Tuesday, 24 March 2015

Insurance Concepts

What is Insurance? 
Insurance is defined as a contract between two parties whereby one party called insurer undertakes in exchange for a fixed sum called premium to pay the other party called insured a fixed amount of money after happening of a certain event.

According to the Indian Contract Act 1872, “A Contract may be defined as an agreement between two or more parties to do or to abstain from doing an act, with an intention to create a legally binding relationship.”


What is Banccasurance?
Banccasurance means selling of insurance products through banks. The insurance companies and the banks come up in a partnership wherein the bank sells the tied insurance company’s insurance products to its clients. 

Bank Insurance Model is also termed as Banccasurance. 

Who is an Actuary?
A person with expertise in the fields of economics, statistics and mathematics, who helps in risk assessment and estimation of premiums etc for an insurance business, is called an actuary.

A professional statistician working in an insurance company is an Actuary. 

What is an Actuarial Science?
Actuarial science is the discipline that applies mathematical and statistical methods to assess risk in insurance, finance and other industries and professions.

Actuarial science includes a number of interrelated subjects, including probability, mathematics, statistics, finance, economics, financial economics, and computer programming.

Who are Third Party Administrators?
Third Party Administrators or TPAs are a vital link between health insurance companies, policyholders and health care providers.

The TPAs maintain databases of policy holders and issue them identity cards with unique identification numbers and handle all the post policy issues including claim settlements. 

What is Mortality Charge?
Mortality Charge is the amount charged every year by the insurer to provide the life cover to the policyholder on the life of the Life Insured. It is also called as Cost of Insurance.

What is Maturity Date?
The date on which the principal amount of a note, draft, acceptance bond or other debt instrument becomes due and is repaid to the investor and interest payments stop.

The maturity date tells you when you will get your principal back and for how long you will receive interest payments.

Who is an Agent?
An Agent is a person who is licensed by state to sell Insurance. The Agents serve as an intermediary between the insurance company and the insured.

Agents are only responsible for the timely and accurate processing of forms, premiums, and paperwork.
  • Captive Agent – Agent sell Insurance of a specific Company.
  • Independent Agent – Agent who works independently and sells Insurance of many companies.

Who is a Broker?
An insurance broker is a specialist in insurance and risk management.Brokers act on behalf of their clients and provides advice in the interests of their clients.

Insurance brokers can be best described as a kind of super-independent agent.

What is Annuity?
A long-term contract sold by an insurance company designed to provide payments to the holder at specified intervals, usually after retirement. 

What are Insurable and Uninsurable Risks?
A risk that conforms to the norms and specifications of the insurance policy in such a way that the criterion for insurance is fulfilled is called insurable risk.

In case of a scenario where the loss is too huge that no insurer would want to pay for it, the risk is said to be uninsurable.

What is AD&D in Insurance?
AD&D in Insurance refers to Accidental Death and Dismemberment Insurance. 

It 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.

What is Lapse in Insurance?
The policy for which all benefits to the policy holder cease and is terminated due to nonpayment of premium amount on the due date or even after the grace period is called a lapsed policy.

What is Surrender Value?
Surrender Value is the amount the policy holder will get from the insurance company if he decides to exit the policy before maturity. Surrender value is payable only after three full years premiums.

What is Maturity claim?
Maturity claim is a type of claim, wherein the insured fills a maturity claim form. It is sent along with the original policy document to the insurance company before the maturity date to get timely settlement from the insurance company as post datedcheque or ECS (Electronic Clearance Service) payment on the maturity date.

What is Death claim?
Death claim is a type of claim made by the nominee of the insured to the insurance company due to death of the insured, abiding to the policy terms and conditions.

What is Valid claim & Fradulent claim?
An insurance company validates the authenticity and amount claimed by the insured in-order to prevent the insurer from exaggerating the claim amount  & the claim fraudulently.
If it is a valid reason it is classified as valid claim or else it is classified as fraudulent claim, thereby if insurance suspects of fraudulence in the claim.

What do you mean by Policy not in force?
If the policy is lapsed i.e., the insured has not paid the policy amount before the grace period expires, then it is termed as policy not in force. The insured is not covered by the policy when it is termed as policy not in force.

