Ab Initio
This is a term used to describe when an insurance contract is cancelled from the very start. This can happen if the person getting the insurance deliberately gives false information.
Glossary of Insurance Terms
Understanding the common terms and what they mean.
Every industry has its own unique language, and insurance is no exception.
Insurance terminology can be complex and confusing, so we’ve created a hub of key insurance terms and their definitions – to help you can cut through the jargon!
A
Ab Initio
Accident
An unexpected event that happens suddenly and at a specific place.
Accident Cover
Insurance that provides benefits if an accident happens when the insurance is in effect. It usually covers injury or death caused by accidents.
Actual Total Loss
This happens when the item insured is destroyed or damaged beyond repair or if the insured can no longer get it back.
Adjuster
This person works for or on behalf of the insurance company and recommends how much the company should pay for a claim.
Advice (in Financial Services)
This statement influences someone to buy a particular financial product or service. Personal advice is explicitly given to one person, while general advice is given to a group of people.
Agent
An agent is a person who has a contract with an insurance company and sells insurance policies on behalf of the company.
Aggrieved Party
A person who has been wronged or suffered harm.
Agreed Value
This typically applies to vehicle or plant insurance and is shown as an amount on your policy schedule. This forms the basis for total loss settlements, and this value does not change for the duration of the insurance coverage (typically 12 months).
Amount Covered
This is the maximum amount the insurance company will pay for a claim, minus any excess. It includes the Goods and Services Tax (GST).
Arbitration
A method of resolving disputes between an insurance company and the person insured, using a private tribunal instead of going to court.
Arson
Setting fire to property illegally.
Australian Financial Complaints Authority (AFCA)
An independent body that assists consumers and small businesses in reaching agreements with financial firms (insurance companies) about how to resolve their complaints. They can be contacted by calling 1800 931 678 or visiting https://www.afca.org.au/. NB: The consumer must pass through the insurer’s Internal Dispute Resolution first, and AFCA only has jurisdiction over certain classes of insurance.
Australian Financial Services Licensee (AFSL)
A person who holds a special license to provide financial services in Australia.
B
Broadform
A type of liability insurance that covers more than just physical injury, such as mental injury, false arrest, defamation, and more.
Broker
A middle-person representing someone seeking insurance and earning commission from the insurer. They must secure insurance that meets the needs of the client. Sometimes, a broker may also serve as the insurer’s agent for policy issuance and premium collection.
Burglary
Theft that occurs following the use of force and violence to enter a property. Note: this term may not be applicable in some Australian states.
Business Pack
This happens when the item insured is destroyed or damaged beyond repair or if the insured can no longer get it back.
C
Cancellation
The act of terminating a policy before its expiration date.
Captive Insurance Company
An insurance company wholly owned by one or more entities, primarily established to insure the risks of its parent companies. Many large Australian businesses and organisations have their own captive insurers.
Certificate of Insurance/Certificate of Currency
A document proving that an insurance policy has been issued.
Claim
On behalf of a claimant, the formal notification that an event covered by a policy has occurred or is about to happen and a request for indemnification under the policy.
Claimant
The person asserting a right to compensation under an insurance contract.
Claims History
A record of losses suffered by an insured and covered by insurance, including events notified to the insurer that did not result in payouts, such as events below the policy’s excess.
Claims Made
This is a type of liability insurance policy that only covers claims that are made during the policy period. The policy will not cover claims that arose before the retroactive date, even if the policy is in effect when the claim is reported.
Code of Practice (General)
A self-regulatory form of regulation established by the Insurance Council of Australia, with the help of the Australian Financial Complaints Authority, to raise service standards across the general insurance industry. It applies to insurance companies, employees, agents, investigators, assessors, loss adjusters, and collection agents.
Code of Practice (Insurance Brokers)
This is a set of guidelines and standards established by the National Insurance Brokers Association (NIBA) for insurance brokers in Australia. The Code sets out the ethical and professional standards that insurance brokers must adhere to ensure that their clients receive the best possible service and advice.
Co-Insurance (Average)
When the sum insured by an insured does not represent the total value of their property, the insured may become a co-insurer and share in the risk with the insurer, potentially resulting in a reduced claim.
Commission
A fee paid by an insurance company to a broker for selling and servicing insurance policies. The commission is usually a percentage of the policyholder’s premium and serves as compensation for the broker’s services, such as advice, sales, policy administration, and claims support. However, the amount of commission can vary depending on the type of policy, the company, and the broker’s agreement with the insurer.
