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IC-38 General practice questions

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Question 1General Insurance Agents Licensing Examination (IC-38) content

Under the Insurance Act, 1938, within how many days must an insurer issue a policy document to a policyholder after acceptance of the proposal and receipt of premium?

  1. Ninety days
  2. Sixty days
  3. Thirty days Correct answer.
  4. Forty-five days

Explanation

Indian motor and general insurance regulations require the insurer to issue the policy document within thirty days of acceptance of risk and receipt of premium. Failure to do so obliges the insurer to refund the premium without interest if the customer declines to wait. This protects the insured from indefinite delay after payment.

Question 2General Insurance Agents Licensing Examination (IC-38) content

Which principle of insurance holds that the insured must not profit from an indemnity policy but should be restored approximately to the pre-loss financial position?

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

Explanation

The principle of indemnity limits recovery under non-life policies to the actual financial loss suffered, preventing gain from misfortune. It is the reason depreciation is deducted in property claims and why sum insured caps recovery. Utmost good faith and insurable interest are separate principles with different functions.

Question 3General Insurance Agents Licensing Examination (IC-38) content

A person takes a fire policy on a building and later sells the building. What happens to the insurable interest of the seller in that policy?

  1. It doubles because both parties now have an interest
  2. It ceases on transfer of ownership unless assigned with insurer consent Correct answer.
  3. It automatically transfers to the buyer without any formality
  4. It continues until the policy expiry date

Explanation

Insurable interest in property must exist at the time of loss, and a seller who has parted with ownership no longer stands to suffer financial loss. The policy is personal to the insured and does not follow the property automatically. Transfer requires assignment with the insurer's consent as per policy conditions.

Question 4General Insurance Agents Licensing Examination (IC-38) content

In a fire insurance claim, the insurer applies the average clause. What is the purpose of this clause?

  1. To waive the deductible in total loss cases
  2. To penalise underinsurance by scaling down the claim in the ratio of sum insured to property value Correct answer.
  3. To reward the insured for maintaining a high sum insured
  4. To transfer the loss to a reinsurer automatically

Explanation

The average clause applies when the sum insured is less than the value of the property at risk, reducing the claim proportionately. This prevents an underinsured person from recovering fully as if adequately covered. The insured effectively bears a share of the loss equal to the shortfall.

Question 5General Insurance Agents Licensing Examination (IC-38) content

Which document is issued by an insurer as evidence of cover when the formal policy is not yet ready but risk has been accepted?

  1. A renewal notice
  2. A claim form
  3. A proposal form
  4. A cover note Correct answer.

Explanation

A cover note is temporary evidence that insurance has been effected and states the period and scope of cover. It protects the insured from the moment risk is accepted until the policy document is issued. It is not a substitute for the full policy terms in the long run.

Question 6General Insurance Agents Licensing Examination (IC-38) content

An insured conceals a material fact about a pre-existing fire hazard while proposing for property insurance. The insurer may avoid the contract on which ground?

  1. Operation of the contribution clause
  2. Breach of warranty of seaworthiness
  3. Non-disclosure of a material fact Correct answer.
  4. Doctrine of subrogation

Explanation

Insurance contracts are based on utmost good faith, requiring the proposer to disclose all material facts that would influence the underwriter's decision. Deliberate concealment of a fire hazard entitles the insurer to avoid the policy. Subrogation and contribution operate at the claims stage and are unrelated to disclosure at proposal.

Question 7General Insurance Agents Licensing Examination (IC-38) content

What is the primary function of reinsurance for a direct general insurer?

  1. To transfer a portion of risk to another insurer and protect solvency Correct answer.
  2. To reduce the premium charged to policyholders to zero
  3. To increase the number of agents appointed
  4. To eliminate the need for underwriting guidelines

Explanation

Reinsurance allows a direct insurer to cede part of its risk to a reinsurer, capping exposure on large or catastrophic losses. This protects capital and solvency and enables the insurer to accept risks larger than its own capacity. It also stabilises results across fluctuating claim experience.

Question 8General Insurance Agents Licensing Examination (IC-38) content

A marine cargo policy covers goods from the seller's warehouse to the buyer's warehouse. Which type of cover does this represent?

