she benefits from its safety, well-being or freedom from liability and would be prejudiced by its damage or the existence of liability. This is called the insurable interest and must exist at the time the policy is taken out and at the time of the loss.

Insurable Value 

The value of the insurable interest which the insured has in the insured occurrence or event. It is the amount to be paid out by the insurer (assuming full insurance) in the event of total loss or destruction of the item insured.

Insurance Broker / Intermediary

An insurance intermediary who advises their clients and arranges their insurances. Although they act as the agent of their client, they are normally remunerated by a commission (brokerage) from the insurer. An insurance broker is a full-time specialist with professional skills in handling insurance business. Since January 2005 Intermediaries and Brokers must be registered with and regulated by the Financial Conduct Authority.

Insured Premium Tax (IPT)

The Finance Act 1994 introduced this new tax on most general insurance risks located in the UK.


The person whose property is insured or in whose favour the policy is issued.


An Insurance Company or Lloyd’s Underwriter who, in return for a consideration (a premium), agrees to make good in a manner laid down in the policy any loss or damage suffered by the person paying the premium as a result of some accident or occurrence.



The non-renewal of a policy for any reason.

Landlord Insurance

Landlord Insurance is the cover that protects landlords from risks associated with their rental property. It usually includes buildings and contents insurance, but can also include landlord-specific covers such as Employers Liability, Property Owners’ Liability, Loss of Rent, and Tenant Default Insurance.

Latent Disease

An illness which lies dormant for some years before manifesting itself.


The insurer’s maximum liability under an insurance, which may be expressed ‘per accident’,‘per event’, ‘per occurrence’, ‘per annum’, etc.

Lloyd’s (of London)

A Society, incorporated under Act of Parliament of 1871 and known as the Corporation of Lloyd’s, which provides the premises with a wide variety of services, administrative staff and other facilities to enable the Lloyds market to carry on insurance business efficiently.

Lloyd’s Broker

A broker approved by the Council of Lloyd’s and thereby entitled to enter the underwriting room at Lloyd’s and place business direct with underwriters. Lloyd’s Brokers must meet the Council of Lloyd’s stringent requirements as to integrity and financial stability. They have to file annually with the Council of Lloyd’s a special accountant’s report concerning their financial position.


Another term for a claim.

Loss Adjuster

Independent qualified Loss Adjusters are used by insurers for their experience and expertise necessary to carry out detailed and in some instances prolonged investigations of complex and large losses. Although the adjuster’s fees are invariably paid by the insurers, he/she is an impartial professional person and makes his/her judgement on the amount to be paid in settlement solely on the basis of established market practice. It is his/her task to negotiate a settlement which is within the terms of the policy and equitable to both insured and insurer. Should he/she themselves not be an expert in a particular discipline which is necessary or desirable to pursue his/her negotiations, he/she will consult or employ such an expert.

Loss Assessor

In motor insurance, an Engineer.

In other classes, a Loss Assessor acts for the claimant/policyholder. They are independent professionals who are employed by you to protect your interests in negotiating a claim so you receive the very best settlement under the terms of your insurance policy.


Manufacturers Insurance

Manufacturing Insurance is designed to incorporate a number of covers to ensure comprehensive protection for your business. Manufacturers Insurance typically will provide a number of different commercial insurances put together as a single policy package.

Marine Cargo Insurance

Marine Cargo Insurance is a class of property insurance that insures property while in transit against loss or damage arising from perils associated with the navigation of the sea or air and subsequent land and inland waterways.

Material Damage Warranty

A warranty in a Business Interruption Insurance policy stipulating that for the interruption insurance to become effective there must be a policy in force in respect of the material damage and a claim paid or admitted thereunder for such damage caused by an insured peril.

Material Damage Provisio

Material damage proviso states that in order for the Business Interruption policy to respond, there must be a Property Damage Insurance in place in respect of the policyholder’s interests in the property and that a claim must be admitted/paid by the insurer in respect of this property damage.

