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UPMSP Vocational Insurance practice questions

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Question 1Fundamentals of Insurance and Risk Management

In insurance terminology, what does the term 'peril' refer to?

  1. The cause of a possible loss, such as fire or flood Correct answer.
  2. The amount paid to restore damaged property
  3. The document that records premium payments
  4. The person who assesses a claim

Explanation

A peril is the actual cause or source of a loss, such as fire, theft, or flood. It is distinguished from a hazard, which is a condition that increases the chance or severity of a loss. Insurers specify covered perils in the policy so the scope of protection is clear.

Question 2Fundamentals of Insurance and Risk Management

Which of the following best describes a 'hazard' in risk management?

  1. A condition that increases the likelihood or severity of a loss Correct answer.
  2. The legal contract between insurer and insured
  3. The financial value of the insured asset
  4. The event that has already caused damage

Explanation

A hazard is a condition or circumstance that raises the chance of a peril occurring or makes the resulting loss worse. Examples include poor wiring as a physical hazard or dishonesty as a moral hazard. Hazards are distinct from perils, which are the actual causes of loss.

Question 3Fundamentals of Insurance and Risk Management

A trader keeps a large stock of flammable chemicals in a poorly ventilated warehouse. In insurance terms, the chemicals and the poor ventilation are best described as:

  1. Moral hazards
  2. Physical hazards Correct answer.
  3. Speculative risks
  4. Insurable interests

Explanation

Physical hazards are tangible conditions of property or surroundings that increase the chance of loss, such as flammable stock and inadequate ventilation. Moral hazard instead concerns dishonest behaviour, and speculative risk involves the chance of gain as well as loss. Physical hazards are a core factor insurers use when rating fire risks.

Question 4Fundamentals of Insurance and Risk Management

Which statement correctly distinguishes pure risk from speculative risk?

  1. Pure risk is uninsurable, while speculative risk is always insurable
  2. Pure risk always produces a profit, while speculative risk always produces a loss
  3. Pure risk relates only to life, while speculative risk relates only to property
  4. Pure risk involves only the possibility of loss, while speculative risk involves both gain and loss Correct answer.

Explanation

Pure risk offers only the chance of loss or no loss, such as fire or accident, and is the traditional field of insurance. Speculative risk, such as investing in shares, carries the possibility of gain as well as loss and is normally not insured. This distinction explains why insurers focus on pure risks.

Question 5Fundamentals of Insurance and Risk Management

Under the principle of insurable interest, when must a person generally have insurable interest in a life insurance policy?

  1. Only at the time of the insured's death
  2. Only when a claim is disputed
  3. At no particular time, as it is not required
  4. At the time the policy is taken out Correct answer.

Explanation

For life insurance, insurable interest must exist when the policy is effected, because the contract is not one of indemnity. For property insurance, by contrast, interest must exist both at inception and at the time of loss. This timing rule prevents wagering contracts on another person's life.

Question 6Fundamentals of Insurance and Risk Management

A person insures a neighbour's house in which they have no financial relationship. Why would the insurer refuse to pay a claim?

  1. Because the policy was issued in a branch office
  2. Because the premium was too low
  3. Because the insured lacks insurable interest in the property Correct answer.
  4. Because the house was not new

Explanation

Insurable interest requires a financial relationship with the subject matter such that the insured benefits from its survival and suffers from its loss. Without it, the contract resembles a wager and is unenforceable. The absence of insurable interest is therefore a valid ground for rejecting the claim.

Question 7Fundamentals of Insurance and Risk Management

What does the principle of indemnity aim to achieve in property insurance?

  1. To punish the insurer for poor service
  2. To allow the insured to profit from a loss
  3. To increase the sum insured automatically each year
  4. To restore the insured financially to the position held before the loss Correct answer.

Explanation

Indemnity means the insured is placed, as far as money can do so, in the same financial position as before the loss, no better and no worse. It prevents profit from insurance and controls moral hazard. Sum insured, depreciation, and average clauses are tools used to apply this principle.

