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III IC-81 practice questions

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Question 1Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

Under the standard fire insurance policy used in India, what does the 'average clause' require when the sum insured is less than the value of the property insured?

  1. The insurer cancels the policy and refunds the premium for the unexpired period
  2. The insured must pay an additional premium before the claim is settled
  3. The insurer pays the full loss up to the sum insured without any reduction
  4. The insurer pays only that proportion of the loss which the sum insured bears to the value of the property Correct answer.

Explanation

The average (under-insurance) condition makes the insured his own insurer for the shortfall, so the claim is reduced in the ratio of sum insured to the value of the property at the time of loss. This discourages deliberate under-insurance and keeps premium proportionate to risk. The clause applies only where the sum insured is less than the value of the property.

Question 2Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

In marine cargo insurance, the 'warehouse to warehouse' clause mainly serves which purpose?

  1. It restricts cover to the period during which goods are physically on board the vessel
  2. It transfers the risk of the voyage to the carrier once the goods leave the port
  3. It obliges the insurer to arrange storage of the goods on the buyer's behalf
  4. It extends cover from the seller's warehouse to the buyer's warehouse, including normal transit Correct answer.

Explanation

The warehouse to warehouse (transit) clause attaches cover at the named warehouse of origin and continues until delivery at the destination warehouse, thereby covering the land legs as well as the sea voyage. It defines the duration of the transit risk rather than the perils insured. Cover terminates earlier on delivery or on expiry of the stated period after discharge.

Question 3Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

Which of the following best describes the principle of indemnity as applied in general insurance?

  1. The insurer must always replace damaged property with new property of equivalent kind
  2. The insured may recover from every policy that covers the same loss
  3. The insured receives a fixed sum agreed at inception regardless of the actual loss
  4. The insured is restored financially to the position held immediately before the loss, no better and no worse Correct answer.

Explanation

Indemnity places the insured, so far as money can, in the same financial position as before the loss, preventing profit from insurance. It is the reason for measures such as average, salvage and subrogation. Valued policies and reinstatement covers are recognised exceptions to strict indemnity.

Question 4Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

A proposal for a health insurance policy conceals a pre-existing cardiac condition that the proposer knew about. The insurer later discovers this during a claim. What is the most likely legal consequence?

  1. The insurer must continue the policy but increase the premium from the date of discovery
  2. The insurer may avoid the contract and repudiate the claim on grounds of non-disclosure of a material fact Correct answer.
  3. The insurer must pay the claim because the policy has already been issued
  4. The insurer can only reduce the claim in proportion to the premium shortfall

Explanation

Insurance is a contract of utmost good faith, so the proposer must disclose all material facts within knowledge. Concealment of a known pre-existing condition entitles the insurer to avoid the contract and decline the claim. The remedy operates from inception, not merely from the date of discovery.

Question 5Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

Which of the following is the correct sequence of steps in the settlement of a general insurance claim?

  1. Intimation, payment, survey, determination of liability, scrutiny of documents
  2. Intimation, survey or loss assessment, scrutiny of documents, determination of liability, payment Correct answer.
  3. Survey, payment, intimation, scrutiny of documents, determination of liability
  4. Payment, intimation, survey, determination of liability, scrutiny of documents

Explanation

A claim begins with prompt intimation to the insurer, followed by survey or loss assessment where required, scrutiny of the supporting documents, determination of the insurer's liability under the policy and finally settlement or payment. Payment cannot logically precede assessment of liability. The order matters because each stage builds the evidence for the next.

Question 6Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

Under a motor package policy in India, what is the effect of the 'no claim bonus'?

  1. It is a discount available only to commercial vehicles with fleet cover
  2. It is a discount on the own damage premium that increases with each claim-free year, subject to a maximum Correct answer.
  3. It is a refund of the third-party liability premium after five claim-free years
  4. It is an additional premium charged when the insured makes a claim

Explanation

The no claim bonus is a graduated discount on the own damage section premium, earned for each completed claim-free year of insurance and capped at the maximum prescribed. It rewards claims experience and is forfeited in the year a claim is made. It does not operate on the third-party liability premium.

