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Odisha CHSE +2 Vocational Insurance study materials
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Odisha CHSE +2 Vocational Insurance practice questions

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Question 1Introduction to Insurance and Risk Management

In insurance terminology, what does the term 'risk' most precisely refer to?

  1. The total value of the insured property
  2. The premium paid to the insurer
  3. The uncertainty about the occurrence of a loss Correct answer.
  4. The legal contract between insurer and insured

Explanation

In insurance and risk management, risk means the uncertainty surrounding the possibility of a loss occurring. It is not the premium, the contract, or the property value, though each of those relates to how risk is handled. Understanding this distinction is the foundation for studying insurable risk.

Question 2Introduction to Insurance and Risk Management

Which of the following is a pure risk rather than a speculative risk?

  1. Return earned on a new business venture
  2. Profit from investing in shares
  3. Gain from a rise in property prices
  4. Loss caused by a fire in a godown Correct answer.

Explanation

Pure risks involve only the possibility of loss or no loss, with no chance of gain, and fire damage is the classic example. Speculative risks, such as share trading or new ventures, carry the possibility of both profit and loss. Insurance is designed mainly to handle pure risks.

Question 3Introduction to Insurance and Risk Management

A trader's factory and the adjoining warehouse both belong to him, and a single fire could damage both. This situation illustrates which concept?

  1. Concentration of risk Correct answer.
  2. Diversification of risk
  3. Transfer of risk
  4. Avoidance of risk

Explanation

When several exposures are gathered in one place or under one ownership, a single event can affect all of them, which is concentration of risk. Diversification would spread exposures so one event affects only part. Transfer and avoidance describe responses to risk, not the physical grouping of exposures.

Question 4Introduction to Insurance and Risk Management

Which characteristic must a risk possess to be considered insurable by a private insurer?

  1. The loss must be accidental and measurable in money Correct answer.
  2. The loss must be intentionally caused by the insured
  3. The loss must be certain to happen within the policy period
  4. The loss must occur regularly to every policyholder

Explanation

Insurable risks generally involve accidental events whose financial loss can be measured, because indemnity requires a quantifiable amount. Losses that are certain, deliberate, or universal defeat the pooling logic of insurance. Measurability and fortuity are therefore central requirements.

Question 5Introduction to Insurance and Risk Management

An individual pays a small annual premium so that a large fire loss would be borne by the insurer. Which method of handling risk is this?

  1. Risk transfer Correct answer.
  2. Risk retention
  3. Risk reduction
  4. Risk avoidance

Explanation

Buying insurance transfers the financial consequences of a specified risk to the insurer in exchange for a premium. Retention means keeping the risk, avoidance means not undertaking it, and reduction means lowering its frequency or severity. Insurance is therefore classified as a transfer technique.

Question 6Introduction to Insurance and Risk Management

Which of the following describes 'risk avoidance' as a risk management technique?

  1. Buying a marine insurance policy for cargo
  2. Deciding not to store fireworks in a retail premises Correct answer.
  3. Installing a fire extinguisher in a shop
  4. Setting aside a reserve for small losses

Explanation

Risk avoidance means not undertaking the activity that creates the exposure, so refusing to store fireworks eliminates that fire risk entirely. Installing extinguishers reduces severity, insurance transfers the burden, and reserves are retention. Only the decision to abstain is avoidance.

Question 7Introduction to Insurance and Risk Management

In risk management, what is meant by 'risk retention'?

  1. Deliberately keeping the financial consequences of a risk Correct answer.
  2. Paying a third party to accept the risk
  3. Shifting the risk to an insurance company
  4. Eliminating the activity that causes the risk

Explanation

Risk retention occurs when the person or firm keeps the financial consequences of a risk, either knowingly or by default. Small, frequent losses are often retained because insuring them would be uneconomic. Transferring to an insurer is the opposite technique.

Question 8Introduction to Insurance and Risk Management

Which of the following is the best example of risk reduction rather than risk transfer?

  1. Taking out a standard fire policy
  2. Buying personal accident cover
  3. Fitting a sprinkler system in a textile mill Correct answer.
  4. Paying a premium to a reinsurer

Explanation

Risk reduction lowers either the chance of a loss or its severity, and sprinklers limit fire damage. Taking out policies or reinsurance shifts the financial burden to another party, which is transfer. Reduction acts on the exposure itself before any loss occurs.

