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III IC-78 practice questions

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Question 1Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

Under the Insurance Regulatory and Development Authority of India (IRDAI) framework, what does the 'file and use' procedure for a general insurance product require the insurer to do?

  1. File the product with IRDAI and commence marketing only after receiving written approval
  2. File the product with the tariff advisory committee before approaching any customer
  3. File the product details with IRDAI and use it, subject to the regulator's power to require modifications Correct answer.
  4. Use the product freely and file a summary only at the end of the financial year

Explanation

File and use allows an insurer to commence marketing a product once the required details are filed with the regulator, without waiting for prior approval, but the regulator retains the right to call for changes. It is a disclosure-and-oversight mechanism rather than a licensing gate.

Question 2Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

In fire insurance, the principle of indemnity is best described as restoring the insured to which position after a loss?

  1. A position fixed by the insured's own estimate of sentimental value
  2. The position occupied immediately before the loss, subject to the sum insured Correct answer.
  3. A position equal to the market value of the property at the date of policy inception
  4. A position better than before the loss, so the insured is compensated for inconvenience

Explanation

Indemnity places the insured financially in the same position as immediately before the loss, no better and no worse, and the payout is capped by the sum insured. Betterment and sentimental value are excluded because they would breach indemnity.

Question 3Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

A marine cargo policy issued in India commonly uses which set of standard clauses for goods carried by sea?

  1. The Institute Cargo Clauses (A), (B) and (C) Correct answer.
  2. The Motor Tariff clauses
  3. The Standard Fire and Special Perils policy wording
  4. The Workmen's Compensation schedule

Explanation

Cargo transits are usually written on the Institute Cargo Clauses, which come in graded cover levels A, B and C. Clause (A) is the widest and (C) the narrowest, with named perils defining the difference.

Question 4Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

In a health insurance policy, the clause that requires the insured to bear a specified percentage of each claim after the deductible is known as what?

  1. The co-payment clause Correct answer.
  2. The portability clause
  3. The pre-existing disease exclusion
  4. The waiting period

Explanation

A co-payment clause makes the insured share a stated percentage of the admissible claim, so the insurer pays only the balance. This differs from a deductible, which removes a fixed amount before any percentage sharing applies.

Question 5Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

Which of the following is the primary purpose of reinsurance in a general insurance company?

  1. To replace the insurer's obligation to its own policyholder
  2. To increase the number of retail customers served
  3. To avoid the need for solvency capital entirely
  4. To transfer part of the risk assumed to another insurer in exchange for a share of premium Correct answer.

Explanation

Reinsurance is the transfer of a portion of risk from the ceding insurer to a reinsurer, with corresponding premium, to protect solvency and stabilise results. The original insurer remains fully liable to the policyholder, so reinsurance does not change the insured's contractual rights.

Question 6Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

In motor insurance in India, third-party liability cover for a private car is best described as which of the following?

  1. Optional cover that the owner may buy at will
  2. Cover available only for commercial vehicles
  3. Cover that applies only when the owner is not driving
  4. A statutory requirement that must be in force while the vehicle is used in a public place Correct answer.

Explanation

Motor third-party liability is compulsory under the Motor Vehicles Act, and using a vehicle in a public place without it is an offence. Own-damage cover, by contrast, is optional.

Question 7Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

What is the function of an insurance agent's licence issued under the IRDAI (Insurance Agents) Regulations?

  1. It authorises the holder to solicit and procure insurance business for the insurer Correct answer.
  2. It authorises the holder to underwrite and issue policies on behalf of the insurer
  3. It allows the holder to fix premium rates for products
  4. It permits the holder to settle claims independently

Explanation

An agent's licence permits solicitation and procurement of insurance business for one or more insurers, within the limits of the regulations. Underwriting, pricing and claim settlement remain functions of the insurer.

Question 8Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

In the context of the Insurance Ombudsman mechanism, an award made by the Ombudsman is binding on the insurer only when the complainant does which of the following?

