Gauhati University BCom Insurance Question Paper Solution 2013
2013
Insurance
Full Marks: 80
Time: 3 hours
(The figures in the margin indicate full marks for the questions)
Q. Fill in the blanks: 1x4=4
1) The question of third party administrator (TPA) arises in respect of _______ insurance.
Answer: Health. TPAs are mainly used in health insurance to manage claims and services.
2) Material facts should be disclosed during _______ stage of the policy.
Answer: Proposal. Material facts must be shared when applying for the policy.
3) Principle of indemnity does not apply to _______ insurance.
Answer: Life. Life insurance pays a fixed sum, not based on loss, so indemnity doesn’t apply.
4) The head office of United India Insurance Co. Ltd. is situated at _______.
Answer: Chennai. The head office of United India Insurance is in Chennai, Tamil Nadu.
Q. Select the correct answer: 1x3=3
1) Who is termed as national reinsurer?
a) National Insurance Co. Ltd.
b) The Oriental Insurance Co. Ltd.
c) United India Insurance Co. Ltd.
d) General Insurance Corporation of India.
Answer: d) General Insurance Corporation of India. GIC is India’s national reinsurer.
2) In which year IRDA Act was passed?
a) 1956.
b) 1972.
c) 1999.
d) 2000.
Answer: c) 1999. The IRDA Act was passed in 1999 to regulate insurance in India.
3) The head office of GIC is situated at:
a) Kolkata.
b) Mumbai.
c) Delhi.
d) Chennai.
Answer: b) Mumbai. GIC’s head office is in Mumbai, Maharashtra.
2. Write brief answer to the following question: 2x5=10
a) State the meaning of surrender value.
Answer: Surrender value is the money a policyholder gets if they stop their life insurance policy before it ends. It’s usually less than the premiums paid because the insurer deducts fees. For example, if you paid Rs. 50,000 and surrender after a few years, you might get Rs. 30,000. It’s available only if the policy has run for some time and built savings. It’s like a refund for ending early.
b) What is meant by nomination?
Answer: Nomination means naming someone, like a family member, to receive the insurance money if the policyholder dies. For instance, you can nominate your wife or child. The nominee doesn’t own the policy but gets the payout easily without legal hassle. It’s a way to ensure the benefit reaches the right person quickly. Nomination can be changed anytime during the policy.
c) Define reinsurance.
Answer: Reinsurance is when an insurance company buys insurance from another insurer to lower its risk. For example, if a company insures a big factory and a fire causes a huge loss, the reinsurer shares the cost. It protects the original insurer from paying too much alone. In India, GIC often acts as a reinsurer. It’s like a safety net for insurance companies.
d) State two features of unit-linked policy.
Answer: A unit-linked insurance policy (ULIP) has two main features: (1) It combines insurance and investment—part of your premium buys life cover, and part is invested in funds like stocks or bonds. (2) Returns depend on market performance—you can earn more if the market grows, but there’s risk if it falls. For example, you might get Rs. 5 lakh cover plus investment gains. It suits people wanting growth with protection.
e) What is pension plan?
Answer: A pension plan is a type of insurance that gives you regular income after retirement. You pay premiums during your working years, and when you retire (say at 60), the insurer pays you monthly or yearly amounts. For example, you might get Rs. 10,000 monthly to live on. Some plans also offer a lump sum. It helps you stay financially secure when you stop earning.
3. Write short notes on any four of the following: 5x4=20
a) Group insurance.
Answer: Group insurance covers many people under one policy, usually employees or members of a group like a company or club. For example, a factory might insure all its workers for life or health. It’s cheaper than individual policies because the risk is spread across the group. The employer often pays part or all of the premium, making it a job benefit. It can cover death, accidents, or medical costs. In India, it’s popular with businesses to support staff and their families.
b) Moral hazard.
Answer: Moral hazard is the risk that a person might act carelessly or dishonestly because they have insurance. For example, someone with fire insurance might not bother with safety because they’ll get paid if there’s a fire. Or they might lie about a loss to claim money. Insurers try to reduce this by checking claims carefully and setting rules, like requiring fire alarms. It’s about behavior changing due to feeling protected, which can increase losses.
c) Insurance broker.
Answer: An insurance broker is a professional who helps people or businesses buy insurance. Unlike agents who work for one company, brokers work with many insurers to find the best policy for the customer. For example, they might compare health plans from different companies for you. They advise on coverage, negotiate premiums, and assist with claims. Brokers earn a commission from insurers. In India, they’re licensed by IRDAI and act as experts for clients.
d) Surveyor and loss assessor.
Answer: Surveyors and loss assessors are experts hired by insurers to check claims, especially in general insurance like fire or motor. They visit the loss site—like a burnt shop—find the cause, and estimate the damage cost. For instance, they decide if a car worth Rs. 3 lakh can be repaired for Rs. 1 lakh. They write a report for the insurer to approve the claim. In India, they’re IRDAI-licensed and ensure fair payouts while preventing fraud.
e) Personal accident insurance.