Material Fact

Any fact which would influence the insurer in accepting or declining a risk or in fixing the premium or terms and conditions of the contract is material and must be disclosed by a proposer, or by the insurer to the insured.

Minimum and deposit

This is a mode of premium due at the inception of a policy. Even though the policy is “ratable” (subject to adjustment based on rate per sales), under no circumstances will the annual earned premium be less than the minimum premium. In most cases, there is no return premium allowed on cancellation as the premium is the minimum.

Motor Fleet Insurance

This is where a number of vehicles owned by the same company (usually a minimum of 10) are insured on a single policy. Fleet policies can consist of private cars, goods-carrying vehicles or other types or a mixture of different types. A number of insurers who offer ‘mini-fleet’ policies, which are normally for a minimum of two – five vehicles.

Motor Insurance Database (MID)

The Motor Insurance Database (MID) is the central record of all insured vehicles in the UK. Managed by the Motor Insurers’ Bureau (MIB), the MID is used by the Police and the DVLA to enforce motor insurance law – ensuring that vehicles driven on our roads are insured at all times.  

What vehicles do you need to add to the MID?

All vehicles that are owned, registered or leased to your business, including:

  • Licensed demonstration and courtesy vehicles
  • Trade plates
  • Any directors privately owned vehicles if your insurer has agreed to extend your policy to cover such vehicles
  • Only stock vehicles that are registered to your company and taxed for road use


Another term for an underwriting member of Lloyd’s.


Perhaps the most common form of tort. In Blyth v Birmingham Waterworks Co. (1856) it was defined as ‘the omission to do something which a reasonable man guided by those considerations which ordinarily regulate the conduct of human affairs would do, or doing something which a prudent and reasonable man would not do’. Gives rise to civil liability.

Net Premiums

Term variously used to mean gross premiums net of reinsurance premiums payable, or commission, brokerage, taxes, or any combination of these.

New for Old

Where insurers agree to pay the cost of property lost or destroyed without deduction for depreciation.

No Claims Bonus (Or Discount)

A rebate of premium given to an insured person by an insurer where no claims have been made by that insured. Very common in motor insurance.


The failure by the insured or his/her broker to disclose a material fact or circumstance to the underwriter before acceptance of the risk.


Passenger Liability

The liability of a carrier to passengers.


A contingency, of fortuitous happening, which may be covered or excluded by a policy of insurance.

Period of Risk

The period during which the insurer can incur liability under the terms of the policy.

Personal Accident and Sickness Insurance

Insurance for fixed benefits in the event of death or loss of limbs or sight by accident and/or disablement by accident or sickness. Accident and sickness may be insured together or separately.


A document issued by an Insurer detailing the terms and conditions applicable to an Insurer contract and constituting legal evidence of the agreement to insure. Issued together with a Schedule, which shows any variation to the terms and conditions.


The person in whose name the policy is issued. (See also insured and assured).

Policy Schedule

A document issued by an insurer which forms part of the contract of insurance, and provides information including the period of insurance, the sections of the policy that apply and information relating to any applicable excesses/endorsements.

Policy Summary (Also Known As Insurance Product Information Document)

A document issued by an insurer to provide a summary of the policy provisions and any significant benefits or significant exclusions/limitations that apply.


The consideration paid for a contract of insurance.

Pre-Existing Medical Conditions

You should tell your broker or insurer about any illness you are currently suffering from, or have already had, even in the past. These are known as pre-existing medical conditions. For Private Medical Insurance, you will not normally be covered for these conditions, but for Travel Insurance, the Insurer may be able to offer cover, sometimes for a higher premium.

Products Liability Insurance

These policies cover the insured’s legal liability for bodily injury to persons, or loss of or damage to property caused by defects in goods (including containers) sold, supplied, erected, installed, repaired, treated, manufactured, and/or tested by the insured.

Professional Indemnity Insurance

This policy protects a professional person against his/her legal liability towards third parties for injury, loss, or damage, arising from his/her own professional negligence or that of his/her employees.

