Premium

The amount you pay for your insurance, either monthly or annually. The premium is not the excess – it is what you pay before anything happens, to have the cover in place. A lower premium is not automatically better; it may reflect narrower cover, higher excesses, or stricter conditions. Always compare policies on equivalent terms before comparing premiums.

Insurance Premium Tax (IPT)

A government tax added to most UK general insurance premiums. The standard rate is 12%. A higher rate of 20% applies to certain insurance types including travel insurance, mechanical or electrical appliance insurance, and some vehicle insurance sold with vehicles. IPT is not reclaimable and is included in the quoted premium figure, but it is worth knowing why your premium is not an even number.

Quote vs Policy

A quote is an offer from an insurer to provide cover on stated terms. It is not a contract. The policy is the legally binding contract, confirmed by your policy schedule and policy wording. If anything changes between quote and inception – your circumstances, the vehicle, the property – you must tell the insurer. Failing to do so is a non-disclosure even though the policy had not yet started.

Policy Schedule

The document that sets out your specific policy details: who is insured, what is insured, for how much, on what dates, and with what excesses. The schedule is the “about you” part. The policy wording is the “what is covered” part. Both are legally binding. If anything in your schedule is wrong – a wrong registration, a wrong address, a wrong value – correct it immediately, as an error in the schedule can affect a claim.

Policy Wording

The document that sets out the terms, conditions, exclusions, and definitions that apply to your policy. This is the most important document in any insurance arrangement and the one that almost no one reads in full before buying. It defines what counts as an “insured event”, what is excluded, what conditions must be met to make a claim valid, and how disputes are resolved. If you ever have a claim declined, the answer to whether the decline is legitimate is always found in the policy wording.

Inception Date

The date from which your insurance cover begins. Any claim arising before the inception date is not covered, even if the policy was purchased before that date. Some insurers offer cover from the moment of purchase; others require a start date in the future. Check the inception date carefully when switching policies to avoid a gap in cover.

Renewal Date

The date your policy expires and, unless cancelled, renews for another term. Auto-renewal is standard on most UK personal insurance, which means your insurer continues your cover and charges the new premium unless you actively cancel. Loyalty is rarely rewarded in UK insurance – comparing the market at every renewal is the most effective way to avoid overpaying.

Material Fact

Any fact that would influence a prudent insurer’s decision to provide cover or determine the premium. Whether your property has flooded, whether you have previous claims, whether you have a criminal conviction, whether your car is modified – all are potentially material facts. You are required to disclose material facts accurately and completely when taking out a policy and when renewing. Failing to disclose a material fact is a non-disclosure, which can allow the insurer to void your policy or reduce a claim.

Duty of Fair Presentation

The legal obligation under the Insurance Act 2015 to disclose all material facts honestly and clearly to your insurer. This replaced the older “duty of utmost good faith” (uberrimae fidei). The key difference: under the old law, any non-disclosure gave the insurer a right to void the policy. Under the Insurance Act 2015, the insurer’s remedy is now proportionate to the nature of the breach – a careless non-disclosure leads to a proportionate reduction in the claim payment; only deliberate or reckless non-disclosure allows full policy avoidance.

Insurable Interest

The legal requirement that you must have a financial stake in whatever you are insuring. You can insure your own home but not your neighbour’s. You can insure your own car but not a car you do not own or have a financial interest in. Without insurable interest, an insurance contract is void as a matter of law. For life insurance, insurable interest must exist at the time the policy is taken out; for property insurance, it must exist at both inception and at the time of the claim.

No Claims Discount / No Claims Bonus (NCD/NCB)

A discount on your motor insurance premium for each year you do not make a claim, reflecting your claims history as a proxy for driving risk. NCD is built up over successive years and can be protected by paying an additional premium, so that one claim does not eliminate multiple years of accumulated discount. NCD is personal to the driver who earned it and transfers between insurers when you switch. See our car insurance comparison for how NCD affects your premium at renewal.

Sum Insured

The maximum amount your insurer will pay in the event of a claim under a specific section of your policy. The sum insured is not a floor – it is a ceiling. If your sum insured is set too low (underinsurance), the average clause will apply and reduce your claim payment even on a partial loss. Setting the sum insured correctly for buildings means using the reinstatement cost, not the market value. See What Is Home Insurance for how to calculate the right figure.

Reinstatement Value vs Market Value

Two different bases on which the sum insured for buildings can be set. Reinstatement value is the cost to demolish, clear, and rebuild the property from scratch using current labour and materials – this is how buildings insurance should always be set. Market value is what the property would sell for, including the land. Market value is almost always higher than reinstatement value (because it includes land), which means insuring at market value leads to overinsurance and wasted premium. Insuring below reinstatement value leads to underinsurance and a reduced claim. The two are not interchangeable.