  1. Registers the award with the consumer forum
  2. Rejects the award and files an appeal
  3. Waits for the insurer to appeal to a civil court
  4. Accepts the award in writing within the period specified in the rules Correct answer.

Explanation

The Ombudsman's award becomes binding on the insurer if the complainant accepts it in writing within the prescribed time. If the complainant does not accept, the complainant remains free to pursue other legal remedies.

Question 9Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

A fire policy has a sum insured of Rs 20,00,000 on a building whose reinstatement value at the date of loss is Rs 25,00,000. A loss of Rs 5,00,000 occurs and average is applied. What amount is payable?

  1. Rs 5,00,000
  2. Rs 4,00,000 Correct answer.
  3. Rs 1,00,000
  4. Rs 2,50,000

Explanation

Under the average clause the claim is reduced in the proportion that the sum insured bears to the value at risk: 20,00,000 divided by 25,00,000 equals 0.8, and 0.8 times 5,00,000 gives Rs 4,00,000. The insured therefore bears the shortfall caused by underinsurance.

Question 10Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

An insured holds two fire policies on the same property, each with a sum insured of Rs 10,00,000, and suffers a loss of Rs 6,00,000. Under the doctrine of contribution, how is the loss shared?

  1. The insured must recover only from the policy issued first
  2. Each insurer pays Rs 6,00,000, so the insured recovers Rs 12,00,000
  3. Each insurer pays Rs 3,00,000, so the insured recovers Rs 6,00,000 in total Correct answer.
  4. The insured may recover Rs 6,00,000 from either insurer and keep both payments

Explanation

Contribution requires insurers covering the same interest against the same peril to share the loss rateably, so the insured recovers indemnity only once. With equal sums insured each insurer bears half the loss.

Question 11Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

A proposal for life insurance is accepted and the first premium is paid, but the policy document has not yet been delivered when the life assured dies. Under the standard 'condition of the policy taking effect' practice, the insurer's position is generally what?

  1. Liability arises only if a medical examination was completed after payment
  2. No liability arises because the policy document was never delivered
  3. Liability arises only after the free-look period expires
  4. Liability arises from the date of acceptance or premium payment as specified in the condition Correct answer.

Explanation

Standard practice makes the policy effective from the date of acceptance or the date of premium payment, whichever the condition specifies, so the physical document need not be delivered for cover to commence. The precise trigger must be read from the policy condition.

Question 12Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

In a marine hull policy, the 'perils of the seas' clause covers losses caused by which type of event?

  1. Loss caused by the vessel's own inherent vice
  2. Ordinary wear and tear of the vessel's machinery
  3. Deliberate scuttling by the master with the owner's knowledge
  4. Fortuitous accidents or casualties of the sea, not ordinary action of wind and waves Correct answer.

Explanation

Perils of the seas means fortuitous accidents or casualties of the sea rather than the ordinary, foreseeable action of wind and waves. Ordinary wear and tear and inherent vice are separately excluded.

Question 13Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

A liability policy has a limit of indemnity of Rs 50,00,000 for any one occurrence and Rs 1,00,00,000 in the aggregate. Two occurrences in the policy year cause losses of Rs 40,00,000 and Rs 45,00,000. What is the insurer's total liability?

  1. Rs 85,00,000
  2. Rs 1,00,00,000
  3. Rs 80,00,000 Correct answer.
  4. Rs 50,00,000

Explanation

Each occurrence is within the per-occurrence limit of Rs 50,00,000, so both are payable in full at Rs 40,00,000 and Rs 45,00,000, giving Rs 85,00,000. However, the aggregate limit of Rs 1,00,00,000 caps the total, and since Rs 85,00,000 is below that cap, the full Rs 85,00,000 is payable.

Question 14Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

Which of the following best explains why a 'claims-made' liability policy differs from an 'occurrence' policy?

