Glossary of Insurance Terms

At Allianz, we realise that insurance can sometimes be complicated. This is why we've created this Glossary of Terms where insurance terminology is simplified and explained for you.

Principles of Insurance

Your policy of insurance is a contract. You pay the agreed premium. In return your insurer provides the insurance cover for a defined period of time.

The Principles of Insurance are basic rules which apply to insurance contracts. They include the following:

  • Utmost Good Faith

    A contract of insurance requires that both the policyholder and the insurer are honest with each other and that they hide no information of relevance to the contract from each other.

    In practical terms this means that, when proposing for insurance, you must answer all questions honestly and fully and that you must inform the insurer of any information that you think may be relevant to the insurance for which you are proposing.

    The principle applies throughout the duration of the contract of insurance, including to claims. When making a claim you are required to present the circumstances and the details of any loss honestly and fully.

    The principle requires that the insurer must tell you if it wishes to alter the terms of your insurance. If for example you notify the insurer of a change of car on your motor insurance policy, the insurer must disclose to you details of any change in premium and of insurance cover terms and conditions.

  • Indemnity

    The principle of indemnity deals with how the insurer will calculate your loss in the event of a claim, i.e. the basis on which claims will be settled.

    Basis of claim settlement is usually defined within your insurance policy wording.

    On motor insurance policies it is normal for insurers to settle a claim for loss of or damage to your car based on the market value of your car at the time of the loss, i.e. the insurer will not pay more than the market value of the car.

    The basis of settlement on home insurance policies differs. The norm (with some exceptions) is for the insurer to pay for either repair of your lost or damaged property or to replace it with new property.

  • Insurable Interest

    This principle dictates that you cannot insure something (e.g. a building or a car) if it’s loss or damage will result in you incurring no financial loss.

    In most cases the property you wish to insure will be owned by you, e.g. your home contents or your car. You have an obvious insurable interest because you will suffer financially from having to repair or replace these if they are damaged or lost.

    However you do not need to own something in order to have an insurable interest. Your car may be hired by you under a leasing arrangement. You may have a mortgage on your home. In these circumstances, even if it may be regarded that you are not the legal owner, you still have an insurable interest as you will be responsible for repairing or replacing the property following its loss or damage.

  • Proximate Cause

    This principle is concerned, in the event of a claim, with identifying how the loss or damage occurred.

    This is not always obvious. Say you suffer water damage to the ceiling, units and floor in your kitchen. Proximate cause is concerned with identifying what caused the damage. It may be due to a sudden and identifiable incident, e.g. a burst pipe in your bathroom upstairs. It may however be due to a build up of water over time, perhaps caused by leaking grout or sealant in your shower.

    This is important because insurance policies do not cover every eventuality. They cover certain defined perils and benefits. Also every insurance policy will be subject to certain exclusions and limitations in cover.

  • Frequently Used Terms

    • Excess

      Excess is the amount of any claim that you (the policyholder) must pay. After this amount your insurer will cover the remaining cost.

      You can choose to increase your excess at policy inception or renewal in return for a reduction in premium.

      The presence of an excess on your policy means that you effectively self-insure for the sum of the excess.

      Insurers apply excesses to discourage small claims and to keep the overall cost of insurance down.

      • Bonus Protection

        Bonus Protection enables you to make a claim on a motor insurance policy without having to worry about losing your No Claims Bonus (NCB).

        On Allianz car insurance policies, where you have the benefit of Bonus Protection, you can make one claim in any three year period without losing your NCB. Your NCB will be reduced in the normal way only if you incur a second claim within the three year period.

        For example, if you have a 5 year NCB when you make the claim then, your NCB entitlement come next renewal will become 2 years. Without Step Back NCB Protection you lose all NCB entitlement in the event of a claim. Please note: Windscreen claims do not impact your NCB.

