Know the terms commonly associated with your insurance policies
Accident: An event or occurrence causing damage/injury to an entity, and is unforeseen and unintended.
Accident Benefit: Provides for payment of an additional benefit equal to the sum assured in installments on permanent total disability and waiver of subsequent premiums payable under the policy.
Act in Force Clause: A Clause included in excess of loss treaties pertaining to liability insurance, where such liability is statutory, to take care of changes in law or act about quantum of compensation during the cover period, by revision of rate and/or underlying loss retention as well as the limit of the excess of loss cover.
Act Liability with Fire &/or Theft: Provision under the Motor Insurance Tariff to cover a motor vehicle against act liability of the insured together with restricted own damage to the vehicle caused by Fire, External Explosion, Self-ignition or lightning or burglary, house breaking or theft. There is a percentage reduction from the premium applicable for the own damage portion of the cover in view of the above-restricted scope of the cover, which is provided in the tariff.
Act of God Perils: Any event not caused or contributed to by man. Some sudden and irresistible acts of nature that could not reasonably have been foreseen or prevented, such as floods or exceptionally high tides, storms, lightning, earthquakes etc. constitute Act of God Perils.
Act only Policy: Insurance Coverage for all motor vehicles to indemnify the insured upto the limits prescribed in the Motor Vehicle Act, 1988 in respect of his legal liability to pay compensation for death or bodily injury to any third party or damage to the property of any third party caused in any accident or series of accidents arising out of one event in so far as is necessary to meet the requirements of section 147 of the Motor Vehicle Act, 1988.
Actual Total Loss: An actual total loss of a property is said to take place when the insured is irretrievably deprived of the subject matter insured. The subject matter is so damaged by an insured peril as to cease to be a thing of its kind-loss of specie. In so far as it relates to a vessel and/or cargo thereon, the vessel is declared as missing.
Actuarial assessment of employees: The employees of a company may be entitled to various benefits by way of terminal dues at the time of retirement or resignation from the company. Eg; Gratuity for those who have completed 5 years of service, encashment of accrued leave at the time of retirement, commutation of pensionary benefits etc. Even though these liabilities arise at the time of retirement only, the employer is expected to evaluate such future liabilities by way of actuarial valuation and provide for the same in the current years accounts. Such provisions are called Actuarial assessment of employees liabilities.
Actuarial Science: A branch of knowledge which deals with mathematics of insurance. It is used in the evaluation of various risks, premium fixation commensurate with the risks and also provisions relating to unexpired risks, unexpired liabilities etc.
Actuary: An expert in statistics and a mathematician in the insurance field.
Conducts extensive statistical studies.
Calculates insurance risks and premiums and reserves.
Involves in the preparation of various annual reports in compliance of regulatory requirements.
Ad valorem: In proportion to the value.
Insurance premium in respect all property insurance coverage is fixed mostly in relation to the insured value of the property.
Calculation of stamp duty on certain portfolio is related insured value under the policy. Ex. Marine Cargo and Personal Accident Insurances.
Age Limits: Stipulated minimum and maximum ages below and above which the company will not accept applications or may not renew policies.
Agent: An insurance company representative licensed by the state, who solicits, negotiates or effects contracts of insurance, and provides service to the policyholder for the insurer.
Annuity Plans: These plans provide for a ‘pension’ (or a mix of a lumpsum amount and a pension) to be paid to the policyholder or his spouse. In the event of death of both of them during the policy period, a lumpsum amount is provided for the next of kin.
Application Form: Supplied by the insurance company, usually filled in by the agent and medical examiner (if applicable) on the basis of information received from the applicant. It is signed by the applicant and is part of the insurance policy if it is issued.
Arbitration: A form of alternative dispute resolution where an unbiased person or panel renders an opinion as to responsibility for or extent of a loss.
Assignment: Assignment means legal transference. Assignment of a Life Insurance Policy simply means transfer of rights from one person to another. The policyholder can transfer the rights of his insurance policy to another for various reasons and this process is called Assignment. An assignment can be made by an endorsement on the policy document or as a separate deed. Assignment can be of two types—Conditional & Absolute.
Baggage insurance: Insurance policy providing cover against loss of or damage to accompanied personal baggage of the insured or insured’s family member(s) due to fire, theft or any accident during the course of journey including stoppage enroute, anywhere in India. The policy normally excludes routine travels like going to and returning from office, theft from unattended vehicle, articles worn on the body of the person, war etc. It is possible that the policy is modified to suit the exact needs of the proposer subject to mutual consent and the insurer following the procedure of "file and use" laid down by the IRDA.
