Important Terms in Insurance

Important Terms in Insurance

Actuary:

An actuary is a business professional who deals with the financial impact of risk and uncertainty. Actuaries assemble and examine data to estimate the probability and likely cost of the occurrence of an event such as death, sickness, injury, disability, or loss of property.

Annuity:

An annuity is a series of payments made at fixed intervals of time. Annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years.

Claim:

An insurance claim is the actual application for benefits provided by an insurance company. It is a request for payment of the contractual benefits by the insurer that is made by the insured or the beneficiary.

Coverage:

It is the amount of liability covered for an individual by insurance services. Living and death benefits are listed in life insurance.

Death Benefit:

It is the amount on a life insurance policy that is payable to the beneficiary when the recipient passes away. It is also known as “survivor benefit”.

Deductible:

It is the amount that the insured pays before the insurance company begins to pay.

Endowment Insurance:

It is the life insurance for a specified amount which is payable to the insured person at the expiration of a certain period of time or to a designated beneficiary immediately upon the death of the insured.

Exclusion:

It refers to conditions that are not covered by the general insurance contract.

Indemnity:

The concept of indemnity is based on a contractual agreement made between two parties, in which one party agrees to pay for potential losses or damages caused by the other party. Indemnity may be paid in the form of cash, or by way of repairs or replacement, depending on exactly what is spelled out in the indemnity agreement.

Insurable Interest:

Insurable interest exists when an insured person derives a financial or other kind of benefit from the continuous existence of the insured object. Insurable interest is established by ownership, possession, or direct relationship.

Insurance Settlement:

It is the payment of proceeds by an insurance company to the insured to settle an insurance claim within the guidelines specified in the insurance policy.

Lapse:

It is the termination of a policy upon the policy owner's failure to pay the premium within the grace period.

Maturity value:

Maturity refers to the length of time from issuing a fixed-term debt security until it is paid off. Maturity value is the amount to be paid to the holder of a financial obligation at the obligation's maturity. In the case of a bond, the maturity value is the principal amount of the bond to be paid by the issuer to the owner at maturity.

Paid-up value:

When the premium for a life insurance policy is not paid on time and it lapses, then the policy acquires a paid-up value.

Peril:

It is a specific cause of loss covered by an insurance policy, such as a fire, windstorm, flood, or theft.

Policy:

It is the written contract of insurance company describing the term, coverage, premiums and deductibles.

Premium:

It is the price of insurance protection for a specific risk for a specified period of time.

Reinsurance:

Reinsurance is also known as “insurance for insurers” or “stop-loss insurance”. It occurs when multiple insurance companies share risk to bound the total loss the original insurer would experience in case of disaster by purchasing insurance policies from other insurers. The premium paid by the insured is shared by all the insurance companies involved.

Renewal:

It is a certificate which attests to the fact that an insurance policy has been extended for another term.

Rider:

It is a provision of an insurance policy that is purchased separately from the basic policy. It provides additional benefits at additional cost. Riders help policyholders in creating insurance products that meet their specific needs.

Subrogation:

It is the right for a company to recover the loss from the guilt party when the company pays for which someone other than the policyholder is responsible.

Sum assured:

Sum assured is the minimum amount payable by the insurance company in case of death of the policy holder.

Survival Benefit:

Survival benefit is the amount received at the end of insurance policy tenure. The amount to be paid as survival benefit is determined when the policy document is signed. It is mentioned in the terms and conditions of the policy.

Term insurance:

Term insurance is the simplest form of life insurance providing coverage for a defined period of time, at a fixed rate of payment. The death benefit is payable to the nominee, who is a family member if the insured expires during the applicable term.

Underwriting:

Underwriting is the process of assessing risk, ensuring that the cost of the cover is proportionate to the risks faced by the individual concerned.