Insurance Glossary

This glossary is part of our insurance solutions for families and businesses. Definitions are general; the exact meaning in your policy always depends on the insurer’s wording.

A

Add-on cover

An optional extension bought with a base policy for extra premium, such as zero depreciation or engine protection in motor insurance, or earthquake and terrorism cover in fire insurance. It widens protection beyond the standard wording.

Agent

An individual or corporate agent appointed by, and representing, a limited number of insurers under IRDAI rules. An agent sells that insurer’s products, unlike a broker, who represents the client and can approach many insurers.

ALOP (Advance Loss of Profit)

Cover for the project owner’s loss of expected profit or debt servicing costs when a physical loss during construction delays the start of commercial operations. See our page on advance loss of profit insurance.

Average clause

A condition that reduces a claim in proportion when the sum insured is lower than the actual value at risk. If you insure only 60 per cent of the value, the insurer pays roughly 60 per cent of the loss.

B

Bima Bharosa

IRDAI’s online grievance management system, where policyholders can register and track complaints against insurers once the insurer’s own grievance process has been tried. It replaced the earlier Integrated Grievance Management System.

Broker

An intermediary licensed by IRDAI who represents the policyholder rather than any insurer. A broker assesses your needs, compares cover from several insurers, negotiates terms and helps with claims. MILES is a direct broker, Life and General.

Burglary

Theft involving forcible and violent entry into or exit from the insured premises. Burglary policies usually require visible signs of force, so simple theft without break-in may not be covered unless specifically included.

C

CAR (Contractors’ All Risk)

A project policy covering civil works under construction against accidental physical loss or damage, with optional third-party liability. It is usually taken by the principal or contractor. See contractors’ all risk insurance.

Cashless

A health claim settlement method where the insurer or its TPA pays the network hospital directly after approving a pre-authorisation request. The patient pays only non-covered items, co-payments and amounts above limits.

CGL (Commercial General Liability)

A broad liability policy covering a business’s legal liability for bodily injury and property damage to third parties arising from its premises, operations and products, including defence costs, subject to the policy limits.

Claims-made basis

A liability trigger where the policy responds to claims first made against the insured during the policy period, provided the incident occurred after the retroactive date. D&O, professional indemnity and cyber policies usually work this way.

Co-insurance

An arrangement where two or more insurers share one risk in agreed percentages, with a lead insurer issuing documents and handling claims. The term is also loosely used for co-payment in health insurance.

Co-payment

A fixed percentage of each admissible health claim that the insured must bear, such as 10 or 20 per cent. It is common in senior citizen policies and lowers the premium in return.

CPM (Contractors’ Plant & Machinery)

Cover for construction equipment such as cranes, excavators and batching plants against accidental damage at site, in storage or while being moved between sites, whether owned or hired.

Cover note

A temporary document issued by an insurer confirming that cover is in force until the full policy is issued. It carries the same obligations as the policy for the period it is valid.

Cumulative bonus

An increase in the health insurance sum insured, or a similar benefit, granted for each claim-free year, up to a maximum set by the insurer. It is the health equivalent of a no claim bonus.

D

D&O (Directors & Officers liability)

Cover for the personal liability of directors and officers for wrongful acts in managing a company, including defence costs in regulatory and shareholder proceedings. See directors and officers liability insurance.

Declaration policy

A fire or stock policy where the business insures a maximum value and declares actual stock values periodically, usually monthly. Premium is adjusted at expiry on the average declared value, suiting fluctuating stocks.

Deductible

The amount, or percentage of the loss or sum insured, that the insured bears on each claim before the insurer pays. Higher deductibles lower premium. In property and liability wordings the term is often used interchangeably with excess.

Depreciation

The reduction in value of an item because of age and wear. In motor claims, depreciation is deducted on replaced parts according to set scales unless a zero depreciation add-on has been bought.

E

E&O (Errors & Omissions)

Liability cover for financial loss caused to clients by negligent acts, errors or omissions in professional services. It is essentially the same as professional indemnity and is the usual name in technology and financial services.

EAR (Erection All Risk)

A project policy covering the erection, installation and testing of plant and machinery against accidental loss or damage, often including a period of trial operation and optional third-party liability.

Endorsement

A written amendment to a policy that changes its terms during the policy period, such as adding a location, increasing the sum insured, correcting a name or noting a bank’s interest. It may carry extra or refund premium.

EQ (Earthquake)

Earthquake cover, including fire and shock caused by an earthquake. In Indian fire policies it is offered as an add-on to the standard perils, and the rate depends on the seismic zone of the location.

Excess

The first part of each claim that the insured pays. In motor insurance a compulsory excess applies to own-damage claims, and a voluntary excess can be chosen for a lower premium.

Exclusion

A loss, cause, property or situation that a policy specifically does not cover, such as war, wear and tear or wilful misconduct. Exclusions should always be read alongside the operative cover clause.

F

Floater

A single sum insured shared by several people or locations. A family floater health policy covers the whole family under one limit; a floater fire policy covers stock moving between several named locations.