New for Old vs Indemnity Basis

Two bases on which contents claims are settled. New for old means the insurer replaces the damaged or stolen item with an equivalent new item at today’s prices, regardless of the age of the original. Indemnity basis means the insurer pays the current market value of the item, which reflects age and wear and is almost always less than the cost of replacement. Most modern UK home insurance policies default to new for old for contents. Check your policy schedule to confirm which applies – a budget policy may quietly apply indemnity basis to reduce the premium.

Indemnity (principle of)

The fundamental principle of insurance: to restore you to the same financial position you were in immediately before the loss, and no better. Insurance is not meant to generate a profit. You cannot claim more than your actual financial loss. This principle underlies why insurers can apply betterment deductions (if an old item is replaced with something newer, the value improvement over what you lost may be deducted), why salvage value is retained by the insurer, and why the sum insured must accurately reflect the value at risk.

Excess

The amount you pay yourself at the start of any claim before your insurer covers the rest. There are two types. Compulsory excess is set by the insurer based on their assessment of the risk and cannot be reduced. Voluntary excess is an additional amount you choose to pay in exchange for a lower premium. Your total excess is the sum of both. If your total excess exceeds the cost of the damage, it is not worth claiming – and a declined or withdrawn claim can still affect your future premium. See our home insurance excess guide and car insurance excess guide for full detail.

Peril / Insured Peril

An insured peril is a specific cause of loss that your policy covers – fire, flood, storm, theft, escape of water, vandalism, subsidence. Standard home and property policies are “named peril” policies: they cover only the perils listed. Damage from an event not on the list is not covered, even if the damage is severe. “All risks” or “accidental damage” cover is broader – it covers any sudden, accidental loss unless specifically excluded. Knowing the difference determines whether you have a claim or not.

Exclusion

A specific circumstance, event, or type of damage that is explicitly not covered by your policy. Every policy has exclusions. Common exclusions include wear and tear, gradual deterioration, pre-existing damage, damage caused by the policyholder deliberately, and certain high-risk activities. Exclusions can be general (applying across the whole policy) or specific to a section. Reading the exclusions before buying a policy is as important as reading what is covered. See what home insurance covers and excludes for a practical worked list.

Condition / Warranty

A condition is something you must do (or not do) throughout the life of the policy as a requirement of maintaining the cover. Failing to meet a condition gives the insurer grounds to decline a claim. Common conditions include: maintaining security devices in working order, notifying the insurer of changes, not leaving a property unoccupied beyond a set period, and sweeping chimneys annually on a thatched property. A warranty is a particularly strict type of condition – in commercial insurance, breach of a warranty can void the entire policy regardless of whether the breach caused the loss. The Insurance Act 2015 softened this for commercial policies: a breach of warranty now only suspends cover for the period of the breach rather than voiding the policy permanently.

Endorsement

An amendment to the standard policy wording that adds, removes, or modifies cover for a specific policyholder. Endorsements can work in your favour (extending cover to include something not in the standard policy) or against you (restricting cover for a specific risk). Always read any endorsements on your policy schedule, as they take precedence over the standard wording for the item they address.

Limit of Indemnity

The maximum amount an insurer will pay for any one claim or in aggregate over the policy year. Used mainly in liability and professional indemnity policies. “Any one claim” basis means the full limit is available for each separate claim regardless of how many you make. “In the aggregate” basis means once the total of all claims in the policy year reaches the limit, no further claims will be paid. Most public liability policies are “any one occurrence”; most professional indemnity policies are “in the aggregate”. Check which applies. See our public liability insurance guide.

Index Linking

Automatic annual adjustment of the sum insured to keep pace with inflation, using a relevant index such as the House Rebuilding Cost Index for buildings. Index linking reduces the risk of underinsurance creeping in over time as construction costs rise. However, it is not a substitute for periodically reviewing your sum insured against a current professional valuation – index linking works proportionately, so a sum insured that is already too low simply stays too low, just slightly less so each year.

Average Clause (and Underinsurance)

The most important term most policyholders have never heard of. The average clause means that if your sum insured is less than the actual value of the property at risk, the insurer will reduce every claim payment proportionally. If your property would cost £200,000 to rebuild but you have insured it for £100,000, you are 50% underinsured. A claim for £40,000 of fire damage will be settled at £20,000. This applies to partial losses, not just total losses.

The average clause does not require bad faith or fraud. It applies automatically whenever the sum insured is below the correct figure. UK construction costs rose significantly between 2020 and 2024, meaning millions of properties are now materially underinsured based on figures set before that period.

