Terms in insurance

Terms in insurance

1. Reinsurance

This is when an insurance company, having a large number of people insuring against a specified risk which may lead to high claims, decides to insure itself with another insurance company against the risks it is covering.

2. Coinsurance

This is where the property is insured by an insurer with various insurance companies to spread the risks against valuable properties.

3. Annuities

In this case the insurer promises to pay the insured a fixed sum of money periodically until death occurs.

4. Overinsurance

Occurs when the insured states a value for the property being insured that is higher than the true value of the property. This means that the insured pays a higher premium. When a risk occurs, compensation is based on the true value of the property that has been insured.

5. Underinsurance

Occurs where the insured states a value that is less than the true value of the property being insured. This results in a lower premium for the insured. If the insured risk occurs, compensation will only be for the sum insured, which is less than the value of the property.

6. Insurable risk

These are common risks whose values are easily accepted by insurers.

7. Non-insurable risk / non-calculatable risk

These are uncommon risks whose value is difficult to determine. Many insurers tend to avoid assuming them.

8. Sum insured

This is the amount of money stated at the time of taking out an insurance policy as the compensation to be paid to the insured where the insured risk occurs.

9. Insurance pool

This is the sum of all the premiums paid by the clients of an insurance company at any time. It is from this pool that compensation is made.

10. Jettison

This is where the captain is forced to lighten the ship by throwing overboard some of the cargo in order to safeguard the ship, its crew and cargo. Thus, under jettison the cost involved is a general average sacrifice and as such it must be proportionally shared by the owner of the cargo and the ship, or by their underwriters.

11. Barratry

This involves any wrongful act which is committed by the master or crew of the ship which has a prejudicial effect on the owner in question.

12. Bottomry bond

Bottomry is a contract by which the owner or the captain of a ship borrows money and pledges the ship as security for the loan. If the ship is lost on the voyage, the bond is void.

13. Respondentia bond

It differs from a bottomry bond in that only the cargo is pledged as security. The interest rates on these bonds are very high because of the greater risk involved.

14. Loss

This is the value of the property destroyed by the occurrence of an insured risk. It represents the loss suffered by the insured.