Basic Insurance Awareness Notes
These notes cover the fundamental concepts of insurance relevant for government insurance exams (LIC, NIACL,
GIC, UIIC, etc.) in both mains and interview stages.
1. Definition and Purpose of Insurance
Insurance is a legal agreement between two parties — the insurer (insurance company) and the insured
(policyholder) — in which the insurer promises to compensate the insured for financial losses due to specified
events in exchange for a premium. Its main purpose is risk transfer and financial protection.
2. Principles of Insurance
• Utmost Good Faith (Uberrimae Fidei) – Both parties must disclose all material facts truthfully.
• Insurable Interest – The insured must have a financial stake in the subject matter of insurance.
• Indemnity – Compensation is provided to restore the insured to the financial position before the loss.
• Contribution – If multiple policies cover the same risk, each insurer contributes proportionally.
• Subrogation – After paying a claim, the insurer gains the right to recover the loss from third parties.
• Proximate Cause – The closest or most direct cause of the loss determines claim settlement.
3. Types of Insurance
• Life Insurance – Provides financial support to the nominee after the death of the policyholder (e.g., LIC
policies).
• General Insurance – Covers non-life risks like motor, health, home, marine, fire, travel insurance.
• Health Insurance – Covers medical expenses for illness or injury.
• Motor Insurance – Covers vehicles against accidents, theft, third-party liability.
• Marine Insurance – Covers loss/damage to ships, cargo, and related transport.
• Fire Insurance – Protects property from fire-related damage.
• Crop Insurance – Protects farmers against crop failure (e.g., PMFBY scheme).
4. IRDAI (Insurance Regulatory and Development Authority of India)
Established: 1999 under the IRDA Act, headquartered in Hyderabad. It regulates, promotes, and ensures orderly
growth of insurance in India. Functions include licensing insurers, protecting policyholder interests, monitoring
solvency, and approving products.
5. Important Insurance Terminology
• Premium – The amount paid by the policyholder to the insurer for coverage.
• Policy – The document containing the terms and conditions of insurance.
• Claim – A request by the insured for payment after a loss.
• Sum Assured – The guaranteed amount payable under a policy.
• Bonus – Extra amount paid to policyholders in certain life insurance policies.
• Rider – An additional benefit added to the base policy for extra coverage.
• Grace Period – Extra time after premium due date to make payment without policy lapse.
• Maturity – The end date of a policy term when benefits are payable.
6. Major Government-Owned Insurance Companies in India
• Life Insurance Corporation of India (LIC) – Largest life insurer in India.
• General Insurance Corporation of India (GIC Re) – National reinsurer.
• National Insurance Company Limited (NICL) – General insurer.
• New India Assurance Company Limited (NIACL) – General insurer.
• United India Insurance Company Limited (UIIC) – General insurer.
• Oriental Insurance Company Limited (OICL) – General insurer.
• Agriculture Insurance Company of India (AIC) – Crop and rural insurance.
7. Sample Insurance Awareness Questions
• Who is the regulator of insurance in India?
• What is the full form of IRDAI?
• Which principle of insurance states that the insured must have a financial interest in the subject matter?
• Name the largest life insurance company in India.
• What does 'sum assured' mean in a life insurance policy?
