A Guide: Making Insurance Simple

Accident An event or occurrence which is unforeseen and unintended.
Accidental Damage/Sudden and Unforeseen Damage Any kind of fortuitous damage not excluded from the cover.
Actuary A professional person or organisation who uses statistical theory and probability to evaluate the risk involved in an insurance, and therefore the premiums payable by persons taking out insurance.
Additional Insured An insured party specifically named with the main insured under an insurance policy.
Adjuster/Loss Adjuster An independent professional individual who investigates claims and recommends settlement amounts to an insurance company. Also known as surveyor (A surveyor need not be a loss adjuster also).
Agent A company or person appointed by an insurance company as its representative. The agent solicits, negotiates or effects contracts of insurance, and provides service to the policyholder on behalf of the insurer.
All risks policy Coverage by an insurance contract that promises to cover all losses except those losses specifically excluded in the policy.
Appraisal A survey to determine the insurable value of a property, or the amount of a loss.
Arbitration When there is a dispute regarding 'quantum' or the amount of the loss, the two parties, the insured and insurer may go to arbitration. An arbitrator is chosen in agreement by both parties. The decision of the arbitrator will be binding on both parties unless a point of law is raised or the arbitrator has misconducted the proceedings.
Assignment The legal transfer of one person's interest in an insurance policy to a third party. For example: transfer of a policy to a bank as security for a loan.
Average a) A condition in general insurance policies that deals with situations where the sum insured, on which premium is based, is less that the full value of the insured property. In such instances, the insured must bear a proportion of the loss in relation to the proportion of the sum insured to the full value. b) In Marine insurance, this term refers to physical loss or damage caused by a marine peril.
Bad faith The allegation that insurers have failed to act in good faith i.e. that they have acted in a manner inconsistent with what a reasonable policyholder would have expected. Bad faith can also be attributed to the proposer or assured.
Benefit policy An insurance policy that provides for stated amounts being payable in the event of specified contingencies happening. Such policies are not subject to the principles of indemnity. Examples are Personal Accident policies or Life Assurance policies.
Betterment Improvement which results from damage being repaired or reinstated and leaving property in a better condition than it was in before the damage
Blanket cover Insurance cover as one sum insured for more than one item of property at a single location, or two or more items of property in different locations.
Bonus Share of the surplus of a life assurance company allocated to policy holders of with-profit policies.
Broker A person or company who acts as an intermediary and who deals with either agents or insurance companies in arranging for coverage required by the customer, and is paid by commission.
Business Interruption Also called Loss of Profits or Consequential Loss. This cover relates to the trading losses or additional expenses that result following the insured loss.
Business Owners policy A policy that combines property, liability, and business interruption coverage for small to medium-sized businesses.
Buy Back A term mainly used in property insurance to describe the option to include certain cover that is normally excluded by paying an additional premium.
Cancellation The termination of an insurance policy before its normal expiry date, either by the insured or by the insurance company. The cancellation clause in the policy will show the terms for such cancellation and the period of notice required.
Certificate of Insurance Official evidence, in the form of a certificate, as prescribed by law, that an insurance policy exists and that such policy at least covers the minimum requirements of the law, for example, that there is a Motor insurance in force which complies with the terms of the Motor Vehicles Insurance (Third Party Risks) Act (Cap. 104).
Claim A request for payment of a loss which may come under the terms of an insurance policy.
Co-insurance A means of spreading the risk on larger insurances between two or more insurers, who share the insurance policy, each one being liable for his proportion of the risk.
Collision Insurance Protection against loss resulting from any damage to the policyholder's car caused by collision with another vehicle or object, or by upset of the insured car, whether it was the insured's fault or not.
Commission The remuneration paid to an agent or broker for the introduction of business, usually in the form of a percentage of the premium.
Compulsory Insurance A requirement arising from law to effect insurance. In Gibraltar it is compulsory for a user of a motor vehicle on a road to insure his liability for injury to others and damage to their property up to a specified limit.
Concealment Deliberate failure of an applicant for insurance to reveal a material fact to the insurer.
Conditions Provisions inserted in an insurance contract that qualify or place limitations on the insurer's promise to perform.
Consequential Loss See Business Interruption.
Contract A binding agreement between two or more parties for the doing or not doing of certain things. A contract of insurance is embodied in a written document called the policy.
Contractual Liability Liability that arises solely out of the terms of a contract that otherwise would not arise from common or statute law.
