Glossary

Act of God
An event that is caused by the forces of nature without human intervention and could not have been prevented by reasonable care. For example, floods, lightning, earthquakes and hurricanes are considered Acts of God.


Acquisition Cost
The cost that a company incurs to secure business e.g. commission to Sales Advisor / Consultant.


Actuary
An expert who applies the mathematical theory of probability and statistical principles to the insurance / takaful business.


Adjuster
A person who carries on the business of investigating the cause and circumstances of a loss and ascertaining the quantum of loss.


Administrator
A person who is appointed by the courts to act as fiduciary to manage an estate.


Adverse Selection (Anti Selection)
Adverse selection is the adverse impact on an insurer/takaful operator when risks are selected that have a higher chance of loss than that contemplated by the applicable insurance/takaful contribution rate.


Advisor / Consultant
One who solicits, negotiates or effects contracts of insurance policies/takaful certificates on behalf of an insurance company/takaful operator.


Application/Proposal Form
A form on which a prospective individual discloses facts as requested by the insurance company / takaful operator on the basis of which (together with information from other sources e.g. medical examiner) the insurance company / takaful operator decides whether to accept the risk, modify the coverage, or decline the risk.


Assignment
The act of transferring the policy / certificate owner's legal rights under his/her insurance policy / takaful certificate to another person / party, who is known as the assignee.


Assignment (Absolute)
The irrevocable and complete assignment of a policy / certificate to another person.


Assignment (Conditional)
An assignment that is operational under specific conditions. For example, the legal rights under a life insurance policy / family takaful certificate may be transferred to a third party as collateral for a loan. The legal rights must be transferred back to the original owner upon repayment of the loan.


Assignor
The party who effects the transfer of his/her legal rights under an insurance policy / takaful certificate to another party by means of an assignment.


Attained Age
The age of which an individual has reached on a given date.


Automatic Premium Loan
An option in which any outstanding premium at the end of the grace period will be paid for and charged back to the policy as a policy loan, provided the premium is not in excess of the policy cash surrender value on the premium due date.


Average Clause
Stipulates that an insurance company / takaful operator is only liable for such proportion of the loss as the sum insured / sum covered bears to the total value at risk. For example, the insurance company / takaful operator will reduce its liability for a claim if your vehicle is under-insured (i.e. the sum insured / sum covered at the time of loss is less than the market value of the vehicle).


Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.

Beneficiary
A person who may become eligible to receive or who is receiving the contractual benefits stated in a life insurance policy.


Bonus
Part of the divisible surplus that is apportioned to and attached to a with-profits (or participating) life insurance policy. However bonuses are not guaranteed and depend on the performance of the insurance fund.


Broker
A person who represents an prospective policy/certificate holder in the solicitation, negotiation or procurement of contracts of insurance/takaful certificate, and who may render services incidental to those functions.


Burglary Insurance / Takaful
Covers financial losses and property damage caused by theft of property from within the premises by person(s) making entry by force. There must be visible marks on the exterior of these premises as proof of the burglary.


Business Interruption
Loss of anticipated net profits and of continuing expenses (to the extent that such profits and expenses would have been earned if no interruption had occurred) due to the interruption of business activity as caused by an insured / covered peril. For example, a profitable bakery is destroyed by fire. Business interruption insurance / takaful will cover the continuing expenses such as mortgage payments, equipment loans, and profits that would have been earned if there had been no fire. It does not cover expenses that do not cease because of the fire such as the purchase of raw materials and the use of electricity.


Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.

Cancellation
The voluntary termination of an insurance / takaful contract that is in force by the policy / certificate holder or the insurance company / takaful operator, in accordance with the provision of the contract. A cancellation can also be effected by mutual agreement.


Cash Value
The amount of cash that is due to the policy / certificate holder upon surrender of a life insurance policy / that has acquired cash value. Generally, a life insurance policy would have accumulated cash value after 3 years of being in force.


Certificate
A document embodying the takaful coverage.


Certificate Holder
A person who has the ownership and legal rights to a takaful certificate.


Certificate of Insurance

• A document issued by an insurance company that is used to verify the existence and terms of the insurance. It contains the list of coverage, the name of the insurance company, the policy period and the limitations of coverage, amongst others. It also states that prior written notice will be given should any material changes or cancellation take place.
• An individual verification of coverage under a group insurance master contract.

