When an insured is restored to the same financial condition as prior to the loss this is an example of?

Buying car insurance should be clear and straightforward. But sometimes it's easy to confuse IPT with TPFT, or the FCA with the ABI. So here's our guide to help you with the jargon.

Association of British Insurers (ABI)

Many insurance companies are members of the ABI, but membership is not compulsory and the ABI is not a regulatory body.

Members sit on a Group Rating Panel, which recommends the car insurance group rating for each new model built to a UK specification.

Approved repairer

A garage recommended by your insurance company for car repairs covered by your insurance policy.

Comprehensive cover

The highest level of car insurance cover, which usually covers you for: 

• Injuries to other people.
• Damage to other people's property.
• Accidents caused by your passengers or a driver named on your policy.
• The use of a trailer, while attached to your car.
• Fire damage and/or theft.
• Accidental damage to your own car.
• Medical expenses, up to a stated limit.
• Loss of or damage to personal effects in the car, up to a stated limit.

Policy features vary between insurers, so always check them before you buy.

Compare with third party, fire and theft cover

Driving other cars (DOC)

Many insurers don't offer this as a standard policy feature, so make sure you're covered before getting behind the wheel of someone else's car. It's also worth noting that when it is included, you usually get third-party-only cover.

Fault claim

An accident or loss where you are considered to be to blame, or where you or your insurance company can't recover costs from somebody else.

Remember, if your car is hit while parked, by someone who cannot be traced, this counts as a fault claim.

Non-fault claim

With a non-fault claim your insurer can recover the cost of the claim from someone else.

Financial Conduct Authority (FCA)

The UK's financial watchdog, the FCA regulates the financial services industry, including insurance companies. If you have a complaint or concern, we encourage you to get in touch with us. However, the FCA can also advise you about making a complaint against an insurance company.

Indemnity

As an insurance policy holder, you're placed in the same financial position following a loss as you were before it. So, if your insurance company pays to repair your car following an accident, for example, you'll be in the same financial position as you were before the car was damaged.

Insurance Premium Tax (IPT)

A tax on general insurance premiums, including premiums for car insurance. This tax is included in the price of your car insurance premium.

Insured value

The total amount the insurance company will pay out for your car if it's damaged beyond repair. This will either be the amount you stated the vehicle was worth when taking out the policy, or the current market value at the time of the claim – whichever is lower.

Material fact

Any information that may influence either an insurer's decision to offer you cover, or the premium they charge for it. If you leave out information which may influence a decision to offer cover, your policy may be invalidated.

No claims discount (NCD)

For each year you drive without making a claim on your insurance you get a year's no claims discount, subject to a maximum. This discount usually reduces the cost of your car insurance premium for the following year. Also described as a no claims bonus (NCB).

Settlement

The amount your insurer pays out for a claim.

Thatcham Research

The Motor Insurance Repair Research Centre (Thatcham Research) carries out research for the motor insurance industry on the cost of car repairs and vehicle security. The Group Rating Panel, which meets to assign new car models to an insurance group, is administered by Thatcham Research on behalf of the Association of British Insurers.

Third party only (TPO)

Third party cover is the minimum level of car insurance cover required by law and contains no cover for damage to your vehicle. It usually covers your legal liability for:

• Injuries to other people.
• Damage to other people's property.
• Accidents caused by your passengers or a driver named on your policy.

Third party, fire and theft (TPFT)

Third party fire and theft cover provides the same level of cover as third party cover, but also protects you against damage to your vehicle from fire, or theft of the vehicle, as long as you're not at fault.

Compare with comprehensive cover

Uninsured losses

Any losses not covered by your insurance policy, such as your policy excess; any out-of-pocket expenses following an accident, for example a loss of earnings; or compensation for an injury suffered in an accident.

Uninsured loss recovery (ULR cover)

Help recovering your uninsured losses from a third party, where an accident is the third party's fault.

Underwriter

An underwriter decides whether to accept you as an insurance risk and then calculates your car insurance premium.

Indemnity is a comprehensive form of insurance compensation for damages or loss. When the term indemnity is used in the legal sense, it may also refer to an exemption from liability for damages.

