Concepts and History of Life Insurance

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Questions and Answers

What is the total estimated value of all houses in the village?

Rs. 1,000,000

Rs. 20,000,000

Rs. 8,000,000 (correct)

Rs. 400,000

What was the first life insurance company established in India?

Oriental Life Insurance (correct)

Bombay Mutual Assurance Society

Life Insurance Corporation of India

National Insurance Company Limited

What is the minimum duration of treatment required at home to claim domiciliary hospitalization expenses?

7 days

1 day

14 days

3 days (correct)

Which principle of insurance requires the disclosure of all material facts?

Principle of Utmost Good Faith Signup and view all the answers

When was the nationalization of life insurance companies in India completed?

1st September 1956 Signup and view all the answers

How many beds should a Community Health Center have for every 1 lakh population?

30 beds Signup and view all the answers

What is the individual contribution of each house owner in the village to compensate the loss?

Rs. 200 Signup and view all the answers

What is the evidence that a policy contract has begun?

FPR Signup and view all the answers

Which document is considered Standard Age proof?

Birth Certificate Signup and view all the answers

What event led to the origin of modern insurance business?

Lloyd's Coffee House, London Signup and view all the answers

What is the grace period for policy renewal after the due date?

31 days Signup and view all the answers

Which document governs the insurance contract as per Indian law?

Indian Contract Act 1972 Signup and view all the answers

What does the principle of insurable interest require?

The insured must have a financial stake in the insured item Signup and view all the answers

What is the penalty range for money laundering offenses?

3 to 7 years Signup and view all the answers

Underwriting requires data collection through what document?

Proposal form Signup and view all the answers

What is the maximum loan amount that can be taken against a policy's surrender value?

90% of Surrender Value Signup and view all the answers

What is the qualification required for an insurance agent in a rural area?

10th Grade Signup and view all the answers

How many hours of online training are required for insurance agents?

25 hours Signup and view all the answers

What is the maximum penalty for an insurer in case of contravention of provisions?

Rs 1 Crore Signup and view all the answers

What is the fee for the renewal of an insurance agent's license?

Rs 250 Signup and view all the answers

What is the validity period of an insurance license issued by IRDA?

3 years Signup and view all the answers

Who will receive the benefits of the policy if no special trustee is appointed?

Official Trustee of the State Signup and view all the answers

What is the first step in the claim process?

Intimation to the insurer Signup and view all the answers

Which scenario allows for the presumption of death under the Indian Evidence Act 1872?

Missing for 7 years Signup and view all the answers

What is the time frame within which an insurer must settle a death claim after receiving necessary documents?

30 days Signup and view all the answers

When is the inquest report mandatory in the claim process?

For accidental death claims Signup and view all the answers

What is the main purpose of the Insurance Ombudsman?

To resolve disputes between insurers and consumers Signup and view all the answers

What happens to the nomination when a policy is assigned?

Nomination stands cancelled Signup and view all the answers

For claims above 10 crores, which forum is responsible for resolving disputes?

National Commission Signup and view all the answers

When must insurable interest be present in non-life insurance?

At both inception and claim Signup and view all the answers

Which of the following scenarios illustrates the principle of indemnity?

An insurance policy compensating for losses up to the actual loss Signup and view all the answers

Which of the following best describes coercion in the context of insurance contracts?

Pressure applied through criminal means Signup and view all the answers

What type of insurance product provides both maturity and death benefits?

Endowment Plan Signup and view all the answers

Under which clause is an insurer unable to dispute a life insurance policy after three years?

Indisputability Clause Signup and view all the answers

In a Unit Linked Insurance Plan (ULIP), who bears the investment risk?

The policyholder Signup and view all the answers

Which type of policy is characterized as a wealth accumulation product?

Shares (Equity) Signup and view all the answers

What type of bonus may be declared at the end of an insurance policy term?

