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Question 1Insurance and Life Insurance Fundamentals

Under the principle of indemnity, what does a life insurance policy pay on the death of the insured?

  1. The sum assured stated in the policy Correct answer.
  2. The market value of the insured's estate
  3. The exact financial loss suffered by the nominee
  4. The total premiums paid plus bank interest

Explanation

Life insurance is a benefit policy and not a strict contract of indemnity, because a human life cannot be valued in money. The insurer therefore pays the agreed sum assured rather than reimbursing a measured loss. This distinguishes life cover from fire or marine insurance, where payment is limited to the actual loss.

Question 2Insurance and Life Insurance Fundamentals

A person takes a life insurance policy on their own life and names their spouse as the nominee. Who is the 'life assured' in this contract?

  1. The spouse named as nominee
  2. The person on whose life the policy is taken Correct answer.
  3. The insurer's underwriting department
  4. The insurance agent who procured the policy

Explanation

The life assured is the individual whose life is covered by the policy and on whose continued existence the contract depends. The nominee is only the person authorised to receive the claim money and is not the life assured. Confusing the two matters because the life assured's age, health and habits drive the risk assessment.

Question 3Insurance and Life Insurance Fundamentals

Which of the following best describes 'utmost good faith' in an insurance contract?

  1. The agent must guarantee that a claim will be paid
  2. The policyholder must renew the policy every year without fail
  3. The insurer alone must disclose every internal underwriting rule to the proposer
  4. Both parties must disclose all material facts relevant to the risk honestly and completely Correct answer.

Explanation

Insurance rests on mutual trust because the proposer knows facts about the risk that the insurer cannot easily verify. Both sides must therefore disclose material information fully and truthfully, and neither may mislead the other. Breach of this duty can allow the insurer to avoid the contract.

Question 4Insurance and Life Insurance Fundamentals

In life insurance terminology, what is a 'nomination'?

  1. The transfer of ownership of the policy to a lender
  2. The authorisation to receive the policy money on the insured's death Correct answer.
  3. The insurer's right to reject a proposal
  4. The process of calculating the premium rate

Explanation

Nomination is the act by which the policyholder authorises a named person to collect the policy money in the event of the life assured's death. It gives the nominee the right to receive the benefit but does not make the nominee the owner of the policy. Ownership is transferred only by assignment.

Question 5Insurance and Life Insurance Fundamentals

Which type of life insurance policy provides cover for a fixed term and pays only if death occurs during that term?

  1. Endowment policy
  2. Money-back policy
  3. Term insurance policy Correct answer.
  4. Whole life policy

Explanation

Term insurance covers a defined period and pays the sum assured only if the life assured dies within that period. If the insured survives the term, no maturity benefit is normally payable. It is the purest form of protection and usually carries the lowest premium for a given sum assured.

Question 6Insurance and Life Insurance Fundamentals

What is the primary purpose of underwriting in life insurance?

  1. To classify risks fairly and decide the terms on which cover is offered Correct answer.
  2. To fix the interest rate paid on policy loans
  3. To maximise the commission paid to agents
  4. To reduce the number of policies issued each year

Explanation

Underwriting assesses the proposer's health, age, occupation and habits to estimate the mortality risk. The insurer then decides whether to accept the risk at standard rates, charge an extra premium, impose exclusions, or decline. This keeps premiums equitable across policyholders with different risk profiles.

Question 7Insurance and Life Insurance Fundamentals

A policyholder stops paying premiums and the policy lapses. Which feature is designed to protect the policyholder from losing all benefits in such a situation?

  1. Free-look period
  2. Non-forfeiture provisions Correct answer.
  3. Grace period
  4. Suicide clause

Explanation

Non-forfeiture provisions ensure that a policy with sufficient cash value continues in some reduced form, such as a reduced paid-up policy or extended term cover, even after premiums stop. The policyholder therefore does not lose everything paid in. The grace period only delays lapse and does not itself preserve benefits.

Question 8Insurance and Life Insurance Fundamentals

What does the 'free-look period' in a life insurance policy allow?

