When last did you truly read the terms and conditions before you clicked on I agree? Did your eyes scream for joy when you encountered the many pages of an insurance policy? LOL. We don’t think so. Trust us, we are of the belief that financial subjects should also be made simpler and easier to understand.
When it comes to protecting your well being against financial losses, clarity should be in mind. Insurance is an important means of risk mitigation against the high costs of replacing items in such a time like this when the economy is not smiling. You don’t have to lose your cool when high financial implications occur, the unexpected may happen but when you are fully prepared for it, you are fine. Insurance makes this possible and sets the tone on how you fare in each season of life.
Insurance is like a pal, it lends a helping hand in times of need and it takes commitment to keep good friendships too. The give and take in this scenario comes in the form of a premium that is a certain amount the insured agrees to pay in order to receive protection against loss.
While insurance has proven its relevance to society, the intricacies in its name might have scared you before but not anymore. We have broken some of the terms you will come about when filling out your form. No need to be taken aback by the technical terms when you contact insurance agents or brokers. You are simply not a ‘JJC’ after this swift education. Let’s roll!
Key Terms You Should Know:
What is a Premium?
A premium is the total amount of money an individual or business pays to an insurance company for an insurance policy. The premium is required to be paid periodically to the insurer by the insured for covering his risk. The premium is calculated based on the age, type of employment and medical conditions of the applicant. Depending on the terms of the agreement, it can be paid monthly, quarterly, annually or in a single premium.
What is Sum Insured?
It is the agreed amount that an insurance company will pay to someone or a business who makes a claim in the event of a covered loss. For example, if the subject matter of insurance is a car, the sum insured will cover the cost of a car and other damages that might occur.
What is Current Market Value?
This is the current price of an insured asset in its state at the time of loss. Basically, it is the amount payable for the subject matter of insurance in its condition at the time the loss or damage occurs. In the event of loss, the market value paid by the insurer differs from the market value of your asset at the time of policy purchase. This is because assets depreciate over time thus, making market value non-static. For example, the cost of your vehicle at the time you chose to purchase an auto insurance cover may have spiked by the time you have a course to make a claim later on in the year. Hence, the price at the time of making the claim is the ‘current market value’.
What is Policy Excess?
This is the amount of money that the policyholder bears whenever claims on an insurance policy are made. It is based on the loss experience, the sum insured, applied rate, and administration costs. Excesses are usually deducted from your claims. For instance, in the event a claim occurs, there is a particular sum that is deducted from the Sum Assured, which is the cost of your own portion of the risk that has been insured. Here is an illustration: Mrs A has been in a fire accident that costs his house and is claiming for N10,000 to cover the cost of repairing damages to his house. The excess on Mr. A’s car insurance policy can be N750. She will not receive N10, 000, but N9250. Usually, the excess should be agreed between the insured or their representative and the insurer.
What is Contribution/Betterment?
This is the sum of money paid when a policyholder decides to replace a lost or damaged insured subject with something that is ‘better’ or of ‘higher grade’ than the lost/damaged subject. The policyholder is responsible for the difference between the original item’s value and the cost of the new item. ‘Contribution’ also comes to play if the same property/item is covered by more than one insurance policy at the same time.
What is an Insurable Interest?
An insurable interest is the legal right of an insured to a property/life covered under an insurance policy. In insurance, it is critical that the insurance asset belongs to the person seeking to procure insurance cover for it. For example, a person cannot insure a car that is not his own, and a tenant cannot insure the property of his/her landlord, but only the content in the home.
What is an Indemnity?
This is a contractual agreement in which the insurance company guarantees compensation for actual or potential losses or damages sustained by the insured. Hence, the insured is expected to be placed at the exact position they were prior to the loss. It also states that the insured is not to profit from their insurance policy. It is noteworthy to mention that insurance policies are designed to cover the value of the at-risk asset appropriately.
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