Question 8Fundamentals of Insurance and Risk Management

A factory building with a replacement cost of ₹50 lakh and a depreciated value of ₹30 lakh is insured for ₹30 lakh under a policy that applies indemnity on a market value basis. A partial loss of ₹10 lakh occurs. How much is payable, assuming no underinsurance?

  1. Nil
  2. ₹10 lakh Correct answer.
  3. ₹30 lakh
  4. ₹50 lakh

Explanation

Under indemnity on a market value basis, the sum insured of ₹30 lakh matches the depreciated value, so there is no underinsurance. A partial loss of ₹10 lakh is therefore paid in full up to the sum insured. Replacement cost would only matter if the policy were written on that basis.

Question 9Fundamentals of Insurance and Risk Management

What is the doctrine of subrogation in insurance?

  1. The insurer's right to recover from a third party who caused the loss, after paying the insured Correct answer.
  2. The insurer's duty to refund premium on cancellation
  3. The insured's right to cancel the policy at any time
  4. The agent's right to a commission on renewal

Explanation

Subrogation transfers to the insurer, after settlement, the insured's right to recover damages from the negligent third party. It supports the principle of indemnity by preventing the insured from recovering twice. It applies to indemnity policies and not to life insurance.

Question 10Fundamentals of Insurance and Risk Management

An insured whose car was damaged by a negligent third-party driver is paid ₹80,000 by their own insurer. The insured then also recovers ₹80,000 from the third party. What can the insurer do?

  1. Cancel all future policies of the insured
  2. Reduce the premium for the next year
  3. Recover the ₹80,000 from the insured or pursue the third party under subrogation Correct answer.
  4. Nothing, because the insured is entitled to both amounts

Explanation

Because the insured has already been indemnified, retaining the third-party recovery would result in profit from the loss. Subrogation allows the insurer to step into the insured's shoes and recover the amount it paid. The insured must not obstruct this right.

Question 11Fundamentals of Insurance and Risk Management

What is the meaning of 'contribution' between insurers?

  1. The right of an insurer that has paid a claim to share the loss with other insurers covering the same interest Correct answer.
  2. The insured's share of the premium
  3. The government's share of insurance tax
  4. The agent's share of the commission

Explanation

Contribution applies when the same interest is insured under more than one policy covering the same peril. The insurer paying the claim can recover proportionate shares from the other insurers so that no insurer bears more than its fair share. Like subrogation, it supports indemnity.

Question 12Fundamentals of Insurance and Risk Management

Which principle prevents an insured from making a profit from a loss and is supported by subrogation and contribution?

  1. Insurable interest
  2. Indemnity Correct answer.
  3. Proximate cause
  4. Utmost good faith

Explanation

Indemnity is the principle that the insured should be restored to the pre-loss financial position, no better. Subrogation and contribution are mechanisms that enforce it by preventing double recovery. Utmost good faith and proximate cause serve different purposes in the contract.

Question 13Fundamentals of Insurance and Risk Management

What does the principle of 'uberrimae fidei' require of the parties to an insurance contract?

  1. Utmost good faith, including full and honest disclosure of material facts Correct answer.
  2. Payment of premium only in cash
  3. Appointment of a government officer as witness
  4. Physical inspection of all property before cover

Explanation

Uberrimae fidei means utmost good faith: each party must disclose all material facts that would influence the other's decision. This duty exists because insurance depends on information held mainly by the proposer. Breach can allow the insurer to avoid the contract.

Question 14Fundamentals of Insurance and Risk Management

A proposer for a health policy fails to disclose a diagnosed chronic illness that the insurer would have rated differently. What is the most likely consequence under the principle of utmost good faith?

