Gauhati University BCom Insurance Question Paper Solution 2014
2014
Insurance
Full Marks: 80
Time: 3 hours
(The figures in the margin indicate full marks for the questions)
1). (A) State whether the following statements are true or false: 1×3=3
1). Insurance is an agreement between two parties – the insured and insurer.
Answer: True
2). Insurance is a subject matter of solicitation.
Answer: True
3). Insurance is a kind of gambling.
Answer: False
1). (B) Fill in the blanks: 1×4=4
1). Life insurance contract is not a contract of indemnity.
Answer: Indemnity
2). In life insurance, insurable interest must exist, when the contract is made.
Answer: Made
3). Fire insurance contract is a contract of indemnity.
Answer: Indemnity
4). Any complaints, grievances against any insurance can be lodged with insurance ombudsman.
Answer: Ombudsman
1). (C) Select the correct answer: 1×3=3
1). The head office of LICI is situated at:
a) Kolkata.
b) Mumbai.
c) Delhi.
d) Chennai.
Answer: b) Mumbai
2). Assignment of Life Insurance Policy is:
a) Sale of life insurance policy.
b) To acquire additional life insurance policy.
c) Transfer a Life Insurance Policy to a third party.
d) Gift a life insurance policy to a third party.
Answer: c) Transfer a Life Insurance Policy to a third party.
3). Re-insurance refers to –
a) Insurance contract between one or more insured persons.
b) Insurance contract between insured person and one or more insurance companies.
c) Insurance contract between insurer and one or more insured persons.
d) Insurance contract between insurer and one or more insurance companies.
Answer: d) Insurance contract between insurer and one or more insurance companies.
2). Write a brief answer to the following in about 100 words each: 2×5=10
a). Principles of utmost good faith.
Answer: The principle of utmost good faith means that both the insurer and the insured must be honest with each other. The insured must provide all necessary and truthful information about the subject matter of insurance. Similarly, the insurer must disclose all terms and conditions of the policy. If any party hides important details, the insurance contract can become invalid. This principle helps in maintaining trust and fairness in insurance contracts.
b). Revival of lapse policy.
Answer: A life insurance policy lapses when the policyholder fails to pay the premium on time. The revival of a lapsed policy means bringing it back into effect by paying the overdue premium along with interest. Some insurance companies also require a health declaration or medical examination before reviving the policy. The policyholder usually gets a grace period and several revival schemes to restore the benefits of the policy.
c). Insurance Ombudsman.
Answer: The Insurance Ombudsman is a body that helps resolve complaints and disputes between policyholders and insurance companies. If a policyholder has a grievance regarding claim settlement, unfair practices, or delays, they can file a complaint with the Insurance Ombudsman. It provides a quick and cost-effective way to solve insurance-related issues without going to court. The decision of the Ombudsman is usually binding on the insurer.
d). Marine Insurance.
Answer: Marine insurance covers losses or damages related to ships, cargo, and other transport by sea. It provides financial protection against risks such as shipwreck, piracy, fire, or bad weather. There are different types of marine insurance, including hull insurance (for ships), cargo insurance (for goods), and liability insurance (for shipowners). It is essential for businesses involved in international trade to safeguard against losses.
e). Organizational Structure.
Answer: The organizational structure of an insurance company consists of different levels of management. At the top level, there is a Board of Directors and a Chief Executive Officer (CEO) who makes major decisions. Below them are department heads for underwriting, claims, marketing, and customer service. There are also field agents, sales representatives, and customer service staff who interact with clients. This structure helps in smooth operations and efficient customer service.
3). Write short notes on any four of the following: 5×4=20
a). Insurance and Wagering Agreement
Answer: Insurance and wagering agreements are different in nature. Insurance is a legal contract based on the principle of risk management, where the insured pays a premium to get financial protection against future uncertainties. It is based on good faith, insurable interest, and indemnity (except life insurance). On the other hand, a wagering agreement is a type of bet or gamble where two parties agree to gain or lose money based on an uncertain future event. Unlike insurance, a wagering agreement is not legally enforceable and does not require an insurable interest.
b). General Insurance
Answer: General insurance provides financial protection against various risks other than life. It includes different types of insurance such as fire insurance, marine insurance, motor insurance, health insurance, and travel insurance. Unlike life insurance, general insurance contracts are usually for a short period (one year) and provide coverage only if the insured event occurs. General insurance helps individuals and businesses protect their assets and manage unforeseen losses efficiently.
c). Benefits of Life Insurance
Answer: Life insurance provides financial security to the policyholder's family in case of their death. Some key benefits include:
Financial protection for dependents.
Savings and investment opportunities through different policy types.
Tax benefits under sections 80C and 10(10D) of the Income Tax Act.
Loan facility against policy surrender value.