Contribution  If there are two or more indemnity policies covering the same interest in the same subject matter for the same risk, then insurers will share the loss proportionately. This supports the principle of indemnity.
Cover Note A document issued as evidence that insurance has been granted, pending the issue of a policy. There may be a time limit of 15 or 30 days for the issue of the policy although in some cases the time limit could be longer.
Damages Financial compensation for the loss suffered. This may be agreed between the parties or awarded by a court.
Death Benefit A payment made to a designated beneficiary upon the death of the life assured.
Declaration A statement signed by the proposer (insured) at the foot of a proposal form, certifying the accuracy and truthfulness of the information given to the best of his/her knowledge or belief.
Declaration Basis An arrangement whereby a provisional or minimum premium is paid and subsequently adjusted by an additional or return premium on receipt of a declaration from the insured giving details of values at risk.
Declinature The insurer's refusal to accept a new proposal or renew an existing policy after careful evaluation of the application for insurance and any other pertinent factors.
Decreasing Term Assurance A form of Term assurance under which the sum assured decreases during the term of the policy.
Deductible See Excess.
Depreciation A decrease in the value of property over a period of time due to wear and tear or obsolescence.
Direct Loss  Financial loss that results directly from an insured peril.
Duty of Disclosure The duty of the proposer to disclose all the material facts (to the insurer) about the risk being proposed whether such facts are requested or not.
Effective Date The date on which the insurance cover under a policy begins. Also called the Inception date.
Endorsement Any amendment to the standard terms of a policy or to the original agreed terms. These amendments are evidenced by an additional document that is attached to the policy.
Endowment  Life insurance payable to the policyholder if living, on the maturity date stated in the policy, or to a beneficiary if the insured dies prior to that date. Can be With or Without Profits.
Ex Gratia A payment made where there is no legal liability.
Excess The first portion of a loss, being an agreed or fixed sum, which the insured agrees to bear.
Exclusion or Exception Specific conditions or circumstances listed in the policy for which the policy will not provide cover.
Fidelity Bond A form of protection which reimburses an employer for losses caused by dishonest or fraudulent acts of employees.
Fiduciary A person who holds something in trust for another.
 
Foreign Insurer An insurer who is represented in Gibraltar but is incorporated in another country.
Fortuitous Loss Unforeseen and unexpected loss that occurs as a result of chance.
Grace Period A specified period after the renewal date of the policy, during which the policyholder will still be covered provided he pays the premium within the grace period. Certain classes of insurance, such as Motor insurance, do not offer days of grace.
Hazard Condition that creates or increases the chance of loss.
Health Insurance Protection which provides payment of benefits for covered sickness or injury. Included under this heading are various types of insurance such as Accident insurance, Disability income insurance, Medical expense insurance, and Accidental death and Dismemberment insurance.
Homeowners Policy A package of insurance providing home owners with a broad range of property and liability coverage.
Indemnification Compensation to the victim of a loss, in whole or in part, by payment, repair, or replacement.
Indemnity Legal principle that specifies that an insured should not collect more than the actual cash value of a loss but should be restored to the same financial position that he enjoyed before the loss. This does not apply to policies which offer defined benefits or 'new for old' cover.
Index-linked or indexing Adjusting of values over a period of time to reflect the impact of inflation.
Insolvent Having insufficient financial resources (assets) to meet financial obligations (liabilities).
Insurable Interest This is the financial relationship that must exist between the insured and the subject-matter of the insurance policy such that he benefits from its safety or absence of liability or is prejudiced by its loss/damage or existence of liability. This relationship gives the insured the legal right to insure that subject-matter.
Insurable Risk The conditions that make a risk insurable to an insurer are (a) the peril insured against must produce a definite loss not under the control of the insured (b) there must be a large number of circumstances which are alike and subject to the same perils (c) the loss must be calculable and the cost of insuring it must be economically feasible (d) the peril must be unlikely to affect all insured simultaneously and (e) the loss produced by a risk must be definite and have a potential to be financially serious.
Insurance Company Any corporation primarily engaged in the business of furnishing insurance protection to the public.
Insured (The) A person or organisation covered by an insurance policy, including the 'named insured' and any other parties for whom protection is provided under the policy terms.
Insurer (The) Name given to the organisation providing insurance. Also known as principal.
Investment Income The portion of a company's income which is derived from its investments, including interest and dividends on shares and bonds.