  1. The agent personally pays the claim
  2. The policy automatically doubles in value
  3. The insurer may avoid the policy or reject the claim for non-disclosure of a material fact Correct answer.
  4. The insurer must pay the claim in full without question

Explanation

A diagnosed chronic illness is a material fact that a prudent insurer would consider when accepting or rating the risk. Non-disclosure entitles the insurer to remedies such as avoidance of the contract or rejection of the claim. The remedy depends on the policy terms and applicable law.

Question 15Fundamentals of Insurance and Risk Management

What is a 'material fact' in the context of insurance proposal?

  1. Any fact mentioned in the newspaper
  2. A fact known only to the insurer
  3. A fact that is irrelevant to the risk
  4. A fact that would influence a prudent insurer's decision on accepting or rating the risk Correct answer.

Explanation

Materiality is judged by whether a prudent insurer would be influenced in fixing premium or deciding whether to accept the risk. Facts such as previous claims, hazardous occupation, or existing illness are typically material. The test is objective, not based on what the proposer thinks matters.

Question 16Fundamentals of Insurance and Risk Management

What does the principle of 'proximate cause' determine in insurance claims?

  1. The dominant, effective cause of a loss for deciding whether the policy responds Correct answer.
  2. The nearest insurance office to the loss location
  3. The total value of the claim
  4. The last person to see the damaged property

Explanation

Proximate cause is the active, efficient cause that sets in motion a chain of events leading to loss without intervention from a new source. Insurers look at this dominant cause to decide if a covered peril triggered the loss. It matters when several causes combine.

Question 17Fundamentals of Insurance and Risk Management

A fire policy covers fire but excludes earthquake. An earthquake causes a building to collapse, and the falling debris starts a fire that destroys stock. Applying proximate cause, how is the stock loss usually treated?

  1. The claim is payable only if the insured pays double premium
  2. The loss is shared equally between insured and insurer
  3. The fire is the proximate cause, so the loss is always payable
  4. The earthquake is the proximate cause, so the excluded peril governs and the claim is not payable Correct answer.

Explanation

Where an excluded peril sets in motion an unbroken chain of events leading to loss, the excluded peril is the proximate cause. The later fire is part of the same chain and does not displace the earthquake as the dominant cause. The exclusion therefore applies to the stock loss.

Question 18Fundamentals of Insurance and Risk Management

What is the main purpose of reinsurance?

  1. To provide insurance directly to individual policyholders
  2. To regulate insurance agents
  3. To collect taxes on insurance premiums
  4. To spread a portion of the insurer's risk to another insurer Correct answer.

Explanation

Reinsurance is insurance for insurers: the ceding insurer transfers part of its risk to a reinsurer in exchange for a share of premium. It protects solvency and allows the insurer to accept larger risks. Policyholders deal with the original insurer, not the reinsurer.

Question 19Fundamentals of Insurance and Risk Management

Which of the following is a characteristic of a 'treaty' reinsurance arrangement?

  1. The reinsurer deals directly with individual policyholders
  2. The reinsurer pays only after the insurer becomes insolvent
  3. The reinsurer automatically accepts all risks falling within the agreed class and terms Correct answer.
  4. Each risk is separately offered and separately accepted

Explanation

Under a treaty, the reinsurer is obliged to accept all business within the defined scope, and the insurer is obliged to cede it. This differs from facultative reinsurance, where each risk is offered and accepted individually. Treaties provide automatic and continuous protection.

Question 20Fundamentals of Insurance and Risk Management

In life insurance, which of the following is typically treated as a 'standard' risk accepted at ordinary rates?

  1. A person working in an explosives factory
  2. A person with normal health and occupation for their age Correct answer.
  3. A person aged 85 applying for a new term plan
  4. A person with a serious heart condition

Explanation

Standard risks are lives that fall within the insurer's normal acceptance criteria, so ordinary premium rates apply. Substandard risks, such as those with serious illness or hazardous occupation, are accepted with extra premium or restrictions. Age limits may also lead to decline or altered terms.