Certificate of Takaful

• A document issued by an takaful operator that is used to verify the existence and terms of the takaful coverage. It contains the list of coverage, the name of the takaful operator, the certificate period and the limitations of coverage, amongst others. It also states that prior written notice will be given should any material changes or cancellation take place.
• An individual verification of coverage under a group takaful master contract.

Claims
A notification presented by the claimant (e.g. policy / certificate holder or beneficiary) to the insurance company / takaful operator for the payment of an amount due under the terms of the policy / takaful certificate.


Claims Ratio
The net claims incurred as a percentage to the earned premiums / contributions.


Co-insurance / Co-takaful

• For medical and health insurance / takaful: A clause that mandates the policy / takaful certificate holder to pay a percentage of the incurred expenses, as stipulated under the terms and conditions in the policy / takaful certificate.
• For property insurance / takaful: A clause that mandates the policy / certificate holder to purchase a specified percentage of coverage based upon the actual value of the item to be insured / covered.

Consequential Loss
Loss due to secondary causes rather than direct causes. For example, the destruction caused by fire in an apartment building is a direct loss; while the loss of rental income to the property owner is a consequential loss. It’s also known as indirect loss.


Constructive Total Loss
Loss of sufficient amount to make the cost of salvaging or repairing an asset equal to or greater than the value of the asset when repaired.


Contract
An agreement enforceable at law. The requirements for the fulfilment of a life insurance / family takaful contract are:

• Offer and acceptance
• Consideration
• Capacity to contract
• Legality of object
• Consensus ad idem (i.e. meeting of minds)

Contribution
A one-off or periodic monetary contribution by a participant to a takaful operator for the purpose of savings / investment and tabarru'.


Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.

Dividend
Refund of a portion of the premium paid that is in excess of the amount necessary for current benefit payments, expenses and reserves required to cover future policy guarantees. A dividend could be considered the surplus of a policy. Dividends can be paid on many types of insurance, but most often, they are associated with life insurance contracts.


Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.

Employer's Liability Insurance / Takaful
Provides protection against lawsuits brought by injured workers or survivors of deceased workers to the employer.


Endorsement
A written or printed document that is appended to the policy / certificate, which alters the provisions of the contract.


Estate
The assets and liabilities left by a person upon death.


Endowment Assurance / Takaful
A type of insurance / takaful that pays out a lump sum at the end of the policy / certificate term or upon death of the policy / certificate holder during the policy / certificate term.


Expected Mortality
The expected number of deaths within a given group of persons during a stipulated period of time.


Excess of Loss Treaty
A type of reinsurance / retakaful treaty in which the reinsurance company / retakaful operator pays all or a specified percentage of a loss arising from a particular occurrence or event (generally of a more or less catastrophic nature) in excess of a fixed amount and up to a stipulated limit.


Expense Loading
The amount that is included into the premiums payable to cover the expenses incurred by an insurance company / takaful operator (eg. management and administrative expenses).


Expense Rate / Ratio
The total expenses incurred for the year (including commissions, salaries, etc.) as a percentage to the sum of total premiums / contributions other than single premium / contribution and consideration for annuities.


Extra Premium / Contribution
The amount that is added to the standard premium / contribution rate to cover the additional risk faced by an insurance company / takaful operator. For example, extra premium / contribution is applicable for hazardous occupations or substandard risks.


Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.

Face Amount
The amount of insurance cover provided under the terms and conditions of a life insurance policy.


Facultative Reinsurance / Retakaful
A reinsurance / retakaful contract under which a reinsurance / retakaful company accepts a specific risk or a block of risks within a class of insurance policies / takaful certificates, as ceded by an insurance company / takaful operator. See also Treaty Reinsurance / Retakaful.


Fire Insurance / Takaful
Covers loss caused by a hostile fire including lightning damage. After the fire incident, the policy / certificate holder is expected to protect the property from further damage. Specifically, the policy / certificate holder should:

• Separate the damaged property from the non-damaged property
• Put property back in the best possible order
• Give immediate written notice of loss to the insurance company / takaful operator

Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.