Question 9Introduction to Insurance and Risk Management

What is the primary purpose of the principle of indemnity in insurance?

  1. To punish the insurer for delaying settlement
  2. To guarantee a fixed sum regardless of actual loss
  3. To place the insured in the same financial position as before the loss Correct answer.
  4. To allow the insured to make a profit from the claim

Explanation

Indemnity restores the insured to approximately the financial position held immediately before the loss, no better and no worse. It prevents profit from insurance, which would create a moral hazard. The sum insured is a ceiling, not an automatic payout.

Question 10Introduction to Insurance and Risk Management

Which principle requires the insured to disclose all material facts about the risk before the contract is made?

  1. Subrogation
  2. Proximate cause
  3. Utmost good faith Correct answer.
  4. Contribution

Explanation

Utmost good faith obliges the proposer to disclose every material fact that would influence an insurer's decision on acceptance or premium. Contribution and subrogation govern how losses are shared or recovered after a claim. Proximate cause identifies the dominant cause of a loss.

Question 11Introduction to Insurance and Risk Management

An insured deliberately conceals a serious illness while proposing for a life policy. Which principle is most directly breached?

  1. Utmost good faith Correct answer.
  2. Contribution
  3. Insurable interest
  4. Average clause

Explanation

Concealing a material fact that affects the assessment of risk is a breach of the duty of utmost good faith. Insurable interest concerns the legal relationship to the subject matter, while contribution and average clauses deal with settlement mechanics. Non-disclosure can allow the insurer to avoid the contract.

Question 12Introduction to Insurance and Risk Management

Insurable interest in a property insurance contract must generally exist at which point?

  1. At any time after the policy is issued
  2. At the time of the loss Correct answer.
  3. Only at the time the proposal is signed
  4. Only when the claim is settled

Explanation

For property insurance, insurable interest must exist at the time of the loss, because the insured can only be indemnified if he suffers a loss then. In life insurance the interest must exist at inception. Timing is a commonly tested distinction between the two branches.

Question 13Introduction to Insurance and Risk Management

An insurer pays a claim for damage caused by a negligent third party and then sues that third party in the insured's name. Which principle is being applied?

  1. Indemnity
  2. Contribution
  3. Subrogation Correct answer.
  4. Proximate cause

Explanation

Subrogation gives the insurer the right to step into the insured's shoes and recover the loss from the responsible third party after paying the claim. It supports indemnity by preventing double recovery. Contribution would involve other insurers, not a third party.

Question 14Introduction to Insurance and Risk Management

A loss is covered by two fire policies with the same insurer and the same subject matter, and the insured cannot recover more than the actual loss. Which principle prevents double recovery?

  1. Subrogation
  2. Insurable interest
  3. Contribution Correct answer.
  4. Utmost good faith

Explanation

Contribution requires insurers covering the same loss to share it so the insured receives only an indemnity, never more than the actual loss. Each insurer pays its rateable proportion. Subrogation concerns recovery from a third party, not between insurers.

Question 15Introduction to Insurance and Risk Management

A fire policy covers loss by fire, and a building collapses because the fire weakened its walls. Which principle helps decide that the fire is the effective cause?

  1. Subrogation
  2. Contribution
  3. Proximate cause Correct answer.
  4. Indemnity

Explanation

Proximate cause identifies the dominant and effective cause of a loss, ignoring minor or remote causes. Where a fire weakens a structure and it collapses, fire is generally treated as the proximate cause. The other principles govern sharing, recovery, and the measure of indemnity.

Question 16Introduction to Insurance and Risk Management

Which type of insurance is primarily intended to provide protection against liability to third parties?

  1. Fire insurance on a godown
  2. Personal accident insurance
  3. Motor third-party liability insurance Correct answer.
  4. Marine hull insurance

Explanation

Motor third-party liability cover protects the insured against legal liability for injury or damage caused to others. Hull insurance covers the vessel itself, fire insurance covers property, and personal accident cover pays the insured for his own injury. Liability insurance is therefore the correct category.

Question 17Introduction to Insurance and Risk Management

Which of the following is a characteristic of life insurance that distinguishes it from general insurance?

