The Bionic insurance jargon guide for UK small businesses

Understanding insurance terminology shouldn't feel like learning a foreign language, yet many UK business owners find themselves drowning in jargon when simply trying to sort insurance matters.  

Getting confused between certain terms could lead to mistakes when deciding on your insurance cover and how much you take out. This could lead to underinsurance or even paying for cover you don't actually need. 

Insurance terms must exist for legal compliance, but when you can't understand the types of cover contained in your own policy documents, you can't make informed decisions about whether it’s right for you.  

This guide breaks down the most important insurance terminology into plain English, to help you become more confident when figuring out what insurance you need. 

What do the most common insurance terms mean in plain English? 

Let’s take it back to basics. 

These core terms appear in virtually every business insurance policy, so it’s important to actually understand what they mean and how they affect you.  

The basics: events, premiums and more 

• An insured event is essentially something that is covered by your insurer. You may also see this written as ‘specified peril’. An insured event or specified peril could be a fire or flood for example, or even damage to your building by a third party. What’s insured depends on the policy you take out and scope of cover. 
• Your premium is simply the amount you pay for your insurance policy, whether monthly or annually. It's almost like any other subscription but specifically for your business insurance protection. 
• The excess (sometimes called a deductible) is the amount you pay towards any claim before your insurer contributes. For example, if your business suffers a £5,000 in damages and your excess is £500, you pay the first £500 and your insurer covers the remaining £4,500. You may find higher excess amounts typically result in lower premiums. Although this gives you some control over your insurance costs, you need to be able to afford the excess on your policy else your insurer won’t pay out. 
• A voluntary excess allows you to increase your standard excess amount to reduce your premium further. But it’s important to know that a compulsory excess is set by your insurer and can’t be changed. You should always consider whether you can afford the excess amount if you need to claim. 
• A claim is the act of your business submitting information to your insurer to consider when you suffer loss or damages. A claim is made by the policyholder.  
• Covered losses refer to damages or losses your insurance policy may cover you for. It often refers to the financial losses suffered that can be covered. 

Policy limits and coverage  

• Sum insured is the maximum amount your insurer will pay for covered losses if you need to make a claim. For example, if you have a building insurance policy, the sums insured should reflect the full cost of rebuilding your premises - not its market value.  
• Any one claim limits cap the maximum payout you can receive for individual events, while aggregate limits set the total amount your insurer will pay across all claims during your policy period. Let’s break this down, if your public liability policy has a £2 million ‘any one claim limit’ with a £4 million 'aggregate limit’, you're likely to be covered for single incidents up to £2 million, but your total claims cannot add up to more than £4 million annually. 
• Indemnity periods are mainly for business interruption coverage. It refers to the length of time your insurer will pay out for the income you lose following an insured event. Most indemnity periods range from 12 to 36 months. It’s a good idea to consider whether you are happy with this amount, as some businesses may need longer protection to get back on their feet. For example, if a warehouse burns down due to a fire, and it takes two years to rebuild. 

Your scope of coverage and exclusions 

• Indemnity is a promise by your insurer to help cover the financial losses or damages you might incur that are insured. This refers to how your insurer will help restore your financial position before you made a loss. The idea of indemnity stops businesses from profiting from insurance claims while making sure they pay out fairly for genuine claims. 
• Policy exclusions list specific situations, events, or losses your policy simply won't cover. This might include war, nuclear risks, and deliberate malicious acts. It’s best to read your policy exclusions carefully so you know what you can and can’t claim for. 

How can insurance terms affect my business?

The terms used in your insurance documents can directly impact both what you're protected against and how much you'll pay. 

Your excess vs your budget 

Checking the level of excess you have to pay is important. If you pay more upfront, you may pay less for your excess – but what’s right for you depends entirely on your unique business. Although, it’s worth noting, not many business insurers offer the option to increase an excess to lower premiums. 

