Insurance glossary: 77 Australian insurance terms explained

77 insurance terms used in Australian policies, quotes and claims, explained in plain English.

A

AFCA

The Australian Financial Complaints Authority. It is the free, independent external dispute resolution scheme for complaints about insurers, brokers and other financial firms. You normally complain to the firm first. If you are not satisfied, you can take the complaint to AFCA. Its decision binds the firm if you accept it.

AFS licence

An Australian financial services licence. ASIC issues it under the Corporations Act 2001. A business generally needs one, or must be an authorised representative of a licensee, to advise on, arrange or issue insurance. The licence lists the services the holder may provide. You can check a licence number on the ASIC register.

Agreed value

A fixed amount that you and the insurer agree an item is worth at the start of the policy period. It is common in car insurance. If the car is a total loss, the insurer pays that amount, less any excess, whatever the market price is on the day. Agreed value cover often costs more than market value cover.

APRA

The Australian Prudential Regulation Authority. It authorises general insurers under the Insurance Act 1973 and supervises their financial strength, including the capital they must hold to pay claims. APRA does not handle individual complaints about claims or premiums. Those go to the insurer and then to AFCA.

ASIC

The Australian Securities and Investments Commission. It regulates the conduct of insurers, brokers and other financial services businesses. It issues AFS licences, keeps the public registers of licensees and authorised representatives, and enforces the consumer protection laws that apply to insurance.

Authorised representative

A person or business appointed by an AFS licensee to provide financial services on the licensee's behalf. An authorised representative does not hold its own licence. The licensee is responsible for its conduct. Each one has a number and can be checked on the ASIC register.

See also: AFS licence, ASIC, Insurance broker

Average clause

A term, also called co-insurance, that reduces a claim payment in proportion to any underinsurance. It appears mainly in business property policies. For example, stock worth $200,000 is insured for $100,000. A $40,000 loss may be paid at half, or $20,000. The law limits how average can be applied to home building and contents policies.

B

Binder

An authority an insurer gives to an agent or broker to enter into insurance contracts, and sometimes settle claims, on the insurer's behalf. A broker acting under a binder is acting for the insurer, not for you, in that transaction, and has to tell you so.

Broker fee

A fee a broker charges the client for arranging or managing insurance. It is separate from the premium and from any commission the insurer pays the broker. The fee should be shown on the invoice. It may not be refunded if the policy is cancelled, so check the broker's terms.

Business interruption

Cover for income a business loses, and extra costs it incurs, after insured damage to its premises or equipment. For example, a cafe closed for three months after a fire can claim its lost gross profit for that time. Cover runs for a chosen indemnity period, such as 12 months.

C

Cash settlement

A payment of money to settle a claim in place of the insurer arranging repairs or replacement. Once you accept, managing the repairs and any cost overruns is usually up to you. Before you accept, ask for the scope of works and quote the offer is based on, and compare it with your own quote.

See also: Claim, Loss adjuster, Total loss

Catastrophe

A large event, such as a cyclone, flood, bushfire or hailstorm, that causes many claims at once. The Insurance Council of Australia can declare an insurance catastrophe. A declaration gives claims from the event priority and sets up extra industry support for affected policyholders.

Certificate of currency

A short document from an insurer or broker confirming that a policy is in force on a given date, with the type of cover, the limit and the expiry date. Landlords, lenders and principals on contracts often ask for one. It is evidence of cover, not the policy itself.

Claim

A request to your insurer to pay for a loss covered by your policy. The General Insurance Code of Practice says an insurer should decide a claim within four months of receiving it, or 12 months in exceptional circumstances. If it refuses the claim it must give reasons and explain how to complain.

Claims-made

A policy that responds to claims first made against you, and notified to the insurer, during the policy period. The policy in force when the claim is made is the one that pays, even if the work was done years earlier. If you stop renewing, later claims are not covered unless you hold run-off cover.

