CII Basic Insurance key terms

A legal and financial stake in the person or property insured, so that the policyholder suffers genuine loss if the insured event occurs. It must normally exist when cover starts and, for property, at the time of loss.

The rule that a property or liability claim should put the policyholder back in the same financial position as before the loss, no better and no worse. It underpins limits, excesses and average clauses.

The duty on both parties, strongest on the proposer, to deal openly and disclose all material facts when arranging and varying a contract. Breach may allow the insurer to avoid the policy or reduce a claim.

Information that would influence a prudent insurer's decision on whether to accept a risk, or on the terms and premium charged. Examples include claims history, hazardous activities and previous refusals of cover.

Failure by a proposer to reveal a material fact the insurer needed. Under current UK law the remedy is proportionate: the insurer may avoid the policy, reduce a claim or adjust terms depending on what it would have done.

A false or misleading statement of fact made to an insurer during the formation of the contract. The remedy depends on whether it was careless, deliberate or reckless, and on what the insurer would otherwise have done.

The amount a policyholder pays for insurance cover. It is built from a risk-based rate, expenses, commission and profit loading, and is adjusted by factors such as claims history, excess level and payment frequency.

The first amount of each claim that the policyholder bears, after which the insurer pays. A compulsory excess is fixed by the insurer; a voluntary excess is chosen in return for a lower premium.

The maximum amount the insurer will pay for a property loss under a policy. It should reflect the full rebuild or replacement cost, not the market value, or a claim may be reduced.

The most the insurer will pay under a section or the whole policy, whether per claim, per person or in total. Limits may be stated as a sum insured or as a fixed amount for specified events.

A condition that reduces a property claim in proportion to underinsurance. If a building worth 200,000 is insured for 100,000, a 20,000 loss is settled at 10,000, less any excess.

Holding cover below the true value of the insured property or below the level needed for likely liabilities. It leaves the policyholder bearing part of any loss and may trigger average or limit shortfalls.

The insurer's right, after paying a claim, to take over the policyholder's legal recovery rights against the party responsible. It supports the indemnity principle by preventing the policyholder recovering twice.

The principle allowing an insurer that has paid a claim to recover a share from other insurers covering the same interest, peril and period. It prevents the policyholder profiting from duplicate cover.

The situation where the same insured interest is covered by more than one policy against the same risk. The policies respond in proportion, and the policyholder cannot recover more than the actual loss.

The dominant, effective cause of a loss, as opposed to a remote or incidental factor. Insurers decide whether a peril is covered by identifying the proximate cause and applying policy exclusions to it.

A specific event or hazard that can cause loss, such as fire, theft, flood or accidental damage. Policies list covered perils, either by naming them or by providing broad all-risks wording.

A clause removing specified losses, property or circumstances from cover, such as wear and tear, war or deliberate acts. Exclusions define the boundary of the promise and are read alongside conditions.

A term setting out obligations or rules that affect cover, such as maintaining protection, notifying claims promptly or paying premium. Breach may allow the insurer to decline or reduce a claim.

A policy term that must be complied with exactly, where breach automatically discharges the insurer's liability. UK consumer law has softened this for consumers, suspending cover only while the breach continues.

The policyholder's duty to tell the insurer about a loss promptly and provide information and evidence as required. Late or inaccurate notification can prejudice the claim or breach a policy condition.

A specialist appointed by the insurer to investigate large or complex claims, establish the cause and value the loss. Adjusters may be staff or independent, and act for the insurer rather than the policyholder.

An intermediary who acts for the customer in arranging insurance, advising on cover and placing business with insurers. Brokers owe duties to clients and are regulated for conduct and financial standing.

A firm or person arranging, advising on or selling insurance between customers and insurers. Intermediaries may be brokers or agents, and must be authorised and disclose commission and conflicts.

The UK regulator responsible for conduct in insurance distribution, including fair treatment of customers, financial promotions and claims handling. It sets rules such as the Consumer Duty and authorises firms.

The UK regulator, part of the Bank of England, that supervises the financial soundness of insurers. It sets capital, governance and risk-management requirements so that firms can meet claims.

A UK conduct rule requiring firms to deliver good outcomes for retail customers across products, price and value, consumer understanding and support. It raises the standard beyond merely avoiding harm.

The principle that firms must put fair treatment of customers at the heart of their business, covering culture, product design, communications and complaints. It is supervised through the regulator's conduct rules.

The compulsory cover requiring motorists to compensate others for injury, death or property damage caused by use of a vehicle on a road. UK law sets minimum limits and requires insurance before use.

Insurance covering an employer's legal liability for injury or disease suffered by employees arising from work. Most UK employers must hold at least 5 million of cover and display a certificate.

Cover for legal liability to third parties for injury or property damage arising from the insured's business activities or premises. It typically excludes employee injury, which employers' liability covers.

Cover for household goods, furniture and personal belongings within the home, often extending to items temporarily removed. Sums insured reflect replacement cost and may include valuables limits.

Cover for the structure of a home, including walls, roof, fixtures and fittings, and often outbuildings, against perils such as fire, flood and subsidence. The sum insured should be the rebuild cost.

Life insurance paying a lump sum if the insured dies within a set period. It has no investment element, so it is relatively cheap, and may be level, decreasing or increasing.

Life cover that runs for the insured's entire lifetime and pays on death whenever it occurs, provided premiums are maintained. It is more expensive than term cover and may build a surrender value.

A premium reduction earned for each claim-free year, common in motor and home insurance. It rewards good experience but may be lost or reduced after an at-fault claim.

A characteristic used to price a risk, such as age, location, occupation, claims history or construction type. Factors must be relevant, evidence-based and applied without unfair discrimination.

The core mechanism by which many policyholders pay premiums into a fund from which the few who suffer losses are paid. It relies on a large, diverse and predictable spread of similar risks.

Insurance bought by an insurer to transfer part of its risk to another insurer, protecting against large single losses or accumulations. It supports capacity and stability in the primary market.