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Your Easy-To-Use Insurance Handbook (Part 1)

Applying for insurance may seem a little daunting at first, with all these new terms and clauses being thrown your way. Understanding what these terms mean, however, and why they're implemented, will help you get the most out of your policy. Let's get started!

When it comes to any form of insurance, it's important to understand exactly what you’re reading, and what it is that you're agreeing to. For example; what do all these terms like excess, premium, risk or annuity mean, and how / why are they implemented?

The more knowledgeable you are going in, the less likely that you'll find yourself disappointed later on down the line. You don't want that, and we don’t want that. So, we've put together some of the most important terms you may come across when applying for, or managing, your insurance. 

And, as always, if you're still unsure about anthing at all, you've got a Guru standing by to guide you.  

Let’s get started.

A – From Actuaries To Insurance Agents

Accident – Defined as an unforeseen and unintended event or occurrence.

Accidental Death Benefit – With regards to life insurance, accidental death benefit is an additional benefit which pays out to the beneficiary should death occur due to an accident. There are, of course, certain limits or exclusions such as the time of the incident and the age of the deceased.

Actual Cash Value (ACV) - The value of a property as figured by determining what it would cost to replace said property. This amount is then adjusted by subtracting an amount that reflects depreciation.

Actuary – A specialist in the mathematics of insurance. An actuary calculates rates, dividends, reserves and other statistics.

Adjuster – Also known as an assessor. This is a representative of the insurance company who will determine the extent of the insurer's liability for loss when a claim is submitted.

Agent – A person who sells and services insurance policies. An independent agent may represent up to two or more insurance companies and earn commission based on a percentage of premiums paid. A direct agent, on the other hand, represents only one insurance company – the one they work for – and will only sell products offered by that insurer.  

All Risk Insurance - Insurance cover for personal items not commonly covered by other insurance products, such as sunglasses, laptops, smartphones, jewellery and other valuables carried on your person while out and about. 

Ancillary Benefits - Secondary or supplementary benefits that accompany a prime benefit. Accrues from the same performance from which the prime benefit accrues.

Annuity – An agreement by an insurer to make periodic payments that continue during the survival of the annuitant(s) or for a specified period.

Asset – Defined as a property or financial commodity which can, if need be, be converted into cash.

Average – This is a policy condition related to the insuring of your items. It is important to insure them for their full replacement value. If you don’t, the average applies. This means that your claim payment will be reduced if the items are underinsured.

B – Brokers And Benefits

Beneficiary - A person or entity, as elected by the policy holder, to receive the benefits of said policy - as in the case of Life Insurance paying out in the event of death. 

Benefit - Any amount payable to a beneficiary as stipulated in a specific policy.

Benefit Period – With regards to health insurance, the benefit period refers to the number of days in which benefits are paid out to the person insured and their dependents. 

Broker – A broker is an insurance salesperson, acting as an intermediary, who searches the marketplace for the best possible insurance products in the interest of clients, not the insurance companies. A broker-agent may represent certain insurance companies in particular, but will not prefer one specifically over another. The broker-agent still acts in the interest of the client, and will source the optimal products available.

Building Insurance – This type of policy covers the costs of repairing or replacing the structure of a house or building in the event of damage. Damage could be caused by flooding, fire, lightning or natural disasters. This usually includes garages, outhouses, gates and boundary walls or fences. 

Business Insurance - Also known as Commercial Insurance. Insurance that covers a business and its assets in order to protect itself against possible losses. 

C – From Claims To Coverage

Car Insurance - Insurance that covers your car against theft or loss / damage as a result of an accident or collision. 

Cede - The transfer of rights in a policy to another person or entity.

Cessionary - The person or entity to whom you have transferred your rights in a ceded policy.

Claim – In the event of an unfortunate incident, such as a car accident or hijacking (related to car insurance), death or disability (related to life insurance) or a natural disaster damaging your home (related to building insurance) – a claim is then made by the person insured against such risks to the insurance company. A claim, then, is basically a request made by the insured for payment of the benefits as provided by the policy. The insured making the claim is referred to as the Claimant. 

Claim Number – Every claim submitted by the insured will be given a unique identifying number allocated to it for referencing purposes. Essentially, it’s a reference number, which in this instance is referred to as a claim number.

Claims-Free Period - A period in which no claims are issued, usually leading to a benefit.

Co-insurance – This is an arrangement that commonly involves separate insurers sharing the cover of one particular risk.

Commencement Date - The date that you started receiving coverage in your insurance policy, also known as 'the start date'.

Comprehensive Insurance – This is the ultimate car insurance product, and the most commonly recommended. Comprehensive car insurance covers your vehicle in the event of almost any form of damage or theft. 