General Insurance / Takaful
Covers losses arising from perils such as accident, fire, flood, liability and burglary.


Grace Period
The period (after the premium / contribution due date) within which the premium / contribution must be paid to ensure continuity of the policy / certificate. If death occurs during the grace period, the premium / contribution is deducted from the benefits (sum assured / sum covered and bonuses, if any) payable. Generally, no penalty will be imposed on the overdue premium / contribution if it is paid during the grace period.


Gross Premium
The rate listed in the company's rate book. It is the net premium rate plus a loading for expenses and other contingencies faced by the insurance company.


Gross Direct Contributions
Contributions on original gross rate charged to customers in respect of direct takaful business, without any deduction for commission or brokerage.


Group Insurance / Takaful
Covers a group of persons under one master policy / certificate. It is typically issued to an employer for the benefit of employees, or to members of an association.


Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.

Hazard
A condition, operation, activity, material or combination of these factors that create or increase the probability of loss. These factors may be physical or moral.


Hibah
A gift / donation given voluntarily by a person / participant of Takaful to another person / Takaful recipient during his / her lifetime, without any material consideration.


Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.

Impaired Risk
A risk or subject with insurable / takaful qualifications below the standard of risk on which the premium / contribution for coverage was based upon.


Implied Warranty
A warranty assumed to be part of the insurance / takaful contract, even though not expressly included. In product liability insurance / takaful, the warranty assumed to be made by the one who sells a product that is fit for the purpose for which it is sold.


Incontestable Clause
A clause in a policy / certificate that prevents an insurance company / takaful operator from contesting the statements contained in the application for insurance policy / takaful certificate, after the insurance policy / takaful certificate has been in effect for a given length of time (generally 2 years).


Indemnity Insurance / Takaful
Provides indemnity to professionals against financial losses arising from the provision of professional services. Traditionally, professionals such as architects, engineers, surveyors, accountants and doctors purchase indemnity insurance / takaful.


Insurable Interest
A concept that describes the relationship or interest between the policy holder and the subject or object to be insured / covered; where a loss or damage of the subject or object will result in financial loss for the policy holder. Examples of insurable interest:

• Life Insurance: Parent and child, husband and wife
• General Insurance Property owner and property

Permissible Takaful Interest
A concept that describes the relationship or interest between the certificate holder and the subject or object to be covered; where a loss or damage of the subject or object will result in financial loss for the certificate holder. Examples of insurable interest:

• Family Takaful: Parent and child, husband and wife
• General Takaful: Property owner and property

Insurable Risk
A standard risk of which an insurance company / takaful operator is willing to insure / cover at the standard rates.


Intestate
A person who died without leaving a will.


Investment-linked Insurance / Takaful
A type of insurance / takaful that combines protection and investment. A portion of the premiums / contributions are used to invest in investment funds of the customer’s choice. The total policy / certificate benefits payable at any time will vary according to the performance and value of the underlying assets of the selected investment funds at the time.


Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.

Lapse / Lapsation
The termination of a policy / certificate due to the non-payment of premium / contribution.


Level Premium / Contribution
The amount of premium / contribution made remains the same throughout the duration of the policy / certificate.


Liability

• An obligation or responsibility. Types of liability include financial liability and legal liability.
• The cost of meeting an obligation.

Life Assured / Life Covered
A person whose life is covered under an insurance policy / takaful certificate. Upon occurrence of a stated contingency or event such as death of the Life Assured / Person Covered, the benefits payable under the policy / certificate will be made. The Life Assured is also referred to as the Insured.


Limited Payment Term
A premium / contribution payment term that is shorter than the coverage term of the policy / certificate. For example, under a policy / certificate with limited payment term, a policy / certificate holder pays premiums / contributions for 8 years only but enjoys protection for 20 years.


Loss of Use Insurance / Takaful
Covers loss due to the policy / certificate holder’s inability to use an asset, such as a vehicle or a business premise due to damage. Loss of use insurance / takaful includes additional living expenses, business interruption, rent insurance, rental reimbursement and rental value.


Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.

Marine Insurance / Takaful
Provides protection and solutions for companies with exposures in the marine and international shipping and logistics industry. The two main categories are marine cargo insurance / takaful and marine liability insurance / takaful.


