Glossary of common insurance terms
Welcome to Part 2, a continuation of the Life Offices Association (LOA)’s ongoing national drive to make insurance easily understood by all.
LAST week the LOA explained its motivation for featuring these articles and also started the journey of explaining what insurance is and how it affects each and everyone.
In this article we defined what insurance is and described the two main categories of insurance.
For those of you who are joining us for the first time and wondering what this journey is all about - as well as those who were with us the last week but still lost as to where we are going with this - we trust sharing with you the following story will be useful in painting a clearer picture concerning this journey we are taking together.
The story goes as follows: “One day a man was walking down the street on his way to work.
“As he walked down the street, there were dogs on just about every front verandah and they all would bark as the man walked past them.
“However, there was one dog that he remembered, because this dog was just sitting there and he was whimpering and whining and moaning as if it was wounded or in some sort of pain.
“Well, this particular dog was just sitting there on the front porch making those sounds.
“The man was curious as to why this dog wasn’t barking like the other dogs and why he was whimpering.
“He couldn’t figure it out so he just kept walking to work. Well, this went on for the entire week and every day when he passed by this house, the dog would be there moaning and groaning.
“So finally the guy got fed up and said, ‘Let me find out what’s going on.’
“So he went and knocked on the door and a guy came out and said, ‘Yes, how may I help you?’ He said, ‘Sir, is this your dog?’ ‘Yes, that’s my dog.’ ‘Well, what’s wrong with him? He’s been sitting here moaning and groaning, whimpering and whining for an entire week.
“The rest of the dogs are barking, your dog should be barking too, why is he moaning and groaning?’
“The owner said, ‘Well, he’s actually sitting on a nail.’ And the guy said, ‘What! Your dog is sitting on a nail? Why doesn’t he get off?’ To which to which the owner replied, “Well, it just doesn’t hurt him enough.’”
When it comes to knowledge concerning insurance matters, some people are sitting on a nail.
This journey we are taking together will help to get you off the “limited insurance knowledge” nail!
In this article, we will be taking you through some of the most commonly used insurance terms in bold font below - terms you may have come across before or may see in future.
Insurance policy/contract is an agreement between the insurer and the policy holder where the insurer agrees to pay the benefits to the policy holder, on certain events, in exchange for premiums paid payable by the policy holder.
Policy documents must be studied very carefully and stored in a secure place as they contain critical information.
Sum assured is the amount of cover provided by an insurance policy. This amount is paid in the event of a valid claim and is usually used in reference to life insurance.
Premium is the amount of money that a policy holder must pay to obtain insurance cover. The amount can be paid as a lump sum or in instalments during the duration of the policy or for a fixed agreed period.
Policy lapse is the termination of cover. It occurs when the policy holder does not fulfil the conditions or requirements set out in the insurance policy; often resulting in a return of premiums to the policyholder.
Policy cancellation is when an insurance cover stops before the maturity date of the policy, often resulting in a return of premiums to the policyholders.
Policy reinstatement/revival is the allowance given to a previously terminated to resume active coverage.
Depending on the circumstances of the termination and the policy terms and conditions, the policy may be required to compensate the insurer before reinstatement occurs.
Claim is the application to the insurance company for benefits contracted or promised by the insurance company as outlined in the policy document.
Policyholders must first file an insurance claim before any money can be disbursed.
The principle of utmost good faith: The insured must disclose to the insurers all facts about the risk to be insured, and the insurers must disclose to the insured full details and terms of the cover to be provided.
Failure by both parties to abide by this principle may invalidate the contract. Insurers may therefore not pay out when it emerges that the insured did fully disclose facts about the risk being covered, for example, in life insurance the insured may be required to disclose their full medical history.