Insurance Definitions

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OVER INSURANCE

Over Insurance term is a concept that is at stake on the compensation policies. It is a state that the insurance amount of the policy is over the true and fair value of the insurance issue.  According to the basic principle of the insurance; the material loss of the insured is removed, and the insurance amount is stated by the insured over the true and fair value for various reasons.

However in case of a total loss, the insurance company must pay or replace the actual value of the goods, the insured will have to pay more premiums than he/she should do.

UTMOST GOOD FAITH

The parties of an insurance agreement are insured by the insurant. The insurance company does not have any information about the goods, life or the responsibility to be insured and should trust the information given by the other party. Meanwhile, the person who is completing the proposal form to insure the interests, will have to rely on technical information given by the insurer in determining the product for their needs.

The common ground for both parties involved in the design phase of the insurance agreements is to rely on the information given by both parties. Due to the lack of one of the good faith of one party to give untrue information to the other party is to mislead the other party and force them to enter into a contract that other party may not want to and violation of the good faith principle gives the right to terminate the contract to the other party.

COINSURANCE

This term refers to the insurance act that the benefit subjected to insurance is insured by more than one insurance companies for the same reasons and in the same insurance period. Insurance companies provides conjugated coverage for the issue subjected to the insurance for several reasons, and the main reason of this is the insurance amount is very high for the insurance companies’ available capacity and they are not available to provide assurance alone.

ALL RISKS

It is the largest assurance that can be applied in many fields and the assurance that the insured can get the highest guarantee. Although the name of the assurance is “All Risks”, it is not an assurance type that can provide protection against all hazards that may be encountered. Such policies have been created to meet the people’s growing insurance needs, and are relatively new products. The exception section of the policy shows the hazards that the policy does not provide protection and specifies that all the hazards except from them are provided by the policy. Because of this feature, these policies are called as “All Risks”.

PROBABLE MAXIMUM LOSS

This is the maximum possible damage amount that can occur from a single event under normal conditions. Events that the probability occurrence is very low, such as catastrophic events, are not accounted in the Probable Maximum Loss.

TERRITORIAL LIMITS

This is the geographic area where the insurance policy is in force. For example, terms in a boat policy such as “Trading” or “Activity Area” means that this boat policy applies to the damages that can occur only in these areas.

FRANCHISE

This is the exemption application that any damage occurred in the insurance period and below the certain amount is paid by the insured and if this amount exceeds this amount, is paid by the insurance company. It can be a certain percentage or the sum of the insurance amount.

UNDER INSURANCE

It is a state that the insurance amount of the policy is under the true and fair value of the goods to be insured. The insured gives a statement unintentionally or to pay a less insurance premium about the real value of the property.

In case of under insurance, the insured can not benefit enough from the “the removal of the suffered financial loss fully” principle. For example, in case of total loss, the maximum amount to be paid by the insurance company will be the insurance amount declared in the policy. Same situation is also a matter of the partial damage, the maximum damage amount to be paid by the insurance company is the same rate as the insurance amount as it should be.

RATE

This is a term referred to as the concept based on the calculation of the premium amount to be paid in exchange for the insurance or the reinsurance and is received as rate. It is calculated by implementing the rate to the insurance amount or the assurance.

GENERAL CONDITIONS

These are the terms clearly expressed in the policy and involving the principles of the insurance agreement such as the scope of the coverage, exempted cases, damage procedures, insured’s duties and obligations, provisions to be applied in case of dispute, premium payments and revocation.

ACTUAL TOTAL LOSS

The situation that the issue subjected to the insurance to be completely unusable and unrepairable as the result of the realization of one of the hazards covered by the insurance. In this case, the maximum liability of the insurance company is the amount written on the insurance policy. Burning or demolition of a building in the earthquake, sinking of a ship are examples for the actual total loss.

DAMAGE

This term is used to refer the material and nonmaterial damages of a property or goods.

CONSTRUCTIVE TOTAL LOSS

The actual total loss appears unavoidable as in case of perishable goods or a partial loss has occurred to an extent that the property is beyond economical repair cost of restoring it exceeds its insured value. It is usually mentioned in the portage insurances.

EXCESS OF LOSS

It is a reinsurance agreement and the reinsurer undertakes to cover the amount that exceeds a pre-determined amount of the occurred damage regarding to the works in exchange of the premium obtained from the works by the insurer.

The biggest difference of Excess of Loss Agreements from the Proportional Reinsurance Agreements is that this agreement is only an agreement for damage. As it can also be applied to a single branch with few branches, especially in forming cumulative damage and catastrophic events that are very effective in terms of protection of the insurance agreement.