  1. It is a contingent contract based on human life Correct answer.
  2. It is a contract of indemnity
  3. It covers only fire and marine perils
  4. It requires insurable interest at the time of loss

Explanation

Life insurance is not a contract of indemnity because a human life cannot be valued in money; the sum assured is paid as a benefit. Insurable interest is required at inception, not at the time of loss. General insurance, by contrast, applies indemnity and covers property and liability perils.

Question 18Introduction to Insurance and Risk Management

What is the main function of an insurance premium?

  1. It is the consideration paid by the insured for the cover Correct answer.
  2. It is a penalty charged for late claim settlement
  3. It is a deposit refundable at the end of the policy
  4. It is the amount the insurer pays on a total loss

Explanation

The premium is the consideration the insured pays in exchange for the insurer's promise to indemnify covered losses. It funds the pool from which claims and expenses are met. It is not the claim amount, a penalty, or a refundable deposit.

Question 19Introduction to Insurance and Risk Management

An insurer collects premiums from many policyholders and pays claims from that fund. Which mechanism of insurance does this describe?

  1. Avoidance of risks
  2. Pooling of risks Correct answer.
  3. Retention
  4. Speculation

Explanation

Pooling means many policyholders contribute premiums so that the losses of the few are shared by the many, which is the core mechanism of insurance. Avoidance and retention are risk techniques, while speculation involves the chance of gain. Pooling spreads the burden of losses.

Question 20Introduction to Insurance and Risk Management

Which of the following best describes a reinsurance arrangement?

  1. An insurer transfers part of its risk to another insurer Correct answer.
  2. A bank guarantees a loan to an insured
  3. A policyholder shares risk with other policyholders
  4. An insured transfers risk to a broker

Explanation

Reinsurance is insurance for insurers, in which the ceding insurer transfers part of its risk to a reinsurer in exchange for a share of premium. It protects the insurer against large or accumulated losses. It is not a broker's role, a bank guarantee, or direct sharing between policyholders.

Question 21Introduction to Insurance and Risk Management

A person takes a housing loan and, at the same time, insures his life so the loan can be repaid if he dies. Which concept explains why the lender requires this cover?

  1. Proximate cause of default
  2. Insurable interest in the life of the borrower Correct answer.
  3. Avoidance of the loan risk
  4. Contribution between lenders

Explanation

A lender has a financial interest in the life of the borrower to the extent of the outstanding loan, which supports insurable interest. Insurance protects the lender against the risk of default caused by death. Avoidance, contribution, and proximate cause do not explain this requirement.

Question 22Introduction to Insurance and Risk Management

Which of the following risks is generally considered uninsurable by a private insurer?

  1. Loss from a change in government policy Correct answer.
  2. Loss from a road accident
  3. Loss from a marine perils on a voyage
  4. Loss from a factory fire

Explanation

Risks that are widespread, non-accidental, or beyond the insurer's ability to measure, such as political or policy changes, are generally uninsurable privately. Fire, marine perils, and road accidents are accidental and measurable, so they are insurable. Insurability depends on fortuity and measurability.

Question 23Introduction to Insurance and Risk Management

What is the role of the sum insured in a fire policy?

  1. It is the annual premium payable by the insured
  2. It is the commission paid to an agent
  3. It is the maximum amount the insurer will pay for a loss Correct answer.
  4. It is the amount of excess the insured must bear

Explanation

The sum insured represents the maximum liability of the insurer and is usually linked to the value of the property. If the property is under-insured, the average clause may reduce the claim proportionately. It is not the premium, the excess, or an agent's commission.

Question 24Introduction to Insurance and Risk Management

A shop is insured for Rs 2,00,000 while its actual value is Rs 4,00,000, and a fire causes a loss of Rs 1,00,000. Under the average clause, what amount is payable?

  1. Rs 2,00,000
  2. Rs 50,000 Correct answer.
  3. Rs 4,00,000
  4. Rs 1,00,000

Explanation

The average clause applies the ratio of sum insured to actual value: Rs 2,00,000 divided by Rs 4,00,000 equals one half, so half of the Rs 1,00,000 loss, that is Rs 50,000, is payable. This discourages under-insurance. The full loss is not paid because the property was insured for only half its value.

Question 25Insurance Contract Principles and Legal Framework

Under the Indian Contract Act, 1872, which element is essential for an insurance contract to be legally enforceable?

