Insurance Fundamentals and Principles

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Questions and Answers

What advantage does an annuity policy provide after retirement?

  • Regular payments for life after retirement (correct)
  • One-time lump sum payment for medical expenses
  • Protection for goods during sea transportation
  • Coverage for damage caused by fire

Which type of insurance covers medical expenses such as hospital bills?

  • Fire Insurance
  • Marine Insurance
  • Children's Endowment Policy
  • Health Insurance (correct)

What does marine insurance primarily protect?

  • Education costs for children
  • Financial losses from medical emergencies
  • Physical property from fire damage
  • Goods and ships during sea transportation (correct)

Which of the following is a merit of insurance?

<p>Encourages long-term financial planning (A)</p> Signup and view all the answers

What is a common disadvantage of insurance policies?

<p>Claim processes are often lengthy (B)</p> Signup and view all the answers

What type of marine insurance covers damage to a ship?

<p>Hull Insurance (B)</p> Signup and view all the answers

Which situation exemplifies a claim that might not be fully covered by fire insurance?

<p>A flood damaging property (C)</p> Signup and view all the answers

Which policy provides financial support for children's education and marriage?

<p>Children's Endowment Policy (C)</p> Signup and view all the answers

What financial benefit can insurance provide during emergencies?

<p>Offers financial protection (B)</p> Signup and view all the answers

What does the term 'exclusions' in insurance refer to?

<p>Conditions that limit or deny coverage (B)</p> Signup and view all the answers

What is the principle of utmost good faith in insurance?

<p>Both parties must provide honest and accurate information. (B)</p> Signup and view all the answers

Which of the following is an example of insurable interest?

<p>Insuring your own home. (B)</p> Signup and view all the answers

What does the principle of indemnity state in insurance?

<p>Insurance compensates only for actual losses and not for profit. (A)</p> Signup and view all the answers

Under what condition will an insurance company pay a claim based on proximate cause?

<p>Only if the loss is due to a reason explicitly covered in the policy. (D)</p> Signup and view all the answers

What is the purpose of subrogation in insurance?

<p>To allow the insurer to reclaim costs after compensating the insured. (C)</p> Signup and view all the answers

Which of the following is NOT a function of insurance?

<p>Creating a massive profit for insurers. (C)</p> Signup and view all the answers

What is the key characteristic of a whole life insurance policy?

<p>It provides coverage for the entire life of the insured. (C)</p> Signup and view all the answers

Which type of life insurance policy pays out either after a specified term or on the death of the policyholder?

<p>Endowment Life Assurance Policy (C)</p> Signup and view all the answers

What happens when you have multiple insurance policies according to the principle of contribution?

<p>Claims will be split across the different policies proportionally. (B)</p> Signup and view all the answers

What does the principle of mitigation require from the insured?

<p>To take reasonable steps to reduce loss or damage. (A)</p> Signup and view all the answers

Flashcards

Annuity Policy

Provides regular payments after retirement, like a monthly income for life.

Children's Endowment Policy

Pays a lump sum when a child reaches a specific age, like 18, for their education or marriage.

Health Insurance

Covers medical expenses, like hospital bills and surgeries, when you get sick or injured.

Fire Insurance

Protects against financial losses caused by fire damage to property.

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Marine Insurance

Covers goods and ships during transportation at sea, reducing risks of loss or damage.

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Ship or Hull Insurance

Insurance that covers the ship itself against damage or loss.

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Cargo Insurance

Insurance that protects the goods being transported by sea against damage or loss.

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Freight Insurance

Insurance that ensures the shipping company receives payment if the goods are lost or damaged during transport.

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Financial protection during emergencies

Provides financial protection in emergencies, like accidents or illness, by covering unexpected costs.

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Reduces stress

Reduces stress by managing unexpected expenses, providing financial stability.

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What is Insurance?

A contract between you and an insurance company where they promise to compensate you for financial losses related to specific events.

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Utmost Good Faith

Both the insured and the insurer must be honest and truthful in all dealings, including providing accurate information.

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Insurable Interest

You can only insure things that would cause you financial loss if damaged or destroyed.

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Indemnity

Insurance payments are for actual losses only. You won't receive extra money or profit.

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Proximate Cause

The insurer covers losses only when they're directly caused by an event covered in the policy.

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Subrogation

The insurer can claim the loss amount from the party responsible once they've compensated you.

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Contribution

If you have multiple insurance policies for the same event, the payouts are shared among them.

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Mitigation

You must take reasonable steps to minimize the damage or loss after an event.

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Providing Certainty

Insurance provides financial security against unexpected events like accidents, medical bills, or property damage.

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Protection

Insurance protects individuals, businesses, and properties from significant losses.

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Study Notes

Insurance Fundamentals

  • Insurance is a contract between the insured (you) and an insurance company.
  • The insurance company agrees to compensate for financial losses due to specified events.

Principles of Insurance

  • Utmost Good Faith: Both parties must provide honest and complete information. Dishonesty (hiding information) may result in claim rejection.
  • Insurable Interest: The insured must have a financial stake in the item being insured.
  • Indemnity: Insurance only compensates for actual losses, not profit.
  • Proximate Cause: Insurance pays only for losses directly resulting from the covered event.
  • Subrogation: Insurance companies can pursue claims against third parties after compensating the insured.
  • Contribution: If multiple policies cover the same loss, claims are shared proportionally.

Types of Insurance (Examples)

  • Health Insurance: Covers medical expenses (hospital bills, surgery).
  • Fire Insurance: Covers losses due to fire.
  • Marine Insurance: Protects goods and ships during transportation.
    • Includes Ship/Hull (ship damage), Cargo (goods), and Freight (payment if goods are lost).
  • Life Insurance: Provides financial support to beneficiaries upon death.
    • Whole Life: Coverage for the entire life.
    • Endowment: Pays out after a fixed term or death.
    • Joint Life: Covers two people (usually spouses).
    • Annuity: Regular payments after retirement.
    • Children's Endowment: Covers children's education/marriage.

Functions of Insurance

  • Certainty: Financial security against unexpected events.
  • Protection: Reduces the impact of significant losses to individuals, businesses, or property.
  • Risk Sharing: Distributes losses among many insured individuals.
  • Capital Formation: Insurers invest premiums, encouraging economic growth.

Merits of Insurance

  • Financial protection during emergencies.
  • Reduced stress from unexpected expenses
  • Encourages long-term savings.
  • Promotes economic growth through investments.

Demerits of Insurance

  • Regular premium payments can be burdensome.
  • Exclusions may limit coverage.
  • Lengthy claims processes are common.
  • Risk of claims rejection due to policy violations.

Mitigation

  • Insured individuals have a duty to take reasonable steps to reduce potential loss or damage.

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