Common Law
The principles of law established through court decisions.
Comprehensive Insurance
Usually associated with car insurance, it provides coverage for damage to the insured car and damage caused by the insured car to others’ property.
Compulsory Insurance
Insurance required by law, such as worker’s compensation or compulsory third-party insurance.
Condition Precedent to Liability
Conditions that must be fulfilled for an insured’s claim to be accepted.
Condition Precedent to Policy
Conditions that must be fulfilled for a policy to be valid, such as the duty of disclosure.
Condition Subsequent to Policy
Conditions that must be fulfilled for a policy to continue, such as paying the premium, maintaining the premises, or regularly servicing the burglar alarm.
Consequential Loss
Consequential loss is a type of loss that is not a direct result of an insured event but a secondary or indirect loss resulting from the insured event. For example, in a professional indemnity or public liability insurance policy, a consequential loss might include lost income or business interruption caused by a claim arising from the policyholder’s professional activities.
Contract
An enforceable agreement between two or more parties.
Contribution
The process by which an insurer can require other insurers to make a proportional contribution towards a loss if the insured has multiple policies covering the same interest against the same peril.
Cooling Off Period
A 14-day period during which a retail client can return a policy and receive a full refund of the premium unless a claim has been made.
Cover
The protection provided by a policy.
Cover Note
A temporary insurance contract that is to be replaced by another contract, issued when further details are to be determined or when the insured must comply with additional risk acceptance conditions.
Coverage
The scope of protection provided under an insurance contract.
CTP Insurance
Compulsory Third-Party insurance required for vehicle registration, covering injury or death to another person caused by the insured vehicle’s driver.
D
Damage
 Monetary compensation for loss suffered, awarded by a court.
Decline
To refuse, such as an insurer declining to offer insurance coverage or denying a claim.
Deductible
The amount of loss borne by the insured before being able to claim under a policy, also known as an “excess.”
Defendant
The person or entity being sued by the plaintiff.
Deposit Premium
An initial premium paid by a client, subject to adjustment at the end of the policy period based on claims experience, resulting in a refund or additional payment.
Direct Insurer
An insurance company that deals directly with the consumer rather than through an intermediary or agent.
Direct Policy
An insurance contract between the insurer and the original insured, as opposed to a reinsurance contract.
Disaster
A situation where normal community and organisational arrangements cannot handle the consequences of a hazard.
Disclaimer
A statement in which a person declares they will not accept responsibility for specific events. It’s used to avoid or limit liability for breach of duty of care.
Dispute Resolution Process
A system to resolve complaints required by the Financial Services Reform Act (now part of the Corporations Act) for AFSL holders. It includes an Internal and External Dispute Resolution system.
Due Date
The date by which a renewal premium must be paid to keep an insurance policy in force.
Duty of Disclosure
The Insurance Contract Act requires the insured to disclose all relevant information to the insurer. The duty applies until a contract is entered into or renewed, varied, reinstated, or extended.
E
Each Bear Own
An arrangement among motor insurers where each pays for its own repair costs and waives subrogation recovery against other signatories, regardless of fault.
Effective Date
The date when the coverage of an insurance policy starts.
Endorsement
A written change to a policy or its terms, parties, or particulars appearing on the policy or in additional documentation.
Event
An incident or situation occurring at a specific time and place.
Ex Gratia Payment
A payment made by an insurer without a contractual obligation, often to maintain goodwill, public relations, social justice, or other commercial reasons.
Excess
The amount the insured must contribute towards each claim before the insurer pays out. It is shown on the insurance schedule and applies when one or more excesses are specified in the policy.
Excess Layer
A layer of excess-of-loss insurance coverage that operates immediately above another layer.
Expiry Date
The date on which an insurance policy ends, usually 4:00 PM, but can vary by policy and insurer.
F
Fidelity Insurance
An insurance policy that covers the theft of goods or money by employees.
Financial Services Guide (FSG)
A statement that must be provided to a retail client before or when a financial service or product is offered. It includes information about the service provider, their representation, compensation, dispute resolution and other details as required by the Corporations Act (previously the Financial Services Reform Act).
First Party
Refers to the two parties in an insurance contract. Third parties are not part of the contract but may seek compensation for losses caused by the insured. A first-party policy covers the policyholder’s property or person.
Flood
The covering of normally dry land by water that escapes or overflows from a watercourse, lake, reservoir, canal, dam, stormwater channel, etc. or is prevented from entering due to overflowing water. This does not include water run-off from surrounding areas or water escaping from pipes, gutters, etc.
