Important Insurance Terminologies

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Insurance: Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to
hedge against the risk of a contingent or uncertain loss

Bancassurance: Bancassurance means selling insurance product through banks. Banks and insurance company come
up in a partnership wherein the bank sells the tied insurance company’s insurance products to its clients.

Actuary: A person with expertise in the fields of economics, statistics and mathematics , who helps in risk
assessment and estimation of premiums etc for an insurance business.

Actuarial Science: Actuarial science is the discipline that applies mathematical and statistical methods to assess risk
in insurance , finance and other industries and professions.

Third Party Administrator: It is an organization that processes insurance claims or certain aspects of employee
benefit plans for a separate entity.

Mortality Charge: It is the amount charged every year by the insurer to provide the life cover to the policy holder on
the life of life insured. It is also called the cost of insurance.

Maturity date :Maturity date refers to the date on which the principal and interest associated with a debt security
must be repaid to the holder in its entirely.

Agent :An Agent is a person who represents an insurance firm and sells insurance policies on its behalf.

Broker :An Insurance Broker is someone who advises people on their insurance needs and negotiates insurance
contracts on their behalf with insurers in return for a fee or commission.

Annuity : An Annuity is a type of policy issued by insurance company designed to accept and grow funds , and
upon annuitization , create a stream of income or payments. The money you pay in can be either a lump sum or a
number of payments.

Malus: If the Policyholder has had a claim and it exceeds the specified limit, the premium is increased. This increase
or loading the premium is called Malus

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 Important Insurance Terminologies

Premium:A premium is a sum of money that you pay regularly to an insurance company for an insurance policy.
A premium is a sum of money that you have to pay for something in addition to the normal cost.

Insurable Risk :A Risk that conforms to the norms and specifications of the insurance policy in such a way that the
criterion for insurance is fulfilled.

Lapse : The policy for which all benefits to the policy holder cease and is terminated due to non payment of premium
amount on the due date or even after the grace period.

Surrender value : It is the amount the policy holder will get from the life insurance company if he decides to exit the
policy before maturity.

Maturity claim :The maturity claim amount is the payment received by the policy holder on paying the premium for
the whole premium paying term and on completion of policy term.

Death claim :A death claim is a request to grant life insurance benefits due under the policy to the designated
beneficiaries after the death of the insured.

Policy Not in Force :It means that the policy is paid up and active , so long as you are paying the premium for your
life insurance your policy is considered “in force”. If your policy is lapsed and you die , your insurer will not pay out
on your policy.

Gratuity :Gratuity is a monetary benefit given by the employer to his employee at the time of retirement. It is a
defined benefit plan where no contributions are made by the employee.

Void and Voidable contract : A contract will be considered Void when it requires one party to perform an act that is
impossible or illegal. A Voidable contract is a valid contract and can be enforced. Usually only one party is bound to
the contract terms in a voidable contract.

Paid up value :Paid –up value is the reduced amount of sum assured paid by the insurance company, in case the
policy holder discontinues payment of premiums. After payment of three years of premium in traditional life
insurance plans, your policy automatically acquires paid up value.

Terminable Bonus : A Bonus paid on a life insurance policy when the holder reaches a certain age or dies.

Actual Cash Value :A valuation of the damaged property, i.e. its monetary worth at market value immediately
preceding the occurrence of the loss, is called actual cash value of the property. It gives the estimate of the cost of
replacement or repair of the damaged asset.

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 Important Insurance Terminologies

Encumbrance :Encumbrance refer to claims to a property that is under the care , custody and control of another
individual.

Liquidity :Liquidity means how quickly you can get your cash on your hands. In simpler terms, liquidity is to get
your money whenever you need it.

Quick Liquidity Ratio :It is the total amount of a company’s quick assets divided by the sum of its net liabilities and
its reinsurance liabilities.

Current Liquidity: Current Liquidity is the total amount of cash and unaffiliated holdings compared with net
liabilities and ceded reinsurance balances payable. Current Liquidity is expressed as a percentage , and is used to
determine the amount of an insurance company’s liabilities that can be covered with liquid assets.

Re insurance :It is a process whereby one entity (the insurer) takes on all or part of the risk covered under a policy
issued by an insurance company in consideration of a premium payment. In other words, it is a form of an insurance
cover for insurance companies.

Lapse Ratio : It is the number of policies that are not renewed compared to the number of policies that were active at
the beginning of that same period. The lapse ratio represents the percentage of policies that were not renewed , and
thus have lapsed in coverage.

Impaired Insure: An Impaired Insurer is an insurance company that is potentially unable to fulfill its policy
obligations , and has been placed under rehabilitation or conservation.

Dividend: Dividend refers to a reward , cash, or otherwise , that a company gives to its shareholders. Dividends can
be issued in various forms, such as cash payment , stocks or any other form.

Co- insurance :Type of policy under which the insured must bear a fixed sum of loss in case of a claim.

Claimant: A claimant is a policyholder who files a claim or formal request for payment from their insurer to cover a
specific loss.

Casualty insurance :Casualty insurance broadly encompasses insurance not directly concerned with life insurance,
health insurance, or property insurance. Casualty insurance is mainly liability coverage of an individual or
organization for negligent acts or omissions.