LOSS RATIO

It is the ratio of incurred claims to earned premiums. Account of the loss ratio is performed as follows:

Claims Paid + Outstanding Claims Reserve – Transferred Outstanding Claims Reserve) / (Premiums Written – Unearned Premium Reserves + Transferred Unearned Premium Reserves – Ongoing Risks Reserves + Transferred Ongoing Risks Reserves)

ACCOUNTING YEAR

Without taking the date of the insurance policy to enter into force, it is the calendar year in which the premium accrued for the policy are saved in the account. During an accounting year, there may be premiums belong to the policies with different start dates. For example, in Engineering, Boat, Construction policies which are more than one year, the premium accrues with the risk and these premiums belong to the policies with the old dates and are considered within the scope of the accounting year therein.

LOSS PREVENTION

These are the actions to prevent the damage or the stipulating measures by investigating the cause of possible damages, and advise the insured to eliminate these causes, the information and provide the hardware and the insurance policy, all the measures taken by the insurer as to add certain conditions.

UNDERWRITING YEAR

This is the year when the policy is issued. It is important in terms of insurance accounting. The premiums for the policy to be paid in the following year (in construction policies that has a term for more than a year can go for example ten years) to the insurer does not create a difference for the business year calculation and are taken into account as according to the year in which the policy was issued.

Likewise, no matter how long the intervening period is, the claim payments on this policy are accounted under the year in which the policy was issued.

CLAUSE

This is a part or the a special provisional addendum of the policy and used to determine the actual boundaries of the agreement between the parties.

COMMISSION

This is a certain amount of money paid by the insurance companies in proportion to be paid to the insurance mediators working in behalf of the company in related activities primarily for premium production. This rate is a certain percentage of the total premium that the insurance mediator issued or mediated to be issued. Different percentages of different stages are paid for every insurance branch.

A commission is paid to the reinsurance mediator people and organizations mediated between the insurance company and the reinsurance mediators and this is called reinsurance commission.

PARTIAL LOSS/PARTICULAR AVERAGE

This, hence the name is, to calculate the partial calculation of the insurance matter.  However there is an economical boundary that determines the damage is “partial” or not and this bound is very important for the insurer. In case the insurance matter is partially damaged, if the repair is not that much economical, in other words, if the repair and the other costs have a high percentage compared to the total insurance amount, one might use the constructive total loss solution.

Accordingly, the factors that determine whether the partial nature of the damage is the repair amount is to be economical in terms the insurance company.

NET EARNED PREMIUM

Written premiums in exchange for policy issued by the insurer from the first day of the fiscal year are the gross premiums in the technical sense. For example, eight months of the policy issued on the fourth month belong to the current year, the remaining four months belong to the following year.

Because of making individual calculations for every policy issued by the insurance company is very hard, a certain percentage of the total premium accrued in the year of the company is transferred to the next year’s account for the ongoing risks. Produced for the annual premiums from reinsurance costs and risks after subtracting the reserves set aside for the remainder continued are “Net Earned Premiums”.

BENEFICIARY

It is the person who benefits from insurance. The beneficiary may directly be a part to an insurance agreement or may also obtain the position to benefit directly or indirectly from a contract made by another person.

EX GRATIA

The payment made by the insurance company for the damages that ae not in the scope of the insurance coverage or in dispute. Ex Gratia may be made for all or part of the damage.

The idea of maintaining good relations with its own insured or the commercial reputation can be displaye2d in the causes of Ex Gratia. An important consequence of such payment is to eliminate the possibility of recourse.

CONCURRENT CAUSE

These are the reasons that occurs independently from each other and contributes separately to the formation of the damage. A storm in progress and a fire started during this storm can cause a damage as joint.

ACT OF GOD

The natural disasters which can not be prevented by human will, force or intervention such as earthquake, lightning, natural disasters and hurricanes are called the Act of God and these are important in terms of the liability law.

AGREED VALUE/VALUED POLICY

This is the amount to be paid in case of total loss and the agreed amount between the insurant and the insured as the parties of the insurance agreement. Agreed value is determined in the insurance policy is issued, it is not affected by market fluctuations that may occur in the policy period. To determine the amount to be paid to the insured in case of total loss can prevent some possible insurance frauds.

Agreed policy is widely used in boat and marine insurance.

OUTSTANDING LOSS

As for the damage has occurred and is known by the insurance company is likely to pay damages in the future and called payment in the amount of outstanding claims reserves set aside for the possible payment.