Proximate Cause

The dominant, effective cause of a loss. When a claim involves a chain of events, the insurer assesses which cause was the most operative in producing the loss. Only if the proximate cause is an insured peril will the claim be covered. If a storm (insured peril) weakens a roof which then collapses in a subsequent frost (excluded), the question is whether the storm or the frost is the proximate cause. In practice, most disputes about proximate cause involve gradual damage that the insurer argues predated the insured event. The FOS resolves many such disputes in favour of policyholders where the insured event is clearly the dominant cause.

Loss Adjuster

An independent professional appointed and paid by your insurer to investigate and assess your claim. Despite their independence, they are retained by the insurer and their primary role is to determine the validity and quantum of the claim on the insurer’s behalf. A loss adjuster is not your representative. On a large or complex claim, you may wish to appoint your own loss assessor (see below) to counter-represent your interests.

Loss Assessor

A professional appointed by and working for the policyholder to manage and negotiate a claim on your behalf. A loss assessor knows the policy wording, the claims process, and the negotiating conventions that a first-time claimant does not. They are typically paid as a percentage of the claim settlement. On large property claims, specialist loss assessors often secure materially higher settlements than the loss adjuster’s first offer. You have no obligation to accept the loss adjuster’s first assessment.

Subrogation

Once your insurer has paid your claim, they acquire the legal right to step into your shoes and pursue whoever caused the loss. If a neighbour’s tree falls on your roof and your insurer pays for the repair, your insurer can then sue the neighbour (or their insurer) to recover the cost. Subrogation rights also explain why your insurer may ask you not to admit liability or settle anything directly if someone causes you loss – they need to preserve their subrogation rights. This also works in reverse: if your insurer pays out on a claim where another party was at fault, they may recover from that party’s insurer, which can affect whether a no-claims discount is lost.

Ex Gratia Payment

A payment made by an insurer as a gesture of goodwill where there is no legal obligation under the policy to pay. Ex gratia payments are made at the insurer’s discretion – typically where a strict reading of the policy would result in an outcome the insurer considers unfair, or to settle a complaint rather than continue a dispute. The fact that a payment is ex gratia does not create a precedent or an obligation to make similar payments in future. An insurer who refuses a claim but offers an ex gratia payment may be signalling that they know the strict position is defensible but would not be popular with the FOS.

Betterment

A deduction made by an insurer when a damaged item is replaced with something newer or better than what was lost. If your 10-year-old boiler is destroyed in a flood and the insurer pays for a new one, they may apply a betterment deduction to reflect the difference in value between a 10-year-old boiler and a new one – because the indemnity principle says you should be no better off after a claim than before it. Betterment disputes are common in motor claims (an old vehicle repaired with new parts) and in property claims. Check your policy for whether it is written on a “new for old” basis, which would waive betterment deductions.

Salvage

Once an insurer has paid a total loss claim, the damaged property becomes the insurer’s to keep, sell, or dispose of. The salvage value is deducted from what would otherwise be owed if the insurer elects to pay on a total loss basis and retain the wreck. In motor claims, this means your insurer takes your written-off car; in property claims, the insurer may retain salvageable materials. You cannot receive the full replacement value and also keep the damaged item – that would violate the indemnity principle.

Total Loss / Write-Off (Motor)

A vehicle is written off when the cost of repair exceeds the vehicle’s pre-accident market value, or when the damage makes the vehicle unsafe to return to the road regardless of cost. In the UK, vehicles are categorised: Category A (crush only – cannot be resold or repaired), Category B (body shell must be crushed but parts can be salvaged), Category S (structurally damaged but repairable), Category N (non-structural damage, repairable). Categories S and N can be put back on the road after repair but remain on a register that any buyer can check, which reduces residual value. A policyholder insured on an agreed value policy receives the agreed figure regardless of market value at the time of loss – a significant benefit for classic or high-value vehicles.

Agreed Value vs Market Value (Property and Motor)

Agreed value means the insurer accepts a stated value at inception and will pay that figure in the event of a total loss, without market value debate at claim time. Market value means the insurer pays what the item was worth on the open market immediately before the loss – which requires agreement at claim time and is usually lower than what you would need to replace it. Agreed value policies are common in classic car insurance and specialist horsebox or motorhome insurance. See our horsebox insurance guide and motorhome insurance guide for how agreed value works in practice.