  1. Payment of premium in a single instalment
  2. Approval by the Insurance Regulatory and Development Authority of India
  3. Free consent of the parties Correct answer.
  4. Registration of the policy with a court

Explanation

An insurance contract is a contract like any other, so it must satisfy the essentials of Section 10 of the Indian Contract Act, including offer, acceptance, lawful consideration and free consent. Regulatory approval of the product and IRDAI registration are compliance matters, not elements of the contract itself.

Question 26Insurance Contract Principles and Legal Framework

Which feature distinguishes a contract of insurance from an ordinary commercial sale contract?

  1. It requires the insured to make a profit
  2. It is based on the principle of utmost good faith Correct answer.
  3. It can be cancelled only by a court order
  4. It transfers ownership of goods to the insurer

Explanation

Insurance is a contract uberrimae fidei, meaning both parties must disclose all material facts fully and honestly because the insurer relies on information supplied by the proposer. An ordinary sale contract does not impose this heightened duty of disclosure.

Question 27Insurance Contract Principles and Legal Framework

A fire policy covering a factory is an example of which type of insurance contract?

  1. A contract of life annuity
  2. A wagering contract
  3. A contract of indemnity Correct answer.
  4. A contract of guarantee

Explanation

Property and fire insurance are contracts of indemnity: the insurer restores the insured to the same financial position as before the loss, subject to the sum insured. Life insurance, by contrast, is treated as a benefit contract rather than a strict indemnity.

Question 28Insurance Contract Principles and Legal Framework

In insurance terminology, what does the principle of insurable interest require?

  1. The insured must nominate a beneficiary who owns the asset
  2. The insured must benefit from the preservation of the subject matter and suffer loss from its damage Correct answer.
  3. The insurer must have a financial stake in the insured's business
  4. The insured must own the asset absolutely

Explanation

Insurable interest means the insured stands in a legally recognised relationship to the subject matter such that its safety benefits the insured and its loss causes pecuniary disadvantage. Absolute ownership is not required, as a mortgagee, bailee or tenant may hold insurable interest.

Question 29Insurance Contract Principles and Legal Framework

The principle of subrogation in a contract of indemnity allows the insurer, after paying a claim, to:

  1. Recover the whole sum insured from the insured
  2. Cancel the policy without notice
  3. Step into the insured's shoes and pursue the third party who caused the loss Correct answer.
  4. Increase the premium retrospectively

Explanation

Subrogation is a corollary of indemnity: once the insurer has compensated the insured, it acquires the insured's right of recovery against the negligent third party, up to the amount paid. This prevents the insured from recovering twice for the same loss.

Question 30Insurance Contract Principles and Legal Framework

Which doctrine prevents an insured from recovering more than the actual amount of loss under an indemnity policy?

  1. Indemnity Correct answer.
  2. Contribution
  3. Utmost good faith
  4. Proximate cause

Explanation

Indemnity limits recovery to the actual financial loss suffered, so the insured cannot profit from insurance. Contribution, by contrast, operates between insurers when more than one policy covers the same loss.

Question 31Insurance Contract Principles and Legal Framework

When a proposal form is completed and submitted to an insurer, in contractual terms the proposer has made:

  1. A warranty
  2. An offer Correct answer.
  3. A counter-offer
  4. An acceptance

Explanation

The completed proposal constitutes an offer to buy insurance on the terms stated. Acceptance occurs when the insurer issues the policy or otherwise communicates unconditional acceptance, at which point the contract is concluded.

Question 32Insurance Contract Principles and Legal Framework

An insurer issues a policy after receiving the first premium and the proposal. Which legal position is correct?

  1. The contract exists only after the first claim is filed
  2. The contract is unenforceable until the policy is stamped by a bank
  3. The contract is void because the policy was not signed by the insured
  4. The contract is concluded when acceptance is communicated and consideration passes Correct answer.

Explanation

A contract of insurance is complete when the insurer communicates acceptance and premium is paid or promised, which is the consideration. The policy document is evidence of the contract, not the contract itself.

Question 33Insurance Contract Principles and Legal Framework

A proposer conceals a known heart condition while taking a life policy. The insurer may later:

  1. Transfer the policy to another insurer
  2. Only reduce the premium
  3. Be compelled to pay the full sum assured
  4. Avoid the contract on grounds of non-disclosure of a material fact Correct answer.

