Introduction to Insurance
[Link].(IT) SEM II
Question Bank with Solutions
1. DefineInsuranceand explain its basic terms.
Insuranceis a financial arrangement in which oneparty transfers therisk of loss to
another party in return for payment. Theperson who buys insuranceis called theinsured,
and thecompany providing insuranceis called theinsurer. Theamount paid by theinsured
regularly is known as thepremium. Thewritten legal document containing terms and
conditions is called thepolicy. Thesubject matter of insurancerefers to thelife, property, or
risk being insured. Therisk is thepossibility of loss or damage. Claim is a request madeby
theinsured for compensation. Sum assured is thefixed amount payableon loss or maturity.
Policyholder is theowner of theinsurancepolicy. Insurancehelps reducefinancial
uncertainty.
2. Explain theevolution of insurance.
Insuranceoriginated from ancient tradepractices wheremerchants shared losses. In
Babylon, traders used contracts to protect goods during sea travel. In ancient India,
insuranceconcepts existed in marinetradeand community support systems. During the
17th century, modern insurancedeveloped in England after theGreat Fireof London. Marine
insurancewas thefirst formal typeof insurance. Lifeinsurancestarted later to provide
financial security to families. Industrialization increased theneed for insurance. In India,
insurancedeveloped during British rule. After independence, insurancewas nationalized.
Today, insuranceis a global and regulated industry.
3. Explain thenature, need, and importanceof insurance.
Insuranceis a contract based on trust and good faith. It provides protection against future
uncertainties. Insurancespreads risk among a largenumber of people. It provides financial
security to individuals and businesses. Insurancehelps families during unexpected events
likedeath or illness. It supports business stability by covering losses. Insuranceencourages
savings through lifeinsurancepolicies. It promotes peaceof mind. It protects assets and
investments. Thus, insuranceis essential for financial planning.
4. Explain theroleof insurancein economic and social development.
Insurancepromotes economic growth by reducing financial risks. It encourages investment
by providing protection. Insurancesupports tradeand industry. It helps mobilizesavings
from thepublic. Thesesavings areinvested in national development projects. Insurance
generates employment opportunities. It provides social security to individuals. It helps
reducepoverty by supporting families during crises. Insurancecontributes to financial
stability. Thus, it plays a vital rolein national development.
5. Explain thedifferent types of insurance.
Lifeinsuranceprovides protection against therisk of death. Health insurancecovers
medical expenses. General insuranceincludes fire, marine, and motor insurance. Motor
insuranceprotects vehicles against accidents. Marineinsurancecovers goods during sea
transport. Fireinsuranceprotects property from firedamage. Crop insurancesupports
farmers against crop loss. Travel insurancecovers travelrelated risks. Liability insurance
protects against legal liabilities. Each typeserves different risk needs.
6. Explain theprinciples of insurance.
Theprincipleof utmost good faith requires honesty from both parties. Insurableinterest
means theinsured must havefinancial interest in thesubject. Indemnity ensures
compensation only to theextent of loss. Subrogation gives insurer rights after paying the
claim. Contribution applies when multipleinsurers cover thesamerisk. Loss minimization
requires insured to reduceloss. Proximatecauseidentifies themain causeof loss. These
principles ensurefairness. They prevent misuseof insurance. They form thefoundation of
insurancecontracts.
7. Explain insuranceproducts.
Insuranceproducts areplans offered by insurancecompanies. Lifeinsuranceproducts
includeterm plans and endowment plans. ULIPs combineinsuranceand investment. Health
insuranceproducts cover hospitalization costs. General insuranceproducts includemotor
and property insurance. Pension plans provideincomeafter retirement. Child plans support
futureeducation expenses. Group insurancecovers employees. Insuranceproducts are
designed to meet specific needs. Choosing theright product ensures financial protection.
8. Explain career opportunities in theinsurancesector.
Insuranceoffers diversecareer options. Onecan work as an insuranceagent. Surveyors
assess losses. Underwriters evaluaterisk. Claims managers handlesettlements. Actuaries
calculatepremiums using statistics. Insuranceadvisors guidecustomers. Marketing
executives promoteproducts. Risk managers managecorporaterisks. Regulatory roles are
also available. Insuranceprovides stableand growing career opportunities.
9. Explain theroleand functions of IRDAI.
IRDAI regulates theinsurancesector in India. It protects policyholders’ interests. It issues
licenses to insurancecompanies. IRDAI sets rules and guidelines. It ensures fair practices in
insurance. It monitors financial performanceof insurers. It promotes competition in the
market. IRDAI controls premium rates when required. It handles customer grievances. Thus,
IRDAI ensures a healthy insuranceindustry.
10. Explain theprocedureto obtain an insurancepolicy.
Theinsured selects a suitableinsurancepolicy. Proposal form is filled with correct details.
Medical examination may berequired. Theinsurer evaluates therisk. Premium amount is
decided. Theinsured pays thepremium. Policy document is issued. Terms and conditions are
clearly stated. Policyholder receives coveragefrom that date. This completes theinsurance
process.
11. Explain theprocedurefor settlement of insuranceclaims.
Theinsured informs theinsurer about theloss. Claim form is submitted with documents.
Surveyor assesses thedamageif required. Insurer verifies theclaim details. Policy terms are
checked. Loss amount is calculated. Approval is given by theinsurer. Payment is madeto the
insured. Claim may becashless or reimbursement. Proper documentation ensures quick
settlement.
12. Differentiatebetween insurancecontract and gambling contract.
Insurancecontract is based on insurableinterest. Gambling contract has no insurable
interest. Insuranceaims at risk protection. Gambling aims at profit or loss. Insurance
reduces uncertainty. Gambling increases uncertainty. Insuranceis socially beneficial.
Gambling is socially harmful. Insurancecontracts arelegal. Gambling contracts arevoid in
law.
13. Explain risk, its types, and risk management.
Risk is thepossibility of loss or damage. Purerisk involves only loss or no loss. Speculative
risk involves profit or loss. Personal risks affect individuals. Property risks affect assets.
Financial risks affect income. Risk management identifies and evaluates risks. It involves
risk avoidanceand reduction. Insuranceis a risk transfer method. Risk management
ensures financial safety.
14. Explain insuranceintermediaries and recent trends in insurance.
Insuranceintermediaries act as a link between insurer and insured. Agents sell insurance
policies. Brokers represent customers. Surveyors assess losses. Thirdparty administrators
managehealth claims. Recent trends includedigital insuranceplatforms. Onlinepolicy
purchaseis increasing. Useof AI in underwriting is growing. Customized insurance
products arepopular. Insurancesector is becoming morecustomercentric.