Insurance Terms and Definitions

Have you come across a term used in your insurance policy that you've misunderstood or don't understand? To help you make sense of the jargon that's often used to describe insurance, here is our handy guide to the most commonly used key words and phrases.

A

Accelerated Benefits

An optional benefit under life insurance policies under which the insurer agrees to prepay a part of the death benefit if the insured is stricken by a catastrophic illness or is confined to a nursing home.

Acceptance

Agreeing to terms by means of which a bargain is concluded and the parties are bound; the binding of an insurance contract by the insurer.

Accident

An event or occurrence that is unforeseen and unintended.

Accident Insurance

A form of health insurance against loss by accidental bodily injury.

Accidental Bodily Injury

Injury to the body of the insured as the result of an accident.

Accidental Death Benefit

A provision added to a life insurance policy for payment of an additional benefit in case of death by accidental means; it is often referred to as “double indemnity.”

Actuary

A person professionally trained in the technical aspects of insurance and related fields, particularly in the mathematics of insurance such as the calculation of premiums, reserves, and other values.

Adjustable Life Insurance

A type of life insurance that allows the policyholder to change the plan of insurance, raise or lower the face amount of the policy, increase or decrease the premium, and lengthen or shorten the protection period.

Adjuster

One who settles insurance claims; may be a salaried employee or an independent operator.

Age Limit

In accident, life, or automobile insurance, the age below which or above which an insurer refuses to insure an applicant.

Agent

In General and Life insurance, an individual authorized by an insurance company to sell insurance and service customers in the name of the insurance company. Insurance agents usually, but not necessarily have received special education in insurance through official bodies and training by the insurance company. Certification is required to become an agent and to beallowed to sell certain types of insurance.

All-Risk

A term commonly used by insurance people to describe broad forms of coverage; it is misleading because no property or liability insurance policy is truly an all-risk coverage. There is a concerted effort to eliminate use of this term and to replace it with the term open peril.

Allocated Benefits

In health insurance, coverage for which the maximum amount payable for specific services is itemized in the contract.

Ambulatory Care

Medical services that are provided on an outpatient (non-hospitalized) basis; services may include diagnosis, treatment and rehabilitation.

Amendment

A formal document changing the provisions of an insurance policy signed jointly by the insurance company officer and the policyholder or his authorized representative.

Annual Limit

The maximum amount that can be paid out to settle your claims for one policy year. The higher your annual limit, the higher your premium will be.

Annuity

A contract that provides an income for a specified period of time, such as a number of years or for life.

Application

A statement of information made by a person applying for life insurance: it is used by the insurance company to determine the acceptability of the risk and the basis of the policy contract.

Appraisal

An estimate of value, loss, or damage; see Arbitration.

Arbitration

The submitting of a matter in dispute to the judgement of a specified number of disinterested persons called arbitrators, whose decision, called an award, is binding upon the parties.

Assured

A person who has been insured by an insurance company or underwriter against loss.

Automobile Liability Insurance

A form of liability insurance that is specifically designed to indemnify for loss incurred through legal liability for bodily injury and damage to property of others caused by accident arising out of ownership or operation of an automobile.

B

Beneficiary

One for whose benefit a contract is made: the person to whom a policy of insurance is payable.

Beneficiary, Contingent

The person or persons designated to receive the death benefit if the primary beneficiary dies prior to the death of the insured.

Beneficiary, Irrevocable

A beneficiary that cannot be altered by the insured, the insured having relinquished the right to change the beneficiary designation.

Beneficiary, Primary

The person or persons designated to receive the benefits under the policy.

Betterment

When your damaged vehicle is sent for repair, it is normal that some wrecked parts are replaced with new franchise parts. Your insurer will only bear a portion of the costs. You will have to pay the difference according to the standard scale of betterment which can range from 0% to 40%.

Binding Receipt

In life insurance, a receipt for the first premium paid, that accompanies the application for insurance. It binds the company if issuance is approved, to make the policy effective from the date of the receipt. (also see “Effective Date”)

Breach of Contract

Failure to comply with the terms or conditions incorporated in an insurance policy, frequently resulting in a restriction of coverage or a voiding of a policy itself.

Broker

An individual who arranges and services insurance policies on behalf of the insurance buyer: he or she is the representative of the insured, although the broker receives compensation in the form of a commission from the company.

Burglary

Felonious abstraction of property from within premises by persons making felonious entry by force of which there are visible marks on the exterior.

Business Interruption

Insurance covering the loss of earnings resulting from, and occurring after, destruction of property; also called “use and occupancy insurance.”

Business Life Insurance

Life insurance purchased by a business enterprise on the life of a member of the firm: it is often bought by partnerships to protect the surviving partners against loss caused by the death of a partner, or by a corporation to reimburse it for loss caused by the death of a key employee.

