Dictionary in the world of Insurance

While understanding Insurance you need to understand some words and their meaning in an insurance policy.

The glossary of terms below is listed for informational purpose only. We accept no liability for the content or for the consequences of any actions taken on the basis of the information provided.

• Accidental Death and Dismemberment (AD & D) Benefit

  A supplementary life insurance policy benefit that provides for an amount of money in addition to the policy’s basic death benefit. This additional amount is payable if the insured dies as the result of an accident or if the insured loses any two limbs or the sight in both eyes as the result of an accident.

  In insurance, accidental death and dismemberment (AD&D) is a policy that pays benefits to the beneficiary if the cause of death is an accident. This is a limited form of life insurance which is generally less expensive, or in some cases is an added benefit to an existing life insurance policy.

• Annuitant

  This person who get annuity amount.

• Arbitration

  The use of an arbitrator to settle a dispute. An alternative way of settling insurance disputes that would otherwise be settled in a court of law. The insurer and the aggrieved party agree upon a third person to look into the case and decide on the claim. When there is a dispute, arbitration is used

• Assignee

  The person or entity to whom the benefits under a life policy are transferred to.

• Assignment

  This refers to the legal transference of the title, rights, and benefits of a policy by the policyholder to another person or entity. This typically happens when a policy is pledged as collateral towards a loan.

• Bancassurance

  Distribution of insurance plans by banks.

• Beneficiary

  See ‘nominee’.

• Bonus

  The amount paid as returns in a ‘with profit’ policy (also see with profit). The bonus, expressed as a percentage of the sum assured, is generally declared every year. The amount is linked to the profits earned by the insurer. Depending on the time of withdrawal, there are two kinds of bonus: reversionary and cash. A reversionary bonus can be encashed only on maturity of the policy; a cash bonus can be withdrawn when declared

• Cash Bonus

  See ‘bonus’.

• Cashless Settlement

  A mode of claim settlement in which you are not required to make prior payments to claim compensation. Aided by a licensed intermediary known as third-party administrators, your service provider (say, garage or hospital) and the insurer settle the claim between themselves.

• Claim

  This is a written request, by the insured, to the insurance company, to cover an incurred loss, usually submitted on the company’s standard form. According to Irda guidelines, insurers have to set – the claims within 90 days; generally, though, for valid claims, they do it in less.

• Contingent Beneficiary

  See ‘secondary beneficiary’.

• Convertible Term Policy

  A term policy that gives the policyholder a one-time option to switch to an investment-based insurance plan without undergoing a medical check-up (this gets them the benefit of a lower entry age). For example, a 30-year-old having a 20-year term policy can decide to shift to an endowment plan five years into the term, but pay premium rates on the endowment plan applicable to a 30-year-old, not a 35-year-old. Although insurers don’t charge extra for this feature, they impose some conditions, i.e. the option to convert can be exercised only in the fifth year of the term policy, and the sum assured in the new plan can’t be less than that in the old term plan.

• Cover

  Used interchangeably for insurance , this also refers to the amount of insurance.

• Cover Note

  The document issued by insurers in non-life insurance, giving temporary cover till the issue of a formal policy.

• Critical Illness Rider

  A rider (also see ‘Rider’)that provides a policyholder financial protection in the event of a critical illness.

• Cubic Capacity (Cc)

  The volumetric capacity of a vehicle. It is one of the variables that determines the premium payable to insure a vehicle. As the cubic capacity increases, so does the premium rate.

• Death Benefit

  The amount payable to the nominee on death of the policyholder. The amount paid is the sum assured plus benefits applicable (if any) less outstanding loans.

• Deductible

  An arrangement in several non-life insurance categories where a portion of the insured loss is borne by the policyholder, and only the remainder by the insurer (sometimes also referred to as ‘excess’).

• Deferred Annuity

  An annuity plan where the first annuity payment becomes payable after a chosen period that exceeds one year.

• Depreciation

  A decrease in the value of any object or property over a period of time due to age, wear and tear, or obsolescence. Depreciable items are insured on the basis of their depreciated value, not their original cost or the replacement value.

• Disability / Dismemberment Benefit Rider

  A rider that provides for additional cover in the event of a disability or dismemberment due to an accident.

• Double/Triple Cover Plans

  Investment – based plans that offer the beneficiaries double/triple the base sum assured on death of the policyholder during the policy term. If the policyholder survives the term, he gets only the base sum assured, plus other benefits, as applicable.

• Endowment Plans

  An insurance plan that provides a policyholder risk cover and some return on investment.

• Excess

  See ‘deductible’.