  1. The agent to revise the sum assured after issue
  2. The policyholder to skip premiums without any consequence
  3. The policyholder to return the policy within a specified period and receive a refund Correct answer.
  4. The insurer to cancel a policy at any time

Explanation

The free-look period gives the policyholder a short window after receiving the policy to review its terms and return it if unsuitable. On return, the insurer refunds the premium subject to deductions such as medical examination costs. It protects customers who bought without fully understanding the product.

Question 9Insurance and Life Insurance Fundamentals

A proposer aged 40 applies for a term policy. The underwriter finds a controlled medical condition and decides to issue the policy with an extra premium. What is this extra amount called?

  1. Surrender value
  2. Loading Correct answer.
  3. Claim concession
  4. Bonus

Explanation

Loading is an additional premium charged to reflect a higher-than-standard mortality risk identified during underwriting. It may be applied permanently or for a limited number of years depending on the condition. Charging loading allows the insurer to accept the risk while keeping the base rates fair to standard lives.

Question 10Insurance and Life Insurance Fundamentals

An agent tells a prospect that a life insurance policy is a 'tax-saving investment with guaranteed high returns'. Why is this statement problematic under insurance selling norms?

  1. It is only a problem if the customer complains later
  2. It misrepresents the product by overstating returns and ignoring that protection is the core purpose Correct answer.
  3. It is acceptable because tax benefits are always guaranteed
  4. It is acceptable if the agent gives the advice in writing

Explanation

Insurance selling must be based on accurate, balanced information about the product's features, benefits and limitations. Promising guaranteed high returns misrepresents a protection product and can amount to mis-selling. Tax benefits depend on prevailing law and the customer's circumstances, so they cannot be guaranteed as returns.

Question 11Insurance and Life Insurance Fundamentals

In a participating (with-profits) life insurance policy, what does a 'reversionary bonus' represent?

  1. A refund of the agent's commission
  2. A periodic addition to the sum assured declared from the insurer's surplus Correct answer.
  3. A one-time bonus paid only on surrender
  4. A loan given to the policyholder against the policy

Explanation

A reversionary bonus is declared periodically and added to the sum assured, becoming payable on death or maturity along with the basic sum assured. It reflects the policyholder's share of the insurer's surplus in a with-profits fund. Once declared, it is normally guaranteed and cannot be withdrawn.

Question 12Insurance and Life Insurance Fundamentals

A life assured dies by suicide eleven months after the policy's issue date, and the policy contains a standard one-year suicide clause. What is the typical insurer response?

  1. Pay double the sum assured as compensation
  2. Reject the claim and keep all premiums permanently
  3. Refund premiums paid, usually without interest, as per the clause Correct answer.
  4. Pay the full sum assured plus all bonuses

Explanation

A suicide clause limits the insurer's liability if the life assured dies by suicide within a stated initial period, commonly one year. In that event the insurer typically refunds the premiums paid instead of paying the sum assured. After the clause period expires, a suicide claim is normally treated like any other death claim.

Question 13Insurance and Life Insurance Fundamentals

What is the key difference between assignment and nomination of a life insurance policy?

  1. Nomination transfers ownership, while assignment only names a beneficiary
  2. Neither has any legal effect until the policy matures
  3. Assignment transfers ownership rights, while nomination only gives the right to receive policy money Correct answer.
  4. Both transfer full ownership to the nominee

Explanation

Assignment is a transfer of the policyholder's rights in the policy to another person, making the assignee the owner. Nomination merely authorises a person to receive the policy money on the life assured's death and does not transfer ownership. A nominee's right is therefore weaker than that of an assignee.

Question 14Insurance and Life Insurance Fundamentals

A policyholder wants a lower premium but still needs a large sum assured to cover a home loan for twenty years. Which product best matches this need?

  1. A single-premium endowment plan
  2. An immediate annuity plan
  3. A twenty-year term insurance policy with a high sum assured Correct answer.
  4. A whole life policy with a small sum assured

Explanation

Term insurance provides pure death protection for a chosen period at the lowest premium for a given sum assured. Matching the term to the twenty-year loan ensures the cover lasts as long as the liability. Whole life and endowment plans cost more for the same cover because they build cash value or pay on survival.