Free-look period

A window after receiving a new life or health policy during which you can review it and return it if unsuitable. The premium is refunded after deductions allowed by IRDAI, such as for cover already given and medical tests.

G

Grace period

Extra time after the premium due date during which a policy can be renewed or continued without losing benefits. In life insurance cover usually continues during grace; in health insurance, claims arising in the gap may not be payable.

Group health insurance

A health policy taken by an employer or association for its members, often with maternity and pre-existing disease cover from day one. See group health insurance for employee benefit options.

I

IAR (Industrial All Risk)

A package policy for large industrial risks combining fire and special perils, burglary, machinery breakdown and business interruption under one “all risks” wording, subject to exclusions and minimum size requirements set by insurers.

ICC A, B and C (Institute Cargo Clauses)

Standard marine cargo wordings. ICC A is the widest, covering all risks except listed exclusions. ICC B and ICC C cover only named perils, with C the narrowest and cheapest option.

IDV (Insured Declared Value)

The maximum amount payable if a vehicle is stolen or declared a total loss. It is based on the manufacturer’s listed selling price less age-based depreciation, and it drives the own-damage premium.

Incoterms

International trade terms published by the International Chamber of Commerce, such as FOB, CIF and DAP. They define when risk passes from seller to buyer, and therefore who should insure the goods in transit.

Indemnity

The principle that insurance restores you to the same financial position as just before the loss, without profit. It is why claims are limited to actual loss and why depreciation or salvage may be deducted.

Indemnity period

In loss-of-profit cover, the maximum time after a loss during which reduced turnover and extra costs are covered. It should reflect how long rebuilding, re-equipping and regaining customers would realistically take.

Insurable interest

A legally recognised financial interest in the subject matter, such that you would suffer a loss if it were damaged. Without insurable interest, an insurance contract is not enforceable.

Insurance Ombudsman

An independent, cost-free forum under the Insurance Ombudsman Rules, 2017 for individual policyholders’ complaints about claims, delays and policy servicing, after the insurer has rejected the complaint or failed to respond in time.

IRDAI

The Insurance Regulatory and Development Authority of India, the statutory regulator for insurers and intermediaries. It licenses brokers and agents, frames product and claims rules, and protects policyholders’ interests.

L

Lapse

The ending of a policy because premium was not paid within the grace period. A lapsed life policy may be revived within the revival period by paying arrears and meeting health requirements.

Loss of profit

Business interruption cover that pays for loss of gross profit and increased cost of working after insured damage stops or slows a business. It is linked to a material damage policy such as fire or machinery breakdown.

M

Machinery breakdown

Cover for sudden and unforeseen physical damage to machinery from internal causes such as electrical or mechanical failure, operator error or short circuit, which fire policies do not cover.

Market value basis

A method of settling property claims at replacement cost less depreciation for age and condition. Unlike reinstatement value, it does not pay the full cost of new property of the same kind.

MLOP (Machinery Loss of Profit)

Business interruption cover following an indemnifiable machinery breakdown loss. It pays lost gross profit during the indemnity period and is especially important where one machine is a bottleneck. See machinery loss of profit insurance.

Moratorium period

In health insurance, the period of continuous cover after which a claim cannot be contested on grounds of non-disclosure or misrepresentation, except for proven fraud or permanent exclusions. The period is fixed by IRDAI rules.

N

NCB (No Claim Bonus)

A discount on the own-damage motor premium for each claim-free year, rising from 20 per cent to a maximum of 50 per cent. It belongs to the owner, so it can be transferred to a new vehicle.

Nominee

The person named to receive the policy proceeds, especially under life insurance, if the insured dies. Nomination can be changed during the policy term and should be kept up to date.

O

Occurrence basis

A liability trigger where the policy responds to injury or damage that happens during the policy period, even if the claim is made years later. Many public and general liability policies are written this way.

Open cover

An agreement to insure all marine shipments of a stated type during a period, with each dispatch declared as it happens. It avoids arranging a new policy per consignment. See marine open cover.

Owner-driver personal accident

Compulsory personal accident cover for the registered owner-driver of a vehicle, paying for death or permanent disability in a motor accident. It is bought with the motor policy unless a valid exemption applies.

P

PI (Professional Indemnity)

Cover for professionals such as doctors, architects, engineers and consultants against claims alleging negligence in their services, including defence costs. See professional indemnity insurance.

Portability

The right of a health policyholder to move to another insurer at renewal while keeping credit for waiting periods already served, subject to the new insurer’s underwriting and applying before renewal.

POSP (Point of Sales Person)

A certified individual who sells simple, pre-underwritten products such as motor, basic health and term plans on behalf of an insurer or broker, after training and examination prescribed by IRDAI.

Pre-existing disease

Any condition, illness or injury diagnosed or treated within a defined period before the health policy starts. Such conditions are covered only after a waiting period, which varies by product within IRDAI limits.

