GU BCom 2011 Insurance Solved Question Paper [Gauhati University NON-CBCS]

Gauhati University BCom Insurance Question Paper Solution 2011

2011
 Insurance
 Full Marks: 80
 Time: 3 hours
 The figures in the margin indicate full marks for the questions

1. Answer the following as directed: 1x10=10

a) Life insurance is a contract of indemnity. (State true or false)
Answer: False. Life insurance is not a contract of indemnity; it pays a fixed amount on death or maturity, not based on loss.

b) Insurance is a subject matter of solicitation. (State true or false)
Answer: True. Insurance involves convincing or inviting people to buy it, which is solicitation.

c) Surrender value of a life insurance policy is always _______ than the total premium paid. (Fill in the blank)
Answer: Less. The surrender value is usually lower than the total premiums paid because of deductions.

d) Any complaints, grievances against an insurer can be lodged with insurance _______. (Fill in the blanks)
Answer: Ombudsman. The insurance ombudsman handles complaints against insurance companies.

e) Any commitment or act done by an insurance agent is not binding upon the insurer. (State true or false)
Answer: False. An insurance agent’s actions or promises are usually binding on the insurer if within their authority.

f) A marine insurance policy covers three items namely freight, cargo and _______. (Fill in the blanks)
Answer: Ship. Marine insurance covers the ship, cargo, and freight costs.

g) The question of third party administrator (TPA) arises in respect of _______ insurance. (Fill in the blanks)
Answer: Health. TPAs are mainly involved in health insurance to manage claims and services.

h) When a financial institution discharge two functions at a time namely banking and insurance, the arrangement is known as _______. (Fill in the blanks)
Answer: Bancassurance. This is when a bank also sells insurance products.

i) The general insurance business was nationalized in the year _______. (Fill the blanks)
Answer: 1972. General insurance in India was nationalized in 1972.

j) LICI was set up under the _______ Act 1956. (Fill in the blanks)
Answer: Life Insurance Corporation. LICI (Life Insurance Corporation of India) was formed under the Life Insurance Corporation Act 1956.

2. Write brief answer to the following in about 100 words each: 2x5=10

a) State the meaning of premium.
Answer: Premium is the amount of money a person pays to an insurance company to get insurance coverage. It can be paid monthly, yearly, or as a single payment. The premium amount depends on factors like the type of insurance, the risk involved, and the coverage amount. In return, the insurance company promises to pay for losses or damages as per the policy terms. It is like a fee for protection against risks.

b) State the benefits of life insurance.
Answer: Life insurance provides many benefits. It gives financial security to a person’s family if they die, by paying a sum of money. It helps cover expenses like loans, education, or daily needs. It also encourages saving, as some policies return money after a period. Life insurance can offer peace of mind, knowing loved ones are protected. Some policies also provide tax benefits, reducing the tax burden. Overall, it supports families during tough times.

c) Give the meaning of fire in case of fire insurance.
Answer: In fire insurance, "fire" means actual burning caused by flames or ignition. It does not include damage from heat, smoke, or explosions unless there is an actual fire first. For example, if something catches fire accidentally or due to a fault and causes damage, it is covered. But damage from overheating without flames is not considered fire. The fire must be unintentional and lead to loss for a claim to be valid.

d) State the meaning of reinsurance.
Answer: Reinsurance is when an insurance company buys insurance from another company to reduce its own risk. If the first company has a big claim, the reinsurer helps pay part of it. This protects the original insurer from losing too much money in case of large or many claims. It is like insurance for insurance companies. Reinsurance helps them stay financially stable and handle bigger risks.

e) State the meaning of surrender value.
Answer: Surrender value is the amount a person gets if they stop their life insurance policy before it ends. It is usually less than the total premiums paid because the insurance company deducts charges. This value is paid only if the policy has been active for a few years and has built some savings. It is like a refund for ending the policy early, but not the full amount.