Question 21Fundamentals of Insurance and Risk Management

What is the role of an actuary in an insurance company?

  1. To design advertising campaigns
  2. To sell policies to retail customers
  3. To investigate fraudulent claims in the field
  4. To calculate premiums, reserves, and other values using statistical and mathematical models Correct answer.

Explanation

Actuaries apply mathematics and statistics to price risk, set reserves, and value liabilities such as life funds. Their work underpins solvency and fair premium setting. Selling, field investigation, and marketing are performed by other functions.

Question 22Fundamentals of Insurance and Risk Management

A claim is reported under a fire policy. What is the primary purpose of a loss assessor or surveyor's visit?

  1. To renew the policy at a higher premium
  2. To audit the insurer's accounts
  3. To verify the cause and extent of loss and recommend settlement Correct answer.
  4. To sell additional policies to the insured

Explanation

A surveyor or loss assessor inspects the damaged property to establish the cause, verify the extent of loss, and advise on the admissible amount. This supports accurate and fair settlement under the policy. Selling or auditing are outside this role.

Question 23Fundamentals of Insurance and Risk Management

Which of the following best describes 'moral hazard' in insurance?

  1. A fall in the market value of the insured property
  2. Dishonesty or careless behaviour by the insured that increases the chance of loss Correct answer.
  3. A defect in the building's electrical wiring
  4. A change in weather patterns

Explanation

Moral hazard arises from the attitude or conduct of the insured, such as dishonesty, exaggeration of claims, or indifference to loss prevention. It differs from physical hazard, which is a tangible condition. Insurers manage moral hazard through deductibles, warranties, and claim investigation.

Question 24Fundamentals of Insurance and Risk Management

An insured with a ₹5,000 deductible suffers an insured loss of ₹12,000. How much will the insurer pay, assuming the loss is otherwise fully covered?

  1. ₹12,000
  2. ₹7,000 Correct answer.
  3. ₹5,000
  4. ₹17,000

Explanation

A deductible is the first amount of each loss borne by the insured. The insurer pays the loss less the deductible, so ₹12,000 minus ₹5,000 equals ₹7,000. Deductibles reduce small claims and discourage careless risk behaviour.

Question 25Fundamentals of Insurance and Risk Management

What is the difference between a deductible and a franchise in an insurance policy?

  1. A franchise is always larger than a deductible
  2. A deductible is paid by the insurer and a franchise by the agent
  3. A deductible applies only to life insurance, while a franchise applies only to marine insurance
  4. With a deductible the insured always bears the stated amount, while with a franchise the insurer pays the full loss once the amount is exceeded Correct answer.

Explanation

A deductible is deducted from every loss, so the insured always bears that first amount. A franchise is a threshold: if the loss exceeds it, the insurer pays the whole loss without deduction. This distinction affects how much the insured ultimately receives.

Question 26Fundamentals of Insurance and Risk Management

Under a fire policy, a shopkeeper's stock is insured for ₹8,00,000 while its actual value at the time of loss is ₹10,00,000. A fire causes damage assessed at ₹5,00,000. Applying the average (underinsurance) clause, how much will the insurer pay before any deductible?

  1. ₹6,25,000
  2. ₹5,00,000
  3. ₹8,00,000
  4. ₹4,00,000 Correct answer.

Explanation

The average clause scales the claim by the ratio of sum insured to actual value: ₹8,00,000 ÷ ₹10,00,000 = 0.8, and 0.8 × ₹5,00,000 = ₹4,00,000. The insured bears the remaining ₹1,00,000 as the penalty for underinsurance. This upholds the principle of indemnity by preventing full recovery from a premium that covered only part of the risk.

Question 27Fundamentals of Insurance and Risk Management

Which of the following best describes 'risk avoidance' as a technique of risk management?