Answer: Personal accident insurance covers injuries or death caused by accidents, like a fall or car crash. It pays a lump sum if you die or lose a limb, or regular amounts for temporary disability. For example, if you break a leg and can’t work, it might pay Rs. 5,000 monthly. It doesn’t cover illness—just sudden accidents. In India, it’s affordable and popular for people in risky jobs, giving financial help during emergencies.
4. What are the basic principles of insurance? Explain each of them briefly. 10
Answer: The basic principles of insurance are rules that make it fair and workable. Here are the five main ones:
Utmost Good Faith: Both the insurer and insured must be honest. For example, you must tell about health issues when buying life insurance, and the insurer must explain policy terms clearly. Hiding facts can cancel the policy.
Insurable Interest: You can only insure something if you benefit from it or lose if it’s harmed. For instance, you can insure your house, not a stranger’s, because you own it. This stops gambling with insurance.
Indemnity: Insurance pays only the actual loss, not more, to avoid profit. If a Rs. 2 lakh bike is stolen, you get Rs. 2 lakh, not extra. Life insurance is an exception—it pays a fixed sum.
Proximate Cause: The insurer pays only if the loss comes from the covered risk. For example, in a fire policy, damage from fire is paid, not from floods unless included. It finds the main cause.
Subrogation: After paying a claim, the insurer takes your rights to recover money from whoever caused the loss. If a neighbor’s negligence burns your shop, the insurer can sue them after paying you.
These principles keep insurance honest, balanced, and useful for everyone.
5. Distinguish between: 5+5=10
1) Whole life policy and endowment policy.
Answer:
Whole Life Policy: This covers you for your entire life. The insurer pays the sum assured to your family when you die, no matter when that happens. Premiums are paid until death or a set age (like 80). It’s for long-term family protection, not savings. For example, a Rs. 5 lakh policy pays out whenever you pass away.
Endowment Policy: This covers a fixed period (like 20 years) and pays the sum assured either if you die during that time or if you survive till the end. It’s a mix of insurance and savings. For example, a Rs. 5 lakh policy might pay at death or after 20 years. Premiums are higher, but you get money back if you live.
2) Insurance and wagering agreement.
Answer:
Insurance: It’s a legal contract to protect against real risks, like fire or death. You pay premiums, and the insurer pays if the risk happens. It needs insurable interest (e.g., you own the house). For example, insuring a car worth Rs. 3 lakh helps if it’s damaged. It’s about safety, not profit, and is enforceable by law.
Wagering Agreement: This is a bet where you gain or lose money based on an uncertain event, like a cricket match. There’s no insurable interest—just a gamble. For example, betting Rs. 1,000 on a game isn’t protection; it’s chance. It’s not legally binding in India and focuses on winning, not security.
6. Explain the procedure of claims settlement under a fire insurance policy. 10
Answer: Settling a claim under a fire insurance policy follows these steps:
Notification: Tell the insurer about the fire as soon as possible, usually within 24-48 hours, by phone or in writing. Delay can lead to rejection.
Claim Form: Fill out a form with details like when the fire happened, what caused it (e.g., short circuit), and what was damaged (e.g., furniture worth Rs. 2 lakh). Submit proof like photos or a fire brigade report.
Surveyor Visit: The insurer sends a surveyor within days to inspect the site. They check if the fire was accidental (covered) or intentional (not covered) and assess the damage.
Loss Assessment: The surveyor estimates the loss—like repair costs for a burnt wall or replacement value of lost goods—considering depreciation. They submit a report to the insurer.
Verification: The insurer reviews the report, policy terms (e.g., coverage limit), and documents. They ensure the claim matches what’s insured and isn’t fraudulent.
Approval: If valid, the claim is approved. For example, if damage is Rs. 1.5 lakh and the policy covers Rs. 2 lakh, they agree to pay Rs. 1.5 lakh.
Payment: The money is paid by cheque or bank transfer, often within weeks. It covers repairs or replacement up to the insured amount.
The policyholder must cooperate, avoid altering the site before inspection, and prove the loss to get paid fairly.
7. State organizational pattern of GICI. Name three private sector insurance companies operating in Assam. 10
Answer: The General Insurance Corporation of India (GIC) is India’s national reinsurer, set up in 1972. Its organizational pattern is:
Head Office: Located in Mumbai, it handles major decisions, reinsurance policies, and investments. Top management like the Chairman and Directors work here.
Regional Offices: GIC has offices across India to coordinate with insurers and manage local reinsurance needs. They report to the head office.
Departments: It has sections for underwriting (assessing risks), claims (supporting payouts), finance (managing funds), and marketing (promoting reinsurance).
Board of Directors: Appointed by the government, they set policies and goals. GIC is a public sector company, fully owned by the Government of India.
Role: Unlike earlier, when it owned four subsidiaries (National, New India, Oriental, United India), GIC now focuses only on reinsurance after they became independent in 2000.
Three Private Sector Insurance Companies in Assam:
ICICI Lombard General Insurance: Offers car, health, and home insurance with branches in Assam.
Bajaj Allianz General Insurance: Provides motor, travel, and crop insurance, active in cities like Guwahati.
HDFC ERGO General Insurance: Covers health, property, and accident insurance, operating in Assam’s urban areas.
These companies compete with public insurers, offering modern services and online options.
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