  1. Valued policy
  2. Floating policy
  3. Voyage policy Correct answer.
  4. Time policy

Explanation

A voyage policy insures goods for a specific transit from one place to another, such as warehouse to warehouse. A time policy instead covers the subject for a defined period regardless of voyages. Floating policies cover multiple unspecified shipments within an agreed limit.

Question 9General Insurance Agents Licensing Examination (IC-38) content

In motor insurance, which policy type is mandatory before a vehicle can be lawfully used on a public road in India?

  1. Engine protection cover
  2. Private car package policy
  3. Third-party liability policy Correct answer.
  4. Zero depreciation add-on cover

Explanation

The Motor Vehicles Act requires at least third-party liability cover for any motor vehicle used in a public place. This statutory cover protects the insured against liability for death, injury or property damage caused to third parties. Own-damage and add-on covers are optional commercial products.

Question 10General Insurance Agents Licensing Examination (IC-38) content

Under a motor third-party liability policy, what does the insurer undertake to pay?

  1. The insured's fuel expenses during repairs
  2. Compensation for death, bodily injury or property damage caused to third parties Correct answer.
  3. Repair costs of the insured's own vehicle
  4. Depreciation on the insured vehicle

Explanation

Third-party liability cover indemnifies the insured against legal liability for death, bodily injury or property damage caused to others by the insured vehicle. It does not cover damage to the insured's own vehicle, which requires own-damage cover. Compensation is subject to the limits and provisions of the Motor Vehicles Act.

Question 11General Insurance Agents Licensing Examination (IC-38) content

In a health insurance policy, what is the typical purpose of a pre-authorisation requirement for planned hospitalisation?

  1. To compel the insured to pay the entire bill personally
  2. To reduce the sum insured permanently
  3. To allow the insurer to verify medical necessity and estimate costs before admission Correct answer.
  4. To cancel the policy on the day of admission

Explanation

Pre-authorisation lets the insurer review the proposed treatment and estimated cost before a planned admission. This confirms medical necessity, checks policy coverage and enables cashless settlement. It does not alter the sum insured or cancel cover.

Question 12General Insurance Agents Licensing Examination (IC-38) content

What does the waiting period in a health insurance policy generally signify?

  1. The time taken by the insurer to issue the policy
  2. The time allowed to pay the renewal premium
  3. The period after which the policy lapses automatically
  4. A period during which specified illnesses or conditions are not covered Correct answer.

Explanation

A waiting period is a specified initial duration during which certain illnesses, pre-existing diseases or treatments are excluded from cover. It protects the insurer from immediate claims on conditions that existed before inception. Claims for those conditions become payable only after the waiting period is completed.

Question 13General Insurance Agents Licensing Examination (IC-38) content

A shopkeeper insures stock against fire for Rs 10 lakh when the actual value is Rs 20 lakh. A fire causes a loss of Rs 4 lakh. If the average clause applies, what amount is payable, ignoring deductibles?

  1. Rs 2 lakh Correct answer.
  2. Rs 4 lakh
  3. Rs 1 lakh
  4. Rs 3 lakh

Explanation

The average clause reduces the claim in the proportion of sum insured to property value, which here is 10/20, or one-half. Half of the Rs 4 lakh loss is Rs 2 lakh, so the insured bears the remaining Rs 2 lakh as the underinsurance penalty. This confirms that the insured cannot recover in full while underinsured.

Question 14General Insurance Agents Licensing Examination (IC-38) content

In insurance terminology, what is a deductible?

  1. The total premium paid over the policy term
  2. The maximum sum insured available under a policy
  3. The commission paid to an agent
  4. The amount of loss the insured must bear before the insurer pays Correct answer.

Explanation

A deductible is the initial portion of each loss that the insured agrees to bear, reducing the claim payable by the insurer. It discourages small claims and lowers the premium. It is distinct from the sum insured, which is the maximum limit of liability.

Question 15General Insurance Agents Licensing Examination (IC-38) content

Which of the following best describes subrogation in general insurance?

