Basics of Life insurance : By:Lorelyn Turtosa-Dumaug Basics of Life insurance HISTORY OF LIFE INSURANCE : HISTORY OF LIFE INSURANCE Existed over 2000 years ago : Existed over 2000 years ago Property insurance
- was the first form of insurance WHAT IS LIFE INSURANCE? : WHAT IS LIFE INSURANCE? LIFE INSURANCE : LIFE INSURANCE Is a pooling of risks
Is a cooperative risk-sharing scheme
Is a group sharing of losses
Substitutes certainty for uncertainty
Is a family protection Dr. Solomon S. Huebner : Dr. Solomon S. Huebner FATHER OF LIFE INSURANCE HUMAN LIFE VALUE CONCEPT : HUMAN LIFE VALUE CONCEPT Life insurance contained solutions to the problem of protecting human life values against inevitable economic loss through death, disability and old age.
Can be expressed through monetary valuation
Can determine the economic value of a person by discounting estimated future earnings used for the family at a reasonable interest rate.
Be expressed as a monetary valuation
Determine the economic value of the person bu discounting estimated future earnings used for the family at a reasonable rate of interest. BASIC INSURANCE TERMS : BASIC INSURANCE TERMS Apportionment : Apportionment The dividing of a loss proportionately among two or more insurers that cover the same loss. Acts of God : Acts of God Acts of God are considered natural disasters that could not have been reasonably prevented or avoided. Additional Perils : Additional Perils Sometimes called Special Perils, these may include losses caused by aircraft, explosion, earthquake, storm, tempest, flood, burst water pipes, riot, strike, civil commotion, malicious damage. These are extensions that widen the scope of a basic fire insurance policy. Adjustable Policies : Adjustable Policies Often, the premium on certain policies is based upon estimates of the size of the risk. For example turnover, gross profit or average stock value over the next twelve months. Under an adjustable policy, these estimates can be adjusted appropriately, upwards or downwards, at the end of the period of insurance, when the actual figures are available. Binder : Binder Temporary authorization of coverage issued prior to the actual insurance policy. Cancellation : Cancellation Insurers have the right to cancel a policy at any time. If they do so they must give the period of notice required in the policy. Claim : Claim A request for a payment of a loss under an insurance policy. Change of Risk or Circumstances : Change of Risk or Circumstances It is vital that you should advise insurers of any departure from your ‘normal’ form of business (i.e what has already been conveyed to insurers). For example, acquisitions, changes in location or new overseas activities. Contribution : Contribution Where someone is holding two or more insurance policies covering the same interest in the same property for the same peril, and if the policies are contracts of indemnity, then the law does not allow the insured to recover a loss under both policies and to make a profit out of the misfortune he has insured against. Instead, the insurers concerned share in the loss proportionately. This is known as contribution. Deductibles : Deductibles Deductibles are the amounts you pay to cover a loss before you are entitled to payment by your insurer. For example if your claim is CYP 4,000 and your deductible is CYP 200, you pay CYP 200 and the insurer will pay CYP 3.800. Deductibles are designed to discourage small claims, since the purpose of the insurance is to protect you from catastrophic losses, not minor inconveniences. Depreciation : Depreciation Depreciation is a measure of the loss in value of an item over time resulting from wear or obsolescence. Duty of Disclosure : Duty of Disclosure Before entering into a contract of Insurance with an insurer, you have a duty to disclose every matter that you know, or could be reasonably expected to know, which might influence the insurer in deciding whether or not to accept the risk, what the terms of the policy should be or what premium to charge. Debris Removal Clause : Debris Removal Clause The basic cover under a fire or industrial all risks policy does not automatically extend to include the cost of removing debris. These costs are insured under a separate ‘debris’ removal clause. Exclusions : Exclusions Also known as Exceptions. All contracts contain certain conditions and it is important that you are aware how these affect your rights under a contract. You should review your policy with your Broker to fully understand what areas are covered and what claims will not be paid. Effective Date : Effective Date The date upon which cover under an insurance policy becomes effective. Usually this will not be until an insurer has accepted the proposal and confirmed cover in writing by issuing a cover note or cover confirmation. Implied Conditions : Implied Conditions Certain policy conditions are not actually written into the policy but that have evolved from basic insurance principles over the years. For instance, the insurance cannot cover illegal operations and there must be an insurable interest in any insured property. Insurable Interest : Insurable Interest Insurable Interest is one