Commission

A payment an insurer makes to a broker, agent or other distributor for selling or renewing a policy. It is usually a percentage of the base premium and is built into the price you pay. The financial services guide explains how the business is paid, and you can ask for the amount.

Comprehensive

The widest level of car insurance. It covers damage to your own vehicle from accident, theft, fire and weather, and damage you cause to other people's vehicles and property. It does not replace CTP insurance, which covers injuries to people.

Contents insurance

Cover for household belongings that are not fixed to the building, such as furniture, clothing, appliances and electronics. Owners, tenants and unit owners can all buy it. Policies set limits for valuable items such as jewellery unless you list them separately. Carpets and curtains are usually treated as contents.

Cooling-off period

A period after you buy a retail insurance policy in which you can cancel and get your premium back. The law sets a minimum of 14 days, and some insurers allow longer. The right ends if you make a claim. For example, cancel on day 10 with no claim and you receive a refund.

CTP

Compulsory third party insurance. Every registered vehicle in Australia must have it. It covers liability for injury or death caused to other people in a crash. It does not cover damage to vehicles or property. In NSW it is called a green slip. In most other states it is paid with registration.

Cyclone reinsurance pool

An Australian Government scheme, run by the Australian Reinsurance Pool Corporation since 1 July 2022. It reinsures insurers for cyclone and cyclone-related flood damage under home, contents, strata and small business property policies with sums insured up to $5 million. It aims to lower premiums in cyclone-prone areas. Households still deal only with their insurer.

D

Duty of disclosure

The duty that applies to insurance that is not consumer insurance, such as most business policies. Before the contract starts you must tell the insurer everything you know, or could reasonably be expected to know, that is relevant to its decision to insure you. Failing to do so can lead to a reduced or refused claim.

Duty to take reasonable care not to make a misrepresentation

The duty that applies to consumer insurance, such as home, contents and car cover, for policies entered into or renewed from 5 October 2021. You must answer the insurer's questions honestly and with reasonable care. You do not have to volunteer information the insurer did not ask about. If you breach the duty, the insurer may reduce or refuse a claim.

E

Emergency services levy

A charge that helps fund fire and emergency services. In NSW it is collected through property insurance, so insurers add it to home and business premiums. Most other states collect a similar levy through council rates or other property charges and not through insurance.

Endorsement

A written change to a policy that adds, removes or alters cover. For example, an endorsement might add a new vehicle, note a mortgagee's interest or exclude a particular risk. It forms part of the contract. Keep endorsements with your policy schedule.

Ex gratia

A payment an insurer makes as a gesture of goodwill when it is not legally required to pay under the policy. For example, an insurer might pay part of a claim that falls just outside the cover. An ex gratia payment does not admit liability and does not set a precedent for future claims.

Excess

The amount you pay towards a claim before the insurer pays the rest. It is set out in your policy schedule. For example, if storm repairs cost $6,000 and your excess is $1,000, the insurer pays $5,000. Choosing a higher excess usually lowers the premium. Some policies add extra excesses, such as for young drivers or for flood.

See also: Premium, Claim, Policy schedule

Exclusion

Something a policy does not cover. Exclusions are listed in the product disclosure statement. Common examples are wear and tear, rust, mould, damage that existed before the policy started, and deliberate acts. An insurer that relies on an exclusion to refuse a claim has to show that it applies.

F

Financial hardship

Difficulty meeting a debt to an insurer, such as an excess or money the insurer is recovering from you. Under the General Insurance Code of Practice you can ask for support. Options include more time to pay, instalments, a reduced amount or a waiver. The insurer must tell you its decision within 21 calendar days.

Financial services guide (FSG)

A document a broker or other licensee gives retail clients before providing a service. It explains who they are, which services they offer, who they act for, how they are paid and how to complain. Read it to see whether the business acts for you or for the insurer.

