Insurance Terms Glossary

Below is an explanation of the most commonly used insurance terms encountered when purchasing short-term insurance in South Africa.

Abandonment the giving up by an insured to the insurer of damaged property when a total loss is claimed.
Acceptance an absolute and unqualified agreement to the terms of an offer, so creating a contract.
Accident an unforeseen and unintended event or occurrence.
Act Of God an event that is the result of natural forces and which arises without human intervention.
Adjuster/Assessor see LOSS ADJUSTER/ASSESSOR.
Agent a person who acts on behalf of another and in the case of insurance is the intermediary between the proposer and the insurer.
Agreed Value the sum to be paid in the event of a total loss under a valued policy.
Arbitration a means of settling disputes legally without going to court where the issue concerns the amount of a claim and not liability. A qualified person or persons whose appointment has been agreed to by the parties involved, will hear the case and give a decision.
Asset a property or financial commodity which can, if necessary, be converted into cash.
Assurance a term interchangeable with insurance, which is often used in the case of Life and Marine business.
Average in general insurance, this is a policy provision which has the effect of reducing a claim payment where under-insurance is discovered.
Balance Of Third Party     the terms used in South Africa for the form of motor insurance which covers the insured's liability' for:
i) injury to passengers not covered in terms of the Road Accident Act 1996; and
ii) damage to the property of third parties caused by the vehicle.
Betterment the value of the improvement in an insured property when it has been repaired or rebuilt following loss or damage.
Blanket Policy a policy covering several items under one sum insured.
Bordereaux the sheets of information prepared by an insurer detailing cessions under reinsurance treaties.
Broker A professional full-time independent agent or intermediary.
Brokerage the commission or fee paid to the brokers by the insurers for placing business with them.
Burning Costs method of calculating the insurance premium (especially in reinsurance) taking account of previous claims.
Business Interruption Insurance the class of insurance which provides cover for consequential loss arising directly from another loss (e.g. loss of profits following fire damage).
Cancellation Clause the clause in a policy which allows one party to cancel the contract following due notice to the other.
Captive Insurance Company an insurance company set up by a parent company, in order to receive that parent's insurance business.
Catastrophe Cover a form of excess of loss reinsurance which protects the insurer against losses arising from major catastrophes.
Certificate Of Insurance a document issued by an insurer which is used mainly in the marine market to certify that cover is in force.
Cession that part of an insurance transferred to a reinsurer. The transfer of rights, title and interest under a contract.
Chance The probability or likelihood that an event occur.
Claim a demand made by the insured for payment after the occurrence of loss or damage covered by the policy.
Claim Form a form supplied by an insurer to enable an insured to lodge a claim in terms of the policy.
Claim-Free Group the term used in motor insurance to indicate into which of the rating groups a policyholder will fall according to his claims record.
Claims Ratio see LOSS RATIO
Co-Insurance the division of a risk between two or more insurers where each is individually liable to the insured for their proportion of claims.
Co-Insurer an insurer who shares with others in co-insurance.
Collective Policy policy issued by the leading insurer on behalf of all the insurers who share a risk by way of co-insurance.
Commission the payment made to intermediaries by insurers for placing business with them.
Common Law the part of a country's legislation built up from customs and usages which have been recognised by its courts and thereby given the force of law.
Composite Insurance Company an insurer undertaking both life and non-life business.
Comprehensive Policy a policy covering a wide variety of perils.
Condition part of a contract which must be complied with by one party or another.
Consequential Loss a loss directly arising from another loss. The term is used to describe the class of business also known as LOSS OF PROFITS or BUSINESS INTERRUPTION INSURANCE.
Consideration the payment or promise of payment for goods or services, this being the premium in the case of insurance.
Contingency an unforeseen occurrence.
Contingency Fund monies put aside by a company in order to pay for unexpected losses.
Contract an agreement made by two or more parties with the intention of creating a legal obligation between them.
Contract Of Insurance an agreement between insurer and insured whereby, in return for the payment of a premium, the insurer undertakes to indemnify the insured upon the happening of a specified event.
Contra Proferentum Rule any ambiguity in contract wordings is construed against the drafter of those wordings.
Contribution the principle whereby two or more insurers covering the same risk contribute proportionately to any losses.
Cover the protection provided by insurance.
Cover Note temporary evidence of the granting of insurance.
Damages an amount of money claimed by or awarded to a third party as compensation for injury or loss.
Declaration the statement on a proposal form signed by the proposer certifying the truthfulness and accuracy of the information supplied.
Declaration Policy a policy requiring the insured to declare periodically the value of fluctuating items, such as stocks or goods-in-transit, to enable the insurer to adjust the premium accordingly.
Deductible an American term, similar in meaning to excess an being the first portion of a loss payable by the insured.
Delegated Authority the authority given to an agent of an insurer to act on its behalf in accepting risks within agreed guidelines.
Deposit Premium an advance payment made by the insured before the actual premium has been decided.
Depreciation the extent to which (insured) property has diminished in value due to factors such as wear and tear.
