Glossary of Insurance Concepts

Legal Liablility
"Legal Liability" in this brochure means liability at law for the consequences of some negligent act (as opposed to liability for breach of contract, for example).

Negligence
To be negligent is to fail to do what a reasonable and prudent person would do (or to do what such a person would not do); this can result in property damage, injury or death.

First Party
The person in whose name the policy is issued is, technically, the first party to the contract. He or she is also the policyholder. The term "named insured" is commonly used.

Second Party
Although you will not see this term in your policy, the insurance company that issues the policy is considered to be the second party of the two parties needed to form a contract.

Third Party
Anyone who is not a party to the contract is a third party. Unlike "first party" and "second party," this term commonly appears in insurance contracts.

Absolute Liablility
This provides financial protection for innocent victims of a wrongdoer, even if the wrongdoer has violated the terms of the insurance policy. An all-too-common example is the pedestrian injured by an insured vehicle owned and operated by a driver whose license is suspended. The insurer would be under strict (or "absolute") obligation to pay the pedestrian's damages. The insurer would not, however, be obliged to pay for damage to the car. Furthermore, the policyholder would have to reimburse the insurer for its payment to the pedestrian.

"No Fault"
This can be a confusing term. It describes coverage which pays for some or all of the insured person's loss regardless of who caused it. Nevertheless, it really does matter who caused the accident; if you are at fault, your future premiums may increase.

Deductible
The deductible is the portion of the insured loss that you pay; the amount appears on your policy. A common collision deductible is $250. This means that you would pay $250 of any repair bill and your insurance company would pay the balance. Any damage that costs less than $250 would therefore be your own responsibility. Because cars are susceptible to frequent minor damage, it is generally more cost-effective for policyholders to "self-insure" in this way for smaller mishaps; this helps to keep premiums affordable. There is no deductible in the case of re or lightning or (except under Quebec policies) for theft of the entire automobile. Deductibles may also apply to other types of physical damage coverages.

Fraud
If you try to gain by deliberately lying about a claim to your insurer, you forfeit your right to payment for the whole claim. Fraud increases everyone's insurance costs and isn't tolerated. To keep costs down for honest policyholders, insurers prosecute those who make fraudulent claims.