Assam ASSEB HS Class 11-12 Insurance cheat sheet

Risk is uncertainty of financial loss; pure risk (fire, theft, liability) is insurable, speculative risk (share trading, gambling) is not.

Insurable risk tests: large number of similar exposure units, accidental and measurable loss, definite in time/place/amount, not catastrophic to the pool, premium economically affordable.

Risk management steps: identify exposures, measure frequency and severity, select technique (avoidance, retention, loss control, transfer), implement, monitor and review.

Risk control reduces frequency (safety training) or severity (sprinklers); risk financing funds residual losses via retention or insurance transfer.

Hazard increases the chance or size of loss: physical (loose wiring), moral (deliberate arson), morale (carelessness because insured).

Peril is the cause of loss (fire, flood); risk is the chance of loss; hazard is the condition that aggravates it.

Insurance pools homogeneous exposures: many pay small premiums so the few who suffer loss are compensated; law of large numbers stabilises predicted loss.

Functions of insurance: risk transfer, loss compensation, capital protection, credit security, savings and investment (life), employment and economic growth.

Insurance differs from gambling (insurable interest, no gain from loss) and from hedging (hedging offsets price movement in an existing exposure).

Insurable interest: the insured must gain from preservation and lose financially from the subject matter's loss; required at inception for life, at loss for property.

Indemnity restores the insured to pre-loss financial position, never better; life insurance and personal accident benefits are not contracts of indemnity.

Utmost good faith requires voluntary disclosure of all material facts; non-disclosure or misrepresentation makes the contract voidable at insurer's option.

Subrogation: after paying an indemnity, the insurer steps into the insured's legal rights against the third party causing loss; it cannot exceed the amount paid.

Contribution applies when two or more policies cover the same interest, peril and subject matter; each pays its rateable share so total does not exceed the loss.

Proximate cause is the dominant, effective cause linked in an unbroken chain to the loss; remote causes are ignored when deciding whether a peril is covered.

Warranty is a condition that must be exactly complied with; breach allows the insurer to avoid liability from the date of breach.

Doctrine of utmost good faith applies to both parties; insurer must disclose material terms and cannot use a proposal form to hide exclusions.

Essentials of a valid insurance contract: offer and acceptance, consideration (premium), capacity, free consent, lawful object, and insurable interest.

Proposal form is the offer; the insurer's acceptance (often signalled by issuing the policy and accepting premium) creates the contract.

Policy schedule shows parties, subject matter, sum insured, premium, period and endorsements; the wording contains clauses, conditions and exclusions.

Endorsement is a written amendment to a policy (change of address, sum insured, vehicle details); signed by the insurer and attached to the policy.

Conditions precedent to liability must be met before the insurer pays (e.g. prompt notice, proof of loss, no admission of liability).

Warranties and conditions differ: breach of warranty allows avoidance from breach date; breach of condition gives right to damages or avoidance for essential terms.

Utmost good faith duty continues after the proposal: material changes during the policy term must be disclosed.

Alteration clause, cancellation clause, arbitration clause and contribution clause define how disputes and changes are handled.

Renewal is not automatic: a fresh contract is created each renewal, and the duty of disclosure revives.

Life insurance is a contract of assurance, not indemnity: the sum assured is paid on death or maturity regardless of other assets.

Term plan pays only on death within the term, no maturity benefit; whole life covers the entire lifetime; endowment pays on death or survival at maturity.

ULIP combines investment with insurance: premiums split into risk cover and units; NAV-based fund value; lock-in and charges per IRDAI rules.

Premium components: mortality charge, expenses, savings/investment element; premium depends on age, health, occupation, sum assured and term.

Bonuses: simple reversionary bonus attaches to the sum assured and is paid at maturity/claim; final additional bonus is a one-time terminal addition.

Nomination names a person to receive the death benefit; nominee is a trustee for legal heirs unless a beneficial nominee is validly appointed under the Insurance Act.

Assignment transfers the policy's rights to another person; a life policy may be assigned by endorsement or separate instrument, with notice to the insurer.

Grace period is usually 15 days (monthly mode) or 30 days (other modes); policy lapses if premium is unpaid and revival needs evidence of health and arrears.

Suicide clause: death by suicide within the stated exclusion period (typically 12 months) limits the payout to premiums paid or a stated percentage.

Fire policy covers fire, lightning, explosion; standard fire and special perils policy adds storm, flood, riot, impact damage, subsidence and malicious damage.

Marine insurance covers hull (vessel), cargo (goods in transit) and freight; main perils are perils of the sea, fire, jettison, piracy, barratry.

Marine losses: total loss (actual or constructive) versus partial loss; general average requires sacrifice for common safety, particular average does not.