  1. Eliminating the activity or exposure that gives rise to the risk altogether Correct answer.
  2. Reducing the frequency or severity of losses through safety measures and controls
  3. Purchasing a policy that transfers the financial consequences of a loss to an insurer
  4. Setting aside a reserve fund to meet losses that may arise from a given exposure

Explanation

Risk avoidance means the exposure is never created because the activity producing it is not undertaken at all, so the possibility of loss disappears. Transfer shifts the financial burden to an insurer, retention keeps it with the organisation through funds or reserves, and reduction lowers frequency or severity without removing the exposure. Avoidance is the only technique that removes the chance of loss rather than managing its consequences.

Question 28Fundamentals of Insurance and Risk Management

An insurer collects ₹40 crore in premium, pays ₹24 crore in claims and ₹8 crore in expenses, and earns ₹2 crore from investment income on its float. What is the underwriting result and the overall operating result respectively?

  1. Underwriting loss of ₹8 crore; operating profit of ₹10 crore
  2. Underwriting profit of ₹8 crore; operating profit of ₹6 crore
  3. Underwriting profit of ₹8 crore; operating profit of ₹10 crore Correct answer.
  4. Underwriting profit of ₹10 crore; operating profit of ₹8 crore

Explanation

Underwriting result compares premium with claims and expenses only: ₹40 crore − ₹24 crore − ₹8 crore = ₹8 crore profit. Investment income is added afterwards to give the operating result: ₹8 crore + ₹2 crore = ₹10 crore. Keeping the two figures separate shows whether the core insurance business is profitable before investment returns are counted.

Question 29Fundamentals of Insurance and Risk Management

In insurance terminology, what does 'peril' refer to?

  1. The chance that a loss may or may not occur
  2. The event or cause of loss, such as fire, flood or theft Correct answer.
  3. The condition of the property that increases the chance of loss
  4. The amount of loss that the insured must bear before the insurer pays

Explanation

A peril is the actual cause of a loss, the contingency against which cover is granted, such as fire, lightning, flood or burglary. It is distinguished from a hazard, which is a condition that increases the likelihood or severity of that peril operating. Policies list insured perils and excluded perils, and a claim succeeds only where an insured peril is the proximate cause of the loss.

Question 30Fundamentals of Insurance and Risk Management

A proposal form asks whether the proposer has ever been convicted of arson. The proposer answers 'no' without checking, though a conviction exists. The insurer later discovers this after a fire claim. Which statement best reflects the legal position?

  1. The insurer must pay the claim but may cancel cover from the next renewal date onwards
  2. The insurer must pay because the question was answered honestly to the best of the proposer's belief
  3. The insurer can only reduce the claim in proportion to the extra premium that would have been charged
  4. The insurer may avoid the policy because a material fact was misrepresented, whether or not the misstatement was innocent Correct answer.

Explanation

Insurance is a contract of utmost good faith, so the proposer must disclose material facts accurately and cannot rely on not having checked the form. A false answer to a question about a fact that would clearly influence the insurer's decision is a misrepresentation, and the insurer may avoid the contract and repudiate the claim even where the error was innocent. The duty rests on the proposer, not on the insurer to investigate each answer.

Question 31Life Insurance and Personal Lines

In a life insurance contract, which party is the 'policyholder'?

  1. The person whose death or survival triggers the payout
  2. The person who owns the contract and pays the premium Correct answer.
  3. The insurer that issues the contract
  4. The agent who procures the business

Explanation

The policyholder is the owner of the contract: the person who applies, pays premiums and exercises ownership rights such as nomination and surrender. The life assured is a separate role and may or may not be the same individual. Ownership can be transferred by assignment without changing the insurer.

Question 32Life Insurance and Personal Lines

A proposal for a life policy is accepted and the first premium is paid on 10 March. The policy document states that risk commences on the date of acceptance of the proposal. From which date does cover normally begin?

