Motor Insurance Jargon Buster
Does insurance terminology drive you mad? And what do all those acronyms mean? If there are phrases you struggle to understand when you’re arranging your car insurance, renewing it or making a claim, you’re not alone! Our jargon buster explains what they all mean.
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TP – Third Party
What does Third Party mean? In car insurance, you and your insurer are the two parties primarily involved with your policy. If another driver or car owner makes a claim against you, they are the third party.
TPF&T – Third Party, Fire & Theft
Third Party Fire & Theft is a type of insurance policy which covers your liability in the event of third party claim. It will also reimburse you for any loss of your vehicle caused by fire or theft.
AD – Accidental Damage
You might see the acronym “AD” in insurance documents relating to a claim. The phrase refers to accidental damage to your vehicle, as a result of a collision or other incident.
NCD or NCB – No Claims Discount or No Claims Bonus
No Claims Bonus and No Claims Discount are interchangeable phrases. They refer to the discount that’s applied to your annual renewal premium if you haven’t made any claims in the past 12 months.
AP – Additional Premium
You might be asked to pay an additional premium on top of your annual premium if you’ve made a mid-term change to your insurance policy that increases the risk. For example, adding a young driver or moving house to a higher risk area.
No Claims Bonus / No Claims Discount
Period of Insurance
Third Party Liability
Insurance terminology explained
See our acronym explanation above.
A claims or loss adjuster is a person who works on behalf of the insurer to investigate and assess a claim. In motor insurance, the adjuster will report to the insurer on the condition, repair costs and current market value of a vehicle which is the subject of a claim.
Cancellation refers to the termination of a policy before its natural expiry date. Many policies contain a cancellation clause setting out the conditions under which a policy may be cancelled by notice. The period of notice can be variable.
In car insurance, a claim is a loss incurred by the policyholder which gives rise to a liability to the insurer. The claim may be for damage to the policyholder’s own vehicle if they have comprehensive insurance, or to a third party or their property.
A cover note is a document issued to the insured person, confirming details of their car insurance.
The first portion of a claim which must be borne by the policyholder is called the excess. An excess can be imposed by the insurance company for underwriting reasons, or a voluntary excess can be negotiated for a reduced premium. For example, if the total cost of repairs to your vehicle is £1,000, but there is a policy excess of £250, your insurer will pay £750 of the claim and you will pay £250.
An exclusion is a provision in the policy which excludes the insurer’s liability in certain circumstances or for certain types of loss. For example, your car insurance may exclude liability for valuable personal possessions stolen from your vehicle. It may also exclude liability for damage caused by certain catastrophes, for example an earthquake or terrorism.
The inception date refers to the start date of a period of insurance. After this date the insurer bears the agreed risk during the insurance period.
The insured, or policyholder, is the person whose vehicle is insured. The policy is issued in the name of the insured person.
The insurer is the insurance company (or Lloyd’s underwriter) who agrees to make good any loss or damage as set out in the policy document, in exchange for payment of a premium.
A material fact is any information or fact which would influence an insurer’s decision to accept or decline a risk, or to set an appropriate premium or the terms and conditions of a policy. Examples of material facts as they relate to car insurance are:
- the driving history (age, claims, convictions etc.) of any driver to be insured on the policy
- an accurate statement of where the vehicle is parked overnight (i.e. on-road, driveway, garage)
- modifications to the vehicle which may enhance its performance
A discount on a premium given by the insurer to the policyholder in recognition of a period of insurance in which no losses have occurred or claims made. For car insurance, the no claims bonus is often set on a scale, depending on the number of years’ claim-free insurance. You can read about no claims bonus in more detail.
Non-disclosure is the failure of the policyholder to disclose a material fact (see above) to the insurer or underwriter before they accept the risk.
The period of insurance refers to the length of time in which the insurer will incur liability under the terms of the policy. 12 months is the usual period of a car insurance policy, but it can be shorter.
The policy is a document detailing the terms and conditions of an insurance contract between the insurer and the policyholder. A policy is evidence of a legal agreement to insure.
A premium is the sum payable by the policyholder for a contract of insurance.
The proposal form is a form issued by the insurer. The person requiring the insurance must complete it with sufficient information to allow the insurer to decide whether or not to accept the risk, and what conditions and premium to set.
A quote is a statement from the insurer to the insured. It contains details of the premium, terms and conditions under which they will agree to the proposed insurance policy.
At the end of the period of insurance you may have the option to renew your policy upon payment of a further premium. Renewal is continuing an insurance policy from the end of one insurance period to the start of a new one.
Risk refers to the possibility of loss, damage, injury or other hazard that will increase the chance of a claim arising. Hence, before they issue terms and conditions or accept liability under any car insurance policy, an insurer will consider the risks. Examples of risks that affect car insurance are:
- Age and experience of drivers
- Make and model of vehicle
- Where you live
- Your occupation
In the context of car insurance, the third party is the person claiming against an insured person. The insurance party is the first party, while the insured person is the second party.
Third party liability is the insured person’s liability to someone who is not involved with the insurance policy. In the UK, the minimum level of car insurance legally allowed is to cover third party liability.
A person who accepts insurance business on behalf of the insurance company.