Chp-24 ~ Types Of Insurance

Question 1

Two broad categories of insurance?

Answer 1

1] Life Insurance
2] Non-life Insurance

Question 2

Define life insurance. - 2M or 3M

Answer 2

1. A contract whereby the insurer undertakes to pay certain sum of money either on the death of the insured or on the expiry of a specified period, whichever is earlier
2. Is not a contract of indemnity because sum assured is always payable and only the time of payment is uncertain. (thus, life insurance is a.k.a LIFE ASSURANCE)
3. Insurable interest must be present at the time of taking insurance policy

Question 3

What are the advantages of life insurance? (Importance)

Answer 3

1. Protection against risk
2. Protection for old age
3. Thrift and savings
4. Investment
5. Tax savings
6. Capital formation

Question 4

Provide distinction between Insurance and Assurance.

Answer 4

Basis:
Insurance || Assurance
1. Nature of Risk:
Risk is uncertain || Risk is certain
2. Relationship:
Related to non-life insurance || Related to life insurance
3. Payment of Compensation:
Compensation is paid only on the happening of the event || Compensation is paid whether the event happens or not
4. Conditions to claim Compensation:
The insured must suffer a loss || The insured is not necessarily required to suffer a loss
5. Type of Contract:
Contract of indemnity || Not a contract of indemnity

Question 5

What is health insurance? Mention the most popular health insurance policy.

Answer 5

1. Health insurance means insurance for protection of health against various types of diseases.
2. In case of ill health, the insured person receives the cost of treatment/hospitalisation up to the insured amount.
3. Mediclaim is the most popular health insurance policy.
4. Under this policy, the insured person gets cashless facility from specified hospitals. The cost of treatment (up to Rs. 5 lacs) in the hospital is directly paid for by the insurance company to the hospital.

Question 6

What are the various types of health insurance policies?

Answer 6

1. Basic medical expenses
2. Major medical expenses
3. Disability income policy
4. Long-term hospitalisation

Question 7

What are the advantages of health insurance? (Importance)

Answer 7

1. By paying a small amount of premium, the insured person gets coverage for heavy cost involved in hospitalisation for serious diseases.
2. The premium paid for health insurance is allowed as a deduction from taxable income.
3. In case of sudden hospitalisation, the insured is saved from heavy expenditure.
4. Health insurance contributes significantly to the economic development of a country.
5. Health insurance industry provides protection to social development.

Question 8

What is fire insurance? -1M

Answer 8

Risk of loss of property by fire.

Question 9

What is marine insurance? -1M

Answer 9

Risk of loss of ship, cargo or freight while sending goods by sea.

Question 10

What is burglary insurance? -1M

Answer 10

Risk of loss by theft and burglary.

Question 11

What is fidelity insurance? -1M

Answer 11

Risk of loss arising from dishonesty of employees.

Question 12

What is third-party insurance? -1M

Answer 12

Risk of loss due to liability to a third-party.

Question 13

What is social insurance? -1M

Answer 13

Risk of loss due to ill health, unemployment, workmen’s compensation, Employees State Insurance.

Question 14

What is credit insurance? -1M

Answer 14

Risk of bad debts.

Question 15

What is motor insurance? -1M

Answer 15

Risk of loss due to accident of vehicles.

Question 16

What is health insurance? -1M

Answer 16

Risk of loss due to illness or hospitalisation.

Question 17

What is profit insurance? -1M

Answer 17

Risk of loss of profit due to closure of business.

Question 18

What is war insurance? -1M

Answer 18

Risk of loss due to war.

Question 19

What is riot insurance? -1M

Answer 19

Risk of loss due to riot.

Question 20

What is goods in transit insurance? -1M

Answer 20

Risk of loss of goods in transit.

Question 21

What is life insurance? -1M

Answer 21

Risk of loss due to premature death or disability of a person.

Question 22

Define fire insurance. - 2M or 3M

Answer 22

1. A contract in writing whereby the insurance company undertakes to indemnify the insured for any loss or damage to the insured property or goods caused by accidental fire.
2. A fire insurance policy is generally for one year.
3. It is a contract of indemnity.
4. A contract of fire insurance specifies the maximum amount to which the insurance company can be held liable.

Question 23

What conditions should be satisfied for a fire insurance policy to be eligible?

Answer 23

The term ‘fire’ must satisfy the following conditions:
1. There must be an actual fire or ignition. If the property is damaged by heat or smoke, the insurance company will not be liable to pay compensation.
2. Loss by lightning, electricity and explosion is not covered unless they result in fire which causes loss.
3. Loss due to riot, war and natural calamities is NOT covered by fire insurance.
4. The fire should be accidental and not intentional.