Question 15Insurance and Life Insurance Fundamentals

What is 'moral hazard' in the context of life insurance underwriting?

  1. The risk that the insurer's staff make clerical errors
  2. The risk that a natural disaster affects many policyholders at once
  3. The risk that interest rates fall below the insurer's assumptions
  4. The risk that the policyholder's dishonest or careless behaviour increases the chance of a claim Correct answer.

Explanation

Moral hazard refers to risk arising from the character or conduct of the insured, such as concealment of habits or incentives to claim. It is distinct from physical hazard, which relates to tangible conditions affecting risk. Underwriters assess moral hazard through proposal questions and sometimes reports.

Question 16Insurance and Life Insurance Fundamentals

Which of the following is a fundamental principle that applies to insurance contracts but has little relevance to ordinary commercial sales contracts?

  1. Legality of object
  2. Offer and acceptance
  3. Insurable interest Correct answer.
  4. Consideration

Explanation

Insurable interest requires the policyholder to stand to suffer a financial or recognized loss if the insured event occurs. It is peculiar to insurance and helps prevent wagering on another person's life. Ordinary sale contracts require offer, acceptance, consideration and lawful object but not insurable interest.

Question 17Insurance and Life Insurance Fundamentals

A person insured under a policy dies in a road accident. The nominee submits the claim with the required documents. What is the amount normally payable?

  1. Only the premiums paid, minus charges
  2. The cash value less outstanding premiums only
  3. The sum assured plus any declared bonuses, subject to policy terms Correct answer.
  4. The surrender value of the policy on the date of death

Explanation

On a valid death claim, the insurer pays the sum assured together with any bonuses or additional benefits that have accrued under the policy. The payment is subject to the terms of the contract, such as exclusions and outstanding premium adjustments. Surrender value applies when the policy is discontinued by the policyholder, not on death.

Question 18Insurance and Life Insurance Fundamentals

What is the role of the Insurance Regulatory and Development Authority of India (IRDAI) in the Indian insurance market?

  1. It acts as the sole reinsurer for all Indian insurers
  2. It sells life insurance policies directly to the public
  3. It sets the salary of all insurance agents
  4. It regulates, promotes and ensures the orderly growth of the insurance industry Correct answer.

Explanation

IRDAI is the statutory regulator established to protect policyholders and to regulate and promote the orderly growth of the insurance sector. It frames regulations on product design, solvency, distribution and conduct. It does not itself sell policies or act as a reinsurer.

Question 19Insurance and Life Insurance Fundamentals

An endowment policy with a sum assured of 5,00,000 matures after twenty years with accrued bonuses of 1,20,000. The policyholder survives to maturity. What does the insurer pay?

  1. 6,20,000 Correct answer.
  2. 1,20,000 only
  3. 5,00,000 only
  4. Nothing, because the policyholder survived

Explanation

An endowment policy pays the sum assured plus accrued bonuses if the life assured survives to maturity. Here the sum assured of 5,00,000 plus bonuses of 1,20,000 totals 6,20,000. Survival is precisely the event that triggers a maturity claim in an endowment plan.

Question 20Insurance and Life Insurance Fundamentals

Which statement correctly describes the relationship between risk and premium in life insurance?

  1. Premium depends only on the sum assured and not on age
  2. Risk has no bearing on premium once the policy is issued
  3. Higher mortality risk generally leads to a higher premium for the same cover Correct answer.
  4. Higher mortality risk always reduces the premium

Explanation

Premiums are based on expected mortality, expenses and interest assumptions, so a higher assessed risk requires a higher premium for the same cover. Age, health and habits are therefore central to pricing. The relationship allows the insurer to pool risks equitably across policyholders.

Question 21Insurance and Life Insurance Fundamentals

A policyholder with a participating policy surrenders it after several years. Which amount is the insurer most likely to pay?