Jurisdiction Clause A clause in the insurance policy that identifies in which country a claim must be brought against the insured for the policy to operate.
Lapse The termination or discontinuance of an insurance policy due to non-payment of the renewal premium.
Leader The insurer who accepts the largest share of a risk which is co-insured.
Level Premium A premium which remains unchanged throughout the term of a policy.
Liability An obligation enforceable by law.
Liability Insurance Insurance covering the policyholder's legal liability resulting from injuries to other persons or damage to their property.
Life Assured The person on whose death or survival the benefit under a Life assurance policy becomes payable.
Limit of Indemnity Used in Liability insurance, this term defines the maximum amount payable for any one claim or series of claims arising from one event.
Liquidation Dissolving a company by selling its assets for cash.
Long Term business Policies of insurance that are not renewable annually at the option of the insurer but continue for a number of years. Life assurances are the most common form.
Loss The happening of the event for which insurance pays.
Loss of use 1) Value assigned to not having use of the damaged property for a period following the loss. 2) An extension to a Motor policy which covers the cost of renting a replacement vehicle while one's car is being repaired.
Margin of Solvency The total assets of an insurance company must exceed its liabilities (other than share capital) by a relevant amount, known as the margin of solvency.
Marine Insurance A form of insurance primarily concerned with means of transportation and communication (such as marine hull), and with goods in transit by sea, air or across frontier (such as marine cargo).
Material Fact A fact which influences a prudent underwriter in deciding whether to accept or to decline a risk and, if he accepts, in determining the rate and the imposition of special conditions, if any.
Maturity The end of the term of an Endowment insurance policy when payment of the sum insured becomes due.
Medical Examination The examination given by a qualified physician to determine the extent to which an applicant should be insured. A medical examination may also be used to determine whether an insured claiming disability is actually disabled.
Misrepresentation A false, incorrect, improper, or incomplete statement of a material fact, made in the application for a policy.
Moral hazard The risk arising from the character, behaviour and circumstances of the policyholder including carelessness, safety standards, conviction record and extent of claims made.
Mutual Company A company owned by its policyholders.
Named Perils Coverage in a property policy that provides protection against loss only from the perils specifically listed in the policy rather than protection from physical loss. Examples of named perils are fire, windstorm, theft, smoke, etc.
Negligence Failure to use the care that a reasonable and prudent person would have used under the same or similar circumstances.
Occupational Hazards Occupations which expose the insured to greater than normal physical danger by the very nature of the work in which the insured is engaged, and the varying periods of absence from the occupation, due to the disability, that can be expected.
Package Policy A policy covering several different classes of insurance.
Paid-up Policy Policy kept in force for a reduced sum assured after the premiums have ceased to be paid prematurely.
Peril The cause of a possible loss (such as fire, windstorm, theft, explosion, or riot) insured against in a policy. Also known as risk.
Policy The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance; also called the policy contract or the contract.
Policy fee A charge made by an insurer for issuing a policy.
Policy Term That period for which an insurance policy provides coverage.
Policyholder A person who pays a premium to an insurance company in exchange for the insurance protection provided by a policy of insurance.
Premium Sum paid to an insurance company in exchange for the insurance protection provided by a policy of insurance.
Proof of Loss Documentation presented to the insurance company by the insured in support of a claim so that the insurer can determine its liability under the policy.
Property Insurance Provides financial protection against loss or damage to the insured's property caused by such perils as fire, windstorm, theft, etc.
Proposal An application by a proposer for insurance, on a printed form. The 'proposer' becomes the 'insured' when the application has been accepted and the contract brought into existence.
Proposal Form The form used in most classes of business to elicit basic information about the insured and the risk being proposed.
Prospectus A form, which is often part of the proposal form, giving details of the cover available with particulars of extra benefits and rebates.
Provision A part (clause, sentence, paragraph etc.) of an insurance contract that describes or explains a feature, benefit, condition, requirement, etc. of the insurance protection afforded by the contract.
Quote A price estimate given to the potential consumer as he/she decides to which company a formal application will be submitted.
Reinstatement The term relates to (a) the restoration of the full sum insured after a claim is paid. This is usually done by payment of an additional premium (b) the option an insurer may choose to indemnify the insured by restoring damaged property to its pre-loss condition.
Reinsurance The transfer of part or all of the risk accepted by an insurer (called the reinsured) to another insurer (the reinsurer).