Flood

Home building, contents, strata and small business policies must use a standard legal definition. Flood means the covering of normally dry land by water that has escaped or been released from the normal confines of a lake, river, creek or other natural watercourse, or a reservoir, canal or dam. Rainwater runoff before it reaches a watercourse is usually treated as storm.

G

General advice

Advice about a financial product that does not take your own objectives, financial situation or needs into account. A website guide or a call centre explaining policy features is usually general advice. The provider must warn you that it may not be appropriate for your circumstances.

General Insurance Code of Practice

An industry code that sets service standards for insurers that sign up to it. It covers buying insurance, claims handling, complaints, financial hardship and support for vulnerable customers. The Insurance Council of Australia owns the Code. An independent Code Governance Committee monitors and enforces compliance.

See also: Financial hardship, AFCA, Claim

General insurer

A company authorised by APRA to carry on general insurance business in Australia. General insurance covers property, motor, liability, travel and similar risks. It does not include life insurance or private health insurance. One insurer may sell under several brands and through agencies.

H

Home building insurance

Cover for the house and fixed structures on your land, such as garages, fences and built-in fittings, against listed events like fire, storm and theft. It pays to repair or rebuild, up to the sum insured or on a total replacement basis. Flood cover may be standard, optional or excluded, depending on the policy.

I

Indemnity

The principle that insurance puts you back in the financial position you were in just before the loss, no better and no worse. On an indemnity basis, a five-year-old television is valued as a five-year-old television, not a new one. New-for-old cover is an agreed exception to this principle.

Industrial special risks (ISR)

A broad form of commercial property policy used for larger businesses and asset schedules. It covers physical loss or damage to property from any cause that is not excluded, and usually has a second section for business interruption. ISR policies are normally arranged through brokers and tailored to the business.

Insurable interest

A financial stake in the thing insured, so that you would lose money if it were damaged or lost. Owners, mortgagees and tenants can each have an interest in the same property. Under Australian law a general insurance claim is not defeated just because you lacked a strict legal interest, as long as you suffered a real loss.

Insurance broker

A licensed adviser who arranges insurance on behalf of the customer, not the insurer. A broker can approach several insurers, explain policy terms and help with claims. Brokers hold an AFS licence or act as an authorised representative of a licensee. They are paid by commission, a broker fee, or both.

Insurance Contracts Act

The Insurance Contracts Act 1984 is the Commonwealth law that governs most general insurance contracts. It sets the duty of utmost good faith, the disclosure duties, limits on when an insurer can refuse a claim or cancel a policy, and the right to ask for written reasons if cover is refused.

Internal dispute resolution (IDR)

A financial firm's own complaints process. ASIC rules generally require an insurer to give you a written response to a complaint within 30 calendar days. The response must tell you about your right to go to AFCA. You do not need a lawyer to make a complaint.

L

Landlord insurance

Cover for a residential investment property. It can insure the building, the landlord's contents such as carpets and blinds, and liability to tenants and visitors. Many policies add cover for loss of rent and for theft or malicious damage by tenants. Limits and conditions for rent default differ widely.

Lloyd's coverholder

A business approved by Lloyd's and authorised by one or more Lloyd's syndicates to issue policies on their behalf under a binding authority. Lloyd's is an insurance market based in London, not a single company. In Australia, coverholders often provide cover for unusual or hard-to-place risks, usually through brokers.

Loss adjuster

A specialist appointed by an insurer to investigate a claim, check the cause and extent of the damage, and report on the cost. Insurers often call them loss assessors. The adjuster recommends an outcome, but the insurer makes the decision. You can ask who appointed any person who inspects your property.

M

Market value

What an item would have sold for just before the loss, given its age and condition. In car insurance the insurer works this out at claim time. For example, a car bought for $30,000 three years ago might have a market value of $19,000 when it is written off, and that is the amount paid, less any excess.