Question 7Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

In a marine hull policy, what does the 'sue and labour' clause entitle the insured to recover?

  1. Expenses reasonably incurred to avert or minimise a loss covered by the policy, in addition to the sum insured Correct answer.
  2. Legal costs of suing the carrier for damage to the insured vessel
  3. The cost of repairs carried out after the vessel has been sold
  4. Wages of the crew during the ordinary course of the voyage

Explanation

The sue and labour clause reimburses expenses voluntarily and reasonably incurred to avert or minimise a loss insured by the policy, and such charges are payable in addition to the sum insured. It encourages the insured to act promptly to save the property. Ordinary operating costs are not recoverable under it.

Question 8Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

In a contract of reinsurance, which relationship correctly describes the parties?

  1. The original insured can directly enforce the reinsurance contract against the reinsurer
  2. The reinsurer indemnifies the ceding insurer for the agreed share of the risk, and the original insured has no direct claim against the reinsurer Correct answer.
  3. The reinsurer acts as agent of the original insured for the purpose of settling claims
  4. The reinsurer is liable to the original insured for the whole loss irrespective of the ceding insurer

Explanation

Reinsurance is a contract between the ceding insurer and the reinsurer, under which the reinsurer indemnifies the ceding insurer for the agreed portion of the risk. Privity of contract means the original insured has no direct right of action against the reinsurer. The insured's remedy remains against the insurer that issued the policy.

Question 9Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

Which of the following is a distinguishing feature of facultative reinsurance compared with treaty reinsurance?

  1. The ceding insurer must cede all risks falling within the treaty definition
  2. The reinsurer is obliged to accept every risk ceded under the arrangement
  3. It automatically covers all new policies issued during the treaty period
  4. Each risk is offered and accepted individually, and either party may decline it Correct answer.

Explanation

Facultative reinsurance is arranged risk by risk, with the ceding insurer free to offer and the reinsurer free to accept or decline each risk. This contrasts with treaty reinsurance, which obliges the ceding insurer to cede and the reinsurer to accept risks falling within the treaty. Facultative placement suits large or unusual risks that do not fit the treaty.

Question 10Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

An insurer wants to protect itself against the accumulation of many small fire losses in a single year rather than against one very large loss. Which reinsurance arrangement is most appropriate?

  1. Stop loss (aggregate excess of loss) reinsurance Correct answer.
  2. Facultative reinsurance for each individual risk
  3. Quota share reinsurance
  4. Excess of loss reinsurance on a per risk basis

Explanation

Stop loss reinsurance responds when the insurer's aggregate losses in a defined period exceed an agreed percentage of premium income or a stated amount. It is designed for frequency and accumulation of many small losses rather than severity of a single loss. Per risk excess of loss responds to individual large losses instead.

Question 11Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

Under the principle of subrogation, after indemnifying the insured for damage caused by a third party, the insurer acquires which right?

  1. The right to claim an additional premium from the insured
  2. The right to cancel the insured's policy without notice
  3. The right to recover the amount paid from the third party responsible for the loss Correct answer.
  4. The right to sell the salvage for its own account regardless of the insured's interest

Explanation

Subrogation allows the insurer that has indemnified the insured to step into the insured's shoes and pursue the negligent third party for the amount paid. It supports the principle of indemnity by preventing the insured from recovering twice. The right arises only after payment and cannot exceed the amount indemnified.

Question 12Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

A fire policy contains a 'removal of debris' provision. What does this typically cover?

  1. Loss of rent while the damaged premises are being repaired
  2. The cost of fire-fighting operations undertaken by the municipal brigade
  3. The cost of rebuilding the premises on a new site of the insured's choice
  4. The cost of demolishing and removing the remains of damaged property, usually subject to a specified limit Correct answer.