C

Casualty Insurance

A classification of insurance coverages,consisting of workers compensation, liability, crime, glass and boiler coverages, used to distinguish such coverages from “fire” or property coverages.

Claim

Notification to an insurance company that payment of an amount is due under the terms of a policy.

Claims-made Form

A liability insurance policy under which coverage applies to claims made during the policy period; see Occurence Form

Combined Ratio

A rough indication of the profitability of a property and liability insurer’s underwriting operations, generally computed by adding the ratio of losses incurred to premiums earned and expenses incurred to premiums written. In general, a combined ratio below 100% expresses a profit to the insurer, a combined ratio above 100% means a loss to the insurer.

Commission

The fee paid by the insurance companies to agents for the sale of policies. The commission is usually negotiable and differs from insurance product to product.

Concealment

Deliberate failure to reveal material facts that would affect the validity of a policy of insurance.

Conditionally Renewable

A continuation provision in health insurance under which the insurer may not cancel the policy during its term but can refuse to renew under specified circumstances.

Conditions

Those provisions in insurance contracts that qualify the insurer’s promise of indemnity or impose obligations on the insured.

Conversion Privilege

Privilege granted in an insurance policy to convert to a different plan of insurance without providing evidence of insurability. For example, in medical insurance, a different plan could be chosen without requiring a new medical check-up.

Coverage

The insurance afforded by the policy. Also see “sum insured”

Co-insurance/Co-takaful

You’ll have to pay a certain amount of your medical fees, generally set at 10% – 20% of the total bill. The balance will then be covered by your medical insurance policy.

D

Damages

The identified amount claimed or allowed as compensation for injuries sustained or property damaged through the wrongful acts or the negligence of another.

Declarations

That part of an insurance policy containing the representations and personal details of the applicant, such as for example past medical conditions or past accidents.

Deductible

This is an agreement between the policyholder and the insurance company to share the costs of a medical treatment. For example, if the deductible option is RM100, and the total medical bill is RM300, your insurer will only pay for the remaining RM200.

Dental Insurance

A type of health insurance that covers dental care expenses

Dependency Period

The period during which children will be dependent on a surviving parent, commonly until the age of 18 or 21.

Disability

Inability to perform all or part of one’s occupational duties because of an accident or illness; see Total Disability and Partial Disability.

Disability Benefit

A provision added to a life insurance policy for waiver of premium, and sometimes payment of monthly income, if the insured becomes totally and permanently disabled.

Disability Income Insurance

A form of health insurance that provides periodic payments to replace lost income when the insured is unable to work because of illness or injury.

Discovery Period

The period after termination of an insurance policy or bond, or after the occurrence of a loss, within which the loss must be discovered/identified, in order to be covered.

E

Effective Date

The date on which the legal obligation by the insurance company is created. Not to be confused with “Inception/Issue Date” and “Policy date”.
Employers Liability

Legal liability imposed on an employer making him or her responsible to pay damages to an employee injured by the employer’s negligence. Generally, replaced by “workers compensation,” which pays the employee whether the employer has been negligent or not.

Endowment Insurance

Insurance payable to the insured if he or she is living on the maturity date stated in the policy, or to a beneficiary if the insured dies prior to that date.

Evidence of Insurability

Any statement of proof of a person’s physical condition and/or other factual information affecting his/her acceptance for insurance.

Exclusion

That which is expressly eliminated from the coverage of an insurance policy.

F

Face Amount

The face amount is the lump sum payment the insurer promises to pay the policyholder in case the insured event takes place.

Fire Insurance

Coverage for losses caused by fire and lightning, as well as the resultant damage caused by smoke and water.

Fire Legal Liability

A form of liability insurance that covers damage to leased or rented property caused by fire or other specified periods.

Free-Look Period

A period of time, usually 15 days, during which a policyholder may examine a newly issued individual insurance policy, and surrender it in exchange for a full refund of premium minus claims made.

G

Grace Period

A provision which allows the policyholder 30 days after the premium due date to make a full payment to keep the policy in force. Failure to do so will result in a lapse of your insurance policy, or lower pay-outs for claims.

Group Insurance

Any insurance plan under which a number of employees and their dependents are insured under a single policy, issued to their employer, with individual certificates given to each insured employee; the most commonly written lines are life and accident and health.

Guaranteed Level Premiums

Premiums payments will remain the same throughout your policy contract period. These types of policies generally have higher premiums at the beginning but will get lower towards the end of your contract.

H

Health Insurance

A generic term applying to all types of insurance indemnifying or reimbursing for losses caused by bodily accident or sickness or for expenses of medical treatment necessitated by sickness or accidental bodily injury.

I

Inception/Issue date

The date on which the insurance company approves and accepts your application. Not to be confused with the “Effective Date” and the “Policy Date”.

Indemnity

Restoration of the claimant to the same financial position after any loss or damage by giving payment, repair, or replacement.

