IDEAL INDIAN SCHOOL, DOHA-QATAR

XII INSURANCE
CH 1 INTRODUCTION OF GENERAL INSURANCE

I. VERY SHORT Answer QUESTIONS

Q1. What is insurance?

Insurance is a mechanism by which a person exposed to potential risks transfers the financial loss, in part or in
full, to a third party (the insurer) in exchange for a premium.
Q2. Who are the parties involved in an insurance contract?
The parties involved are the ‘Insured’ (the person transferring the risk) and the ‘Insurer’ (the insurance
company compensating for the loss).
Q3. What is the premium in an insurance contract?
The premium is the fee or consideration paid by the insured to the insurer in exchange for financial coverage
against potential losses.
Q4. What are the two main types of insurance in India?
The two main types of insurance in India are:
1. Life Insurance
2. General Insurance (also called Non-Life Insurance)
Q5. What does general insurance cover?
General insurance covers non-life risks, such as property damage (fire, theft), personal accidents, health
issues, legal liabilities, and other risks like crop or credit insurance.
Q6. Name any four private sector companies carrying out General Insurance Business in India.
Answer: Bajaj Allianz General Insurance, ICICI Lombard General Insurance, Reliance General Insurance, HDFC
ERGO Insurance.
Q7. What is meant by the term 'premium' in an insurance contract?
Answer: Premium is the fee or consideration paid by the insured to the insurer in exchange for financial
coverage against potential loss.
Q8. What is the principle of 'utmost good faith' in insurance?
Answer: The principle of utmost good faith requires both the insurer and the insured to fully disclose all
material facts of the insurance contract.
Q9. What is General Insurance, and why is it important?
General Insurance provides coverage against financial losses arising from risks such as accidents, theft, or
natural disasters. It is important as it ensures peace of mind and protection from financial losses for both
individuals and businesses.
Q10. What does Fire Insurance cover?
Fire Insurance covers financial losses due to damage or destruction of property or goods caused by fire
during a specified period.
Q11. What is the role of the General Insurance Corporation of India (GIC)?
GIC, established after nationalization in 1972, functions as a holding company responsible for the broad
policy matters of the general insurance industry. It manages subsidiaries but does not offer direct insurance
policies except in specific cases like aviation.
Q12. How many companies in the private sector carry out general insurance business in India?
There are 22 companies in the private sector that carry out general insurance business in India.
Q13. What does the principle of 'Utmost Good Faith' imply in insurance contracts?
The principle of 'Utmost Good Faith' requires both the insurer and the insured to disclose all relevant
information fully and truthfully during the formation of the contract.

II. LONG Answer QUESTIONS

1. Explain in brief different types of General Insurance.

1 Fire Insurance
Fire insurance is a contract under which the insurer in return for a consideration (premium) agrees to
indemnify the insured/assured for the financial loss which the Insured may suffer due to destruction of or
damage to property or goods, caused by fire, during a specified period.
2 Marine Insurance
Marine Insurance is an Insurance against loss or damage or destruction of Cargo, freight, merchandise or
means or instruments of transportation whether by sea, land or air. Thus marine insurance provides indemnity
for loss or damage to ship, cargo or mode of transport by which the property is taken, acquired or held
between the point of Origin and point of destination.
3 Motor Vehicle Insurance
Motor Vehicle Insurance, also referred to as ‘Automotive Insurance’, is a contract of Insurance under which
the Insurer indemnifies the Insured, who is the owner or an operator of a Motor Vehicle, against any loss that
he may incur due to damage to the property (i.e. the Motor Vehicle) or any other person (i.e. Third Party) as a
result of an accident. There are two types of Motor Vehicle Insurance: a. Mandatory and b. Comprehensive
4 Health Insurance Policy
The Health Insurance or Medi Claim Policies, as it is also referred to, are those policies which cover
hospitalization expenses for the treatment of illness/ injury as per the terms and conditions of the policy.
5 Personal Accident Insurance
The purpose of personal insurance is to provide for payment of a fixed compensation for death or disablement
resulting from injury to the body of a human being caused due to an accident.
6 Burglary or Theft Insurance
Theft Insurance Contract covers losses from burglary, robbery and other forms of theft. Theft generally refers
to the act of stealing. Burglary is defined to mean the unlawful taking of the property within the premises that
have been closed and in which there are visible marks evidencing forceful entry.
2. Explain the parameters that distinguish General Insurance from Life Insurance.
a) Life Insurance: Under Life Insurance the Insured pays the premium at specified times and in turn the
Insurance Company undertakes to pay the specified fixed amount to the legal heirs in the event of
death of the Insured. Thus life insurance is a mechanism whereby the life of the Insured is insured. b)
General Insurance: Insurance other than Life Insurance falls under the category of General Insurance.
The different types of General Insurance are fire, marine, Motor Vehicle, accident and other types of
non life insurance.
Differentiate between Life Insurance and General Insurance

Q3. Write short note on Liberalization of Insurance Sector in India.

