General Insurance Concepts

Acceptance :

The reception of something by another with the intention of retainment as indicated by the action of the receiver. In the case of a contract, acceptance indicates and implies agreement to terms and propositions as well as a proposal by which a contract is made and the various parties of the contract bound.

Accident hit and run :

Hit and run accident is an accident arising out of the use of a motor vehicle or motor vehicle the identity whereof cannot be ascertained despite reasonable efforts for the purpose.

Section 163 of the Motor Vehicles Act, 1988 provides that the Central Government may establish a fund known as the Solatium Fund to be utilized for paying compensa­tion in respect of death or grievous hurt to persons resulting from Hit and Run Motor Accidents.

The compensation payable for death claims is fixed at Rs.8,500/- and in respect of, grievous hurt Rs.2,000/-.

Accompanied baggage :

Baggage being taken by someone with his person whilst traveling.

Act liability only :

Insurance to cover only that liability of the insured which is created by some specific provision of any act, statute or law, like Act Liability Insurance only in respect of motor vehicles as per provisions of the Motor Vehicles Act.

Act of God :

An accident, an event that is the result of natural causes without any human intervention or agency, that could not have been prevented by reasonable foresight or care, such as floods, lightning, earthquake or storms.


A person trained in mathematics whose job is to apply the theory of probability to the business of insurance and advise in situations involving probability.


A person is responsible for the evaluation and settlement of an insured claim. An adjuster may be an employee of an insurer, or an individual operating independently and engaged by an insurer or insured to adjust a particular loss or claim.


Claims of losses that can properly be accepted or allowed on a policy written.

Ad valorem:

Designates an assessment of taxes against property literally according to the value.

Advance premium:

The payment made at the start or beginning of the period covered by the insurance policy.

Agreed Bank Clause (Agreed Mortgagee Clause):

A provision in the insurance contract under which the insurer obligates itself to pay the mortgagee even if the owner breaches some contract condition so long as the breach was not within the control or knowledge of the mortgagee.

Arbitration :

An alternative to litigation by submitting a disputed matter to selected parties for their award or decision.

Arson :

The willful and malicious burning of property.

Assessor :

A person who determines the amount of a loss, the term describes an individual or firm, in contrast to a claimed official or the insurer’s staff.


Assignment :

The transfer of rights under a contract.

Assignment absolute: Complete, unrestricted transfer of rights under a contract.

Assignment conditional: Conditional transfer of rights under a contract.

Assignor: The person who assigns a mortgage or insurance agreement.

Assured :

An interchangeable work that is the same in meaning as insured.

Average :

(i) Synonym for loss, derived, from the French and used primarily in ocean marine insurance.

(ii) The arithmetic means, or the total of a series of values divided by the number of values making up the total.

Bailee :

A person to whom the goods are entrusted for a specific purpose.

Bailment :

A bailment is a delivery of goods by one person to another for some purpose, upon the contract that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the persons delivering them. The person delivering the goods is called bailor and the person to whom they are delivered is called bailee. (Sec. 148 of the Indian Contract Act. 1872).

Bill of lading or consignment note:

The bill of lading serves three functions; it is an evidence of shipment, it is a receipt for the goods on board, and it is an evidence of the contract of carriage between the carrier and the shipper. It also enables the insurers to decide whether a claim for recovery can be made on the carrier.


The art of breaking used in such phrases as a breach of conduct, breach of privilege, breach of warranty, etc.


The termination of an insurance contract by an insurer or an insured before the end of the policy term. Insurance contracts give insurers and insureds varying cancella­tion rights.


Cost and freight. The seller assumes the responsibility for carriage of goods to the agreed point of destination but does not undertake the responsibility of insurance which re­sponsibility is that of the buyer.

Captive insurer:

Insurer founded by and insuring a sub­stantial portion of the loss exposures of one or more of its major insureds. From the standpoint of the founding parent companies, a captive is a subsidiary that provides insurance to its parent(s) as well as to others.

Pure captive: Captive having only one parent and insuring the loss exposures of that one parent.


Loss or liability arising from an accident or mishap, excluding certain losses or liabilities which, by law or custom, are considered as falling exclusively within the scope of the protection provided by fire or marine insurance.

Casualty includes, but is not limited to, losses or liability covered by employer’s liability, workmen’s compensation, public liability, automobile liability, plate glass, burglary, and theft in­surance.


A sudden and severe calamity or disaster. An event that causes a loss of extraordinary large amount.


Cost including insurance charges & freight, a shipment term under which the seller assumes the responsibility for the insurance, and the carriage of goods to the agreed point of destination. These charges are indicated in the invoice along with other charges.


(01) A demand by the insured for payment under his policy. The claim covers loss caused by perils insured against. The insured is entitled to lodge the claim and recover the loss from the insurance company. The claim is a demand for payment under an in­surance contract or bond.

