Insurance terms, explained clearly

A policy condition that penalises under-insurance by reducing the claim payout proportionately if the sum insured is less than the actual value of the insured property at the time of loss.

A specialised policy that covers loss or damage to boilers, pressure vessels, and surrounding property caused by explosion or collapse of the insured boiler or pressure plant, including third-party liability arising from such incidents.

Burglary insurance is a commercial policy that compensates the insured for loss of or damage to property caused by burglary, housebreaking, theft, or robbery involving actual forcible or violent entry to or exit from the insured premises, as per IRDAI-approved policy terms.

An insurance policy that compensates a business for loss of income and increased cost of working when operations are disrupted due to an insured peril such as fire, flood, machinery breakdown, or other covered events.

A summary document issued by the insurer or broker that confirms the existence of an insurance policy, outlining key coverage details such as the insured's name, policy number, coverage period, and sum insured.

A claim is a formal request made by a policyholder to an insurance company for compensation or indemnity following a loss or damage covered under the terms of the policy. The claims process is the mechanism through which the promise of insurance is fulfilled.

Co-insurance is an arrangement in which two or more insurance companies share the risk and premium of a single policy in agreed proportions, with one insurer acting as the lead insurer responsible for policy administration and claims settlement. It is widely used in India for large commercial and industrial risks.

A comprehensive policy is an all-encompassing insurance contract that bundles multiple perils and coverages into a single policy document, providing broad protection against a wide range of risks. In Indian commercial insurance, comprehensive policies are commonly issued under the IRDAI-approved tariff and non-tariff frameworks to cover fire, theft, natural calamities, and third-party liabilities within one instrument.

Consequential loss, also known as loss of profits or business interruption loss, refers to the financial loss a business suffers as an indirect consequence of an insured material damage event, including lost revenue, ongoing fixed expenses, and increased cost of working. In India, consequential loss policies are governed by IRDAI-approved wordings and are always written in conjunction with an underlying material damage policy.

A comprehensive policy that covers physical loss or damage to civil construction works, materials, and construction plant during the execution of a construction project, along with third-party liability arising from construction activities.

The principle that when the same risk and subject matter are covered under two or more insurance policies, each insurer shares the loss proportionately so that the insured does not recover more than the actual loss from all policies combined.

A policy that protects businesses against financial losses arising from cyber incidents such as data breaches, ransomware attacks, network intrusions, and business email compromise, covering both first-party losses and third-party liabilities.

A deductible is the predetermined portion of each admissible claim that the insured must bear before the insurer's liability begins. In Indian commercial insurance, deductibles are specified in the policy schedule and serve to eliminate small claims, reduce moral hazard, and lower premium costs.

Directors and officers (D&O) liability insurance is a policy that protects the personal assets of directors and officers of a company against claims alleging wrongful acts in their managerial capacity, covering defence costs, settlements, and judgments arising from regulatory proceedings, shareholder actions, and third-party claims under the Companies Act 2013 and other Indian statutes.

A specialised policy that covers loss or damage to electronic equipment such as computers, servers, data centres, medical devices, and communication systems from sudden and unforeseen events including electrical surges, short circuits, and accidental damage.

A policy that covers an employer's legal liability to pay compensation to employees who suffer injury, disease, or death arising out of and in the course of employment.

An endorsement is a written amendment attached to an existing insurance policy that modifies its terms, conditions, coverage, or scope during the policy period. In Indian commercial insurance, endorsements are issued by the insurer and form an integral part of the policy contract, subject to IRDAI guidelines.

A comprehensive policy that covers loss or damage to machinery, equipment, and structures during the process of erection, installation, and testing at a project site, including third-party liability arising from erection activities.

An exclusion is a specific condition, peril, or circumstance explicitly listed in an insurance policy that is not covered under the scope of indemnity. Exclusions define the boundaries of coverage and clarify the insurer's liability limits.

Fidelity guarantee insurance is a policy that indemnifies an employer against financial loss caused by fraudulent or dishonest acts committed by employees in the course of their employment, covering embezzlement, forgery, misappropriation, and other acts of infidelity as defined under IRDAI-regulated policy wordings.

A fire policy is a property insurance contract that indemnifies the insured against financial loss arising from damage to property caused by fire, lightning, explosion, and other specified perils as defined under the Indian Tariff Advisory Committee guidelines and regulated by IRDAI.

An insurance policy with a single sum insured that covers property, stock, or goods across multiple locations or shipments, with the sum insured reducing as claims are settled against it.

A threshold amount below which no claim is payable, but once the loss exceeds the franchise, the insurer pays the entire claim without any deduction.

General average is a principle of maritime law under which all parties to a sea voyage proportionally share losses resulting from a voluntary sacrifice of part of the ship or cargo to save the whole venture from peril. In India, general average is codified in the Marine Insurance Act, 1963 and is governed internationally by the York-Antwerp Rules.

Hull insurance covers physical loss of or damage to the body (hull), machinery, and equipment of a vessel, including ships, boats, and other watercraft. In India, hull insurance is underwritten in accordance with the Marine Insurance Act, 1963 and IRDAI regulations, and is essential for shipowners, charterers, and operators in the Indian maritime industry.

