Insurance Examinations - Tips on insurance - ebook - Part 004e Book Insurance 004

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INSURANCE EXAMINATIONS

 TIPS ON INSURANCE



HISTORY OF INSURANCE

01. The idea of insurance was mooted out during 14 th century 02. Marine insurance is the oldest form of insurance throughout the world 03. Fire insurance and life insurance were subsequently undertaken by insurers 04. Fire insurance originated in Germany during 16th century 05. Life insurance started in England during 16 th century 06. The first life that was insured was of Mr. William Gybbons on 18.6.1653 07. The first registered office of life was in England with the name Hand in Hand society in 1696 08. Life insurance was started during the year 1818 in Bengal Presidency 09. The name of the company was Orient Life Assurance Company 10. Bombay Life Assurance Company was started in 1823 11. Triton insurance company was commenced for general insurance in 1850 12. During 1871, Bombay Mutual Life Assurance Society was established 13. During 1874 Oriental Government Security Life Assurance Co Ltd was established 14. The first company which transacted general insurance business was the Indian Mercantile insurance company limited 15. During 1912, in order to regulate insurance the Indian Life Assurance companies act was formulated 16. During the year 1928, the Indian Insurance companies act was enacted 17. During 1938, there were 176 insurance companies in India 18. The image of insurance was tainted on account of frauds during 1920 and 1930 19. Insurance act was passed during 1938 20. 245 Indian and foreign life insurers and provident societies were under one nationalized corporation during 1956 21. Life Insurance Corporation was formed by an act of Parliament vide LIC act 1956 22. The initial capital for LIC was Rs. 5 crore 23. During 1968, insurance act was amended to regulate investment and also set up of tariff advisory committee 24. Non life insurance business/general insurance remained with private sector till 1972 25. There were 107 companies involved in the business of general operations 26. General Insurance business was nationalized in India as per General Insurance Business (Nationalisation) act 1972 with effect from 1.1.1973 27. 107 private insurance companies were amalgamated and grouped into four companies namely –  National Insurance Company, New India Assurance Company, Oriental Insurance Company and United India Insurance Company 28. The above companies were the subsidiaries of General Insurance Company – GIC 29. Malhotra committee was formed during the year 1993 headed by former Finance Secretary and RBI governor R N Malhotra 30. During the year 1999, IRDA act was passed and paved way for privatization of insurance sector in India 31. During the year 2002, IRDA act and insurance act have been amended PRESENT SITUATION

32. Insurance business in India can be classified into Life Insurance business and General Insurance Business 33. LIC of India is taking care of life insurance business 34. General Insurance Corporation of India namely GIC Limited is taking care of general insurance business 35. United India Insurance Company, Oriental Insurance Company, New India Assurance Company and National Insurance Company are part and parcel of General Insurance Corporation of India 36. Insurance sector in India was liberalized in March 2000 by the formation of IRDA 37. IRDA means Insurance Regulatory and Development Authority

 

38. As on 2,2.2011, there were 23 life insurance companies and 24 non life insurance companies in the market. INSURANCE CONCEPTS

39. Insurance business can be divided in four classes namely: Life Insurance, Fire insurance, Marine insurance and Miscellaneous insurance 40. Life insurers transact life insurance business 41. General insurers transact the rest 42. No composites are permitted as per law 43. The specific principles of insurance are –  uberrima fida(utmost good faith); insurable interest; indemnity; proximate clause; subrogation 44. The benefits of life insurance are – protection against untimely death, saving for old age, encourage savings, initiates investment, credit worthiness, social security, tax benefits. 45. Objectives of nationalization are –    To ensure general insurance business to the best advantage to the community   To promote competition in the economy   To prevent monopoly growth and concentration of wealth   To spread the activities over geograp0hical frontiers   To innovate new products to suit the requirements of the different di fferent sections of the population   To meet the social objectives by formulating policies poli cies for weaker sections 46. The major recommendation of Malhotra committee are –    Insurance intermediaries   Surveyors   Product pricing   Rural insurance 





















