Insurance Notes & MCQs for LIC Assistant Exam 2021 | Principles of Insurance

LIC Assistant Notification 2021 is released on LIC website frequently and is expected soon. It is high time that you start revising your insurance notes for the section of General/Financial Awareness. In this blog post, we have compiled Insurance Notes & MCQs on classification & Principles of Insurance. Go through these and acquaint yourself with the basic insurance terminologies. Revise your Insurance notes multiple times so that you don’t miss out on any of the marks in the LIC Assistant Mains 2021 exam. 

Topics Covered

Insurance Notes & MCQs – Principles of Insurance

What is Life Insurance?

Life Insurance: It is a form of investment offering savings, It is an insurance contract, which covers the life-risk of the person insured. It’s a long term contract. Insurable amount is paid either on the occurrence of the event or maturity.
Examples: Term Assurance, Whole Life, Endowment Assurance, Family Income Policy, Life Annuity, Joint Life Assurance Etc.

Financial & Insurance Awareness MCQs Ebook – LIC Assistant Mains Exam

Classification of Insurance:

1. General Insurance:

  • It is meant insurance other than life insurance. In popular terms a dialect it is famous as non-life insurance.
  • Non-Life insurance products include property or casualty, health insurance or house, fire, marine insurance etc.
  • Loss is reimbursed, or liability will be repaid on the occurrence of an uncertain event.

Principles of Insurance

The basic principles which govern the insurance are:
1. Utmost good faith
2. Insurable interest
3. Indemnity
4. Contribution
5. Subrogation
6. Causa Proxima
7. Mitigation of loss

Insurance & Financial Awareness Notes

Question 1. Which of the following principles of Insurance denotes a positive duty of the person seeking insurance to voluntarily disclose all facts material to the risk being proposed whether requested or not?

a) Insurable Interest
b) Utmost Good Faith
c) Principle of Contribution
d) Principle of loss Minimization
e) Principle of Partnership

Answers: b

Principles of Insurance

1. Principal of Utmost Good Faith:

• Each party must reveal all material information to the other party whether such information is asked or not.
• There should not be any fraud, non-disclosure or misrepresentation of material facts.
• This principle applies to life, fire and marine insurance.

2. Principle of Insurable Interest

• Insured must have the insurable interest on the subject matter
• Insurance interest is that interest when the policyholders get benefited by the existence of the subject matter and loss if there is death or damage to the subject matter.
• In case of life insurance spouse and dependents have insurable interest in the life of a person.
• Corporations also have insurable interests in the life of their employees

Question 2. Which of the following principles of Insurance assures about the financial interest that the assured possesses in whatever is being insured?

a) Insurable Interest
b) Principle of loss Minimization
c) Principle of Contribution
d) Utmost Good Faith
e) Principle of Indemnity

Answers: a

Insurance & Financial Awareness Notes

3. Principle of Indemnity

• Indemnity is considered to be a contractual agreement between two parties where the insurer agrees to pay for potential losses or damages caused by insured
• Indemnity principle is a rule of insurance law which says an insurance policy should not confer a benefit greater in value than the loss suffered by the insured.

4. Contribution:

• The insurers must share the burden of payment in proportion to the amount insured by each
• If one of the insurers pays the whole loss, he is entitled to contribution from other insurers.
• The principle of contribution is a corollary to the doctrine of indemnity. It applies to any insurance which is a contract of indemnity. So, it does not apply to life insurance.

5. Subrogation:

• According to it, after the insured is compensated for the loss caused by the damage to the property insured by him, the right of ownership to such property passes to the insurer after settling the claims of the insured in respect of the covered loss.
• It applies to fire and marine insurance.

Insurance & Financial Awareness Notes

6. Causa Proxima:

• Causa Proxima means proximate cause or cause which, in a natural and unbroken series of events, is responsible for a loss or damage
• The insurer is liable for loss only when such a loss is proximately caused by the peril insured against
• The cause should be the proximate cause and cannot the remote cause
• If the risk insured is the remote cause of the loss, then the insurer is not bound to pay compensation.

7. Mitigation of loss:

• An insured must take all reasonable care to reduce the loss. We must act as if the property was not insured.

Question 3. Which of the following principles of Insurance tells that an insured may not be compensated by the insurance company in an amount exceeding the insured’s economic loss?

a) Insurable Interest
b) Utmost Good Faith
c) Principle of Contribution
d) Principle of Indemnity
e) Causa Proxima

Answers: d

Question 4. Which of the following principles of Insurance enables the insured to claim the amount from the third-party responsible for the loss?

a) Insurable Interest
b) Principle of Subrogation
c) Principle of Contribution
d) Double insurance
e) Reinsurance

Answers: b

Question 5. What is the Principle of Insurance called under which the insured can claim the compensation only to the extent of actual loss either from all insurers or from any one insurer?

a) Insurable Interest
b) Principle of Subrogation
c) Principle of Contribution
d) Double insurance
e) Causa Proxima

Answers: c

Question 6. What is the Principle of Insurance called under which insured must always try his level best to minimize the loss of his insured property, in case of uncertain events?

a) Mitigation of loss
b) Principle of Subrogation
c) Principle of Proximate Cause
d) Principle of Indemnity
e) Causa Proxima

Answers: a

Insurance & Financial Awareness Notes

Insurance Terminology – Assurance v/s Insurance

The two words are commonly in use together, but there is a fine distinction between the two.
• Assurance is used in those contracts which guarantee the payment of a certain sum on the happening of a specified event which is bound to happen sooner or later, for example attaining a certain age or death. Thus life policies come under ‘assurance’.
• Insurance: It provides the granting of agreed compensation of the happening of certain events defined in the contract which are not expected but which may happen, for example, risk relating to fire, accident or marine.

Special Mention | Bancassurance

Bancassurance is a French term. Bancassurance as a term first appeared in France in the 1980s. Today, many countries allow the practice, demonstrating notable growth around the world. It is most successful in Europe.

For banks, they can earn extra income by providing its platform to insurance companies. They can also get an opportunity to provide more products to customers. As a result, they can become the center of financial products for the individual customer.

  • Bancassurance is a relationship between a bank and an insurance company that is aimed at offering insurance products or insurance benefits to the bank’s customers.
  • According to IRDA, ‘bancassurance’ refers to banks acting as corporate agents for insurers to distribute insurance products.
  • It is an arrangement between a bank and an insurance company allowing the insurance company to sell its products to the bank’s client base and by doing this both companies earn a profit.

Bancassurance Products

  • Banks typically focus on selling life insurance products because they generally command a higher price than non-life insurance products.
  • Moreover, banks can find and promote the most suitable life insurance for customers based on their credit and personal needs.

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