  1. The reinsurer's right to cancel the treaty
  2. The insured's right to claim from more than one insurer
  3. The insurer's right to step into the insured's shoes and recover from a negligent third party after paying the claim Correct answer.
  4. The agent's right to receive renewal commission

Explanation

Subrogation arises after the insurer has indemnified the insured, allowing the insurer to pursue recovery from the party responsible for the loss. It supports the principle of indemnity by preventing double recovery by the insured. The right is limited to the amount paid by the insurer.

Question 16General Insurance Agents Licensing Examination (IC-38) content

What is the effect of the doctrine of contribution when two fire policies cover the same property for the same interest during the same period?

  1. Each insurer pays the full loss independently
  2. The loss is shared among the insurers so that the insured recovers only the actual loss Correct answer.
  3. The insured may recover the full loss from one insurer and also from the other
  4. The policy taken later in time is automatically void

Explanation

Contribution requires insurers covering the same interest to share the loss, ensuring the insured recovers indemnity but no profit. The insured cannot recover more than the actual loss even with multiple policies. Insurers then adjust the amount among themselves in proportion to their liabilities.

Question 17General Insurance Agents Licensing Examination (IC-38) content

In a liability insurance policy, what is the significance of the 'claims made' basis?

  1. Cover responds only after the insured retires from business
  2. Cover responds only to acts that occur during the policy period
  3. Cover responds only to criminal proceedings
  4. Cover responds to claims first made against the insured during the policy period, regardless of when the act occurred Correct answer.

Explanation

Under a claims-made policy, the trigger is the date on which the claim is first made against the insured, subject to any retroactive date. This differs from occurrence-based cover, where the date of the incident matters. Professional indemnity and directors' liability policies commonly use this basis.

Question 18General Insurance Agents Licensing Examination (IC-38) content

Which of the following is a duty of an insurance agent under the IRDAI (Insurance Agents) Regulations while soliciting business?

  1. Collecting premium in cash and retaining it personally
  2. Issuing the policy document on behalf of the insurer without authority
  3. Disclosing the commission payable on the product to the prospect Correct answer.
  4. Guaranteeing a fixed return on a non-life policy

Explanation

Agents must disclose their commission or remuneration to the prospect so that the customer can make an informed decision. They must also explain the product features accurately and not misrepresent benefits. Retaining premium or issuing documents without authority breaches regulatory conduct requirements.

Question 19General Insurance Agents Licensing Examination (IC-38) content

What is the main purpose of the IRDAI's 'file and use' procedure for general insurance products?

  1. To fix the premium rates for all motor policies centrally
  2. To prohibit insurers from modifying existing products
  3. To allow insurers to launch products after filing details with the regulator, subject to compliance with regulations Correct answer.
  4. To require prior approval of every policy wording by the regulator before launch

Explanation

Under the file and use regime, insurers file product details with IRDAI and may use the product thereafter, with the regulator retaining the right to require modifications. This speeds up innovation while preserving regulatory oversight. It does not amount to prior approval of every product.

Question 20General Insurance Agents Licensing Examination (IC-38) content

An agent learns that a client's factory stores highly flammable chemicals, but the client proposes a fire policy describing the premises as a general warehouse. What should the agent do?

  1. Ask the client to take a policy from another insurer
  2. Reduce the sum insured to avoid questions
  3. Advise the client to disclose the actual occupancy and hazards to the insurer Correct answer.
  4. Submit the proposal as received and remain silent about the chemicals

Explanation

Material facts about occupancy and hazardous storage directly affect the risk assessment and premium, so they must be disclosed to the insurer. An agent who knowingly submits a misleading proposal participates in non-disclosure and exposes the client to claim rejection. Advising full disclosure protects the client's interests and the agent's regulatory standing.

Question 21General Insurance Agents Licensing Examination (IC-38) content

Which of the following losses would typically be excluded under a standard fire insurance policy?

  1. Damage caused by a lightning strike
  2. Loss due to a fire caused by an electrical short circuit
  3. Damage caused by a bursting water tank in the insured building
  4. Damage caused by war or nuclear risks Correct answer.

Explanation

Standard fire policies exclude war, nuclear risks, and certain other catastrophic perils that are outside the scope of ordinary fire cover. Fire caused by lightning or electrical short circuit and damage from bursting water tanks are generally covered under standard or extended covers. War and nuclear risks require separate specialised arrangements.