  1. A surrender value based on the policy's cash value at that time Correct answer.
  2. The full sum assured plus all future bonuses
  3. The total premiums paid with no deductions
  4. The sum assured minus premiums paid

Explanation

On surrender, the insurer pays a surrender value calculated from the policy's accumulated cash value, which reflects premiums paid, expenses and the policy's duration. Early surrender often attracts deductions, and future bonuses are not paid. The full sum assured is not payable because the contract is being terminated early.

Question 22Insurance and Life Insurance Fundamentals

An individual wants to insure the life of a business partner whose death would cause financial loss to the firm. What must exist for this policy to be valid?

  1. Approval from the local municipal authority
  2. A nomination in favour of the insurer
  3. Insurable interest arising from the financial relationship Correct answer.
  4. A blood relationship between the two parties

Explanation

Insurable interest can arise from financial relationships, such as a business partnership, where one party's death causes measurable loss to the other. Blood relationship is one common basis of interest but is not the only one. The interest must exist at the time the policy is taken out.

Question 23Insurance and Life Insurance Fundamentals

A proposer conceals a history of heart disease when applying for a life policy and dies of a heart attack two years later. How may the insurer treat the claim under the doctrine of utmost good faith?

  1. The insurer must pay because the death cause was not directly stated in the proposal
  2. The insurer must pay because two years have passed since issue
  3. The insurer may repudiate the claim because a material fact was suppressed Correct answer.
  4. The insurer must pay but can only reduce the sum assured by half

Explanation

Suppression of a material fact that would have influenced the underwriting decision is a breach of the duty of good faith. The insurer may therefore repudiate the claim and avoid the contract, depending on the policy terms and applicable law. The length of time since issue does not cure deliberate non-disclosure.

Question 24Insurance and Life Insurance Fundamentals

Which of the following best explains why life insurers use mortality tables?

  1. To determine the stock market returns of the insurer
  2. To calculate the age at which every policyholder will die
  3. To decide the commission rates paid to agents
  4. To estimate the probability of death at each age and price premiums accordingly Correct answer.

Explanation

Mortality tables summarise statistical probabilities of death at each age within a population. Insurers use them with assumptions on expenses and interest to calculate premiums and reserves. They do not predict individual deaths, only aggregate likelihoods.

Question 25Insurance and Life Insurance Fundamentals

A policyholder has taken a loan against a life insurance policy and dies before repaying it. How is the death claim typically settled?

  1. The full sum assured is paid and the loan is written off
  2. The claim is rejected because a loan was taken
  3. The outstanding loan with interest is deducted from the claim amount payable Correct answer.
  4. Only the loan amount is paid to the nominee

Explanation

A policy loan is advanced against the surrender value and remains a debt owed to the insurer. On a death claim, the outstanding loan plus accrued interest is deducted and the balance is paid to the nominee. The policy is not voided merely because a loan was taken.

Question 26Insurance and Life Insurance Fundamentals

In life insurance terminology, what does the 'sum assured' refer to?

  1. The commission an agent earns when a policy is first sold
  2. The surrender value payable if the policy is discontinued early
  3. The amount the insurer guarantees to pay on the occurrence of the insured event Correct answer.
  4. The total premiums the policyholder will pay over the full policy term

Explanation

The sum assured is the contractual amount the insurer promises to pay on death or maturity, as stated in the policy schedule. It is the core benefit the policyholder buys and forms the basis for calculating premiums and bonuses.

Question 27Insurance and Life Insurance Fundamentals

Which document does a person complete first when applying for a life insurance policy, providing personal, medical and financial details?

  1. The discharge voucher
  2. The claim form
  3. The proposal form Correct answer.
  4. The renewal notice

Explanation

The proposal form is the application document in which the proposer discloses personal, health and financial information. It forms the basis of the insurance contract, and the insurer relies on these disclosures for underwriting and issuing the policy.

Question 28Insurance and Life Insurance Fundamentals

What is the standard definition of a 'premium' in a life insurance contract?

  1. The fee paid to a surveyor for assessing a claim
  2. The lump sum paid to the nominee when the life assured survives the term
  3. The consideration paid by the policyholder to the insurer in exchange for cover Correct answer.
  4. The penalty charged when a policy is surrendered before maturity

Explanation

A premium is the consideration the policyholder pays in return for the insurer's promise to provide cover. Premiums can be paid regularly or as a single payment, and non-payment can lead to lapse.