INCURRED BUT NOT REPORTED

This is a very important concept in terms of insurance accounting. For a certain period, generally at the end of the accounting period, there may be damages occurred as of the branch located in the portfolio of the insurance company, but the insurance company has no information on the presence of these damages and costs. Such damages are called “incurred but not reported” damages and the insurance company saves a specific reserve for this damage.

GENERAL AVERAGE

In order to protect them from danger threatens ship and cargo together, provided that the style of a reasonable action, in case of knowing to bear the sacrifice made or a charge, there is also joint general average act and damage or costs which result directly in an act of this nature are General Average.

Damages and expenses within the scope of General Average are divided between ship, load and cargo owners and this is called dispatch (adjustment).

Some concepts that are important under the General Average:

General Average Sacrifice: The material loss caused by the General Average acts on board or commodity. These are the examples for the General Average Sacrifice: To aground the ship (ship owner’s sacrifice) or to dispose a portion of the load (cargo owner’s sacrifice) in order to prevent the sinking of the boat.

General Average Contribution: The contribution of the General Average Sacrificer to the costs. This is the contribution of the cargo and freight owner’s to the ship damage and the boat and cargo owner’s contribution to the load disposed to the sea.

General Average Expenditure: The expense made by the ship-owner in behalf of the other benefits (such as entry and exit of the port of refugee).

 

MORTALITY TABLES

The tables prepared by applying the results obtained by observing the total population of a country to the Life insurances. How many people will survive or die at any age in a year can be estimated from these statements.

Mortality tables are named depending on where the table is made and the type of making.  For example, when saying American C.S.O. 19531958 Mortality Table, it is referred to as the results obtained by observing the total population in USA in 1953-1958. In addition to this, the “Commutation Tables” are obtained by making “technical interest” installation to these tables.

Mortality tables can be done as considering the entire population as well as based on the basis of gender, population of a particular region.

PARTICULAR CONDITIONS

Special conditions are the conditions added to the general terms by considering the agreed interests by the insurant and the insured. Special circumstances should not be mandatory provisions of the Turkish Commercial Code and to the detriment of the insured. The purpose of the special conditions is to respond according to the insured or the insured’s state interests and the need and risks.

PREMIUM

With regard to any risks, including provisions to guarantee given by the insurer is worth the money paid by the insured or the insured. If it is one of the most important elements of the insurance contract and fulfilled all other conditions of the contract, payment of the premium, in many cases, the insurance contract is a condition that prevents the entry into force.

In addition to premium and risk premium, general expenses, commissions and the other costs that the insurance company must endure it, this costs include or costs and activity profit.

The above-mentioned risk premium is calculated on the basis of available statistics to meet the estimated amount of possible damage and injury costs that is the net amount of the premium. This can be called as the danger premium.

ASSIGNMENT

This is the transfer of legal rights of the policy. In order to insure a person, he/she has to have the benefit of insurance on the subject of insurance that can be an important requirement. Any legal rights on the policy issued on the existence of this interest belong to the insurant.

The end of the interests of the person insured on the insurance issue, effects in different ways as on the validity of the policy according to the industry. In some branches, the policy loses its self-provision; but in some branches the policy is not affected by the insured change and does not become obsolete. Therefore, the policy of another person or persons who dealt with the transfer of interest in the subject matter of insurance varies according to industry.

INSURANCE

Insurance is a risk transfer system that collects money from a same kind of people who endanger the same danger and pays a certain amount to the people who suffer the actual loss due to the realization of that danger. Thanks to this system, people can share their losses arising from the dangers they may encounter that can be measured by money with relatively small premium payments that they made.

The main function of insurance is to render the danger in economically insignificant state. People share the losses that they can not afford when alone by an organization.

This organization is composed of “insurance company”, “insurant” and a “insurance agreement”.

In an insurance agreement; there is an “insurer” who gives an insurance assurance and authorized to engage in insurance sector by laws according to the regulations and also a “insurant” who encounters a danger. The insured, as a part of the insurance company, is a person who is legally authorized to demand compensation for the damage caused in case of realization of any of the hazards covered by the assurance. Usually the insured and the insurant are the same person as it may be different.

The insured has a payment obligation named premium determined by the insurance agreement in consider of the obligation of the insurer to protect the insured.

INSURANCE POLICY

This is a written, legal evidence of the insurance agreement between the insurer and the insured. There are information on an insurance policy such as identifying information on insurer and the insured, statements relating to the insurance issues, the scope of coverage, insurance cost, the duration of the agreement, the premium amount, policy issue date, debts and obligations of the parties.