Insurance

An economic device whereby the individual substitutes a small certain cost (the premium) for a large uncertain financial loss (the contingency insured against) that would exist if it were not for the insurance contract; an economic device for reducing and eliminating risk through the process of combining a sufficient number of homogeneous exposures into a group in order to make the losses predictable for the group as a whole.

Insured

In life insurance, the person on whose life an insurance policy is issued; in property and liability insurance, the person to whom or on whose behalf benefits are payable under the policy.

Investment-linked Insurance

An insurance policy that allows a for a portion of your premiums to be allocated towards an investment fund of your choice. The benefits of your policy will depend on the performance of the investment-linked funds.

J

Joint Insured

Two or more persons whose names or interests are insured under the same or identical contracts.

L

Lapse

Termination of a policy because of failure to pay the premium.

Liability

A debt or responsibility; an obligation that may arise by a contract made or by a tort committed.

Life Insurance

A contract which guarantees the payment of a lump sum amount upon the death of the policyholder, or other circumstances mentioned in the contract.

Lifetime Limit

The maximum amount that you can claim from your insurance company during your lifetime. A lifetime maximum coverage limit is generally associated with health and medical insurance.

Limits

The value or amount of a policy; the greatest amount that can be collected/claimed under the policy.

M

Maturity Date

The date at which an insurance policy has completed its full term and the face amount becomes payable, provided that the insured person survives to that date.

Maturity Value

The amount payable to a living insured person at the end of an endowment period or to the owner of a whole life policy if he lives past a certain age.

Mortgage

A deposit or conditional transfer to secure the performance of some act; the person who makes the transfer is called the “mortgagor,” the other party, the “mortgagee”; sometimes an intermediary called a “trustee” is appointed.

Mortgage Level Term Assurance

A transferable policy that includes savings and cash value that covers the repayment of the outstanding loan in the event of untimely death, disability, or critical illness of the borrower.

Mortgage Reducing Term assurance

A lump sum payment policy that covers the repayment of the outstanding loan in the event of untimely death, disability or critical illness of the borrower.

N

Name Insured

The person designated in the policy as the insured, as opposed to someone who may have an interest in a policy but not to be named.

No-Claim Bonus

A reward scheme for a policyholder if no claim was made against the policy within a specified period. It can mean a reduction on your premiums or an increase in your coverage limit, depending on your insurance type.

Nomination

Making someone as the beneficiary of a life or personal accident insurance policy.

O

Occupational Disease

A disease or condition of health that results from performance of an occupation; examples include psittacosis, mercury poisoning, dust collection in the lungs, and the like; in most states occupational disease is now covered as part of the workers compensation exposure.

Occurrence Form

A liability insurance policy under which coverage applies to injuries or damage sustained, during the policy period, regardless of when the claim is made; also see Claims-made Form.

Over-Insurance

A condition for when a policyholder has purchased coverage above the actual cash or market value of the insured asset, often associated with car insurance.

P

Paid-up Policy

An insurance policy which does not require you to pay future premium payments but has not been terminated by either death or maturity.

Payor Benefit

A provision generally included in juvenile life insurance policies waiving future premiums if the payor (usually the parent who pays the premium on the policy) becomes disabled or dies before maturity of the policy.

Permanent Life Insurance

A phrase used to cover any form of life insurance except term; generally insurance, such as whole life or endowment, that accrues cash value.

Personal Injury

In law, a term used to embrace a broad range of torts that includes bodily injury, libel, slander, discrimination, and similar offenses. Also, a standard insurance coverage that protects against a more limited group of torts (false arrest, detention or imprisonment, malicious prosecution, wrongful entry or eviction, and libel, slander, or defamation).

Plaintiff

A party to a lawsuit who brings charges against another party called the defendant.

Policy

The written contract of insurance that is issued to the policyholder insured by the company insurer.

Policyholder

Refers to an organisation or individual in whose name an insurance policy is registered to.

Policy Date

The date written on the policy. Policy date and inception/issue date are sometimes the same, but insurance companies often add a few days to the issue date to name a policy date. This allows time for the policy to be delivered to the insured. Also see “Inception/Issue Date” and “Effective Date”.

Policy Period

The term for which insurance remains in force, sometimes definite, sometimes not.

Premium

The payment, or one of the periodical payments, a policyholder agrees to make for an insurance policy.

Premium Period

The length of time covered by the premium, usually identical with the policy period by frequently not.

Pre-existing Condition

An exclusion clause included in medical and health policies which states that any injury or illness that exist before the effective date of the policy, for which the insured is still getting treatment or showing symptoms of will not be insured under the policy. Whether or not the policyholder is aware of his or her condition is negligible.

