| Term | Exlanation |
|---|---|
| Actuary | A professional who analyzes financial risks using mathematics, statistics, and financial theory, often involved in setting premiums and evaluating risk for insurance companies. |
| Assessment period | The period during which the insurer will assess a condition before deciding upon their acceptance of a claim under critical illness or total permanent disability cover. The assessment period will not normally be longer than 12 months, provided all the evidence needed has been provided. Also, the assessment period should only apply to claims for the conditions that must be permanent for cover to apply |
| Bancassurance | An arrangement in which a bank and an insurance company form a partnership so that the insurance company can sell its products to the bank's client base. This partnership arrangement can be profitable for both companies. |
| Beneficiary | The person or entity designated to receive the benefits from the insurance policy, particularly in life insurance. |
| Broker | An intermediary between the seller and buyer of a particular insurance contract who is not tied to either party |
| Claim | A formal request by the policyholder to the insurance company for payment or reimbursement for a covered loss or policy event. |
| Coinsurance | The percentage of costs the insured person must pay after the deductible has been met. For example, if the coinsurance is 20%, the insurance company pays 80% of the covered expenses, and the insured person pays the remaining 20%. |
| Commission | Commission refers to the payments which may be made by a life insurance company to reward those who sell and subsequently service its products, whether they be financial advisers, single or multi-tied agents, or a direct salesforce. Typically, the amount of the commission depends on the type and the size of the contract. It can be paid when a contract is taken out (initial) and/or over the duration of the contract (renewal) as a proportion of the premium or the fund size |
| Copayment (Copay) | A fixed amount the insured person must pay for a covered healthcare service, usually at the time of service. For instance, a visit to a doctor might require a $20 copay. |
| Cover note | A note issued by an insurance company to confirm the existence of insurance cover pending the issue of formal policy documentation. |
| Coverage | The protection and benefits provided by an insurance policy against specific risks or losses. |
| Critical illness | This term can be used to refer to the type of contract (see Accelerated critical illness benefit and Stand-alone critical illness plans) that provides benefits on the diagnosis of a critical illness, or to the specific illnesses covered under such contracts. These illnesses are defined by the insurer, and may cover conditions such as cancer, heart attack, kidney failure, major organ transplant, multiple sclerosis, stroke. |
| Deductible | The amount the policyholder must pay out of pocket before the insurance company starts paying for covered expenses. For example, if you have a KES 500 deductible, you must pay the first KES 500 of any claim. |
| Endorsement | A written document attached to an insurance policy that modifies the coverage, terms, or conditions of the policy. |
| Exclusion | An event, peril or cause defined within the policy document as being beyond the scope of the insurance cover. |
| Exclusions | Specific conditions or circumstances that are not covered by the insurance policy. These are listed in the policy document. These are causes of disability (or ‘perils’) that are explicitly excluded from the cover provided by a policy. The most common exclusions are:
A further common exclusion for PMI business is treatment relating to standard pregnancy, and potentially also complications of pregnancy and childbirth. |
| Free cover limit | A free cover limit arises under group life contracts. It is the level of benefit, on a particular member, up to which a life insurance company will provide cover without medical evidence. |
| Grace Period | The period after the premium due date during which the policyholder can pay the premium without the policy lapsing. |
| Guarantee | (investment) In the context of life insurance, this refers to a promise that the company will pay a specified sum of money or sums of money at specified times if a specified condition is fulfilled. The condition can be an event such as the surrender or maturity of a contract. The term can also refer to the situation where the company guarantees the rate it will use, at some future date, to convert a lump sum into an annuity or vice versa |
| Indemnity | Under the principle of indemnity, the insured is restored to the same financial position after a loss as before the loss. |
| Insurable Interest | The legal requirement that the policyholder must have a financial or other type of vested interest in the insured item or person. |
| Insured | The person, group or property for which an insurance policy is issued. |
| Lapse | A life insurance contract lapses if the policyholder terminates a contract early due to non-payment of premiums without the company making a surrender value payment to the policyholder. Some companies also use lapse to describe policies that have been surrendered. |
