A simplified guide to insurance vocabulary: key terms to know
Before taking out car, home or travel insurance, it is helpful to understand a few key terms.
The insurer covers certain risks in return for payment of a premium. The insured is the person covered by the policy. When an event covered by the policy occurs, it may give rise to a claim. Depending on the cover selected, the insurer may then pay compensation for the loss or damage.
However, not every situation is necessarily covered. The insured may have to pay an excess, and certain circumstances may fall under policy exclusions.
The cover, exclusions, excesses, limits and claims settlement arrangements always depend on the policy taken out.
Contract, policy and contractual documents
The insurance contract (or insurance policy) is the agreement between the insurer and the policyholder that sets out the cover, exclusions and each party’s obligations. It comprises general terms and conditions, which describe the rights and obligations of both parties, and special terms and conditions, which details the cover applicable to the individual insured.
An endorsement is a document that amends the original policy, for example by adding or removing cover, or reflecting a change in circumstances.
In practice, the policy schedule tailors the contract to your circumstances and specific needs.
Premium, excess, cover and exclusions
The premium is the amount you pay to the insurer for your cover. Cover refers to the protection the policy provides against a particular risk, such as personal liability or water damage.
The excess is the amount you remain responsible for paying following a claim. An exclusion specifies what the policy does not cover.
It is important to distinguish between an excess and an exclusion. An excess is an amount deducted from the claim settlement, whereas an exclusion means there is no cover for a particular risk.
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Age-related depreciation
Age-related depreciation refers to the reduction in value of an item of property due to its age, use or condition.
In the event of a claim, it may affect the amount of compensation where the policy provides for this to be considered.
Assistance
Assistance is a service that provides practical help to the insured person when an event covered by the policy occurs.
In motor insurance, for example, it may involve organising a breakdown service or a tow. In travel insurance, it may involve medical assistance or repatriation, depending on the cover taken out.
Beneficiary
The beneficiary is the person designated to receive a benefit or compensation provided for under the policy.
Depending on the type of insurance, the beneficiary may be the insured person themselves or another person.
Casco (Comprehensive cover)
Comprehensive cover is a type of motor insurance that protects the insured vehicle against certain types of damage, in addition to third-party liability cover.
Depending on the policy taken out, it may cover, for example, collisions, theft, fire, glass breakage, natural disasters or vandalism.
The terms ‘partial comprehensive cover’ and ‘fully comprehensive cover’ are commonly used in the Luxembourg market. The exact scope of cover always depends on the terms of the policy.
Civil liability
Civil liability refers to the obligation to compensate for damage caused to others when a person is legally liable for it.
Civil liability insurance may cover the financial consequences of this liability within the limits set out in the policy.
Claim
A claim is an event that may trigger one or more cover provisions under an insurance policy.
A car accident, a fire or water damage may therefore constitute claims.
A claim and damage are not synonymous: a claim refers to the event, whilst damage refers to the loss or harm resulting from it.
Collision
A collision is an impact between a vehicle and another vehicle, a person, an animal or an obstacle.
Cover for damage caused to one’s own vehicle depends on the motor insurance cover taken out.
Comprehensive cover
Comprehensive cover offers more extensive protection for the vehicle than third-party liability alone or partial comprehensive cover.
It may cover certain damage sustained by the vehicle in a collision, including in situations where the driver is at fault, subject to the terms and exclusions of the policy.
Compensation
Compensation is the sum of money or benefit paid or covered by the insurer when a covered claim arises.
The amount depends on the damage, the cover provided, the limits, the excesses and the valuation rules set out in the policy.
Cover
A type of cover defines a risk or benefit covered by the insurance policy.
For example, a motor insurance policy may provide cover for theft, glass breakage or breakdown assistance.
A type of cover does not mean that all situations are covered: it applies subject to the limits, conditions and exclusions set out in the policy.
Cover limit
The cover limit is the maximum amount that the insurer may pay out for a given type of cover, in accordance with the terms of the policy.
If the cost of a claim exceeds this limit, the excess may be borne by the policyholder or the person liable, depending on the circumstances.
Damage
Damage is harm suffered by a person or property. In insurance, a distinction is made between property damage, personal injury and, depending on the circumstances, financial loss.
Due date
The due date is a date specified in the insurance policy. It may refer to the date on which a premium is due or the policy anniversary date.
Excess
The excess is the portion of a covered claim that remains payable by the insured under the terms of the policy.
Example: if a claim is valued at €2,000 and an excess of €250 applies, the compensation may be calculated based on €1,750.
However, exactly how the excess works depends on the policy: its amount and how it is applied must therefore be checked in the policy conditions.
Exclusion from cover
An exclusion from cover is a situation or event that the policy specifies as not being covered.
Exclusions must be distinguished from the excess: an exclusion determines what is not covered, whilst an excess refers to the portion of the loss that may remain the responsibility of the insured person in the event of a covered claim.