Retention : It refers to the amount of money an insured person or business becomes responsible for in the event of a
claim.

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 Important Insurance Terminologies

Coding Company : Coding is the process of translating a physician’s documentation about a patient’s medical
condition and health services rendered into medical codes that are then plugged into a claim for processing with an
insurance company.

Declaration : Part of a property or liability insurance policy that states the name and address of policy- holder ,
property insured , its location and description, the policy period, premiums , and supplemental information.

Deferment Period: The deferment period is a time during which a borrower does not have to pay interest or repay
the principal on a loan. Deferment period also refers to the period after the issue of callable security during which the
issuer cannot call the security.

Ex Gratia Payments: An ex gratia payment is made to an individual by an organization, government, or insurer for
damages or claims, but it does not require the admittance of liability by the party making the payment. An ex gratia
payment is considered voluntary as the party making the payment is not obligated to compensate the individual

Expense Ratio:The expense ratio in the insurance industry is a measure of profitability calculated by dividing the
expenses associated with acquiring, underwriting, and servicing premiums by the net premiums earned by the
insurance company.

Fortuitous Loss :Loss occurring by accident or chance , not by anyone’s intention. Insurance policies provide
coverage against losses that occur only on a chance basis, where the insured cannot control the loss, thus the insured
should not be able to burn down his or her own home and collect.

Gross Direct:Gross direct insurance premiums, defined as gross insurance premiums for direct insurance for a
reporting country, divided by the population, represent the average insurance spending per capita in the country. This
indicator is shown in USD per capita.

Indemnity :Indemnity means making compensation payments to one party by the other for the loss occurred.

Insured: Specifically named individual or firm with whom an insurance contract is made, and whose interests are
protected under the policy. In some cases, more than one entity may be designated as insured.

Insurer :An insurer refers to the company providing you with financial coverage in the case of unexpected, bad
events covered on your renters or homeowners policy.

Loss Reserve :Loss Reserve is an estimate of an insurer’s liability from future claims. Loss reserves are typically
comprised of liquid assets, and they allow the insurer to cover claims made against policy that it underwrites.

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 Important Insurance Terminologies

Loss Ratio:Loss ratio is used in the insurance industry, representing the ratio of losses to premiums earned. Losses in
loss ratios include paid insurance claims and adjustment expenses. The loss ratio formula is insurance claims paid
plus adjustment expenses divided by total earned premiums.

Pooling: It is a practice wherein a group of small firms join together to secure better insurance rates and coverage
plans by virtue of their increased buying power as a block.

Premium :Premium is an amount paid periodically to the insurer by the insured for covering his risk.
Premium Reserve: An insurance premium is the amount of money an individual or business pays for an insurance
policy. Insurance premiums are paid for policies that cover healthcare, auto, home, life, and others.

Umbrella Policy: An Umbrella insurance policy is extra liability insurance coverage that goes beyond the limits of
the insured’s home , auto or watercraft insurance .

Tort :A Tort is a wrongful action or omission that harms a person or business, prompting the injured party to seek
compensation in civil court.

Waiver :The surrender of a right or privilege. In life insurance, a provision that sets certain conditions, such as
disablement , which allow coverage to remain in force without payment of premiums.

Warranty:A warranty in an insurance policy is a promise by the insured party that statements affecting the validity
of the contract are true. Most insurance contracts require the insured to make certain warranties.

Insured Peril :Specific source of loss ( such as death, fire, liability) to cover which an insurance policy is issued.

Blanket Bond : It refers to insurance coverage carried by banks and brokerage houses that protects against any losses
incurred by unlawful or dishonest activity on the part of employees. It is also called blanket fidelity bond or fidelity
bond.

Rider :A Rider is an insurance policy provision that adds benefits to or amends the terms of a basic insurance policy.
Riders provide insured parties with options such as additional coverage , or they may even restrict or limit coverage.

FreelockPeriod :The free lock period is a required period of time in which a new life insurance policy owner can
terminate the policy without penalties such as surrender charges.

Mortality Charge :It is the amount charged every year by the insurer to provide the life insurance cover to the
policyholder on the life of the life insured.

Assured :A person who has been insured by some insurance company , or underwriter , against losses or perils
mentioned in the policy of insurance.

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 Important Insurance Terminologies

Base Rate :The cost of a given unit of insurance for each specific type of auto coverage, such as bodily injury and
property damage liability.

Collusion :An agreement usually secret between two or more persons to defraud or deprive another or others of their
property or rights.

Deductible :A deductible is an amount of money subtracted from the value of a loss, which is not covered by
insurance.

Grace Period :It is a defined amount of time after the premium is due in which a policy holder can make a premium
payment without coverage lapsing.

Larceny :The unlawful taking of a person’s personal property without his consent and with intent to deprive him of
ownership or use. It is a broader term than burglary or robbery, largely synonymous with theft.

Co Pay:A co-payment or co-pay is a term used in health insurance. It signifies that a certain amount will be paid by
an insured for a medical service. It is like an ‘excess’ in any property insurance

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