Base Premium: Premium charged by the direct insurer on the policy.
Basic Premium: The Gross Premium charged by the insurer to the insured under a policy.
Basic Rate: The rate of premium shown in the rate guide or manual of the insurance company for a specific insurance cover.
Beneficiary: The person(s) or entity(ies) (e.g. corporation, trust, etc.) named in the policy as the recipient of insurance proceeds upon the death of the insured.
Business Insurance: A policy which primarily provides coverage of benefits to a business as contrasted to an individual. It is issued to indemnify a business for the loss of services of a key employee or a partner who becomes disabled.
Cancelable: A contract of health insurance that may be cancelled during the policy term by the insurer or insured.
Coinsurance: 1) A provision under which an insured who carries less than the stipulated percentage of insurance to value, will receive a loss payment that is limited to the same ratio which the amount of insurance bears to the amount required; (2) A policy provision frequently found in medical insurance, by which the insured person and the insurer share the covered losses under a policy in a specified ratio, i.e., 80 per cent by the insurer and 20 per cent by the insured.
Convertible Whole Life Policy: A mix of “whole life policy” and “endowment policy”, it provides for very low insurance premiums with maximum risk cover while the life assured is just beginning his working career, and the possibility of converting the policy to an “endowment” policy after five years of commencement.
Co-pay: An insured person is responsible to pay some percentage of the total claim, even after the mandatory waiting period is over.
Coverage: The scope of protection provided under a contract of insurance; any of several risks covered by a policy.
Critical illness policy: A critical illness is a serious possibly terminal disease, which is strictly defined by the insurer. Conditions such as cancer, multiple sclerosis, major organ transplants are deemed as critical illness. Most critical illness policies provide for the payment of a lump sum benefit if the policyholder is diagnosed as suffering from one of a number of specified terminal conditions.
Cumulative bonus: Each claim free year ensures that you get a benefit known as ‘cumulative’ bonus.
Days Of Grace: Policy holders are expected to pay premium on due dates. A period is 15-30 days is allowed as grace to make payment of premium; such period is days of grace.
Deductible: The amount that the insured must spend from his pocket before the health insurer pays its share. Deductible is the proportion of loss that the insured bears in respect of any claim. This will be in two forms, namely, amount of excess, which will be mentioned either as a fixed amount or a percentage of the sum insured or the claim amount. Time excess by which the insured will not be entitled to the claim related to a specific period (usually number of days) stated in the policy.
Deferment Period: Period between the date of subscription to an insurance-cum-pension policy and the time at which the first installment of pension is received. Such policies generally prescribe a minimum and maximum limit on the deferment period.
Depreciation: A decrease in the value of property over a period of time due to wear and tear or obsolescence. Depreciation is used to determine the actual cash value of property at time of loss.
Double/Triple Cover Plans: These offer to the beneficiaries double/triple the sum assured on death of life assured during the term of the policy. On survival to the date of maturity, the basic sum assured is paid to the assured. These are low-premium plans, most useful for situations such as housing.
Embezzlement: Fraudulent use or taking of another’s property or money which has been entrusted to one’s care.
Endowment Policy: The assured has to pay an annual premium which is determined on the basis of the assured’s age at entry and the term of the policy. The insured amount is payable either at the end of specified number of years or upon the death of the insured person, whichever is earlier.
Excess & Surplus Insurance: (1) Insurance to cover losses above a certain amount, with losses below that amount usually covered by a regular policy. (2) Insurance to cover an unusual or one-time risk, e.g., damage to a musician's hands or the multiple perils of a convention, for which coverage is unavailable in the normal market.
Exclusions: Specific conditions or circumstances for which the policy will not provide benefits. For example: Not all diseases & services are covered under a mediclaim policy.
Facultative Reinsurance: A type of reinsurance in which the reinsurer can accept or reject any risk presented by an insurance company seeking reinsurance.
Family Insurance: A life insurance policy providing insurance on all or several family members in one contract, generally whole life insurance on the principal breadwinner and small amounts of term insurance on the other spouse and children, including those born after the policy is issued.
Fiduciary: A person who holds something in trust for another.
Fire Insurance: Coverage for losses caused by fire and lightning, plus resultant damage caused by smoke and water. Flood insurance Coverage against loss resulting from the flood peril, available at low cost under a programme developed by the Central government.