Motor insurance: third-party liability is compulsory; own damage covers the insured vehicle; personal accident cover for owner-driver is mandated.

Motor no-claim bonus is a discount on own damage premium for claim-free years (20% to 50%); it is forfeited after a claim and protected by a No Claim Bonus retention rule.

Health insurance: cashless facility at network hospitals, pre-authorisation, waiting periods for pre-existing diseases, sub-limits and room-rent caps.

Personal accident policy pays fixed benefits for death, disablement and temporary total disablement; it is not an indemnity and applies worldwide unless restricted.

Rural and micro-insurance: micro-insurance products have low sum insured, simplified terms and are distributed via micro-agents; rural sector obligations require insurers to cover specified rural business percentages.

Agents represent the insurer and are licensed by IRDAI after training and examination; they sell and service policies but cannot bind customised rates.

Brokers are licensed intermediaries who represent the insured, compare products of multiple insurers and must maintain professional indemnity cover.

Corporate agents (banks, NBFCs, co-operatives) distribute products of one or more insurers under an agency agreement; bancassurance is bank-led distribution.

Bancassurance models: referral, corporate agency and broker; the bank earns commission and must disclose it to the customer.

Web aggregators and online portals compare and display products; they cannot advise or sell without a licence as an intermediary.

Insurance marketing firms, third-party administrators (health claims) and surveyors/loss assessors are separate licensed roles with defined functions.

Commission limits are prescribed by IRDAI regulation; commission and remuneration must be disclosed and cannot be paid to unlicensed persons.

Tied agency cannot represent multiple life insurers; an agent may hold a licence for life and general simultaneously with separate examinations.

Underwriting assesses and classifies risk: accept at standard rate, accept with loading or exclusion, or decline; decision uses proposal, medicals and financial evidence.

Rating factors: age, health, occupation, sum insured, deductible, claims history; general insurance uses exposure base (value, turnover, vehicle cubic capacity).

Deductible/excess is the first part of each loss borne by the insured, reducing premium; franchise is a threshold below which no claim is paid at all.

Reinsurance transfers part of the risk to another insurer; facultative is case-by-case, treaty is automatic for a defined portfolio.

Claims process: intimation, registration, surveyor/loss assessor appointment (general), investigation, documentation, assessment, settlement or repudiation with reasons.

Surveyor report is mandatory for general insurance claims above the prescribed threshold; cashless health claims use pre-authorisation by the TPA or insurer.

Repudiation must be communicated in writing with reasons; the insured can escalate to the insurer's grievance officer, then IRDAI grievance cell or ombudsman.

Claim settlement ratio and turnaround time are disclosure metrics published by insurers; interest applies on delayed settlement under the Insurance Act.

IRDAI is the statutory regulator under the Insurance Regulatory and Development Authority Act, 1999; it licenses insurers, intermediaries, products and sets solvency and conduct norms.

Insurance Act, 1938 provides the basic legal framework; other key instruments are the IRDAI Act 1999 and the Insurance Laws (Amendment) Act, 2015.

Solvency margin: insurers must maintain assets over liabilities at the prescribed control level (currently 150% of required solvency).

Policyholder rights: full policy copy, premium receipt, disclosure of terms, free look period (15 days, 30 days for distance marketing) to cancel a new policy.

Grievance redressal: first complain to the insurer's Grievance Redressal Officer; if unresolved in 30 days, approach the Insurance Ombudsman or IRDAI's online grievance portal.

Insurance Ombudsman handles complaints up to the prescribed monetary limit, free of charge, with an award binding on the insurer if accepted by the complainant.

Mis-selling and unfair trade practices are regulatory offences; the regulator can impose penalties, cancel licences and direct refunds.

Know Your Customer (KYC), anti-money laundering and premium payment in insured's name are mandatory compliance requirements.

Market structure: life and general insurers (public and private), reinsurer, intermediaries, TPAs and the regulator; foreign investment is permitted up to the prescribed limit.

Insurance penetration = premium as a percentage of GDP; insurance density = premium per capita; both are used to compare markets.

Distribution mix in India is dominated by agency and bancassurance; digital and micro-insurance channels are growing fastest in rural segments.

Ethical duties: suitability of product, honest disclosure of exclusions, confidentiality of client data, no rebating of commission, no misrepresentation of returns.

Rebating (sharing commission with a client) is an offence under the Insurance Act and can lead to licence cancellation.

Career paths: agent, broker, corporate agent, underwriter, actuary, surveyor/loss assessor, TPA claims handler, compliance officer, risk manager.

Actuarial profession requires passing examinations of the Institute of Actuaries of India; surveyors need IRDAI licence and specified experience.

Liberalised pricing and product innovation have shifted competition from tariff to service, claims speed and customer trust.