Insurance Jargon Buster

At Coughlan, we recognize that insurance terminology can often be confusing and difficult to grasp. This glossary serves as a helpful guide to clarify some of the frequently used phrases and jargon in the insurance industry. If you have questions about the meaning or use of any term in a specific product, service, or document, don’t hesitate to contact our knowledgeable and approachable insurance experts today.

Insurance Glossary

Introduction To Our Insurance Jargon Buster

Navigating the world of insurance can feel like learning a new language. At Coughlan Insurance, we understand that the complex terminology and industry jargon can be confusing, especially for those new to insurance or simply trying to make informed decisions about their coverage. That’s why we’ve created our Insurance Jargon Buster—a straightforward, A to Z, user-friendly resource designed to help you quickly understand the key terms and concepts commonly used in the insurance industry

Absolute owner

This is the only owner of an item such as a building, vehicle or a piece of equipment.

Accident

An unexpected or unplanned event or incident often causing damage or injury such as a road traffic accident.

Accrue

To build up or accumulate.

Act of God

An event that is not the fault of any individual, such as a natural disaster.

Most insurance policies do not contain an exclusion for acts of God. The policy will set out what is insured and what the main exclusions are. If loss occurs from an event covered, then the insurer will pay out, in accordance with the policy terms and conditions.

Bid or offer spread

A two-way price quotation that indicates the best price at which a security can be sold and bought at a given point in time. The bid price represents the maximum price that a buyer or buyers are willing to pay. The offer price represents the minimum price that a seller or sellers are willing to receive for the security. The difference between the two is the bid/offer spread. A trade or transaction occurs when the buyer and seller agree on a price for the security.

Broker

A person or firm that places its customers’ insurance with an insurer. They can advise customers on the best insurance product to take out depending on their needs. Brokers can also provide other services such as risk management, designing or negotiating contracts, and handling claims. (Also known as an intermediary, agent or adviser).

Business interruption

When business productivity has to stop due to an unplanned event or disaster which affects its profits. Business interruption insurance will normally cover the loss of income specified for a period of time that a business suffers when it has to cease trading as a result of an unplanned event such as a fire.

Cash in value

The amount of money you get if you cash in an investment.

Claim frequency

The number of claims made on a policy.

Co-insurance

An arrangement where an insurance policy is shared by more than one insurer.

Collective investment scheme

The name given to schemes where investors’ money is pooled together including unit trusts, investments trusts and open-ended investment companies (OEICS).

Convertible term assurance

This means that the policyholder can change or transfer to whole life or endowment insurance without giving further evidence of health.

Decarbonisation

This is the process of removing harmful carbon emissions from the economy.

Decreasing term insurance

A term insurance policy where the amount of money you have insured your life for reduces steadily every year to the end of the term – in line with a repayment mortgage – but the premium stays the same.

Decumulation

When saved funds or assets are turned into an income, for example when you convert the pension assets you’ve built up during your working life into a pension income that you can spend in retirement.

Distribution bond

A single premium (a single one-off payment) investment policy. The funds are invested in different assets (such as equities, gilts, stocks and shares) to provide a regular income.

Eligible capital

The type of financial resources held by insurance companies that they are allowed to use in order to meet their regulatory capital requirement.

Types of eligible capital (for example shareholders equity and subordinated debt) are determined by rules such as the European Union’s Solvency II Directive. These rules are written by financial regulators.

Endowment

An income or lump sum of money bequeathed or left to a beneficiary or loved one after you die.

Enhanced annuity

A type of annuity that may pay you a higher regular retirement income if your life expectancy is shortened because of your lifestyle (for example if you smoke) or your medical history. For this type of annuity the annuity provider will normally ask for a medical questionnaire to be completed and a report from your doctor. (Also called impaired annuity).

Ex-gratia payment

Any payment made by an insurance company that is outside the terms of the policy.

Exposure

The potential costs of an insured event, such as a flood, to an insurer.

Fixed asset

This is usually an asset owned by a business such as a building, machinery or a vehicle, that is intended to be used for several years.

Friendly society

Similar to a mutual insurance company, which is owned by its policyholders, a friendly society is owned by and established for the benefit of its members, usually providing life insurance and sickness benefit.

General insurance

General insurance is non-life insurance cover for damage or loss. It includes products such as motor, travel, pet, health and home insurance.

Gross

The amount before costs are deducted.

Gross premium

The total amount you pay for cover – your premium plus any charges or commission.

Guarantee period

The retirement income from your annuity will normally stop when you die, but you can opt for your annuity to be paid out over a number of years, usually five or ten, even if you die within this period of time. If you die before this period ends, the annuity will continue to be paid to a nominated person or your estate for the rest of the guarantee period. If you live past this period, the annuity will continue to pay you a retirement income until you die.

Guaranteed annuity rate

A fixed rate offered with some pension policies, to turn a pension fund into a retirement income and which does not alter with changing investment conditions. It can be very valuable and will often provide a higher income than an annuity bought via the open market option.