Peace of mind by ensuring financial stability in case of an unfortunate event.
d). Kinds of Endowment Policies
Answer: Endowment policies are life insurance policies that provide a combination of insurance and savings. The different types of endowment policies include:
Ordinary Endowment Policy – Pays the sum assured on maturity or death.
Full Profit Endowment Policy – Offers additional bonuses along with the sum assured.
Low-Cost Endowment Policy – Helps policyholders save a fixed amount for a future financial goal.
Unit-Linked Endowment Policy – Invests premiums in market-linked funds for higher returns.
Joint Endowment Policy – Covers two individuals under a single policy, beneficial for couples or business partners.
e). Agent as an Insurance Intermediary
Answer: An insurance agent is an individual or entity authorized to sell insurance policies on behalf of an insurance company. The role of an agent includes:
Educating customers about different insurance products.
Helping clients choose the right policy based on their needs.
Assisting in the completion of application forms and documentation.
Collecting premiums and ensuring timely renewal of policies.
Providing after-sales service, including claim assistance.
Agents act as a link between insurers and customers and play a crucial role in the insurance industry.
f). Private Sector Insurance Organizations in India
Answer: After the liberalization of the insurance sector in 2000, many private insurance companies started operating in India. Some leading private sector insurance companies include:
ICICI Prudential Life Insurance – A joint venture between ICICI Bank and Prudential Plc.
HDFC Life Insurance – Provides life and pension plans.
Bajaj Allianz General Insurance – Offers motor, health, and travel insurance.
Max Life Insurance – Focuses on long-term savings and protection.
Tata AIA Life Insurance – A joint venture between Tata Group and AIA Group.
These companies have increased competition in the insurance sector, improving customer service and product variety.
g). Livestock Insurance
Answer: Livestock insurance provides financial protection to farmers and cattle owners against the loss of animals due to death, disease, accidents, or natural disasters. Some key features of livestock insurance include:
Covers animals like cows, buffaloes, goats, sheep, pigs, and poultry.
Premium rates vary depending on the breed, age, and health of the animal.
Helps farmers recover financial losses and continue their livestock business.
Some government schemes subsidize livestock insurance to support farmers.
Encourages farmers to adopt better animal healthcare practices.
This insurance is beneficial in rural areas where livestock is an essential source of income.
4). What do you mean by Insurance? Discuss how insurance and economic developments are related to each other. 4+6=10
Answer:
Meaning of Insurance (4 Marks):
Insurance is a financial agreement between an individual (insured) and an insurance company (insurer) where the insurer provides financial protection against potential losses in exchange for a premium. It helps individuals and businesses manage risks and secure their future against unforeseen events like accidents, illnesses, or property damage. Insurance is based on the principle of risk-sharing, where many policyholders contribute small amounts to cover the losses of a few.
Relationship Between Insurance and Economic Development (6 Marks):
Insurance plays a crucial role in economic development in the following ways:
Encourages Savings and Investments: Insurance policies promote financial discipline by encouraging people to save regularly, leading to higher investments in the economy.
Risk Management for Businesses: Businesses can operate confidently as insurance provides protection against financial losses due to accidents, theft, or natural disasters.
Employment Generation: The insurance sector creates jobs for agents, brokers, claim adjusters, and other professionals, contributing to employment growth.
Mobilization of Funds: Insurance companies collect large amounts of premiums, which are invested in infrastructure, industries, and other development projects, boosting economic growth.
Social Security and Stability: Insurance provides financial security to families in case of unexpected events, reducing the economic burden on the government.
Promotes Entrepreneurship: Entrepreneurs and small businesses are encouraged to take risks and expand their businesses, knowing that insurance provides financial support in case of losses.
Thus, insurance is an essential part of economic stability and growth, as it provides financial protection and contributes to the overall development of a country.
Or
Discuss the fundamental principles of Insurance. 10
Answer:
Insurance is based on several fundamental principles that ensure fairness and transparency between the insurer and the insured. The key principles are:
Utmost Good Faith (Uberrimae Fidei): Both the insurer and the insured must provide complete and truthful information while entering into an insurance contract. Any misrepresentation can lead to the rejection of claims.
Insurable Interest: The policyholder must have a financial interest in the insured object or person. For example, a person can take life insurance for themselves or their family but not for a stranger.
Indemnity: This principle applies to general insurance, ensuring that the insured is compensated only for the actual loss suffered, preventing any financial gain from insurance.
Contribution: If a person has multiple insurance policies covering the same risk, the compensation will be shared among the insurers in proportion to their coverage to prevent overcompensation.
Subrogation: After paying a claim, the insurer gets the legal right to recover the amount from any third party responsible for the loss. For example, in car insurance, if another driver causes an accident, the insurer can claim the amount from them.