Compound Interest - The addition of interest credited to a loan is known as compound. Compound interest is simply interest on current interest. It is the result of reinvesting interest, rather than paying it out. So, the interest in the next period is then earned on the principal sum plus previously accumulated interest.

Contents Policy – Also referred to as Household Contents Insurance. This kind of policy covers the contents of your home or building, whether it be furniture, appliances or other valuables.

Contribution - The money that you, as a policyholder, pay to a financial company or insurer for the product set out in a policy.

Coverage – This is the range of protection provided under an insurance policy. In car insurance, for example, the coverage will list the risks or perils that your vehicle is insured against – depending on the type of cover you have chosen. For instance, a third party, fire and theft policy will cover the damages inflicted upon the other vehicle involved in a collision, but not the damage to your own. Every insurance policy covers certain incidents, so it’s important to know what the limits of your coverage.   

While You're Here: How To File A Car Insurance Claim

D – Full Disclosure

Dead Peasant Insurance – Also known as Corporate-Owned Life Insurance. This is a form of life insurance which a company will take out on the lives of its employees. The insurance policy, however, is owned by the employer. This means that any benefits payable either go to the employer or directly to the employee's families. 

Deductible – An American term. See Excess.

Dependant - Someone who relies on somebody else for financial support. Most commonly referring to children or elders. 

Depreciation – This is the extent to which insured property, such as your car, has diminished in value due to factors such as wear and tear. A brand new car begins to depreciate in value the minute you drive it off the showroom floor.

Disability Insurance - Insurance that provides cover in the event of you becoming disabled. Commonly considered as a value add-on to Life Insurance, but also as a stand-alone policy.

Disclosure – It is the duty of all parties entering into a contract of insurance to disclose (reveal) all true facts before the contract can be concluded, as well as prior to each renewal. Similarly, a declaration refers to when the person insured declares all information given to the insurer to be complete and honest. Just like taking an oath in a court room. 

Domicilium Citandi Et Executandi - A Latin term meaning the address where you agree to accept notices and legal processes, for example, documents and summonses.

E – That Dreaded Word, Excess

Elimination Period – Better known as a waiting period. This is the amount of time which has to pass after filing a claim before the policyholder may collect the insurance benefits. 

Escalator Clause – This is a clause in a policy, related to property, which allows the sum insured to rise in accordance with the assumed rate of inflation.

Ex Gratia – Sometimes, an insurance company just isn’t compelled to pay for a specific damage to your property. These are damages or losses which aren’t covered in terms of your insurance policy, but the insurer might be feeling generous and cover it for you. In insurance terms, ex gratia is a show of goodwill compensation.

Excess – This refers to an amount of money which the policyholder has to pay toward the cost of a claim before the insurer pays out the rest. The insured can opt for paying a higher excess at the time of the claim in return for lower monthly premiums, or vice versa. 

Excess Premium - An extra amount you pay each month that allows you to pay no excess, or a lower excess, at the time of claiming.

Exclusions – These are items, or conditions, that are not covered by the insurance contract. 

F – Don't Set Things On Fire. Insurers Don't Like That.

FAIS - Financial Advisory and Intermediary Services (FAIS). An independent body that resolve disputes between financial services providers and their clients in a fair, informal, economical and efficient way.

Financial Advisor - A representative of an authorised FSP, who is thereby authorised to provide financial advice and / or intermediary services, and has been appointed in such capacity by the investor.

Financial Planning - Savings and investment plans that insure your long term financial security.

Fire – The ignition of something which should not be on fire. For instance; your car, your home or yourself. 

Fixed Asset - An asset that can't be moved, such as a building.

Fixed Monthly Premium - A fixed amount set by your insurer that you pay monthly in exchange for insurance cover.

Fraud – In simple terms, insurance fraud can be defined as any event where an insured person claims from their insurance company for something that the insurer is not liable for; in terms of the insurance policy. Fraud has many faces, and can involve anything from claiming for additional items stolen, never truly possessed, to much greater, more intricate scams. Sooner or later, however, all fraudsters are caught.

FSP - Financial Services Provider, such as a bank, authorised by the Financial Services Board to provide financial services to clients in the form of advice and / or intermediary services.

Fund – This is a common pool into which all premiums, for each class of insurance, are paid. All losses are also met from this pool.

Funeral Insurance - Insurance that covers you against the costs associated with your own funeral, or the funeral of a family member. Commonly considered as a value add-on to Life Insurance, but also as a stand-alone policy.

Future Benefit Values - The value of a benefit in a set period in the future, i.e. a year from now.

CONTINUED: Your Easy-To-Use Insurance Handbook (Part 2)

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