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

    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.
  • B

    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%.
  • C

    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

    This is an agreement between you(the policyholder) and the insurance company to share the costs of your medical treatment. For example, if your deductible option is RM100, and your total medical bill is RM300, your insurer will only pay for the remianing RM200.
    A condition due to illness or injury that affects a person's ability to carry on with his or her daily activities. A disability may vary according to severity: partial or total, and temporary or permanent.
  • E

    A contractual provision that denies coverage for certain events, persons, property, or locations.
  • 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.
    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.
    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.
  • I

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

    Termination of a policy because of failure to pay the premium.
    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.
  • 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 a endowment period or to the owner of a whole life policy if he lives past a certain age.
    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

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

    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.
    Payer Benefit
    A condition in a policy which states that premiums will be waived if the person paying the premium, be it one of the parents or guardian, passes away or becomes disabled while the person insured is still a minor.
    An document stating the terms and conditions of an insurance contract.
    May refer to an organisation or individual in whose name an insurance policy is registered to.
    This is the amount you are required to pay as a lump sum or in instalments for insurance cover. Avoiding payments would mean lapsing your policy, but may be reinstated once the outstanding amount is paid in full.
    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.
  • R

    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.
    An attachment to a conventional or investment-linked insurance policy that supplements it by giving you additional benefits and coverage. For example, a critical illness rider will insure you against all 36 major health conditions which you wouldn't otherwise be covered for with a conventional term life insurance policy.
  • S

    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 for the circumstances covered in the policy.
    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, permantent disability, or maturity. It is also referred to as cash value.
  • T

    Term Life Insurance
    As opposed to Whole Life Insurance, this type of life insurance policy provides coverage for a pre-defined period of time and premiums can be fixed for that period. Depending on the terms of the policy, the death benefit may stay the same for as long as 30 years.
  • U

    A condition in which not enough insurance is purchased to cover the total cash or market value of the insured asset.
  • 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 your policy activation date.
    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.
    Whole life insurance
    Whole life insurance is a combination of life-long protection, investment, and savings, which can be used as a retirement fund. It will not expire as long as the premiums are paid.