(02) Estimated or actual amount de­manded.

Claims, without prejudice:

In all correspondence with the insured relating to a claim, the insurers incorporate the words Without Prejudice on the top. The effect of these words is that whatever action the insurers may take in the processing of the claim, they reserve their right to deny liability ultimately if they are legally entitled to do so.

Coinsurer: One who shares a loss under an insurance policy or policies. An insurer who shares with others in coinsurance.

The commission, reinsurance :

Profit Commission: An additional commission payable by the reinsurers to the ceding company as a percentage of profits derived from the business.

Super profit commission: Overriding profit commission payable in addition to the original profit commission particularly under retrocession and/or reciprocal treaties.

Overriding commission: Commission payable in addition to the original commission particularly under retrocession treaties.

Consideration :

Consideration consists of some right, interest, profit or benefit accruing to the one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by others. In the case of insurance contracts, the consideration moving from the insured to the insurer is the premium and the consideration moving from the insurer to the insured is the promise to indemnify. In insurance, the consideration may be statements made on the application and payment of premium.

Consignee :

The agent to whom materials are delivered.

Consignment :

The act of an individual or company of delivery of transfer of goods to an agent to be cared for or sold.

Contingency :

An unforeseen occurrence.

Cover note :

A cover note is a document issued in advance pending the issue of the policy and is normally required if the policy cannot for some reason or other be issued straighta­way. Cover notes can also be issued during nego­tiations to provide cover on a provisional basis. A cover note is not a stamped document but is honored, all the same, by all parties concerned.,

Damages :

Monetary compensation or indemnity, which may be recovered in the courts, by any entity who has suffered loss through the unlawful act or commission or negligence of another.

Declaration policy :

A form of policy where the details of the insurance cover are declared by policyholders at regular intervals.

Deductible :

A portion of an otherwise insured loss borne by the insured.

Demurrage :

The penalty levied against cargo that is held beyond the generally allowed number of days free time of storage, or against a vessel at the port of loading or discharge longer than agreed.

Embargo :

Prohibition of ships from sailing under tonnage.

Endorsement :

Document attached to a policy that modifies the policies original terms.

Endorsement overrides the more general provisions in the policy itself. In a way Endorsement as a memorandum added to a policy embodying some alteration to the terms of the policy.

Erosion :

The action on the land of such natural causes as wind, running water, or ice causing wearing away of elements of the land.

Escalation :

Increase in the value of the property insured during the period of insurance.

Expiry :

Termination of a term policy at the end of the term period.

Extra premium :

An additional amount added to the basic premium which may be required because the risk covered is unusu­ally hazardous.

Floating policy :

i) When there are a series of export or import transactions, it is used for a single global sum insured. As shipments are made, a declaration of their value must be made to the insurers, the balance of the sum insured applicable to future transactions being thus automatically reduced. ii) Policies where the sum insured covers a sequence of events, being reduced as each event occurs.

F.O.B. (Free on Board):

A shipment term. The seller is responsible for loss or damage to goods until they are placed on board the vessel for onward carriage. Thereafter the buyer becomes responsible and he has, therefore, the option to insure where he likes.

F.O.R. (Free on Rail) :

A shipment term. This is similar to F.O.B. but concerns mainly the internal trade transactions.

Foreign insurer :

An insurer domiciled in a country other than the one where the insured exposure is located. Contrast with Alien insurer.

Fraud :

Obtaining an advantage by unfair or wrongful means. Deception or artifice used to deceive or cheat.

Gross premium :

(i) The original premium before any origi­nal discounts have been applied. Gross premium is a raw premium before subtracting cost for reinsurance or at times before any return premium (ii) Premium income without deduction for rein­surance premiums.

Hazard :

(i) A condition that may create the probability of loss. (ii) A condition or activity which increases the probable frequency or severity of the loss.

Hazard, moral :

Hazard arising from personal characteristics, such as the habits, methods of management, financial standing, mental condition, or lack of integrity of an insured who may intentionally cause, or hope for, a loss.

Hazard, morale :

A condition that causes persons to be less careful than they would otherwise be.

Hazard, Physical :

Hazard arising from physical characteristics of animate or inanimate objects.

Hurricane :

A violent tropical cyclone with winds of 73 or more miles per hour ( 115 or more km/hr) often with torrential rains and originating usually at sea.

Impact damage :

Damage to property by impact with the vehicles, horse, and cattle of a third party.

Lapse :

The expiration of forfeiture of an insurance policy by non-payment of due premium.

Loading :

(i) Rupee amount or percentage added to the basic rate or premium to cover an insurer’s cost of securing and maintaining a business.

(ii) Any other percentage or rupee addition to a basic insurance rate or premium to cover the additional cost of a future type of coverage or service to an insured, such as a loading for extend­ed coverage or special safety inspection services.