Use Class (Social, Domestic and Pleasure / Business Use / Hire and Reward)

The declared purpose for which a vehicle is used, which determines the scope of motor insurance cover. Social, domestic and pleasure (SDP) covers personal use including commuting in some policies. Business use covers using the vehicle for work purposes – attending client meetings, travelling between sites. Hire and reward covers transporting people or goods for payment. Transporting someone else’s property for any payment – even fuel money – on an SDP policy is not covered and can void the policy for that journey entirely. See our courier vs van insurance guide and hire and reward insurance guide.

Named Driver vs Any Driver

A named driver policy covers only the specific drivers listed on the policy schedule. An any driver policy covers any driver who meets the stated criteria (typically age, licence type, and no major convictions). Any driver policies are common in fleet insurance and some van insurance. Named driver policies are typically cheaper because the insurer can assess the specific risk profile of each driver. A named driver who allows someone not on the policy to drive is leaving that driver uninsured for own-damage cover (third-party liability is still met as a legal minimum, but the insurer can recover the cost from the uninsured driver).

Fronting

An illegal practice where a more experienced driver (typically a parent) takes out a motor policy as the named policyholder and main driver, while the actual primary driver (typically a young person) is added as a named driver. This misrepresents who principally drives the vehicle and constitutes insurance fraud. If discovered – usually when a claim is made – the insurer can void the policy, the claim is declined, and both parties face potential prosecution. The correct approach for a young driver’s own vehicle is to be the policyholder and the named driver, with experienced parents added if they genuinely also drive the car.

Third Party Only (TPO) / Third Party Fire and Theft (TPFT) / Comprehensive

The three levels of motor cover available in the UK. TPO is the legal minimum – it covers damage you cause to other people and their property, but nothing for your own vehicle. TPFT adds fire and theft cover for your own vehicle. Comprehensive covers damage to your own vehicle from any cause, plus TPO cover for others. A common misconception is that comprehensive is always more expensive than TPO – for higher-risk drivers, insurers sometimes price TPO higher because the cheapest-seeking demographic is statistically higher risk.

Telematics / Black Box Insurance

A motor policy where a device (or smartphone app) records driving behaviour – speed, braking, cornering, time of day, mileage – and the premium is adjusted based on the data. Common in young driver policies where traditional rating factors would otherwise produce very high premiums. The data collected can also be used in the event of a claim as evidence of driving behaviour at the time of the incident. See our black box insurance guide.

Courtesy Car / Replacement Vehicle

A temporary vehicle provided while your own vehicle is repaired following an insured event. Most comprehensive policies include a courtesy car as standard, but the type and duration of the vehicle provided varies – typically a small hatchback for the duration of the repair, not an equivalent to your own vehicle. Some policies specifically exclude courtesy cars if you are at fault or if the vehicle is written off. Motor legal protection or guaranteed replacement vehicle cover are separate additions that improve on the standard provision.

Public Liability Insurance

Insurance that covers your legal liability to pay compensation if a member of the public is injured or their property is damaged as a result of your business activities. It covers legal defence costs and any compensation awarded. Not legally required for most businesses (employers’ liability is the legally required one) but commercially essential for almost any business that has customers, visitors, or operates in public places. See our public liability insurance guide.

Employers’ Liability Insurance

Insurance that covers your legal liability if an employee suffers injury or illness arising from their work. Legally required under the Employers’ Liability (Compulsory Insurance) Act 1969 for any business that employs staff, including part-time, temporary, and zero-hours workers. The minimum required limit is £5 million. Failure to hold it carries a fine of up to £2,500 per day. Employees include family members if they are paid employees. See our employers’ liability guide.

Professional Indemnity Insurance

Insurance that covers businesses and individuals who provide professional advice, designs, or services against claims that their work caused financial loss to a client. Unlike public liability (physical injury or property damage), professional indemnity covers purely financial loss from professional error, negligence, or breach of duty. Mandatory for many regulated professions. See our professional indemnity guide.

Business Interruption Insurance (BI)

Insurance that covers loss of income and ongoing costs when a business cannot operate normally following an insured event (fire, flood, storm). BI does not pay for the physical damage – that is covered by the property policy. BI covers the income gap while the business rebuilds. It is calculated on gross profit (in the insurance sense, which is revenue minus variable costs and not the same as accounting gross profit) and runs for the chosen indemnity period. The most common error is setting the indemnity period too short – 12 months is rarely enough for a complex rebuild.

Indemnity Period

The maximum period for which a business interruption policy will pay. The clock starts from the date of the insured event, not from when you actually reopen. Common options are 12, 18, 24, and 36 months. Choosing the right indemnity period requires thinking about: how long a complete rebuild takes, how long planning permission takes, how long it takes to re-establish supply chains and customer relationships, and how long your business could sustain reduced income before permanent financial harm. For commercial properties, 24 months is a minimum and 36 months is more appropriate for complex sites.