Probationary Period

(Also sometimes called “waiting period”) A period of time from the policy date to a specified date, usually 15-30 days, during which no sickness coverage is effective; it is designed to eliminate a sickness actually contracted before the policy went into effect--occurs only at the inception of a policy.

Provisions

The terms or conditions of an insurance policy.

R

Rate

The cost of a unit of insurance.

Rated Policy

An insurance policy issued at a higher-than-standard premium rate to cover the extra risk involved in certain instances where the insured does not meet the standard under-writing requirements; for example, impaired health or a particularly hazardous occupation.

Rebate

The return of part or all of a premium to a policyholder.

Reinstatement

It is the restoration of a lapsed policy. The reinstatement of a lapsed policy by the payment of all outstanding premiums. Depending on the period the premiums were outstanding, an interest may be charged.

Reinsurance

Insurance placed by an underwriter with a re-insurance company to cut down the amount of the risk assumed under the original insurance.

Renew

To continue; to replace, as with new policy. This refers for example to the annual renewal of an insurance.

Renewable Term Insurance

Term insurance that can be renewed at the end of the term, at the option of the policyholder, and without evidence of insurability, for a limited number of successive terms; the rates increase at each renewal as the age of the insured increases.

Rider

A document that amends the policy; it usually increases the benefits, waives a condition or coverage, or in any other way amends the original contract - the terms rider and endorsements are often used interchangeably. For example, a car insurance can add a rider for personal accident or a life insurance can add a rider for medical coverage.

Risk

In the abstract, used to indicate a condition of the real world in which there is a possibility of loss; also used by insurance practitioners to indicate the property insured or the peril insured against.

S

Schedule

A list of coverages or amounts concerning things or persons insured.

Single Premium Whole Life

A whole-life policy in which the initial premium, together with interest earnings is sufficient to pay the cost of the policy over its lifetime. For example, a one-off premium of RM100.000 is paid to provide sufficient premium for the lifetime of the policy.

Suicide Clause

Life insurance policy provision that limits the insurer’s liability to the return of premiums if the insured commits suicide during the first 2 years of the policy.

Sum Assured

The sum assured is a fixed lump sum payment the insurer promises to pay the policy holder in case the insured event takes place.

Sum Insured

The sum insured is a cap of how much the insurance company is willing to pay, based on the coverage as defined in the policy.

Surgical Expense Insurance

Health insurance coverage that provides benefits toward the physician’s or surgeon’s operating fees, usually with a scheduled amount for each surgical procedure.

Surrender

To give up an insurance policy. The insurance company pays the insured the total cash value, if any, which the policy has built up through premium payments.

Surrender value

The amount available in cash upon voluntary cancellation of a policy before it becomes payable on death, permanent disability, or maturity. It is also referred to as cash value.

T

Takaful

A co-operative system of reimbursement or repayment in case of loss, organized as an Islamic or sharia compliant alternative to conventional insurance.

Term

The length of time covered by a policy or a premium.

Term Life Insurance

Insurance payable to a beneficiary at the death of the insured, provided death occurs within a specified period, such as 5 or 10 years, or before “a specified age.

Theft

The unlawful taking of property of another: the term includes such crimes as burglary, larceny, and robbery.

Third Party

Someone other than the insured and insuring company.

Total Disability

Disability that prevents the insured from performing all the duties of his or her occupation or any occupation: the exact definition varies among policies.

U

Under-Insurance

A condition in which not enough insurance is purchased to cover the total cash or market value of the insured asset.

Universal Life Insurance

A flexible premium life insurance policy under which the policyholder may change the death benefit from time to time (with satisfactory evidence of insurability for increases) and vary the premium payments. Premiums (less expense charges) are credited to a policy account from which mortality charges are deducted and to which interest is credited at rates that may change from time to time.

W

Waiting Period

The period of time specified in an insurance policy which must pass before some or all of the coverage outlined in the policy can begin. Generally, it is 30 days from the policy inception/issue date.

Waiver of Premium

A provision that waives payment of the premium that becomes due during a period of covered total disability that has lasted for a specified period of time, usually, 3 to 6 months.

Wakalah

This is one of several models (and several variations) of how takaful insurance can be implemented. Wakalah represents an agreement where a takaful operator will act as an agent on behalf of the policyholder, and earns a fee for its services. The fee can be fixed or determined by an agreed profit ratio.

Warranty

A statement concerning the condition of the item to be insured that is made for the purpose of permitting the underwriter to evaluate the risk; if found to be false, it provides the basis for voidance of the policy.

Whole life insurance

Insurance payable to a beneficiary at the death of the insured whenever that occurs; premiums may be payable for a specified number of years (limited-payment life) or for life (straight life).

Workers Compensation

A system of providing for the cost of medical care and weekly payments to injured cost of medical care and weekly payments to injured employees or to dependents of those killed in industry in which absolute liability is imposed on the employer, requiring him or her to pay benefits prescribed by law.