Proposal Form

See Statement of Fact. However, unlike a Statement of Fact, a Proposal Form must be signed.

Public Liability Insurance

A Public Liability policy provides an indemnity to the insured for legal liability to third parties for damages in respect of accidental bodily injury, death, disease or illness, and for any loss of or damage to property, which happens in connection with the business insured under the policy and occurs during the period of insurance.


Quote / Quotation

Issued by an Insurer or Broker to provide details of the premium and terms based on the details disclosed about the risk.

Quote Summary

Issued by an Insurer or Broker to a proposer in response to a request for a quotation, to provide the premium they are prepared to offer, any excesses that apply and assumptions that have been made and details of any significant exclusions/limitations or significant benefits.


Reinstatement in the insurance context is the process of putting back what has been destroyed. The insurer’s obligation to pay the costs of reinstatement is typically capped by the stated reinstatement value. This is the value of reinstating the property as it was prior to the damage taking place. It is generally the case that the reinstatement value is less than the current market value of the property but policyholders are well advised to carry out professional insurance revaluations on a regular basis so as to ensure that they have an appropriate level of cover.


The process of continuing an insurance from one period of risk to a succeeding one.

Renewal Notice/Invitation

A notice sent by an Insurer or Broker to a policyholder reminding them that their insurance is due for renewal and including details of the premium for the next period of insurance.


The peril insured against or an individual exposure.

Risk Management

The identification, measurement and economic control of risks that threaten the assets and earnings of a business or other enterprise.



A recovery of all or part of the value of an insured item on which a claim has been paid. The insurer will normally dispose of the item and apply the proceeds to reduce the cost.


The part of a policy containing information peculiar to that particular risk. The greater part of a policy is likely to be identical for all risks within a class of business covered by the same insurer.

Statement of Fact

Records information provided to the insurer by the proposer, which has been relied upon to offer a quotation, and its price and terms. Used instead of a proposal form (which serves an identical purpose).

Statute Law

Presently the most important source of law is statute law, otherwise known as Acts of Parliament; which may create entirely new law, over-rule, modify, or extend existing principles of common law and equity, and repeal or modify existing Statute law.


This is a term describing a legal right held by most insurance carriers to legally pursue a third party that caused an insurance loss to the insured. This is done in order to recover the amount of the claim paid by the insurance carrier to the insured for the loss.

Subject Matter

Person or property that is the subject matter of an insurance policy and which the policyholder (insured) has an insurable interest.

Subject to Survey

The phrase used by an insurer to signify provisional acceptance of an insurance pending inspection by a surveyor whose report is necessary to determine the rate and conditions applicable.

Sum Insured

The maximum amount payable in the event of a claim under a contract of insurance.


A person claiming against an insured. In insurance terminology, the first party is the Insurer and the second party is the insured.

Third-Party Liability

Liability of the insured to persons who are not parties to the contract of insurance and are not employees of the insured.


Underlying Insurance

The primary insurance as distinct from excess insurance.


A person who accepts business on behalf of an insurer. (See also Lloyd’s underwriter).

Utmost Good Faith

Insurance contracts are contracts of utmost good faith (uberrima fides), which means that both parties to the contract have a duty to disclose, clearly and accurately, all material facts relating to the proposed insurance. Any breach of this duty by the proposer may entitle the insurer to repudiate liability.


A very strict condition in a policy imposed by an insurer. A breach entitles the insurer to deny liability.

Wear and Tear

This is the amount deducted from claims payments to allow for any depreciation in the property insured which is caused by its usage.

Without Prejudice

The term used in discussion and correspondence. Where there is a dispute or negotiations for a settlement and terms are offered ‘without prejudice’ an offer so made or a letter so marked and subsequent correspondence cannot be admitted in evidence without the consent of both parties concerned.

The term also used by an underwriter when paying a claim which he/she feels may not attach to the policy.

This payment must not be treated as a precedent for future similar claims.