For example, a manufacturing business has a £1,000 excess, accepting they'll pay the first £1,000 of any claim. This can work well for businesses with a healthy cash flow but could cause problems if multiple small claims occur, resulting in thousands of pounds in excess to pay. 

The Chartered Insurance Institute suggests considering your excess as part of your overall risk management budget. The lesson is - make sure you can afford to pay the excess on your policy. 

Sums insured, reinstatement and indemnity – what does this mean?  

Sum insured is the maximum amount of money an insurer will pay out for a claim. It normally represents the value of your insured assets. For example, if your business premises would cost £500,000 to rebuild after a disastrous fire and you have it insured for £500,000, then it would be completely covered. But, if you only insure it for the value of £400,000, then you're 20% underinsured.  

• If you are underinsured, your claims payment may be reduced by the amount insured. For example, if your commercial property should be insured for £500k and is only insured for £400k the claim would be reduced by 20% so you may only get paid £320k not £400k. If insurers feel the property value has been misrepresented, the claim could be declined and your policy could be voided completely. 
• Reinstatement value basically estimates the cost of rebuilding your property to its original condition if it was destroyed, including materials and labour costs to get the job done. 
• Day one uplift refers to automatically increasing your ‘sum insured’ annually to keep up with inflation – this can help to reduce the chance you’ll end up underinsured. This feature is particularly valuable for building insurance, where construction costs rise regularly. 

Business interruption terms to get familiar with 

Business interruption can help cover lost profits and ongoing business expenses in the event of material damage that stops your business from operating, like a fire, for example. If you’ve taken out this type of policy, then you may come across these terms in the small print: 

• Consequential loss refers to the losses that you expect to happen after an event, like losing profit. This is different in commercial insurance than personal lines (like your home insurance.) 
• Maximum indemnity period refers to the longest set amount of time that a policy will pay out claims due to an insured event. Because the insurance company can’t keep your business afloat indefinitely, so this set time is agreed when taking out your insurance policy. 
• Loss of gross profit refers to just that, this can look to cover the profit lost while you are unable to trade. This looks to only cover profit, not all the money you may lose during that period – for example, staff and electricity bills. 
• Increased costs of working (ICOW) is a separate business insurance cover where insurers could look to cover the costs of renting temporary space while your original business location is being repaired. For example, an office has to close and stop trading completely and uses a temporary office while its original office is being repaired and makes a claim on their office insurance. 
• Loss of contracts - If the business loses client contracts due a fire, flood or other insured event. This can be a policy extension for business interruption insurance and can be found in your policy wording.  It is really important to check what cover extensions to you have to know what you and aren't covered for. 

Insurance jargon to watch out for 

When reading through your policy, there are some certain terms you should pay particular attention to and make sure you understand. This should help clarify what you can and can’t claim for: 

• Conditions are rules you need to follow and must be met at the time of loss for coverage to apply. For example, a condition of your cafe insurance policy may require you to securely lock your premises in case of a break-in. These are important to follow in case you need to make a claim. If not, you’re claim could be rejected. 
• Warranties or conditions precedent - in insurance, this means strict conditions that you must always follow. Unlike policy conditions, which only apply at certain times, warranties mean you need to follow them continuously. For example, if your policy includes a warranty about security systems, any temporary failures could affect your cover.  

Tara Mitchell, Insurance Technical Manager at Bionic states - “On August 1, 2025, BT terminated its Redcare alarm signalling system. This means that all existing Redcare customers had to find a replacement signalling alarm service in time for that date. This is the perfect example of terms set out by your insurer that you need to follow to keep the validity of your building insurance policy.” 

• Proximate cause is the first event that starts a chain of events that leads to a claim. For example, if there is a burst pipe at your takeaway which causes a short circuit to an electrical appliance and results in a fire, the proximate cause of that claim would be the burst pipe. This is because without the burst pipe the short circuit would not have happened. Sufficient takeaway insurance could help cover this. 

It’s a good idea to scan your insurance policy to check if any of these apply to your business. 