Explanation

Health details are material facts, and concealment breaches the duty of utmost good faith, giving the insurer the right to avoid the contract. The remedy is rescission of the policy, not merely a premium adjustment.

Question 34Insurance Contract Principles and Legal Framework

Which of the following best describes a warranty in an insurance contract?

  1. A statement or promise whose breach entitles the insurer to repudiate liability Correct answer.
  2. A promotional assurance by the agent
  3. An optional endorsement the insured may ignore
  4. A verbal estimate of the sum insured

Explanation

A warranty is a condition forming part of the contract, and its breach allows the insurer to avoid liability from the date of breach. Warranties may be express or implied and relate to facts or promises.

Question 35Insurance Contract Principles and Legal Framework

An insured's factory is damaged partly by fire and partly by an earthquake, and the policy covers fire but excludes earthquake. The insurer's liability is decided by:

  1. The rule of subrogation
  2. The principle of contribution
  3. The principle of salvage
  4. The doctrine of proximate cause Correct answer.

Explanation

Proximate cause identifies the dominant, effective cause of the loss, and coverage depends on whether that cause is insured or excluded. If fire is the proximate cause, the claim is payable despite an excluded contributing factor.

Question 36Insurance Contract Principles and Legal Framework

A building worth ₹50 lakh is insured for ₹25 lakh under an average clause policy and suffers a loss of ₹10 lakh. What amount is payable?

  1. ₹25 lakh
  2. ₹10 lakh
  3. ₹2.5 lakh
  4. ₹5 lakh Correct answer.

Explanation

Under the average clause, the claim is reduced in the proportion of sum insured to value: ₹10 lakh × (₹25 lakh ÷ ₹50 lakh) = ₹5 lakh. This penalises under-insurance by making the insured bear a share of the loss.

Question 37Insurance Contract Principles and Legal Framework

The principle of contribution applies when:

  1. The insurer seeks to recover from a negligent third party
  2. Two or more policies cover the same subject matter and the same risk Correct answer.
  3. The policy contains an arbitration clause
  4. The insured has under-insured the property

Explanation

Contribution allows an insurer that has paid a claim to recover a proportionate share from other insurers covering the same interest and peril. It prevents the insured from recovering more than the loss and distributes the burden equitably.

Question 38Insurance Contract Principles and Legal Framework

After paying a total loss claim, an insurer takes over the damaged vehicle and sells it as scrap. This right is known as:

  1. Reinsurance
  2. Salvage Correct answer.
  3. Contribution
  4. Subrogation

Explanation

Salvage is the insurer's right to take over the remains of the insured property after paying a total loss, so that the insured does not retain both the claim amount and the residual asset. Subrogation, by contrast, concerns recovery rights against third parties.

Question 39Insurance Contract Principles and Legal Framework

A policyholder fails to disclose a previous claim rejection while applying for motor insurance. This most directly affects which contractual requirement?

  1. Insurable interest
  2. Proximate cause
  3. Payment of premium
  4. Disclosure of material facts Correct answer.

Explanation

Past claim history and rejection are material facts that influence the insurer's underwriting decision, so suppression breaches the duty of disclosure. The insurer may avoid the policy or repudiate a related claim.

Question 40Insurance Contract Principles and Legal Framework

Which of the following is generally regarded as a material fact that a proposer must disclose for a health insurance policy?

  1. The proposer's favourite sport
  2. A pre-existing chronic illness Correct answer.
  3. The colour of the proposer's house
  4. The proposer's monthly grocery budget

Explanation

Material facts are those that would influence a prudent insurer's decision on acceptance, terms or premium, and pre-existing illness directly affects health risk. Trivial personal preferences are not material.

Question 41Insurance Contract Principles and Legal Framework

The doctrine of insurable interest must exist at the time of the loss for which type of insurance?

  1. Life insurance
  2. Fire insurance on property Correct answer.
  3. Personal accident insurance
  4. Marine hull insurance

Explanation

For property and fire insurance, insurable interest must exist both at inception and at the time of loss, because the contract is one of indemnity. In life insurance, insurable interest is generally required at inception only.

Question 42Insurance Contract Principles and Legal Framework

An insured holds two fire policies on the same stock for identical sums and suffers a partial loss. What is the insured entitled to recover in total?