Explanation

The removal of debris clause meets the reasonable cost of clearing, demolishing and removing the wreckage of insured property after a loss, normally up to a stated limit. Without it the insured would bear a substantial cost that is a direct consequence of the insured peril. It does not extend to rebuilding elsewhere or to loss of rent.

Question 13Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

In fire insurance, what is the purpose of the 'reinstatement value' basis of sum insured?

  1. To insure only the market value obtainable on a forced sale of the property
  2. To insure the depreciated book value of the property so that the claim equals the written-down value
  3. To insure the cost of replacing the damaged property with new property of the same kind and capacity without deduction for depreciation Correct answer.
  4. To insure the liability of the insured towards neighbouring property owners

Explanation

Reinstatement value cover insures the cost of replacing the damaged property with new property of the same kind and capacity, without deducting depreciation, provided the property is actually reinstated. It is an exception to strict indemnity and is normally subject to a condition requiring reinstatement within a stated period. It is not based on book or forced-sale value.

Question 14Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

A marine cargo policy is issued on a CIF basis. Which party normally has an insurable interest in the goods during the sea voyage?

  1. The party bearing the risk of loss at the relevant time, which under CIF terms passes to the buyer as the goods cross the ship's rail Correct answer.
  2. Only the carrier, because he is responsible for safe delivery
  3. Only the port authority, because it controls the docks
  4. Only the shipowner, because the goods are on board his vessel

Explanation

Insurable interest follows the incidence of risk. Under CIF terms the seller arranges insurance but risk passes to the buyer when the goods cross the ship's rail, so the buyer bears the transit risk thereafter. The carrier and port authority do not hold the insurable interest merely by handling the goods.

Question 15Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

Which of the following losses would typically be excluded from a standard marine cargo policy unless specifically covered?

  1. Loss caused by fire on board the carrying vessel
  2. Loss caused by the ordinary leakage, ordinary loss in weight or volume, or ordinary wear and tear of the subject matter Correct answer.
  3. Loss caused by the vessel sinking in heavy weather
  4. Loss caused by the vessel being stranded

Explanation

Marine cargo policies exclude inherent vice and ordinary losses such as leakage, loss in weight or volume and wear and tear, because these are natural consequences of the goods or the transit rather than fortuitous perils. Perils of the sea such as sinking, stranding and fire are covered under the standard risks. The exclusion reflects the fortuity principle.

Question 16Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

In engineering insurance, what does an 'erection all risks' policy cover?

  1. The risks of erection, installation and testing of plant and machinery until taken over by the principal Correct answer.
  2. The liability of the manufacturer for defects in the goods after sale
  3. The cost of routine maintenance of machinery already in operation
  4. The completed plant during its normal operating life

Explanation

Erection all risks insurance covers the period of erection, installation, testing and commissioning of plant and machinery up to taking over. It responds to accidental damage to the project and third-party claims during construction. Once the plant is operating, a machinery breakdown or property policy takes over.

Question 17Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

A machinery breakdown policy typically excludes which of the following?

  1. Damage caused by the accidental failure of the machine's safety device
  2. Loss or damage caused by normal wear and tear, gradual deterioration or faulty design Correct answer.
  3. Sudden and unforeseen mechanical breakdown of the insured machine
  4. Electrical breakdown causing damage to the insured machine itself

Explanation

Machinery breakdown insurance covers sudden and unforeseen accidental damage, but excludes gradual causes such as wear and tear, corrosion, erosion and faulty design or defective material. These are inherent deterioration that the insured is expected to control through maintenance. Electrical breakdown damaging the machine itself is generally covered subject to terms.

Question 18Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

In a public liability policy, what is the 'trigger' for the insurer's liability?

  1. The insured's failure to pay premium within the grace period
  2. The insured's decision to recall a product from the market
  3. The discovery of a latent defect in the insured's product after the policy has expired
  4. The occurrence of an accident or event during the policy period that results in bodily injury or property damage to a third party Correct answer.

