10 Common Terms Used in Insurance and their Meaning

Terms used in Insurance

There are certain common terms which are used very often in insurance. These terms need some explanation.

Common Terms used in Insurance

1. Who is Insurer in an Insurance?

The party who agrees to pay money on the happening of a contingency is known as the insurer. Generally, the insurance companies are the insurers e.g. LIC, GIC, ICICI Prudential, Tata AIG etc.

2. Who is an Insured in Insurance?

The person who seeks protection from the insurer against risk by paying premium is called insured. The Insured claims and receives money as compensation in the event of the happening of the stated contingency. He is also known as assured.

3. What is a Premium in Insurance?

Premium is the amount which is paid by the insured to the insurer. It is the consideration for which the insurer gives protection to the insured. It is the price of the insurance cover.

4. What is a Policy in Insurance?

Policy is the stamped document which contains the terms and conditions of the insurance contract. Usually, Policy is issued by the insurer. It is an acknowledgement of the liability.

5. What is Sum Insured in Insurance?

The amount for which the risk is insured is called the sum insured or policy money or face value of the policy.

6. What is Peril in an Insurance?

Peril in Insurance refers to an event that causes a personal or property loss. People are subject to loss or damage &om many perils. Typical perils are: fire, windstorm, explosion, collision, flood, etc.

7. What is a Contingency in Insurance?

Contingency is the actual happening of an event or not happening of an event on which the loss depends. For example, in fire insurance, fire is the contingency on which the payment of insured money depends.

8. What is a Risk in Insurance?

Risk in an Insurance contract refers to uncertainty concerning loss and not the loss itself or the cause of loss or the chance of loss. For example, while traveling in the motor bike, there is a risk of accident.

9. What is a Loss in Insurance?

Loss is an unintentional decline in value or disappearance of value arising from a contingency. Loss of property may be of three types:

1. loss of article itself;
2. loss of the income from the use of that article until it can be replaced;
3. additional expenses that arise due to loss of property.

10. What is Hazard in Insurance?

Hazard refers to a condition that may create, or increase the chance of loss from a given peril. It is of two types:

a. Physical hazard; an objective characteristic, increasing the chance of loss such as the age or health of an insured or the location, use and construction of insured property, the production of gun powder in a building;

b. Moral hazard; a subjective characteristic, increasing the chance of loss such as dishonesty, negligence or insanity.