Proximate Cause: Insurance covers only the nearest or most direct cause of a loss. If multiple causes lead to a loss, the insurer will compensate only if the covered event is the main reason for the damage.
Loss Minimization: The insured must take reasonable steps to prevent or minimize losses, such as using fire extinguishers in case of a fire.
These principles ensure that the insurance contract remains fair, legal, and effective in protecting both the insurer and the insured.
5). What do you understand by Double Accidental Benefit? Explain the different types of Insurance Premium Plan. 5+5=10
Answer:
Double Accidental Benefit (5 Marks):
Double Accidental Benefit is an additional feature in life insurance policies where the insurer pays twice the sum assured if the insured dies due to an accident. This benefit provides extra financial security to the insured’s family. Some key points about this benefit:
It applies only to accidental deaths, not natural deaths or illnesses.
It is usually available as a rider (add-on) with life insurance policies.
Some policies also offer coverage for permanent disability due to accidents.
There may be conditions and exclusions, such as death due to self-inflicted injuries or intoxication.
It helps provide higher financial compensation to the insured’s family in case of unexpected accidents.
Different Types of Insurance Premium Plans (5 Marks):
Insurance premiums are the amounts paid by the insured to keep their policy active. There are different types of premium plans:
Single Premium Plan: The insured pays the entire premium amount in one lump sum at the beginning of the policy term. It is suitable for those who prefer one-time payments.
Regular Premium Plan: The insured pays premiums at regular intervals (monthly, quarterly, or annually). This is the most common premium plan.
Limited Premium Plan: The insured pays premiums for a fixed number of years, but the policy remains active for a longer duration. This helps reduce long-term financial burden.
Level Premium Plan: The premium amount remains the same throughout the policy term, making it predictable and easier to manage.
Flexible Premium Plan: Some policies allow the insured to adjust their premium amount based on their financial situation, making it more convenient.
6). Each type of premium plan is designed to suit different financial needs and preferences of policyholders. 10
Answer:
Premium plans in insurance are structured to accommodate different financial situations and preferences. The main types of premium plans include:
Single Premium Plan: A lump sum payment is made at the start of the policy, ensuring lifelong coverage without the need for future payments. It is ideal for those who want to avoid periodic payments.
Regular Premium Plan: The policyholder pays premiums at fixed intervals (monthly, quarterly, or annually). This is the most common type of premium plan.
Limited Premium Plan: The insured pays premiums only for a certain number of years, while the coverage continues for a longer period. This is suitable for individuals who want to pay off their insurance early.
Level Premium Plan: The premium remains the same throughout the policy term, making it easy to budget for.
Flexible Premium Plan: Some policies allow policyholders to increase or decrease their premiums based on their financial situation.
Variable Premium Plan: Premiums may vary based on market conditions, especially in investment-linked policies.
Each of these premium plans caters to different financial capabilities and risk appetites, helping policyholders choose the most suitable option.
Or
Explain the procedure for taking life insurance. 10
Answer:
The process of obtaining a life insurance policy involves several steps to ensure proper risk assessment and contract agreement. The steps include:
Assessing Needs: The individual must evaluate their financial needs, liabilities, and future goals to determine the required insurance coverage.
Selecting a Policy: Various types of life insurance policies are available, such as term insurance, whole life insurance, and endowment plans. The applicant must choose a policy that aligns with their needs.
Filling the Proposal Form: The applicant must fill out a proposal form, providing personal, financial, and medical details.
Medical Examination: Many insurance companies require a medical check-up to assess the risk profile of the applicant. Some policies may not require medical tests.
Premium Calculation: Based on the applicant’s age, health, and coverage amount, the insurer calculates the premium payable.
Policy Underwriting: The insurance company reviews the application and medical reports to decide on policy approval, rejection, or modification.
Policy Issuance: If the application is approved, the insurer issues the policy document detailing the terms, conditions, and sum assured.
Payment of Premium: The insured pays the first premium to activate the policy.
Policy Confirmation: The policyholder receives the policy document and must review it for accuracy and completeness.
Free-Look Period: The policyholder has a limited time (usually 15 days) to review and cancel the policy if unsatisfied.
This procedure ensures that the policyholder understands their coverage and obligations before entering into a life insurance contract.
7). Define Fire Insurance. What are the various characteristics of fire insurance? 10
Answer:
Definition of Fire Insurance:
Fire insurance is a contract between the insured and the insurer, where the insurer agrees to compensate for financial losses due to fire-related damages to property, goods, or buildings. The policyholder pays a premium, and in return, the insurer provides coverage for fire accidents as per the policy terms.
Characteristics of Fire Insurance:
Contract of Indemnity: Fire insurance compensates for the actual loss suffered by the insured, ensuring no financial gain.
Coverage of Fire-Related Losses: The policy covers damages caused by accidental fire, lightning, and explosions but may exclude losses due to negligence or war.
