Here are some of the terms commonly used in case of general insurance:
- Insurance: It is a contract between two people (or companies) wherein one of the persons agrees to cover the risk of the former and promises to compensate him in the case of any loss.
- Proposal: It is the application form for applying for an insurance cover.
- Insurance Agent: An agent is a person or group of persons who provide insurance advisory and facilitate the sale and after sale services on behalf of an insurance company.
- Insurer: It is basically the insurance company that is ready to take the risk of any loss of the insured person I exchange of premium also pay claims for the loss.
- Insured: He is the beneficiary who takes an insurance to cover his losses by paying a premium amount.
- Insurance Policy: It is the legal document for the insurance contract that defines all the terms and conditions of the contract.
- Broker: A broker is a person who helps the insured to find the most appropriate insurance products for him at competitive premium rates.
- Premium: This is the amount of money that you need to pay to an insurance company to get coverage for your risks. It can be paid by one-time annual instalment, or monthly instalments, or quarterly instalments as per terms and conditions of the insurance
- Commission: It is the money paid by the insurer to the agents in respect of insurance contracts sold by them on behalf of the company.
- Commencement Date: it is the date on which the insurance cover starts, in some cases this may be a date earlier than the proposal.
- Excess Clause: Excess clause requires insured to face a loss more than the excess limit, for the insurer to pay off the entire claim. If the total claimable loss is less than the excess limit, the insurer will not pay the claim, however, if the claim is more than the excess limit insurer pays the entire claim. This is to discourage insured to file a claim for very small amounts.
- Liability: It is the financial compensation payable by the insured under legal/contractual obligations due to a contingency clause. It is generally towards third-party(ies).
- Third-Party: Anyone other than the two parties in the insurance agreement. In an insurance contract, the first party is the insured, second is the insurer, and the third party is the other person. For example: in case, you met with an accident and the car by Mr. Amman was also damaged in the accident, then he is a third party.
- Sum-insured: It defines the amount up to which the risks are covered; i.e. only the proportional loss is paid, and the maximum amount to be paid is capped at the sum insured.
- Sum-Assured: It is the minimum amount of benefit guaranteed under the contract, generally applies to life and critical illness insurance.
- Claim: It is the amount of loss that is requested as compensation by the insured in case of any adverse events.
- Assessor: He is the loss adjuster appointed by the insurance company to assess the amount of loss and check the validity of the claim filed by the insured.
Case of Common Insurance Terms
My Akash Rao started a new IT business for which he built a new office building and installed desktop machines. He employed 25 employees initially to kick start his business. His finance officer advised that he should buy a property insurance to safeguard his office building and equipment from any risks. Also, he thought he should consider buying a group health insurance policy for its employees.
For buying the required policies, Akash needs to submit a proposal form (along with the standard premium amount) to one of the insurers, for which either he can contact an agent or an insurance broker. The insurer will evaluate the proposal and may:
- Accept the proposal
- Demand more premium
- Reject the proposal
Mr. Rao has to take further actions accordingly. But supposing the proposal is accepted at the standard premium, Akash (the organisation) will be issued a policy document detailing the terms and conditions, premium amount, commencement date and renewal date for the policy.
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