Common Insurance Words Explained

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If you’ve ever wondered what certain insurance concepts mean, here’s a quick guide to help de-mystify some of the language. Bear in mind that many of the terms have a specific technical meaning in certain contexts that may not be covered here.

Always check your product disclosure statement (PDS) which contains important insurance details to help you make the right choice or alternatively speak to your insurance provider.

Abandonment   When a claim occurs, the person who holds the insurance policy may have the right to abandon the property insured, hand it over to the insurance company, and claim the policy money.
     
Acceptance   The acceptance of risk by an insurer.
     
Accident cover   Provides benefits to an insured person in the event of an accident. It usually provides  insurance cover for injury or death from violent, accidental, external and visible means.
     
Actual total loss   Where the property that is insured is completely destroyed or so badly damaged that it is no longer a thing to be insured or the insured person no longer has access to it.
     
Agent   A person who acts as an agent on behalf of the insurer for the purposes of arranging insurance. See also 'intermediary'.
     
Authorised representative   A person who provides financial services on behalf of one or more Australian Financial Services licence holders. ASIC must be notified when an authorised representative is appointed.  ASIC will issue the representative with a unique identification number. See also 'ASIC'.
     
Average   Also referred to as 'co-insurance'.  Average describes a situation where an insurer can penalise the insured who under-insures property. Where it applies, the insured is considered to be a self-insurer for the amount under-insured and will also have to bear a rateable share of partial losses in proportion to the extent of under-insurance. See also ‘Insured’.
     
 ASIC   Australian Securities and Investments Commission. ASIC is Australia’s corporate, markets and financial services regulator.
     
 Binder   An authority given by an insurer to a third party to act as an agent to enter into contracts of insurance on behalf of the insurer. Some binders give the agent authority to deal with and settle claims on the insurer's behalf as well. 
     
 Breach   Breaking a legal obligation such as a breach of a condition in a policy—e.g. failing to comply with a condition requiring notification of an accident within 30 days of the accident.  
     
Broadform liability insurance   A form of liability insurance that usually covers both public liability and product liability. It covers the insured's legal responsibility for loss or injury which it causes to a third party or to their property.  See also 'product liability' and 'public liability'.
     
Broker   A person who acts as an agent of the insured for the purposes of arranging insurance. A broker may deal with more than one insurer to find the best solution for the insured. This is different from an authorised representative who acts as agent on behalf of one insurer. See also ‘intermediary’.
     
Brokerage   The money the insured pays to the broker for placing the insurance for it. This is normally paid as a percentage deducted from the premium owing to the insurer. 
     
Business interruption insurance   See ‘consequential loss insurance’.
     
Business pack   A number of insurance policies required by a business which are combined into one policy or package—e.g. fire damage to property, burglary, liability etc. Business packs are sometimes tailored to cover the risks of a particular industry or business—e.g. motor dealers, builders etc. See also ‘combined insurances’.
     
Cancellation   The termination of a policy during the policy period by either the insured or the insurer. Depending on the reason for the cancellation and the policy terms, the insured may be entitled to a refund of some of the premium. This is different from lapse which is termination of a policy at the end of the policy period. See also 'lapse'.
     
Certificate of Insurance   A document that proves an insurance contract is current. Also called a 'Certificate of Currency'.  Brief details of the persons insured and the cover provided are set out. Usually Certificates of Insurance are required by finance companies to confirm that their interests are being protected and that insurance is current. 
     
 Claim   A claim is made when an insured contacts its insurer to notify it that an event the insured believes may be covered by the policy has occurred, or is likely to occur, requiring a payout by the insurer. 
     
 Claims history   The history of losses the insured has had which have been covered by insurance.  
     
Claims made insurance   An insurance contract which provides cover for claims first made by a third party against the insured and notified  by the insured to the insurer during the term of the policy, regardless of when the circumstances which gave rise to the claim occurred. This is different from occurrence based insurance. See also ‘occurrence based insurance’. 
     
Code of Practice (general)   The Insurance Council of Australia, as a response to the needs of the insurance industry and with the assistance of the Insurance Enquiries and Complaints Ltd (IEC), developed the General Insurance Code of Practice (Code). The Code is a self-regulatory form of regulation, that is, the insurance industry, not the government, is responsible for making it work.  The overall aim of the Code is to raise service standards across the general insurance industry. It applies across the insurance industry to insurers, their employees, agents, investigators, assessors, loss adjusters and collection agents.
Co-insurance   This is where an insured has an amount insured which does not equal the full value of the insured property and is required by the policy to share in the risk with the insurer. See also ‘average’.
    A number of insurance policies are combined into one policy. A ‘business pack’ is a good example of this. See also ‘Business pack’.
Combined insurances   A number of insurance policies are combined into one policy. A ‘business pack’ is a good example of this. See also ‘Business pack’.
     
Compulsory insurance   Insurance arranged in order to comply with the law—e.g. workers compensation insurance or compulsory third party insurance. Also referred to as ‘statutory insurance’.
     
Compulsory Third Party (CTP)   This insurance is required under legislation in the various states and territories. It covers liability for bodily injury to third parties arising out of the use of a motor vehicle. It is a class of statutory insurance.
     
Consequential loss insurance   A loss of property may also result in a ‘loss of profits’ and/or additional expenses. This is a loss which is a consequence of the property loss. Consequential loss insurance is usually referred to as ‘business interruption’ insurance. It is available as an addition to a property policy. See also ‘business interruption insurance’.
     
Contra proferentum rule   The legal rule by which the words of an author are to be construed against the author where the meaning of the words is ambiguous. Therefore, any ambiguity in an insurer’s proposal form or policy wording will be construed against the insurer. This rule will only be applied where there is a real ambiguity
     
Contribution   Where an insured has two or more insurance policies which cover the same risk, the insured can claim in full against either of the policies. The insurer of the chosen policy can then require the insurer of the other policy to make a proportional contribution towards that loss. Given that the insurance policies are subject to the rule of indemnity, the insured is prevented from making a profit from his/her claims. The insured cannot recover more than the amount of his/her loss.
     
Cooling-off period   A period of not less than 14 days which must be provided to retail clients on retail products. During this time a client may return the policy and receive a full refund of the premium unless a claim has been made. See also 'retail client' and 'retail product'.
     
Coverage   Refers to the specific protection or the listed benefits your policy gives you.
     
Cover note   A contract of insurance intended by the insurer to provide temporary insurance cover and which is to be replaced by another contract of insurance.  
     
Dealing    This is a Financial Services Reform Act (FSRA) term—the FSRA is now part of the Corporations Act 2001 (Cth)—meaning to apply for, acquire, vary or dispose of a financial product on behalf of another person.  See also ‘issue’.
   
Decline  
To refuse.  For example, the insurer may decide not to accept a proposal for insurance or decline to accept a claim
   
Deductible   The amount that the insured needs to pay prior to the insurer making any payment in respect of the insured's claim under the policy. Sometimes called an ‘excess’.
   
Deferment period   It is the waiting period which applies to an income protection policy or personal accident policy. For example, the insured may not be able to claim weekly benefits for sickness-related events until after a 21 day waiting period has passed. The 21 days would be the deferment period.