Page 41 - The Insurance Times April 2025

Technical Glossary

Technical Glossary on Fire Insurance

1. Actual Cash Value (ACV): The value of the insured prop- 16. Insurable Interest: The insured must have a legal or
erty at the time of loss, considering depreciation. financial stake in the property to obtain coverage.
2. Add-on Covers: Optional extensions to the standard 17. Loss of Rent Cover: A benefit that reimburses lost
fire insurance policy offering additional protection, such rental income when property becomes uninhabitable
as for earthquakes or terrorism. due to fire.
3. Aggregate Limit: The maximum total amount an insurer 18. Loss Prevention Measures: Actions taken to minimize
will pay for all covered losses during the policy term. the risk of fire, such as installing sprinklers.
4. Building Insurance: Coverage that protects the physi- 19. Market Value: The price the property would fetch in
cal structure of the insured property against fire-related the market, used in some fire insurance settlements.
damages.
20. Material Fact: Information crucial to underwriting a
5. Business Interruption Insurance: Compensates for lost policy that must be disclosed to the insurer.
income when business operations are halted due to fire 21. Named Perils Policy: A policy covering only the perils
damage. specifically listed in the policy document.
6. Co-insurance Clause: A policy provision requiring the 22. Peril: A specific cause of loss, such as fire or explosion,
insured to bear a portion of the loss if underinsured. that can trigger an insurance claim.
7. Combustion: A chemical process of burning that results
23. Policy Schedule: A document outlining the details of
in fire, which is central to triggering a fire insurance
the fire insurance policy, including coverage, sum in-
claim. sured, and premium.
8. Deductible: The amount the insured must pay out-of- 24. Premium: The amount paid by the insured to the in-
pocket before insurance coverage kicks in.
surer for coverage under a fire insurance policy.
9. Depreciation: The reduction in the value of property
25. Proximate Cause: The primary cause of a loss, used to
over time due to wear and tear, considered in ACV. determine if the claim is covered under the policy.
10. Endorsement: A written modification or addition to an 26. Reinstatement Value: The cost of replacing or repair-
existing fire insurance policy. ing the damaged property without depreciation.
11. Exclusions: Specific events or conditions not covered by
27. Salvage: The remaining value of damaged property that
a fire insurance policy, such as war or nuclear risk.
can be recovered after a fire.
12. Fire Perils: Risks explicitly covered by a fire insurance 28. Standard Fire and Special Perils Policy: A widely used
policy, including fire, lightning, and explosion. fire insurance policy offering protection against fire and
13. Flammable Materials: Substances that can easily catch allied perils.
fire, often influencing underwriting and premium cal-
29. Subrogation: The insurer's legal right to recover the
culation.
amount paid on a claim from a third party responsible
14. Hazard: A condition that increases the probability of a for the loss.
fire loss, such as faulty wiring. 30. Underinsurance: When the sum insured is less than the
15. Indemnity: The principle of restoring the insured to the actual value of the property, potentially reducing claim
original financial position prior to the loss. payouts.

The Insurance Times April 2025 37