  1. The date of the medical examination
  2. The date the policy document is physically delivered to the policyholder
  3. 10 March, when the first premium was paid and the proposal accepted Correct answer.
  4. The renewal date one year after the proposal

Explanation

Where the insurer has accepted the proposal and received the first full premium, risk attaches from that point, subject to the terms stated in the policy. Physical delivery of the document is an administrative step that does not by itself postpone commencement. A medical examination is only evidence of insurability and is not the start of cover.

Question 33Life Insurance and Personal Lines

Which statement best describes 'insurable interest' in life insurance at the time of proposal?

  1. The beneficiary must be a blood relative of the life assured
  2. The policyholder must stand to suffer a financial or natural love-and-affection loss if the life assured dies Correct answer.
  3. The life assured must earn a taxable income
  4. The insurer must have reinsurance in place for the sum assured

Explanation

Insurable interest means the proposer has a relationship recognised by law such that the death of the life assured would cause pecuniary loss or loss of natural affection. It is required at inception, unlike some general insurance classes where it is also tested at claim. A beneficiary need not be a relative, and the insurer's reinsurance arrangements are irrelevant to the requirement.

Question 34Life Insurance and Personal Lines

Under a with-profits endowment policy, what does a 'reversionary bonus' represent?

  1. A refund of premium returned when the policy lapses
  2. A one-off bonus paid only if the policyholder dies
  3. A bonus declared periodically and added to the sum assured, becoming payable at maturity or earlier claim Correct answer.
  4. A loan advanced against the surrender value

Explanation

A reversionary bonus is declared periodically, usually annually, and is attached to the policy; once added it cannot be taken away and is paid along with the sum assured on death or maturity. It is distinct from a terminal bonus, which is declared only at the end of the term. It is not a premium refund or a loan.

Question 35Life Insurance and Personal Lines

A policyholder stops paying premiums on a traditional endowment policy after three years and the policy lapses. What is the usual consequence?

  1. The nominee automatically becomes the new policyholder
  2. The policy acquires a reduced paid-up sum assured or a surrender value, depending on the policy terms Correct answer.
  3. The full sum assured remains payable at maturity
  4. The insurer refunds all premiums paid with interest

Explanation

When premiums cease after the policy has acquired value, traditional policies generally convert to a reduced paid-up sum assured or may be surrendered for a cash value as set out in the policy conditions. The original full sum assured is not maintained without premiums. Nomination does not transfer ownership on lapse.

Question 36Life Insurance and Personal Lines

Which of these is the primary purpose of underwriting in life insurance?

  1. To calculate the surrender value of existing policies
  2. To maximise the number of policies issued each month
  3. To classify risks and set premiums that reflect the mortality risk of each proposer Correct answer.
  4. To decide which nominee the policyholder should choose

Explanation

Underwriting assesses the proposer's health, habits, occupation and family history in order to classify the risk and apply standard, extra or declined terms. This protects the pooling principle so that each policyholder pays a premium commensurate with risk. It is not a sales-target activity and does not involve nomination or surrender calculations.

Question 37Life Insurance and Personal Lines

A proposer for a life policy discloses a history of treated hypertension in the proposal form. Which underwriting outcome is most likely?

  1. Issue only if the nominee also undergoes a medical examination
  2. Automatic rejection because any disclosed illness disqualifies the proposer
  3. Issue with an extra premium or a reduced sum assured after medical assessment Correct answer.
  4. Issue at standard rates with no reference to the condition

Explanation

A controlled chronic condition such as hypertension is usually assessed on severity, treatment and control, and may lead to an extra mortality charge, a lien or a reduced sum assured rather than outright decline. Standard terms may still be possible in mild cases. The nominee's health is not underwritten because the benefit depends on the life assured.

Question 38Life Insurance and Personal Lines

What is the main function of the 'free-look period' in a life insurance policy?

  1. It extends the death benefit for a further year at no cost
  2. It allows the insurer to cancel the policy if the first premium is delayed
  3. It allows the policyholder to review the terms and return the policy for a refund of premium if unsuitable Correct answer.
  4. It permits the policyholder to skip one annual premium without penalty

Explanation

The free-look period gives the policyholder a short window after receiving the policy document to examine the terms and, if dissatisfied, return it for cancellation and refund of premium as prescribed. It protects the buyer against mis-selling. It does not create premium holidays or extend cover.