Question 24

Define marine insurance. - 2M

Answer 24

1. It is a contract of indemnity, whereby the insurance company undertakes to indemnify the insured for the loss or damage to the ship or cargo or freight on account of marine adventure.
2. Compensation is paid to the insured against risks incidental to marine adventure.

Question 25

What are the different types of marine insurance?

Answer 25

1. Hull insurance
2. Cargo insurance
3. Freight insurance

Question 26

What is the importance of marine insurance?

Answer 26

1. A marine insurance policy provides protection against risks involved in marine adventure.
2. It is one of the oldest types of insurance.
3. It plays a vital role in foreign trade by providing protection against sea perils.
4. Marine insurance provides protection against sea perils to both importers and exporters, and shipping company.

Question 27

What are different types of sea perils covered by the marine insurance policy?

Answer 27

1. Sea perils include piracy, capture by enemy, seizure, restraint, jettison, barratry, etc.
2. Sinking of ship after being hit by a rock, loss of cargo due to sea water or heat, storms at sea, collision of one ship with another, looting of a ship, etc. are other examples of sea perils.

Question 28

Explain jettison and barratry. - 1M

Answer 28

Jettison means throwing away of goods over board in order to avoid sinking of ship.
Barratry refers to a fraudulent breach of duty by master or staff of the ship.

Question 29

Provide distinction between life insurance, fire insurance and marine insurance.

Answer 29

Basis:
Life Insurance || Fire Insurance || Marine Insurance
1. Nature of contract:
Not a contingent contract || A contingent contract || A contingent contract
2. Indemnity
Not a contract of indemnity || A contract of indemnity || A contract of indemnity
3. Period of Contract:
A long term contract, usually for one year || Short-term contract || Short-term contract
4. Purpose:
Protection as well as investment || Only protection against risk || Only protection against risk
5. Nature of Risk Covered:
Risk due to premature death, risk is certain || Risk due to fire, risk is uncertain || Risk due to sea perils, risk is uncertain.

Question 30

Explain motor insurance along with its types. -3M

Answer 30

Motor insurance is a type of non-life insurance that covers the following risks:
1. Risk of loss or damage to motor vehicles due to accident, fire, theft, etc.
2. Risk of injury, death, etc. of the driver.
3. Risk of loss due to injury or death of third party by the vehicle in an accident.

Motor vehicle insurance is of two types:
a) THIRD-PARTY INSURANCE:
In case the insured vehicle causes injury to any other person or vehicle, the owner of the vehicle will compensate the third party insurer which will compensate the insured.
b) COMPREHENSIVE INSURANCE:
This insurance covers all types of risks causing damage or loss to the insured vehicle.

Question 31

What is the importance of motor vehicle insurance?

Answer 31

1. With the help of the money received from the insurance company, the owner of the motor vehicle can buy a new one in case of its loss or damage.
2. The compensation payable to the third party can also be recovered from the insurance company.
3. A person who earns his livelihood from his vehicle is not deprived permanently of his source of income.
4. To mitigate financial hardship caused to the people who get injured or killed by motor vehicles, the Motor Vehicles Act 1939, has made it compulsory for the owners of motor vehicles to insure against the risk of liability to third parties.

Question 32

Explain fidelity insurance.

Answer 32

1. It means an insurance policy that provides protection against risk of loss caused by fraud, dishonesty and embezzlement by the employee(s).
2. It is a contract between the insurance company and an employer.
3. It is taken when employees are in charge of good and cash of the employer.

Question 33

What are the features of a fidelity insurance policy?

Answer 33

1. Subject Matter:
   The subject matter is intangible as fidelities of employees cannot be seen or touched.
2. Service Conditions:
   The employer cannot change the terms of conditions of his employee(s) without consulting the insurance company.

Question 34

What is the importance of a fidelity insurance policy?

Answer 34

1. It protects the employer from the financial loss caused by the dishonesty of his employee(s).
2. The employer is guaranteed against loss up to the amount of policy.
3. The insurance company compensated the employer for the loss suffered on account of dishonesty, fraud or embezzlement by his employee(s).

Question 35

Explain social insurance.

Answer 35

1. It is an insurance that provides social security to working class, Employee State Insurance, workmen’s compensation scheme, provident fund, pension group insurance and unemployment insurance are examples of social insurance.
2. Under social insurance, both the employee and the employer make periodical contributions with or without a subsidy from the Govt.
3. The funds so collected are invested.
4. The total accumulated amount is paid to the employee on his/her retirement.

Question 36

What is the importance of a social insurance policy?

Answer 36

1. After retirement, an employee gets a substantial amount in lump sum or in the form of monthly pension.
2. This helps the employees meet their living expenses.
3. In the absence of social insurance, these employees will starve and inevitably become a burden on the society.
4. Social insurance provides social security to the employees.