Floater policy: This policy is issued with a single sum insured covering all members of the family. The cover can be used any member of the family any number of times.
Franchise Insurance: A form of insurance in which individual policies are issued to the employees of a common employer or the members of an association under an arrangement by which the employer or association agrees to collect the premium and remit them to the insurer.
Guaranteed Insurance Sum (GIS): A lump sum purchase price is paid to purchase future pensions under the guaranteed savings insurance plan. This amount is referred to as GIS. The monthly pension that is payable one month after payment of first premium is calculated on the basis of the age at entry.
Group Insurance: Insurance coverage for a group of individuals engaged in some common activity. Ex. Employees of an organisation, members of an association of professionals, farmers registered as a society for rural activities etc. Insurers issue group policies in accident insurance, medical insurance, professional indemnity insurance, etc.
Group Life Insurance: Life insurance usually without medical examination, on a group of people under a master policy. It is typically issued to an employer for the benefit of employees or to members of an association, for example a professional membership group. The individual members of the group hold certificates as evidence of their insurance.
Group Mediclaim Insurance: Mediclaim Insurance Policy issued in favour of an enterprise or an organisation or any employer, to cover their employees and dependants. These policies are also issued to associations, clubs etc. for the benefit of their members. The essential requirement for a group policy is: Some common relationship among the persons to be insured and a central point for administration of the policy scheme.
Group Personal Accident Insurance: Personal Accident Insurance Policy issued in favour of an enterprise or an organisation or any employer, to cover their employees (and dependants also sometimes). These policies are also issued to associations, clubs etc for the benefit of their members. The essential requirement for a group policy is: Some common relationship among the persons to be insured and a central point for administration of the policy scheme.
Guaranteed Policies: These are policies where the payment stays fixed.
Implied Warranty: An implied warranty is not expressed in the policy specifically but which is understood by both parties to be forming part of the contract and binding on both. An implied warranty must be strictly complied with. In the event of a breach of the warranty the insurer is discharged from liability as from the date of the breach, but the insurer may waive the breach or the breach may be excused by statute. Due diligence is an example of implied warranty in respect of all policies. Seaworthiness and Legality of Adventure are two examples in relation to Marine Insurance
Indemnity: Legal principle that specifies an insured should not collect more than the actual cash value of a loss but should be restored to approximately the same financial position as existed before the loss.
Insurable Interest: A condition in which the person applying for insurance and the person who is to receive the policy benefit will suffer an emotional or financial loss, if any untouched event occurs. Without insurable interest, an insurance contract is invalid.
Insurability: All conditions pertaining to individuals that affect their health, susceptibility to injury and life expectancy; an individual's risk profile.
Insurance: Social device for minimizing risk of uncertainty regarding loss by spreading the risk over a large enough number of similar exposures to predict the individual chance of loss.
Insured: The person whose life is covered by a policy of insurance.
Joint Life Endowment Assurance Plans: The sum assured (plus any accrued bonuses) under this type of policy is payable on the end of the endowment term or on the first death of the two lives assured, whichever is earlier. Typically (though not a necessity) taken out by a couple, a variation is available for couples only. In this case, the sum assured will be payable on first death and then again on the second death (along with all vested bonuses) if both deaths occur during the term of the policy. If one or both lives survive to the maturity date, the sum assured along with all vested bonuses will be payable on maturity date. Premiums during this plan cease on the first death or the expiry of the selected term, whichever is earlier. Another variation provides for annuity to both/surviving spouse, or a lumpsum amount to the legal heirs.
Keyman Insurance Policy: A life insurance policy taken by a person on the life of another person who is or was his employee/connected to his business in any manner whatsoever.
Lapsed Policy: A policy which has terminated and is no longer in force due to non-payment of the premium due.
Law of Large Numbers: Concept that the greater the number of exposures, the more closely will be, the actual results to the expected results and greater the credibility of predictions. This law forms the basis for arriving at the statistical expectation of loss based on which the insurance premium will be fixed for different risks.
Limited Payment Life Policy: Premiums need to be paid only for a certain number of years or until death if it occurs within this period. Proceeds of the policy are granted to the beneficiaries whenever death of the policy holder occurs. Again, this policy can also be of the ‘with profits’ or ‘without profits’ type.