  1. A claims-made policy never requires notification of circumstances
  2. A claims-made policy covers only defence costs and not damages
  3. A claims-made policy responds only to acts that occurred during the policy period
  4. A claims-made policy responds to claims first made during the policy period, regardless of when the act occurred Correct answer.

Explanation

A claims-made policy is triggered by the making of the claim during the policy period, usually with a retroactive date limiting how far back the act may have occurred. An occurrence policy, by contrast, is triggered by the act giving rise to liability, whenever the claim is later made.

Question 15Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

In personal accident insurance, which of the following is normally required before a death benefit becomes payable?

  1. Death resulting solely and directly from accidental bodily injury within the specified period Correct answer.
  2. Death caused by a pre-existing illness aggravated by age
  3. Death from any cause during the policy period
  4. Death occurring after the policy has lapsed, provided premium was once paid

Explanation

Personal accident cover pays only where death results solely and directly from accidental bodily injury, usually within a stated period after the accident. Death from natural causes or illness falls outside the scope of the cover.

Question 16Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

An insured's factory is insured under the Standard Fire and Special Perils policy. A fire causes damage, and the insured also loses profits while the plant is rebuilt. Which cover addresses the loss of profit?

  1. A consequential loss (business interruption) policy Correct answer.
  2. The engineering breakdown policy
  3. The money insurance policy
  4. The standard fire policy automatically includes loss of profit

Explanation

Loss of profit following fire is a consequential loss and requires a separate business interruption policy, often written with the same insurer and a similar sum insured. The fire policy responds only to material damage to insured property.

Question 17Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

In the context of insurance contract law, what does the principle of 'utmost good faith' require of the proposer?

  1. To disclose all material facts within the proposer's knowledge that would influence the insurer's decision Correct answer.
  2. To disclose facts only if the insurer requests them in writing
  3. To disclose only facts specifically asked about in the proposal form
  4. To disclose facts only after the policy is issued

Explanation

Utmost good faith requires voluntary disclosure of all material facts that would affect a prudent insurer's decision, not merely answers to the questions asked. Non-disclosure of a material fact can render the contract voidable.

Question 18Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

A surveyor assessing a large fire loss recommends a reserve while the claim is still being investigated. What is the purpose of such a reserve?

  1. To pay the insured immediately without further enquiry
  2. To record an estimated liability in the insurer's books pending final settlement Correct answer.
  3. To transfer the claim to a reinsurer automatically
  4. To fix the premium for the next renewal

Explanation

A claim reserve is an estimate of the insurer's expected liability recorded in the books so that financial statements reflect known obligations. It is not a payment and is revised as the investigation proceeds.

Question 19Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

In health insurance, the 'pre-existing diseases' waiting period typically operates in which way?

  1. It excludes specified pre-existing conditions for a defined period, after which they become covered Correct answer.
  2. It applies only to dependants and not to the principal insured
  3. It excludes all diseases permanently from the date of policy inception
  4. It applies only to accidents occurring after inception

Explanation

A pre-existing disease waiting period excludes conditions that existed at inception for a defined number of years, after which they are covered subject to policy terms. This protects the insurer against adverse selection while giving the insured eventual cover.

Question 20Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

What is the principal difference between a 'treaty' and a 'facultative' reinsurance arrangement?

  1. Treaty reinsurance applies only to life business
  2. Facultative reinsurance cannot be used for large industrial risks
  3. Treaty reinsurance covers risks automatically under a standing agreement, while facultative reinsurance is negotiated risk by risk Correct answer.
  4. Facultative reinsurance covers all risks automatically, while treaty cover is negotiated individually

Explanation

Under a treaty the reinsurer is obliged to accept risks falling within the agreed class and limits, so cession is automatic. Facultative reinsurance is offered and accepted risk by risk, giving both parties the freedom to decline.

