Not everyone’s an insurance expert.
Insurance terms can be confusing and unfamiliar.
We’ve put together a glossary of common insurance terms to help you out.
Click the + button for more information.
Note: These definitions are from the Understand Insurance website.
This form of insurance cover is for an unintentional one-off incident that causes damage to your property or its contents. For example, accidentally spilling red wine over your new white carpet. It doesn’t cover general wear and tear, or damage that occurs over a long time.
The amount for which you and your insurer agree to insure your motor vehicle. You might choose this if your vehicle is fairly new, has modifications, is in better-than-normal condition or has extras not factored into its normal market value. Agreed value policies are usually more expensive than market value policies. Deciding between them depends on your financial circumstances, the value you place on your car, the level of risk you’re willing to accept and the certainty you need, and other factors such as whether your vehicle is under finance.
An asset in insurance terms is something with monetary value that is covered by an insurance policy, such as a car or a property. Under that policy, the insurer must compensate the policyholder (in accordance with the policy’s terms and conditions) if the asset is damaged or destroyed and the policyholder makes a claim.
This is what you receive from your insurer when your claim is agreed and processed. You may have the damage to your property repaired, or the insurer may give you the money. It’s often called a settlement or payout.
An insurance broker is a specialist who works for you to find the most appropriate insurance products to suit your needs. Brokers know the market well, so on your behalf they get the quotes, read the fine print, negotiate deals and explain what it means for you. They’re especially useful if you are in the market for a few insurance products or have more complex requirements.
A nationally accepted and uniform set of technical requirements for all areas of building, which allows for variations of climate, geography and geology. For more information visit: http://www.abcb.gov.au.
Coverage is what’s included in your insurance policy. In property insurance, coverage includes the risks that you are insured against, the properties covered, the locations covered, the people insured, and the limits of compensation.
Insurance companies have to set aside sufficient amounts of money so they can pay all of their liabilities including claims. APRA requires insurance companies to meet prudential capital requirements. Capital is usually comprised of insurance premiums and shares, and the company’s investments and other assets.
Allows you to cancel your policy if you change your mind about your purchase and have any money you have paid refunded. You have a minimum 14-day cooling-off period for most general insurance products.
A formal document providing evidence that an insurance policy has been issued by an insurer containing the details of the type of insurance cover, its value, any exclusion or excess limits, the premium and the period of the insurance cover (how long it is in force).
The amount an insurer may offer you to settle and close your claim instead of repairing or rebuilding your insured asset.
When you apply for an insurance policy, or renew or extend your existing policy, you have to tell the insurer everything about you and your situation that is relevant or could reasonably be expected to be relevant to the insurer’s decision to insure you. You don’t need to disclose something you don’t know, that reduces the insurer’s risk, that is common knowledge, that the insurer knows or ought to know, or something that’s not relevant or the insurer has told you that you don’t need to disclose. With insurance, honesty is the best policy.
Also known as insured events and refers to a policy that specifically lists the events that you are covered for. These sorts of events could include fire, storm and damage by burglars among other events. Anything not listed as a defined event will not be covered under this type of policy.
Each party to the insurance contract - the policyholder, the insurer and a third party beneficiary (a person who is entitled to the benefits of the insurance policy) - must act with fairness and honesty in their dealings with one another. An example of this would be insured policyholder's obligation to make full disclosure of all relevant facts when taking out the insurance in line with their duty of disclosure. An example for an insurer would be to respond to a claim made under a policy in a timely fashion.
Excess (also called deductible) is the amount of any loss or damage that you must pay before your insurance policy starts to kick in. In effect, you are accepting a small part of the financial risk yourself. Your excess is stated on your certificate of insurance. You can often negotiate a cheaper premium if you accept a higher excess.
Exposure is the amount of loss you might experience. For example, if your car was in an accident, in the worst case your exposure might include the cost of your car, the cost of several other cars and the cost of any injury to yourself or other people. An actuary will work out the risk of these things happening and put a financial estimate on the cost of these. A policy will usually put limits on different types of exposure.
A restriction applied by an insurer on accepting new policies in certain areas or under some circumstances. An embargo prevents insurance being purchased when an event is known to be extremely likely or is already having an impact.
Financial hardship means a reasonable inability to meet debts, contracted payments, bills or daily living expenses due to life circumstances, such as losing your job or suffering from an illness. In relation to insurance it means you are unable to meet your obligations to pay your premium to an insurer. If you’re experiencing hardship, talk to your insurer. You can also contact a financial counsellor.
Financial loss is;
a) the damage or destruction of an asset that has a financial value.
b) a type of insurance that covers liability claims from a loss that is solely financial - that is, it does not cause injury or property damage. For example, professional liability insurance.
Fraud is when someone deliberately lies or exaggerates details in a claim to get money or compensation dishonestly. It costs insurance companies an estimated $2 billion a year and adds about $75 to every insurance policy.
This is an external dispute resolution service that provides consumers and small businesses with free, fair and independent dispute resolution services for financial complaints.
If you haven’t paid your premium on time, your insurance company will usually allow a period of up to 28 days during which it will continue the policy. If you pay the premium during the grace period, your insurance company treats it as though it was paid on time. If you do not pay you premium in this period, the policy may lapse soon after and leave you without any cover.
A hazard is something that makes your situation more risky. For example, if you store explosives in your house, that’s a hazard that increases the risk of an explosion.
Indemnity under an insurance policy is the security or coverage that is provided to you to protect against loss, damage or injury. Legal indemnity means someone promises they won’t sue you if a certain event happens, or they promise to protect you by paying your damages if an event occurs.