Explanation

Public liability policies are generally written on an occurrence basis, so the policy responding is the one in force when the accident or event causing injury or damage occurs. Some covers use a claims-made basis, which must be stated expressly. Product recall and latent defects are dealt with under separate covers and exclusions.

Question 19Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

Which of the following best describes 'contribution' in general insurance?

  1. The right of the insurer to recover from a negligent third party
  2. The amount of premium ceded to a reinsurer under a treaty
  3. The right of an insurer to call upon other insurers covering the same interest and peril to share the loss Correct answer.
  4. The proportion of premium paid by the insured to the broker

Explanation

Contribution applies where more than one policy covers the same interest against the same peril, and it allows the insurers to share the loss so the insured recovers no more than the indemnity. It is a corollary of indemnity and operates alongside subrogation. It does not apply to life insurance, which is not a contract of indemnity.

Question 20Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

In the context of insurance regulation in India, what is the role of the Insurance Regulatory and Development Authority of India (IRDAI) in relation to policyholders?

  1. It acts as an agent for the insured in negotiating claims
  2. It regulates insurers and intermediaries and frames policyholder protection and grievance redressal requirements Correct answer.
  3. It underwrites risks that insurers decline to accept
  4. It settles claims directly with insureds on behalf of insurers

Explanation

IRDAI is the statutory regulator that licenses insurers and intermediaries, prescribes solvency and market conduct norms, and frames policyholder protection and grievance redressal rules. It does not itself underwrite risk, act as agent for policyholders or settle claims. Its oversight is regulatory rather than transactional.

Question 21Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

A policy contains a 'warranty' that a fire sprinkler system shall be maintained in working order. If the insured breaches this warranty, what is the general effect at common law on the insurer's liability?

  1. The insurer's liability is unaffected because warranties are merely advisory
  2. The insurer must pay the claim but may recover the amount from the insured's agent
  3. The insurer must pay the claim in full and may only increase future premium
  4. The insurer's liability is discharged from the date of the breach, subject to any statutory relief Correct answer.

Explanation

A warranty is a condition that must be exactly complied with, and breach discharges the insurer's liability from the date of breach at common law. Indian law has softened this through statutory relief where the breach is not connected with the loss and the insured has complied with other terms. Warranties must be material to the risk and clearly stated.

Question 22Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

Under a crop insurance scheme, what is the primary basis on which indemnity is usually computed?

  1. A fixed lump sum payable to every insured farmer regardless of loss
  2. The actual market price of the crop on the date of harvest
  3. The sum insured based on the yield threshold and the agreed price, payable when assessed yield falls below the threshold Correct answer.
  4. The cost of the farmer's labour and machinery only

Explanation

Crop insurance generally operates on a yield-index or threshold basis, where the sum insured is derived from the normal yield and an agreed price, and a claim arises when the assessed yield falls short of the threshold. This provides a defined and verifiable measure of loss. It is not based on the actual market price on the harvest date.

Question 23Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

In a group health insurance policy, what does 'waiting period' generally mean?

  1. The time allowed to the insurer to settle a claim after documents are received
  2. The period during which the insured may cancel the policy without penalty
  3. The period after a claim during which no further claim is payable
  4. The initial period after commencement during which specified illnesses or conditions are not covered Correct answer.

Explanation

A waiting period is the initial period after the policy commences during which specified conditions, such as pre-existing diseases or certain listed ailments, are excluded from cover. It protects the insurer against anti-selection by persons who insure only after becoming ill. It is distinct from the time limit for claim settlement or the free-look period.

Question 24Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

An insured's warehouse is insured for Rs. 40 lakh against a value of Rs. 50 lakh. A fire causes a loss of Rs. 10 lakh. Applying the average clause, what amount is payable?

  1. Rs. 5 lakh
  2. Rs. 8 lakh Correct answer.
  3. Rs. 4 lakh
  4. Rs. 10 lakh

Explanation

The average clause reduces the claim in the ratio of sum insured to value: Rs. 40 lakh divided by Rs. 50 lakh, applied to the loss of Rs. 10 lakh, gives Rs. 8 lakh. The insured bears the shortfall in proportion to the under-insurance. This illustrates why the sum insured should reflect the correct value of the property.