Fraud
Dishonest acts or omissions that result in potential losses.
H
Hazard
A factor that increases the probability of a loss due to a peril or affects the extent of the loss. Examples include slippery floors, flammable liquids, poor housekeeping, etc.
Housekeeping
A risk assessment factor in insurance, which considers the general upkeep and cleanliness of an insured’s premises. Poor housekeeping is shown by untidiness, excessive rubbish, poor maintenance, etc.
I
Implied Condition
A condition that is not written in the policy document but is assumed to exist by law. An example is the duty of utmost good faith in all insurance contracts.
Indemnity Insurance
A type of insurance that aims to restore the insured’s financial position to what it was before the loss.
Indemnity Period
A term used in Business Interruption Insurance referring to the period starting from the date of damage and ending when the business is no longer affected. This period is specified in the policy schedule, and the insured may have to bear additional losses if it is too short.
Insolvency
A state where an individual cannot pay debts as they come due.
Insolvent
A company that cannot pay its debts in full because its assets are worth less than its liabilities.
Insurable Interest
To make a claim under a general insurance contract, the claimant must show that they suffered a financial or economic loss at the time of loss. This means they had a stake in the subject matter of insurance and would benefit from its safety or be affected by its loss.
Insurance
A method of transferring specific risks from individuals to an insurance company. The insurer agrees to cover specified losses in exchange for a premium payment.
Insured
The party in an insurance arrangement which the insurer agrees to cover against specified losses or provide services as outlined in the insurance contract.
Insured Event
Occurrences that cause loss and damage listed in the policy.
Insurer
The party in an insurance arrangement who agrees to provide coverage or services when specified events occur.
Interim Cover
A temporary insurance contract (typically for 14-30 days) that a policy will replace.
Intermediary
An agent or broker who helps the public obtain insurance.
J
Jurisdiction
The court’s authority to hear certain cases, given by law or constitution.
Jurisdiction Clause
A clause in a treaty that defines the laws under which any dispute will be resolved.
L
Lapsed Policy
A policy that has expired due to non-payment of premiums.
Liability Insurance
A type of general insurance that provides coverage for the insured’s legal obligation to another person for loss or damage.
Local Insurer
An insurance company that only operates within the country where it is registered.
London Market
The international insurance and reinsurance business written in London, including global reinsurance, marine and aviation, US excess and surplus lines business, and direct overseas business written in the UK.
Long Tail Business
A type of risk or class of business that may have claims notified or settled long after the risks have expired, making the financial outcome uncertain for several years. Liability insurance is considered long tail.
Loss
Generally refers to a reduction in the value of insured property caused by a covered peril. In insurance, it does not typically mean losing an item.
Loss History
A record of losses suffered by an insured or potential insured, including those not covered by insurance.
Loss Occurrence
Insurance that covers losses on a “per occurrence” basis allows all losses from a single event to be grouped. In casualty (liability) insurance, an “occurrence” refers to an unexpected and unintended sudden event that causes injury or damage. In property reinsurance, “occurrence” refers to all losses from a single event within a specific period of time.
Loss Ratio
The proportion of claim costs to earned premiums.
M
Market Value
The fair price at which something can be sold in its current state.
Material Facts
Information that is significant to the situation. For instance, speeding tickets would be relevant for a motor vehicle proposal but not for a house insurance application. The Insurance Contracts Act requires an applicant to disclose facts that a “reasonable person” would consider relevant.
Minimum Premium
The minimum premium is the lowest premium that an insurance company will accept in exchange for a policy. The insurance company sets this amount to ensure they cover the costs associated with the coverage.
Misrepresentation
When incorrect information is provided to an insurer by the insured. Fraudulent misrepresentation allows the insurer to void the contract from the start, while innocent misrepresentation lets the insurer cancel the contract and reduce any claims by the prejudice suffered.
Moral Hazard
Risks regarding the honesty and integrity of an individual seeking insurance, such as a person with a theft conviction who may be more likely to make a fraudulent claim.
Morale Hazard
Involves an individual’s attitudes, such as carelessness, disinterest, or discouragement.
N
Natural Event
A natural cause event that occurs without human intervention and cannot be foreseen or reasonably prevented, such as a storm, flood, earthquake, or cyclone.
New for Old
Replacing damaged items or equipment with new ones (also known as replacement and reinstatement).
No Claim Bonus
The amount by which a renewal premium is reduced if no claims were made during the previous insurance period.
