Page 114 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Unit 8: Insurance Sector

Maturity: An agreed date when an endowment policy ends and the proceeds, including any Notes
bonuses, are payable.
Premium: Insurance Premium is the payment made by the policy holder to the insurance company
on a regular time span. This payment has to be made by the insured person till the maturity of
the insurance. Insurance Premium may vary from company to company along with the coverage
limit.

Notes The insurance premium generally increases with the increase in the risk perception
of the company about that person.

In case of medical insurance or mediclaim, the cost of premium is more for the smokers
than the non-smokers because the insurance company considers that the smoker possesses
a greater risk of health hazard than the non-smoker. Hence the cost of premium is directly
proportional to the risk associated.
In case of the car insurance, the cost of premium is generally higher than a older one
because the insurance company considers that the younger driver is more prone to accident
than the latter.
In case of Life Insurance, the insurance company considers the aged person to be more
prone to death. Hence it charges a higher premium than from him. But when it comes to
a younger person seeking life insurance, then the premium charged from him is less. The
reason behind it is that in normal conditions a younger person stands more chance in
living a longer life span.
Renewal: A renewal is a new policy or a standard certificate from an insurance company, stating
that the conditions of your old policy will stay in effect for a specified period of time.
Risk (Peril): Insurance companies generally label a particular risk as a "peril" which may cause
a loss or damage. A peril may include such things as fire, earthquake, windstorm, flood, or theft
to name just a few.
Insurer is liable for any loss proximately caused by a peril insured against, but he is not liable
for any loss which is not proximately caused by a peril insured against.

Notes Proximate cause means the active, efficient cause that sets in motion a train of
events which brings about a result, without the intervention of any force started and
working actively from a new and independent source.

Sum Assured: At the time of signing a life insurance contract, the insurer and the buyer of the
policy, the insured, agree on an amount that would be payable if the insured dies. This amount,
the Sum Assured (SA), is payable to the persons appointed as nominees by the insured at the
time of signing the contract. In a life cover, SA is the reason the insured pays the premium.
There are no formal rules for arriving at SA, but it should ideally be sufficient to see the
dependents of the insured through till they are able to fend for themselves. On this premise,
financial planners suggest that the SA should equal the insured's income for six years or be
10 times the annual living expenses of the insured and also cover his liabilities like home loans.
A high SA would not only push up the premium, but may also make a medical check-up
necessary.

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