Fire
Fire cover may cover certain damage caused to insured property by fire or by associated events specified in the policy.
It may be included in home or motor insurance policies. The scope of the cover depends on the terms and conditions of the policy.
Glass breakage
Glass breakage refers to damage to a glass surface covered by a policy.
In motor insurance, this cover may relate to the windscreen or certain other windows of the vehicle. The specific items covered depend on the policy.
Insurance policy
The insurance policy is the agreement setting out the obligations of the insurer and the policyholder.
It specifies the risks covered, the cover provided, exclusions, excesses, limits, the premium and the obligations of the parties.
Insurance premium
The insurance premium is the amount paid to the insurer in return for the cover provided under the policy.
The amount depends on the insured risk, the cover chosen and the factors considered by the insurer.
The premium and the excess are therefore not the same thing: the premium is used to pay for the insurance, whilst the excess may be payable by the insured person when a covered claim arises.
Insured person
The insured person is the individual whose risks are covered by an insurance policy.
The insured is not necessarily the person who signed the policy. The latter is known as the policyholder.
Insurer
The insurer is the company that covers the risks defined in an insurance policy in return for the payment of a premium.
When a covered event occurs, the insurer provides cover in accordance with the cover, limits and conditions set out in the policy.
Loss assessment
Loss assessment involves analysing the circumstances of a claim and evaluating the damage.
An assessor may, for example, examine a damaged vehicle or building to help determine the extent and cost of the damage.
Luggage
In travel insurance, luggage cover may cover certain damage, theft or loss affecting the insured person’s personal belongings whilst travelling.
The events covered, exclusions and compensation limits vary depending on the policy.
Motor third-party liability
Motor third-party liability covers damage caused to third parties where the driver or the insured vehicle is held liable.
In Luxembourg, third-party liability is the compulsory basic cover for vehicles subject to the insurance obligation. It should not be confused with comprehensive cover, which may cover certain damage sustained by the insured vehicle.
New value
Replacement value is a method of valuation or compensation designed to take into account the cost of an equivalent new item, subject to the conditions set out in the contract.
It does not automatically mean that the insurer will reimburse the full price of a new item: excesses, limits, depreciation or other contractual terms may apply. The exact method of calculation depends on the type of property concerned and the terms of the policy.
Non-material damage
Non-material damage refers to harm that does not directly constitute physical injury to a person or damage to property.
Cover for this depends heavily on the type of policy and the cover taken out.
Partial comprehensive cover
Partial comprehensive cover provides cover for certain types of damage to the vehicle without offering the full range of protection provided by comprehensive cover.
It may, for example, include cover for theft, fire, glass breakage or certain natural disasters. The scope of cover varies depending on the insurer and the terms of the policy.
Personal injury
Personal injury is harm to a person’s physical integrity or health.
It may, for example, result from a road traffic accident.
Policyholder
The policyholder is the person who enters into the contract with the insurer and assumes the obligations set out therein.
The policyholder may also be the insured person, but this is not always the case.
Premium
The premium is the amount paid to benefit from insurance cover. In everyday language, the terms ‘premium’ and ‘insurance premium’ are often used interchangeably.
Property damage
Property damage is damage, destruction or loss affecting property.
A car damaged in an accident or furniture damaged by water damage are examples of property damage.
Protected driver
A protected driver is a driver who benefits from cover designed to cover certain consequences of personal injury sustained in a road traffic accident, subject to the terms of the policy.
This cover may apply when the driver is at fault for the accident, as third-party motor liability cover provides for damage caused to third parties but does not automatically cover personal injury to the driver at fault. The cover, exclusions and compensation limits depend on the policy taken out.
Recourse
In insurance, recourse is a procedure aimed at obtaining reimbursement from a liable party or their insurer for sums relating to a loss.
The terms and conditions of a claim depend on the context and the established liabilities.
Repatriation
Repatriation involves organising the return of an insured person to their country of residence or to a suitable location when a covered situation so requires.
This benefit may be included in a travel insurance policy or travel assistance scheme. The circumstances under which repatriation is permitted are set out in the contract.
Replacement value
The replacement value corresponds to the cost of replacing a damaged or lost item, in accordance with the valuation method set out in the policy.
It should be distinguished from replacement cost, as the methods of calculation may differ. The method of calculation varies depending on the nature of the insured property.
Theft
Theft refers to the fraudulent taking of another person’s property.
In insurance, the terms of cover for theft vary depending on the policy: circumstances, covered property, security measures, limits and supporting documentation may all be considered.
Third party
In the context of insurance, a third party is a person other than the parties to the contract.
In civil liability, this generally refers to the person who suffers damage for which the insured may be liable.
Vandalism
Vandalism refers to the deliberate damage caused to property by a third party.
It may be covered by certain motor or home insurance policies if the relevant cover is included in the contract.
Water damage
Water damage refers to damage caused by the action of water in a home, for example because of a leak, an overflow or water seeping in.