Question 21Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

An insurer's solvency ratio is measured as available solvency margin divided by required solvency margin. If available margin is Rs 180 crore and required margin is Rs 120 crore, what is the ratio, and does it meet the IRDAI minimum of 1.50?

  1. 1.80, which comfortably exceeds the minimum Correct answer.
  2. 1.20, which fails the minimum
  3. 1.33, which fails the minimum
  4. 1.50, which exactly meets the minimum

Explanation

Dividing Rs 180 crore by Rs 120 crore gives a ratio of 1.50, expressed as 1.50 times the required margin. Since the regulatory minimum is 1.50, the insurer meets it exactly and has no headroom.

Question 22Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

In the context of the Motor Vehicles Act, what is the effect of a policy issued for a vehicle that is later transferred to a new owner without intimation to the insurer?

  1. The insurer may continue the policy only if the transfer is registered with the transport authority
  2. The policy lapses immediately on transfer in every case
  3. Cover continues for a defined period, during which the transferee may apply for endorsement of the policy Correct answer.
  4. The new owner must buy a fresh policy before driving the vehicle at all

Explanation

Statutory provisions preserve cover for a defined period after transfer so that third parties are not left unprotected, and the transferee may apply for the policy to be endorsed in their name. Driving without any cover during that window is not required.

Question 23Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

A commercial property policy contains a 'reinstatement value' condition. What does this condition require of the insured?

  1. The insured must reinstate the property before any claim is admitted
  2. The sum insured must be based on reinstatement value and the property must actually be reinstated for full settlement Correct answer.
  3. The insurer must reinstate the property on the insured's behalf
  4. The insured must accept depreciation on every claim

Explanation

Under a reinstatement value condition the sum insured is fixed on the cost of replacing the property new, and full settlement depends on the property actually being reinstated. If it is not reinstated, settlement is usually on an indemnity basis with depreciation.

Question 24Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

Which of the following statements about the 'doctrine of subrogation' in insurance is correct?

  1. It applies to life insurance as well as indemnity insurance
  2. It allows the insurer, after paying a claim, to step into the insured's shoes and pursue third parties responsible for the loss Correct answer.
  3. It gives the insured the right to recover twice for the same loss
  4. It allows the insurer to recover from the insured any amount already paid

Explanation

Subrogation transfers to the paying insurer the insured's rights of recovery against the party responsible for the loss, but only after payment and only to the extent of the payment. It supports indemnity by preventing double recovery.

Question 25Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

In an engineering 'machinery breakdown' policy, which of the following losses is normally excluded?

  1. Damage caused by a short circuit within the insured machine
  2. Loss caused by ordinary wear and tear and gradual deterioration Correct answer.
  3. Damage caused by a foreign body entering the machine
  4. Breakdown caused by a sudden and unforeseen mechanical failure

Explanation

Machinery breakdown cover responds to sudden and unforeseen mechanical or electrical failure, not to the gradual deterioration inherent in normal use. Wear and tear and gradual deterioration are standard exclusions because they are foreseeable maintenance issues.

Question 26Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

Under the Insurance Regulatory and Development Authority of India (Insurance Products) framework, a 'file and use' product filing requires the insurer to do which of the following before marketing the product?

  1. Obtain prior written approval of every policy wording and premium rate from the regulator
  2. File the product with the regulator and may use it after the prescribed waiting period unless directed otherwise Correct answer.
  3. File the product only after the first 1,000 policies have been issued in the market
  4. Register the product with the Insurance Ombudsman before any sale is made

Explanation

File and use means the insurer files the product with the regulator and may market it once the specified waiting period has elapsed without adverse direction. It is distinct from prior approval, where the insurer must wait for explicit clearance before launch. The obligation arises at product filing stage, before any sale, not after policies are issued.

Question 27Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

An insurer's expenses of management are subject to regulatory limits under the Insurance Regulatory and Development Authority of India (Expenses of Management, including Commission of Insurers) Regulations. Which of the following best describes the basis on which the limit is commonly expressed?

