Professional Knowledge (Insurance and Allied Subjects)
Professional Knowledge (Insurance and Allied Subjects) tests principles, products, regulation and operations. Expect insurable interest, utmost good faith, indemnity, subrogation, contribution, proximate cause, life and general insurance, underwriting, claims, reinsurance and the IRDAI framework.
Core rules
- Insurable interest: life insurance requires it at inception; general insurance requires it at the time of loss.
- Indemnity restores the insured to the pre-loss financial position; it applies to general insurance, not life insurance.
- Subrogation transfers the insured's recovery rights to the insurer after payment; contribution applies when two policies cover the same loss.
- Proximate cause is the dominant, effective cause of loss, not the first or last event. IRDAI regulates policy terms, solvency and intermediaries.
Worked example
A fire policy has sum insured Rs 10 lakh; the property's market value is Rs 12 lakh; loss is Rs 6 lakh. The policy is not valued and has an average clause. Reasoning: The insured is underinsured. Claim = loss x sum insured / value = 6 x 10/12 = Rs 5 lakh. Indemnity is limited to the proportion of cover, so the insurer pays Rs 5 lakh, not Rs 6 lakh.
Traps
Applying indemnity to a life policy; treating subrogation as automatic before payment; confusing contribution with subrogation; ignoring the average clause; assuming the sum insured is always the claim amount.