IC - 38 Key - Question Bank

KEY – Question Bank
(IC -38)
Chapter -1 Answers
Strictly for training & internal circulation Page 1

1. The correct option is II.
Insurance Regulatory and Development Authority of India is the regulator for the insurance
industry in India.
2. The correct option is III.
The need for setting aside reserves as a provision for potential losses in the future is a
secondary burden of risk.
Insurance is a method of risk transfer.
4. The correct option is I.
The bread winner of a family might die untimely leaving the entire family to fend for itself, such
a scenario warrants purchasing of life insurance.
The Jan Arogya insurance scheme is run by an insurer and not sponsored by the Government.
Risk transfer through risk pooling is called insurance.
The measures to reduce chances of occurrence of risk are known as loss prevention measures.
8. The correct option is IV.
By transferring risk to insurer, it becomes possible to enjoy peace of mind and plan one‟s
business more effectively.
Origins of modern insurance business can be traced to Lloyd‟s.
In the insurance context „risk retention‟ indicates a situation where one decides to bear the
risk and its effects.

Insurance pays when there is loss of asset.
Rs. 200 per household should cover the loss.
Insurance is a method of sharing the losses of a „few‟ by „many‟.
Before acceptance of a risk, insurers arrange survey and inspection of the property to assess
the risk for rating purposes.
Insurance may be considered as a process by which the losses of a few, who are unfortunate to
suffer such losses, are shared amongst those exposed to similar uncertain events / situations.
Chapter -2 Answers
Sum of economic benefits that can be achieved by building a long term relationship with the
customer is referred to as customer lifetime value.
Motor insurance for third party liability is mandatory by law and hence a debate on its need is
not required.
As per the Consumer Protection Act, 1986, a person who buys goods for resale purpose cannot
be classified as consumer.
Scepticism does not go on to make a healthy relationship.

Being extremely judgemental is not an element of active listening.
Placing self-interest ahead of client‟s interests is not ethical behaviour.
Insurance is not a tangible good.
Cleverness is not an indicator of service quality.
Motor third party liability insurance is mandatory in India.
One of the methods of reducing insurance cost of an insured is the deductible clause in a policy.
A customer having complaint regarding his insurance policy can approach IRDA through IGMS.
Consumer Protection Act deals with complaint against insurance companies, shopkeepers and
brands.
District Forum has jurisdiction to entertain where value of goods or services and the
compensation claim is up to 20 lakhs.
In customer relationship the first impression is created by being confident, on time and by
showing interest.

Ethical behaviour helps in developing trust in the agent and the insurer.
Active Listening involves paying attention to the speaker, giving an occasional nod and smile
and providing feedback.
Chapter– 3 Answers
The District Forum has jurisdiction to entertain complaints, where value of the goods or
services and the compensation claimed is up to Rs. 20 lakhs.
IGMS stands for Integrated Grievance Management System.
State Commission would handle consumer disputes amounting between Rs. 20 lakhs and Rs.
100 lakhs.
Shopkeeper not advising the customer on the best product in a category cannot form the basis
of a valid consumer complaint.
Complaint is to be lodged with the Insurance Ombudsman under whose territorial jurisdiction
the insurer‟s office falls.
Insurance Ombudsman operates only within the specified territorial limits.
The complaint to the ombudsman is to be made in writing.

The complainant must approach the ombudsman within one year of rejection of the complaint
by the insurer.
Complainant need not approach a consumer forum prior to the Ombudsman.
No fee / charges need to be paid for lodging the complaint with the Ombudsman.
Yes, a complaint can be launched against private insurers.
Chapter -4 Answers
1. The correct option is IV
Refer to Appointment of Insurance Agent by the Insurer
2. The correct option is I
The Designated official may process the agency application and grant appointment to the
applicant as an insurance agent by issuing an appointment letter within 15 days of receipt of all
documents from the applicant.
3. The correct is IV
The pass certificate issued by the Examining Body shall be in force for a period of twelve
months, for the purpose of seeking appointment as an agent with any insurer for the first time.
Refer to Code of Conducts
Refer to the code of conduct
6. The correct option is II

No Insurance agent can force a policyholder to terminate the existing policy and to effect a new
policy from him within three years from the date of such termination of the earlier policy
Refer to Suspension of appointment of agents
In case a suspension is revoked in respect of any agent on conclusion of disciplinary action by

way of issuance of a speaking order by Designated Official, the details of such agent shall be
removed from list of black listed Agents as soon as the Speaking Order revoking his/her
suspension is issued.
9. The correct option is III
Any individual, who acts as an insurance agent in contravention of the provisions of this Act,
shall be liable to a penalty which may extend to ten thousand rupees.
Any insurer or any representative of the insurer acting on behalf of the insurer, who appoints
an individual as an insurance agent not permitted to act as such or transact any insurance
business in India shall be liable to penalty which may extend to one crore rupees.
Chapter – 5 Answers
Ramesh threatening to kill Mahesh if he does not sign the contract is an example of coercion.
Ramesh does not have insurable interest in his friend‟s life and hence cannot insure the same.
The element of a valid contract deals with premium is consideration.
Misrepresentation relates to inaccurate statements, which are made without any fraudulent
intention.

