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Insurance Insurance-speak explained

At Flat Living we know how confusing those insurance documents can sometimes be. So here is a helpful list from Neil Abel of Residentsline, explaining those phrases that we all know but don’t always understand

“ALL RISKS” Wider cover than provided by a “Defined Perils” based policy. This type of policy includes any loss or damage apart from exclusions stated in the policy.

AVERAGE A policy condition that requires the amount of a claim payment to be reduced in proportion to the replacement cost if the policyholder has not insured his property for the full reinstatement value.


A form of insurance providing “All Risks” cover, subject to certain exceptions, in respect of building works while in the course of construction as well as cover for materials, equipment, plant and temporary buildings. This is also known as ‘Contractors All Risks’.


The principle of Contribution applies where a property or liability is insured under more than one insurance policy and the Insurers concerned share the cost of any claim. This word may also be used as an alternative to “excess” or “deductible” when describing an amount for which the Policyholder is responsible in respect of a claim payment.

“DAY 1” UPLIFT An insurance policy feature which protects against a possible shortfall in claim payment that might result from inflation increasing the Reinstatement Value between inception (or renewal) and the incident date. An Day 1 uplift of up to 50% is set. For example, if the building Declared Value at inception or renewal is £1,000,000 and the relevant rate of inflation to a claim 9 months later is 5%, then the Declared Value (see below) at the time of loss is £1,050,000.

DECLARED VALUE The Insured’s assessment of the cost of rebuilding the property insured at the time of inception of a policy or its renewal. This value, otherwise known as the Reinstatement Cost, should also include the cost of professional fees, debris removal and compliance with European and Public Authority regulations.

DEFINED PERILS Buildings insurance policies provide cover on an “All Risks” (see previous explanation) or “Defined Perils” basis. Defined Perils provides protection for the perils described in your insurance policy, which will usually include fire together with lightning, explosion, aircraft, theft, riot, malicious persons, earthquake, subsidence, storm, flood, escape of water, impact and accidental damage.

DELEGATED AUTHORITY This refers to the giving of consent by an Insurer for a “third party” (often an intermediary, agent or broker) to act on its behalf. This may be in respect of underwriting and document issue and/or claims settlement.


This is the first part of a claim which is paid by the Policyholder. The Insurer pays amounts in “excess” of this first amount. An excess may be compulsory (ie, imposed by the Insurer) or voluntary (ie, accepted by the Policyholder in return for a premium reduction).

EXCLUSION This is a clause in an insurance policy which limits the scope of cover.

INDEMNITY This means placing the Policyholder in as near the same position after an insured loss as that which applied immmediately prior to the event.

INDEX LINKING This is where the sum insured is automatically adjusted in line with inflationary rises in costs.

INSURABLE INTEREST For an insurance contract to be valid, the Policyholder must have an interest in the insured item to the extent that its loss, damage or destruction would cause him loss, both at the time the policy is effected and also at the time of the loss.

IPT (INSURANCE PREMIUM TAX) This is a tax payable on general insurance premiums.


An independent claims expert, who acts on behalf of Insurers in assessing the extent and value of a claim. Although paid by the Insurer, a member of the Chartered Institute of Loss Adjusters is required to act with the claimant’s legitimate interests in mind.

LOSS ASSESSOR A person who acts directly for the claimant in negotiating settlement of a claim, in return for a fee paid by the claimant.

PROXIMATE CAUSE A proximate cause is the immediate or effective cause of an event, but not necessarily the one closest in time to the loss. This was defined in the court case of Pawsey v Scottish Union and National in 1907 as “the active, efficient cause that sets in motion a train of events which brings about a result, without the intervention of any force started and working actively from a new and independent source.”

REINSTATEMENT VALUE This is the basis of a property sum insured, being its cost to rebuild in the same manner and style, to include cost of professional fees, debris removal and compliance with European and Public Authority regulations.

SUBROGATION In Contracts of Indemnity, this is the right of an Insurer to stand in the place of the Insured and exercise all rights and remedies available to the Insured, whether already enforced or not. An example is, if you make a claim for injuries or damages under your insurance policy, and another person or company is at fault, your insurance company may choose to settle your claim and exercise subrogation rights against the at fault party.

SUM INSURED The maximum amount payable in the event of a claim under an insurance policy.

Neil Abel A.C.I.I. is Managing Director of Residentsline For more on insurance go to our website at 35

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