38 Questions
Who is the copyright holder of this course material?
Insurance Institute of India (III)
For what purpose is this course material designed?
For providing academic inputs for students
Who are the authors/reviewers of this course material?
Several authors/reviewers listed in alphabetical order
In what year was this course material published?
2023
What is the limitation of this course material?
It is not intended to give interpretations or solutions in case of disputes, legal or otherwise
What is the relationship between the questions in the examination and this course material?
The questions in the examination may not be confined to this course material only
What is the principle behind the concept of indemnity in insurance?
To compensate the insured for the actual loss suffered
What happens to the insured's right to claim compensation from a third party after the insurer has paid the claim?
The insured's right to claim is transferred to the insurer
What is the primary consideration when deciding whether to insure or not?
The cost of transferring the risk against the cost of bearing it oneself
What is the purpose of subrogation in insurance?
To recover the claim amount paid to the policyholder from a negligent third party
If a house worth Rs. 10 lakhs is insured for Rs. 5 lakhs and a loss of Rs. 60,000 occurs, what is the maximum amount the insured can claim?
Rs. 30,000
Which of the following scenarios is an example of a situation where insurance would be most required?
The chance of an earthquake
What is the term used to describe the situation where the insured does not have sufficient insurance coverage to cover the full value of the property?
Underinsurance
What is the main reason why retention of a risk would not be appropriate in certain situations?
The loss that can arise is large enough to cause bankruptcy
Which of the following is NOT a consideration when deciding whether to insure or not?
The insurance premium is mandatory
In the example of Mr. Kishore's household goods, how much can the insurance company recover from Sylvain Transport service?
Rs. 30,000
What is the primary role of intermediaries in the insurance industry?
To find out the needs of prospects and provide them with information about available policies
Why is subrogation often referred to as a 'corollary' of indemnity?
Because it is a consequence of indemnity
What is the amount of loss that the insured can claim in proportion to the insurance coverage?
The proportion of insurance coverage to the value of the property
Which of the following is an example of an asset that should be insured due to its high severity and low frequency of loss?
A space satellite
What is the role of the Insurance Regulator in the insurance industry?
To regulate the entire insurance market
Which of the following scenarios needs insurance according to the considerations outlined in the content?
The sole bread winner of a family might die untimely
What is the primary purpose of insurance?
To protect assets from financial loss
What is the term for the chance of a loss?
Risk
What is an example of a peril?
Fire
Why are losses arising from normal wear and tear not covered in insurance?
Because they are natural processes
What is the term for the asset that is exposed to a peril?
Subject matter of insurance
What is required for a loss to happen?
Both the occurrence of a peril and the exposure of the asset to it
What is the primary difference between risk and peril?
Risk refers to the chance of a loss, while peril refers to the event that causes the loss
What is the primary obligation of a proposer when answering questions in an insurance policy?。
To answer questions truthfully and fully
Why do insurance policies not provide compensation for losses arising from normal wear and tear?
Because they are natural processes
In which scenario does a proposer not need to disclose a material fact?
When the fact is about measures implemented to reduce the risk
What happens if a proposer is not aware of a material fact at the time of taking the policy?
The proposer cannot be charged with non-disclosure of that fact
What is expected of the underwriters in terms of asking for information?
They must ask for specific information only if they require it
What is the duration of the duty to disclose material facts in an insurance contract?
Throughout the entire period of negotiation until the proposal is accepted
What happens if a proposer becomes aware of a material fact during the term of the policy?
They do not need to disclose it as the duty to disclose ends after the policy is issued
What is the consequence of non-disclosure of material facts?
The insurer can disclaim responsibility
In which scenario can the insurer be considered indifferent to further information?
When the insurer appears to be indifferent or has waived the need for further information
Study Notes
Insurance Agents: Common Section
- The course material is based on the revised syllabus prescribed by the Insurance Regulatory and Development Authority of India (IRDAI) and prepared by the Insurance Institute of India, Mumbai.
- The course is designed to provide academic inputs for students appearing for the Insurance Institute of India's examinations.
Considerations before Opting for Insurance
- Evaluate the cost of transferring the risk (insurance premium) against the cost of bearing it oneself.
- Insurance is most required where the loss impact could be very high, but the probability (and hence the premium) is very low.
- Consider the following:
- Do not risk a lot for a little: ensure a reasonable relationship between the cost of transferring the risk and the value derived.
- Do not risk more than one can afford to lose: if the loss that can arise as a result of an event is large enough to cause bankruptcy, retention of the risk would not be appropriate.
- Consider the likely outcomes of the risk carefully: insure assets for which the probability of occurrence (frequency) of a loss is low but the possible impact (severity) is high.
Insurance Market Players
- Insurance companies (insurers) are the major players in the insurance industry.
- Other players in the insurance value chain include:
- Insurance Regulator
- Intermediaries like agents, brokers, banks (through bancassurance), insurance marketing firms, and point of sales persons
- These intermediaries interact with prospects/insured, finding out their needs, and giving them information about the policies available to cover their needs.
Risk and Insurance
- Risk refers to the chance of a loss.
- Risk can be defined as the likely loss or damage that can arise on account of happening of an event.
- Examples of risks include:
- Economic loss arising from the burning of a house or a burglary
- Accident resulting in the loss of a limb
- Perils are the causes of loss, such as:
- Fire
- Earthquakes
- Floods
- Lightning
- Burglary
- Heart attack
- Natural wear and tear is not covered in insurance.
Material Facts and Disclosure
- Material facts are information that can affect the insurance policy.
- The proposer has a duty to disclose material facts truthfully and fully.
- However, the following facts need not be disclosed:
- Measures implemented to reduce the risk
- Facts which the insured does not know or is unaware of
- Facts which could be discovered by reasonable diligence
- Matters of law
- Facts about which the insurer appears to be indifferent
Indemnity and Subrogation
- Indemnity means that the insured is compensated for the loss to the extent of the actual amount of loss.
- Subrogation is the transfer of all rights and remedies with respect to the subject matter of insurance, from the insured to the insurer.
- Subrogation follows from the principle of indemnity.
- The insurer can recover the claim amount paid to the policyholder from a negligent third party.
- The amount of damage that can be collected by the insurance company is only to the extent of the amount paid by the insurance company.
Prepare for the Insurance Institute of India's examinations with this quiz, covering the revised syllabus prescribed by the Insurance Regulatory and Development Authority of India (IRDAI).
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