SUM INSURED

This is the maximum amount stated in the policy and based on the assurance that the insurer is obliged to pay, in case of realization of a danger included in the coverage or the insured is responsible to a third party. The sum insured in compensation agreements is the largest financial loss that the insured may be suffered. If the market value of the insurance issue on the damage point is below the insurance cost, the market value is taken into consideration.

In the non-compensation substantive insurance agreements (such as Life Insurances), the insurance cost can be determined in any amount theoretically, and the insurance cost on the policy is time on the time that the risk is occurred.

INSURANCE PERIOD

This is the time period that the responsibility of the insurer is continued regarding the possible damages that can occur due to the damages covered in the assurance.

ATTACHMENT DATE

This is the date that the insurance coverage enters into force. In some branches, part of the insurance premium should be paid in order to start the insurance, but in some branches there is no obligation such, the assurance is considered to have started by the consensus.

EXPIRY DATE TERMINATION

This is the state that the insurance agreement is no longer valid for both parties and third parties. Termination of the agreement may be in various situations:

1-By Reaching to the expiration date in the policy,

2-Termination state due to certain conditions that one of the sides is failed to fulfill the some of the conditions,

3- By the insured’s own volition,

4- Unilateral termination of the agreement by the insured due to the aggravation of the risk,

5- The realization of the risk in some branches, (the death of the insured in life insurances, as full of loss of status in some other branches.)

SUBJECT MATTER OF INSURANCE

In case of loss or damage, for causing losses for person/people on beneficiaries,

1- movable or immovable goods,

2- any event that causes the formation of a legal right or legal liability in case of loss when occurred,

3-death or a life that may lead to financial losses for people to be connected with the person or interest bond in case of injury

4-may be an insurance subject. Building or in articles for the fire policy, the load being ship or transported to transportation policy, legal responsibility is at stake in terms of damage that the person concerned others for the liability policy, the life of the insured person for life insurance policies are examples on the subject of insurance.

INSURABLE RISK

It is the measure of a danger for the insurer in terms of the ability to be insured. Risks that can cause damage due to coincidence and events beyond the control of the insured and not affecting the broad masses as economic, social and political issues are eligible to be insured.

However, with the development of insurance today, especially economic risks affecting large masses, such as the danger of war and terrorism also be given for insurance. Also, many dangers that can be predicted and can be arise from the developments in the science and technology and are not residual coincidence such as climate changes can be included in the insurable risk coverage (such as hurricanes, floods).

CERTIFICATE OF INSURANCE

This is a document that is issued and given to the insured by the insurance company and can be used as evidence for the existence of the insurance agreement. There are information on this document such as identifying information on insurer and the insured, the scope of coverage and the information on the policy terms.

Certificate of Insurance is used on borrowing and lending relationships that the insurance is a condition and can be issued for any insurance branch in legal proceedings where appropriate. It is especially used in the branches that gives group assurance for more than one person or insurance issue with the main policy.

INSURANCE FRAUD

This is a deliberate deception made by malicious person in order to obtain an unfair advantage from the insurance company. It can be made before or after the issue of the policy.

Knowingly giving a false information to the insurer in order to force a prudent insurer to enter into a contract that he/she would normally not enter, or a fraud made before the policy issue to hide an important consideration may be given as examples of the insurance fraud. The fraud made after regulation policy is deliberately making a damage (For ex.: arson).

COVER NOTE

This is a temporary document that is issued by the insurance company and considered as evidence for the existence of the coverage. If the insurance policy can not be issued in a certain time or for another reason, the temporary Cover Note functions as the insurance policy.

In case of a collateral damage while the Cover Note is in force, there is no difference between this document and the insurance policy in terms of legal status.

PROPOSAL FORM

This is a document issued by the insured in order to determine the all aspects of the risk and includes the person’s insurance claim.

COVER/COVERAGE

In case of damage to part of something that is insured or completely, the damage on will be compensated in accordance with the general principles and policy conditions of the insured, the insurer is guaranteed to be given to the beneficiary of the insured or insurance.

CLAIM

This is the compensation claim  made by the insured, beneficiary or a third party from the insurance company in order to compensate for the loss of or damage caused by a risk covered by the insurance policy. The requested amount should not exceed the cost of insurance in principle.