3. Write short notes on any four of the following: 5x4=20

a) Employees liability insurance.
Answer: Employees liability insurance is a type of coverage that protects employers from financial losses if their workers get injured, sick, or harmed due to work-related reasons. For example, if a worker falls from a ladder at a construction site and sues the company for medical costs, this insurance covers the legal fees and compensation. It is different from regular health insurance because it focuses on job-related risks like accidents, unsafe conditions, or negligence by the employer. In India, it’s often linked to laws like the Workmen’s Compensation Act, which makes employers responsible for worker safety. This insurance gives businesses peace of mind and ensures they can pay claims without going bankrupt. It’s especially useful for industries with high risks, like factories or construction.

b) Burglary insurance.
Answer: Burglary insurance provides protection against losses caused by theft involving forced entry. It covers stolen goods, like cash or jewelry, and damage to property, such as broken doors or windows, caused during a burglary. For instance, if a thief breaks into a shop at night and steals equipment, the insurance pays for the loss. However, it doesn’t cover simple theft without force, like pickpocketing. The policyholder must prove the burglary happened, often with a police report. This insurance is popular with homeowners, shopkeepers, and businesses in areas prone to crime. It helps them recover financially and replace lost items quickly, reducing the impact of such incidents.

c) Third party administrators.
Answer: Third party administrators (TPAs) are companies hired by insurance firms, mainly in health insurance, to manage claims and services. They act as a middleman between the insurer and the policyholder. Their job includes processing claims, checking hospital bills, arranging cashless treatments, and ensuring proper documentation. For example, if someone is admitted to a hospital, the TPA coordinates with the hospital to settle the bill directly with the insurer. TPAs make the claim process smoother and faster for customers while helping insurance companies save time and focus on selling policies. In India, TPAs are regulated by the IRDAI to ensure they work fairly and efficiently.

d) Double insurance.
Answer: Double insurance happens when someone takes out more than one insurance policy for the same item or risk from different insurers. For example, a person might insure their car with two companies to feel extra safe. However, if a loss occurs, they cannot claim the full amount from both insurers to make a profit. Instead, the insurers share the payment based on the proportion of coverage each provides—this is called contribution. Double insurance doesn’t increase the total payout beyond the actual loss, as insurance follows the principle of indemnity. It’s often accidental or due to misunderstanding, but it can raise premium costs without extra benefits.

e) Insurance ombudsman.
Answer: The insurance ombudsman is an independent official appointed to resolve disputes between policyholders and insurance companies. If a customer feels cheated—like their claim was unfairly rejected—they can complain to the ombudsman instead of going to court. It’s a free service, and the process is simple: file a complaint with details, and the ombudsman investigates. They hear both sides and make a binding decision within a few months. In India, the ombudsman system was set up under the IRDAI to protect consumers and ensure insurers act fairly. It’s a quick, affordable way to settle issues like delayed claims or policy disputes.

4. Discuss the fundamental principles of insurance. (10 Marks)

Answer: The fundamental principles of insurance are the basic rules that make insurance fair, legal, and effective. There are five key principles:

1. Utmost Good Faith: Both the insurer and the insured must be completely honest. The person buying insurance must tell all important facts—like health issues for life insurance or property details for fire insurance. If they hide something, the insurer can cancel the policy. Similarly, the insurer must explain the policy terms clearly.
   
   

2. Insurable Interest: The person insuring something must benefit from it existing or suffer if it’s lost. For example, you can insure your own house because you own it, but not your neighbor’s house. This prevents gambling through insurance.
   
   

3. Indemnity: This means insurance should only cover the actual loss, not let someone profit. For instance, if a car worth Rs. 5 lakh is damaged, the insurer pays up to Rs. 5 lakh, not more. Life insurance is an exception—it pays a fixed amount, not based on loss.
   
   

4. Proximate Cause: The insurer pays only if the loss is caused by the main event covered, like fire in a fire policy. If a fire starts and then rain damages goods, only fire-related loss is paid, not rain damage, unless both are covered.
   
   

5. Subrogation: After paying a claim, the insurer takes the insured’s rights to recover money from whoever caused the loss. For example, if a neighbor’s negligence causes a fire, the insurer can sue them after compensating you.

These principles ensure trust, prevent fraud, and keep insurance balanced for everyone involved.

5. Describe the different kinds of marine insurance policy and its major contents. (10 Marks)

Answer: Marine insurance protects against risks during sea transport, like damage to ships or goods. There are several types of marine insurance policies, each suited to different needs:

1. Voyage Policy: Covers a single trip, such as from Mumbai to Singapore. It ends when the journey is complete. It’s good for one-time shipments.