of the basic principles of insurance. It states that the insured must have a financial interest in the property insured such that he benefits from its continued existence and will be prejudiced by its loss or damage. This basically differentiates insurance from gambling. The insurance policy insures the interest policyholder in the property. If there is no insurable interest, the policy will not respond. Material Fact : Material Fact The principle of ‘utmost good faith’ requires anyone seeking insurance to disclose all the material facts about the risk that he knows, or should know. A material fact has been defined in a number of legal cases and broadly is any fact which may influence the judgment of a prudent underwriter in deciding whether to accept a risk and if so at what rate of premium. How do you as an insured person know what an underwriter may regard as material? If in doubt as to whether some piece of information is relevant, it is always best to tell insurers anyway. Non Disclosure : Non Disclosure If you fail to disclose all material facts, this may render the insurance void from inception (the start of the contract) and enable the Underwriter to repudiate liability. Utmost Good Faith : Utmost Good Faith Every insurance contract is subject to the doctrine of utmost good faith, which requires that parties to the contract should act toward each other with the utmost good faith. Underwriting : Underwriting Examining, accepting, or rejecting insurance risks and classifying the ones that are accepted, in order to charge appropriate premium for them. Premium : Premium This is the amount you pay to the insurance company to buy a policy.
A single premium policy will need you to pay just one lump-sum amount.
The annual premium policy will require you to pay every year. This will go on for a fixed period of time. The exact number of years will depend on the scheme in question. Insurer and Insured : Insurer and Insured The person in whose name the insurance policy is made is referred to as the policy holder or the insured. So, if you have taken an insurance policy, you are the policy holder, the one who is insured.
The person whom you name as the nominee is the one who will get the insured amount if you die. The nominee is referred to as the beneficiary.
The insurer is the insurance company that offers the policy. Sum Assured and Maturity Value : Sum Assured and Maturity Value Sum assured is the amount of money an insurance policy guarantees to pay before any bonuses are added. In other words, sum assured is the guaranteed amount you will receive.
This is also known as the cover or the coverage and is the total amount you are insured for.
Maturity value is the amount the insurance company has to pay you when the policy matures. This would include the sum assured and the bonuses. Term and Term insurance : Term and Term insurance The term is the number of years you bought the policy for. So, if your policy lasts for 10 years (the number of years is your choice), it is referred to as one with a 10-year term.
Term insurance, on the other hand, is a type of insurance policy.
It provides policyholder with protection only. If the policyholder dies within the specified number of years (the term), his nominee gets the sum insured. If he lives beyond the specified period, the policyholder gets nothing.
This is the cheapest and most basic type of life insurance. Endowment Insurance : Endowment Insurance You are given a life cover just like term insurance. If you die during this period, your beneficary will get whatever amount you are insured for.
Unlike a term insurance cover, if you live, an amount will be paid to you on maturity of the plan.
This kind of policy combines saving (because money is given to you on maturity) with some protection (your nominee gets an amount if you die). Rider : Rider It is an optional feature that can be added to a policy.
For instance, you may take a life insurance policy and an add on accident insurance as a rider. You will have to pay an additional premium to avail this benefit. Annuity : Annuity Annuities refer to the regular payments the insurance company will guarantee at some future date. So, say, after you cross 55, the insurance company will start giving you a monthly or quarterly return. This is known as an annuity (premium is what you pay them).
This is often done to supplement income after retirement. Surrender Value & Paid-up value : Surrender Value & Paid-up value Halfway through the policy, you might want to discontinue it and take whatever money is due to you.
The amount the insurance company then pays is known as the surrender value. The policy ceases to exist after this payment has been made. Do remember, you will lose out on returns if you withdraw your policy before time.
Paid-up value is different. If you stop paying the premiums, but do not withdraw the money from your policy, the policy is referred to as paid up.
The sum assured is reduced proportionately, depending on when you stopped. You then get the amount at the end of the term. Survival Benefit : Survival Benefit This is the amount payable at the end of specified durations. These amounts are fixed and predetermined.