Question 29Insurance and Life Insurance Fundamentals

Which type of life insurance policy provides cover for a fixed term and pays the sum assured only if the life assured dies during that term?

  1. Endowment insurance
  2. Whole life insurance
  3. Term insurance Correct answer.
  4. Money-back policy

Explanation

Term insurance pays the sum assured only on death within the chosen term and generally has no maturity benefit if the life assured survives. It therefore provides pure protection at a comparatively low premium.

Question 30Insurance and Life Insurance Fundamentals

What is the main purpose of the 'nomination' facility in a life insurance policy?

  1. To allow the insurer to change the beneficiary at will
  2. To transfer ownership of the policy to a lender as security
  3. To permit the policyholder to skip premium payments
  4. To name a person who will receive the policy money on the death of the policyholder Correct answer.

Explanation

Nomination names a person to whom the policy money is payable if the policyholder dies during the term. The nominee receives the proceeds as a trustee for the legal heirs, ensuring prompt settlement.

Question 31Insurance and Life Insurance Fundamentals

Which of the following documents is issued by an insurer as formal evidence that a life insurance contract has been effected?

  1. The prospectus
  2. The census certificate
  3. The policy document Correct answer.
  4. The annual report

Explanation

The policy document is the formal instrument evidencing the contract between the insurer and the policyholder. It records the sum assured, premium, term and conditions, and is the basis for any claim.

Question 32Insurance and Life Insurance Fundamentals

What does 'maturity' of a life insurance policy mean?

  1. The date on which the nominee is appointed
  2. The date on which the policy is cancelled by the insurer for non-payment
  3. The point at which the policyholder may first take a loan
  4. The end of the policy term, when the contracted benefit becomes payable if the life assured survives Correct answer.

Explanation

Maturity occurs at the end of the policy term, when the insurer pays the maturity benefit if the life assured is alive. For endowment policies this includes the sum assured plus accrued bonuses.

Question 33Insurance and Life Insurance Fundamentals

Which of the following best describes 'whole life insurance'?

  1. Cover that returns premiums if the life assured survives the term
  2. Cover that remains in force for the lifetime of the life assured, with the sum assured payable on death Correct answer.
  3. Cover that pays only if the life assured dies within a five-year term
  4. Cover that pays a benefit only on accidental death

Explanation

Whole life insurance provides lifetime cover and pays the sum assured on the death of the life assured whenever it occurs. It is distinct from term and endowment products, which are linked to defined terms.

Question 34Insurance and Life Insurance Fundamentals

A policyholder has paid premiums for several years on an endowment policy and now needs funds but wants to keep the cover alive. Which option allows borrowing against the policy while it remains in force?

  1. Take a policy loan within the surrender value limit Correct answer.
  2. Convert it to a paid-up policy
  3. Surrender the policy
  4. Assign the policy to a bank

Explanation

A policy loan lets the policyholder borrow up to a specified percentage of the surrender value while the policy continues in force. The loan and interest are adjusted against any claim or maturity benefit.

Question 35Insurance and Life Insurance Fundamentals

An insurer calculates that the probability of death within a year for a group of 40-year-old males is about 2 per 1,000. What is the mortality rate for this group?

  1. 20 per 1,000
  2. 0.2 per 1,000
  3. 0.02 per 1,000
  4. 2 per 1,000 Correct answer.

Explanation

The mortality rate is the number of deaths per 1,000 lives in a year. With 2 deaths per 1,000 lives, the rate is expressed as 2 per 1,000, which is the basis for pricing the pure protection element of the premium.

Question 36Insurance and Life Insurance Fundamentals

An endowment policy with a sum assured of 2,00,000 matures with vested bonuses of 40,000. What amount is payable to the policyholder on maturity?

  1. 1,60,000
  2. 40,000
  3. 2,00,000
  4. 2,40,000 Correct answer.

Explanation

On maturity of a participating endowment policy, the policyholder receives the sum assured plus accrued bonuses. The correct amount is therefore 2,00,000 plus 40,000, equal to 2,40,000.

