Insurance Fundamentals, Products and Claims Handling
Insurance transfers risk from an individual to a pool of policyholders. The exam tests principles, product types, premium factors, documentation and claim handling.
Principles and products
Insurable interest, utmost good faith, indemnity, subrogation, contribution, proximate cause and mitigation are core principles. Life insurance covers human life and pays a sum assured; it is not a contract of indemnity. General insurance covers property, motor, health, fire, marine and crop risks. Products include term, endowment, whole life, ULIP and money-back in life; health, motor, fire, marine, personal accident and crop in general. Premium depends on age, risk, sum insured, deductibles and claims history. Exclusions, waiting periods and no-claim bonuses affect claims.
Worked example
A factory worth ₹10 lakh is insured for ₹5 lakh under a fire policy with an average clause. A ₹4 lakh loss occurs. Because the property is under-insured, the claim is reduced in proportion: ₹4 lakh × ₹5 lakh / ₹10 lakh = ₹2 lakh, less any deductible. Reasoning: indemnity restores the insured to the financial position before the loss, but only to the extent of the sum insured relative to the property's value.
Traps that cost marks
Treating life insurance as indemnity; saying a nominee is automatically the legal heir; ignoring non-disclosure, which can void a policy; missing the claim intimation deadline; and assuming all losses are covered. Read exclusions, waiting periods and deductibles before answering.