• Exclusions

  This is referred to the risks and circumstances not covered by a policy. No claim will be entertained in case of losses arising out of such situations.

• Grace Period

  Period of time, after the due date of a premium, during which the premium can be paid, and the policy prevented from lapsing. There’s a grace period of one month on the yearly, half-yearly and quarterly modes of premium payments, and 15 days on the monthly mode.

• Group Insurance

  A term insurance policy taken out by employers to provide life cover to their employees.

• Guaranteed Additions

  The amount paid as returns in assured-return insurance plans. Guaranteed additions are expressed as a percentage of the sum assured, with the amount payable being stated by the insurer at the outset.

• Guaranteed Insurability Option Rider

  A rider that gives the policyholder the right to purchase additional cover at different stages of his life, at the original premium rate, without having to undergo fresh medical examination.

• Hospital Cash Benefit Rider

  A rider that provides cover for hospitalization.

• Immediate Annuity

  An annuity that starts payments immediately after, or soon after, the first premium is paid.

• Inherent Vice

  A property characteristic of an article that leads to its self-destruction—for example,fruits and vegetables, by nature, are perishable. Insurance contracts usually don’t cover such risks.

• Insurable Interest

  Any financial interest a person might have in a possible subject of insurance. A person can buy cover for only those subjects in which he has an insurable interest. For instance, you cannot buy cover for your neighbor’s house, as you don’t have any insurable interest in it.

• Insured

  The policyholder.

• Insurer

  The insurance company.

• Insured’s Declared Value (IDV)

  The amount for which a vehicle is insured. It is the depreciated value of the vehicle, based on the manufacturer’s selling price and model, and its accessories.

• I R D A (Insurance Regulatory and Development Authority)

  This is name of the insurance regulator in the country – it regulates the insurance sector, oversees policy matters and issues licenses.

• Joint Life Insurance

  An insurance policy taken out on two names. On the death of one of the insured, the death benefit is paid to the surviving insured, and the policy stands terminated. The surviving insured, though, has the option to purchase a new policy of the same amount without providing fresh evidence of insurability.

• Level Term Cover Rider

  A rider that increases the life cover in non-term plans, up to a maximum of the sum assured on the base policy. The rider offers death benefit alone, and serves the need for extra protection for a specified time period.

• Life Annuity

  An annuity that makes regular income payments till the policyholder is alive. On the policyholder’s death, all income payments cease and there are no beneficiary benefits.

• Loading

  A penalty for making a claim, it is the mark-up in premium rate to be paid by a policyholder in the year subsequent to that in which a claim is made.

• Loyalty Additions

  Additional benefits (other than guaranteed additions/bonus) paid to policyholders on maturity of certain investment-based insurance plans for staying on through its term. Loyalty additions are paid as a percentage of the sum assured, with the amount depending on the insurer’s financial performance.

• Major Surgical Assistance Rider

  A rider that provides financial support to a policyholder in the event of surgery.

• Market Value

  The monetary value an object or property will fetch if sold in the market today.

• Material Fact

  Any fact, the disclosure of which, may affect the decision of an insurance company, either with respect to writing a cover, settling a loss, or determining a premium. Usually, the misrepresentation of a material fact will annul a policy.

• Maturity Date

  The date on which a policy term comes to an end or when the policyholder dies.

• Money-Back Plans

  A variant of endowment plans in which survival benefits are disbursed through the policy term, rather than in a lumpsum at the end.

• Net asset value (NAV)

  NAV represents a fund’s per share market value. This is the price at which investors buy (‘bid price’) fund shares from a fund company and sell them (‘redemption price’) to a fund company. An NAV computation is undertaken once at the end of each trading day based on the closing market prices of the portfolio’s securities.

• No-Claim Bonus

  A discount given on renewal of cover in select non-life insurance categories(usually, vehicle, health and house)to policyholders for not making a claim in the preceding year.

• Nominee

  The person(s) nominated by the policyholder to receive the policy benefits in the event of his death.

• Non-Participative Policy

  See ‘without-profit’ policy.

• Over insurance

  When an article or property is covered for more than its fair value.

• Owner

  The person or entity who controls the rights and benefits of a life insurance policy, either as a result of buying the policy or by way of having it assigned.

• Participative Plans

  See ‘with-profit’ policy.

• Permanent Partial Disability

  Permanent loss of any body part, one eye, one limb or one finger or a toe, or injuries that render the insured incapable of earning an income from the date of the accident onwards from any work, occupation or profession. While the loss of the body part may be permanent, its effects on the insured’s life is partial.