Material Fact
Information disclosed in the application for insurance / takaful that would determine the eligibility for coverage.


Maturity Date
The date on which the benefits of a life insurance policy / family takaful certificate becomes payable, usually with condition that the life assured / person covered survives until the end of the policy / certificate term.


Maturity Value
The amount payable under a life insurance policy / family takaful certificate when it matures, usually at the end of an endowment plan.


Medical and Health Insurance / Takaful
Covers medical and surgical related expenses such as the cost of hospitalisation, surgical fees and physician consultation fees.


Misrepresentation
The use of oral or written statements that do not truly reflect facts either by a policy / certificate holder on an application for insurance / takaful, or by an insurance company / takaful operator and its representatives concerning the terms or benefits under an insurance policy / takaful certificate.


Moral Hazard
Behaviour, habits or actions that may increase the costs for an insurance company / takaful operator to offer protection. To reduce the risk of moral hazard, insurance companies / takaful operators may impose co-insurance / co-takaful and deductibles for their products.


Mortality Rate
The number of deaths in a group of people at a specified age. It is usually expressed as the number of deaths per thousand.


Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.

Net Asset Value (NAV)
The value of a fund that is calculated by deducting the fund's liabilities from the market value of all of its shares and then dividing by the number of issued shares.


Nominee
A person or persons named in a life or personal accident policy to receive the benefits under the insurance policy / takaful certificate.


Non-Participating Policy
A policy which does not provide for the policy holders to participate in the profits or divisible surplus of the company.


Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.

Ordinary Life Insurance Policy
A life insurance policy which is not a home service policy or group insurance policy.


Outstanding Premiums / Contributions
Premiums / contributions that are due but which have not been paid or collected as yet.


Overinsurance
A situation in which a person purchases large life insurance coverage to the extent that it exceeds the actual cash value of the risk insured.


Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.

Paid-Up Insurance / Takaful
A life insurance policy / family takaful certificate in which all premiums / contributions have been paid up but policy / certificate have not yet matured. An example would be a policy / certificate with a limited payment term. Certain products allow a policy / certificate holder to exercise the option to convert the policy / certificate to a paid-up policy / certificate, at the expense of reduced benefits.


Participating Policy (With Profits Policy)
A policy which pays out the divisible surplus or profits of a life insurance company to the policy holders. It is often termed a bonus or dividend.


Participants' Account / Participant Investment Account
An account to credit a portion of contributions from the participant for the purpose of investment / savings.


Participants' Special Account / Participant Risk Investment Account
An account to credit a portion of contributions from the participant for the purpose of tabarru’.


Persistency
The renewal quality of the life insurance / family takaful business. High persistency means that a high percentage of policies / certificates stay in force till the end of the coverage period whilst low persistency means that a high percentage of the policies / certificates would have lapsed at the end of the coverage period.


Physical Hazard
A hazard arising from the physical or material, or operational feature of the risk.


Policy
A document embodying the insurance coverage.


Policy Holder / Policy Owner
A person who has the legal and ownership rights to an insurance policy.


Policy Loan
A loan taken by the policy holder from the insurance company. The policy is used as a security for the loan. The policy loan is only granted if the policy has acquired a cash value and is granted on all or part of the cash value.


Policy Period / Policy Term / Certificate Period / Certificate Term
The period or duration in which the policy / certificate is in force.


Policy Year / Certificate Year
A particular year in which the policy / certificate is in force. For example, 2nd policy year, 3rd certificate year. It is also referred to as the period between policy / certificate anniversary dates.


Premium
A one-off or periodic monetary payment by a policy holder to the insurance company for insurance coverage for a specified period.


Premium Notice / Certificate Notice
A notice from an insurance company / takaful operator to a policy / certificate holder informing that a premium / contribution payment is or will be due on a given date.


Premium Rate / Contribution Rate
The price per unit of insurance / takaful cover. It is usually expressed as a certain amount of ringgit per thousand ringgit sum assured / sum covered.


Proposer
A person who intends to purchase a life insurance policy and submits a completed proposal form to an insurance company for its consideration.


Proportional Treaty
A contract under which a takaful operator and a retakaful operator participate proportionately in the contributions and losses on every risk that comes within the scope of the contract.


