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Application — A written request for coverage to an insurance company. It must truthfully represent the facts regarding the person or property to be insured. Otherwise the policy will be voided.
Policy — A contract between a policyowner (often the insured) and an insurance company which agrees to pay for loss caused by specified covered events.
Riders are added to a policy to modify provisions that already exist (usually used in Life and Health insurance). Endorsements are printed addendums to a contract that are used to change the policy's original terms, conditions, or coverages (usually used in Property and Casualty insurance).
Cancellation is the act of revoking or terminating one's insurance policy.
A policy that is terminated because of nonpayment of premiums is known as a lapsed policy.
Renewal is the continuance of an insurance policy beyond its original term.
Nonrenewal is the discontinuance of an insurance policy beyond its original term. The renewal or nonrenewal may occur on a date specified in the contract (usually on the policy anniversary or premium due date).
A grace period is the period of time after the deadline or due date of a premium in which a late premium payment may be made without penalty, or without the policy lapsing.
Reinstatement refers to a provision that allows the policyowner to put a lapsed insurance policy back in force under certain conditions.
The price of insurance for each exposure unit is called the rate. The premium is the payment required by the insured to keep the policy in force. The premium is determined by multiplying the rate by the number of units of insurance purchased.
Premium = Rate x Units of Insurance
An earned premium is the portion of a premium that belongs to the insurance company for providing coverage for a specified period of time. The unearned premium is the portion of the premium the insurance company has collected but has yet to "earn" because it has not yet provided coverage for the insured. For example, if an insured pays an annual life insurance premium and dies before that year is up, the insurance company would have to return the portion of the premium that was "unused" or "unearned."