Domain 1 - Scope not stated in the retrieved source: insurance fundamentals the IC-series papers test
Scope note
The retrieved source did not list this exam's domains or weightings, so treat this section as a foundation module: it covers the concepts that recur in nearly every insurance certification paper and that the published syllabus will almost certainly assume. Confirm the official domain list before allocating revision time.
Core rules
- Insurable interest must exist at inception for life cover, and at both inception and loss for property cover. A policyholder who has already sold the insured property generally cannot claim.
- Indemnity restores the insured to the pre-loss financial position - never better, never worse. Life and personal accident policies are benefit policies and sit outside indemnity.
- Subrogation transfers the insured's rights of recovery against a negligent third party to the insurer, but only after the insurer has paid, and only to the extent of that payment.
- Contribution applies when two or more policies cover the same interest, subject matter and peril, sharing the loss rateably.
- Proximate cause is the dominant, efficient cause of loss, not simply the last event in the chain.
- Utmost good faith obliges disclosure of material facts - those a prudent underwriter would treat as influencing acceptance or terms. It is not a duty to disclose everything.
Worked example
Sum insured ₹8,00,000; value at risk at the time of loss ₹10,00,000; actual loss ₹4,00,000. The policy carries an average (underinsurance) clause, so the claim is loss × (sum insured ÷ value) = ₹4,00,000 × 0.80 = ₹3,20,000. The insured absorbs ₹80,000 as the co-insurance penalty. Without the clause, the full ₹4,00,000 would be payable, capped at the sum insured.
Traps that cost marks
- Confusing subrogation (insurer steps into the insured's shoes against a third party) with contribution (insurers share among themselves).
- Treating proximate cause as the final cause in time rather than the dominant one.
- Applying indemnity principles to life or personal accident benefits.
- Calling every non-disclosure fraud; innocent, negligent and fraudulent non-disclosure carry different consequences.
- Forgetting that average clauses reduce the claim only where the sum insured is below value.