Confusing Insurance Terms

Do you know the difference between Any One Claim or Aggregate Claims? Are you sure what it means when an insurer talks about Endorsements and Warranties?

No? That's OK, that's why we're here for FSB Members. We know that sometimes getting the right insurance can be a bewildering and exasperating experience, but you don't need to feel like pulling your hair out with FSB Insurance Service by your side.

That's why we've made this short guide about insurance terms that people often confuse.

Limit Of Indemnity

Any One Claim or In the Aggregate

The Limit of Indemnity (LOI) is the monetary amount you can claim in a period of insurance. The term is mainly used in liability and professional indemnity policies and it’s important to understand the difference between them;

Any One Claim - Each separate claim can be made up to the LOI regardless of how many claims you have.

In the Aggregate - Once you’ve reached your LOI, that’s your lot, unless you buy more cover.

Claims Occurring Vs Claims Made

Most liability policies are issued on a claims occurring basis but professional indemnity or directors & officers policies can be issued on a claims made basis, but what is the difference?

Claims Occurring - Covers claims that happen during the period of the policy (usually a defined 12 months) regardless of when the claim is made. So, whenever the claim is reported the insurer will still pick it up.

Claims Made - Usually this covers claims made that both happen and are reported during the live period of insurance. If you cancel, cover stops. If you do change insurer make sure that your ‘Retroactive Date’ goes back far enough to pick up any old claims.

Endorsements And Warranties

These are terms which you often see on policies and many people get them confused.

Endorsements - These change the standard policy wording, perhaps increasing an excess or making cover subject to certain conditions things like making sure to lock windows or clean waste. They are applied to the policy by the insurer.

Warranties - These are obligations or promises which the policyholder must fulfill in order for policy cover to work. Examples can be things like installing certain types of alarms within an agreed period or a promise that the insured has never undertaken a certain type of work.

Under-insurance And Average

In order for insurers to get a fair premium for the risk to which they are exposed, policyholders are asked to provide a fair indication of the size of those risks. For buildings it will be the cost to reinstate the property as opposed to the resale value. For stock and machinery it will be the cost of replacing them.

Public and employers liability premiums are often based on annual turnover and wages. Loss of Profits will be based upon your gross profit figure and an indemnity period (the time to get back to normal after a major loss).

Under-insurance - This happens when you have set those numbers too low and therefore have not paid for the full amount at risk

Average - This is the insurance condition which means that insurers can reduce any claim proportionately. So, if property would cost £1 million to rebuild and you’ve insured at £500k, you have only paid for 50% of the amount at risk. Consequently you will only be paid for 50% of any claim.

Professional Indemnity Vs Directors & Officers

People often get confused between these covers.

Professional Indemnity - Professional indemnity insurance provides cover if your business is alleged to have provided inadequate advice, services, designs or guidance to a service user which leads to loss or injury to them.

Director & Officers - Insurance that covers exposures faced by directors, officers, managers, and business entities that arise from governance, finance, benefits, and management activities.

Excess Vs Deductible

Two policy methods whereby the policyholder pays the first part of any claim.

Excess - The excess is the amount you pay before insurers start to contribute.

Deductible - A deductible is the amount below which insurers will not get involved with a claim but above which they will pay the entire amount.

Proposal Forms And Statement Of Fact

These are two different ways of getting information to insurers.

Proposal Form - The proposal form is something which the policyholder fills in to provide insurers with sufficient information to quote. It forms the basis of the contract between the parties and the questions must be answered honestly and correctly to your best knowledge.

Statement of Fact - This is a document which details all of the information provided to an intermediary. The same obligation to be honest and accurate applies to the person seeking Insurance.