CIIN Certificate CF5 key terms

A legal and financial relationship with the subject of insurance such that the policyholder benefits from its preservation and suffers loss from its damage or destruction. It must exist when cover is taken out.

The mutual duty on insurer and policyholder to deal openly and honestly, disclosing all material facts relevant to the risk before a contract is formed. Breach can allow the contract to be avoided.

Information that would influence a prudent underwriter's decision on whether to accept a risk, or on the terms and premium charged. Applicants must volunteer such facts when proposing for cover.

The rule that a property or liability payout should restore the policyholder to the financial position held before the loss, no better and no worse. It underpins sums insured, average and subrogation.

The insurer's right, after paying a claim, to step into the policyholder's shoes and pursue a negligent third party for the loss. It prevents the insured recovering twice for the same damage.

The principle allowing an insurer that has paid a claim to recover a proportionate share from other insurers covering the same interest, peril and period. It prevents double recovery where cover overlaps.

The dominant, effective cause of a loss, as opposed to a remote or incidental one. Insurers apply it to decide whether a claim falls within the perils insured against.

A specific event or circumstance, such as fire, theft or accident, that a policy states it will respond to. Losses must arise from an insured peril to be payable.

A policy term that removes specified losses, perils or circumstances from cover, such as war, wear and tear or deliberate acts. Exclusions limit the scope of the insurer's promise.

A promise in the policy that the insured must comply with exactly, such as fitting an approved alarm. Breach can discharge the insurer from liability for a related claim.

A policy term that must be satisfied before the insurer's liability arises or before a claim can be enforced, for example notifying a loss within a set period.

A provision that reduces a property claim in proportion to underinsurance, so a policyholder insuring for less than the full value bears a share of each loss.

The maximum amount an insurer will pay under a policy, or the declared value of the property or liability covered. It sets the ceiling for any claim settlement.

The cost of replacing damaged property with new equivalent items, rather than its depreciated market worth. Policies may offer this basis instead of strict indemnity.

The amount the policyholder pays for insurance cover. It is calculated from the rate applied to the risk, adjusted for factors such as claims history and excess.

The first portion of any loss that the policyholder must bear before the insurer pays, sometimes called a deductible. A higher excess usually lowers the premium.

The mechanism by which many policyholders contribute premiums into a common fund from which the losses of the few are paid. It spreads individual uncertainty across a large group.

The statistical principle that, as the number of similar independent risks increases, actual claims experience converges on the expected average. It allows insurers to price and reserve more reliably.

Insurance bought by an insurer to transfer part of its risk portfolio to another insurer, protecting against large single losses or accumulations of claims.

The amount of risk an insurer, or a policyholder through an excess, chooses to keep rather than transfer. It is a deliberate decision balancing cost against protection.

The risk management technique of shifting the financial consequences of a risk to another party, most commonly by buying insurance. The underlying exposure itself usually remains.

A risk management response that eliminates an exposure altogether by not undertaking the activity that creates it. It removes the risk but may also forgo the associated opportunity.

A condition that increases the likelihood or severity of a loss arising from a peril, such as poor housekeeping or faulty wiring. Hazards may be physical, moral or moral hazard types.

The tendency for insurance cover to change behaviour, making a loss more likely because the insured no longer bears its full cost. Underwriters look for indicators when assessing proposals.

A cause of loss, such as fire, flood, theft or collision. Perils are distinguished from hazards, which are conditions that make a peril more likely to operate.

The process of assessing a proposed risk, deciding whether to accept it, and setting the terms, exclusions and premium. It matches price to the likelihood and severity of loss.

Characteristics used to classify a risk and calculate its premium, such as age, occupation, location or claims history. They must be relevant and supported by credible data.

A premium reduction earned for each claim-free year, rewarding favourable experience. It is usually lost or reduced when a claim is made.

The document in which an applicant supplies details of the risk and any relevant history. Its answers form the basis of the contract and support the duty of disclosure.

The part of the policy setting out the specific details of the arrangement: insured parties, sums insured, excesses, period of cover and the perils selected.

The policyholder's duty to tell the insurer promptly that a loss has occurred, usually within a stated period and with supporting information. Delay can prejudice cover.

An independent specialist appointed to investigate a significant claim, establish the cause and value the loss, and recommend a settlement to the insurer.

The insurer's entitlement, after paying a total loss, to take ownership of any damaged property that retains value and to sell it to offset the claim.

An arrangement where two or more insurers each cover a stated share of the same risk, often for large or specialist exposures. Each is liable only for its proportion.

Life cover that pays a lump sum only if death occurs within a fixed period. It provides pure protection with no investment element and is often the cheapest form of life cover.

Life cover that pays on death whenever it occurs, provided premiums are maintained. It combines lifelong protection with an investment element and may build a surrender value.

The amount an insurer pays if a policyholder ends a policy with savings or investment content before maturity. Early surrender often produces less than the premiums paid.

The amount of money a life or health policy guarantees to pay on the insured event, such as death or diagnosis of a specified illness.

The amount payable at the end of a savings or investment policy term, comprising guaranteed benefits plus any declared bonuses or investment returns.

An independent UK body that resolves disputes between consumers and financial firms, including insurers, without going to court. Its decisions are binding on the firm if accepted.