DEDUCTIBLE

Means that the insured undertakes a certain amount of the damage. It can be a certain percentage or the sum of the insurance amount. It can be any damages occurred in the insurance period or it can be in question for the total damage. Being the deductible rate or amount is high is a factor that reduces the premium amount to be paid by the insured.

Means that the insured undertakes a certain amount of the damage. It can be a certain percentage or the sum of the insurance amount. It can be any damages occurred in the insurance period or it can be in question for the total damage. Being the deductible rate or amount is high is a factor that reduces the premium amount to be paid by the insured.

REMOTE CAUSE

The only factor that sorts the remote cause from the proximate cause is the time factor. The proximate cause that is dominant and the determining, can be removed in time, taking a such measure is not possible and leads to damage. The remote cause of a damage on a wall that aroused from wind or storm one week after a fire is the fire that reduces the resistance of the wall.

In case of the proximate cause can not be removed in time and leads to a damage, the remote cause comes into question.

RENEWAL

This is a process that allows the continuation of the policy in force by the will of both sides with the expiry of the time in effect of the insurance policy (or reinsurance agreement).

In renewal, one can continue with the terms and premium of the old policy, expand or collapse the scope of the policy, put additional requirements, or make amendments. The insurance company sends a renewal notice with the renewal terms to the insured before the expiration of the policy. The insured has right to accept or reject the continuation of the policy after this notice which is an offer from the insurance company. Likewise, the insurance company may decide to not to continue to the policy for the heavy risks or any reason (In health insurances, the renewal guarantee given to the insured is an exception).

PROXIMATE CAUSE

This is the most effective and dominant cause that lead to the occurrence of a damage. It may be first or the last cause as the both may not be. The most important feature of the proximal cause that distinguishes it from other causes is this cause is the only determinant beyond the effect or contribution of the formation of damage.

Some events may be aroused from a single damage and this event is of course the proximal cause of the damage.  However, in some cases, damages can occur as a result of a chain of events or occur in the contribution of multiple events. In such a case, one can present difficulties in identifying the proximal cause of the damage.

To explain the chain of events that caused the damage occurred as a result of the proximal clause are given as an example:

  • Storm destroys the roof wall of the wooden building,
  • Collapsing walls cut the electrical wiring of the building,
  • Severed power cables remove the spark caused by short circuit,
  • Sparks cause fire in the wooden building,
  • The water that the firefighters repel to extinguish the fire causes damages to the burned belongings and adjacent buildings.

The result as the water dam** The proximal cause of the water damage resulting from this chain events (dominant and determining cause) is the storm.

SOLVENCY MARGIN

This is a ratio shows that an insurance or reinsurance company is sufficient to meet the obligations of the asset values. This is important to determine that the company has strong financial structure that can meet the obligations. The Solvency Margin is calculated separately for the short and long-term jobs; it is calculated based on premium and damages according to the general branches, but in long-term jobs, it is determined according to the annual actuarial valuation of the company’s assets and liabilities.

COMPULSORY INSURANCE

This is the type of insurance that the person is obliged to take out as required by law. It should be considered as a measure created using the insurance system in order to prevent the third parties to remain without compensation when the person is liable to third parties.

A typical example of the compulsory insurance is the traffic insurance. It is a compulsory insurance being implemented almost throughout the world. This insurance covers the responsibilities arising from the losses that can be caused by the person with his/her motor vehicle to third parties. There are compulsory insurances being applied in our country such as: “Highway Motor Vehicle Compulsory Financial Responsibility Insurance”, “Bus Compulsory Personal Accident Insurance”, “Compulsory LPG Liability Insurance”, “Hazardous Substances Compulsory Liability Insurance”, except from them, there are some compulsory insurances being implemented in the developed countries such as “Employers’ Financial Liability Insurance”, “Environmental Pollution Liability Insurance”.

Except from the insurances being implemented that the person’s possible damages to third parties, there are some compulsory insurances that were completely made compulsory considering other purposes and cover the material losses of his/her own property due to some natural disasters. Compulsory Earthquake Insurance which is being implemented in our country is an example of this practice.

ENDORSEMENT

This is the document that is issued as an annex to the policy by virtue of any situation that changes the risk, nature or size assumed by the insurer and emerged after the regulation of the policy and that has the same legal authority with the policy.

LOSS

This term has multiple meanings as follows:

1- An event forming an economic loss,

3- An event that gives right to claim to the insured within the scope of insurance coverage,

3- The Disappearance of the insurance issue.

Exceeding of the damage, production costs, administrative costs, damage costs, commission and other cost sums of the income amount consisting of premium and alike.