Non-Disclosure
Withholding information from an insurer, distinct from misrepresentation where incorrect information is provided. Before inception, non-disclosure allows the insurer to cancel the contract and reduce liability. If the non-disclosure was innocent, the insurer must prove that the policy terms and/or premium would have been different if they knew the actual situation. Liability is reduced to a level that puts the insurer in the same position they would have been in without the non-disclosure. Suppose a question is not answered or an irrelevant answer is given. In that case, the insurer is deemed to have waived the duty of disclosure unless they follow up on the defective information.
O
Occurrence Wording
A term used in liability insurance referring to a policy where the circumstances giving rise to a claim must occur during the insurance period. Claims under this type of contract may arise years after the event and pose problems for insurers, leading to the development of “claims made” wordings, where claims must be made against the insured during the insurance period for the insurer to provide indemnity.
Operative Clause
The section in a policy document that outlines the coverage provided by the policy.
Outstanding Claims
The total liabilities of an insurance company for unclosed claims, calculated as the sum of the reserves for each claim minus the amount paid out.
Over Insured
A situation where an individual has purchased insurance coverage that exceeds the actual value or replacement cost of the item being insured or when excessive insurance coverage creates a moral hazard.
P
Peril
The cause of potential loss, not to be mistaken with hazard.
Period of Cover
The duration for which insurance coverage has been agreed upon and is in effect, as stated in the most recent insurance schedule, renewal notice, or receipt from the insurance company.
Personal Advice
A statement intended to persuade an individual to buy a specific financial product or service, considering the person’s circumstances. This is a term defined by the Financial Services Reform Act (FSRA), now part of the Corporations Act.
Personal Liability Insurance
Insurance that covers an individual’s legal responsibility for harm caused to others due to negligence.
Personal Lines
A term referring to insurance for individuals and families, such as private car insurance and home insurance. Opposite of Business Insurance and Commercial Lines.
Personal Valuables
Personal items of value, such as jewellery, which are often worn or taken away from home and are typically covered under home contents insurance with limited coverage.
Plaintiff
A person or entity initiating legal action against another party.
Policy
The combination of the Product Disclosure Statement and the Policy Schedule.
Policy Schedule
A document listing the specific details of a policy.
Policyholder
Usually refers to a policy’s owner and/or the insured person.
Precedent
A court decision that serves as an example or rule to be followed in future similar cases.
Precedent Condition
A requirement that must be met before a policy is issued or a claim is considered.
Prescribed Contract
Under the Insurance Contracts Act, there are special rules for six classes of personal insurance, referred to as Prescribed Contracts. The Act requires insurers to provide standard coverage for specific events in these contracts. However, insurers can offer more or less coverage than the standard if the insured is notified in writing. Examples of Prescribed Contracts include home insurance, private motor insurance, and personal accident insurance.
Pro Rata Cancellation
The portion of the premium refunded to the insured in the event of policy cancellation, calculated based on the unused amount of the insurance coverage at the time of cancellation.
Product Disclosure Statement
A document, prepared by or on behalf of the issuer (insurer), that provides information about a product, including the name and address of the issuer, key benefits, cost, terms and conditions, cooling-off period, and dispute resolution process.
Products Liability Insurance
Insurance taken out by manufacturers to cover liability claims arising from their products.
Professional Indemnity
Insurance that covers a professional’s legal liability to others for professional negligence.
Proposal
The proposal includes a document with questions for a person to provide answers for use in connection with a proposed insurance contract. A completed proposal form is a proposal by the person seeking insurance and is not an offer from the insurance company. Therefore, the insurance company may accept or decline the proposal.
Proposer
A person who submits a proposal for insurance. If the proposal is accepted, they become the insured.
Proximate Cause
The initial event in a sequence of events. Some insurance policies require identifying the proximate cause to determine if the policy covers a specific claim.
R
Rate
The cost per unit, such as $3 per $100 of the insured amount.
Rating, No Claim Bonuses and Discounts (Typical in Car Insurance)
 A reduction in the car insurance premium. The discount increases yearly with no claims made on the policy until it reaches the maximum discount level, known as “rating one” or “maximum no claim bonus.”
Real Property
Real estate, including land and permanent buildings.
Recital Clause
A clause in a policy document that introduces the parties and provides basic information about the contract.
Renewal Certificate
A certificate used to renew a policy, referencing the original policy and maintaining its provisions without altering its insuring agreements, exclusions, or conditions.
Renewal Premium
The premium paid for a renewed policy.