  1. A percentage of the claims paid during the year
  2. A percentage of the insurer's paid-up share capital
  3. A fixed rupee ceiling identical for every insurer regardless of size
  4. A percentage of the gross written premium in India for the financial year Correct answer.

Explanation

The expenses of management limit is expressed as a percentage of gross written premium in India, so the permissible spend scales with the insurer's premium base. It is not a flat rupee cap, nor is it tied to capital or claims. This links expense control directly to the volume of business written.

Question 28Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

An insurer appoints an individual as a corporate agent's specified person. Which of the following is the most accurate statement about that person's role?

  1. The specified person is responsible for the corporate agent's insurance business and must meet the qualifications and training requirements Correct answer.
  2. The specified person is only a nominal signatory with no regulatory obligations
  3. The specified person may sell policies independently of the corporate agent's licence
  4. The specified person must be a whole-time director of the corporate agent company

Explanation

The specified person is the individual through whom a corporate agent conducts insurance solicitation and who carries responsibility for compliance and conduct. That person must satisfy the qualification, training and examination requirements prescribed for agents. The role is substantive, not nominal, and is exercised within the corporate agent's licence.

Question 29Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

In life insurance underwriting, 'moral hazard' refers to which of the following?

  1. The risk that interest rates will fall below the rate assumed in pricing
  2. The risk that mortality rates in the general population will worsen unexpectedly
  3. The risk that the proposer's honesty, habits or intentions increase the likelihood or size of a claim Correct answer.
  4. The risk that a policyholder will outlive the expected lifespan used in annuity pricing

Explanation

Moral hazard concerns the personal and behavioural characteristics of the proposer that affect willingness to claim or to disclose information truthfully. It is distinguished from general population mortality trends, which are a biometric or pricing risk. Investment and longevity risks belong to financial and annuity pricing, not to moral hazard.

Question 30Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

A reinsurance treaty contains a 'retention' of Rs 5,00,000 per risk and cedes 90% of the excess to the reinsurer. If a single risk produces a loss of Rs 15,00,000, what amount does the reinsurer bear under a straightforward proportional quota arrangement of this kind?

  1. Rs 15,00,000
  2. Rs 10,00,000
  3. Rs 9,00,000 Correct answer.
  4. Rs 5,00,000

Explanation

Under a 90% quota cession, the reinsurer bears 90% of the loss, which is 90% of Rs 15,00,000, i.e. Rs 9,00,000. The cedant retains the remaining 10%, i.e. Rs 1,50,000. The retention figure of Rs 5,00,000 is not deducted from the loss before applying the quota share in this arrangement.

Question 31Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

Which of the following is the primary purpose of the Insurance Regulatory and Development Authority of India (Insurance Surveyors and Loss Assessors) Regulations?

  1. To set the commission payable to insurance agents
  2. To determine the solvency margin applicable to reinsurers
  3. To prescribe the tariff rates for fire and motor insurance
  4. To license and regulate surveyors and loss assessors who investigate and assess insurance claims Correct answer.

Explanation

These regulations govern the licensing, qualifications, conduct and professional standards of surveyors and loss assessors. They do not set premium tariffs, agent commission or solvency requirements, which are addressed by separate regulatory instruments. The surveyor's role is to investigate and assess losses independently for the insurer.

Question 32Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

In a group health insurance policy issued to an employer, which of the following is the most usual basis for determining the sum insured for each employee?

  1. The employee's choice of any sum insured without any underwriting restriction
  2. The employer's annual profit for the preceding financial year
  3. A flat amount or a multiple of salary applied uniformly across defined employee categories Correct answer.
  4. Individual medical underwriting of each employee's past claims history

Explanation

Group health policies typically set cover by flat benefit amounts or salary multiples applied by category, with limited individual medical underwriting. This reflects the group underwriting approach, where the experience of the whole group is assessed. Individual past claims history is not the usual determinant, and the sum insured is not tied to employer profit.