Renewal The continuation of a policy beyond its original term.
Renewal Notice The notice sent to the policyholder by the insurer to remind him that an insurance is due for renewal.
Renewal Receipt The written evidence that a renewal premium has been paid.
Reversionary Bonus An addition to the sum assured payable in the same circumstances as the sum assured and which is guaranteed. Regular additions are usually made to policies which have been effected as 'with profits' contracts, and the additions arise from 'surplus' funds not required by companies to cover their liabilities.
Revival The resumption of cover under a policy which has lapsed, following the payment of the relevant premium.
Rider A document that modifies the policy. It may increase or decrease benefits, waive a condition or coverage, or in any other way amend the original contract. Also known as Endorsement.
Rider Policy A policy or benefit that operates alongside a main policy such as Whole Life with a critical illness rider.
Risk Any chance of loss. Also used to refer to the insured or to property covered by a policy. Also referred to as peril.
Special Perils The collective term for extra defined perils which are commonly added to a fire policy. Examples are damage by aircraft, earthquake, riot and civil commotion, burst pipes, storm, flood, impact by road vehicles, horses and cattle.
Stamp Duty An amount paid to the authorities on the production of a legal document such as an insurance policy. The amount payable is related to the premium charged.
Subrogation  Process by which the insurer under a policy of indemnity, after having indemnified the insured, assumes the rights and remedies that the insured is entitled to in order to minimise or recover his loss.
Sum Assured The cash benefit guaranteed by a Life assurance policy. The maximum amount for which an insurer is liable under a policy of indemnity or the sum payable as a benefit in policies such as Life assurance or Personal accident.
Surplus That part of the Life Insurance Fund over and above the sum of its present and future liabilities as calculated by actuaries on a given date. Holders of 'with-profits' policies are entitled to a share in the surplus, usually in the form of a Reversionary Bonus added periodically to and payable with the sum assured.
Surrender Charge An amount retained by the insurer when a policy is cancelled, typically assessed only during the first five to ten years of a policy.
Surrender Value Cash value of a 'whole life' or 'endowment' assurance policy when discontinued. Surrender values are small in the early years of a policy, usually Nil over the first year or two. This is because expenses are highest at the beginning of the term of a policy and in the first few years there has been little time for interest to accrue. Certain contracts such as Term assurances do not acquire a surrender value.
Surveyor An official who inspects property proposed and makes recommendations as to rating and loss reduction. See Adjuster.
Third Party So called because the person making the claim is not one of the two parties, insured and insurer, to the insurance contract.
Third Party Claim A demand made by a person against a policyholder and any payment that will be made by that company.
Third Party Liability Liability incurred by the insured to another party but excluding contractual liability.
Time On Risk When an insurance cover is terminated, the insurer uses this period of time to calculate the premium due for cover granted until the date of termination.
Tort A civil breach of a personal duty owed to one's fellow citizens in general, as opposed to a breach of contract. The injured person has a right to sue for damages from the wrongdoers.
Total Loss The complete loss or destruction of the property insured beyond economic repair.
Under-insurance The situation which arises where the sums insured represent less than the total value of property at risk.
Underwriter 1) an insurance company that receives the premiums and accepts responsibility for the fulfilment of the policy contract; 2) the company employee who decides whether or not the company should assume a particular risk.
  Underwriting The process of selecting risks for insurance and determining in what amounts and on what terms the insurance company will accept the risk.
Uninsurable Risk One not acceptable for insurance.
Utmost Good Faith A duty imposed on both parties to an insurance contract. It is of greater force than ordinary good faith. The legal duty implies full disclosure of all facts material to the contract during negotiations for the contract.
Warranty A stipulation in the policy which the policyholder must strictly comply with and which if breached will normally entitle the insurer to avoid the contract.
Wear and Tear The amount of depreciation as a result of usage. This is deducted from an indemnity claim settlement unless a 'reinstatement' or 'new for old' condition applies.
Whole Life Assurance A type of assurance under which benefit is payable on death whenever it occurs. Premiums can continue throughout life or can be limited in number. Can be 'with' or 'without profits'.
With Profits A type of Life assurance policy which participates in the distribution of surplus in the form of bonuses. Such policies are termed 'with profits'.
Write-off A term usually used in Motor insurance to denote that the vehicle has been damaged beyond economic repair. This depends on the ratio of the repair costs to the replacement value of the vehicle.