• Insurance Glossary Malaysia

    Insurance policies vary depending on the type of cover one is looking for. Each policy will target a particular coverage be it life, health, critical illness, personal accident and so on. When one goes through a particular policy it is easy to get flustered looking at a few technical terms and rightly so. After all you are paying hard earned money to acquire these policies and it is in your best interest to know what these terms mean so that you can take an informed decision on which policy best suits your needs. Below is a glossary of terms that will help you to truly understand the meaning of various technical terms that are often used in describing these insurance products.

    Annual Limit:

    It is the maximum pay-out given to settle a claim in one policy year. The higher this limit is set, the higher will be the premium paid.

    Betterment:

    A term often used in vehicular insurance, betterment is the amount of money the policyholder will have to pay over and above what the insurer pays for the replacement of parts when a vehicle is sent for repair. An insurer will only pay for a portion of repair costs while the policyholder will have to pay the difference which has a standard scale ranging from 0% to 40%

    Co-Insurance/Co-Takaful:

    More commonly used in health insurance, it means that the policyholder and insurer both pay for the medical fees with varying contributions. Usually, the policyholder will pay 10% to 20% of the medical fees with the balance being covered by the insurer.

    Deductible:

    A deductible is an agreement between a policyholder and the insurance provider wherein the policyholder will contribute a given amount towards the cost of medical treatment. For example if the deductible option of the policyholder is RM 200 and the medical expenses amount to a total of RM 700, then the policyholder will pay RM 200 and the balance amount is paid by the insurance provider

    Disability:

    It is a condition that arises as a result of a particular accident or a certain illness that renders the person unable to resume their normal day to day activities. Based on the severity of the condition, a disability might be partial, temporary, total or permanent.

    Exclusion:

    it is that condition or situation that is mentioned in the contract which voids coverage for a particular event. Exclusions may be the occurrence of certain events, for certain locations or properties or even certain people

    Face Amount:

    it is the amount received by the policyholder in the form of a lump sum by an insurer in case of occurrence of an insured event.

    Free-Look Period:

    this period usually lasts 15 days from date of acquiring a policy and is that period wherein a policyholder may go through a newly acquired individual policy and can return it if they are unhappy with the policy for any reason. The return of the policy will fetch a full refund minus any claims that have been made.

    Grace Period:

    It is a provision in an insurance policy that grants a specific duration of time to the policyholder to make the full premium payment and keep the policy in effect if they miss their premium due date. The grace period is usually 30 days from date of missed premium payment.

    Guaranteed Level Premiums:

    it is an insurance policy in which the premiums paid is guaranteed to remain fixed for a particular number of years.

    Indemnity:

    The process of restoring the policyholder to the same financial condition after any loss or damage by means of making payments, repairs or replacements.

    Investment-Linked Insurance:

    It is that insurance policy which allocates a portion of the premiums paid towards a particular investment fund or a combination of funds as chosen by the policyholder. The benefits of the policy depends on how these investment-linked funds perform.

    Lapse:

    It is when the insurance policy terminates due to failure of policyholder to pay the premiums.

    Life Insurance:

    An insurance policy that provides the beneficiary of the policy a guaranteed lump sum or periodic payments in case the policyholder dies while the policy is in effect or any other circumstances as stated in the contract.

    Lifetime Limit:

    Typically limited to health insurance policies, it is the maximum claims a policyholder can make from the insurance company during their lifetime.

    Maturity Date:

    It is that date where the policy has completed its specified term the face amount becomes payable to the policyholder provided they survive to that date.

    Maturity Value:

    It is the amount payable to the policyholder if they survive the term of the policy.

    Mortgage Level Term Assurance:

    It is an insurance policy that is transferable and has savings and a cash value. This policy is used to repay outstanding loans of the policyholder in the unfortunate case of demise, critical illness or total permanent disability of the policyholder rendering them incapable of repaying the loan.

    Mortgage Reducing Term Assurance:

    It is an insurance policy that provides a lump sum payment used to repay outstanding loans in case of death, total permanent disability or critical illness of the policyholder that renders them incapable of repaying the loan.

    No-Claim Bonus:

    An incentive or reward scheme commonly employed in insurance policies which provides incentives to the policyholder either through increased cover or reduced premiums if the policyholder does not make a claim for a specified duration of time. The rewards depend on the type of insurance policy acquired and the insurance provider as well.

    Nomination:

    Process by which a policyholder assigns a person as a beneficiary of the insurance policy.

    Over-insurance:

    Often used in vehicular insurance, it is the condition where a policyholder purchases a cover that is greater than the market value of the insured asset.

    Paid-up policy:

    An insurance policy that does not require the policyholder to make future premium payments completed but is still in effect and hasn’t been terminated by death or by attaining maturity period.

    Payer Benefit:

    That condition in a policy which waives the premium in case the person insured is a minor while the person paying the premiums passes away or is rendered totally and permanently disabled.

    Policy:

    It is the document that states the terms and conditions of a particular insurance contract.

    Policyholder:

    The individual or the organisation under whose name the insurance policy is registered to.

    Premium:

    The amount of money a policyholder has to pay either in form of lump sum or periodic payments to keep the policy in effect.

    Pre-existing condition:

    It is an exclusion clause in a health insurance policy which states that any pre-existing medical condition that exists for which the policyholder may be undergoing treatment for or showing symptoms of prior to policy taking effect will not be insured. This applies even if policyholder may or may not be aware of the particular condition or injury.

    Reinstatement:

    The act of restoring a lapsed policy by paying all due premiums. Depending on the duration of premiums that were outstanding, the policyholder may be charged an interest on the due amount.

    Rider:

    An addition to an insurance policy that supplements the benefits of the insurance policy by providing additional areas of cover such as a critical illness rider that provides cover for 36 major health conditions that would otherwise not be covered in a conventional life insurance policy.

    Sum Assured:

    It is a fixed lump sum promised by an insurance provider and paid to the policyholder in case of occurrence of an insured event.

    Sum Insured:

    It is the limit of money an insurance provider is willing to pay if circumstances covered by the policy takes place.

    Surrender:

    It is the act of giving up an insurance policy and in such cases the insurance provider will pay the cash value or surrender value of the policy to the policyholder.

    Surrender value:

    Surrender value or cash value of a policy is the amount of money received upon voluntarily cancelling the policy prior to death or permanent disability or policy reaching maturity date.

    Term Life Insurance:

    A type of life insurance policy where the cover provided by the policy is set for a defined period of time and the premiums to be pad can be fixed accordingly to the period of cover.

    Under-insurance:

    It is a condition where the insurance purchased is not enough to cover the market value of the insured asset.

    Waiting Period:

    It is a specific period of time that should pass for an insurance policy for its outlined coverage to take effect. It is usually 30 days from the date of activation of the policy.

    Wakalah:

    It is an agreement wherein the takaful operator acts like an agent representing the policyholder. For its services rendered, it earns a fee that is determined based on an agreed profit ratio.

    Whole life insurance:

    It is a type of insurance plan that is active as long as the premiums are paid. It is a life-long protection that has a combination of features and can be used as instruments of investment, savings and to build a retirement corpus.

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