Insurance examinations - Tips on insurance awareness - Part: 004

01. What is a 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 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

02. 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

03. 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 of premiums payable

04. What do you mean by surrender value?

·         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.

05. What do you mean by assignment?

·         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 countr

·         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 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 notices are delivered to the insurer

06. What is meant by revival of the policy?

·         When a policy lapses, it benefits neither the insurer nor the insured.

·         The insured loses 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 holder adverse circumstances.

07. What are the requirements for  revival of policies?

·         Arrears of outstanding premiums with interest to be paid

·         Proof of continued good health to be submitted

·         A fee for reinstatement or revival, in the case of some insurers has to be paid

08. 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.

09. What are the 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 separate deed

·         The holder of a policy on his own life : 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 required

·         Appointee can be appointed in the wording of the nomination

·         No vested interest is created in favor of nominee

·         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

10. What are 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 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 the priority between other assignees

·         Assignee has right to sue under the policy

·         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

11. What do you mean by surrender of a policy?

·         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 the policy conditions

12. 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.

13. What do you mean by  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

14. What do you mean by GIPSA?

·         It is an association called as – General Insurers’ (Public Sector) Association of India

·         It has its headquarters at New Delhi

·         The chairperson is Shri G. Srinivasan and Shri G. Srinivasan is the chairman and managing director of New India Assurance Company

·         The association has been formed by the four public sector non life insurance companies namely – New India Assurance Company; Oriental Insurance Company, National Insurance Company and United India Insurance Company

15. Whether a policyholder can have both paper and electronic policies?

·         Policyholders have the option to choose the form in which they want their policies issued – paper or electronic

·         A policy can be bought or maintained in one form only

·         The policyholder cannot have the policy in both forms

·         However, when a policyholder has more number of policies, he has the option keep some policies in paper form and the remaining policies in electronic form

16. What do you mean by – Annuity?

·         It is an agreement by an insurer to make periodic payments

·         The payments continue during the survival of the annuitant(s) or for a specified period

17. What do you mean by – claim?

·         It is a demand made by the insured or the insured’s beneficiary for payment of the benefits as provided by the policy

18. What is life insurance?

·         Life insurance is called as life assurance

·         It is a contract between an insured and an insurer

·         The insurer is the insurance policyholder

·         The insurer is the company who had issued the insurance policy (e.g. Life Insurance Corporation of India)

·         The insurer promises to pay a designated beneficiary a sum of money in exchange for a premium upon the death of the insured person

·         Depending upon the contract, other events such as terminal illness or critical illness may also trigger payment

·         The policy holder typically pays a premium either regularly or as a lump sum

·         Life policies are legal contracts and the terms of the contract describe the limitations of the insured events

19. What is meant by general insurance?

·         General insurance is basically an insurance policy that protects the policyholder against the losses and damages other than those covered by life insurance

·         The coverage period for most general insurance policies and plans is usually one year, whereby premiums are normally paid on one time basis

20. What are some  private sector insurance players?

·         Bajaj Allianz General Insurance

·         ICICI Lombard general insurance

·         IFFCO-Tokio General Insurance

·         Reliance General Insurance

·         Royal Sundaram Alliance Insurance

·         TATA AIG General Insurance

·         Cholamandam General Insurance

·         HDFC Ergo

21. What do you mean by – coverage?

·         It is the range of protection that the policyholder is  provided under an insurance policy

22. What do you mean by – death benefit?

·         The limit of insurance or the amount of benefit that will be paid in the event of the death of a covered person

23. What do you mean by – deductible?

·         The amount the policyholder has to pay out of pocket expenses before the insurance company covers the remaining costs

24. What do you mean by – exclusive?

·         The items which are not covered under the policy; however, are payable by the company as an incentive

25. What do you mean by – indemnity?

·         It is the restoration to the victim of a loss by payment, repair or replacement

26. What do you mean by insurable interest?

·         The interest in property such that loss or destruction of the property could cause a financial loss

27. What is called as – Insurance settlement?

·         It is a payment on an insurance claim

·         When a valid insurance claim is made, the insurer makes a payment to the policyholder and this payment is called as the insurance settlement

28. What do you mean by – lapse?

·         It is the termination of a policy due to failure to pay the required renewal premium

29. What do you mean by – paid up value?

·         When the policyholder stops paying the premiums; however, do not withdraw the money from the policy the policy is required as paid up and the value that can be paid up under such policy is called as paid up value

30. What do you mean by- peril?

·         It is the cause of the possible loss or damage

31. What do you mean by – reinsurance?

·         It is an insurance that an insurance company buys for its own protection

·         The risk of loss is spread so a disproportionately large loss under a single policy does not fall on one company

·         Reinsurance enables an insurance company to expand its capacity

·         It stabilizes its underwriting results

·         It finances its expanding volume

·         It secures catastrophic protection against stock losses

·         It also withdraws from a line of business or a geographical area within a specified time period

32. What is meant by – renewal?

·         It is the automatic re-establishment of in-force status effected by the payment of another premium

33. What do you mean by – rider?

·         It is an optional feature that can be added to a policy

·         The policyholder has to pay an additional premium to avail this benefit

34. What do you mean by – subrogation?

·         It is the right for an insurer to pursue a third party that caused an insurance loss to the insured

·         This is done as a means of recovering the amount of the claim paid to the insured for the loss

35. What do you mean by survival benefit?

·         It is the amount payable at the end of specified durations

·         These amounts are fixed and predetermined

36. What do you mean by – underwriting?

·         It is the process of selecting the risks for an insurance and determining as to what amount and on what terms the insurance company has to accept the terms

·         Unlike a term insurance cover, in case the policyholder is alive, the amount will be paid to the policyholder on the maturity of the plan

37. What are the primary functions of an insurance?

·         The functions of an insurance can be divided into three categories namely – primary functions, secondary functions and other functions

38. Which are the primary functions of an insurance?

·         Provides protection

·         Provides certainty

·         Distributes the risk

39. What are the secondary functions of an insurance?

·         Protection of loss

·         Provides capital

·         Increases efficiency

·         Provides adequate financial cover

·         Helps in judging the viability of major projects

40. What are the miscellaneous functions of an insurance?

·         It encourages savings

·         It promotes foreign trade

·         It checks inflation

·         It provides social security

·         It provides credit facilities during emergent situations

41. What are the specific principles of insurance?

·         Principle of cooperation

·         Principle of probability

·         Principle of insurable interest

·         Principle of utmost good faith

·         Principle of indemnity

·         Principle of subrogation

·         Principle of contribution

·         Principle of causa proxima

·         Principle of warranty

·         Principle of mitigation of loss

·         Principle of assignment