Question 25Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

In liability insurance, what is the significance of the 'limit of indemnity'?

  1. It is the maximum amount the insurer will pay for any one occurrence or in the aggregate, as stated in the policy Correct answer.
  2. It is the amount of the insured's deductible on each claim
  3. It is the value of the insured's own property at risk
  4. It is the minimum premium the insurer will accept for the risk

Explanation

The limit of indemnity caps the insurer's liability for any one occurrence and, where stated, for the aggregate of all claims in the policy period. It may be expressed as a sum insured or as a limit any one occurrence and in the aggregate. It is distinct from the deductible, which is the insured's share of each loss.

Question 26Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

Under a standard fire insurance policy in India, what is the purpose of the average (underinsurance) clause?

  1. To transfer the shortfall in cover to the mortgagee of the property
  2. To increase the sum insured automatically each year in line with inflation
  3. To allow the insurer to avoid the claim entirely where the sum insured is below value
  4. To reduce the claim in the proportion that the sum insured bears to the value of the property at risk Correct answer.

Explanation

The average clause applies where the sum insured is less than the value of the property at the time of loss, so the insured is treated as self-insuring the shortfall. The claim is paid in the ratio of sum insured to property value, thereby preserving the principle of indemnity. It does not void the policy or inflate cover.

Question 27Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

In a personal accident policy, what does a 'capital sum insured' represent?

  1. The maximum weekly income benefit payable during temporary disablement
  2. The medical expenses reimbursed after an accident
  3. The lump sum payable for death or specified permanent disablement Correct answer.
  4. The premium paid for each insured person

Explanation

The capital sum insured is the basic sum on which the policy's scale of benefits is built. Death and permanent total disablement typically pay the full capital sum, while permanent partial disablement pays a stated percentage. Weekly income and medical expenses are separate benefits, not the capital sum.

Question 28Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

What is the principal function of a reinsurance treaty?

  1. It obliges the reinsurer to accept, and the insurer to cede, business falling within its terms automatically Correct answer.
  2. It transfers the insurer's underwriting profit to the reinsurer without any transfer of risk
  3. It covers only a single risk that the insurer chooses to offer to the reinsurer
  4. It replaces the original policy so that the insured claims directly from the reinsurer

Explanation

A treaty is an agreement under which the cedant is bound to cede and the reinsurer bound to accept risks that fall within the defined class and limits. Business flows automatically without individual offer and acceptance. This distinguishes it from facultative reinsurance.

Question 29Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

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

  1. The policy to cover inland transit occurring after the sea voyage has ended
  2. The period of cover to include storage at the buyer's premises for up to twelve months
  3. The insured value to include the buyer's expected profit on resale
  4. The cover from the seller's warehouse through transit to the consignee's warehouse Correct answer.

Explanation

The warehouse to warehouse clause attaches cover from the time goods leave the consignor's warehouse and continues during the ordinary course of transit until delivery at the consignee's warehouse. It defines the transit period rather than extending storage or value.

Question 30Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

In a motor insurance policy, what does the 'own damage' section cover?

  1. Statutory compensation to passengers travelling in the vehicle
  2. Liability to third parties for bodily injury caused by the insured vehicle
  3. Legal costs of defending the insured against third-party claims
  4. Loss of or damage to the insured vehicle itself from insured perils Correct answer.

Explanation

The own damage section indemnifies the insured for loss or damage to the insured vehicle from perils such as accident, fire, theft and natural calamity. Third-party liability is a separate section of the motor package policy.

Question 31Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

Under a health insurance policy, what is a 'pre-existing disease' typically defined as?