Question 22General Insurance Agents Licensing Examination (IC-38) content

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

  1. It is the premium payable by the insured
  2. It is the maximum amount the insurer will pay for any loss, subject to policy conditions Correct answer.
  3. It is the deductible applied to each claim
  4. It is the commission earned by the agent

Explanation

The sum insured represents the insurer's maximum liability under the policy and should reflect the value of the property at risk. If it is set below the actual value, the average clause may reduce claims. It is distinct from the premium, the deductible and agency commission.

Question 23General Insurance Agents Licensing Examination (IC-38) content

A proposal for a burglary policy is accepted and the premium is paid, but the insurer neither issues the policy nor refunds the premium within the prescribed period. What is the insured entitled to under the regulations?

  1. Automatic extension of cover for one year free of cost
  2. Double the sum insured as compensation
  3. Refund of the premium without interest if the policy is not issued within the prescribed period Correct answer.
  4. Only the policy document, with no other remedy

Explanation

Where the insurer fails to issue the policy within the prescribed period after acceptance and premium receipt, the insured may require refund of the premium without interest. This rule prevents insurers from holding funds without providing the contract. The insured may alternatively insist on issuance of the policy.

Question 24General Insurance Agents Licensing Examination (IC-38) content

In the context of insurance, what does 'moral hazard' refer to?

  1. The risk of currency fluctuation affecting premium
  2. The tendency of an insured to be careless or dishonest because insurance exists Correct answer.
  3. The risk of loss caused by natural calamities
  4. The risk of a building collapsing due to poor construction

Explanation

Moral hazard is the behavioural risk that insurance cover may make a person less careful or more inclined to make dishonest claims. It is a subjective risk factor considered in underwriting and claims management. Physical hazards such as poor construction are distinct from moral hazard.

Question 25General Insurance Agents Licensing Examination (IC-38) content

An insured under a commercial property policy suffers a loss caused by a third party's negligence and receives full payment from the insurer. What is the position regarding the insured's right to sue that third party?

  1. The insured may sue and retain any recovery in addition to the insurance money
  2. The insured's right to recover from the third party passes to the insurer to the extent of the amount paid Correct answer.
  3. Neither the insurer nor the insured may proceed against the third party
  4. The insurer may recover only if the insured refuses the claim

Explanation

After indemnifying the insured, the insurer acquires subrogation rights to recover the paid amount from the negligent third party. The insured cannot retain both insurance money and damages for the same loss, as that would violate indemnity. Any recovery beyond the insurer's payment remains with the insured.

Question 26General Insurance Agents Licensing Examination (IC-38) content

Under the Insurance Act, 1938, within how many days must an insurer respond in writing to a claim notification made by an insured?

  1. 60 days
  2. 30 days Correct answer.
  3. 45 days
  4. 15 days

Explanation

The Insurance Act, 1938 requires an insurer to respond to a claim notification in writing within 30 days of receipt. This timeline gives the insurer a defined window to acknowledge the claim and seek any documents needed for assessment. Failure to respond within this period can attract regulatory consequences.

Question 27General Insurance Agents Licensing Examination (IC-38) content

A general insurance agent is appointed to sell policies for multiple insurers. What is the correct term for such an agent under IRDAI regulations?

  1. Composite agent Correct answer.
  2. Corporate agent
  3. Micro agent
  4. Individual agent

Explanation

A composite agent is an individual appointed by more than one general insurer, subject to the limits fixed by IRDAI. Micro, corporate and individual are separate agent categories with distinct eligibility and scope rules. The key distinguishing feature of a composite agent is representation of multiple insurers.

Question 28General Insurance Agents Licensing Examination (IC-38) content

Which fundamental principle of insurance requires that the insured must actually suffer a financial loss for a claim to be payable?

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

Explanation

The principle of indemnity holds that insurance restores the insured to the financial position held before the loss, and no profit is gained. A claim is payable only to the extent of the measurable financial loss suffered. This principle underpins the use of sum insured limits, deductibles and average clauses.

Question 29General Insurance Agents Licensing Examination (IC-38) content

An insured's building is damaged by fire, and the insurer pays the claim. Later the insurer recovers the amount from the tenant who negligently started the fire. Which principle permits the insurer to do this?