See also: Agreed value, Total loss, Write-off

N

New-for-old

Cover that repairs or replaces damaged property with new items of similar type and quality, with no deduction for age or wear. Most home and contents policies work this way. For example, a ten-year-old lounge destroyed by fire is replaced with a new equivalent. Policies can set limits for some items.

No-claim bonus

A discount some insurers give, mostly on car insurance, for each year you do not make a claim where you were at fault. It is also called a no-claim discount or a rating. An at-fault claim can reduce it at the next renewal unless you have paid for rating protection. Schemes differ between insurers.

See also: Premium, Renewal, Comprehensive

O

Occurrence basis

A policy that responds to injury or damage that happens during the policy period, no matter when the claim is made. Public liability is usually written this way. For example, an injury in 2024 is covered by the 2024 policy even if the injured person does not claim until 2026.

P

Personal advice

Advice that takes into account one or more of your objectives, financial situation or needs, or that a reasonable person would expect to have done so. A broker who reviews your business and recommends specific cover is giving personal advice. Stricter legal duties apply to it than to general advice.

Policy schedule

The document that records the details of your own policy: who and what is insured, the period of cover, sums insured, excesses, optional covers and the premium. It is also called a certificate of insurance. Check it at each renewal, because it prevails where it differs from the standard wording.

Premium

The price you pay for insurance cover for a period, usually 12 months. The amount on your notice includes the insurer's base premium plus GST, state stamp duty and, in some places, an emergency services levy. You can often pay monthly, sometimes for an extra charge.

Premium funding

A loan used to pay an annual premium, mostly for business insurance. The funder pays the insurer in full and you repay the funder in instalments with interest. If you miss repayments, the funder can usually cancel the policy and collect the refund. Compare the total cost with paying upfront.

Product disclosure statement (PDS)

The document that sets out what a retail insurance product covers, what it excludes, the excesses that can apply and how to claim or complain. The insurer must give it to you when you buy. Together with the policy schedule it forms your contract, so read it before you rely on the cover.

Product liability

Cover for your legal liability if a product you make, import, supply or sell injures someone or damages their property. For example, a faulty heater sold by a retailer starts a house fire. It is usually sold together with public liability in one policy.

Professional indemnity

Cover for claims that your professional advice or service caused a client financial loss. For example, an accountant's error leads to a client paying tax penalties. It pays compensation and defence costs. It is written on a claims-made basis and is compulsory for many professions.

Public liability

Cover for your legal liability to pay compensation if someone else is injured or their property is damaged in connection with your business or property. For example, a customer slips on a wet shop floor and breaks a wrist. The policy also pays the legal costs of defending the claim.

R

Reinsurance

Insurance bought by insurers. An insurer pays a reinsurer to take on part of its risk, especially the risk of very large losses from events such as cyclones and floods. The cost of reinsurance is one of the things that feeds into premiums, most of all in high-risk areas.

Renewal

The start of a new period of cover when the current one ends. An insurer must send notice at least 14 days before expiry saying whether it will offer renewal. Each renewal is a new contract. Check the premium, sum insured and excess, and update any answers that have changed.

Retroactive date

The date in a claims-made policy before which your work is not covered. Claims arising from work done before that date are excluded. For example, with a retroactive date of 1 July 2020, a claim made today about advice given in 2019 is not covered. Some policies have unlimited retroactive cover.

Run-off cover

Claims-made cover that continues after a business closes, is sold or a professional retires. It protects against claims made later about work done while the business was operating. For example, an engineer who retires may keep run-off cover for several years, because claims can surface long after a job is finished.

S

Salvage

What is left of damaged property after a loss, and its remaining value. When an insurer pays a total loss, it normally takes ownership of the salvage and sells it to offset the claim cost. For example, a written-off car is sold at auction for parts or repair.

See also: Total loss, Write-off, Subrogation

Stamp duty

A state or territory tax on general insurance premiums. The insurer collects it and it appears on your premium notice. Rates differ by state and by type of insurance. The ACT has abolished it. Because duty is charged on the premium, a higher premium means more duty.

