Insurance Fundamentals and Products
Insurance Fundamentals and Products
This domain tests the principles that make an insurance contract enforceable and the product features that determine whether a claim is paid. Expect life and general insurance, IRDAI regulation, and claim calculations.
Core rules and concepts
- Insurance pools similar risks; the premium reflects expected claims, expenses and risk load.
- Insurable interest means the policyholder gains from the subject’s survival and loses from its loss.
- Utmost good faith requires full disclosure of material facts.
- Indemnity restores the insured to the pre-loss financial position; it applies to general insurance, not to life insurance.
- Subrogation lets the insurer step into the insured’s recovery rights after paying an indemnity; contribution shares a loss among policies covering the same interest.
- Life products include term, endowment and ULIP; general products include health, motor, fire and marine.
Worked example
A fire policy has sum insured ₹8 lakh on property worth ₹10 lakh. A loss of ₹4 lakh occurs, and the policy applies the average clause. The claim is ₹4 lakh × ₹8 lakh ÷ ₹10 lakh = ₹3.2 lakh. Reasoning: the property is underinsured by 20%, so the insured bears the same proportion of the loss. Without the average clause, the insurer may pay up to the sum insured, subject to policy terms.
Traps that cost marks
- Applying indemnity to a death claim under life insurance.
- Confusing subrogation with contribution.
- Ignoring exclusions, waiting periods and deductibles.
- Treating ULIP returns as guaranteed; investment risk sits with the policyholder.