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

Explanation

Subrogation transfers to the insurer the insured's right to recover damages from the party responsible for the loss, after the claim is paid. It prevents the insured from recovering twice for the same loss. The right arises under policies of indemnity such as fire and motor.

Question 30General Insurance Agents Licensing Examination (IC-38) content

Which of the following is the correct sequence of steps in the insurance contract process?

  1. Payment of premium, proposal, acceptance, issuance of policy
  2. Proposal, issuance of policy, acceptance, payment of premium
  3. Proposal, acceptance, payment of premium, issuance of policy Correct answer.
  4. Acceptance, proposal, payment of premium, issuance of policy

Explanation

The process begins with the proposer submitting a proposal form, followed by the insurer's acceptance of the risk. Premium is then paid and the policy document issued, completing the contract. The proposal forms the basis of the contract and must be completed truthfully.

Question 31General Insurance Agents Licensing Examination (IC-38) content

An insured fails to disclose a previous burglary conviction when proposing for a householder's policy, and the insurer would have declined the risk had it known. What is the insurer's position?

  1. The insurer must pay the claim but may increase future premiums
  2. The insurer may only cancel the policy from the next renewal date
  3. The insurer must pay because the conviction is unrelated to the loss
  4. The insurer may avoid the policy for non-disclosure of a material fact Correct answer.

Explanation

Non-disclosure of a material fact that would have influenced the insurer's underwriting decision breaches the duty of utmost good faith. The insurer may avoid the contract, treating it as never having existed, and decline the claim. Materiality is judged by what a prudent underwriter would consider relevant.

Question 32General Insurance Agents Licensing Examination (IC-38) content

Which document issued by an insurer contains the complete terms, conditions and exclusions of the insurance contract?

  1. Policy schedule Correct answer.
  2. Proposal form
  3. Cover note
  4. Endorsement

Explanation

The policy schedule, together with the policy wording, sets out the complete terms including coverage, exclusions, conditions and the sum insured. The schedule identifies the insured, the risk and the period of insurance. Endorsements later amend these terms.

Question 33General Insurance Agents Licensing Examination (IC-38) content

What is the primary purpose of a warranty in an insurance contract?

  1. To describe the premium payment schedule
  2. To allow the insured to cancel without notice
  3. To guarantee the insurer will renew the policy
  4. To set out a condition the insured must fulfil for cover to remain valid Correct answer.

Explanation

A warranty is a condition that must be complied with exactly, and breach can entitle the insurer to avoid liability. Warranties typically relate to facts about the risk, such as fire protection or storage arrangements. Modern regulation requires a clear causal link between breach and loss in many contexts.

Question 34General Insurance Agents Licensing Examination (IC-38) content

Which of the following is a characteristic of a contract of insurance that distinguishes it from an ordinary commercial contract?

  1. It is enforceable only if written on stamped paper
  2. It is always a contract of guarantee
  3. It is a contract of utmost good faith requiring disclosure of material facts Correct answer.
  4. It requires consideration from the insured only

Explanation

Insurance contracts are contracts of utmost good faith, placing a positive duty on both parties to disclose material facts. This goes beyond the ordinary contractual rule of caveat emptor. The proposer must volunteer information that affects the risk.

Question 35General Insurance Agents Licensing Examination (IC-38) content

What is the purpose of the 'free look period' in an insurance policy?

  1. To permit the insured to skip the first premium payment
  2. To allow the insurer to revise the premium after issue
  3. To give the insurer time to inspect the risk before accepting it
  4. To allow the insured to review the terms and cancel for a refund of premium if dissatisfied Correct answer.

Explanation

The free look period gives the policyholder a defined time after receipt of the policy to review the terms and return it if the terms are not acceptable. If cancelled within this period, the premium is refunded subject to the conditions prescribed. It protects policyholders from buying unsuitable products.

Question 36General Insurance Agents Licensing Examination (IC-38) content

In general insurance, what does 'utmost good faith' require of the proposer at the time of proposal?

  1. To disclose only facts specifically asked in the proposal form
  2. To disclose facts only after the policy is issued
  3. To disclose only facts that reduce the risk
  4. To disclose every material fact that could influence the insurer's decision Correct answer.