Guaranteed equity product

A single premium investment policy where the funds are linked to the equity index (a stock market index). In many cases ‘lock in’ points are incorporated into the policy, so that once a fund reaches a certain level the policy is guaranteed to pay out that dividend at the end of the term.

Guaranteed minimum pension

People who were contracted out of the State Earnings Related Pension Scheme (SERPS) at any time between 1978 and 1997 were entitled to Guaranteed Minimum Pension, which meant that there were certain conditions on how the pension was paid. For more information, see the Gov.UK website.

Guaranteed premiums

These are premiums that will stay the same over a set time frame.

Home foreign policy

This is where insurance is bought in one country, but the risk or event would happen in a different country.

Inception date

This is the date your insurance cover starts.

Increasing term

A term insurance policy in which the cover goes up every year by a fixed amount. This policy is designed to increase the policyholder’s life cover as their earnings or debt increase. (Also known as increasing cover).

Index-linked

If something (for example, government bonds or pension funds) is linked to an index, then it means changes are made in proportion to the changes in the relevant index, such the retail price index or other measures of living such as interest rates or wages.

Insolvent

When a person or organisation owes money but cannot pay it.

Insured turnover

Insurance covering how much a company makes over a set time frame, on average.

Intangible assets

Assets that have no physical form, such as patent rights.

Intestate or intestacy

When someone dies without leaving a will. The estate is divided up by government following the rules set out by law.

Irrecoverable loss

A loss or damage that cannot be recovered, repaired or retrieved.

Joint life

A policy that covers two people and pays out when the first person dies.

Joint life annuity

A life insurance policy that covers two people’s lives and pays out on the death of the second person.

Key facts document

A document that insurance and investment firms are required by the regulator to produce. It sets out the main features of a plan or product. (Also known as a key features document).

Key person insurance

In the event of the death of a key employee on whom the business depends for its continued profitability or even existence, this type of cover provides a sum of money which can be used to pay for the cost of finding and training a successor. It can also pay out for reduced profitability.

Lapse

Where the customer stops paying premiums or a policy that is not renewed.

Legal expenses insurance

An insurance policy which covers the cost of legal advice or the legal costs involved in pursuing or defending a civil claim.

Level annuity

A type of annuity that pays you the same amount of regular income from the start of your retirement until the end of any guarantee period, or until you die.

Liability

Liability insurance covers business owners, independent professionals and self-employed people against the cost of compensation claims following fault of negligence brought against them by employees, clients, customers, shareholders, investors, or members of the public. Liability insurance usually covers the cost of compensation to a third party for personal injury and loss of or damage to property.

Life fund

The pool of money into which all life insurance premiums are paid and out of which all claims are paid.

Lifetime allowance

This is the total amount you can save in your lifetime while still getting tax relief. If you exceed this allowance, your pension savings can be subject to additional taxation. This allowance may be reviewed and changed by government – it is currently £1.055 million.

Liquidation

The process of closing down a company by paying its debts and distributing any money left over.

Loading

This is an increase to a premium if your risk is higher than normal, for example if you are in a dangerous job or have serious health conditions.

Loss

Injury or damage to an insured property or person as a result of an accident or misfortune.

Loss adjuster

Professional appointed by your insurer to confirm the circumstances of your claim and the extent of any damage caused, and to make sure the claim is covered by your policy. The loss adjuster will tell your insurer the amount that should be paid out for your claim.

Loss assessor

An independent person who evaluates and negotiates claims on behalf of the policyholder.

Managed fund

A pool of money managed by a fund manager and spread in investments across a range of assets such as company shares, government bonds or property. These managed investment funds can be accessed through life insurance or pension plans.

Market value

The price you could expect to get if you sold your property or goods.

Market value adjustment

A reduction made to the value of a with-profits fund if you cash in some or all of your with-profits investment before your selected pension age. Firms use MVRs to help ensure that policyholders who cash in some or all of their with-profits investment before the end of the policy term do not disadvantage the remaining policyholders. (Also called market value adjustment).

Market value excess of investments

This is the difference between the market value and the (account) book value of a company’s investments.

Moratorium

The only owner of an item such as a building, vehicle or a piece of equipment.

Motor insurance anti-fraud and theft database

A computerised record of claims for stolen or written off vehicles. The database is used by insurers to detect patterns such as multiple or fraudulent claims.

Moratorium

The only owner of an item such as a building, vehicle or a piece of equipment.

Motor insurance anti-fraud and theft database

A computerised record of claims for stolen or written off vehicles. The database is used by insurers to detect patterns such as multiple or fraudulent claims.

National brokers

These are intermediaries who operate on a national level, as opposed to regional brokers who work locally. National brokers’ usually specialise in offering a service in many different sectors of the insurance market, rather than specialising in one particular type of insurance. Their clients are often corporate bodies.