Cover depends on the cause of the damage, the circumstances and the terms of the home insurance policy.
In car insurance, two concepts are particularly important: third-party liability and comprehensive cover.
Third-party liability cover protects against the financial consequences of certain damage caused to third parties. Comprehensive cover, depending on the policy chosen, covers certain damage sustained by the insured vehicle.
| Term | What does it cover? |
|---|---|
| Third-party liability | To cover certain damage caused to third parties |
| Partial comprehensive cover | To cover certain risks affecting the vehicle |
| Fully comprehensive cover | To extend cover for the vehicle, particularly to include certain collisions |
| Roadside assistance | To organise assistance, for example following a breakdown or an accident |
| Glass breakage cover | To cover damage to certain glass surfaces |
The exact scope of comprehensive cover or roadside assistance varies depending on the policy.
Home insurance can protect the building, its contents and the policyholder’s liability, depending on the policy taken out.
Cover may include fire, water damage, theft, certain natural disasters or damage caused to third parties.
To find out whether a specific event is covered, you should check the policy’s cover, exclusions, excesses and limits.
Travel insurance can cover a range of different types of cover: cancellation, assistance, medical expenses, repatriation and luggage.
These concepts should not be confused. Assistance generally involves organising help when a problem arises, whilst cancellation cover applies to certain situations that prevent you from travelling. Luggage cover, on the other hand, applies to certain types of damage, theft or loss of personal belongings.
The events covered and the limits vary depending on the policy.
| Terms |
Key difference |
| Insured person / policyholder | The insured person is covered; the policyholder takes out the policy. |
| Premium / excess | The premium pays for the cover; the excess may be payable in the event of a claim |
| Cover / exclusion | Cover defines the scope of protection; an exclusion excludes certain situations |
| Claim / damage | A claim refers to the event; damage refers to the loss or harm resulting from it |
| Third-party liability / comprehensive cover | Third-party liability cover primarily protects third parties; comprehensive cover covers certain damage to the insured vehicle |
| New value / replacement value | These are two valuation methods, the terms of which depend on the contract |
An excess is the portion of a covered claim that the policyholder must pay themselves. The amount and how it is applied are set out in the policy. For example, if an excess of €200 applies, you may have to pay this amount yourself when a claim is settled.
An excess means that the policyholder is responsible for part of the cost of a covered claim. A policy exclusion, on the other hand, refers to a situation in which the cover does not apply. In both cases, the precise terms are set out in the insurance policy.
A claim is an event that may trigger one or more cover provisions under the insurance policy. A car accident, water damage, a fire or theft, for example, may constitute claims if they fall within the scope of the cover taken out.
To report a claim, notify your insurer within the specified time limit (usually 5 days) and in accordance with the terms set out in your policy. Specify the circumstances, date and location of the incident and provide any relevant supporting documents: photographs, invoices, quotes or an accident report form, depending on the type of claim.
The insured is the person covered by the insurance policy. The policyholder is the person who takes out the policy with the insurer. They may be the same person, but this is not always the case.
A third party generally refers to a person other than the parties to the policy, depending on the context. In civil liability insurance, this refers to a person who suffers damage for which the insured person may be liable. In the event of a road traffic accident, for example, another road user who has suffered damage may be considered a third party.
In Luxembourg, ‘casco’ refers to motor insurance designed to cover certain types of damage sustained by the insured vehicle. Depending on the policy and the cover chosen, it may provide cover in the event of theft, fire, glass breakage, natural disasters or collisions.
Third-party liability cover protects against damage caused to third parties where the insured vehicle is at fault. Comprehensive cover, depending on the policy taken out, covers certain types of damage sustained by the insured vehicle itself. These two types of cover are therefore complementary but address different risks.
In Luxembourg, vehicles subject to compulsory insurance must be covered by at least third-party liability insurance. This is intended to cover liability for damage caused to third parties. Optional cover, such as comprehensive cover, can supplement this protection.
The premium is the amount paid to the insurer in return for the cover provided under the policy. The excess is the amount that may be payable by the policyholder when a covered claim arises. The premium therefore corresponds to the cost of the insurance, whilst the excess applies in the event of certain claims.
Indemnity refers to the sum or benefit paid by the insurer when a covered claim arises. It depends on the damage assessed, the cover taken out, excesses, limits and the valuation terms set out in the policy.
Forfeiture refers to the loss, in certain circumstances, of the insured person’s right to benefit from cover for a particular claim due to a breach of an obligation. It is distinct from a policy exclusion, which defines from the outset the situations in which cover does not apply.
An amendment is a document that modifies or supplements an existing insurance policy. It may formalise a change to the vehicle, address, cover or other terms of the policy. It therefore enables the policy to be adapted to a new situation.
Replacement value and new value are different methods of valuing an item following a claim. New value generally refers to the cost of an equivalent new item. Replacement value corresponds to the amount required to replace the item in accordance with the terms set out in the policy. Whether depreciation is considered depends on the cover taken out.