Question 39Life Insurance and Personal Lines

A policyholder has named two nominees and one dies before the policyholder. What is the usual effect on the nomination, where the policy allows multiple nominees?

  1. The deceased nominee's share normally passes to the surviving nominee or to the legal heirs as the policy terms provide Correct answer.
  2. The insurer keeps the deceased nominee's share of the benefit
  3. The deceased nominee's share is added to the sum assured as a bonus
  4. The entire nomination becomes void and the policy must be surrendered

Explanation

Where multiple nominees are permitted, the death of one nominee does not normally void the whole nomination. The treatment of the deceased nominee's share depends on the policy conditions and applicable nomination rules, typically passing to the surviving nominee or to legal heirs. The insurer never retains the benefit, and bonuses are unrelated to nomination.

Question 40Life Insurance and Personal Lines

Which of the following best describes 'moral hazard' in life insurance underwriting?

  1. The risk that a proposer's dishonest intentions or lifestyle habits increase the chance of a claim Correct answer.
  2. The risk that the insurer's expenses exceed its premium loadings
  3. The risk that interest rates fall below the assumed rate
  4. The risk that the nominee outlives the policyholder

Explanation

Moral hazard concerns the proposer's conduct and intentions, such as concealment of facts, hazardous habits or a motive to gain from the death of the life assured. It is assessed alongside physical hazard, which covers measurable factors such as health and occupation. Interest-rate and expense risks are financial risks of the insurer, not moral hazard.

Question 41Life Insurance and Personal Lines

A 30-year-old proposes for a term insurance policy with a sum assured of 5,000,000 and a term of 30 years. Which feature is typical of a pure term plan?

  1. It pays a survival benefit equal to the premiums paid plus interest
  2. It pays the sum assured only if death occurs during the term, with no survival benefit Correct answer.
  3. It automatically converts to an endowment at the end of the term
  4. It guarantees a maturity payout equal to the sum assured

Explanation

A pure term plan provides death cover for a fixed period and pays only if the life assured dies within that period; it has no survival or maturity benefit. It is the cheapest form of life cover because the insurer pays only on death during the term. Endowment and money-back plans are the variants that return value on survival.

Question 42Life Insurance and Personal Lines

In an endowment assurance policy, what is the essential difference from a whole-life policy?

  1. The endowment pays the sum assured on survival at maturity or on earlier death, whereas whole life is primarily a death cover Correct answer.
  2. The endowment pays only on death, whereas whole life pays on survival
  3. The endowment has no fixed term
  4. The endowment cannot be assigned

Explanation

An endowment is a savings-linked contract that pays the sum assured at maturity if the life assured survives, or earlier on death within the term. A whole-life policy is designed mainly to pay on death whenever it occurs and has no fixed maturity payout. Both can be assigned and both have defined terms.

Question 43Life Insurance and Personal Lines

A rider is attached to a base life policy. What is the correct description of a rider?

  1. A separate contract with its own independent premium and no link to the base policy
  2. A replacement of the base policy's death benefit
  3. A supplementary benefit added to the base policy, subject to its own terms and an additional premium Correct answer.
  4. A discount applied to the base premium for early payment

Explanation

A rider is a supplementary cover attached to a base policy, such as accidental death or critical illness benefit, and usually carries an extra premium and its own conditions. It depends on the base policy remaining in force and cannot normally be kept alive alone. It is not a discount or a substitute for the base cover.

Question 44Life Insurance and Personal Lines

A policyholder wants to borrow against a traditional endowment policy that has acquired surrender value. Which statement is correct?