Indemnity is a contractual agreement between two parties. In this arrangement, one party agrees to pay for potential losses or damages caused by another party. A typical example is an insurance contract, in which the insurer or the indemnitor agrees to compensate the other (the insured or the indemnitee) for any damages or losses in return for premiums paid by the insured to the insurer. With indemnity, the insurer indemnifies the policyholder—that is, promises to make whole the individual or business for any covered loss.

• Indemnity is a comprehensive form of insurance compensation for damages or loss.
• In this type of arrangement, one party agrees to pay for potential losses or damages caused by another party.
• A typical example is an insurance contract, in which the insurer or the indemnitor agrees to compensate the other (the insured or the indemnitee) for any damages or losses in return for premiums paid by the insured to the insurer.

An indemnity clause is standard in the majority of insurance agreements. However, exactly what is covered, and to what extent, depends on the specific agreement. Any given indemnity agreement has what is called a period of indemnity, or a specific length of time for which the payment is valid. Similarly, many contracts include a letter of indemnity, which guarantees that both parties will meet the contract stipulations (or else an indemnity must be paid).

Indemnity is common in agreements between an individual and a business (for example, an agreement to obtain car insurance). However, it can also apply on a larger scale to relationships between businesses and government or between governments of two or more countries.

Indemnity clauses can be complicated to negotiate and can lead to increased costs of services because of the increased risk of the contract.

Sometimes, governments, a business, or an entire industry must take on the costs of larger issues on behalf of the public, such as outbreaks of disease. For example, according to Reuters, Congress authorized $1 billion to fight a bird flu epidemic that devastated the U.S. poultry industry in 2014 and 2015. The U.S. Department of Agriculture spent $600 million of that money on virus elimination and disinfection and $200 million in indemnity payments.

Indemnity may be paid in the form of cash, or by way of repairs or replacement, depending on the terms of the indemnity agreement. For example, in the case of home insurance, the homeowner pays insurance premiums to the insurance company in exchange for the assurance that the homeowner will be indemnified if the house sustains damage from fire, natural disasters, or other perils specified in the insurance agreement. In the unfortunate event that the home is damaged significantly, the insurance company will be obligated to restore the property to its original state—either through repairs by authorized contractors or reimbursement to the homeowner for expenditures incurred for such repairs.

Indemnity insurance is a way for a company (or individual) to obtain protection from indemnity claims. This insurance protects the holder from having to pay the full sum of an indemnity, even if the holder is responsible for the cause of the indemnity.

Many companies make indemnity insurance a requirement as lawsuits are common. Everyday examples include malpractice insurance, which is common in medical fields, and errors and omissions insurance (E&O), which protects companies and their employees against claims made by clients and applies to any given industry. Some companies also invest in deferred compensation indemnity insurance, which protects the money that companies expect to receive in the future.

As with any other form of insurance, indemnity insurance covers the costs of an indemnity claim, including, but not limited to, court costs, fees, and settlements. The amount covered by insurance depends on the specific agreement, and the cost of the insurance depends on many factors including the history of indemnity claims.

Property leases also include indemnity clauses. For example, in the case of a rental property, a tenant is typically responsible for damages due to negligence, fines, lawyer fees, and more depending on the agreement. 

An act of indemnity protects those who have acted illegally from being subject to penalties. This exemption typically applies to public officers, such as police officers or government officials, who are sometimes compelled to commit illegal acts in order to carry out the responsibilities of their jobs. Often, such protection is granted to a group of people who committed an illegal act for the common good, such as the assassination of a known dictator or terrorist leader.

Although indemnity agreements have not always had a name, they are not a new concept. Historically, indemnity agreements have served to ensure cooperation between individuals, businesses, and governments.

In 1825, Haiti was forced to pay France what was then called an "independence debt." The payments were intended to cover the losses that French plantation owners "suffered" after losing land and slaves. While this form of indemnity was incredibly unjust, it is one example of many historical cases that show the ways indemnity has been applied worldwide.

Another common form of indemnity is the reparations a winning country seeks from a losing country after a war. Depending on the amount and extent of the indemnity due, it can take years and even decades to pay off. One of the most well-known examples is the indemnity Germany paid after its role in World War I. Those reparations were finally paid off in 2010, almost a century after they were put in place.