(iii) Those elements added to the risk premium to allow for insurer’s expenses, profits and contingencies.


Payment required for insurance.

(i) Deposit premium: Premium paid at the inception of a policy that provides for future premium adjustments. It is based on an estimate of the final premium.

(ii) Earned premium: Portion of the premium for a single policy or group of policies, that an insurer is entitled to recognize as earned revenue because a similar portion of the coverage period has elapsed. For example, under an annual policy, one-third of the total premium is earned after the first four months of coverage.

(iii) Gross Premium: (a) Entire periodic premium for a particular type of insurance, consisting of the net premium plus lodgings. (b) The premium for participating insurance before deduction for anticipated dividends.

(iv) Minimum premium: Least premium specified in a rating manual or underwriting rules, for which a policy or an endorsement can be issued or for which a unit of exposure can be insured.

(v) Net premium: In health insurance, a portion of the gross premium needed to pay benefits provided by the insurance con­tract, with no allowance for expenses; contingencies or profit. The property-liability equivalent is a pure premium.

vi) Premium rate: Price per unit of insurance, usually per Rs. 100 or Rs.1,000 per year.

vii) Pure premium: Portion of the total premium needed to pay expected losses and loss adjustment expenses, with no allowance for the insurer’s expenses or profit.

vii-A) Premium is written: Total amount of premium charged for the policies an insurer writes (by selling new policies or renew­ing expiring ones, during a specified period, such as one month or one year. Because most policies are for terms longer than the period for which the written premiums are calculated, the premi­ums an insurer writes during a particular period will not equal the premium it earns during that period. Refer: Premium earned.

viii) Unearned premium: Portion of a property or liability insurance premium equal to the unexpired portion of the period for which the total premium has been paid. The unearned premium equals the gross premium minus the earned premium. Thus, for an annual policy, at the end of the first month of coverage, elev­en-twelfths of the premium is unearned.

Sabotage :

Malicious destruction of an employer’s property by workmen.

Salvage :

Property that escapes destruction or damage, or the residual value of a property which is partially damaged. This may have to be sold to determine the amount of loss.

Standing charges :

Constant charges prevailing throughout whether the turnover is reduced or not.

Subrogation :

The legal right of one who has paid an obligation owed by another to collect from the party originally allowing the obligation. Thus, an insurer may endeavor to recover from a third party the amount it paid to its insured for a loss.

Sue and labor charges :

Property insurance provision permitting and requiring an insured to protect any salvage resulting from an insured loss, without prejudicing any right of claim against the insurer. This clause prohibits the insured from failing to use proper care to preserve the property and obli­gates the insurer to pay the cost of salvage activities.

Sum insured :

The limit of liability of the insurer to pay under a policy.

uberrimae fidei :

Utmost good faith. The basic principle of insurance law is that there must be utmost good faith between an insurer and an insured, especially about the nature of the exposure insured.

Underinsurance :

(i) A condition in which not enough insur­ance is carried to cover the value of exposure, (ii) Condi­tion in which the amount of property insurance is less than the applicable coinsurance requirement.

Underwriter :

(i) Insurer (ii) Insurers employee who evaluates applications for insurance and determines the terms (premium rates and policy forms) under which the applicant will be insured.

Unexpired risk reserves :

Funds set aside by insurers to cover potential liability on policies still in force at the end of the accounting year.

Void :

An Insurance contract that is prohibited by law and thus cannot be held to be valid.

Voidable contract :

(i) A contract which one party can choose not to enforce. (ii) contract of insurance or reinsurance in respect of which the underwriter has the right to repudiate liability on the grounds of a breach of good faith by the in­sured or reinsured, or in the case of a voyage policy, where the voyage has not commenced within a reasonable time after the risk was written.

Warranty :

A statement made on an application for insurance that the applicant warrants to be true. If untrue in any respect, without the applicant’s knowledge, the warranty has been breached and any insurance relating to that warranty is void, without regard to the materiality of the breach.

A statement may be construed as a warranty even though it is not so labeled. However, in most lines of insurance other than ocean marine, state statutes, and court decisions tend to interpret warranties as representations, so that their breach does not void coverage unless the breach materially increased the chance of loss or was consciously concealed by the insured.

Under product liability, a warranty is a statement or representation, made by the seller of goods, at the time of and as part of the contract of sale, that the product is as represented. It is a statement of fact concerning the quality or character of the product.

Without prejudice :

(i) An ex-gratia settlement made by an underwriter on condition that such action shall not be used as a basis for settling a similar loss in the future.

(ii) In all correspondence with the insured relating to a claim, the insur­ers incorporates the word without prejudice on the top. The effect of these words is that whatever action the insurers may take in the processing of the claim, they reserve their right to deny liability ultimately if they are legally entitled to do so.


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