Market Value of Stocks and Goods

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Questions and Answers

What does the market value of raw materials represent?

The cost to purchase raw materials in the market to replace damaged ones. (correct)

The total expenses incurred during processing.

The selling price of finished goods.

The sum of overhead expenses related to production.

Which of the following statements is true regarding the sum insured?

It includes the profit margin on selling the goods.

It must be determined by the insurance company.

It serves as the maximum limit of liability under the policy. (correct)

It can exceed the actual value of the property insured.

What happens to a claim amount in the case of under-insurance?

The claim amount is increased by a fixed percentage.

The claim amount is paid in full without changes.

The claim amount is reduced proportionately by applying pro-rata average. (correct)

The claim is completely denied.

What is the principle of subrogation related to?

It transfers recovery rights to insurers after indemnifying a loss. Signup and view all the answers

Which type of goods includes all overhead expenses incurred until it reaches the finished goods stage?

Finished goods Signup and view all the answers

What type of damage caused by aircraft is explicitly excluded from the term 'aircraft damage'?

Destruction caused by pressure waves Signup and view all the answers

Which of the following scenarios would NOT be covered under riot, strike, malicious and terrorism damage?

Loss resulting from equipment malfunction Signup and view all the answers

What type of government action is explicitly excluded from riot-related insurance coverage?

Requisition or commandeering by authorities Signup and view all the answers

How does the terrorism damage exclusion warranty affect insurance claims?

It excludes any claims related to terrorism regardless of other contributing factors. Signup and view all the answers

Which of the following is considered external violent means under the riot and strike damage policy?

Damage from civil disturbances Signup and view all the answers

What happens if the amount insured is less than the full value?

The insured pays a premium less than the due contribution. Signup and view all the answers

In the event of a loss covered by multiple policies, how is liability determined?

The company pays the rateable proportion of the loss. Signup and view all the answers

What does the subrogation condition involve?

The insurer takes over the insured's rights after indemnifying the loss. Signup and view all the answers

Which statement is true about the arbitration condition?

The parties must appoint a sole arbitrator in writing. Signup and view all the answers

What is the purpose of the usual contribution condition?

To fix the sum insured adequately by the insured. Signup and view all the answers

What is the principle of subrogation in fire insurance?

It transfers the insured’s recovery rights to insurers after indemnification. Signup and view all the answers

What determines the legal validity of insurance contracts?

The requirement of insurable interest. Signup and view all the answers

How can the sum insured in a fire insurance contract be fixed?

Fixed on reinstatement value, market value, or agreed value. Signup and view all the answers

According to the pro-rata average condition, how is the reimbursement calculated?

By applying the formula: insured amount / total value x loss amount. Signup and view all the answers

In terms of liability in fire insurance, what role does indemnity play?

It ensures the insured is not profiting from a loss. Signup and view all the answers

Which item is typically excluded from coverage without special terms or conditions?

Curios or works of art exceeding Rs.10,000/- Signup and view all the answers

What type of loss is specifically excluded under the Electrical Risks exclusion clause?

Over-running or short circuiting Signup and view all the answers

Which property can be covered subject to special terms if specifically declared?

Bullion or unset precious stones Signup and view all the answers

Which risk is considered under 'add-on' covers related to stocks in cold storage?

Change in temperature Signup and view all the answers

What scenario could potentially allow coverage for losses resulting from electrical issues?

Damage from fire resulting from electrical failure Signup and view all the answers

Study Notes

Stocks and Insurance Basics

Raw Material Value: Market value reflects the cost for replacing damaged raw materials.
Semi-Finished Goods Value: Includes cost of raw materials plus processing expenses up to the semi-finished stage.
Finished Goods Value: Comprises the cost of raw materials and all overhead costs incurred until goods reach completion.
Selling Price Exclusion: Selling price that includes profit cannot be considered for sum insured.

Sum Insured Principles

Determination: Sum insured fixed by the insured, represents the maximum liability under a policy.
Premium Calculation: It reflects the amount applied to calculate the premium.
Actual Value Representation: Must accurately represent the property insured to avoid under or over-insurance.
Pro-rata Average: Under-insurance leads to claims being proportionately reduced based on the actual insured value.

Subrogation

Definition: Rights of recovery from third parties are transferred to insurers post indemnification of the insured loss.

Damage Exclusions

Aircraft Damage: Excludes damage caused by pressure waves from aircraft.
Riot and Malicious Damage: Covers visible loss due to external violence, excluding some interruptions and unlawful occupancies.
Terrorism Exclusion: Loss related to acts of terrorism is excluded unless expressly stated in the policy.
Specific Items Exclusion: Loss of certain high-value items (e.g., bullion, works of art) beyond specified limits is typically excluded.

Additional Deterioration Coverage

Cold Storage Risks: Coverage may apply for deterioration of stocks due to power failure if linked to a covered peril.
Electrical Risks: Damage from electrical failures (e.g., short circuits) is excluded but fire damage resulting from these issues may be covered.

Insurance Valuation Conditions

Common Premium Fund: Adequate premium payment requires the sum insured to match the full value of the insured property.
Rateable Proportion: If multiple policies cover the same property, claims are paid proportionally based on the sum insured across policies.

Arbitration Clause

Disputes Resolution: Specifies process for arbitration concerning payment disputes, requiring a sole arbitrator appointed by the parties.

Practice Questions Insights

Sum Insured Calculation: Can be based on asset cost, reinstatement value, nominal value, or rateable value.
Insurable Interest Importance: Necessitates a legal right to insure, reflecting financial relationship with the insured property.
Pro-rata Application: Illustrates how claim payouts are calculated based on coverage relevance and proportionate values.

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Description

This quiz explores the concepts of market value related to stocks and various stages of goods including raw materials, semi-finished, and finished products. Understand how to calculate market value and its implications in the insurance context. Perfect for students studying finance or supply chain management.