Compound & Terminal Bonus Signup and view all the answers

Study Notes

Concept of Life Insurance

400 houses in a village, each valued at Rs 20,000
4 houses get damaged annually for a combined loss of Rs. 80,000
Each homeowner contributes Rs. 200 to compensate for losses
Perils covered include Flood, Earthquake, Lightening, and Fire

History of Insurance

First Life Insurance Company in India: Oriental Life Insurance (1818)
First Indian Life Insurance Company: Bombay Mutual Assurance Society (1870)
First Life Insurance Company in the World: Amicable Society for perpetual assurance (1706, London)
Nationalization of Life Insurance in India: 1st September 1956 (LIC formed)
Origin of Modern Insurance Business: Lloyd’s Coffee House, London
Oldest Insurance Company in India still operating: National Insurance Company Limited (1906)
Nationalization of General Insurance in India: 1972 (GIBNA Act, 1972)
First legislation regulating insurance companies in India: Insurance Act 1938 (effective 1st July 1938)

Insurance Contract

Insurance is a contract between the Insurer and Insured under the Indian Contract Act 1972
A contract is an agreement between two or more parties
Elements of a valid contract: Offer & acceptance, Consideration, Agreement between the parties (consensus ad idem), Capacity of the parties, and Legality

Principles of Insurance

Principle of Utmost Good Faith (Uberimma Fides): Disclose all material facts influencing the underwriter's risk assessment.
Breach of Utmost Good faith: Non-disclosure and Misrepresentation of material facts.
Principle of Insurable Interest: For whom you can take Insurance.
Insurable Interest (pecuniary / financial): Present at the inception of Life Insurance, at the time of a claim in Marine Insurance, and at both the time of inception and claim in Non-life Insurance.
Insurable interest exists in: Self (one's own financial interest), Husband-Wife, Parent-Children, Creditor-Debtor, & Employer-Employee.
Principle of Indemnity: Indemnifying the loss or compensating up to the amount of loss. Applicable only for non-life insurance.
Coercion: Pressure applied through criminal means.
Section 45 - Indisputability Clause: Protects the Insured after 3 years, preventing disputes.

Types of Products

Insurance is an intangible product
Transactional Product: Bank Deposits
Contingency Products: Life Insurance
Wealth Accumulation product: Shares (Equity)
Best time for Financial Planning: When an individual receives their first salary
Death Benefit under ULIP Plan: Sum Assured or Fund Value, whichever is higher
Investment risk in ULIP policies: Borne by the Insured
House Holders Insurance: Covers Gold and Silver ornaments
Bonus types: Simple & Compound Reversionary, Terminal Bonus

Insurance Products

Traditional Products
- Pure Term Assurance (Term Plan)
- Endowment Plan: Pays both maturity and death benefits
- Money Back Plan: Pays a portion of the Sum Assured (SA) at regular intervals as survival benefits
- Whole Life Plan
- Domiciliary Hospitalization: Requires at least 3 days of home treatment to claim expenses.
Non-Traditional Products
- ULIP (Unit Linked Insurance Plan)
- Variable Life Insurance (USA)
- Universal Life Insurance (USA)
- CHC (Community health center): Requires at least 30 beds, 1 operation theatre, X-ray machine, labour room & laboratory facilities with 4 specialists and 21 paramedical & other staff for every 1 lakh population.

Documents

KYC: Know Your Customer
Standard Age proof:
- Passport
- Pan Card
- Birth Certificate
- Baptism Certificate
- School leaving certificate
- Defense ID card
Non-Standard Age proof:
- Ration card
- Horoscope
- Voter id card
- Village Panchayat certificate
- Education proof
The Prevention of Money Laundering Act, 2002: Effective from 2005. Three stages: Placement, Layering, & Integration.
Money laundering is an offense with penalties: Imprisonment from 3 to 7 years and a fine up to 5 lakhs.

Policy Conditions

FPR (First Premium Receipt): Evidence of the policy contract commencement.
RPR (Renewal Premium Receipt)
Grace period: 1 month or 31 days (after the due date).
Revival: Process to reinstate a lapsed policy due to non-payment.
Death during Grace Period: Pays the total claim amount after deducting the unpaid premium.
Lapse: Premium not paid during the grace period; insurance cover ceases.
Policy Document: Contains 4 parts (Schedule, Standard provision, Specific policy provisions, Claim procedure)
Loan: Up to 90% of the Surrender Value.
Free look period: Allows a customer to cancel the policy within 15 days of receiving the document if the terms and conditions are not as expected.