Insurable Interest: The insured must have a financial interest in the property being insured, and this interest must exist both at the time of policy purchase and at the time of loss.
Principle of Subrogation: After compensating the insured, the insurer gets the right to recover the loss from any third party responsible for the fire.
Policy Term: Fire insurance policies are usually issued for one year, requiring annual renewal.
Premium Calculation: Premiums are based on the risk level, property value, and fire safety measures in place.
Conditions and Exclusions: Policies typically exclude damages caused by arson, riots, or intentional fire damage.
Fire insurance is essential for businesses and homeowners to protect against financial losses from fire accidents.
Or
Describe the different kinds of Marine Insurance Policy and its major contents. 10
Answer:
Kinds of Marine Insurance Policies:
Hull Insurance: Covers damages to the ship, including machinery, structure, and body. It is essential for shipowners.
Cargo Insurance: Protects the goods being transported via sea against loss or damage due to accidents, theft, or natural disasters.
Freight Insurance: Covers the loss of freight income if goods are damaged or lost during transit.
Liability Insurance: Protects shipowners from legal liabilities arising due to damages caused to third parties or passengers.
Voyage Policy: Covers a specific voyage from one place to another, regardless of time.
Time Policy: Provides coverage for a fixed period, usually one year, regardless of the number of voyages.
Floating Policy: Suitable for businesses involved in frequent shipments, covering multiple shipments under one policy.
Mixed Policy: A combination of voyage and time policies, offering coverage for a specific journey within a fixed period.
Major Contents of Marine Insurance Policy:
Name of the Insured: The person or entity purchasing the policy.
Type of Policy: Specifies whether it is cargo, hull, freight, or liability insurance.
Coverage Details: Defines the risks covered, such as fire, collision, sinking, and piracy.
Policy Duration: Specifies whether it covers a single voyage or a time period.
Sum Insured: The maximum amount payable in case of a loss.
Premium Amount: The payment required to maintain the policy.
Exclusions: Specifies risks that are not covered, such as war or negligence.
Claim Process: Describes the procedure for filing a claim and required documents.
Marine insurance is crucial for protecting ships, goods, and stakeholders involved in maritime trade.
8). Describe various forms of Insurance Organisation. Explain the Organizational Structure of General Office of Life Insurance Corporation of India. 5+5=10
Answer:
Forms of Insurance Organizations:
Public Sector Insurance: Government-owned insurance companies such as LIC, GIC, and New India Assurance provide life and general insurance.
Private Sector Insurance: Companies like HDFC Life, ICICI Prudential, and Bajaj Allianz operate independently under government regulations.
Cooperative Insurance Societies: These are member-based organizations that provide insurance at lower costs, such as the National Cooperative Insurance Federation.
Mutual Insurance Companies: Owned by policyholders who share profits, such as some health insurance cooperatives.
Reinsurance Companies: These companies provide insurance to other insurance companies to manage high-risk claims.
Organizational Structure of LIC General Office:
Chairman: The highest authority responsible for overall management.
Managing Directors (MDs): Oversee different operational areas like marketing, investment, and customer service.
Zonal Offices: LIC has multiple zonal offices to manage regional operations.
Divisional Offices: These handle branch operations and policy servicing.
Branch Offices: Direct interaction with customers for policy sales and claim settlements.
Development Officers and Agents: Work in the field to sell policies and provide customer support.
This hierarchical structure ensures smooth operations and efficient service delivery in LIC.
Or
9). Write down the procedures for becoming an insurance agent. 10
Answer:
Eligibility Criteria: The applicant must be at least 18 years old and should have completed at least 10th grade in rural areas or 12th grade in urban areas to qualify for becoming an insurance agent.
Choosing an Insurance Company: The applicant must select an insurance company such as LIC, HDFC Life, or ICICI Prudential, which will sponsor their application and provide necessary guidance.
Training Program: The applicant must undergo a mandatory training program of 15 to 25 hours from an IRDAI-approved training institute, where they will learn about insurance products, policies, claim procedures, and regulatory guidelines.
IRDAI Examination: After completing the training, the applicant must appear for the IRDAI Agent Licensing Examination conducted by the Insurance Institute of India, which tests their knowledge of insurance principles, laws, and selling ethics.
Application for License: Upon passing the IRDAI exam, the applicant must submit an application for an insurance agent license through their chosen insurance company, which forwards the request to IRDAI for approval.
Issuance of License: If the application is approved, IRDAI issues the agent license, officially authorizing the individual to sell insurance policies and provide related services.
Starting as an Insurance Agent: After receiving the license, the agent can start selling life, health, or general insurance policies and will earn a commission on each policy sold.
License Renewal and Compliance: The agent must periodically renew their license as per IRDAI regulations and may need to undergo refresher training to stay updated with industry changes.
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