When a person or organisation is responsible for something, especially in law, that’s liability. Liability insurance can cover you for legal costs and compensation costs that you might have to pay if you are proved to be the cause of harm to another person or business. Does not mean your ability to lie about, though that could lead to liability.
You can make a claim only if you have incurred a loss that meets the terms and conditions of your policy. This means looking at the impact on your assets, for example when your property is lost or damaged. It’s much more serious than your footy team losing a game.
A loan is an amount of money that is given to a person up front and paid back in instalments. Most loans attract a fee that is a percentage of the amount owed, called interest. Many banks require a home owner with a home loan, or mortgage, to have home insurance.
An additional impost added to an insurance premium for the purposes of raising funds for a specific government objective.
This is what you might be able to do to lessen the impact of something happening to you or your property. On a larger scale, governments can help protect entire communities from events such as floods through large-scale mitigation projects. It means taking action before the next natural disaster to reduce the consequences later.
Market value means the amount of money that your property is worth, or would be worth if you sold it in its current state. For motor insurance, it’s the amount the insurer will pay out if your car is written off, based on the state of the car immediately before the collision or accident. This will be different to the agreed value.
No, this doesn’t include the words that you find in an economist’s dictionary; in insurance, this means that something is measured or valued by the amount of cash it is thought to represent.
Negligent or negligence is when you don’t use reasonable care in a situation where you have an obligation to another person. It is usually referred to when something goes wrong, such as an injury to another person, and this may lead to a liability claim. For example, if driving a car, you have a duty to take reasonable care of your passengers and other road users and to avoid causing accidents and acting carelessly. If you do not act with such care, you may well be found to be negligent and therefore responsible for the damages you have caused.
Non-disclosure means that a person has not told their insurer all of the information that should have been given, if the person had complied with their duty of disclosure when they applied for an insurance policy. This may result in your insurer not being obliged to pay all or a portion of a claim being entitled to avoid your policy so that it was never effective in the first place. With insurance, honesty is the best policy.
New for old is a term used in an insurance policy that allows older items to be replaced with new items, without any discount for the depreciation in value of the old items.
An occurrence is something that happens that results in a loss. It might be an accident, a burglary, a natural disaster or a recurring event that results in liability.
This is the binding legal contract that documents your insurance cover. You should read the details of your policy that is outlined in your Product Disclosure Statement and the policy schedule, and make sure it covers the risks you want to cover.
A premium is the amount of money you pay to your insurance company for your insurance policy, in return for the insurance company’s promise to cover you if something that is covered by your policy, goes wrong.
A Product Disclosure Statement is a document that insurance companies must give you by law, which describes in clear terms the terms and conditions of your policy. It’s important to take the time to read and understand it.
A proposal is the application form that you complete when you want to take out an insurance policy. A completed proposal form is an offer by you to enter into an insurance contract, and it might be accepted, varied or declined by the insurance company.
Public liability is insurance that covers a person or organisation’s liability to another person or organisation for causing injury or property damage.
A policyholder, also known as the insured, is a person or entity who has entered into a contract with an insurer and holds an insurance policy.
A qualifying event is something that happens which is covered by your insurance policy.
Reinsurance is insurance for insurance companies. It can be used to cover different risks for insurers. For example, to make sure they can pay a large number of claims in a natural disaster or to cover situations where they experience claims from policyholders that are higher than a certain value.
Renewal is when you agree to continue your existing insurance policy for a further period. Usually you will do this each year when your insurance company sends you a renewal notice. You should review your renewal notice to check if anything has changed, and consider if you need to alter your coverage or list specific items.
Replacement cost is the amount you need to replace damaged, stolen or lost property by buying new items.
Risk has a few meanings in insurance, such as:
- The likelihood of something happening that might cause injury or financial loss. Insurance helps the policyholder manage the risks and recover from the hardship that an unexpected loss might cause
- The exposure to a specific threat, hazard or peril
- The subject matter of an active insurance policy (risk in force)
- Uncertainty as to the outcome of an event
Risk management is the way that you manage losses you might experience. Sometimes you might change something in your behaviour or environment to reduce risk, for example installing a burglar alarm. Other times you will transfer the risk by taking out an insurance policy.
A signatory is someone who has the capacity or authority to sign and has signed a contract or document to indicate that they accept the terms of the contract. For example, the policyholder is usually the signatory to an insurance contract unless the policyholder has appointed another signatory under a power of attorney who has the capacity or authority to sign on behalf of the policyholder.
Total loss occurs when an asset (such as your home)is so badly damaged that it is beyond economic repair. Depending on the terms of the insurance policy, a total loss will usually attract the maximum sum-insured as a settlement.
Third party is not the after-after party, but rather refers to a person apart from those that are parties to a contract. For example, third party motor insurance provides protection to an insured against the risks of causing damage to another person's (or third party) vehicle or property.
Total replacement cover pays out the full amount required to replace damaged property with new property, without taking into account the depreciated value of the property over time. This is opposed to sum insured policies that provide cover to an agreed sum or value, usually nominated by the policyholder.
Underwriting is the way that an insurance company works out how much risk exposure it has and then calculates the premiums it will need to charge to insure that risk.
Underinsurance is when you don’t have enough sum insured in your policy to cover the value of the items you are insuring. You can find more information about underinsurance here.
This type of insurance is mandatory for employers in each Australian state and territory. Workers compensation schemes vary from state and territory in Australia but all generally pay for medical treatment and provide compensation for loss of income for an employee who suffers an injury while working.
