Insurance Glossary

Insurance terminology can be confusing and, at times, a little scary. We’ve listed some of the more popular terms below with an explanation of what they mean. We hope you will find this useful. Please contact us if you need anything further.

Material Fact

Is a fact that would influence an underwriter in either accepting or declining a risk, and if accepting at what premium. Basically if you think that by giving an underwriter some information it may increase the premium or prevent them providing insurance then it is probably material and you must advise us of the information.

Non Disclosure

Failing to advise an insurance company or underwriter of a Material Fact. This could result in your insurance becoming void and an insurer not paying out a claim

Disclosure

It is your duty to disclose all Material Facts and give an insurance company or underwriter all the facts that will allow him to assess the risk. This is embodied in many legal cases and is known as “utmost good faith”.

Warranties

Warranties are imposed on policies to ensure that a certain “thing” is done and must be complied with word for word. If a warranty is breached then the whole policy becomes void and any claim, even though it may have nothing to do with the warranty, will not be paid.

Implied

Some warranties are implied. For instance, disclosure of all material facts is in effect a warranty. There is an implied warranty in that you must keep a building in a good state of repair and not leave it unoccupied or neglected.

Written

Most warranties are written and detailed in the policy schedule and the wording will usually start with “It is warranted that...”

Conditions

Conditions are slightly different to warranties but breaching them will have the same effect as breaching a warranty. The policy may be treated as void from inception and no claims will be paid. Conditions will require you to do something or create a responsibility, but only apply to one section or area of a policy so breaching an unrelated condition will not result in the whole policy becoming void.

Conditions Precedent

Some conditions do impose a responsibility on you to have done something or completed something before a certain section of the policy will operate.

General Condition of Average

If you do not insure for the full amount then your claim may well be reduced. If you deliberately under insure then the insurer may have a right to void the policy from inception unless you tell them that the sums insured do not represent the full value of something at inception. If that is the case let us know and we may be able to arrange insurance on a special basis.

Average

Normally this is a mathematical term but in an insurance policy it is a penalty that reduces your claim if the sum insured is not high enough. It never pays to scrimp on the sum insured. It is your responsibility to choose the sum insured so if you are in any doubt how to do that, ask your broker to explain.

Insurable Interest

In simple terms, if anyone likely to lose money, property or rights in the event of a loss wants to be paid out under the policy, then they must have their names mentioned on the policy. It is no good insuring a property owned by John in a policy owned by Sam unless there is a note in the policy making the ownership clear. If nothing is mentioned then the insurer will assume that everything is owned by the policy holder.

Indemnity Period

This is the period after an insured event which it takes to get back to the position an insured would have been if the loss had not occurred. It is not the period to get back up and going again. In the event of a total loss it is rare indeed that a business other than a professional or office based business could get back to the position it would have been in just 12 months.

Gross Profit

Now more commonly referred to as “insurable gross profit” it is not the gross profit figure from you accounts. As a rough guide your gross profit sum insured should be in the region of turnover less purchases. Remember also to consider the level of turnover you might be experiencing one year from inception plus your chosen indemnity period. It could be much higher than your current turnover of the historical turnover from your accounts.

Duty of Disclosure

It is an onerous responsibility. You have to tell the insurer anything that you know or should know which might affect the way they view the risk you are insuring. That includes the property insured, the area around it, the owners of the property, the insured and what goes on in the property and the business itself whether at the premises or elsewhere.

In short, anything which could increase the risk of a claim or which might influence an underwriter in deciding whether to insurer and at what terms. If in doubt, disclose. The duty continues up to the point the policy starts so make sure you notify any changes between proposal, the time your broker gathers information from you and then. The duty arises again at each renewal and may exist at all times if there is an increase of risk clause under your policy.

Excess

This is the first part of a loss/claim that the insurers will not pay. Most policies have a compulsory excess payable, but some policies will offer you a discount on your premium for agreeing to a further voluntary excess. If you choose a voluntary excess, remember you will have to pay this amount in addition to the compulsory excess for your policy.