of insurance business    Regulation Liberalisation   Investment   Restructuring of general insurance i nsurance   Detariffing 47. Insurance Institute of India was established in 1955 48. The examinations conducted by Insurance Institute of India are –    The Inspector’s examination (general insurance) i nsurance)     Certificate of insurance salesmanship (agents)   Licentiate, associate and fellowship   Pre recruitment test to insurance agents 49. Persons who have insurance interest in different types of properties are as detailed below:   Immovable properties   Movable properties   Business   Ships   Commencement of risk   Cause proxima   Payment of premium   Right to contribution   Mitigation of loss 50. The different classifications of insurance are –    Life insurance   Non life insurance –  namely fire insurance business, marine insurance business, miscellaneous insurance business   Retail insurance   Corporate insurance   Coinsurance   Universal insurance 















































insurance    Direct Reinsurance 51. The different acts connected with insurance:   Indian contract act 1872   The Insurance company act 1938 





 

  General Insurance Business (Nationalisation) act 1972   Life Insurance act 1956   IRDA act 1999   Consumer protection act 1986   Foreign exchange maintenance act 1999   Motor vehicles act 1988   Marine Insurance act 1963   Married women’s property act 1874  1874   52. Actuary is a technical expert who combines an understanding of the risks involved in insurance   He also understands the mathematical techniques to develop insurance products to manage these risks   He advises on pricing the insurance products   He calculates the reserves to be held for meeting the financial risks of the insurance products   IRDA has made it compulsory for any life insurance i nsurance co company mpany to appoint an actuary   Without actuary insurance companies cannot carry on their life li fe insurance business 53. Essential elements of a valid contract are:   Offer and acceptance   Intention   Consideration   Capacity of parties   Free consent   Lawful object   Agreement not declared valid   Certain   Legal formalities 











































54. Kinds of contract are:   Voidable contract   Void agreement   Void contract   Illegal agreement   Express contract   Implied contract   Executed contract   Executor contract   Unilateral contract   Bilateral contract 55. The various types of life insurance policies are:   Term insurance   Whole life policy   Endowment   Health insurance   Joint life policy   With profit   Without profit   Double accident benefit   Annuity policy   Policies for women   Pension insurance   Postal life insurance   Rural insurance plans   Group life insurance   Insurance policies for children   Money back policy   Unit Linked Policy 





















































56. Term insurance offers pure risk cover without any element of saving for a given term. No benefits are available to the policyholder till his death 57. Whole life –  the premium is payable for the lift time of the assured or for a lesser period. Sum assured is payable only on the death of the assured 58. Endowment plans

 

     

This is considered to be the most popular plan of life assurance. It cover the life of the assured in the event of his early death It also provides for repayment of a lump sum to the assured if he survives the date of maturity 59. Money back:   It provides life insurance covers   Periodical payments are also paid to the assured   The policyholder need not wait to get the returns till the date of maturity 60. Children’s assurance plan: The life of a child can be covered from the age of 7. Once the child becomes a major he can continue the policy 61. ULIPs: it is called Unit Linked Insurance Policy i nvestment   It provides a combination of risk cover and investment   The dynamics of the capital market have a direct bearing on the performance of the ULIPs   The investment risk is generally borne by the investor   A wide range of funds are offered to suit one’s investment objectives, risk profile and tim e horizons   Different funds have different risk profiles   The potential for returns also varies from fund to fund 62. The common types of funds available under ULIP are –  equity funds; income, fixed interest and bond funds; cash funds and balanced funds 63. Equity funds – primarily invested in company stocks with the general aim of capital appreciation 64. The risk category in the case of equity funds is i s found to be medium to high 65. Income, fixed interest and bond funds –  invested in corporate bonds, government securities and other fixed income instruments and the risk category is found to be medium 66. Cash funds – Sometimes known as money market funds; amount is invested in cash, bank deposits 























and money market instruments. The risk category is found to be low 67. Balanced funds –  Combination of equity investment with fixed interest instruments. The risk category is found to be medium 68. Non life insurance i nsurance products  Personal accident   Workmen compensation   Fire, marine and motor insurance i nsurance   Group and health insurance i nsurance 