Question 37Insurance and Life Insurance Fundamentals

Which of the following is a valid reason for an insurer to decline a life insurance proposal?

  1. The proposer has named a nominee
  2. The proposer has selected annual premium payment
  3. The proposer's age is within the insurer's accepted range
  4. The proposer has concealed a serious pre-existing illness Correct answer.

Explanation

Material non-disclosure, such as concealing a serious pre-existing illness, gives the insurer grounds to decline or later repudiate the contract. Full and honest disclosure is a fundamental duty of the proposer.

Question 38Insurance and Life Insurance Fundamentals

What is the primary function of the 'grace period' in a life insurance policy?

  1. It allows the insurer to delay settlement of a claim indefinitely
  2. It extends the policy term by one year for free
  3. It gives the policyholder extra time after the due date to pay a premium without losing cover Correct answer.
  4. It permits the policyholder to cancel the policy without any consequence

Explanation

The grace period allows the policyholder to pay an overdue premium within a specified time, usually fifteen to thirty days, while the policy remains in force. If death occurs during this period, the unpaid premium is deducted from the claim.

Question 39Insurance and Life Insurance Fundamentals

A policyholder stops paying premiums after three years on a policy with a surrender value. Which option allows the policy to continue with a reduced sum assured without further premiums?

  1. Assign the policy to a relative
  2. Surrender the policy for its cash value
  3. Take a policy loan
  4. Convert the policy to a paid-up policy Correct answer.

Explanation

When premiums cease after the policy has acquired surrender value, the policy can be made paid-up. The sum assured is reduced proportionately to the premiums paid, and the policy continues without further premiums.

Question 40Insurance and Life Insurance Fundamentals

Which of the following best describes the 'insurable interest' requirement at the time of taking a life insurance policy?

  1. The insurer must hold a stake in the policyholder's business
  2. The nominee must be financially dependent on the policyholder
  3. The life assured must be a blood relative of the agent
  4. The policyholder must have a financial or legal relationship with the life assured such that loss would result from that person's death Correct answer.

Explanation

Insurable interest requires the policyholder to suffer a financial or legal loss if the life assured dies. It prevents the use of insurance as a wagering contract and must exist when the policy is effected.

Question 41Insurance and Life Insurance Fundamentals

A person aged 45 buys a twenty-year term policy and survives the full term. What is the typical outcome at the end of the term?

  1. The sum assured is paid with accrued bonuses
  2. No maturity benefit is payable unless the policy includes a return-of-premium feature Correct answer.
  3. The insurer refunds all premiums with interest as a standard benefit
  4. The sum assured is paid without bonuses

Explanation

A pure term policy provides protection only and pays nothing if the life assured survives the term. A return-of-premium variant pays premiums back, but this is an added feature rather than a standard benefit.

Question 42Insurance and Life Insurance Fundamentals

Which factor is most likely to increase the premium for a life insurance policy?

  1. Naming a spouse as nominee
  2. Choosing a shorter policy term for the same sum assured
  3. Being older at the time of entry for the same sum assured and term Correct answer.
  4. Selecting annual premium payment instead of monthly

Explanation

Mortality risk rises with age, so a higher entry age generally means a higher premium for the same sum assured and term. Premium frequency and nomination do not affect the underlying mortality cost.

Question 43Insurance and Life Insurance Fundamentals

What is the effect of a 'suicide exclusion' clause during its specified period in a life insurance policy?

  1. The insurer pays double the sum assured
  2. The insurer pays the full sum assured in every case of suicide
  3. The insurer's liability is restricted, typically to refund of premiums, during the exclusion period Correct answer.
  4. The insurer cancels all other policy benefits permanently

Explanation

A suicide exclusion clause limits the insurer's liability during a defined initial period, usually to a refund of premiums paid. After the exclusion period ends, the full death benefit normally applies.

Question 44Insurance and Life Insurance Fundamentals

Which of the following correctly distinguishes a 'rider' from the base life insurance policy?

