Principles of Insurance LEC-4

Insurer-Insurance Company

Insured-Policy Holder

WHAT IS RISK?

Risk has been defined as the possibility of occurrence of an unfavourable deviation from the
expected i.e. what you want to happen does not happen or vice versa what you do not want to
happen, happens.

When your vehicle gets unexpectedly stolen there is a monitory loss but if your Favourite pet dies
unexpectedly you feel a great loss but this loss is not measurable. Since an unfavourable deviation
from the expected always results in loss, we can also define risk as the possibility of occurrence of
loss.

Solution-Insurance

Insurance provides a means for reducing the adverse impact of unexpected losses.

Pure Risk-Property damage due to fire.

a-Personal Risk

b-Property Risk

c-Liability Risk-Compensation

Speculative risk-Property rate may increase/decrease due to certain factor.

Metro passes from your Area ,Property rate will increase.

Garbage pile near your Area,Property rate will decrease.

Q-Which of the following can be insured?

a-Pure risk b-Speculative risk c-Both D-None

Family Risk-

a-Personal risk-Death,Disability,Retirement,Unemployment

Property Risk-

a-Liability Risk.
Business Risk-

a-Personal Risk –Workmen Compensation Act

b-Property Risk

c-Liability Risk

Handling Risk
1-Risk Avoidance-
Factory Near bank of river prone to flood every year.

2. Loss Prevention and Reduction-No smoking Zone

3-Risk Retention-Insurance Fund.

1) Principal of Utmost Good Faith-

Both parties, insurer and insured should enter into contract in good faith

Insured should provide all the information that impacts the subject matter

Insurer should provide all the details regarding insurance contract

For example - John took a health insurance policy. At the time of taking policy,
he was a smoker and he didn't disclose this fact. He got cancer. Insurance
company won't pay anything as John didn't reveal the important facts.

2-Insurable Interest :-
For the validity of insurance contract of life insurance must be supposed by an
insurable interest. At the time of policy taking, it must be present in life
insurance. For example a husband has insurable interest on his wife and wife
has also on husband. Insured amount is definitely paid in the life insurance
policy. Principle of indemnity is not applied in life insurance.
 Indemnity means a guarantee to put the insured in the position as
he was before accident

Definition: Insurable interest is defined as the reasonable concern of a person to obtain

insurance for any individual or property against unforeseen events such as death, losses,
etc.

To be continued..

1-Insurance provides security against .

a) Risk b) Losses c) Both (a) & (b) d) None of them

2-The things or property insured is called.. of the insurance

a) Subject matter b) Insurable interest c) Policy d) None

3-Risk is evaluated on the basis of .. theory

a) Variability b) Contingency c) Probability d) All

4-________ means to make good the actual loss and nothing more than the actual loss.

a) Indemnity b) Subrogation c) Contribution d) None

5-Insurable interest means ________ interest

a) Individual b) Social c) Monetary d) All of these

6-Which of the following insurance contract is not based on the principle of indemnity.

a) Fire insurance b) Marine insurance c) Life insurance d) None

7-IRDA is a ________ member team

a) 10 b) 20 c) 15 d) 18

8-FPR Means ________

(a) First Premium Receipt (b) Fourth Premium Receipt (c) First Policy Receipt (d) First Police Record

9-__________ is a voluntary termination of the contract by the policy holders.

(a) Report (b) Surrender (c) Prospectus (d) Cover note

10-General Insurance policies are issued for a period of

(a) 1 year (b) 2 year (c) 10 year (d) 4 year

11-The time frame for which an insurance policy provides coverage is known as ________

a) Policy term b) Policy loan c) Policy mode d) None

12-Insurance works on the principle of:

a. Sharing of losses

b. Probabilities

c. Large numbers

d. Randomness
e. All of the above

13-i. The term ‘Risk’ includes:

a. Damage to machinery and property

b. Impact on the health or life of a person

c. Leakage of toxic products into the atmosphere

d. Effect on the healthy life of the neighbourhood

e. All of the above

14-i. The principle of _____________ ensures that an insured does not profit by insuring with
multiple insurers

a. Subrogation
b. Contribution
c. Co-insurance
d. Indemnity
e. Particular Average
15-