69. General Insurance products are:   Fire insurance   Marine (cargo) insurance   Marine (hull) insurance   Motor insurance   Aviation insurance   Engineering insurance   Miscellaneous insurance 70. Marine insurance policies are:   Hull insurance   Cargo insurance   Freight insurance   Liability insurance 71. Various classes of marine insurance are:   Voyage policies   Time policies   Mixed policies   Valued policies   Unvalued policies   Floating policies 



































policies    Named Single vessel and float policies   Currency policies 72. Various fire insurance policies are:   Valued policy 





 

                     

Valuable policy Specific policy Floating policy Average policy Excess policy Declaration policy Adaptable policy Maximum value with dissent policy Reinstatement policy Comprehensive policy Consequential loss policy   Sprinkler leakage policy 73. Paid up value = (Number of years premium paid/policy term) x sum assured + (bonus/1000) x sum assured 74. Surrender value = (surrender value factor x paid up value)/100 























GROUP INSURANCE

75. It is a plan of insurance i nsurance which provides life cover to a number of persons under single si ngle policy called as master policy   The premium is found to be cheaper on account of low administration cost   A number of group insurance schemes have been designed for various groups   The groups include employer-employee groups; associations of professionals (such as doctors, lawyers, chartered accountants etc); members of cooperative banks; welfare funds; credit societies and weaker sections of the society   Individual lives are not assessed. A person will be covered so long l ong as he remains eligible to 







be the member of the group Double accident benefit is available – payment of double the sum assured on death due to accident – without permanent disability benefit – by payment of extra premium 76. The different types of reinsurance are:   Proportional form of reinsurance   Non proportional form of reinsurance 77. Proportional form of reinsurance are:   Quota method   Share surplus form 78. Non proportional form of reinsurance rei nsurance are:   Excess of loss method   Excess of loss ratio method   Pools method of reinsurance   Treaty method of reinsurance 79. DICGC means DEPOSIT INSURANCE AND CREDIT GUARANTEE CORPORATION 80. The objectives of DICGC are:   Provide insurance against the loss or part of bank deposits by participating banks and other financial institutions   Provide guarantee support to small scale borrowers by participating banks and other financial institutions   Provide credit guarantee support to the priority sectors –  agriculture, retain trade, small business, professional and self employed persons and education 81. The important credit guarantee schemes operated by the corporation are:   Small loans guarantee scheme – 1971   Small loans (financial corporation) guarantee scheme – 1971   Service Cooperative Societies guarantee scheme – 1971   Small loans (small scale industries) guarantee scheme – 1981   Small loans (cooperative banks) guarantee scheme 1984   Credit guarantee schemes for small borrowers

 







































  Credit guarantee scheme for small scale industries 82. The objectives of insurance legislations are   To fostering a sound, competitive and progressive insurance business   To monitor the activities of the insurance industry 



 

 

To protect the interests of the policy holders by ensuring the insurers, intermediaries and surveyors abide the rules and regulations   To promote and preserve high standards of professionalism in the conduct of insurance business   To provide regulatory and fiscal infrastructure conducive to the development of insurance industry in the country   To coordinate investment and other activities of the insurers with the objectives of the national economic policies   To provide the best treatments to policy holders of various insurance policies   To provide the best solutions to the insuring public 83. The consumer protection redressal agencies were established by the consumer protection act in India 84. District consumer forum   is set up by state governments in all districts in India.   Each district forum is headed by a district judge j udge with two other members   These forums have jurisdiction to entertain complaints and compensation claim does not exceed Rs. 5 lakhs 85. The following unfair trade practices:   Falsely represent that the goods are of a particular standard, quality or grade   Falsely represent that the services are of a particular standard, quality or grade   Falsely represent any rebuilt, second hand, renovated, reconditioned or old goods as new goods   Represent that the seller or supplier has sponsorship or approval which they do not have   Making a false representation about the usefulness of any good or service   Giving public any warranty or guarantee of the performance efficacy or length of life of 





