  1. A rider is a document issued only at claim time
  2. A rider is an add-on benefit attached to the base policy for an extra premium Correct answer.
  3. A rider is a penalty for late premium payment
  4. A rider replaces the base policy entirely

Explanation

A rider is an optional add-on benefit, such as critical illness cover, attached to the base policy for an additional premium. It cannot exist independently and operates within the terms of the base policy.

Question 45Insurance and Life Insurance Fundamentals

What is the principal difference between 'death benefit' and 'survival benefit' in a life insurance policy?

  1. Both are payable only when the policy lapses
  2. Both are payable only to the insurer
  3. Death benefit is paid only on maturity; survival benefit is paid only on death
  4. Death benefit is payable on the death of the life assured; survival benefit is payable if the life assured survives a specified period Correct answer.

Explanation

The death benefit is triggered by the death of the life assured, whereas the survival benefit is triggered by surviving a specified period, such as a money-back instalment date or maturity. Some policies contain both.

Question 46Insurance and Life Insurance Fundamentals

An insurer issues a policy with a 'renewable term' feature. What advantage does this feature give the policyholder?

  1. The right to demand a bonus every year
  2. The right to stop paying premiums and retain full cover
  3. The right to renew the cover at the end of the term without fresh medical evidence, subject to the policy terms Correct answer.
  4. The right to transfer the policy to any insurer

Explanation

A renewable term feature allows the policyholder to continue cover at the end of the term without new underwriting, usually up to a specified age and at revised premiums. This protects against loss of insurability due to later illness.

Question 47Insurance and Life Insurance Fundamentals

An insurer's mortality table shows the probability of death rising sharply after age 60. How should this affect the pricing of a whole life policy issued at age 30 compared with one issued at age 55?

  1. The age 30 policy should be more expensive because the insurer faces a longer liability
  2. Both should be priced identically regardless of age
  3. The age 30 policy should be cheaper because expected deaths are deferred over a longer period Correct answer.
  4. The age 55 policy should be cheaper because fewer premiums are collected

Explanation

A younger entrant faces lower mortality for many years, so the present value of expected claims is lower and the premium is cheaper. The older entrant faces higher mortality sooner, raising the level premium for the same sum assured.

Question 48Insurance and Life Insurance Fundamentals

A policyholder assigns a life policy absolutely to a bank as security for a housing loan. What is the effect on the policyholder's rights?

  1. The policyholder retains the right to receive the policy money free of the bank's claim
  2. The policy lapses immediately on assignment
  3. The nominee's right takes priority over the assignment in all cases
  4. The bank acquires the rights under the policy to the extent of the assignment, and the policyholder's interest is correspondingly reduced Correct answer.

Explanation

An absolute assignment transfers the rights under the policy to the assignee, here the bank, to the extent stated. On a claim, the assignee's interest is satisfied first, and any balance passes to the policyholder or nominee.

Question 49Insurance and Life Insurance Fundamentals

A participating policy has a sum assured of 5,00,000 and a simple reversionary bonus of 40 per 1,000 for each of ten completed years. What is the total vested bonus?

  1. 20,000
  2. 40,000
  3. 4,00,000
  4. 2,00,000 Correct answer.

Explanation

A simple reversionary bonus of 40 per 1,000 on 5,00,000 equals 20,000 per year. Over ten completed years, the total vested bonus is 20,000 multiplied by ten, equal to 2,00,000.

Question 50Insurance and Life Insurance Fundamentals

An insurer discovers that a claim arises from a condition the proposer failed to disclose, but the policy has been in force for four years and premiums were paid regularly. Under the principle of utmost good faith, what is the insurer's most appropriate course?

  1. Pay the claim without any enquiry into the proposal
  2. Assess whether the non-disclosure was material and, if so, apply the contractual and regulatory remedies available, which may include repudiation Correct answer.
  3. Cancel the policy and retain all premiums with no further review
  4. Repudiate the claim automatically because non-disclosure always voids the contract

Explanation

Non-disclosure must be material and relate to a fact the insurer would have weighed in underwriting. The insurer assesses materiality and applies the policy terms and regulatory framework, which may permit repudiation or other remedies.