Storm surge

A rise in sea level caused by a cyclone or severe storm pushing water onto the coast. It is not the same as flood under the standard definition. Some home policies cover storm surge, some cover it only when it happens with a storm or cyclone, and some exclude it.

Strata insurance

Insurance taken out by an owners corporation or body corporate over the building and common property of a strata scheme, usually with public liability cover for common areas. The cost is shared among owners through levies. It does not cover an owner's contents or, in most cases, a tenant's belongings.

Strata title

A form of ownership in which you own a lot, such as a unit or townhouse, and share ownership of common property with the other owners. The owners corporation or body corporate manages the common property. State and territory laws require it to insure the building. Owners insure their own contents.

Subrogation

The insurer's right, after paying your claim, to stand in your place and recover the cost from whoever caused the loss. For example, your insurer repairs your car and then pursues the at-fault driver in your name. You must cooperate and must not do anything that harms the insurer's recovery.

Sum insured

The most an insurer will pay for a claim on a building, its contents or another insured item. You usually choose it. For a home it should be enough to rebuild at today's prices, including demolition, debris removal and professional fees. It is not the price the property would sell for, which includes the land.

T

Target market determination (TMD)

A public document in which an insurer describes the kind of customer a retail product is designed for, and how it should be sold. It has been required under the design and distribution obligations since 5 October 2021. A TMD is not advice about whether the product suits you.

Third party property

Car insurance that covers damage your vehicle causes to other people's vehicles and property. It does not pay for damage to your own car. A variation, third party fire and theft, adds cover if your car burns or is stolen. For example, if you hit a parked car, the policy pays that owner's repairs.

See also: Comprehensive, CTP, Subrogation

Total loss

A loss where the insured property is destroyed, or where repairing it is unsafe or uneconomic. The insurer then pays the sum insured, agreed value or market value, depending on the policy, less any excess. After a total loss payout on a car, the policy usually ends and the wreck belongs to the insurer.

U

Underinsurance

Having a sum insured that is too low to cover the full cost of a loss. For example, a home insured for $400,000 that costs $550,000 to rebuild leaves the owner $150,000 short after a total loss. On some business policies, underinsurance can also reduce the payout on a partial loss through an average clause.

Underwriter

The insurer that carries the risk and pays valid claims. The word also describes a person who assesses a risk and decides whether to accept it, on what terms and at what price. The underwriter is often not the brand on the policy. The product disclosure statement names the insurer that issues the product.

Underwriting agency

A business that acts for one or more insurers, often in a specialist field. Under a binder it can quote, issue policies and sometimes handle claims in the insurer's name. It does not carry the risk itself. The insurer behind it pays the claims. Many agencies deal only through brokers.

Unfair contract terms

Terms in a standard form contract that cause a significant imbalance between the parties, are not reasonably needed to protect the business, and would cause detriment if relied on. The unfair contract terms law has applied to insurance contracts entered into or renewed from 5 April 2021. A court can declare such a term void.

Utmost good faith

A duty implied into every insurance contract by the Insurance Contracts Act 1984. Both the insurer and the insured must act honestly and fairly towards each other. For an insurer this includes how it handles and decides claims. Neither party can rely on a policy term if doing so would breach the duty.

W

Wholesale broker

A broker that deals with other brokers, not with the public. A retail broker who cannot place a risk with its usual insurers may go to a wholesale broker for access to specialist insurers, underwriting agencies or the Lloyd's market. The retail broker remains your point of contact.

Write-off

A vehicle that an insurer assesses as a total loss. A statutory write-off is too badly damaged to be repaired safely and can never be registered again. A repairable write-off may be re-registered in some states after repair and inspection. Written-off vehicles are recorded on a state register.

See also: Total loss, Salvage, Market value