Underwriting

Risk selection and Risk pricing.
Proposal form: Underwriter gathers data to assess risk; forms the basis of the insurance contract.
Substandard Lives: Higher risk than standard lives; an extra premium is charged.
Preferred Risk: Lower risk than standard lives.
Insurance on Pregnant Women: Accepted with a Restrictive Clause (Lien).
Agents are Primary Underwriters.
Hazards: Physical, Moral, and Occupational.
Types of underwriting: Medical underwriting and Financial underwriting.
Decision on the proposal: Made within 15 days.
Decision methods: Judgmental method and Numerical Method (Rating Method).

MWP Act - Married Women's Property Act 1874

Trustee benefits from the policy.
Protection from Creditors, Court attachments, and even the Life Assured.
Nomination and Assignment not permitted.
Beneficiary under MWP Act Section 6:
- Only the wife
- Wife and one or more children jointly
- One or more children
If no trustee appointed: Amount goes to the official Trustee of the State.

Claim

Claim: Demand, where the Insurer fulfills their promise.
Intimation: First Step in Claim Process.
IRDA mandates: Death claim settlement within 30 days of receiving documents.
Investigated claims: Settled within 180 days (within 3 years of policy for Early Death).
Delay in settlement: 2% interest on the claim amount above the bank rate is paid to the Nominee.
Inquest report: Mandatory for accidental death claims.
Presumption of Death: Missing for 7 years (Indian Evidence Act 1872) from the date of the court decree (Section 107 & 108).
Insurer request for additional documents: Made within 15 days.
Death due to suicide: Covered after 1 year (365 days).

Nomination & Assignment

Nomination: Section 39 of Insurance Act 1938
One or more Nominees allowed.
Appointee required if a Nominee is a Minor.
Nominee does not have full rights to the entire claim amount.
Assignment: Section 38 of Insurance Act 1938
Assignment types: Absolute and Conditional.
Assignment: Transfer of rights.
Nomination is canceled when a policy is assigned.

Insurance Ombudsman

Ombudsman works within a territorial limit.
Ombudsman's limit: Up to 30 Lakhs.
Complaint filing period: Within 1 year of the insurer's claim rejection.
Complaints filed: In writing (no fee).
Award: Made within 3 months (90 days).
Ombudsman offices: 17 in India.
Award honoring: By the insurer within 15 days.
Complaints to Ombudsman prohibited: If a complaint is pending in any court, consumer forum, or arbitration.

Consumer Protection Act 1986 (COPA)

Amended by Act, 2002.
District Forum: Insurance claim amount up to 1 Crore.
State Commission: Insurance claim amount between 1 Cr and 10 Cr.
National Commission: Insurance claim amount exceeding 10 Crore.
Resellers: Not considered consumers under COPA.
Complaint filing period: Within 2 years of the dispute date.

Insurance Agents

Qualification: 10th for rural areas (less than 5000 population) and 12th for urban areas.
Composite agent: Life & Non-Life License (requires 75 hours of training). Fee: Rs 350. Renewal: 35 hours of training required.
Online training: 25 hours required.
License validity: 3 years (issued by IRDA).
Appointment letter dispatch: Within 7 days.
Issuance of appointment letter: Within 15 days.
Communication of refusal of appointment: Within 21 days.
Penalty for contravention of provisions: Max. Rs 10,000 for agents. Max 1 Crore for insurers.
Appointment Authority: Designated Official of the company.
CASA agents: Not regulated by IRDA.
Section 41: Prohibition of Rebate (Fine Rs 500/- if agent shares commission).
Section 42: Agent code of conduct.
License renewal fee: Rs 250/-.
Lost license card replacement fee: Rs 50.

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Description

This quiz explores the fundamentals of life insurance, including the concept of risk sharing among homeowners and the perils covered. It also delves into the historical milestones of life insurance in India and the world, highlighting important companies and legislations. Test your knowledge on key terms and events that shaped the insurance industry.