Common Terminologies Used in Insurance

Re-Insurance: The insurance company gets a part of the risk insurance with another insurance company. In order to avoid heavy financial loss, this is known as Re-Insurance. This provision does not affect the position of the original assured.

He, therefore, can claim only from his own insurance company. The principle of re-insurance is based on the idea that risk must spread over a wider field. It thus protects the insurance funds of the original insurer.

For further illustration suppose Miss Hannah gets a property insured with “A” company for £50,000 for a certain premium.

Now if “A” wishes to reduce half of its risk it may be re-insured with “B” company say for £25,000.

The contract between “A” and “B” will be reinsurance.

Insurer: The term insurer refers to the party that protects another against various risks. An underwriter and insurance company are an insurer.

Underwriter generally accepts the risk in the case of marine insurance. He is a member of the Lloyd’s Association. The insurer may be named as assure.

Insured: He is a person who is safeguarded against the risk in exchange for money. He is also called assured.

Policy: It is an important document of the insurance in which terms and conditions of the contract between the insured and insurer are laid down. This document must be signed and stamped by the insurance company.

Premium: It is the consideration amount that the insured has to pay to the insurer in exchange for shifting of risk.

Insured Amount: It is the specific amount for which the policy is purchased from an Insurance company or its agents.

Double Insurance: When a person gets his goods insured with more than one insurance company this is named double Insurance. If he does so without the motive of fraud, he can recover on all or any of the policies.

For example, a building costs £2,00,000. The owner of the building gets It Insured for £1,20,000 from ‘A’ insurance company and £80,000 from ‘B’ insurance company.

In the event of loss, A and B insurance companies will bear the loss proportionately among themselves. If the total amount of all the policies taken together comes to more than the actual value of the subject-matter insured, the Insured can only recover the actual value.