Question 33Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

A marine cargo policy is issued on 'warehouse to warehouse' terms. What does this clause most accurately describe?

  1. Cover attaches at the consignor's warehouse and terminates at the consignee's warehouse, subject to the stated conditions Correct answer.
  2. Cover applies only to the ocean voyage and excludes all inland transit
  3. Cover ends when the goods are unloaded at the port of discharge
  4. Cover begins only when the goods are physically loaded on the vessel

Explanation

The warehouse to warehouse clause extends cover from the consignor's premises through the transit to the consignee's premises, subject to the termination conditions in the policy. It is not limited to the period on board the vessel or to the ocean leg alone. This reflects the reality that cargo risk begins before loading and continues after discharge.

Question 34Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

An insured has a fire policy with an average (underinsurance) condition. The property is insured for Rs 8,00,000 while its value at the time of loss is Rs 10,00,000, and a loss of Rs 5,00,000 occurs. Applying the average condition, what amount is payable?

  1. Rs 5,00,000
  2. Rs 10,00,000
  3. Rs 4,00,000 Correct answer.
  4. Rs 8,00,000

Explanation

The average condition reduces the claim in proportion to the underinsurance: sum insured divided by property value, multiplied by the loss. Here that is (8,00,000 / 10,00,000) × 5,00,000 = Rs 4,00,000. The insured bears the shortfall arising from insuring for less than the property's value.

Question 35Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

In liability insurance, a 'claims-made' policy with a retroactive date covers which of the following?

  1. Claims reported after the policy expires regardless of when the act occurred
  2. Claims first made during the policy period for acts occurring on or after the retroactive date Correct answer.
  3. Claims first made during the policy period for acts occurring at any time in the past without limit
  4. Only claims where the act and the claim both occur within the policy period

Explanation

A claims-made policy responds to claims first made or reported during the policy period, provided the wrongful act occurred on or after the stated retroactive date. The retroactive date prevents cover for acts predating the insurer's involvement. Claims-made cover therefore depends on when the claim is made, not solely on when the act occurred.

Question 36Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

Under the Motor Vehicles Act, a certificate of insurance for a vehicle is required to be produced for which of the following purposes?

  1. To confirm payment of road tax for the current year
  2. To evidence the driver's competence and licensing status
  3. To prove the vehicle's roadworthiness and fitness to ply
  4. To establish that the vehicle is covered by a policy of insurance as required by the Act Correct answer.

Explanation

The certificate of insurance evidences that the vehicle is insured as required by the Motor Vehicles Act. Roadworthiness is established by a fitness certificate, road tax by a tax receipt, and driving competence by a driving licence. Each of these is a separate statutory document with a distinct purpose.

Question 37Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

In a personal accident policy, the 'capital sum insured' is best described as which of the following?

  1. The amount payable on death or on the specified permanent disablements, as set out in the policy schedule Correct answer.
  2. The sum payable for each week of temporary total disablement
  3. The total premium payable over the policy term
  4. The maximum medical expenses reimbursable in any one year

Explanation

The capital sum insured is the base amount on which the death benefit and the percentage-based permanent disablement benefits are calculated. Weekly temporary disablement benefits are usually a separate stated amount, and medical expenses are governed by a separate limit. The capital sum insured is not the premium or a medical expense cap.

Question 38Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

An insurer uses a 'burning cost' method in rating a property portfolio. What does this method most accurately reflect?

  1. The theoretical maximum probable loss from a single catastrophic event
  2. The statutory solvency margin required for the portfolio
  3. The insurer's investment return on reserves held for claims
  4. The loss experience of the portfolio over a period, adjusted for credibility and expenses Correct answer.