Claims Made vs Claims Occurring

Two different bases on which a policy can respond to a claim. Claims occurring means the policy in force at the time the incident happened will cover any subsequent claim, even if the policy has since expired. This applies to most public liability and employers’ liability policies. Claims made means the policy must be in force both when the incident occurs and when the claim is notified. This applies to professional indemnity and directors’ and officers’ policies. Claims made policies require “run-off cover” if you stop trading, to cover claims notified after the policy ends for incidents that occurred while it was live.

Retroactive Date

In a claims made policy, the retroactive date is the earliest date from which incidents are covered. If your professional indemnity policy has a retroactive date of 1 January 2023, incidents that occurred before that date are not covered even if the claim is made during the policy period. When switching insurers, the new policy should match or extend back to the retroactive date on your previous policy to avoid an uncovered gap in your professional history.

Confirmed Claims Experience (CCE) – Fleet

A formal document produced by a fleet insurer showing the claims history of a fleet – number of claims, costs paid and outstanding, loss ratio – used to rate fleet insurance at renewal. The CCE is the fleet equivalent of a no-claims discount and the most important document in any fleet renewal submission. Without it, insurers add a significant loading to compensate for the unknown claims position. See our guide to fleet insurance quotation for how the CCE drives pricing.

Financial Conduct Authority (FCA)

The UK regulator for financial services, including insurance. Every insurer and broker operating in the UK must be authorised and regulated by the FCA. You can verify any insurer or broker on the FCA Register at register.fca.org.uk. The FCA sets the conduct rules that insurers must follow, including the Consumer Duty (from 2023), which requires firms to act to deliver good outcomes for retail customers. If an insurer consistently fails to meet FCA standards, it can face sanctions, fines, and loss of authorisation.

Financial Ombudsman Service (FOS)

The independent body that resolves disputes between consumers and financial services firms, including insurers. If you have exhausted the insurer’s own complaints process (or eight weeks have passed without resolution), you can refer the complaint to the FOS for free. The FOS can award up to £430,000 (from April 2024) against an insurer. Its decisions are binding on the insurer but not on you – if you disagree with the FOS decision you can still pursue the matter in court. The insurer pays a case fee to the FOS regardless of the outcome, which means referral costs you nothing. Contact the FOS at financial-ombudsman.org.uk.

Consumer Duty

FCA rules introduced in 2023 requiring financial services firms to act to deliver good outcomes for retail customers across four areas: products and services, price and value, consumer understanding, and consumer support. Under Consumer Duty, insurers must ensure their products provide fair value, that customers understand what they are buying, and that the firm does not create or exploit customer vulnerability. If an insurer refuses a claim in a way that demonstrably fails to deliver a good outcome for a customer who took reasonable care, Consumer Duty provides an additional basis for a FOS complaint.

ICOBS (Insurance Conduct of Business Sourcebook)

The FCA’s rulebook for how insurers and brokers must conduct themselves when selling and administering non-investment insurance. ICOBS sets requirements for clarity of information at the point of sale, how claims must be handled, what disclosures must be made, and how cancellation rights work. When an insurer fails to provide information required by ICOBS, this can support a FOS complaint even where the policy wording technically supports the insurer’s position.

Policy Avoidance / Voiding a Policy

The insurer’s right to treat the policy as if it never existed, typically because of material non-disclosure or fraud. If a policy is avoided, the insurer pays no claims and may retain premiums. Under the Insurance Act 2015, avoidance requires deliberate or reckless non-disclosure. A careless non-disclosure results in a proportionate remedy rather than full avoidance. If you believe your policy has been avoided unfairly, this is a strong basis for a FOS complaint, as avoidance is a powerful remedy and the FOS applies scrutiny to whether the insurer’s response was proportionate.

Association of British Insurers (ABI)

The UK trade body representing insurers, publishing industry data on premiums, claims, and market trends. The ABI does not handle individual complaints or regulatory matters, but its published data (average premiums, claims statistics, and guidance documents) is authoritative for understanding the market. When this and other MMC articles reference “ABI data”, this is the source.

Flood Re

A UK government-backed reinsurance scheme that allows insurers to offer flood cover at affordable prices to homes in high flood-risk areas that would otherwise be uninsurable or prohibitively expensive. Insurers pass flood risk into the Flood Re pool and are reimbursed for flood claims up to the sum insured. Key limitation: Flood Re does not apply to properties built after 1 January 2009, commercial properties, or buy-to-let properties. The voluntary excess chosen by the policyholder also does not apply to flood claims under Flood Re – there is a fixed flood excess by council tax band.