When reading about insurance products, it can seem that there is a whole other language to be learned and the jargon can be really confusing.

To help you to make informed choices about insurance, here at Compare Insurance we have compiled a list of common terms and their meanings.

Hopefully, this will simplify some of the decisions you will have to make when purchasing any insurance product as well as make it easier to understand your insurance cover and compare quotes.

Your insurance policy is a contract between the insurer (insurance provider) and insured (you, the policyholder). The policy outlines the cover provided and the terms and conditions of that provision.

The premium is the amount of money that you pay each year or month to the insurer for providing cover, the premium is usually agreed in advance.

The policy term is the length of time that the insurance policy will be active (for example, a life insurance policy may have a term of 10, 20, or even 40 years, but a home or motor insurance policy will usually need to be renewed each year on your renewal date).

A formal request made by the insured for financial recompense for a loss that is covered by the policy. 

When making a claim on your insurance policy, you will need to complete a claim form and provide details of the event to your insurer, who may investigate your claim.

The loss is the property damage, harm, injury, or financial loss suffered by the insured.

A no claims bonus (or discount) is usually measured in years and is applied following a period without making a claim on the policy.

A no claims bonus is often applied to home and motor insurance, the more years you are claim free, the higher the discount applied.

Third-party insurance is the legal minimum level of car or motor insurance.

This protects another person and their property, usually their vehicle, in the event that your driving causes them harm, damage, or loss.

The sum insured in your insurance is the amount that your insurer will pay if an event occurs.

The limit of indemnity is the maximum amount that your insurer will pay for a loss that is insured by the policy.

Indemnity also refers to the way in which you are compensated for a loss e.g. ‘new for old’ cover would replace damaged or destroyed items with equivalent new ones. Motor insurance cover is usually based on the market value of your car at the time of the loss.

A peril is an identified risk or loss, perils in home insurance, for example, include fire, floods, storm, and theft.

Not all types of damage are covered by insurance policies, general maintenance or damage due to wear and tear or mechanical breakdown would not be covered by home or motor policies, for example.

Exclusions are circumstances or types of loss that are not covered by the insurance policy.

Circumstances such as war or terrorism are not usually covered by home insurance. Life insurance policies may also have exclusions, such as death by suicide in the forst 12 months of the policy or deaths by hazardous activities eg. skydiving, for example.

An excess is the portion of any loss that must be paid by the insured. Most forms of insurance include an excess, such as home insurance, motor insurance, and health insurance.

A voluntary excess is a higher excess that you can opt to include in your insurance policy, in exchange for cheaper cover.

Underwriting is the process whereby the insurer determines what cover to offer you and the terms under which it will be offered, for example, your premium.

A material fact is knowledge or information that is required by an insurer to determine the premium that they charge.

Utmost good faith is the principle that insurer and customer are completely honest with each other.

Failure to disclose important information from an insurer may cause your policy to be cancelled or a claim to be declined, so it is important to answer all questions fully and honestly.

Proximate cause often applies in home insurance claims. Proximate cause refers to the most likely reason that a loss occurred.

Proximate cause means that a claim will only be paid if the loss or damage occurred due to a cause covered by the policy.

Underinsurance occurs when the sum insured is less than the value of the property insured.

The average clause relates to underinsurance in home insurance policies. If the insurer deems that your home’s building or contents have been underinsured, they may only pay a portion of your claim. So, if your home is considered to be underinsured by 50%, they will only pay 50% of any claim made.

A loading is an additional cost that is applied to your premium if you are considered a potentially ‘higher risk’ to a potential insurer.

Financial protection providers such as life insurers may apply a loading where a health condition makes you more likely to make a claim on the policy. It is also seen with mortgage protection, income protection, and serious illness policies.

All risks cover usually relates to home insurance and means that items covered by all risks insurance are covered when taken outside the home.

If your belongings are above a certain value (usually €1,000), you may need to specify them on your insurance policy to ensure that they are covered. There may also be individual limits in your policy for certain items

Full or stepback no claims bonus protection may be a feature of some motor, and home, insurance policies.

Basically, this means that when you make a claim you do not lose all of the years of your no claims bonus. With full no claims bonus protection you do not lose your no claims bonus, with stepback no claims bonus protection, you may lose some years but not all, depending on your policy.

A conversion option, also known as a guaranteed insurability option, usually applies to financial protection products, especially life insurance.

A conversion option means that you can make changes to your life insurance policy over time, such as to the sum assured or to the term of the policy, without having to provide new health information to your insurer.

A waiting period usually applies when purchasing health insurance, especially for the first time but also when you upgrade your cover.

A waiting period means that you are not fully covered by the policy immediately, especially in the case of a pre-existing health condition or a pregnancy, and must pay premiums for a certain period before you are covered.

An endorsement is a change to your existing policy by way of a written document which amends or extends or reduces your insurance cover.

An assignment means that when you purchase a mortgage protection policy, it is assigned to your mortgage lender for the purposes of paying off the mortgage should you die.

You have the right to change your mind and cancel an insurance policy after a certain period and have your cover cancelled.

This is usually between 14 and 30 days, depending on the terms of the policy. You cannot cancel the policy if you have already made a claim, however.