• Permanent Total Disability

  Permanent loss of use of any two limbs, or permanent and complete loss of sight in both eyes, or injuries that render the insured incapable of earning an income.

• Policy

  The legal document issued by an insurance company to a policyholder that states the terms and conditions of an insurance contract.

• Policyholder

  The person who buys an insurance policy. Also referred to as the ‘insured’.

• Policy Term

  The period for which an insurance policy provides cover.

• Premium

  The amount paid by the insured to the insurer to buy cover.

• Premium Rate

  The premium expressed as a percentage of the sum insured. For example, building cover costs Rs 0.65 per Rs 1,000 sum insured. So, the premium rate is 0.0065 per cent (0.65/1,000). For a cover of Rs 1 lakh, a premium of Rs 65 will have to be paid.

• Primary Beneficiary

  The person or entity who is designated by the insured as the first to receive policy benefits in case of his death. Also called the ‘first nominee’.

• Re-Entry Option

  An option in a term plan under which the policyholder is guaranteed at the end of the term a renewal of his cover without having to provide evidence of insurability. In effect, a policyholder won’t have to pay a mark-up in premium on account of any adverse medical condition.

• Reinstatement/Revival

  The process by which an insurer puts back into force a life insurance policy that has been terminated for non-payment of premiums.

• Replacement Clause

  A provision in some non-life insurance policies that gives the insurer the option to make good a loss rather than pay compensation for it. For instance, if a building is damaged by fire, the insurer can repair it to the extent of restoring it to its original condition.

• Reversionary Bonus

  See ‘bonus’.

• Riders

  Additional covers that can be added to a life policy, for a cost.

• Secondary Beneficiary

  Person(s) named by the policyholder to receive death claim proceeds in case the original nominee is not alive. Also referred to as the ‘second nominee’.

• Suicide Clause

  A stipulation in life policies according to which no death benefits will be paid if the policyholder commits suicide during a specified initial period, usually the first year of the policy.

• Single-Premium Plans

  A life insurance policy that entails paying a one-time premium, and provides cover through its term.

• Sum Assured

  The amount of cover taken under a life insurance policy, it is the minimum amount that will be paid on death of the policyholder during the policy term.

• Surrender Value

  The amount payable by the insurer to the owner of an investment-based plan in case he opts to terminate the policy after three years (the mandatory lock-in period), but before its maturity date. The surrender value will be the premiums paid till date minus surrender charges and any other outstanding loans due.

• Survival Benefits

  The amount payable to a policyholder under an investment-based plan if he survives the policy term. Typically, it is the sum assured plus returns (guaranteed additions/bonus) accrued.

• Temporary Total Disability

  An injury that results from an accident and renders a person immobile or affects his earning capacity temporarily. For instance, a fracture in the arm or leg that keeps you from work: you may be mobile but the injury may prevent you from working.

• Term Plans

  A plan that provides life cover for a specified period of time, but no return on the premiums paid.

• Terminal Bonus

  A one-time bonus paid on maturity of a with-profit plan.

• Third Party

  In an insurance contract, you, the insured, are the first party, the insurer the second party, and every other person the third party.

• Third – Party Administrators (TPA)

  Licensed intermediaries who process claims on your behalf in the cashless mode of settlement.

• Total Loss

  A loss of such magnitude that it can be said there is nothing left of value—for example, the complete destruction of a house or building.

• Triple Cover Plans

  See ‘double cover plans’.

• Underinsurance

• Vesting Date

  Generally used in the context of pension plans and children plans, it is a date that signifies a milestone in a policy. In pension plans, it is the date from which the policyholder starts receiving pension. In children plans, it is the date from which a child becomes the owner of a policy taken out in his name (generally, around her/his 18th birthday).

• Waiting Period

  The period from the date a life policy is bought (that is, cheque given to the insurer) till the date of commencement of cover (as stated in the policy; generally, the date on which the cheque is cleared). No benefits will be paid in case of death during the waiting period. It is also used in the context of medical insurance. Here, it refers to the specified initial period of the policy term when sickness claims (not accidents) are not covered. This protects the insurer against claims where the disease or ailment might have set in prior to the commencement of the policy.

• Waiver Of Premium Rider

  A rider that waives the premiums payable on the base policy and other riders in certain circumstances, mostly related to death, disability or injury.

• With-Profit Policy

  An insurance plan in which the policyholder gets a share of the insurer’s profits (in the form of guaranteed additions/bonus), along with the sum assured.

• Without-Profit Policy

  An insurance plan in which the policyholder does not get any share of the insurer’s profits.

• Whole-Life Plans

  The only class of life insurance policies that provide cover for through your lifetime.