Glossary

Glossary

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This section has been introduced to provide users with help on some common Life Insurance terminology. We could add words to this glossary based on your comments and suggestions.

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  • X
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A

Accidental Death and Dismemberment

Insurance providing payment if the insured’s death results from an accident or if the insured accidentally severs a limb above the wrist or ankle joints or totally and irreversibly loses his or her eyesight.

Accidental Death Benefit Rider

A life insurance policy rider providing for payment of an additional benefit related to the face amount of the base policy when death occurs by accidental means.

Annuities

A series of payments made or received at regular intervals.

Assignment

The transfer of some or all rights of ownership in a policy.

B

Back Dating

The practice of making a policy effective at an earlier date than the present.

Beneficiary

Person to whom the proceeds of a life policy are payable when the insured dies.

C

Cash Value

The equity amount or “savings” accumulation in a life insurance policy.

Cede

To transfer an insurance risk from the Company originally issuing the policy to another insurance company known as the reinsurer.

Concealment

Failure of the insured to disclose to the company a fact crucial/critical to the acceptance of the risk at the time application is made.

Critical Illness Contract

Illnesses typically covered include cancer, strokes, heart attacks, multiple sclerosis and kidney failure.

E

Evidence of Insurability

Any statement or proof of a person’s physical condition and occupation affecting acceptance of the applicant for insurance.

Exclusions

Specified hazards listed in a policy for which benefits will not be paid.

Extended Term Insurance Option

An option under which a policy may continue for its full face amount even after premium payments are discontinued. The duration for which coverage is provided under this option depends on the available cash value of the policy.

F

Free Look Period

An individual life insurance provision that grants the insured the right to rescind the insurance contract within a given period after the policy is actually delivered to the insured.

G

Grace Period

Period of time after the due date of a premium during which the policy remains in force without penalty.

I

Incontestable Clause

Provides that, for certain reasons such as misstatements on the application, the company may void a life policy after it has been in force during the insured’s lifetime, usually one or two years after issue.

Insurability

All conditions pertaining to individuals that affect their health, susceptibility to injury and life expectancy; an individual’s risk profile.

Insurable Interest

A person has an insurable interest in another’s life if he or she can reasonably expect to benefit from that person’s continued life, and, conversely, if he or she would suffer financial loss on the person’s death. This is a basic requirement of a life insurance contract without which the contract is not valid.

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 insured by a life insurance policy.

Insurer

The Party that provides insurance coverage, typically through a contract of insurance.

L

Lapse

Termination of a policy upon the policy owner’s failure to pay the premium within the grace period.

Life Expectancy

The average number of years of life remaining for a group of people of a given age and gender according to a particular mortality table.

M

Medical

A document completed by a physician or another approved examiner and submitted to an insurer to supply medical evidence of insurability (or lack of insurability) or in relation to a claim.

Morbidity

The relative incidence of disease within a given group.

Mortality

The relative incidence of death within a given group.

Morbidity Tables

These are statistical tables used by life and health insurance companies showing the probability of disease of males and females at all ages.

Mortality Tables

These are statistical table used by life insurance companies showing the probability of death of males and females at all ages.

Misrepresentation

An untrue statement of a fact.

N

Non-Medical Insurance

Issued on a regular basis without requiring a regular medical examination. In passing on the risk, the company relies on the applicant’s answers to questions regarding his or her physical condition and on personal references or inspection reports.

P

Paid up

A policy condition under which no further premiums are payable and the coverage continues, usually for reduced benefits. This may be an automatic policy condition invoked by the insurer if renewal premiums are not paid, or could be a voluntary selection by a life assured.

Pension

A regular annuity payment, generally after retirement, to a person that is intended to allow him to subsist without working.

Premium

The periodic payment required to keep an insurance policy in force.

Proposal Form

The initial application form for insurance filled by a prospective life assured. This form requires details such as name, address, occupation, financial worth, medical history etc and is the basis of an insurance contract.

Q

Quota Share Arrangement

A reinsurance arrangement where the total risk is shared between the insurer and the reinsurer in a specified percentage, such as 75%:25% (where the insurer retains 75% of the risk, and the reinsurer assumes 25% of the risk)

R

Reinsurance

The arrangement under which a part of the risk is transferred from the company originally issuing the policy (the insurer) to another insurance company known as the reinsurer.

Reinsurance Treaty

A detailed legal contract defining the reinsurance agreement between an insurer and reinsurer.

Reinstatement

Putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required.

Retention

The amount or percentage of each risk retained by the insurer under a reinsurance agreement.

Rider

Strictly speaking, a rider adds something to a policy. However, the term is used loosely to refer to any supplemental agreement attached to and made a part of the policy, whether the policy’s conditions are expanded and additional coverage’s added, or a coverage or condition is waived.

S

Standard Risk

Person who, according to a company’s underwriting standards, is entitled to insurance protection without extra rating or special restrictions.

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.

Sum Assured

Commonly used to refer to the principal sum involved in the contract.

Surplus Arrangement

A reinsurance arrangement where the amount of risk above a certain limit is transferred to the reinsurer, such as Rs. 350,000 (where the insurer retains all risks up to Rs. 350,000 and the reinsurer assumes the excess risk over this amount).

T

Term Insurance

Protection during limited number of years; expiring without value if the insured survives the stated period, which may be one or more years but usually is five to twenty years, because such periods usually cover the needs for temporary protection.

Term of Policy

Period for which the policy runs.

U

Underwriting

A process by which insurers select and classify individual risk based on factors such as age, sex, occupation, health etc.

Unilateral

A distinguishing characteristic of a life insurance contract in that it is only the insurance company that pledges anything. The policy owner does not even promise to pay premiums; therefore, it is really a one-sided contract favoring the policy owner.

Uninsurable Risk

One not acceptable for insurance due to excessive risk.

W

Waiver of Premium

Rider or provision included in most life insurance policies exempting the insured from paying premiums after he or she has been disabled for a specified period of time, usually six months.


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