No insurance resource would be complete without a comprehensive glossary of terms. We’ve compiled a list of terms and their definitions to better help you navigate the sometimes confusing world of insurance.
Insurance – The companies dealing in Insurance Products with uncertainty as to “whether or not” the event will occur e.g. Fire, Burglary, Accident, etc
Assurance – The companies dealing in Insurance Products with uncertainty as to “when” the event will occur e.g. death
Insured – The person whose financial interest is recognised in the policy document-property-owner, financier, etc
Sum Insured – The value of insured item being the limit of indemnity/compensation
Premium – The amount paid to buy Insurance cover
Indemnity – The process of returning the insured to his financial position immediately before the loss
Claim – A demand made by the insured, or the insured’s beneficiary, for payment of the benefits as provided by the policy.
Subrogation – A principle to ensure that the insured does not make a gain out of his loss
Excess – The amount of a claim that is borne by the insured. The insurer pays all amounts over and above his amount
Salvage – Property recovered by the insurer after they have settled a claim
Lapse – The termination of an Insurance Contract generally through non-payment of premium or absence of renewal instruction
The basis of an Insurance Contract to be completed by the proposer
The evidence of an Insurance Contract usually issued by the Insurance Company
Clause – Statements incorporated into the policy document to modify the terms of the contract
Endorsement – Statements incorporated into the policy document to note new developments about the contract
Discharge Voucher – A form of receipt confirming acceptance of the amount offered as full and final discharge of insurer’s obligation under a claim
Risk – Uncertainty concerning loss
Peril – Loss-producing agents e.g. fire, lightning, explosion, riot
Insurable Interest – Evidence of Financial or legal relationship to the property or person to be insured; it is the legal right to insure
Ubberima Fidei – A basic principle in insurance implying an obligation by the insured and insurer to act in utmost good faith; it is a positive duty
Reinsurance – Insurer of Insurance companies
Bancassurance – Insurance Products sold through the banks
Takaful Insurance – Insurance products packaged under the Sharia law specifically to avoid ‘riba’ (interest) and ‘mairsir’ (gaming)
Micro Insurance – Insurance package for the low income group and the rural poor
Waiver of Premium – A provision in some insurance contracts which enables an insurance company to waive the collection of premiums while keeping the policy in force if the policyholder becomes unable to work because of an accident or injury. The waiver of premium for disability remains in effect as long as the insured is disabled.
Whole Life Insurance – Life insurance which might be kept in force for a person’s whole life and which pays a benefit upon the person’s death, whenever that might be.
Underwriter – The individual trained in evaluating risks and determining rates and coverages for them. Also, an insurer.
Total Loss – A loss of sufficient size that it can be said no value is left. The complete destruction of the property. The term also is used to mean a loss requiring the maximum amount a policy will pay.
Surrender Charge – Fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value. This fee reflects expenses the insurance company incurs by placing the policy on its books, and subsequent administrative expenses.
Surrender Period – A set amount of time during which you have to keep the majority of your money in an annuity contract. Most surrender periods last from five to 10 years. Most contracts will allow you to take out at least 10% a year of the accumulated value of the account, even during the surrender period. If you take out more than that 10%, you will have to pay a surrender charge on the amount that you have withdrawn above that 10%.
Renewal – The automatic re-establishment of in-force status effected by the payment of another premium.
Loss Ratio – The ratio of incurred losses and loss-adjustment expenses to net premiums earned. This ratio measures the company’s underlying profitability, or loss experience, on its total book of business.
Net Premium – The amount of premium minus the agent’s commission. Also, the premium necessary to cover only anticipated losses, before loading to cover other expenses.
Net Premiums Earned – The adjustment of net premiums written for the increase or decrease of the company’s liability for unearned premiums during the year. When an insurance company’s business increases from year to year, the earned premiums will usually be less than the written premiums. With the increased volume, the premiums are considered fully paid at the inception of the policy so that, at the end of a calendar period, the company must set up premiums representing the unexpired terms of the policies. On a decreasing volume, the reverse is true.
Net Premiums Written – Represents gross premium written, direct and reinsurance assumed, less reinsurance ceded.
Net Underwriting Income – Net premiums earned less incurred losses, loss-adjustment expenses, underwriting expenses incurred, and dividends to policyholders.