Indemnity is the fundamental insurance principle that obligates the insurer to restore the insured to the same financial position they occupied immediately before the loss, no better and no worse. In Indian insurance law, it derives from the Indian Contract Act, 1872 and underpins all non-life commercial insurance contracts regulated by IRDAI.

The legal right or financial relationship that a person or entity must have with the subject matter of insurance, such that they would suffer a direct financial loss if the insured event occurs, and without which the insurance contract is void.

The statutory body established under the IRDAI Act 1999 (formerly IRDA Act 1999) that regulates and promotes the insurance and reinsurance industry in India, overseeing insurers, intermediaries, and products to protect policyholder interests.

An independent professional appointed by the insurer to investigate, assess, and negotiate the settlement of insurance claims on behalf of the insurance company.

A consequential loss policy that indemnifies a business for the reduction in net profit and the continuing fixed expenses (standing charges) incurred during the period of disruption following physical damage to insured property.

A policy that covers the cost of repairing or replacing machinery and mechanical or electrical equipment that suffers sudden and unforeseen physical damage during normal operation, including damage from electrical and mechanical faults.

Marine cargo insurance covers loss of or damage to goods and merchandise while in transit by sea, air, rail, or road, from the point of origin to the final destination. In India, marine cargo insurance is governed by the Marine Insurance Act, 1963 and regulated by IRDAI, and is essential for businesses engaged in domestic and international trade.

Material damage refers to physical loss of or damage to tangible property, including buildings, machinery, stock, and other assets owned or held by a business. In Indian insurance practice, material damage coverage forms the foundational layer of most commercial property policies filed with IRDAI.

A standing marine insurance arrangement that automatically covers all shipments made by the insured during the policy period, eliminating the need to arrange separate insurance for each consignment.

The complete written document that defines the terms, conditions, exclusions, definitions, and scope of coverage under an insurance policy, forming the legally binding contract between insurer and insured.

A premium is the monetary consideration paid by the insured to the insurer in exchange for insurance coverage as specified in the policy contract. In India, premium rates for commercial insurance are determined by insurers under IRDAI's de-tariffed regime, with the exception of motor third-party liability where IRDAI prescribes rates.

Product liability insurance is a policy that indemnifies manufacturers, distributors, and sellers against legal liability arising from bodily injury, property damage, or financial loss caused to third parties by defective products, governed in India by the Consumer Protection Act 2019 and IRDAI regulations.

Professional indemnity insurance is a liability policy that protects professionals and service providers against claims for financial loss, bodily injury, or property damage arising from negligent acts, errors, or omissions in the performance of their professional duties, governed by IRDAI regulations and relevant Indian professional liability laws.

The dominant, operative, or effective cause of a loss -- not necessarily the closest in time, but the cause that sets in motion a chain of events leading to the loss, and which determines whether the loss is covered under the insurance policy.

A policy that protects businesses against legal liability for bodily injury or property damage caused to third parties (members of the public) arising from business operations or premises.

Reinstatement value is the cost of replacing or restoring a damaged or destroyed asset to its pre-loss condition using new materials of like kind and quality, without any deduction for depreciation. In India, reinstatement value insurance is available as an extension to the standard fire and special perils policy under IRDAI guidelines.

Reinsurance is the practice whereby an insurance company transfers a portion of its risk portfolio to another insurer, known as the reinsurer, in order to reduce its net exposure and protect its solvency. It is often described as insurance for insurance companies.

The recovery of damaged property or goods by the insurer after a claim has been settled, or the residual value of such property that can be sold or reused to offset the claim payout.

Subrogation is the legal right of an insurer, after paying a claim, to step into the shoes of the insured and pursue recovery from the third party responsible for the loss. It is codified under Section 79 of the Indian Contract Act, 1872 and is a foundational principle of indemnity-based insurance contracts in India.

The sum insured is the maximum monetary limit of the insurer's liability under a policy, representing the highest amount the insurer will pay in the event of a covered loss. In Indian commercial insurance, it is declared by the insured at policy inception and forms the basis for premium calculation and claim settlement.

A licensed professional appointed under IRDAI regulations to assess and quantify the loss or damage in an insurance claim, providing the insurer with an independent survey report.

A specialised insurance policy or endorsement that covers loss or damage to property, business interruption, and liability arising from acts of terrorism, which are typically excluded from standard commercial insurance policies in India.

Third-party liability insurance covers the insured's legal liability to pay compensation to a third party who suffers bodily injury, death, or property damage as a result of the insured's business operations or negligence. It is a fundamental class of liability insurance in India, with certain forms being statutorily compulsory.

Underwriting is the process by which an insurer evaluates the risk profile of a prospective policyholder, determines the terms and conditions of coverage, and sets the appropriate premium. It is the foundational discipline that enables insurers to price risk accurately and maintain portfolio profitability.

The legal principle (uberrima fides) requiring both the insured and the insurer to act with complete honesty and disclose all material facts relevant to the insurance contract, failing which the contract may be voided.