Insurance: Principles, Products and Claims
What this domain tests
The seven principles of insurance, the difference between life and general insurance, policy features, and the claim process - cashless versus reimbursement.
Principles you must apply
- Insurable interest - must exist at inception for life insurance, and at both inception and loss for property insurance.
- Utmost good faith - full disclosure; non-disclosure of material facts allows repudiation.
- Indemnity - restores the insured to the pre-loss financial position; applies to general insurance, not to life insurance (which pays the sum assured as a benefit).
- Subrogation, contribution, proximate cause - recovery rights transfer to the insurer after payment; multiple insurers share a loss; the nearest efficient cause decides admissibility.
Policy terms
Sum assured belongs to life insurance; sum insured belongs to general insurance. IRDAI regulates insurers, agents and TPAs. The free-look period lets a policyholder return a policy within the prescribed days of receipt. Section 45 of the Insurance Act, 1938 bars the insurer from repudiating a policy on misstatement after the moratorium period of three years from issuance, except for fraud.
Worked example
A property worth ₹10 lakh is insured for ₹6 lakh (underinsurance). A ₹3 lakh loss occurs. Applying the average clause: 3,00,000 × 6,00,000 ÷ 10,00,000 = ₹1,80,000 payable. The shortfall is the policyholder's own loss.
Traps
Do not apply indemnity to a life policy - the nominee receives the sum assured regardless of income loss. Many wait to disclose pre-existing disease thinking it is covered by a waiting period; non-disclosure still allows repudiation. Cashless settlement only works at a network hospital; a non-network claim is reimbursement against bills.