product or any goods that is not based on adequate proper test t est 86. State consumer forum   Shall have the jurisdiction to entertain complaints where the value of goods an services and compensation if any claim exceeds Rs. 5 lakhs   It shall have the administrative control over all district forums within its jurisdiction in all matters 87. National consumer forum shall be headed by a judge of supreme court of India   Consists of four other members   Has the jurisdiction to hear complaints where value of goods and services and compensations if any claimed exceeds Rs. 2 lakhs and shall hear appeals against the orders of state commissions.   88. The following are the features of motor vehicles act:   Vehicle must be a motor vehicle   Use must be in a public place   Insurance policy should be in force   Statutory contract between insurer and driver   Rights of third parties   Limitations of the third party’s rights  rights   89. Fire insurance consists of the following: foll owing:   Loss and profit policy   Industrial all risk policy and fire reinstatement   Declaration and floating policy 90. Marine (cargo) insurance consists of the following:   Inland transit policy   Import and export marine policy   Special declaration policy   Annual open policy   Special storage policy   Sellers contingency insurance 





































91. Marine (Hull) insurance consists of the following:   Fishing vessels, 

     







Major fleets Inland vessels Country crafts/motorized boats

 

  Builders risk ship policy   Ship breakage risks   Major/Sunday hulls   Vessels under erection cover 92. Aviation insurance consists of the following: foll owing:   Aircraft comprehensive insurance   Legal liability for passengers   Legal liability of crews   Loss of licence   Flight coupon (personal accident insurance)   Third party liability for crews 93. Engineering insurance consists of the following:   Machine cum erection and storage policy   Machinery breakdown   Contractors all risks   Contracts plant and machinery   Advanced loss of profit   Electronic equipment insurance 94. Miscellaneous insurance consists of the following:   Agricultural pumpsets   Householders comprehensive insurance i nsurance   Shopkeepers comprehensive insurance   Baggage insurance NTV   Coffee plantation insurance   Neon signs insurance 













































Personal accident individual and group insuranc i nsurance e    School children’s personal accident insurance i nsurance     Fidelity guarantee – individual   Employees liability insurance   Medical practitioners professional indemnity insurance i nsurance,,   Burglary insurance (business premise)   Cash insurance   Product liability insurance   Bankers blanket insurance   Personal accident social scheme and hut insurance i nsurance   Medical claim individual and group insurance   Overseas medical claim   Boat and shipbuilders insurance   Bhavishya arogya 95. Personal selling of insurance is a selling process and assisting a prospective buyer to buy a product 96. The quality of a salesman are:   Should have the ability to persuade people to buy products of their choice   Should have good communication ability   Should possess knowledge about customers and their wants and desire and the products offered to satisfy them or not   Should know the socio psychological factors of customers   Influence the buying behavior   Should understand various customers, their attitudes and behaviours   Should have ability to recognize and handle them for successful salesmanship   Should follow AIDAS formula 97. AIDAS means – A for attention; I for interest; D for desire; A for action and S for satisfaction 98. A sales person should have the following qualities:   Physical qualities   Social qualities 















































  99. Skills       





Mental qualities of a salesman are: Interpersonal skills Communication skills Organization skills

 

100. 

The characteristics and traits of salesman are:   Trustworthiness   Enthusiasm   Empathy   Persistence   Patience   Desire for self improvement   Motivation 101.  Insurance business both life insurance and non life insurance is procured through individuals called as agents 102.  Individuals who want to be insurance agents should   Obtain a license from the controller of insurance of the IRDA in India   After obtaining the license, he should have to enroll with the insurance company to be authorized to work as an insurance agent   A well trained insurance agent can explain the details of various policies to the clients in detail 103.  Corporate agency system was introduced introduced in India during 2003 104.  A bank can act as an agent on behalf of an insurance company 105.  A corporate agent can be   A firm   A company under the companies act   A banking company   A corresponding new bank   A regional rural bank   A cooperative society including a cooperative bank 

































           106.  107.  









A panchayat A local authority A non government organization A micro lending finance organization A non banking finance company Any other organization that may be approved by IRDA There are three categories of insurance i nsurance brokers Insurance brokers can be classified into:   Direct broker   Composite broker   Reinsurance broker Objectives of Life Insurance Corporation of India are:   Provide life insurance cover to insuring people in India and outside India   To create insurance awareness awareness in rural areas in India   To achieve growth in new insurance business The subsidiaries of Life Insurance Corporation of India are:   The LIC housing finance Limited   LIC Mutual fund   LIC (Nepal) Limited   LIC(international )EC Bahrain Public sector Non Life Insurance corporations corporations are:   General Insurance Corporation of India   National Insurance Company Limited   The New India assurance company company limited   The oriental insurance company Limited   United India insurance company   Employees state insurance corporation   Deposit Insurance and credit guarantee corporation   Export credit guarantee corporation of India 





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109. 