Representation
A statement made about significant facts related to the proposed insurance that become the basis of the contract.
Retail Client
A person who is provided with general insurance as a retail client, either as an individual or for a small business with less than 100 employees for a manufacturer or 20 employees for any other business. This includes:
- Motor vehicle insurance
- Home building or contents insurance
- Consumer credit
- Sickness and accident
- Travel insurance
- Or any other class of insurance as defined by the regulations of the Corporations Act.
Risk
Refers to a thing or person insured.
Risk Management
The process of handling the risks a company may face by analysing potential losses and choosing how to handle these risks through avoidance, reduction, retention, or transfer (e.g. through insurance).
Run-Off
Refers to the remaining liability of an insured after the cessation of business, i.e. sale, retirement etc., where losses may still occur, and liabilities may still be discharged for claims incurred before this period. This is common in Professional Indemnity insurance; refer to this page for more information.
S
Salvage
Property taken over by an insurer after it has paid out on a loss. For example, if an insurer pays a total loss vehicle claim, they can sell the wreck to recoup some of their loss.
Self-Insurance
When an individual or company decides to bear a risk without insurance.
Solvency Test/Margin (General Insurance)
The calculation set by the Insurance Act to ensure an insurer’s assets exceed its liabilities by a specific amount.
Statute Law
Written laws that change common law, such as Acts of Parliament.
Statute of Limitations
A law that sets a time limit to bring legal action for a claim.
Storm
Refers to the violent wind (including cyclones or tornadoes), thunderstorms, heavy rain, snow, or hail.
Strata Title
A title system that allows the owner of a unit in a block of units to have separate ownership of their unit.
Subject Matter
The object that forms the basis of an insurance contract. For example, in the case of house and contents insurance, the subject matter is the insured’s house and contents.
Subrogation
The right of an insurer to take over the rights of an insured following a claim payment, allowing the insurer to recover the cost from the responsible third party. This may be a negligent party or can arise from a contract, with some limits on recovery from family members set by the Insurance Contracts Act (1984).
Sum Insured
The maximum liability of an insurer under an insurance contract.
Syndicate
A group of members at Lloyd’s who jointly take on the financial responsibility of underwriting insurance or reinsurance business through an active underwriter. Each member is individually responsible for the insurance business they accept.
T
Term
Refers to the length of time a policy is in effect, as defined by insurance law.
Third-Party
A person or entity not directly involved in an insurance contract but with a claim or right to an action for damages against an insured under the terms of the insurance contract.
Tort
A type of civil wrong, such as negligence or nuisance.
Trustee
An individual responsible for managing property held in trust for the benefit of others and not considered to be their personal property. For example, the trustees of a pension fund manage the fund’s assets for its members’ benefit.
U
Underinsurance
A situation where the amount of insurance coverage is insufficient to fully cover the value of the insured property, particularly common with home contents insurance.
Underlying Layer
A layer of excess-of-loss insurance coverage that operates immediately below another layer.
Underwriter
A trained professional who evaluates risks and determines premium rates.
Unenforceable Contract
A contract that meets all the requirements for a valid contract but cannot be legally enforced for other reasons.
Uninsured Perils
Events or circumstances not explicitly covered in the policy document but considered to fall outside the insurance coverage scope.
Utmost Good Faith
A doctrine that requires all parties to an insurance contract to act towards each other with honesty, fairness, and the highest level of good faith. This principle is not explicitly defined in the Insurance Contracts Act 1984 but relates to principles of fairness, honesty, reasonableness, and standards of decency in fair dealing.
V
Valuation
An estimation of the value of an item, typically through appraisal, such as jewellery appraisal.
Valued Policies
Insurance policies where the sum insured is paid in the event of a total loss, regardless of the actual value of the insured property.
Void
Considered to have no legal force or effect. An insurer may cancel an insurance contract from its inception if they discover evidence of pre-contractual fraudulent non-disclosure or misrepresentation.
Void Contract
A contract with no legal force or effect, as if it never existed.
Voidable Contract
A contract that can be annulled or cancelled by one of the parties involved.
W
Waiting Period
A specific time frame outlined in an insurance policy before coverage becomes effective. Also known as a deferment period.
Wholesale Client
A client that is not a retail client.
Write-Off
In the context of motor vehicle insurance, a write-off occurs when the insurer deems a vehicle to be so severely damaged that it is not safe or cost-effective to repair or if the vehicle has not been recovered within 14 days after reporting the theft to the insurer.