Explanation

Utmost good faith requires the proposer to volunteer all material facts, not merely answer the questions on the form. A material fact is one that would influence a prudent underwriter's decision on acceptance, terms or premium. Concealment or misrepresentation can render the policy voidable.

Question 37General Insurance Agents Licensing Examination (IC-38) content

A policyholder with a sum insured of Rs 5 lakh suffers a total loss of Rs 8 lakh under a fire policy. What is the maximum the insurer will pay, assuming no average clause is applied?

  1. Rs 8 lakh
  2. Rs 5 lakh Correct answer.
  3. Rs 13 lakh
  4. Rs 3 lakh

Explanation

The sum insured is the maximum liability of the insurer for any one loss under the policy. Where the loss exceeds the sum insured, the insured bears the excess as under-insurance. The insurer pays only up to the declared sum insured.

Question 38General Insurance Agents Licensing Examination (IC-38) content

Which of the following best describes 'salvage' in a general insurance claim?

  1. The premium refunded on cancellation
  2. The amount paid by the insurer to settle a total loss
  3. The recovery made from a third party
  4. The residual value of damaged property that may be sold to reduce the loss Correct answer.

Explanation

Salvage refers to the remaining value of damaged property after a loss, which can be sold to reduce the net loss. The insurer, having paid the claim, is entitled to the salvage value. Policies commonly provide for salvage to be dealt with under the claim settlement.

Question 39General Insurance Agents Licensing Examination (IC-38) content

In a fire insurance policy, which of the following is a standard exclusion?

  1. Damage caused by fire caused by the insured's own negligence
  2. Damage caused by a lightning strike
  3. Damage caused by a fire started by an electrical short circuit
  4. Damage caused by fire following an earthquake Correct answer.

Explanation

Standard fire policies exclude earthquake, including fire resulting from earthquake, unless specifically covered by an add-on. Lightning is a named peril and electrical short-circuit fire is covered subject to conditions. Negligence of the insured is not a general exclusion.

Question 40General Insurance Agents Licensing Examination (IC-38) content

What does the term 'proximate cause' mean in insurance claims?

  1. The dominant, effective cause of the loss Correct answer.
  2. The cause nearest in time to the loss
  3. The cause stated by the insured in the claim form
  4. The cause with the highest estimated cost

Explanation

Proximate cause is the dominant and effective cause that sets in motion the chain of events leading to the loss. It is not necessarily the last event in time. Determining proximate cause decides whether the loss falls within the insured perils.

Question 41General Insurance Agents Licensing Examination (IC-38) content

A marine hull policy covers a vessel. Which of the following perils would typically be covered under a standard marine hull policy?

  1. Loss caused by inherent vice of the cargo
  2. Loss caused by the vessel being deliberately scuttled by the owner
  3. Perils of the seas, including collision and stranding Correct answer.
  4. Ordinary wear and tear of the vessel

Explanation

Marine hull policies cover perils of the seas such as collision, stranding, sinking and fire. Ordinary wear and tear and deliberate acts of the assured are excluded. Inherent vice relates to cargo, not the hull, and is a cargo exclusion.

Question 42General Insurance Agents Licensing Examination (IC-38) content

In a marine cargo policy, what does the 'warehouse to warehouse' clause provide?

  1. Cover from the seller's warehouse to the buyer's warehouse Correct answer.
  2. Cover only after the buyer takes delivery
  3. Cover only while goods are in the port of loading
  4. Cover only while goods are on board the vessel

Explanation

The warehouse to warehouse clause extends cover from the moment goods leave the consignor's warehouse until they reach the consignee's warehouse. This provides continuous transit cover rather than cover limited to the sea voyage. The clause is a standard feature of marine cargo policies.

Question 43General Insurance Agents Licensing Examination (IC-38) content

What is the principal purpose of a 'no claim bonus' in motor insurance?

  1. To increase the sum insured automatically
  2. To penalise the insured for making a claim
  3. To reward the insured for a claim-free year with a reduced premium Correct answer.
  4. To extend the policy period without premium

Explanation

A no claim bonus is a discount on renewal premium granted when no claim has been made during the preceding policy year. It incentivises careful driving and reduces claim frequency. The bonus builds up incrementally over claim-free years.

