Practice of Insurance
The Practice of Insurance domain tests the operational lifecycle: proposal and underwriting, policy documentation, premium payment, endorsements, renewals, claims notification and settlement, and the insurer's use of reinsurance. Questions focus on documentation, timelines, and how policy terms change the amount payable.
Core rules
- The proposal form, together with any declarations, is the basis of the contract; material facts must be disclosed.
- The policy schedule, wording, warranties, conditions, and exclusions define cover; endorsements amend it and must be checked for effective dates.
- Premium payment is generally a condition of cover; non-payment can suspend or avoid the policy.
- A renewal is a new contract, not an automatic extension of the expiring policy.
- Claims require prompt notification, loss mitigation, and proof; insurers may appoint surveyors where required.
- Reinsurance protects the insurer; the original insured has no direct claim against the reinsurer.
Worked example
A commercial fire policy has a sum insured of ₹50 lakh and a ₹25,000 deductible. A claim is assessed at ₹4,00,000. If the property value at loss is ₹60 lakh, the average clause applies: ₹4,00,000 × (50/60) = ₹3,33,333; less the deductible = ₹3,08,333, subject to the sum insured. Reasoning: underinsurance reduces the claim proportionally, and the deductible is then subtracted.
Traps
Treating a renewal as a continuation of the old policy; ignoring warranties that suspend cover; assuming reinsurance gives the insured a direct right of action; and forgetting that deductibles apply after any average calculation.
Key points
- Proposal and disclosure form the basis of the contract.
- Endorsements and warranties alter cover; check effective dates.
- Claims require prompt notice, mitigation, and proof of loss.
- Deductibles reduce the payable amount; policy limits cap it.
- Reinsurance protects the insurer, not the original insured directly.