110. 

















111. 



     





112. 

Agricultural Insurance Insurance Company of India Limited Functions of DICGC Deposit insurance functions Credit guarantee functions Export credit insurance consists of

 

         











113. 

         











 



114. 

                       



























   

Credit risk Market risk Liquidity risk Pure risks and speculative risks are handled by: Risk assessment Risk sharing Risk exploitation Risk monitoring The risk management strategies are: Risk avoidance Risk retention Risk transfer Risk reduction Risk hedging Risk combination Risk sharing The risk management process consists of the following: Risk identification and exposures to loss Risk evaluation Risk identification and exposures to loss consists of the following: Loss exposure check list method Financial statement analysis Flow charts Contract analysis Physical verification and inspection Statistical analysis of past loss The modern risk financing techniques are Alternative risk transfer Catastrophic bonds

       

Alternative risk transfer consists of Loss sensitive contracts Finite insurance contract Captive insurers Multi line insurance policies

    





115. 

       









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117. 

   





118. 

           













119. 





120. 

Standard policy Small exporters policy Specific policies Guarantee to banks Special schemes ECGC has evolved six types of guarantees Packing credit guarantee Export production finance guarantee Post shipment export credit guarantee Export finance guarantee Export performance guarantee Export finance (overseas lending) guarantee The different types of insurance risk are: Pure risk Speculative risk Static risk Dynamic risk Subjective risk Objective risk Financial risk Business risk Personal risk Property risk Liability risk Underwriting risk









 

     







121. 

           













Multi trigger insurance policies Contingent financial arrangements Structured debt instruments The different types of CAT bonds are: Surety bond Judicial BONDS Public official bonds Fidelity bonds Retirement planning Annuity

122.  Authorised capital is the amount which the company can raise through issue of equity shares 123.  Issued capital is the amount for which shares have been issued either through initial public offering or through private placement 124.  Float refers to the shares which are available for trading 125.  Outstanding shares is the sum total of float and the shares which are not tradeable (viz. issued to employees as stock options) 126.  Market capitalization is also called as market cap 127.  Market capitalization is the market price of the outstanding shares of a company 128.  Market capitalization = number of outstanding shares multiplied by the market price of a share on a particular day 129.  Earnings per share refers to the post tax profits of a company for a year divided by the number of equity shares 130.  Price earning ratio shows the wealth created 131.  Price earning ratio = market price of share/earnings per share 132.  Risk premium is the higher return which an investor in shares expects over and above the interest on fixed deposit or a debt instrument. Suppose the average return (interest rate) in a debt instrument is 6% and the average return in shares is 13%, the 7% differential is called risk premium because of the risk an investor in share bears 133.  Relationship between interest rates and stock prices- stock prices fall when interest rates rise. In the above example, if the interest rates are increased to 8%, the risk premium will come down to 5%. This makes the share less attractive relatively. Some investors are likely to switch their preferences to debt instruments and to that extent the demand for share will register a fall and consequential fall in prices. 134.  Relationship between inflation rates and stock prices – the rising inflation rate pushes the cost of production and distribution high. This brings down the profits and dividends to shareholders and results in fall in share prices. 135.  Insurance is the contract between the insurer and policyholder.   136. The risks   Early deathin the case of human being are related to:   Living too long   Disabilities   Sickness   Unemployment 137.  The benefits of life insurance:   Life insurance is not only the best possible way for family protection   Insurance is the only way to safeguard against the unpredictable risks of the future. It is unavoidable   The terms of life are hard. The terms of insurance are easy   The value of human life is far greater than the value of property. Only insurance can preserve it   Life insurance is not surpassed by any other savings or investment instrument, in terms of security, marketability, stability of value or liquidity 





