Pro Rata Rate
A premium rate charged for a short term at the same proportion of the date for the regular term as the short term bears to the full regular term. For example, if a one year policy incurs a premium of RM100 and you cancel the policy after six months, you would only pay RM50.


Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.

Qard
Loan.


Qard al-Hasan
Lending without interest or a benevolent loan.


Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.

Rate Manual
A manual containing rates for various coverage, information and instructions for field underwriting.


Rebating
The act of granting any form of inducement, favour or advantage to the purchaser of a policy, which is not available to everybody under standard policy terms.


Reinstatement
Restoration of a lapsed policy / certificate through the payment of all outstanding premiums / contributions.


Reinsurance
Insurance purchased by an insurance company for the purpose of limiting its own risk and liability for claims. For example, the ABC Insurance Company has just provided a RM1,000,000 fire protection coverage for a building to XYZ Manufacturing Company. Since ABC Insurance Company does not want to be liable for the whole risk, they insured RM500,000 of that coverage with the DEF Reinsurance Company.


Retakaful
Islamic alternative to the reinsurance industry. 


Renewal
The act of paying the premiums / contributions due on a life insurance policy / family takaful certificate every year subsequent to the first year in which the policy / certificate was sold / participated.


Restrictive Conditions
Conditions which limit the scope of a life insurance contract. The restrictive group of conditions are designed to eliminate moral and physical hazards which are not taken into account when fixing the premium rate.


Retakaful Operator's Deposit
An amount deposited with or retained by a takaful operator by way of security for performance by the retakaful operator of its retakaful contracts.


Retention Ratio
The ratio of net contributions to gross direct and retakaful accepted contributions less retakaful within Malaysia.


Rider
An attachment to a policy / certificate that modifies its conditions by expanding the benefits under the policy / certificate.


Riba
Usury / Interest, which is unlawful in Islam.


Risk

• The subject of insurance / takaful cover, whether it be a person or an object.
• Probability of loss / damage to the subject.

Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.

Shariah
Islamic canonical laws based on the religious precepts of Islam, the Quran and the Hadith.


Single Premium / Single Contribution
A lump sum required to cover the entire cost of a life insurance policy / family takaful certificate.


Standard Risk
A risk that meets the qualifications on which the premium / contribution rate was based upon.


Substandard Risk
See Impaired Risk.


Suicide Clause
A clause that states that if a Life Assured / Person Covered commits suicide within a specified period (usually 1 year from the inception of the policy / certificate). For Life Assured the company’s liability will be limited to a refund of the premiums. For takaful Persons Covered there will be different benefits arrangements made.


Subrogation
The transfer of the insured's rights to the insurance company in cases of negligence and liability so that the insurance company can recover damages from another if fault lies there.


Surplus at Valuation Date
Excess of the takaful fund carried forward over the actuarial liabilities of a takaful fund of family takaful business.


Surrender Value
The amount of cash that is due to the certificate holder upon surrender of a family takaful certificate that has acquired cash value. Generally, a family takaful certificate would have accumulated cash value after 3 years of being in force.


Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.

Tabarru'
A portion of participant's contribution for the purpose of mutual aid / assistance and is used to pay claims submitted by eligible claimants.


Takaful Annuity
A contract that provides a stream of periodic income upon retirement for a term that is dependent on the Person Covered’s life span.


Takaful
Islamic form of Insurance. Mutual guarantee provided by a group of people against a defined risk or catastrophe befalling one’s life, property or any form of valuable assets.


Takaful Certificate holder
A person who has the ownership and legal rights to a takaful certificate.


Total Loss
See Constructive Total Loss.


Treaty Reinsurance / Retakaful
A reinsurance / retakaful contract under which a reinsurance / retakaful company agrees to accept all risks within a specific class of insurance policies / takaful certificates as ceded by an insurance company / takaful operator. See also Facultative Reinsurance / Retakaful.


Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.

Wakalah
A contract in which a party authorities another party to act on his behalf.


Wakil
Agent.


Wali
Guardian.


Wasi
Executor.


Note: The above glossary and explanation do not necessarily bear their legal meanings as they are prepared strictly for the information of readers who are unfamiliar with certain terms and expressions.