Explanation

Burning cost rating uses the actual loss experience of the portfolio over a period, often loaded for expenses and adjusted for credibility, to derive a rate. It is experience-based rather than a single-event catastrophe estimate. Investment returns and solvency margins are financial considerations separate from loss-cost rating.

Question 39Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

In a health insurance policy, the 'waiting period' for a specified disease operates in which way?

  1. The sum insured is reduced during the waiting period
  2. The policy lapses if no claim is made during the waiting period
  3. The premium is refunded if the disease is diagnosed during the waiting period
  4. No claim is payable for that disease until the stated period from policy inception has elapsed Correct answer.

Explanation

A disease-specific waiting period bars claims for that condition until the stated time from inception has passed, even if the disease is diagnosed earlier. It does not lapse the policy, reduce the sum insured, or trigger a premium refund. Its purpose is to prevent anti-selection at the point of buying cover.

Question 40Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

An insurer's gross direct premium income in India is Rs 500 crore and its net incurred claims are Rs 350 crore. Using the simple loss ratio (incurred claims divided by premium), what is the loss ratio?

  1. 70% Correct answer.
  2. 30%
  3. 50%
  4. 143%

Explanation

The loss ratio is incurred claims divided by premium, i.e. 350 / 500 = 0.70, or 70%. The remaining 30% is the proportion of premium not consumed by claims before expenses. A ratio above 100% would indicate claims exceeding premium.

Question 41Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

Which of the following best describes the role of an actuary in an Indian life insurance company?

  1. To determine premium rates, reserves and solvency-related valuations using mortality and other assumptions Correct answer.
  2. To sell policies and advise clients on their insurance needs
  3. To audit the insurer's financial statements for statutory compliance
  4. To investigate and settle individual claims after a loss is reported

Explanation

Actuaries set premium rates, calculate policy reserves and conduct valuations that underpin solvency, using mortality, interest and expense assumptions. Claims investigation is the surveyor's or claims department's function, selling is the agent's role, and financial audit is the statutory auditor's responsibility.

Question 42Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

In insurance, the principle of 'insurable interest' in life insurance is generally required to exist at which point?

  1. Continuously throughout the policy term, failing which the policy is void
  2. At the time of the insured's death, though not necessarily at inception
  3. Only when a claim is made under the policy
  4. At the time the policy is taken out, though not necessarily at the time of the insured's death Correct answer.

Explanation

In life insurance, insurable interest must exist when the policy is effected; it need not continue to the date of death. This differs from indemnity insurance, where interest is generally required at both inception and loss. Requiring it only at claim stage or continuously throughout would misstate the life insurance rule.

Question 43Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

A reinsurance arrangement where the reinsurer accepts risks individually, with the cedant free to offer and the reinsurer free to decline each risk, is known as which of the following?

  1. Retrocession
  2. Treaty reinsurance
  3. Facultative reinsurance Correct answer.
  4. Quota share reinsurance

Explanation

Facultative reinsurance involves individual offer and acceptance for each risk, giving both parties discretion. Treaty reinsurance obliges the reinsurer to accept risks falling within its terms automatically. Quota share describes a proportional sharing method, and retrocession is reinsurance of a reinsurer.

Question 44Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

An engineering 'contractors all risks' policy typically covers which of the following?

  1. Penalties for delay in completing the contract
  2. Physical damage to the works, plant and materials during construction, together with specified third-party liability Correct answer.
  3. Loss of profit following completion of the project, without any physical damage
  4. Wear and tear of machinery during normal operation after handover

Explanation

Contractors all risks cover combines physical damage to the works, plant and materials during construction with third-party liability arising from the project. It does not cover consequential loss of profit absent physical damage, normal wear and tear, or contractual delay penalties. These are typically excluded or require separate cover.

Question 45Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

An insured deliberately sets fire to his own insured stock to claim the insurance money. What is the effect on the claim?