 

     

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Insurance, including life insurance, is essential for the conservation of many businesses, just as it is in the preservation of homes Life insurance enhances the existing standards of living Life insurance helps people live financially solvent lives Life insurance perpetuates life, liberty and the pursuit of happiness

 

 

Life insurance is a way of life li fe 138.  Risks are managed in three ways –    Prevention of avoidance   Retention   Transfer 139.  Who can be insured? –  the various possibilities are –  1) individual adults ii) children (minors) iii) two or more persons jointly under one policy poli cy 140.  What can be the sum assured? – some plans stipulate a minimum sum assured. There can be maximum limits also for sum assured as well as certain benefits, like li ke accident benefits 141.  In what contingency would the sum assured be payable? – could be on death or on survival 142.  When would the sum assured be payable? On the contingency happening or some other dates 143.  How would the sum assured be payable? – Could be in one lump sum or in instalments 144.  What would be the term (duration) of the policy? This determines the period during which the specified event should occur for the sum assured to be payable. Some plans provide for benefits even beyond the term 145.  When would the premium be payable? Variations are in the frequency of payment (monthly, quarterly, half yearly or yearly) as well as the period during which it i t is payable. Some plans provide for premiums to be paid for a period less than the return 146.  Does the sum assured increases? –  This can happen because of participation in surpluses and bonus additions or because of guaranteed increases in sum assured 147.  Does the sum assured reduce? –  This can also happen, if the plan is to meet reducing liabilities under a mortgage 148.  Are there additional benefits? –  These, also called supplementary benefits and may be provided by way of riders, in addition to the basic covers 







149.  What is a without profit policy? – without profit or non participating policies are not entitled to bonuses, which are declared after actuarial valuations. With profit or participating policies pay a slightly higher premium for the right to participate in the progress of the insurer. With profit policies are popular because the bonuses are expected to be more than the extra premium paid. With profit policies, where the premium is payable for a limited period, will continue to participate even after the premiums have ceased 150.  What do you mean by joint life policies? –  Two or more lives can be covered under one policy and such policies usually cover married couples or parents. The sum assured is paid on the death of any of the insured persons during the term or at the end of the term. Some plans also provide payment of sum assured on the death of one life and the policy is continued to cover the second life till maturity, without payment of further premium p remium 151.  In the case of joint life insurances –    A joint life declaration is necessary to create a joint interest in the policy   In the case of partnership insurance, the partnership deed will be examined to ascertain the nature of financial interest of each partner   Each life will be underwritten separately   Bonuses will accrue on the single basic sum assured only 152.  A proposal is an application for an insurance cover. When a proposal is received, the insurer will not grant the cover automatically. The insurer will make a decision as to the admissibility of the proposer to the pool of policyholders. 153.  What do you mean by hazard? – The factors affecting the risk on the life of an individual are called as hazards and they can be physical; occupational and moral. 154.  Physical hazards are –  age, sex, build, physical condition, physical impairments, personal history, family history, increasing extra risk, occupational hazards and moral hazard 155.  Age – As age increases, the probability of death increases and these probabilities are built into the mortality tables and thereby into the premium rates The underwriter looks into the factor of aged mainly because of its relationship with other factors. Certain risks increase with age. Certain other risks decrease with age. For example, being overweight is a positive or favorable factor among children, while it may not be so among older persons. Young persons who are underweight 







need closer scrutiny than elders who are underweight 156.  Sex – Mortality of female lives is seen to be higher than male lives at younger ages, among the poorer and uneducated sections. One reason could be the lack of adequate care in maternity cases. Underwriting considerations are also different in female cases.