2. Time Policy: Covers a fixed period, like one year, for multiple trips. It’s useful for ships or traders with regular voyages.

3. Mixed Policy: Combines voyage and time—for example, a specific route for six months. It offers flexibility for frequent travelers.

4. Valued Policy: The value of the ship or cargo is agreed in advance. If lost, this amount is paid, even if the actual value changes.

5. Unvalued Policy: No fixed value is set; the payout is calculated based on the market value at the time of loss.

Major Contents:

1. Items Covered: Includes the ship (hull), cargo (goods), and freight (shipping earnings). For instance, if a ship sinks, all three can be claimed.

2. Risks Covered: Losses from storms, sinking, piracy, collisions, or fire. Some policies also cover war risks if specified.

3. Policy Details: Mentions the premium, duration (time or voyage), insured amount, and terms like exclusions (what’s not covered).

4. Clauses: Special conditions, like the “sue and labour” clause, where the insured must try to reduce loss, and the insurer pays for those efforts.

Marine insurance is vital for international trade, ensuring shipowners and traders don’t lose everything due to sea hazards.

6. Describe the mechanism of settlement of claims in respect of a fire insurance policy. (10 Marks)

Answer: Settling a fire insurance claim involves a clear process to ensure the policyholder gets fair compensation for losses. Here’s how it works:

1. Notification: The policyholder must inform the insurance company immediately after a fire, usually within 24-48 hours, through a phone call or written notice. Delay can lead to claim rejection.

2. Claim Form: They fill out a form with details like the date, time, cause of the fire (e.g., electrical fault), and extent of damage. Supporting documents like photos, bills, or a fire brigade report are submitted.

3. Surveyor Visit: The insurer appoints a surveyor or loss assessor within a few days to inspect the site. The surveyor checks if the fire was accidental, covered by the policy, and estimates the damage value.

4. Loss Assessment: The surveyor prepares a report calculating the loss based on repair costs, replacement value, or depreciation. For example, if furniture worth Rs. 2 lakh is destroyed, they assess how much is payable.

5. Verification: The insurance company reviews the surveyor’s report, policy terms, and documents. They ensure the claim matches the coverage—like checking if the fire was deliberate (not covered).

6. Approval and Payment: If everything is valid, the insurer approves the claim. The payout is made via cheque or bank transfer, covering the assessed loss up to the policy limit. For partial damage, repair costs are paid; for total loss, the insured sum is given.

The process usually takes a few weeks, depending on the case. The policyholder must cooperate fully and avoid tampering with the site before the surveyor arrives to ensure a smooth settlement.

7. State the procedure of becoming an insurance agent and discuss his rights. (10 Marks)

Answer: Becoming an insurance agent in India involves a step-by-step process regulated by the Insurance Regulatory and Development Authority of India (IRDAI). Here’s how it works:

1. Eligibility: The person must be at least 18 years old and have a minimum education, like passing 10th or 12th grade (depending on the insurer’s rules). They should have no criminal record.

2. Training: They must complete mandatory training—25 hours for general insurance, 50 hours for life insurance, or 75 hours for both—from an IRDAI-approved institute. This covers insurance basics, laws, and sales skills.

3. Examination: After training, they take an online or offline test conducted by the IRDAI or its partners, like the Insurance Institute of India. Passing this exam proves they understand insurance rules and products.

4. License Application: Once they pass, they apply for an agent license through an insurance company. They submit documents (ID, education proof, exam certificate) and pay a small fee. The IRDAI issues the license, valid for 3 years.

5. Appointment: An insurance company hires them as an agent. They sign an agreement and start selling policies under the company’s guidance.

Rights of an Insurance Agent:

1. Commission: They earn a percentage (e.g., 10-35%) of the premium for every policy sold, plus bonuses for renewals or meeting targets.

2. Support: The insurer provides training, marketing materials, and office support to help them sell better.

3. Renewal Rights: They can renew old policies for clients and keep earning commissions.

4. Representation: They act as the company’s face, explaining policies and helping clients with claims or queries.

5. Termination Rights: If unfairly treated, they can appeal to the insurer or IRDAI, though they must follow ethical rules to keep their license.

Agents play a big role in spreading insurance awareness, but they must work honestly and follow IRDAI guidelines to enjoy these rights.

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