Question 44General Insurance Agents Licensing Examination (IC-38) content

An insured under a motor policy transfers ownership of the vehicle to another person. What is required regarding the policy?

  1. The policy lapses automatically and no notice is required
  2. The policy is automatically cancelled with a full premium refund
  3. The policy continues in the name of the original owner indefinitely
  4. The insurer must be informed and the policy transferred or a fresh policy obtained Correct answer.

Explanation

On transfer of ownership, the insurer must be informed and the policy transferred with the insurer's consent, or a fresh policy obtained. This allows the insurer to reassess the risk represented by the new owner. Failure to do so can affect claim liability.

Question 45General Insurance Agents Licensing Examination (IC-38) content

What is the purpose of the Motor Third Party Liability insurance requirement in India?

  1. To cover the driver's own medical expenses
  2. To provide cover for theft of the vehicle
  3. To protect third parties who suffer injury or property damage caused by the insured vehicle Correct answer.
  4. To protect the vehicle owner against damage to their own vehicle

Explanation

Compulsory third party liability insurance protects innocent third parties injured or whose property is damaged by the insured vehicle. It ensures compensation is available from the insurer rather than depending on the driver's ability to pay. Own damage and theft cover are separate sections of a motor policy.

Question 46General Insurance Agents Licensing Examination (IC-38) content

In a health insurance policy, what does 'cashless facility' mean?

  1. The hospital waives all charges for insured patients
  2. The insured pays cash and is reimbursed later
  3. The insured receives a cash advance before admission
  4. The insurer pays the hospital directly for covered treatment Correct answer.

Explanation

Under a cashless facility, the insurer settles covered hospital expenses directly with the network hospital, subject to pre-authorisation. The insured avoids paying large sums upfront. Reimbursement is the alternative where cashless is unavailable.

Question 47General Insurance Agents Licensing Examination (IC-38) content

What is the significance of a 'pre-existing disease' clause in a health insurance policy?

  1. It excludes all hospitalisation for the first year
  2. It allows the insurer to cancel the policy at any time
  3. It covers all diseases contracted after the policy starts
  4. It defines conditions existing before the policy that are subject to a waiting period Correct answer.

Explanation

A pre-existing disease clause defines illnesses or conditions that existed before the policy commenced and applies a waiting period before they become covered. This protects the insurer against adverse selection. Disclosure of pre-existing conditions is essential to avoid claim disputes.

Question 48General Insurance Agents Licensing Examination (IC-38) content

An insured under a personal accident policy dies in a road accident. The policy provides a capital sum insured for accidental death. What is payable?

  1. A percentage of the sum insured equal to the injury suffered
  2. The full sum insured for accidental death Correct answer.
  3. Nothing, because death is not covered under personal accident policies
  4. Only medical expenses incurred

Explanation

A personal accident policy pays the capital sum insured for accidental death, provided death results from accidental bodily injury within the policy period. The benefit is a fixed capital sum, not a reimbursement of expenses. Permanent disability benefits are paid on a percentage basis instead.

Question 49General Insurance Agents Licensing Examination (IC-38) content

Which of the following best describes 'moral hazard' in underwriting?

  1. The risk of loss from natural calamities
  2. The risk arising from the character or attitude of the insured, such as carelessness or dishonesty Correct answer.
  3. The risk of inflation affecting claim costs
  4. The risk of adverse selection due to pricing errors

Explanation

Moral hazard relates to the insured's behaviour and attitude, such as indifference to loss prevention or intent to defraud. It is distinguished from physical hazard, which concerns the tangible characteristics of the risk. Underwriters assess moral hazard through disclosure and claims history.

Question 50General Insurance Agents Licensing Examination (IC-38) content

A commercial property owner insures a factory building for Rs 1 crore when the reinstatement value is Rs 2 crore. A fire causes a loss of Rs 50 lakh. Under the average clause, what amount is payable?

  1. Rs 1 crore
  2. Rs 25 lakh Correct answer.
  3. Rs 50 lakh
  4. Rs 10 lakh

Explanation

Under the average clause, the claim is reduced in the proportion that the sum insured bears to the actual value. Here the ratio is 1 crore to 2 crore, or one half, so half of the Rs 50 lakh loss is payable. This penalises under-insurance and encourages adequate sums insured.