Direct Insurance an original insurance contract between insurer and insured.
Direct Insurer an insurer in contact with insuring members of the public or corporations.
Disclosure the duty of the parties to a contract of insurance to reveal all material facts to each other before it is concluded and prior to each renewal.
Earned Premium that part of a premium relating to a completed or expired period of risk; the actual premium chargeable under an adjustable policy.
Endorsement documentary evidence of some alteration to a policy of insurance.
Escalator Clause the clause in a policy which allows the sum insured on property to rise throughout the period of insurance in step with the assumed rate of inflation.
Ex Gratia Payment a payment made to an insured where there is no liability under the policy.
Exception a peril specifically excluded from the insurance.
Excess that part of a loss for which the insured is liable
Excess Of Loss a form of insurance where the reinsurer agrees to pay the balance of any losses exceeding a stated monetary amount.
Executor the person named in a will who has agreed to carry out its terms.
Expense Loading that part of the premium which meets the policyholder's share of the insurer's administrative costs
Fire the accidental or fortuitous ignition of something that should not be on fire.
First Amount Payable the amount payable by an insured in the event of a claim
First Loss Policy an insurance policy where the insurer pays all losses up to a given limit.
Fleet Insurance a motor policy covering a group of vehicles with the premiums calculated on an experience basis.
Franchise the amount of a loss at or below which no claim is payable by the insurer. Above that amount, the loss will be met in full.
Fund the common pool into which premiums for each class of insurance are paid and from which the losses are met.
General Insurance insurance which is not long-term business.
Good Faith see under Uberrima fides
Hazard a physical or moral feature that affects the likelihood of a loss occurring or has an influence on the size of the loss.
Incurred But Not Reported (IBNR) Claims claims which have occurred but are not yet reported to the insurers. Many governments require insurers to establish reserves to cover such losses.
Indemnity the placing of the insured in the same financial position after a loss as he was in immediately prior to the occurrence.
Indexing a method of adjusting sums insured to provide for inflationary increases in values.
Inspector a official of an insurance company whose duties involve the selling and servicing of its policies either directly to the public or through intermediaries.
Insurable Interest the principle which requires a person effecting insurance to have a legally recognised relationship to the subject matter of the insurance.
Insurance A risk transfer arrangement whereby the responsibility for meeting losses passes from one party (the insured) to another (the insurer) on payment of a premium.
Insurance Policy a document which is evidence of a contract of insurance.
Insured a person or organisation purchasing insurance.
Insurer a company or society transacting insurance business.
Intermediary a person who arranges insurance on behalf of another.
Knock For Knock Agreement an agreement between motor insurers whereby following a collision, each pays the cost of repairs to its own policyholder's vehicle, regardless of fault, provided that the vehicles involved are all insured for accidental damage.
Lapse the termination of an insurance contract through the non-payment of the s decision not to invite renewal.=premium or by the insurer>
Law the rules enacted or customary in a country ordering or prohibiting certain actions.
Leading Case a legal case where the decision has been widely followed.
Leading Insurer the insurer who accepts a share of risk on a co-insurance agreement - often the one who first signs a broker's slip.
Letter Of Acceptance a letter from an insurer to a proposer indicating that his application for cover has been accepted.
Liability a claim upon one's assets by another person.
Limit Of Liability the maximum amount that an insurer will pay for one loss in terms of a liability policy.
Line a share of an insurance which is divided among two or more insurers
Lloyd's the corporation which organises the market of individual underwriters in London (but accepts business introduced by brokers from all parts of the world) and provides a full range of ancillary services.
Loading Those elements added to a premium to allow for insurer's expenses.
Loss Adjuster/Assessor an independent, qualified person who assesses the size or value of a loss on behalf of an insurer, but who may also be employed by an insured to look after his interests in a loss settlement.
Loss Of Profits Insurance see BUSINESS INTERRUPTION INSURANCE.
Loss Prevention activities undertaken to prevent losses from occurring.
Loss Ratio the ratio of claims to premiums.
Market Value the price at which an investment can be sold or bought at any specific time.
Material Damage Warranty before interruption insurance is effective, a material damage claim under other property insurances must have been admitted.
Material Fact anything which would affect the judgment of a prudent underwriter in accepting or deciding terms for a risk.
Misdescription a false description of a material fact.
Misrepresentation a false statement of a material fact which can be innocent or fraudulent.
Mortgage Bond a loan made for the purpose of purchasing, adding to or improving property
Mutual Insurance Company an insurance company owned by its policyholders i.e. it has no shareholders.
Negligence failing to act in what the law considers to be a reasonable manner.
Net Claim The insurer's own share of claim payments after deduction of the amount payable by the reinsurers.
New For Old insurance where the replacement value of the property which has been lost or damaged is payable without deduction for depreciation.
Offer The communication of the proposed terms of a contract by one party to another
Operative Clause the clause in a policy which sets out the circumstances in which the insurers will make claim payments.
Outstanding Claims Reserves The funds put aside by insurers to cover claims that have been incurred but not yet paid.