 

157.  Physical condition – The medical examination of reflexes, blood pressure, pulse rates, urine etc. provides data with regard to the condition of important i mportant systems of the body 158.  Physical impairments – Blindness, deafness etc and other conditions which are not illnesses or degenerative are hazards affecting the probabilities of death 159.  Personal history – This is important as pointers to the health as well as the life style of the person 160.  Family history –  This is looked to see whether there are factors that make the person susceptible to hereditary illnesses. Family history of early deaths of cardiac illnesses or diabetes, could be significant 161.  Increasing extra risk is related to certain impairments or ailments like blood pressure or diabetes or cancer, which are expected to get worse as days go by. They do not have to, as modern medicine has ways of containing them. Similarly, some impairments are expected to wear off as days go by. These are called decreasing extra risks 162.  Occupational hazards arise out of one’s job.   The nature of the job or the place in which the job is done have effects on the worker.   Contact with and installation of fumes, excessive temperatures, etc affect health and life spans.   Those on flight duties on aircrafts run a greater risk of death d eath by accident.   Those working in chemical factories are likely victims of various respiratory diseases.   Those working with high voltage electricity are susceptible to electrocution and burns.   The safety factor is important in heavy engineering factories, working at heights, working with high speed machines, adventure sports and so on   163. Moral hazard refers to the intentions of the proposer. If the proposer is being made because there is a genuine need for insurance, there is no moral hazard. If the intention is to seek undue advantage through the insurance policy, there is some moral hazard. 











164.  The policy document –  it is the document given to the insured once the contract is completed between the insured and insurer 165.  The policy document contains the following – number of the policy, date of the policy, age admitted, name of of the policy holder, the address of the policyholder, policyholder, premium amount, mode of premium amount, plan number, term in years, date of commencement of the policy, date of maturity, name of the nominee, relationship with the policyholder poli cyholder 166.  The following are usually accepted as proof of age:   Certified extract from the municipal records   Certified of baptism   Certified extract from family bible if it contains of date of birth   Certified extract from school or college records   Certified extract from service register or employer   Passport   Identify cards issued by defence department in case of defence personnel   Marriage certificates issued by a Roman’s Catholic Church  Church   167.  What do you mean by days of grace? The policy stipulates that the premium has to be paid in the insurer’s office on the dates specified therein. These dates are called as due dates  dates   168.  How premium can be paid? – It can be paid by cash, cheque, demand draft, postal order, money order, banker’s cheque. Nowadays electronic means of pay ment as well credit cards and debit cards are also acceptable. 169.  What is a grace period? – Premiums are to be paid on the due dates mentioned in the policy and insurers, however, allow a grace period for payment of premium. Payment within the grace period is considered to be payment on time. The grace period would be one month, but not less than 30 days for yearly, half yearly or quarterly modes of premium and 15 days for monthly modes of premium. Some insurers allow 30 days grace period for monthly modes also als o 170.  What is salary savings scheme? –  In the case of salary savings scheme, the premium amount is deducted by the employer from out the salaries payable to the employee. When there is delay in remitting the same to the office of the insurer, the delay is usually condoned. If the delays happen frequently, the salary savings scheme arrangement may be terminated 















171.  What is default? – If the premium is not paid within days of grace, it is considered to be in default and the policy is said to lapse. If the insured i nsured happens to die within the days of grace and the premium has not been paid, the claim will be admitted in full and the premium for the current year will be deducted from the claim amount

 

172.  What do you mean by lapse? –  A payment within the days of grace is deemed to be a payment on the due date and if the premium is not received by the insurer, within the days of grace, there is a default on the part of the policyholder. The insurer is entitled to say that the policy comes to an end. Such termination is called a lapse. No claims arise on the policy after a lapse and all premiums are forfeited 173.  What do you mean by paid up value? – Under this option, the sum assured is reduced to a sum which bears the same ratio to the full sum assured as the number of premiums actually paid bears to the total number originally stipulated in the policy. Paid up value = (number of premiums paid x sum assured)/number assured)/number of premiums payable 174.  Surrender value or cash value is made available normally when the policy has remained in force for at least three years. This is so, because in the first year, most of the premium goes out in expenses and there is little left for accumulation. 175.  Assignment transfers the rights, title and interest of the assignor to the assignee. Legal provisions for assignment of insurance policies are available in almost all the countries. 176.  How assignment is done? – the assignment can be done by an endorsement on the policy or by a separate deed.   When the assignment is made by an endorsement on the polity itself, no stamp duty is necessary.   Separate deeds have to be stamped   It must be signed by the transferor or his duly authorized agent   The signature must be attested by a witness   The assignment is effective as soon as it is i s executed   It must be sent to the insurer along with a notice   The assignment is effective against the insurer only when the notice is delivered to the insurer 