  1. A policy loan can exceed the surrender value without limit
  2. A policy loan cancels the death benefit until it is repaid
  3. A policy loan is available up to a limit set by the insurer and is recovered from any claim or maturity payout Correct answer.
  4. A policy loan is interest-free and need not be repaid

Explanation

A policy loan is advanced against the surrender value up to a limit set in the policy, and interest accrues until repayment. Outstanding loan and interest are deducted from the maturity or death benefit, so the beneficiary receives the net amount. The loan does not cancel cover, and it cannot exceed the available value.

Question 45Life Insurance and Personal Lines

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

  1. Pledging the policy as security for a bank loan
  2. Converting the policy into a term plan
  3. Transferring the policy to another insurer
  4. Terminating the policy before maturity in return for its surrender value Correct answer.

Explanation

Surrender is the voluntary termination of a policy by the policyholder before maturity or claim, in exchange for the surrender value where the policy has acquired one. It ends the cover and the nominee's right to the original benefit. Assignment or pledge is different from surrender.

Question 46Life Insurance and Personal Lines

An insurer discovers after a claim that the deceased policyholder had concealed a serious pre-existing illness at proposal. Which principle most directly supports the insurer's right to repudiate the claim?

  1. Indemnity
  2. Subrogation
  3. Utmost good faith Correct answer.
  4. Contribution

Explanation

Life insurance is a contract of utmost good faith, requiring the proposer to disclose all material facts known to them. Concealment of a serious pre-existing illness breaches that duty and can allow the insurer to avoid the contract. Indemnity, subrogation and contribution are principles mainly associated with general insurance.

Question 47Life Insurance and Personal Lines

Which of the following is a standard exclusion in a personal accident policy?

  1. Hospitalisation after a sports injury
  2. Death resulting from a road accident while commuting
  3. Disability following a workplace fall
  4. Injury caused by deliberate self-harm Correct answer.

Explanation

Personal accident policies typically exclude self-inflicted injury, suicide attempts, war risks and injury sustained while committing a crime. Accidental commuting, workplace and sports injuries are generally within the scope of cover if they are accidental and not otherwise excluded. Exclusions define the boundary of the accidental cover.

Question 48Life Insurance and Personal Lines

A personal accident policy pays a specified percentage of the sum insured for loss of one eye. What type of benefit is this?

  1. Capital sum benefit for specified permanent disabilities Correct answer.
  2. Reimbursement of loss of income
  3. Daily hospital cash benefit
  4. Indemnity benefit based on actual medical expenses

Explanation

Personal accident policies commonly pay a capital sum, expressed as a percentage of the sum insured, for specified permanent disabilities such as loss of an eye or limb. It is a fixed benefit and is not measured against actual expenses or income. Hospital cash and income reimbursement are separate benefits.

Question 49Life Insurance and Personal Lines

In a family floater health insurance policy, what does the sum insured represent?

  1. A single sum insured shared by all insured members during the policy year Correct answer.
  2. A separate sum insured for each member that cannot be shared
  3. The maximum premium payable by the family
  4. The total hospital bills paid over the lifetime of the policy

Explanation

A family floater provides one sum insured that is shared among the insured family members during the policy period. If one member uses part of it, the remaining amount is available to the others. It is not a per-member limit, a premium cap or a lifetime aggregate.

Question 50Life Insurance and Personal Lines

A health insurance claim is filed after the policyholder completes 20 days of a policy with a 30-day initial waiting period. The hospitalisation is for a covered illness unrelated to any accident. What is the likely outcome?

  1. The claim is payable only if the policyholder pays double premium
  2. The claim is not payable because the initial waiting period has not elapsed Correct answer.
  3. The claim is payable only after the policy is renewed for five years
  4. The claim is payable in full because the policy is in force

Explanation

Health policies usually impose an initial waiting period, commonly 30 days, during which non-accidental illness claims are not payable. A hospitalisation on day 20 of cover therefore falls within the waiting period and is not payable. Accident-related claims are typically exempt from this waiting period.