What is Gratuity?
Gratuity is a part of salary that is received by an employee from his/her employer in gratitude for the services offered by the employee in the company.

According to Payments of Gratuity Act, 1972 with minimum of 5 years’ service during exit is eligible to minimum of 15 days from the last drawn salary for each completed service year.

What is Void & Voidable contract?
Void contract cannot be enforced by law. It is also considered as void agreement and is not a contract et al. Any agreement which is illegal is considered as void contract.

An agreement between two parties that can be unenforceable for a number of legal reasons like failure or mistake by a party to disclose a fact leading to breach of contract. Then the other party terms it as voidable contract. He may also continue the contract making it a valid contract, as it is decided by both parties.

What is Paid up value?
The right to change the normal policy into paid up value is given to the insured by the insurance company, if the insured have paid premiums for minimum of three years.

The paid policy means, after the period if the insured cannot pay premium then the policy is not cancelled but the sum assured is reduced in proportion to the number of premiums paid by the insured.

What is Terminal bonus?
Terminal bonus is the loyalty bonus paid by the insurance company to the insured for maintaining the policy till the maturity date.

It is the bonus paid during the time of maturity and the value is not guaranteed by disclosed during the time of policy maturity only.

ACTUAL CASH VALUE ?
It is the cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, a 10-year-old fan will not be replaced at current full value because of a decade of depreciation.

BCAR – BEST’S CAPITAL ADEQUACY RELATIVITY (BCAR) –
It is a percentage, which measures a company’s relative capital strength and it is compared to its industry peer composite. BCAR is an important component in determining the appropriateness of a company’s rating. BCAR is calculated by dividing a company’s capital adequacy ratio by the capital adequacy ratio of the median of its industry peer composite using Best’s proprietary capital mode.

ENCUMBRANCE
A claim on property, such as a mortgage, a lien for work and materials, or a right of dower. The interest of the property owner is reduced by the amount of the encumbrance.

LIQUIDITY
Liquidity is the ability of an individual or business to quickly convert assets into cash without incurring a considerable loss. There are two kinds of liquidity

QUICK LIQUIDITY – 
Refers to funds, cash, short-term investments, and government bonds and possessions which can immediately be converted into cash in the case of an emergency.

CURRENT LIQUIDITY – 
Refers to current liquidity plus possessions such as real estate which cannot be immediately liquidated, but eventually can be sold and converted into cash.

REINSURANCE
It is an insurance that an insurance company buys for its own protection. The risk of loss is spread so a disproportionately large loss under a single policy doesn’t fall on one company. Reinsurance enables an insurance company to expand its capacity; stabilize its underwriting results; finance its expanding volume; secure catastrophe protection against shock losses; withdraw from a line of business or a geographical area within a specified time period.

LAPSE RATIO
The ratio of the number of life insurance policies that lapsed within a given period to the number in force at the beginning of that period.

IMPAIRED INSURER
An insurer which is in financial difficulty to the point where its ability to meet financial obligations or regulatory requirements is in question.

DIVIDEND 
The return of part of the policy’s premium for a policy issued on a participating basis by either a mutual or stock insurer. A portion of the surplus paid to the stockholders of a corporation.

COINSURANCE
In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full pay-ment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policy-holder. For a 20 percent health insurance coinsurance clause, the policyholder pays for the deductible plus 20 percent of his covered losses. After paying 80 per-cent of losses up to a specified ceiling, the insurer starts paying 100 percent of losses.

CASUALTY INSURANCE
Casualty Insurance is primarily concerned with losses caused by injuries to persons and legal liability imposed upon the insured for such injury or for damage to property of others. It also includes such diverse forms as plate glass, insurance against crime, such as robbery, burglary and forgery, boiler and machinery insurance and Aviation insurance.

RETENTION
The amount of risk retained by an insurance company that is not re-insured.

INSURABLE RISK
Risks for which it is relatively easy to get insurance and that meet certain criteria. These include being definable, accidental in nature, and part of a group of similar risks large enough to make losses predictable. The insurance company also must be able to come up with a reasonable price for the insurance.



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