    • Step Back Bonus Protection

      Step Back Bonus Protection limits the impact of a claim on your No Claims Bonus (NCB). In the event of a claim your NCB will be ‘stepped back’ by 3 years at your next renewal.

      For example, if you have a 5 year NCB when you make the claim then your NCB entitlement come next renewal will become 2 years. Without Step Back NCB Protection you lose all NCB entitlement in the event of a claim. Please note that Windscreen claims do not impact your NCB.

      Step Back Bonus Protection is included as standard cover on Allianz car insurance products.

      • Reinstatement Value (Home insurance)

        Reinstatement value is the total sum you would have to pay to rebuild your home from scratch in the event of its loss. It is the cost of:

        • rebuilding your home;
        • site clearance; plus the cost of any
        • architects’, surveyors’ and engineers’ fees and compliance with building or other regulations.
      • Wear & Tear

        Wear and tear is the deterioration of or damage to an object that occurs as a result of its’ normal use or of its’ aging.

        It is normal for insurance policies to exclude loss or damage resulting from wear and tear. This is because the purpose of insurance policies is to provide you with protection against loss caused by sudden or unexpected events. Damage caused by wear and tear is neither sudden nor unexpected.

        • Exclusions

          Exclusions are items or circumstances that are not covered by an insurance policy. When you arrange insurance on your car or home your insurer agrees to provide cover for a number of defined risks, e.g. fire, theft, accidental damage, etc. Your insurer will often limit the scope of cover by applying Exclusions.

          Insurers apply exclusions because either they consider something to be uninsurable (e.g. loss or damage caused by wear and tear) or because they don’t want to cover loss or damage occurring in certain circumstances (e.g. loss or damage resulting from acts of war or terrorism).

          Exclusions should appear prominently within your policy documents. They can appear under any of the following headings “Exclusions”, “Exceptions”, “What is not covered”

        • Difference between Open driving and Driving other cars

          Where you have the benefit of Open driving, anyone is insured to drive your vehicle with your permission. Permitted drivers have the benefit of full policy cover. Open driving is commonly restricted by age, for example, it may apply to drivers aged 25 years and over with a full licence and clean driving record.

          Driving other cars is a policy cover extension that allows the policyholder to drive a car not insured or owned by him/her. It typically provides cover only against third party risks, i.e. it does not cover damage to the vehicle being driven. Only the policyholder has the benefit of driving other cars cover. Driving other cars cover is subject to several conditions, not least of which is that it does not apply to cars that are owned by the policyholder.

          • Difference between policy Cancellation and Voidance

            Your policy of insurance operates for a pre-agreed time period, usually one year. Most insurance policies permit either the insurer or the policyholder to terminate the policy prior to the agreed expiry date. This is Cancellation.

            Voidance also has the effect of terminating insurance policy cover. That however is all that it has in common with Cancellation. An insurer may decide to treat a policy as Void where they conclude that they would not have offered insurance cover had all relevant information been fully and correctly disclosed to them. The insurer will declare the policy as Void either with effect from inception date or from the date on which circumstances changed and the risk became unacceptable to them.

          • Material Facts

            Material facts are information relevant to an insurance contract. Insurers use this information to assess whether the risk is acceptable and if so on what terms and at what price.

            Examples in relation to car insurance are a drivers’ age, driving experience, driving conviction and penalty points history, motor accident and claims history.

            For car and home insurance quotations your insurer should ask detailed questions aimed at capturing all relevant Material facts.

            If you are in any doubt about whether information is material then you should discuss it with your insurer.

            • Escape of Water Excess

              Home insurance policies usually provide cover for ‘Escape of Water’, i.e. for water leaking and causing damage within a home.

              ‘Escape of Water’ claims are common and tend to be costly. To keep the overall cost of Home insurance down, it is common practice for insurers to apply a higher than normal Excess to ‘Escape of Water’ claims.

              Details of all applicable Excesses can be found in your policy (please refer to your current Schedule and policy document).

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