  1. Twice the loss from both insurers
  2. The actual loss, shared between the insurers Correct answer.
  3. The full sum insured from each insurer
  4. Nothing, because double insurance is illegal

Explanation

Double insurance is lawful, but the insured cannot profit from it; the loss is shared between the insurers under the principle of contribution. Total recovery is limited to the actual loss.

Question 43Insurance Contract Principles and Legal Framework

Which statement correctly describes the relationship between subrogation and indemnity?

  1. Subrogation allows the insurer to claim more than it paid
  2. Subrogation applies before the insurer pays the claim
  3. Subrogation is a corollary of indemnity and prevents double recovery Correct answer.
  4. Subrogation is available only in life insurance

Explanation

Subrogation flows from the indemnity principle: after paying the insured, the insurer acquires the insured's recovery rights against the third party so that the insured is not compensated twice. It cannot exceed the amount actually paid.

Question 44Insurance Contract Principles and Legal Framework

A term in a policy that limits the insurer's liability to a specified amount is best described as:

  1. A warranty
  2. An exclusion clause
  3. A condition precedent
  4. A limitation clause Correct answer.

Explanation

A limitation clause caps the amount the insurer will pay, whereas an exclusion clause removes specified perils or circumstances from cover altogether. Conditions precedent, by contrast, must be satisfied before liability arises.

Question 45Insurance Contract Principles and Legal Framework

An insured fails to give notice of loss within the period required by the policy. The insurer's strongest contractual argument is that the notice requirement is:

  1. A warranty of fact
  2. A condition precedent to liability Correct answer.
  3. A non-binding guideline
  4. An implied term of law

Explanation

Policies commonly make timely notice a condition precedent, meaning the insurer is not liable if it is not satisfied. Courts may nonetheless consider whether the insurer was prejudiced, so the argument is contractual rather than automatic.

Question 46Insurance Contract Principles and Legal Framework

Which of the following statements about a contract of life insurance is accurate?

  1. It is a benefit contract payable on the happening of an insured event Correct answer.
  2. It is a strict contract of indemnity
  3. It is void without a medical examination
  4. It requires proof of actual financial loss on death

Explanation

Life insurance is not a contract of indemnity because a human life cannot be valued in money; the sum assured is paid as a benefit on death or maturity. A medical examination may be required by the insurer but is not a legal condition of validity.

Question 47Insurance Contract Principles and Legal Framework

A policyholder assigns a life policy to a bank as security for a loan. Which statement is correct?

  1. Assignment automatically cancels the policy
  2. Assignment is void unless approved by the insured's nominee
  3. Assignment requires the insurer to refund all premiums
  4. Assignment transfers the policy rights to the assignee subject to the policy terms Correct answer.

Explanation

Assignment transfers the rights and benefits under the policy to the assignee, who steps into the assignor's position subject to the policy conditions. Notice to the insurer is important for it to be bound.

Question 48Insurance Contract Principles and Legal Framework

Under the Insurance Act, 1938, a nomination in a life policy serves to:

  1. Convert the policy into a joint policy
  2. Make the nominee liable for unpaid premiums
  3. Transfer ownership of the policy to the nominee
  4. Enable the nominee to receive the policy money on the death of the policyholder Correct answer.

Explanation

A nomination authorises the nominee to collect the policy proceeds on the death of the policyholder, but it does not transfer ownership of the policy. The nominee receives the money as a trustee for the legal heirs unless named as beneficial nominee.

Question 49Life Insurance Products and Practice

Under the standard structure of a life insurance contract, which party makes the premium payments and holds the rights to the policy benefits?

  1. The insurer
  2. The policyholder Correct answer.
  3. The beneficiary
  4. The underwriter

Explanation

The policyholder is the person who contracts with the insurer, pays the premiums and owns the rights under the policy, including the right to nominate a beneficiary. The insurer assumes the risk in exchange for premiums, while the beneficiary merely receives the death benefit.

Question 50Life Insurance Products and Practice

In a life insurance policy, the person whose death or survival triggers the payment of the benefit is known as the:

  1. Proposer
  2. Assignee
  3. Life assured Correct answer.
  4. Insurance agent

Explanation

The life assured is the individual on whose life the policy is written, and the insured event is measured against that person. The proposer may be a different person who applies for the policy, and the assignee receives rights through assignment.