Who is who in an insurance contract: beneficiary, sum insured, rate and deductible shown on one café

In the first lesson a hundred cafés put money into a common «pot» and covered the loss of one of them. Now, instead of the pot, we take one example that resembles a real contract. Sevara has opened the «Lola» café and wants to insure the kitchen equipment against fire. When she goes to an insurance company, she hears a number of new words. Today we learn them in order.

In the first lesson we got to know the insurer, the policyholder, the insurance premium, the insured event and the policy. From now on we use these words as knowledge already acquired.

Who takes part in the contract?

In personal insurance (when the object of insurance is a person's life, health or ability to work) there is one more party: the insured person, that is, the person whose health or life is being protected. This may be the policyholder themselves or another person. For example, if a café owner insures the cooks against accidents, the café concludes the contract and the cooks are the insured persons.

Eight key terms

1. Insurable interest. The policyholder must have a real financial interest in the preservation of what is being insured: if it is destroyed, they suffer the loss. Mini example: the equipment belongs to Sevara's café; if it burns, the café suffers the loss, so there is an interest. An acquaintance of Sevara who has no connection whatsoever with the café has no such interest: if the equipment burns, they lose nothing, so they also have no grounds to insure it for their own benefit.
2. Sum insured. The maximum amount agreed in the contract that the insurer may pay. Mini example: the equipment was insured for 80 000 000 soum. Even if the loss is greater, the payment will not exceed 80 million soum.
3. Insurance rate. The premium rate charged per unit of the sum insured. Mini example: if the rate is 0.8%, the annual premium is 80 000 000 × 0.8% = 640 000 soum.
4. Deductible. The part of a loss that the insurer does not cover and that the policyholder bears themselves. Mini example: the contract sets an unconditional deductible of 3 000 000 soum, that is, this amount is subtracted from each loss.
5. Insurance payment (indemnity). The money the insurer pays under the contract when an insured event occurs. Mini example: a fire broke out in the café kitchen and caused a loss of 25 000 000 soum. After the deductible is subtracted, the payment is 22 000 000 soum.
6. Beneficiary. The person given the right to receive the insurance payment; this may be the policyholder themselves or another person named in the contract. Mini example: if the equipment was bought with a bank loan and the contract names the bank as beneficiary, the payment goes to the bank.
7. Insurance agent. A person who offers insurance to clients on behalf of the insurer and on its instructions. Mini example: the «Qalqon sug'urta» employee who drew up Sevara's contract represents the company's interest.
8. Insurance broker. An intermediary working in the client's interest: compares the terms of different insurers and helps choose a suitable one. Mini example: the owner of a chain of cafés goes to a broker to find the most favourable terms for dozens of premises.

The glossary page for each term is in the links at the end of the page.

The figures in one table

By paying 640 000 soum a year, Sevara received 22 million soum after a single fire. In a year with no event, however, the premium is usually not returned: it is the fee paid for protection against risk.

What to check before signing the policy?

• Does the sum insured match the value of the property? If the sum is low, the payment will fall short in a large loss.
• How large is the deductible and of what type? It determines how much money comes out of your own pocket with each loss.
• Who is the beneficiary? The contract should state clearly to whom the payment goes.
• Whom are you dealing with? An agent stands on the insurer's side, while a broker stands on the client's side.

In the next lesson

In the third lesson we will get to know the types of insurance: property, personal and liability insurance, as well as the difference between compulsory and voluntary insurance.