National Insurance contributions

Most employees, employers and the self-employed pay National Insurance. The government uses workers’ National Insurance contributions to fund many social benefits.

Negligence

A failure to take proper (or reasonable) care in doing something, resulting in damage or injury to you or someone else.

Net

Net is the value of something minus any costs related to it.

No claims discount

A reduction in the cost of a person’s premium at renewal to reflect a claim-free period of driving. No claims discounts are common, but insurers are not obliged to offer them. (Also know as no claims bonus).

Occupational pension scheme

Another term for a workplace pension scheme where the funds are governed by a board of trustees.

No claims discount

Pecuniary loss

Loss of money.

Phased retirement

You can draw benefits from your pension gradually, either through annuities or drawdown. Part of the income is provided as tax-free cash, so the level of income tax paid is managed and the balance of your fund is invested in a tax-efficient way. Speak to a financial adviser for more information about phased retirement.

Proposer

The person who is applying for cover.

Public liability

Public liability insurance covers the cost of claims made by members of the public for incidents that occur in connection with your business activities. Public liability insurance covers the cost of compensation for personal injuries, loss of or damage to property, and death.

Regular premium

The person who is applying for cover.

Regulatory capital requirement

Selected pension age

Net is the value of something minus any costs related to it.

Single-life annuity

Annuity based on the lifetime of just one person.

Statutory money purchase illustration

A yearly illustration of the estimated pension a member might get when they retire, in today’s prices. It is adjusted to allow for the effect inflation can have on the cost of living over the period before the member retires, and how far their money will go in the future. (Also known as SMPI).

Subrogation

This is where someone takes over the claim made by another person. For example, if an individual has a problem with broken drains that are the responsibility of the local authority, the insurance company may pay to fix the drains and will then look to recover the costs from the local authority.

Subsidence claim

A claim for damage to a building caused by subsidence, that is when the ground beneath a building sinks, pulling the property’s foundations down with it. The downward movement of the site on which the building stands is unconnected with the weight of the building. Subsidence usually occurs when the ground loses moisture and shrinks, for example following prolonged dry spells.

Surety

This is someone who takes responsibility for another person’s debts or promises, and guarantees that they will be paid or undertaken.

Tangible asset

This is a physical belonging or piece of property, for example including buildings, land or machinery.

Third party

Insurance policies that use GPS technology to measure how a vehicle is being driven, which insurers then use to make judgements about driving performance. This information is then considered together with other traditional risk factors, such as the drivers’ age and occupation, to set premiums. ‘Safe’ drivers will usually benefit from lower premiums than ‘less safe’ drivers (also known as ‘Pay how you drive’ motor insurance).

Terminal bonus

A type of bonus paid out when a with-profits insurance policy (usually an endowment) comes to an end. The insurer can decide to pay either when the policy matures or when the policyholder dies, whichever comes first. It is paid out of the profits from the insurance company’s investments.

Tied agent

A person who sells policies for only one insurance company. Some sales people can be tied to several companies – they are known as multi-tied agents

Underinsurance

Underinsurance is when your insurance cover, or sum insured, is less than the value at risk.

Underpinning

When a building’s foundations are strengthened or deepened to manage the risk of subsidence occurring.

Unit trust

Unitised with-profit

A form of with-profits fund where the investor buys units which increase in value in line with any declared regular bonuses and to which a final bonus may be added when the units are cashed in.

Unit-linked annuity

A type of investment-linked annuity where the retirement income paid to you is linked to the performance of units in investment funds. Your retirement income may vary depending on how the investments rise and fall.

Voluntary excess

By agreeing to pay an excess your insurer may offer you a reduced premium. You can decide how much voluntary excess you wish to pay when you are taking out your policy.

Warrant

With-profits annuity

A type of investment-linked annuity where the retirement income paid to you is linked to the performance of the annuity provider’s with-profits fund. The retirement income you will receive each year may go up or down.

With-profits policy

A fund made up of a variety of assets which usually carries a medium level risk. The products that use with-profits funds are typically regular and single premium savings plans and pensions. With-profits funds pool policyholders’ investments, and customers share in the company’s investment returns and other profits. These returns are smoothed to help reduce the volatility associated with direct equity investments.

Write-off or written loss

A damaged vehicle which is either not repairable, or one which would cost more to repair than the vehicle was worth before the damage occurred. (Also known as total loss).

Insurance Jargon Explained

Whether you’re a first-time policyholder or looking to refresh your knowledge, our goal is to save you time, eliminate confusion, and empower you to make confident choices about your insurance needs. From “excess” to “underwriting” and everything in between, this tool simplifies the language of insurance, so you can focus on what truly matters: protecting what’s important to you.

We hope this helped you and gave you a better understanding and insight into insurance jargon. Coughlan Insurance wants to make insurance easy to understand for everyone. Contact us today for everything insurance in Buckinghamshire and beyond.