COMMON TERMS USED IN INSURANCE

 1. Insured

This is a person or company taking out insurance and is promised compensation by the insurance company in case of loss from the stated risks (pay premiums).

2. Insurer

This is the insurance company giving protection to the insured’s property. It is the company that receives the premiums and guarantees protection to the insured. In Uganda, examples include National Insurance Company (NIC), Excel Insurance, e.t.c.

3. Premium

This is the annual contribution made by the insured to the insurer. It forms a pool from which compensation is made to those who suffer losses.

4. Sum insured

This is the total value of the property which the insured stands to lose in case of risk happening. It is therefore the value the insurer would compensate the insured in case of loss.

5. Risk

This is the event against which the insured takes up an insurance contract. It is something that causes financial suffering once it occurs. For instance, machinery break downs, theft, fire, death, burglary, looting, storms and floods, e.t.c. There are two types of risks, i.e insurable risks and non-insurable risks.

(i) Insurable risks are risks that can be legally insured. Such risks include death, fire, machinery break down, theft, accidents, e.t.c. With such risks, an entrepreneur can, to a reasonable degree, control them (except death) by taking appropriate measures in and out of his/her business.

(ii) Non-insurable risks are risks that cannot be legally insured and in the event of occurring, the insurance company cannot be legally compelled to compensate.

However much care the entrepreneur takes, he/she cannot control them. For instance, acts of war/political turmoil and other naturally uncontrollable risks like floods, storms, e.t.c.

6. Loss

This is the happening of events against which insurance is taken, for instance, if one insures his business against fire and it is burnt down, then it is said the loss of the business has happened.

There are two types of losses, i.e total loss and partial loss.

(i) Total loss. This is when the whole property is completely destroyed.

(ii) Partial loss. This is when only part or portion of the property is destroyed.

7. Co-insurance

This is where a property is insured against similar risks with more than one insurance company. In case of loss of property, only the sum insured is paid by all the co-insurers.

8. Re-insurance

This is when an insurance company which has undertaken to compensate a firm or person against a big loss such as destruction of a factory also insures itself against such a big claim with another insurance firm so that it can ask for contribution when the claim is made.

9. Over insurance

This is when the insured overstates the value of the property when applying for insurance. However, he will be required to pay a higher premium but in the event of loss, he will be compensated only the true value.

10. Under insurance

This is when the insured under declares the value of the property and he is charged less premium. However, in the event of total loss, he is compensated only the real value insured.

N.B: Over insurance and under insurance may lead to cancellation of the insurance contract.

11. Surrender value

This is the money given back to the insured when he decides to cancel the insurance contract before the period ends. It is the amount of premium refunded to the insured who cancels the insurance contract.

12. Actuary

This is a professional person or an expert employed by the insurance company who has skills in assessing and calculating premium.

13. Renewals

When the insurance contract ends or expires, the insured may apply for another contract. This is referred to as renewal of the insurance contract.