Loyalty Additions: The loyalty addition is given upon the maturity of the policy, and not before. It's a small percentage of the sum assured.
Life Assured: The person whose life is insured by an individual life policy is called life assured.
Machinery Breakdown Insurance (Machinery Insurance): Insurance for plant and machinery, providing cover against all kinds of accidental Electrical and Mechanical Breakdown due to internal and external causes. Cover is in force during the time machine is in operation or at rest or in process of dismantling and overhaul or during subsequent re-erection at the same premises. The principal exclusions are all those perils which are covered under a Standard Fire and Special Perils Policy as also willful negligence, war, gradual deterioration etc. The rates, terms and conditions of this cover are governed by tariff.
Maturity: The date upon which the face amount of a life insurance policy, if not previously invoked due to the contingency covered (death), is paid to the policyholder.
Maturity Claim: The payment to the policy holder at the end of the stipulated term of the policy is called maturity claim.
Misrepresentation: Act of making, issuing, circulating or causing to be issued or circulated an estimate, an illustration, a circular or a statement of any kind that does not represent the correct policy terms, dividends or share of surplus or the name or title for any policy or class of policies that does not in fact reflect its true nature.
Money Back Policy: Unlike endowment plans, in money back policies, the policy holder gets periodic as survival benefit during the term of the policy and a lumpsum amount on surviving its term. In the event of death during the term of the policy, the beneficiary gets the full sum assured, without any deductions for the amounts paid till date, and no further premiums are required to be paid. These type of policies are very popular, since they can be tailored to get large amounts at specific periods as per the needs of the policy holder.
Moral Hazard: Risk depends on the need for insurance, state of health, personal habits standard of living and income of insured person. Moral hazard is the risk factors that affect the decision of the insurance company to accept the risk.
Network hospital: Insurance companies has tie-up with various hospitals where the insured can avail cashless facility.
Nomination: An act by which the policy holders authorises another person to receive the policy money. The person so authorised is called nominee.
No Claim Bonus: A reduction as a percentage in the manual or the prospectus premium at the time of renewal of the policy based on favourable claims experience in the previous year/s policy/ies for the same insured property against the same insured perils.
No claim discount: It is a discount on the basic premium if there is a claim free year of the policy. If the insured does not make any claim on his policy, then he gets a discount from 5% to 25% on basic premium for every claim free year.
Non-cancelable policies: Such policies stay in effect regardless of whatever that might happen and as long as the premium is paid from time to time.
No fault liability: Means that the claimant is not required to prove that the death, injury or damage was due to any wrongful act, neglect or default of any person. The relief provided under the following acts come under "No Fault Liability"
1. Public Liability Insurance Act.
2. Motor Vehicle Act in connection with Road Accident Victims.
3. Workmen Compensation Act
Personal accident policy: These policies are issued as fixed benefit policies whereby specified sums are paid on the occurrence of specified events. These events could be death or disability. This payout is not related to the expenses incurred.
Portability: Transferring your existing health insurance policy to a new insurer without losing any benefits of your existing health insurance policy.
Pre-authorisation: Insured must contact the health insurer before hospitalisation and receive approval for the healthcare service.
Pre-existing disease: The term refers to any ailment or disease that a person is already suffering from at the time of purchasing health insurance.
Premium: The payment, or one of the regular periodic payments, that a policy holder makes to an insurer in exchange for the insurer’s obligation to pay benefits upon the occurrence of the contractually-specified contingency (e.g., death).
Premium Back Term Insurance Plans: These provide for refund of all the premiums paid, in the event of the life assured surviving to the end of the policy term. The total sum assured is paid to the beneficiaries in the event death occurs during the policy term.
Rate per Mille: Rate of premium calculated per thousand of the sum insured.
Reinstatement: The restoration of a lapsed policy to in-force status. Reinstatement can only occur after the expiration of the grace period. The company may require evidence of insurability (and, if health status has changed, deny reinstatement), and will always require payment of the total amount of past due premium.
Risk: The obligation assumed by the insurer when it issues a policy. The spreading of risk across a broad base of the population, adjusted for statistical probability, and the protection against catastrophic loss, is the entire purpose of insurance. For risk assumption purposes, death is viewed as a contingency. That is, although death is certain, its timing is unknown. The process of evaluating and selecting risk is known as underwriting.
Salary Saving Scheme: This scheme provides for payment of premiums by money deduction from the salary of the employees by one employer.
