Insurance Terms Explained

Insurance terms can be confusing if not well understood. We have put together some of the common terms in insurance and clearly explained them.

Let us know if you come across any terms you wish explained and we can continue to build on the list below.

  • Insurance-a contract in which an insurance company promises to compensate an insured.
  • Insurer-Is the company that accepts risks after receiving premiums and pays claims.
  • Insured-This refers to the person who has taken insurance and pays premium
  • Agent –A person or a group of people selling insurance on behalf of an insurance company.
  • Broker –An independent insurance professional licensed under the Insurance Act who advises customers on insurance. In Kenya, most brokers are members of the Association of Insurance Brokers of Kenya (AIBK).
  • Underwriter-The person who calculates how much premium to charge for various insurance products and accepts or rejects risks on behalf of insurance companies.
  • Underwriting – The process an insurance company uses to decide whether to accept or reject an application for an insurance cover.
  • Proposal Form-This is an application form completed by a potential client for an insurance cover.
  • Policy- It is a formal contract /document issued by an insurance company to the insured (insured) setting out terms on which the insurance cover has been provided.
  • Policy period – The period a policy is in force, from the beginning or effective date to the expiry or end date.
  • Premium-The amount the insured pays an insurance company. It could be a one off payment or regular installments or as per the agreement with the insurer.
  • Claim– A request for payment when the insured event occurs as per the terms of the insurance policy.
  • Excess-This is the amount the insured pays when making a claim. The amount is specified in the policy.
  • Liability –The effects of your actions or lack of actions on others while undertaking your responsibilities.
  • Grace period – The time – usually 31 days – during which a policy remains in force after the premium is due but not paid. The policy lapses after this period if premium is not paid.
  • Lapse- The termination of an insurance policy because premium has not been paid.
  • Cancellation Notice – Termination of an insurance policy by either the Insurance Company or the insured before the renewal date.
  • Renewal – Continuation of a policy after expiry date.
  • First/ Second / Third Party- The first party is the insured, the second is insurance company and the third party is any other person(s) who may be affected by the insured actions.
  • Third-party claim – A claim filed by a third party against the first party’s insurance policy.
  • Sum insured- It relates to the value of the insurance and this is the basis upon which premium is calculated and claim paid.
  • Endorsement – A written agreement expanding or limiting the terms and conditions of a policy.
  • Rider- This is an additional benefit on a policy.
  • Exclusions or limitations – Provisions that exclude or limit coverage of a policy.
  • Towing coverage – This is a motor insurance benefit that pays for towing charges when a car cannot be driven. It also pays labour charges, such as repairing at the place where the car broke down.
  • Material misrepresentation – A significant untruth on an application form which, if a company had access to, they might have rejected the application.
  • Pre-existing condition – A medical problem or illness you had before applying for health care coverage.
  • Beneficiary – The person, people, or entity who will receive benefits from an insurance policy or an annuity contract.
  • Accident – An unforeseen, unintended event.
  • Insurable interest – Any financial interest a person has in the property, person or liability.
  • Loss history – This refers to the number of insurance claims previously made by an insured. An insurance company will consider loss history when underwriting a new policy or considering renewal of an existing policy.
  • Market value – The current value of the asset you are insuring such as your home, motor vehicle etc.
  • Risk/Peril – An occurrence that can cause loss to an individual or a business for example fire, theft, death, accidents and others. A named-peril/risk policy covers the insured only for the risks identified in the policy. An all-risk policy covers all causes of loss except those specifically excluded.
  • Refund- An amount of money returned to the insured for over-payment of premium or when a policy is cancelled.