Practice of General Insurance
This domain examines how general insurance policies are built and how their terms affect a claim. Expect questions on policy documents, sum insured, basis of settlement, average, excess, warranties and endorsements.
Core rules
- A policy normally contains the proposal, schedule, operative clause, exclusions and conditions. The schedule fixes the insured, period, sum insured and excess.
- The sum insured is the insurer's maximum liability; it is not automatically the value of the property. A valued policy agrees the value in advance.
- Indemnity settlements use market value; reinstatement settlements replace new for old, but the sum insured must reflect reinstatement value.
- The average clause reduces a claim when the sum insured is less than the value at risk: claim = (sum insured ÷ value at risk) × loss.
- An excess is the first amount of each loss borne by the insured. A franchise is different: if the loss exceeds the franchise, the whole loss is paid.
- Warranties are strict; breach can discharge liability. Endorsements change cover and must be checked before settlement.
Worked example
Stock is insured for ₹80 lakh on market value. At the time of loss the stock is worth ₹100 lakh. Fire destroys stock worth ₹20 lakh, and the policy has a ₹50,000 excess. Average applies: 80/100 × 20 = ₹16 lakh. Deduct the excess: ₹16 lakh − ₹0.5 lakh = ₹15.5 lakh.
Traps
Do not use a reinstatement sum insured for a market-value settlement. Do not forget average or excess. Do not treat a franchise as an excess. Do not assume a cover note lasts indefinitely. Always check exclusions and endorsements.