[1] Liberalization of Insurance Sector in India Although Indian Economy started opening up both to private
sector and to foreign investment in the year 1991, Insurance sector still remained the domain of Govt
of India.
[2] The setting up of Insurance Regulatory Authority (IRDA) in the year 1999 paved the way for
liberalization and privatization of Insurance Sector to private sector.
[3] IRDA has separated out Life, Non Life and Reinsurance business. Therefore a company has to have
separate licenses for each line of business.
[4] Recently the limit of Foreign Investment in Insurance Business has been increased from 26% to 49%
something that was under discussion for more than a decade.
[5] Also global re insurance companies have been able to set up branches in India, something that was not
allowed earlier.
4. Explain the principle of indemnity in insurance. Also explain the circumstances under which principle of
indemnity is not strictly applicable.
Principles of Indemnity
 Indemnity according to Cambridge International Dictionary means ‘Protection against possible damage
or loss. Thus Indemnity means security, protection and compensation given against damage, loss or
injury.
 In context of Insurance indemnity is defined as ‘Financial Compensation sufficient to place the Insured
in the same financial position after the loss as he enjoyed immediately before the loss was incurred’.
 Thus under the principle of indemnity the insured should be compensated only for the loss that has
been incurred by him as a result of the event in respect of which the insurance has been taken.
 It will not be in order if the Insured should make any profit out of such event (such as fire, motor
accident etc.)
 Since the compensation of loss, and only the loss, is the basic factor under the principle of indemnity, it
will be essential that the evaluation of loss is done as precisely as possible. Though the financial
evaluation of loss is possible in most of the cases, in case of loss of life and disablement it may not be
precisely possible to determine the loss in monetary terms.
 In certain cases the amount of compensation given by the Insurer may be less than the actual loss that
has been incurred. However under no circumstances the compensation to the Insured should be more
than the loss that has been incurred.

5. Explain the principle of insurable interest in insurance.

Principle of Insurable Interest: One of the essential ingredients of a Insurance Contract is that the insured must
have insurable interest in the subject matter of the contract.

[1] A person is supposed to have Insurable Interest in something when the loss or damage to that thing
would cause the person to suffer financial or any other kind of loss. Thus insurable interest means that
the Insured must stand to suffer a direct financial loss if the event against which the insurance policy is
taken does actually occur.
[2] The insurable interest is generally established by ownership, possession or direct relationship. For
example people have insurable interest in their own houses and vehicles and not in neighbour’s houses
and certainly not that of strangers.
[3] For an insurance company the insurable interest is the basic reason for issuing a legal insurance cover
to an insured (or the beneficiary) as it gives legal right to enforce an insurance claim.

There are four essential components of Insurable interest: ƒ

 There must be some property, right, interest, life, limb or potential liability which is capable of
being insured. ƒ
  Any of the above i.e. property, right, interest etc must be subject matter of insurance. ƒ
 The insured must have a formal or legal relationship with the matter which is the subject of
insurance.
 The relationship between the insured and the subject matter of insurance must be recognized by
law.

Q6. Explain the role of the Insurance Regulatory and Development Authority (IRDA) in the liberalization of
the insurance sector in India.
The Insurance Regulatory and Development Authority (IRDA) was established in 1999 and played a pivotal role
in the liberalization and privatization of India’s insurance sector. It separated the life, non-life, and reinsurance
businesses, requiring companies to obtain separate licenses for each. The IRDA's establishment paved the way
for private and foreign companies to enter the insurance market, increasing competition and innovation
within the industry.

Q7. Explain the key features of Motor Vehicle Insurance and its two types.
Motor Vehicle Insurance indemnifies the insured against losses due to damage to the vehicle or third-party
claims from accidents. There are two types:
 Mandatory Insurance: Required by law, covers third-party liabilities like injury or death caused by the
vehicle.
 Comprehensive Insurance: Covers both third-party liabilities and damage to the vehicle itself, such as
accidents, theft, or fire.

Q8. Describe the importance of Health Insurance and some of its additional benefits.
Health Insurance covers hospitalization costs for illnesses or injuries. Additional benefits include:
 Pre-hospitalization and post-hospitalization expenses.
 Ambulance charges.
 Day-care treatments where advanced technologies are used, eliminating the need for 24-hour
hospitalization.

Q9. List and explain the essential components of Insurable Interest in an insurance contract.
The four essential components of Insurable Interest are:
 Property, Right, Interest, Life, or Limb: There must be a subject that is capable of being insured.
 Subject Matter of Insurance: The property, right, or interest must be the actual focus of the insurance
contract.
 Formal or Legal Relationship: The insured must have a direct relationship with the subject, such as
ownership or possession.
 Legal Recognition: The relationship between the insured and the subject matter must be recognized by
law.
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