Proposal form

The application in which the proposer gives material facts about the person or property to be insured. The insurer relies on it to underwrite, so any wrong or missing answer can affect later claims.

Proximate cause

The dominant, effective cause that sets a chain of events in motion leading to a loss. Whether a claim is covered depends on whether the proximate cause is an insured peril or an excluded one.

R

Reinstatement value

A basis of settlement that pays the cost of replacing or rebuilding damaged property with new property of the same kind and capacity, without deducting depreciation, provided the sum insured is adequate and reinstatement is carried out.

Retroactive date

In a claims-made liability policy, the earliest date an incident may have occurred for a later claim to be covered. Keeping the same retroactive date when renewing or switching insurer preserves protection for past work.

Rider

An optional benefit attached to a life insurance policy for extra premium, such as accidental death benefit, critical illness or waiver of premium. Riders let you tailor a base plan without buying separate policies.

Room rent limit

A cap in health policies on the daily hospital room charge covered, often a percentage of the sum insured or a room category. Choosing a costlier room can lead to proportionate deductions on related charges.

RSMD

Riot, strike, malicious damage. One of the named perils in Indian fire policies, covering damage caused by riots, strikes and malicious acts. Terrorism is excluded and covered separately through an add-on.

S

SFSP (Standard Fire & Special Perils)

The traditional Indian fire policy covering buildings, plant and stock against fire, lightning, explosion, storm and flood, riot and other named perils. See the standard fire and special perils policy.

STFI

Storm, tempest, flood and inundation. A named peril in Indian fire policies that covers damage from cyclones, heavy rain, floods and water accumulation, a major cause of claims during the monsoon.

STOP (Sales Turnover Policy)

A marine cargo policy covering all inward, outward and inter-unit transits of a business based on its declared annual sales turnover, rather than on individual shipments. See the marine sales turnover policy.

Sub-limit

A cap on a specific type of loss or expense within the overall sum insured, for example on cataract surgery, ambulance charges or a particular peril. The claim for that item cannot exceed the sub-limit.

Subrogation

The insurer’s right, after paying a claim, to step into the insured’s shoes and recover the loss from a third party responsible for it, such as a negligent contractor or carrier.

Sum insured

The maximum amount an insurer will pay under a policy or section for a loss or period. In property insurance it should equal the full value at risk to avoid the average clause.

Surrender value

The amount a life insurer pays if the policyholder ends a savings-type policy before maturity. It is usually lower than premiums paid in the early years and depends on the policy terms.

Surveyor

An independent surveyor and loss assessor licensed by IRDAI who inspects a general insurance loss, assesses its cause and amount, and reports to the insurer. Larger claims require a licensed surveyor.

T

Term plan

A pure protection life policy that pays a sum assured to the nominee if the life insured dies during the term, with no maturity benefit in the basic version. See term life insurance.

Third-party liability

Legal liability for death, injury or property damage caused to others. Third-party motor cover is compulsory under the Motor Vehicles Act, 1988 for every vehicle used in a public place.

TPA (Third Party Administrator)

An IRDAI-licensed entity that processes health insurance claims for insurers, handling cashless authorisations, reimbursement claims, network hospitals and member servicing, especially under group health policies.

Total loss

A loss where property is completely destroyed or cannot be economically repaired. A constructive total loss applies when repair costs would exceed a threshold of the insured value, as defined in the policy.

U

ULIP (Unit Linked Insurance Plan)

A life insurance plan combining protection with market-linked investment in funds you choose, with a five-year lock-in and charges disclosed in the brochure. See unit linked insurance plans.

Under-insurance

The situation where the sum insured is lower than the actual value of the property. It triggers the average clause and is one of the most common reasons property claims are reduced.

Underwriting

The insurer’s process of assessing a risk, deciding whether to accept it and setting the premium, terms, deductibles and exclusions. Survey reports, claims history and proposal information all feed into it.

Utmost good faith

The duty on both parties, especially the proposer, to disclose all material facts honestly and fully. A breach can allow the insurer to avoid the policy, so disclosure in the proposal form matters.

W

Waiting period

A period at the start of a health policy during which certain claims are not payable, such as an initial waiting period for illnesses and longer ones for specified diseases and pre-existing conditions.

Waiver of premium

A rider under which future premiums are waived if the policyholder dies, becomes disabled or suffers a critical illness, while the policy continues. It is common in child plans and term plans.

Warranty

A condition in a policy that the insured must strictly comply with, such as keeping a fire alarm working or goods stored off the floor. Breaching a warranty can defeat a claim even if unrelated to the loss.

Z

Zero depreciation

A motor add-on that pays the full cost of replaced parts, such as plastic, rubber and fibre components, without deducting depreciation. It usually has an age limit on the vehicle and a cap on the number of claims.

Cover, exclusions and premiums depend on the insurer’s policy wording and underwriting. MILES Insurance Brokers Pvt. Ltd. is an IRDAI-licensed direct broker (Life & General, Reg. No. 954); the insurance is issued by the insurer. Insurance is the subject matter of solicitation.