Insurance Claim Terms to Know Before You File

Key things to know

1. Indemnity means a claim should restore the position you held immediately before the loss, no better and usually no worse.
2. Betterment applies when repairs leave your property improved, and the insurer may deduct the cost of that improvement from the payout.
3. If you are underinsured, a proportionate reduction or average clause can cut your payout to the same proportion as the shortfall.
4. Loss adjusters are instructed by the insurer, while loss assessors are appointed by you to negotiate on your behalf.
5. If you disagree with a settlement decision, complain to the insurer first, then take it to the Financial Ombudsman Service.

Claim forms and phone calls come with their own vocabulary, and it rarely gets explained at the moment you most need it. Terms such as indemnity, betterment and proportionate reduction shape how your claim is assessed and how much you are paid. This glossary sets out the language claims handlers use, with a short definition for each term. For the process from start to finish, see our guide to making an insurance claim.

Indemnity and How Claims Are Settled

Most home and buildings policies are policies of indemnity, and several other claim terms flow from that single idea.

• Indemnity. The principle that a payout should restore the position you held immediately before the loss occurred. It is why a settlement will not leave you better off, and why a fair one leaves you in a broadly similar position.
• Policy wording. The contract terms that decide what is covered and how claims are settled. Insurers, and the Financial Ombudsman Service if a complaint arises, look at the wording that was in force when the damage occurred.
• Settlement options. The ways an insurer can put things right. Most wordings give the insurer discretion over how it settles, covering repair, replacement, a cash payment or reinstatement of the damaged part of the building.
• Reinstatement. Rebuilding or restoring damaged property rather than paying you a cash sum. Reinstatement cost is also the basis of a buildings sum insured.

New for Old, Like-for-Like and Depreciation

• New for old. Cover that swaps damaged or destroyed belongings for brand-new equivalents of the same kind and standard, with nothing taken off for their age. Without it, payouts usually reflect an item’s second-hand value.
• Like-for-like replacement. Repair or replacement with an equivalent item or material. Whether your policy promises like-for-like or new for old changes what you can expect at settlement.
• Depreciation. A reduction in a payout to reflect the age and condition of an item, so that you receive what the item was worth rather than what a new one costs.
• Wear and tear. Deterioration that comes from ordinary use, which policies commonly exclude. Claims rejected on wear and tear grounds are a frequent source of complaints, and the ombudsman will look for evidence of excessive or unusual use, particularly where the item was relatively new.

Betterment: When a Repair Leaves You Better Off

• Betterment. When repairs or replacements after a claim improve the property beyond its original state. Since a claim should not add value, the insurer can cut the payout by the amount of that gain. In legal terms, betterment is treated as unjust enrichment.
• Betterment clause. A policy term that lets the insurer withhold the cost of any net improvement. Such clauses are common in the physical damage sections of motor policies, where they preserve the principle of indemnity when it is impossible to repair or replace a part without leaving the car better than it was.
• Like kind or quality. The standard a replacement part must meet. If a repair or replacement results in something better than like kind or quality, the insurer will not pay for the improvement.
• Betterment charge. The contribution you are asked to make when a replacement is of higher quality than what was lost. If the original roof tiles are out of production and modern, higher-specification tiles are fitted instead, the insurer may deduct part of the cost.

Check your policy: Betterment deductions are often disputed, especially when the improvement was not optional. If you could not carry out the repair any other way, for example because older materials or parts are no longer available, a deduction may not apply, and it is reasonable to ask the insurer to justify one.

Underinsurance and Proportionate Reduction

• Underinsurance. Having a sum insured that falls short of what it would actually take to restore your property and possessions. Lots of households find out only when they claim that the figure on the policy is too low, and the shortfall then reduces the payout. Our article on why underinsured claims payouts fall short explains how this works in practice.
• Sum insured. The maximum amount your policy will pay. On buildings cover, it should reflect the rebuild cost rather than the market value of the property.
• Proportionate reduction. Often called the average clause. If you have insured for less than the full value, the insurer can pay only the same proportion of the loss, leaving you to fund the remainder yourself.
• Rebuild cost. The total expense of demolishing and constructing your home again on the same site. This figure can differ a great deal from the price the house would fetch on the market.

Excess at Claim Time

• Excess. The amount you contribute towards any claim, deducted from the payout. It applies whether the claim is large or small.
• Compulsory excess. The portion set by the insurer, which you cannot change. On some covers it can differ depending on the type of claim.
• Voluntary excess. An additional amount you choose when buying the policy, usually in exchange for a lower premium. It is added to the compulsory excess at claim time. Our guide to how insurance excess works covers both in more detail.

Payments and Settlement Terms

• Cash settlement. Money paid instead of arranging repairs or replacement. The insurer can choose how to settle, but it should take account of your circumstances; paying cash for a subsidence claim involving extensive structural work, for instance, may not be a fair choice.
• Interim payment. A part payment made before the claim is settled in full, sometimes used where the final figure will take time to establish.
• Ex gratia payment. A payment the insurer makes without accepting that the claim is covered under the policy. It is a gesture rather than an admission, which can matter if a dispute continues.
• Final response letter. The written conclusion an insurer sends at the end of a complaint. If eight weeks pass without one, or the reply does not resolve the matter, the next step is the Financial Ombudsman Service.

The People You Will Deal With

• Claims handler. The insurer’s staff member who manages your claim day to day, from registering it to arranging the settlement.
• Loss adjuster. An expert instructed by the insurer to inspect the damage and report on the claim. They act for the insurer, though they may agree parts of your claim along the way.
• Loss assessor. A specialist you can appoint yourself to prepare and negotiate a claim on your behalf, usually in return for a fee or a share of the settlement. Our guide to loss adjusters and loss assessors explains the difference and who pays whom.

Before you file, read your policy wording and note which of these terms it uses, so you know what to expect when the claim handler calls.

Questions answered

Will my claim pay what I originally paid for an item?
Not always. With new for old cover, damaged items are replaced with new equivalents at no deduction. Without it, the payout usually reflects the item’s second-hand value after depreciation.

What is betterment in simple terms?
Betterment is when a repair or replacement leaves your property better than it was before the damage. Because a claim should not improve your position, the insurer may reduce the payout and ask you to cover the difference.

Can I challenge a deduction from my payout?
Yes. Raise the issue with your insurer first. If eight weeks pass without a final response, or the reply does not sort the matter out, the Financial Ombudsman Service can review the evidence from both sides.

Is the excess always the same amount?
No. Policies usually combine a compulsory excess set by the insurer with a voluntary excess you chose when buying the cover, and both are deducted from the payout when you claim.