SALIM
TOPIC TWO: INSURANCE.
The meaning of insurance.
Insurance:
is an agreement between the insurer and the insured for a premium. Or
Insurance:
is the system of pooling risk together by contributing a certain amount of money to a common
pool in long run to compensate those who suffer actual loss.
Insurance:
is a contract or agreement between an individual or a company and insurance company to pay
a regular amount (premium) in exchange for protection against any loss resulting from the
occurrence of specified risk.
COMMON TERMS USED IN INSURANCE:
1. Insurer
Is the insurance company granting the insurance service to the insured. Or
Is the insurance company which operates the insurance services. Example national
insurance company (N.I.C), Zanzibar Insurance Company (Z.I.C).
2. Insured
Is the person who takes insurance services from insurer. Or
Is the person or business firm who takes out an insurance and is promised by the
insurance company to be compensated after event of a loss has occurred.
3. Premium.
Is the sum paid by an insured to the insurer in order to insure the property. Or
Is the periodical payment made for an insurance policy.
4. Risk.
Is an event against which an insurance policy is taken out. Example fire, accident and
theft.
Types Of Risk
There are two types of risks.
a) Insurable Risks.
These are risk that can be measured by past experience.
b) Non-Insurance Risks.
These are risk that cannot be measured. Example a loss due to change in fashion.
5. Sum Insured
Is the value of property that is insured as stated by the owner at the time of applying
insurance.
6. Under-Insurance.
This is when the insured declares low value of his property at the time of taking out
insurance.
7. Over-Insurance.
This is when the insured declares high value of his property at the time of taking out
insurance.
8. Claim
Is a demand for compensation submitted to the insure by the insured after the
occurrence of the insured risk.
9. Settlement.
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Is the amount of money paid to the insured by the insurer to fulfil the claim after a loss
has been sustained.
10. Loss.
Is the occurrence of the event which has been insured against.
11. Subject Matter.
Is the property in which the insured has insurable interest.
12. Surrender Value.
Is the amount of money paid to a person who want to discontinue the insurance contract.
13. Third Party.
Is a person who injured by the insured vehicle or any items destroyed by the insured
vehicle.
14. Double Insurance.
Is an insurance where by more than one policy is taken to cover the same risk, but
insured cannot be recovered more than insured value of the property from his insurers.
15. Re-Insurance.
Is where one insurance company which insures another company or person against a
big loss.
Re-insurer: is the insurance company that insures itself against such a big loss.
16. Policy.
Is a document which sets out precisely the insurance cover. i.e. insurance contract.
17. Cover Note.
Is a document acts as temporary evidence of agreement to cover any loss that may
happen before the policy issued.
18. Co-Insurance.
Is an act of spreading risk among insurance companies. It occurs in an event where the
value insured is too high.
19. Actuaries.
These are high qualified mathematician who are employed by the insurance company
for calculating premium and losses occurred.
20. Assessor/Adjustor.
Is a person who calculates losses.
MAIN DOCUMENTS USED IN INSURANCE:
The following are mainly documents used in insurance.
1. Proposal Form:
Is the document on which the insured fills information about what is to be insured.
Contents In the Proposal Form.
The name and address of the insurance company.
The type of insurance cover covered offered by the insurance company.
A list of questions designed to get facts about the goods being insured.
A statement of declaration.
The signature of the person seeking insurance.
The date the proposal form is signed.
FUNCTIONS OF A PROPOSAL FORM:
It helps the underwrites to assess the nature of risk.
It helps the insurance company to determine accurately the amount of premium to be
paid.
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It provides documentary proof of the information.
It helps to know exactly what type of cover.
2. Cover Note (Binder)
Is the document issued by insurance company after the payment of the premium by
insured.
It acts as a temporary protection document that is used in the period when the policy is
being prepared.
Normally cover note is valid for 30 days or until the policy is received.
Contents Of the Cover Note
Name and address of the insurance company.
Name and address of the policy holder.
Details of property insured.
The period of cover.
Signature of the company manager.
Amount of premiums paid.
FUNCTIONS OF THE COVER NOTE.
It acts as evidence of contract between proposer and insurance company.
It is temporary cover for a short period until policy is issued.
It acts as the policy and any claim made will be honored.
3. Insurance Policy.
Is the document that spell out the conditions upon which the contract is based.
Contents of a Insurance Policy.
The name of the insurance company.
The policy number
The name and address of the insured.
Details of the property insured.
Amount of money to be paid as premium
Signature of the insurers officer.
FUNCTIONS OF AN INSURANCE POLICY.
It is an agreement between the proposer/insured and insurer.
It acts as evidence of the contract and it has to be presented when making a claim.
IMPORTANCE OF INSURANCE TO THE ECONOMY/NEED FOR INSURANCE.
i. It offers compensation:
Insurance compensates the unfortunate few who actually suffer loss or damage from
the insured against. This enables the insured to keep running his/her business without
many problems.
ii. At acts as collateral security.
Life insurance and other policies taken out acts as collateral security. Thus, holder of
the policy can acquire a loan from financial institution that provide business finance.
iii. It acts as a means of saving.
A life assurance policy acts as a means of saving especially for old age. Example an
endowment policy enables people to save for a period and when the policy mature.
iv. It provides employment.
Insurance provides employment to those who work in insurance companies, such as
managers, assessors, accountant, actuaries and underwriters.
v. It promotes economic growth and development.
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