  1. A condition diagnosed or treated within a defined period before the policy commenced Correct answer.
  2. An illness arising from an occupational hazard declared in the proposal
  3. A disease contracted during the waiting period after inception
  4. Any illness first diagnosed after the policy has been in force for one year

Explanation

Pre-existing diseases are conditions that the insured suffered from, or was treated for, within a defined look-back period before the policy started. Such conditions are usually subject to a waiting period before they become payable. Conditions first arising after inception are not pre-existing.

Question 32Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

In an insurance contract, what is the significance of 'uberrimae fidei'?

  1. The insured must insure for the full value of the subject matter
  2. Both parties must disclose all material facts relevant to the risk Correct answer.
  3. The insurer must pay all claims within thirty days of intimation
  4. The policy must be renewed annually without fresh underwriting

Explanation

Uberrimae fidei means the utmost good faith, requiring both parties, and especially the proposer, to disclose all material facts. Non-disclosure or misrepresentation of a material fact can make the contract voidable. It is distinct from indemnity, which concerns the measure of recovery.

Question 33Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

What is the purpose of a 'no claim discount' in a motor policy?

  1. To waive the compulsory third-party premium
  2. To reward claim-free years with a reduced renewal premium Correct answer.
  3. To increase the sum insured in line with vehicle depreciation
  4. To reduce the excess payable by the insured after a claim

Explanation

A no claim discount is a premium concession granted at renewal where the insured has made no claim during the preceding year. It rewards favourable claims experience and encourages careful driving. It does not alter the excess or the sums insured.

Question 34Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

An insured holds two fire policies covering the same property for the same risk and suffers a loss. How does the principle of contribution operate?

  1. The insurer issuing the earlier policy pays the whole claim and recovers nothing
  2. The insured may recover the full loss from either insurer and retain both payments
  3. Each insurer pays its rateable proportion so that the insured does not recover more than the loss Correct answer.
  4. Both insurers pay the full sum insured, and the excess is refunded to the insured

Explanation

Contribution requires insurers covering the same interest against the same peril to share the loss rateably. The insured is indemnified once only and cannot profit from multiple policies. Any insurer paying more than its share may seek contribution from the others.

Question 35Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

A fire policy has a sum insured of Rs. 60 lakh on property valued at Rs. 80 lakh, and a loss of Rs. 16 lakh occurs. Applying the average clause, what amount is payable?

  1. Rs. 16 lakh
  2. Rs. 8 lakh
  3. Rs. 20 lakh
  4. Rs. 12 lakh Correct answer.

Explanation

The average clause pays in the ratio of sum insured to property value, here 60/80, i.e. three-quarters of the loss. Three-quarters of Rs. 16 lakh is Rs. 12 lakh. The insured bears the remaining Rs. 4 lakh as the uninsured portion.

Question 36Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

In a liability policy, what does an 'aggregate limit of indemnity' restrict?

  1. The liability of the insured towards each individual claimant
  2. The maximum payable for any single occurrence during the policy period
  3. The total payable for all claims during the policy period Correct answer.
  4. The insurer's liability for defence costs only

Explanation

An aggregate limit caps the insurer's total liability across all claims in the policy period, whereas a per-occurrence limit caps each individual event. Once the aggregate is exhausted, no further indemnity is payable even if the per-occurrence limit remains unexhausted. It does not define the insured's own liability to claimants.

Question 37Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

What distinguishes a 'claims-made' liability policy from an 'occurrence' policy?

  1. A claims-made policy covers only claims notified after the policy has expired
  2. A claims-made policy responds to claims first made during the policy period, regardless of when the act occurred Correct answer.
  3. A claims-made policy excludes all retroactive cover by definition
  4. A claims-made policy responds only to acts committed during the policy period, whenever the claim is made

Explanation

Under a claims-made policy the trigger is the making of the claim during the period of insurance, subject to any retroactive date. An occurrence policy instead responds to injury or damage occurring during the policy period, whenever the claim is later presented. This timing distinction is central to professional indemnity and similar covers.

Question 38Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

In engineering insurance, what is the purpose of the maintenance (defects liability) period cover under a contractors' all risks policy?