Outstanding Losses s=claims not yet paid where estimated figures are used in the insurer accounts
Package Policy a policy into which several different types of insurance have been combined.
Peril A contingency or fortuitous happening which could cause losses.
Policy Written evidence of the terms of an insurance contract.
Policyholder the insured person.
Pooling The basis of insurance whereby premium contributions are funded and used to pay losses.
Preamble Clause the clause in a policy which sets out the essential elements of the contract.
Premium The money paid by the insured to the insurer for cover as provided in the policy.
Premium Rate the price per unit of insurance
Principal A person instructing an agent to act on his behalf.
Pro Rata Premium the premium based on the length of time for which the insurer was actually on risk.
Probability the chance of an event occurring.
Professional Reinsurer a reinsurance company not transacting any direct insurance business.
Proportional Reinsurance s=reinsurance where reinsurers take a given proportion of the direct insurer premiums and losses.
Proposal Form an application for insurance which seeks to obtain from the proposer all the information relating to the risk.
Proposer The individual or organisation seeking insurance.
Proprietary Company a company owned by its shareholders.
Proviso A policy condition whose observance is essential for the enforcement of the contract.
Proximate Cause the direct cause of a loss uninterrupted by any other event.
Quota Share proportional reinsurance where the reinsurer accepts a fixed percentage of every risk written by the ceding company.
Rate The sum charged per unit of exposure by which the premium is calculated.
Rated Up The term applied to insurance where the premium is higher than usual.
Reinstatement the making good of damaged property; the restoration of the sum insured after settlement of a loss on payment of an additional premium.
Reinstatement Of Sum Insured The restoration of the sum insured after it has been reduced through the payment of a claim.
Reinsured An insurer who effects and is entitled to be indemnified under a contract of reinsurance.
Reinsurer An insurer or reinsurance company which accepts contracts of reinsurance.
Renewal The process for continuing an insurance for a further period after the first or current period of cover has ended.
Renewal Notice the notice issued by a short term insurer to remind a policyholder that his contract will shortly terminate.
Replacement Cost the value of property as indicated by the current purchase price of a similar article.
Representation a written or spoken statement made during contract negotiations.
Retention Limit the maximum liability which an insurer wishes to keep for his own account in respect of a particular risk.
Risk a) a situation which cannot be controlled or perfectly foreseen
  b) the subject matter of an insurance contract.
Risk Management the business discipline applied by large commercial and industrial organisation to manage those risks which can cause losses.
Salvage whatever is recovered of an insured item or part of it, on which a claim has been paid.
Schedule the list of personal details of the insured and the subject matter of the insurance in a policy.
Self-Insurance insurance which a business organisation finances internally by establishing a fund to meet losses.
Short-Period Rate the rate of premium applied to insurances in force for periods of less than twelve months and which is higher proportionately than the annual rate.
Short Term Insurance insurance that operates on a year to year basis and which may be terminated by the insurer or the insured.
Slip A form submitted by a broker to underwriters containing particulars of the risk proposed for insurance.
Solvency Margin the minimum size of shareholders' funds required by the supervisory authorities.
Special Perils extra risks added to a policy to give cover not provided in terms of the basis wording; the term usually applies to storm, water, wind and impact damage added to a fire policy.
Specification the form on which details of large risks are set out and appended to the policy.
Statute Law laws promulgated by the government of a country.
Stop Loss Reinsurance a form of reinsurance used as a means of limiting aggregate net losses on a particular class of business in any one year of account.
Subrogation the right of one party to stand in a place of another and take up the latter's legal rights against a third party.
Sum Insured the monetary limit of the insurer's liability under a policy.
Surplus That part of the sum insured which the insurer does not retain and consequently reinsures.
Target Risk The main risk where the client has more than one premises. This is the risk which if damaged, will affect the insurer the most.
Third Party a person who is not a party to a contract.
Third Party Insurance (Motor) motor insurance cover providing compensation for injury to third parties and damage to their property.
Third Party Fire And Theft Insurance (Motor) third party insurance plus cover for fire damage to and the theft of the insured's own vehicle.
Treaty Reinsurance a contract between an insurer and a reinsuring company under which the former agrees to give and the reinsurer agrees to accept reinsurance for risks falling within the terms of the agreement.
Uberrima Fides the duty of good faith imposed on both parties to an insurance contract to disclose all material facts.
Under Insurance insurance for a sum insured less than the value at risk.
Underwriter an insurer; a person who makes decisions on whether or not to accept insurance business.
Underwriting the process of assessing a proposal for insurance to decide on its acceptability and if so, on what terms.
Utmost Good Faith see UBERRIMA FIDES ("Utmost" has been ruled to have no particular meaning in South Africa)
Valuations a list of property with values allocated to each item as the basis of insurance.
Valued Policy a contract in which the insurers agree to pay the sum stated in the event of total loss without the usual allowance for depreciation or appreciation.
Void Contract a contract that cannot be enforced by either party.
Voidable Contract a contract which one party can choose not to enforce.
Warranty A condition, which must be complied with literally