Sub-limits: A limitation in an insurance policy on the amount of coverage available to cover a specific type of loss. Usually the caps are on room rent, ambulance services and doctor’s fees.
Sub Standard Risk: Person who is considered an under-average or impaired insurance risk because of physical condition, family or personal history of disease, occupation, residence in unhealthy climate or dangerous habits.
Surrender Value: The value payable to the policy holder in the event of his deciding to terminate the policy before the maturity of the policy.
Survival Benefit: The payment of sum assured to the incurred person which has become due by installments under a money back policy.
Tariff: In insurance, it is a collective agreement by members to calculate and charge the same premium for a given risk or type of insurance.
Television Insurance: Insurance Cover for T.V. apparatus and antenna as also to VCR against Fire and allied perils, Riot and Strike, any other accidental damage by external means, mechanical and electrical breakdown, burglary, housebreaking and theft. Cover is also provided against third party liability of the insured or loss to his own surrounding property arising out accidents caused by or through the insured item. Differential rates of premium are applied by the insurer depending upon whether the equipment is for personal or commercial use and also if let on hire.
Third Party: Person mentioned in a contract but not a party to the contract. Third-party insurance, for example, gives the insured cover against claims made by a third party (who is not named in the policy and not a party to it).
Third Party Liability: Liability arising to a party, who is not party to the contract i.e. other than the insured or the insurer. This party/person is called the third party and the liability to him/her arising under law or contract is called third party liability.
Third party administrator (TPA): TPAs are the authorised claim settling agents of the health insurer. A TPA examines the expenses incurred with regard to coverage under the policy. The insured needs to interact with them for settlement of claims. A TPA also empanels hospitals to be part of the network to facilitate cashless settlement of claims.
Total Loss: In marine insurance, the loss of ship at sea or the total destruction of a ship and/or its cargo.
Through Bill of Lading: A bill of lading providing for the carriage of goods by water, from their point of origin to their final destination, either by successive ocean carriers or by more than one mode of transportation.
Theory of Probability: This theory enables the insurance company to predict potential losses based on a study of the insured’s previous loss experiences.
Underinsurance: Inadequate insurance coverage in respect of the insured property. This results in the claim admitted under the policy being proportionately reduced.
Underwriter: An insurer; an official in an insurance company whose main responsibility is to perform the functions of underwriting to determine whether the risk proposed for insurance is insurable and if so, at what rates, terms and conditions.
Underwriting: Process of examining proposal, arranging for inspection of risks, fixing of premium rates, terms & conditions of cover, rejection of uninsurable risks, etc with the main objective of ensuring spread of risks among a large group of insured that is equitable for the insuring community and profitable for the insurer.
Underwriting Loss: Shortfall that results after payment of claims and expenses against the premium received.
Utmost Good Faith: Phrase referring to contracts of insurance in which both parties must disclose all the facts that may influence the other’s decision to enter into the contract, whether they are asked to do so or not. If either party has not acted in the utmost good faith, then the contract may become void.
Valued Policy: Insurance policy that has values assigned to insured items, the values being agreed by the insurer. In the event of a claim for total loss, that is the sum paid without the need for further negotiation.
Vesting Age: The age at which the receipt of pension starts in an insurance-cum-pension plan.
Void Contract: Contract that was drawn up on the basis of what turns out to be misunderstandings on both sides. Such a contract is deemed in law never to have existed.
Waiting Period: A period mentioned as ‘waiting period’ in the policy during which any loss-taking place is not recoverable under the policy.
Waiver: Voluntary relinquishment of known right. It may arise when a person knowing of a right that has accrued to him, fails to take advantage of the right within a reasonable time. In case of a breach of a condition or warranty by the insured, the insurer does not take note of that and give notice to that effect he is deemed to have waived his right.
Waiver of Subrogation: A clause relevant to policies, issued in favour of two or more parties, who have financial interest and/or involvement in the subject matter of insurance, whereby the insurer consents to waive all rights of subrogation or action which he may have or acquire against any of the insured arising out of any occurrence in respect of which a claim is admitted under the policy.
Whole Life Policy: Premiums are paid throughout the life time of life assured. This can be with profits or without profits (A "with profit" policy is eligible for various bonuses declared by the insurance company every year, while a "without profits" policy does not have this privilege)
With-Profit policy: Policies entitled to bonus, which is paid at the time of claim-death or maturity one with-profit policies.
These policies are not entitled to participate in bonuses.