  1. To cover loss or damage occurring during the construction phase
  2. To cover the cost of routine servicing of construction plant
  3. To cover penalties for late completion of the project
  4. To cover loss or damage arising during the maintenance period from a defect in the completed works Correct answer.

Explanation

Maintenance cover extends protection into the period after completion, responding to loss or damage caused by a defect in the insured works that originates during construction. It is distinct from the construction-period cover itself. Routine servicing and contractual penalties are not insured.

Question 39Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

Under a marine hull policy, what does the ' Inchmaree ' clause extend cover to?

  1. Negligence of the master or crew and latent defects in machinery, subject to conditions Correct answer.
  2. Ordinary wear and tear of the hull
  3. Loss arising from the insolvency of the shipowner
  4. Loss caused by war and warlike operations

Explanation

The Inchmaree clause covers loss or damage caused by negligence of masters, officers, crew or pilots, and by latent defects in machinery or hull, provided the loss was not due to want of due diligence by the owner. It fills a gap left by traditional perils. War risks and wear and tear remain separately excluded.

Question 40Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

What is the function of a 'loss adjuster' in the settlement of a large fire claim?

  1. To investigate the cause and quantum of loss and report to the insurer Correct answer.
  2. To sell the salvage of damaged property on behalf of the insurer
  3. To underwrite the risk before the policy is issued
  4. To issue the policy and collect the premium from the insured

Explanation

A loss adjuster is appointed by the insurer to investigate the circumstances of the loss and verify the amount claimed. The adjuster reports findings and recommends settlement, acting as an independent professional. Selling salvage, issuing policies and underwriting are different functions.

Question 41Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

An insured fails to disclose a previous fire loss when proposing for fire insurance, and the insurer issues the policy. What is the insurer's usual position on discovering the non-disclosure?

  1. The insurer can only cancel cover at the next renewal date
  2. The insurer may avoid the policy for non-disclosure of a material fact Correct answer.
  3. The policy remains fully valid because the loss was already settled
  4. The insurer must pay the claim but may increase the next premium

Explanation

A previous fire loss is material to the assessment of the risk, and non-disclosure of a material fact entitles the insurer to avoid the contract. The remedy is available even after the policy is issued. It is not limited to a premium adjustment or to renewal.

Question 42Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

In a shopkeepers' policy, what is the purpose of the 'plate glass' cover?

  1. To cover theft of glass stock held for resale
  2. To cover breakage of fixed glass in shop fronts and displays Correct answer.
  3. To cover liability for injury caused by broken glass to customers
  4. To cover the cost of glazing during construction of the shop

Explanation

Plate glass cover indemnifies the insured for accidental breakage of fixed glass such as shop fronts, windows and display panels. It may extend to necessary boarding-up. Public liability for injury and theft of stock are separate covers.

Question 43Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

What is the role of a 'tariff' in the context of Indian general insurance?

  1. It sets minimum premium rates and terms for specified classes of business Correct answer.
  2. It fixes the commission payable to agents by law
  3. It determines the solvency margin required of each insurer
  4. It prescribes the accounting format for insurers' financial statements

Explanation

A tariff prescribes minimum rates and standard terms for designated classes of insurance, historically applied to fire, marine and motor business. Its purpose is to prevent unhealthy rate-cutting and protect the market. Solvency, commission and accounting matters are dealt with by regulation, not by tariff.

Question 44Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

In a burglary insurance policy, what is typically meant by the term 'burglary'?

  1. Theft by a person lawfully admitted to the premises
  2. Misappropriation of cash by an employee
  3. Forcible and violent entry into or exit from the premises Correct answer.
  4. Loss of property discovered missing during a stock audit

Explanation

Burglary requires visible evidence of forcible and violent entry into or exit from the premises. Theft by someone lawfully admitted, or simple theft without violence, falls outside the definition. Employee dishonesty is covered by a separate fidelity guarantee policy.

Question 45Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

A fidelity guarantee policy indemnifies the employer for which of the following?