Material facts and statement of facts 

• A material fact is essentially any piece of information about your business that could influence a decision your insurer makes. This could be anything from what building materials have been used in the construction of your building, to activities your building is used for outside of normal business activities – like renting it out for events. When asked, you should always tell your insurer everything about your business, so you get the protection you need. The Financial Conduct Authority requires you to disclose all material facts honestly. If you don't it could void your policy straight away. 
• Statement of facts is a document that includes all the information you’ve given your insurer that they’ve referred to so they can give you accurate cover. These documents almost act like a source of truth and evidence of what information you disclosed to your insurer – especially if you run into any issues with claims. It’s really important you review your statement of facts and make sure you’ve answered truthfully and told your insurer all there is to know about your small business.  

How can I avoid making mistakes when it comes to my insurance policy?  

Making a simple mistake when it comes to informing your broker about your business may be innocent, but it could cost you down the line, especially if you’re involved with a costly claim. If it turns our you’re not covered, you could end up paying out of your own pocket. 

Here are some tips to avoid making simple mistakes... 

Always tell your insurer the truth 

‘Utmost good faith’ is a phrase you might come across that means your broker and insurer expect you are completely honest and truthful when dealing with them. This doesn’t just apply when taking out a policy, but when dealing with changes to your business and claims too.  

For example, if you decide to expand your business and open another shop or diversify your business activities – you must tell your broker and insurer otherwise it could affect the validity of your cover. After all, honesty is the best policy when it comes to insurance. 

Disclose previous claims 

• Previous claims can affect your cover, but you need to be upfront about them. Being dishonest, could cause you to end up with a policy that void and that’s no good to anyone when it comes to making a claim. 
• Pre-existing conditions is another term you might come across. This could refer to any issues that already exist that could affect your cover, like previous subsidence at the property.  These should always be declared – no matter how long it happened - before you take out a policy with a new broker or renew. 

When it comes to professional indemnity cover, pre-existing claims or circumstances that existed before you took out your current policy typically aren't covered.  

State any retroactive dates 

Retroactive dates refer to how far back your professional indemnity coverage extends to cover past work. This can be called “retroactive cover” or “prior acts of coverage”.  

For example, if you’re a consultant and your retroactive date is after you started trading, claims relating to earlier work won't be covered. For a retroactive date to be put in place by your insurer, you must not have any gaps in cover (even for a day). 

Always talk to your broker about retroactive dates if you are unsure about past work being covered. 

What business insurance claims jargon do I need to know?  

In the unfortunate event that you need to make a claim, or someone claims against you, it’s a good idea to be clued up with some terms you might come across or need to use. 

• Claims notification requirements – this refers to how quickly you need to inform your insurer about an incident, whether an employee trips and falls or repairs works damage an adjacent building. It’s normal for policies to require "immediate" notification, though this typically means "as soon as reasonably possible" rather than phoning up straight away.  

The most important thing to remember is to never delay reporting an event unnecessarily as this could affect the outcome – including any payouts you’re after. 

• Assisting with claims -  When making a claim insurers expect you to assist with the claims process. This includes providing any requested documents, allowing inspections of the property and being proactive to reduce any loss that has occurred. 
• Claims control provisions – these are terms set out on who makes decisions about claim handling, particularly for legal disputes. Some policies give insurers complete control over legal proceedings, while others allow you to have a say in settlement decisions. 
• Preventing further damages - should the worst happen, you should take any emergency action that is necessary to prevent further damages.  For example, if a mains pipe has burst, you should turn the water off or contact the police if you have suffered malicious damage. It is important not to make permanent repairs before you contact your insurer.  You should also make sure you do not dispose of any damaged items as your insurer may need to review them. 

How Bionic can help with insurance 

Insurance lingo can be a bit confusing, but with reading up on important terms, you can feel confident when dealing with anything from quotes to claims. 

Thankfully, arranging your insurance with Bionic is easy and we’re always here to help. We understand your business and what cover you need. Start a quote online to compare business insurance to get started and we’ll be on hand to talk you through your options.