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Glossary of Insurance Terms

Common terms used in the insurance industry

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Glossary of Insurance Terms

As a prospective insurance customer, some terms used by the insurance industry can be confusing. In order to make a well informed decision regarding your insurance needs, we have included this list of basic insurance terms and definitions for your convenience.

A

Actual Cash Value

This is the fair market value amount used to replace insured property that has been damaged or destroyed, minus depreciation. For vehicles, the amount can be established by referring to a dealer quotation for similar vehicles.

Agent

An individual certified and officially approved to act as a representative and sell insurance for a particular insurance company.

Automobile Insurance

Auto Insurance provides protection from losses resulting from owning and operating an automobile. The insurance covers losses to the insured’s property and losses for which the insured is liable as a result of owning or operating the automobile. The insurance can cover liability, collision, medical, and an involved third party who is not insured.

B

Binder

A temporary or initial agreementthat provides insurance protection until a policy is processed or delivered.

Bodily Injury

Any physical injury sustained by the injured due to work or caused by negligence or unintentionally caused by a third party.

Broker

A licensed individual or organisation you pay to look for the insurance plan on your behalf.

Burglary

A burglary is the loss of property or valuable possessions due to a forced or unlawful entry to your home, vehicle, or business premises.

C

Cancellation

The termination of an insurance contract before the end of the policy period; either by the insured or insurer.

Claim

Any request or demand for payment under the terms of the insurance policy.

Claimant

An individual or entity making a formal claim from the insurance company.  This could be claimed by the first or third party who asserts the rights to recovery of property.

Comprehensive Car Insurance

Insurance coverage for any accidental or direct damage to, or loss of the insured automobile, including the equipment in it.  It covers fire, theft, or vandalism.

D

Deductible (Excess)

The amount of loss the insured is responsible to pay out of pocket before the insurance company shoulders the cost.  A deductible(Excess) is determined by the cost of your premium.  Usually, the higher the deductible(Excess) is, the lower the premium.

Depreciation

The decrease in value of any property due to wear, tear, and/or time. Generally, depreciation is not an insurable loss.

Disability Insurance

Income payments shouldered by the insurance company when the insured’s wages are terminated or interrupted due to accident or illness.

E

Excess

The amount of loss the insured is responsible to pay out of pocket before the insurance company shoulders the cost.  A deductible(Excess) is determined by the cost of your premium.  Usually, the higher the deductible(Excess) is, the lower the premium.

Endorsement or Rider

Revision made to the policy to either delete or add coverage.  This is also termed as a rider.

Exclusion

Some conditions in the policy that are not covered.

Expiration Date

The date the agreed upon insurance policy ends.

F

Face Amount

The dollar amount paid to the beneficiary in the event of the death of the insured. The amount excludes other amounts that have been paid from insurance bought with dividends, or any policy amendments or riders.

Farm Owners Insurance

This policy protects the policyholder’s property, machinery, farm animals, and loss of income and other risks associated with the business.

Fire Insurance

Coverage for loss of or damage to a building caused by fire. Depending on the policy, the insurance may include the contents of the building.

G

General Liability Insurance

Insurance that provides protection from claim arising from injuries or damage to other people or property.

Group Insurance

A single policy which insures a group of individuals.  This is commonly provided for employees of the same company and may include the employees’ dependents.  A master policy is issued to the business owner or association head.

Guaranteed Replacement Cost Coverage

The coverage pays the full cost of damaged or lost home even if it exceds the policy limit.

Guaranteed Renewable

A provision in the policy guaranteeing the policy owner to his or her right to renew coverage every anniversary date of the policy.

H

Home and Contents Insurance

This insurance protects the policy holder from the expensive cost of home rebuilding or home restoration when the original structure is damaged or destroyed.  Included in the coverage are the items in the home.  The coverage includes temporary accommodations for the residents until the structure is restored to a livable condition.

I

Indemnity

Monetary compensation for losses to a third party caused by the insured.

Insurance

Insurance is a system in which groups of people who have similar chances of suffering a loss transfer their risk of loss to an insurer who pools the risk of many people together. In exchange for payment of a premium, the insurer promises to reimburse the person for their covered losses.

Insured

A person or organisation covered by an insurance policy.

Insurer

An organisation that provides insurance.

Liability Insurance

Insurance that pays/renders service to the insured for loss or damage to property.

M

Marine Insurance

Coverage for goods in transit and the vehicles of transportation on waterways, land, and air.

P

Policy

A contract between an individual and the insurance company.

Premium

The amount of money the insurance company imposes for insurance coverage.

Q

Quote

An estimate of the insurance cost based on the requirements of the applicant as supplied to the broker or insurance company.

R

Rate

Often used as a synonym for premium but actually refers to the base rating units that are used to determine the final premium.

Rating Agencies

Agencies that rate insurance companies for their financial strength and capability to meet claim obligations.  These agencies base their ratings on the insurance companies investment performance, liquidity, company earnings, reinsurance programs, and management experience and integrity.

Renter’s Insurance

Insurance that provides protection from losses that arise out of the rental of a home. Protection covers losses to the insured’s property, not to losses that occur as a result of owning a home.

Risk

The probability of suffering a loss.

S

Surrender Charge

Fee charged on a policy when an annuity or life insurance policy is surrendered for its cash value.  The fee recoups the expenses of the insurance company for processing, documenting, and administrative expenses.

Surrender Period

The specified time for the policyholder to keep most of the money in an annuity contract.  Surrender period can last from 5 to 10 years and some contracts permit the withdrawal of at least 10% of the accumulated value of the insurance account. A surrender charge is paid when more than 10% of the accumulated amount is withdrawn.

T

Term Life Insurance

Insurance that gives protection for a specific period and may run on a year, five years to ten years or until the insured reaches 65 or 70 years old.  The policy does not build up the non-for feiture values related to whole life policies.

U

Underwriter

The person trained in assessing risks and determining rates and insurance coverage for insurance applicants.  The underwriter can also be an insurer.

Underwriting

The method of selecting and classifying insurance applicants according to their level of insurability to determine the suitable premium rates that will be charged.  During this process, unacceptable risks are also rejected

V

Variable Life Insurance

A type of life insurance with a face value that depends on the value of the dollar at the time the policy is due.

W

Whole Life Insurance

Life insurance which provides coverage for an individual’s entire life, rather than a specified term. A savings component, called cash value or loan value, builds over time and can be used for wealth accumulation.

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