Where there is more than one instrument of assignment, the priority of claims shall be determined by the order in which the t he notices are delivered to the insurer 177.  What is meant by revival of the policy? When a policy lapses, it benefits neither the insurer nor the insured. The insured loses l oses the insurance risk cover for the full amount. It signifies a reversal of the decision to arrange for the insurance cover and therefore, , exposes the policy poli cy holder adverse circumstances. 178.  For revival of policies, the following will normally be necessary:   Arrears of outstanding premiums with interest   Proof of continued good health   A fee for reinstatement or revival, in the case of some insurers 179.  What do you mean by nomination? –  It is a simple way to ensure easy payment of the policy moneys in the case of a death claim. As per section 39 of the Insurance Act, 1938, the holder of a policy on his own life, may nominate the person or persons to whom the money secured by the policy shall be paid in the event of his death. This can be made at the time of proposal or at any time during the currency of the policy. A person having a policy on the life of another cannot effect a nomination. 180.  The features of nomination:   Nomination can be done before the issue of the policy by mentioning in the proposal form or by a letter giving details   It can also be issued after issue of the policy by an endorsement on the policy   Cannot be done by a deed separate deed   The holder of a policy on his own life : i.e. i .e. the life assured, alone can make nomination   Policyholder retains full control and can deal with the policy without the consent of the nominee   Need not be supported by a consideration   May be witnessed   Notice is required to be given to the insurer   Nominee has no right to sue under the policy   It can be altered by the life assured during the currency of the policy by cancellation of

 



























     







nomination or by an assignment Where nominee is a minor, appointment of an appointee by the life assured only is i s required Appointee can be appointed in the wording of the t he nomination No vested interest is created in favour of nominee

 

 



 



 



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Nominee’s right is only to collect policy moneys on the death of the assured, when paid by the insurer If the nominee dies after the life assured and before settlement of the claim, the policy moneys would be payable to the heirs of the life assured Creditors of the life assured can attach the policy moneys The features of assignment: Can be done only after issue of the policy by endorsement on policy Can be done also by a separate deed on stamped paper The absolute owner of the policy may be either proposer or the life assured or the absolute assignee or conditional assignee to the extent of his hi s interest, can make assignment Policyholder loses control over the policy and assignee is the owner of the policy and can deal with it Must be supported by a consideration Must be witnessed Notice is required to determine priority between other assignees Assignee has right to sue under the policy poli cy It cannot be cancelled by the assignor When assignee is a minor, guardian is to be appointed Guardian cannot be appointed in the wording of the assignment Assignee acquires interest The assignee is entitled to deal with the policy and to receive the policy moneys If the assignee dies at any time, the policy moneys would be payable to the heirs of the assignee Creditors of the life assured cannot attach the policy moneys unless the assignment is shown to have been made to defraud the creditors What is a surrender? A surrender is a voluntary termination of the contract by the policyholder A policyholder can surrender the life insurance policy before it becomes a claim Surrenders are not allowed unless the policy has run for a minimum period of time, which may vary from three to seven years. The amount payable by the insurer to the policyholder on surrender is called the surrender value or cash value. Surrender values are published and made known to policyholders by some insurers either as part of the prospectus or by mention in i n the policy conditions What is a surrender value? It is usually a percentage of the premiums paid or a percentage of the paid up value. The percentage increases as the duration of the policy increases The surrender value on a policy will be more after 15 years compared to the surrender value after ten years. The percentage decreases as the original term of the policy increases Between two policies of original term 20 and 30 years, both of which have been in force for the same fifteen years, the surrender value on the former will be more than on the latter. What is a foreclosure? Foreclosure means closure or writing off the policy before its actual maturity When a loan is granted under a policy, the life assured has a choice to pay the interest or allow it to accumulate to be adjusted from the policy moneys payable when the claim arises. This is possible only if the premiums are paid regularly and the policy remains in force. In case of paid up policies, the surrender value will not grow as fast as the accumulated interest The principal loan and accumulated interest could become more than the surrender value at some time In the case of foreclosure it becomes necessary.

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