| Liability | Legal responsibility for causing damage or injury to another person or property. Liability insurance provides coverage for such incidents. |
| Microinsurance | Microinsurance is the term used for the growing market in insurance products (including health insurance) that are characterised by low premiums and low coverage limits. Based on a pooling or community approach, microinsurance is generally targeted at the low wealth segments of a population and provides a social benefit in providing access to insurance cover for such socio-economic groups. It is currently well developed in India and some parts of Africa. |
| Moral hazard | Moral hazard refers to the action of a party who behaves differently from the way that they would behave if they were fully exposed to the circumstances of that action. The party behaves inappropriately or less carefully than they would otherwise, leaving the organisation to bear some of the consequences of the action. Moral hazard is related to information asymmetry, with the party causing the action generally having more information than the organisation that bears the consequences. |
| Paid-up policy | This is a regular premium policy under which no further premiums are payable and sufficient premiums have been paid such that benefits are paid on claim even without the payment of further premiums. It normally arises because the policyholder decides not to pay any further premiums, in which case the company would reduce the benefits under the contract allowing for the actual premiums paid. Under some regular premium policies, premiums may be contractually payable for a shorter term than the term of the contract. When the premium paying term has expired, such policies are sometimes referred to as fully paid-up |
| Peril | A specific risk or cause of loss covered by an insurance policy, such as fire, theft, or natural disasters. |
| Policy | A contract between the insurance company and the policyholder outlining the terms and conditions of the coverage provided. |
| Policy fee | This is an amount, usually independent of the size of benefit under a contract, included in the office premium to cover part of a life insurance companys maintenance expenses. |
| Policy limit | This is the maximum amount that can be paid out under a policy, sometimes expressed over a defined period of time (eg annual limit). |
| Policyholder | The individual or entity that owns the insurance policy and is responsible for paying the premiums. |
| Premium | The amount of money paid by the policyholder to the insurance company for coverage. Premiums can be paid monthly, quarterly, semi-annually, or annually. |
| Reinsurance | Reinsurance is the process by which a direct-writing life insurance company transfers part of its risk under a contract to another life insurance company. This may be another direct-writing company or a professional reinsurance company. The reinsuring company may in turn reinsure some of the risk with another direct-writing or reinsurance company. Larger companies may also use reinsurance to transfer liabilities between companies within their own group |
| Renewal | The process of continuing an insurance policy for another term after its expiration, usually involving the payment of a new premium. |
| Rider | An amendment or addition to an insurance policy that changes its terms or coverage. Riders can provide additional benefits or exclude certain risks. |
| Rider benefits | These are extra benefits that can be added to a basic policy either at commencement of the cover or sometimes at defined policy anniversaries of the contract. These benefits would be underwritten at outset and would normally affect premium rates and possibly initial underwriting requirements. For marketing reasons, some riders are provided for the policyholder at no additional charge |
| Subrogation | The right of an insurance company to pursue a third party that caused an insurance loss to the insured, to recover the amount of the claim paid to the policyholder. |
| Surrender value | This is the amount that would be paid out to a policyholder who cancels his or her contract. |
| Tied agents | Also known as appointed representatives, tied agents are salespeople who act more independently than a member of a direct salesforce (see above), but sell only the products of one insurance company, ie they are tied to one company. They enjoy more freedom in how they operate and may employ salespeople themselves to sell the products of the selected company |
| Treating Customers Fairly (TCF) | An outcome based international standard and best practice approach that seeks to ensure fair treatment of customers. |
| Underwriting | The process by which an insurance company evaluates the risk of insuring a person or entity and determines the terms and premium rates for coverage. |
| With-profits | A life insurance contract is with-profits if the policyholder is entitled to receive part of the surplus of the company. The extent of the entitlement is usually at the discretion of the company, subject to being consistent with what the company has told its policyholders. |
| Without-profits | A life insurance contract is without-profits if the life insurance company has no discretion over the amount of benefit payable, ie the policy document will specify at outset either the amount of the benefits under the contract or how they will be calculated. |