  1. Loss of profits following a fire at the insured's premises
  2. Loss of money or property due to fraud or dishonesty of an employee occupying a specified position Correct answer.
  3. Liability to the public for injury caused by an employee
  4. Damage to the insured's own machinery caused by an employee's negligence

Explanation

Fidelity guarantee cover protects the employer against loss of money or property caused by the fraud or dishonesty of employees named or described in the policy. It is a guarantee of employee honesty. It does not cover fire losses, public liability or accidental damage to property.

Question 46Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

In a business interruption (consequential loss) policy, what does the 'indemnity period' mean?

  1. The period during which the insured must pay the premium
  2. The period between the occurrence of damage and the appointment of a loss adjuster
  3. The period of cover for the material damage policy
  4. The maximum period for which the insurer will pay for loss of gross profit following an insured event Correct answer.

Explanation

The indemnity period is the maximum period after the commencement of interruption for which the insurer will pay consequential loss. It runs from the date of damage until the business is restored to its pre-loss level. Choosing a period shorter than the actual recovery time leaves the insured under-insured.

Question 47Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

A marine hull policy is valued at Rs. 5 crore when the ship's market value at inception is Rs. 5 crore. After a partial loss, the ship is worth Rs. 3 crore. How is a partial loss generally indemnified under a valued policy?

  1. On the basis of the actual cost of repairs less the value of old materials replaced
  2. On the basis of the sum insured without any deduction for depreciation of repaired parts Correct answer.
  3. On the basis of the reduced market value at the time of loss
  4. On the basis of the insured value, with depreciation of the repaired parts applied

Explanation

Under a valued hull policy, the agreed value is conclusive for both total and partial losses, and repairs are paid on a new-for-old basis without deduction for depreciation. This is a recognised exception to the indemnity principle in marine hull insurance. It avoids disputes about the vessel's value at the time of loss.

Question 48Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

An insurer has a surplus treaty with a retention of Rs. 10 lakh and nine lines. A risk with a sum insured of Rs. 1.2 crore is offered. What happens to the portion that exceeds the treaty capacity?

  1. The insured's policy is reduced to the treaty capacity
  2. The whole risk is automatically accepted by the treaty reinsurer
  3. The excess must be retained by the cedant or placed under a further reinsurance arrangement Correct answer.
  4. The treaty reinsurer must increase its lines to absorb the excess

Explanation

The treaty capacity is the retention plus the number of lines, here Rs. 10 lakh plus nine lines of Rs. 10 lakh, giving Rs. 1 crore. The remaining Rs. 20 lakh is not covered by the surplus treaty and must be retained by the cedant or covered by a further arrangement such as another treaty or facultative placement.

Question 49Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

An insured holding a fire policy and a consequential loss policy suffers a fire. Which statement best explains the relationship between the two claims?

  1. The consequential loss claim is payable only after the fire claim has been fully settled in cash
  2. The consequential loss claim is payable independently of the fire policy because it insures profit
  3. The consequential loss claim replaces the fire claim so that only one indemnity is paid
  4. The consequential loss claim is payable only if the material damage claim is admitted under the fire policy Correct answer.

Explanation

Consequential loss cover is triggered by damage that is indemnifiable under the material damage policy. If the fire claim is rejected, for example for breach of a condition, the business interruption claim generally fails as well. The two policies cover different interests and do not replace one another.

Question 50Insurance Institute of India professional examination subject IC-81 (domain structure not enumerated in source)

In liability underwriting, what is the effect of a 'retroactive date' in a claims-made professional indemnity policy?

  1. It excludes cover for claims arising from acts committed before the stated date Correct answer.
  2. It fixes the date on which the premium becomes due
  3. It extends cover to claims arising from acts committed before the retroactive date
  4. It sets the date by which the insured must notify a claim

Explanation

A retroactive date limits claims-made cover by excluding liability for wrongful acts committed before that date. Acts on or after the retroactive date remain covered if the claim is made during the policy period. It therefore protects the insurer from taking on historic exposure.