Insurance jargon explained

Most insurers' policy wordings are littered with insurance jargon and legalese, leaving them (and their readers) mired in a muddle.

This begs the question: why is the most important information made the least accessible?

How do you know what's covered by your insurance if you don't know what the words mean? 

Yes, we know these are legal documents. And yes, we know they have to be watertight and unambiguous. But that's no excuse for making everything unintelligible, is it?

But until insurers realise times have changed and insurance jargon is neither wanted or needed, it looks like we're stuck with it.

In the meantime, we'll help you cut through the waffle by explaining a few particularly tricky pieces of jargon. So that next time you're faced with a policy wording, you won't have to google something every other sentence.

Insurance jargon used in your policy documents explained

Conditions

The conditions in your policy set out everything the insurer expects from you. Like making your payments on time or reporting incidents to them within a certain timeframe.

Medical malpractice policies in particular can come with lots of conditions so it's important to read these properly. Miss a step somewhere, and your insurer might just step out of paying your claim.

Civil liability

 All professional indemnity insurance policies cover your professional negligence. But some limit their cover to just that, while others pick up any other civil liability claim against you too.

This means you're covered for claims made against you in a civil court, and subject to civil damages, not necessarily related to your professional negligence.

Deductible

More commonly called an 'excess', it's the part of a claim you pay. Fairly obviously, the amount of money involved in a loss must be higher than the excess for your insurer to cover it.

Deliverables

'Deliverables' are defined as software, hardware, firmware, cabling or electronic equipment. They're usually only specifically covered under an IT professional indemnity policy.

If part or all of your contract involves designing, producing, or supplying these things, and they're either not up to spec or are proven defective, you're covered if your client sues you for breach of said contract.

Discovery run-off

A professional indemnity insurance extension that comes into effect when the policy expires. Often called run-off cover or just run-off.

If a claim is made against you after your policy's ended, it's not covered – even if it relates to work you did when your policy was running. Having run-off cover means it is. How long you have it for is up to you, but at least a year is a good idea (unless you're a chartered accountant or an architect, and then it's six years).

Duty of disclosure

This shows (some of) the information about your business your insurer needs to calculate how much to charge you. Broadly, it notes your turnover and payroll figures at the time you bought insurance, as well as things like the industry you work in.

It's a good idea – and a condition of your policy – to keep an eye on these figures and to keep your insurer updated throughout the year. A significant revenue increase, for example, could mean you're suddenly underinsured without knowing it.

Endorsement

Contains the same information as a schedule and is issued if you change something about your insurance mid-term, before your renewal's due. It notes what's changed and sits alongside the rest of your documents.

Exclusion

Pretty explanatory, this one. It's a clause within your policy that sets out which activities, circumstances, or types of damages aren't covered.

Indemnity

The basic principle of insurance. If you suffer a loss, it's your insurer's job to make sure you're not out of pocket. In reality, this means paying you money or replacing an item.

The idea is you're returned to the same financial position you were in before the loss/claim happened.

Indemnity to principals

If a client alleges you've been negligent, and sues you for their losses, your professional indemnity insurance covers it.

But if, because of your negligence, your client (the 'principal') is sued by their client, an indemnity to principals clause in your policy means your insurer has to cover your client's client's losses too (the 'indemnity').

If you've spotted an indemnity to principals clause in a client's contract, you'll need to ask your insurer if they're happy to cover it. Whether they will or not depends on the work you're doing, and how much it's worth. Don't assume it's covered.

Material fact

Anything that influences the insurer's decision to cover you, under what clauses/exclusions/warranties/terms and conditions, and for how much, is a material fact.

You're expected to 'disclose all material facts' when you get your insurance. If you're not sure what constitutes a material fact, you could do worse than tell your insurer everything about you and your business. They don't like surprises, after all.

Operative clauses

The bits in your policy wording that define what's covered.

Schedule

A document containing information specific to you and your policy. It details your policy number, your business's details, the cover you've bought, how much you're paying, when your cover runs from/to, and the subsections of cover included within each type of insurance you have. It's all about you, really.

Statement of fact

An important one, this. It's a list of statements confirming the things your business does and doesn't do. Your insurer's decision to cover you, and under what specific terms, is based on this information.

If it turns out you do something when your statement of fact says you don't, and there's a claim, your insurer has every right not to cover it. Better make sure it's right, then.

Subrogation

If you're sued by your client for something that's not actually your fault, and your insurer pays out, your insurer can recover their losses from the culpable third party. This is called their right to subrogation.

Essentially, it's passing the cost of the claim on to the person or organisation that's actually at fault.

Vicarious liability

Usually only relevant to recruitment and employment agencies, vicarious liability covers both an agency's negligence and that of the people it places.

Non-vicarious liability, by the same token, limits the cover to just the agency's negligence.

Whether you need it or not is determined by your contracts. Whether your insurer offers it or not is determined by what your placements do.

Warranty

A very strict condition – sometimes called an 'obligation' – in your policy, set by your insurer. It's not to be ignored. Breaching it means your insurer has the right to chuck out your claim, no questions asked.

Jargon busting

Hopefully that busts a few tricky bits of insurance jargon that have been plaguing you.

We know how frustrating jargon can be. That's why we always try to cut it from as much of our communications with our customers as possible.

Unfortunately, you will still find it in your policy documents. The insurer writes these themselves, so we can't change them. But we are always here to help explain them in plain English.

For more jargon explanations, feel free to check out this handy insurance jargon-buster.

Have any other questions? Particularly frustrating piece of jargon giving you headaches? You can always have a chat with our team on 0345 222 5391.

Image used under license from Shutterstock.