  1. The claim is payable at 50% as a compromise for the deliberate act
  2. The claim is payable only if the insured had held the policy for more than three years
  3. The claim is not payable and the insurer may avoid the policy for wilful misconduct and fraud Correct answer.
  4. The claim is payable because the fire peril occurred as defined in the policy

Explanation

Deliberate damage caused by the insured is a fundamental breach of good faith and the policy's terms, so the claim is not payable and the insurer may avoid the contract. The occurrence of a named peril does not assist an insured who caused the loss himself. There is no partial payment or tenure-based exception for fraud.

Question 46Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

In the context of insurance distribution, 'mis-selling' most accurately refers to which of the following?

  1. Selling a policy that does not meet the customer's stated needs or is misrepresented to the customer Correct answer.
  2. Selling a policy at a premium lower than the filed rate
  3. Selling a policy to a customer who already holds another policy
  4. Selling a policy through a corporate agent rather than an individual agent

Explanation

Mis-selling is the sale of a product that does not match the customer's needs or is accompanied by misrepresentation of its features, often driven by commission incentives. Selling at a lower premium, holding multiple policies, or using a corporate agent are not themselves mis-selling. The harm lies in the mismatch between the product and the customer's requirements.

Question 47Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

A fire policy contains a 'removal of debris' clause. What does this clause most accurately provide?

  1. Cover for pollution clean-up arising from gradual seepage
  2. Cover for the reasonable cost of removing debris following an insured loss, within the stated limit Correct answer.
  3. Cover for the cost of demolishing neighbouring property not damaged by the fire
  4. Cover for the insured's cost of transporting stock in normal trading

Explanation

The removal of debris clause meets the reasonable cost of clearing debris after an insured loss, subject to the limit stated in the policy. It is tied to the insured loss and does not extend to undamaged neighbouring property, ordinary trading transport, or gradual pollution. Its purpose is to restore the site so reinstatement can proceed.

Question 48Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

An insurer's available solvency margin is Rs 180 crore and the required solvency margin is Rs 120 crore. What is the solvency ratio, and does it meet the prescribed control level of 1.50?

  1. 2.00, which exceeds the prescribed control level
  2. 1.33, which fails to meet the prescribed control level
  3. 0.67, which fails to meet the prescribed control level
  4. 1.50, which meets the prescribed control level Correct answer.

Explanation

The solvency ratio is available margin divided by required margin, i.e. 180 / 120 = 1.50, which equals the prescribed control level of 1.50. A ratio below 1.50 would require corrective action. Ratios of 1.33 or 0.67 would signal a shortfall, and 2.00 does not follow from these figures.

Question 49Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

In a liability insurance context, 'vicarious liability' most accurately refers to which of the following?

  1. Liability that arises only from the insured's own direct negligence
  2. Liability that is limited to the insured's contractual obligations
  3. Liability of one person for the acts of another, such as an employer for an employee acting in the course of employment Correct answer.
  4. Liability that is imposed by statute on the insurer rather than the insured

Explanation

Vicarious liability makes one party responsible for the acts of another, classically an employer for employees acting in the course of employment. It does not require the employer's own direct negligence, and it is not a statutory liability of the insurer or a purely contractual obligation. The doctrine extends the pool of potential claimants and defendants.

Question 50Insurance Institute of India professional examination subject IC-78 (domain structure not enumerated in the retrieved source)

A 'loss adjuster' engaged on a large commercial claim performs which of the following functions?

  1. Collecting premium from the insured on behalf of the insurer
  2. Investigating the circumstances of the loss and recommending a settlement amount to the insurer Correct answer.
  3. Underwriting the risk before the policy is issued
  4. Issuing the policy document and endorsements to the insured

Explanation

A loss adjuster investigates the loss, verifies the cause and extent of damage, and recommends a settlement figure to the insurer. Policy documentation, underwriting and premium collection are separate functions performed by the insurer or its intermediaries. The adjuster's independence supports an accurate and fair claim assessment.