An Australian Insurance Glossary in Plain English

Policy schedules, broker letters and claim correspondence are full of terms most people never use anywhere else. A plain-English glossary of the Australian insurance terms that matter most.

Insurance has its own vocabulary. Some of it is genuinely technical, some of it is shorthand the industry uses with itself, and some of it is plain English used in a not-quite-plain way. This glossary covers the Australian insurance terms that clients most often ask us to explain – the ones that appear on the policy schedule, in our advice, and in the conversation at claim time.

It is not a substitute for reading the wording of a specific policy. It is a starting point for understanding what the wording is saying.

The policy itself

**Policy** – the contract of insurance between the insured and the insurer. In practice the policy is made up of the schedule, the wording and any endorsements.

**Schedule** – the front pages that set out the insured's name, the period of insurance, the sums insured, the excesses, the premium and any specific endorsements. The schedule personalises the standard wording to the client.

“Every word in an insurance policy is there for a reason. The ones that decide claims are rarely the ones clients expect.”

**Wording** (or **Product Disclosure Statement / PDS** for retail products) – the detailed terms and conditions that explain what is covered, what is excluded, and the conditions on which cover is provided.

**Endorsement** – a written change to the standard wording that adds, removes or modifies cover for a specific client. Endorsements override the standard wording where they conflict.

**Period of insurance** – the dates between which the policy responds. For occurrence-based cover, the loss must happen within this period. For claims-made cover, the claim must be made and notified within this period.

Cover, limits and excesses

**Sum insured** – the maximum the insurer will pay for a particular item or category of cover. For property, it should reflect the cost to replace or reinstate, not the market value.

**Limit of liability / limit of indemnity** – the maximum the insurer will pay for a single claim or in aggregate over the period of insurance. Common in liability, professional indemnity, management liability and cyber policies.

**Sub-limit** – a lower limit that sits inside the overall sum insured for a specific type of loss. For example, a property policy with a $5 million sum insured may carry a $50,000 sub-limit for theft of money.

**Aggregate limit** – the maximum the insurer will pay across all claims in the policy period. Once exhausted, no further claims are payable until the policy is reinstated.

**Excess** (also called **deductible**) – the amount the insured contributes to each claim before the insurer pays. A higher excess generally produces a lower premium and vice versa.

**Co-insurance** – a clause that requires the insured to carry a stated percentage of the value at risk. If the sum insured falls below that percentage, the insurer can reduce the claim proportionally. This is the mechanism behind underinsurance penalties.

Indemnity, reinstatement and average

**Indemnity** – the principle that the insured should be restored to the financial position they were in immediately before the loss, no better and no worse. Indemnity value reflects depreciation and wear and tear.

**Reinstatement** (or **new for old**) – cover that pays the cost to replace or repair with new property of equivalent kind, without deduction for depreciation. Most modern property policies are written on a reinstatement basis, subject to conditions.

**Average / underinsurance** – where the sum insured is less than the value at risk, the insurer can apply average and reduce the claim in the same proportion. A property insured for 70% of its replacement value can have any partial loss reduced to 70% of what would otherwise be payable.

**Indemnity period** – the maximum period for which business interruption cover responds, beginning at the date of damage. Should reflect how long it would take to return to pre-loss income, not just to reopen.

Liability concepts

**Public liability** – cover for legal liability to third parties for personal injury or property damage caused by the insured's business activities.

**Products liability** – cover for legal liability arising out of products manufactured, sold, supplied or distributed by the insured.

**Professional indemnity** – cover for legal liability arising out of the insured's professional services, typically on a claims-made and notified basis.

**Management liability** – package cover for the personal liability of directors and officers, the entity's liability for employment practices and statutory fines, and related exposures.

**Occurrence-based** – cover that responds to losses that happen during the period of insurance, regardless of when the claim is later made.

**Claims-made and notified** – cover that responds only to claims first made against the insured and notified to the insurer during the period of insurance. Used for professional indemnity, management liability and cyber.

**Retroactive date** – on a claims-made policy, the date from which the policy will respond. Acts or omissions before the retroactive date are excluded.

**Run-off cover** – claims-made cover continued for a period after a business ceases trading, is sold or a professional retires, to respond to claims made after the event for work done before.

Property and farm concepts

**Replacement value** – the cost to rebuild or replace the property as new at today's prices, including demolition, professional fees and compliance upgrades.

**Market value** – what the property would sell for in its current condition. Almost always less than replacement value, and not the right number to insure for.

**Specified items** – assets listed individually on the schedule with their own sums insured. Common for high-value machinery, plant and contents.

**Unspecified / blanket cover** – cover for a category of property up to a single sum insured, without listing each item.

**Business interruption / loss of profits** – cover for the loss of gross profit or gross revenue, plus increased costs, following insured damage at the premises.

**Additional increase in cost of working** – an extension that pays reasonable costs to maintain operations beyond the strict economic test of standard cover. Particularly useful where protecting client relationships matters.

Claims terms

**Notification** – the formal advice of a loss, or of circumstances that may give rise to a claim, lodged with the insurer in accordance with the policy.

**Loss adjuster** – an independent professional appointed by the insurer to investigate a claim, scope the loss and recommend a settlement.

**Subrogation** – the insurer's right, after paying a claim, to step into the insured's shoes and recover from any third party legally responsible for the loss.

**Salvage** – damaged property that retains some value after a claim. The insurer generally takes ownership once the claim is paid and may dispose of it.

**Without prejudice** – correspondence or offers made on the basis that they cannot be used against the writer in any later dispute. Common in claim negotiations.

**Ex gratia** – a payment made without admission of liability under the policy. Sometimes offered where strict cover is doubtful but the insurer chooses to pay.

Regulatory and market terms

**Australian Financial Services Licence (AFSL)** – the licence required to provide financial services in Australia, including arranging insurance. Brokers operate under an AFSL.

**General advice / personal advice** – general advice does not take the client's circumstances into account; personal advice does. Brokers can provide both; direct insurers generally provide only general advice.

**Duty to take reasonable care not to make a misrepresentation** – the consumer-line duty that replaced the duty of disclosure for retail clients in 2021. For wholesale clients, the duty of disclosure still applies.

**Utmost good faith** – the principle that both insurer and insured must deal with each other honestly and fairly throughout the life of the policy and at claim time.

**Australian Financial Complaints Authority (AFCA)** – the external dispute resolution body for financial services, including insurance, that can hear complaints from eligible consumers and small businesses.

**Reinsurance** – insurance bought by insurers to spread their own risk. Not a direct concern for clients, but the reason capacity and pricing in some classes moves the way it does.

A closing note

Most of the words above appear in everyday policies and everyday claim correspondence. None of them should be a barrier to understanding what a policy does. If a word is being used in a way that is unclear, the right answer is to ask – of the broker, of the wording, or of both.

If you would like a plain-English walk-through of how these terms apply to your own program, we are happy to sit down and go through it with you.