Coercion involves pressure applied through criminal means.
Life insurance contracts are contracts between two parties (insurer and insured) as per
requirements of Indian Contract Act, 1872.
Bribe is not a valid consideration for a contract.
Minors are not eligible to contract a life insurance contract.
Disclosing known material facts on an insurance proposal form is in tune with the principle of
“Uberrima Fides”.
Friends cannot take out insurance on one another as there is no insurable interest present.
In case of life insurance insurable interest needs to be present at the time of taking out
insurance.
Falling off the horse is the proximate cause for Ajay‟s death.
13. The Correct option is II.
A policy of insurance may be called in question at any time within three years from the date of
issuance of the policy or the date of commencement of risk or the date of revival, of the policy
or the date of the rider to the policy, whichever is later, on the ground of fraud
The principle of indemnity is applicable to Non-life insurance policies

Subrogation means the transfer of all rights and remedies, with respect to the subject matter
of insurance, from the insured to the insurer.
Refer to Indemnity
Chapter - 6 Answers
1. The correct is II.
Diversification aims to reduce risks in financial markets by spreading investments across various
asset classes.
The elements of life insurance business include asset, risk, principle of mutuality and the life
insurance contract. Subsidy is not an element of life insurance business.
Prof. Hubener devised the concept of Human Life Value (HLV).
Term insurance does not have a savings element associated with it.
Air cannot be termed / categorised as an asset.
Natural wear and tear is a phenomenon and not a risk.
Life insurance policies are contracts of assurance while general insurance policies are contracts
of indemnity.

Human Life Value is a method to calculate the amount of insurance needed by an individual.
Mortality is related to age and hence young people who are less likely to die are charged lower
premiums as compared to old people.
Lower yield is one of the disadvantages of cash value insurance contracts.
Secure investment is one of the advantages of cash value insurance contracts.
Insurance provides protection against unforeseen events.
As soon as one gets his first salary one should start financial planning.
Tax evasion is not an objective of tax planning.
Individual with an aggressive risk profile is likely to follow wealth accumulation investment
style.
Shares are a wealth accumulation product.
Savings is a combination of postponement of consumption and parting with liquidity.
Post retirement an individual appreciate past savings the most.

Greater the investment horizon larger will be the returns.
Bank deposits can be categorised under transactional products.
Life insurance can be categorised under contingency product.
Shares can be categorised under wealth accumulation products.
Inflation is a rise in the general level of prices of goods and services in an economy over a
period of time.
Insurance purchase cannot maximise discretionary income.
Chapter- 8 Answers
Life insurance is an intangible product.
The premium paid for whole life insurance is higher than the premium paid for term
assurance.
Mortgage life insurance pays off a policyholder's mortgage in the event of the person's
death.

The higher the premium paid by you towards your life insurance, the higher will be the
compensation paid to the beneficiary in the event of your death.
Term insurance can be bought as a stand-alone policy as well as a rider with another policy
In decreasing-term insurance, the premiums paid remain constant over time.
Using the conversion option present in a term policy you can convert the same to whole life
policy.
Protection against the loss of economic value of an individual‟s productive abilities is the
primary purpose behind a life insurance product.
Term plan is a good choice for an individual who needs insurance and has a low budget.
Premium remains level throughout the term for decreasing term assurance plans.
Endowment assurance plan has both a death benefit as well as a survival component.
Money Back Plan is an example of an endowment assurance plan.
Chapter -9 Answers
Universal life insurance is a non-traditional life insurance product.

The statement “Variable life insurance is a temporary life insurance policy” is incorrect. The
correct statement is “Variable life insurance is a permanent life insurance policy”.
Inter-temporal allocation of resources refers to allocation of resources over time.
Rate of return is not easy to ascertain in traditional life insurance products.
Universal Life Policy was first introduced in the USA.
Knowledgeable people comfortable with equity are most likely to buy variable life insurance.
ULIP‟s are transparent with regards to their term, expenses and savings components.
Premium payments are fixed and not flexible with variable life insurance.
Both statements are true. Premium payment flexibility is a characteristic of universal life
insurance. This form of life insurance also permits the policy owner to earn a rate of return tied
to some market-based index.
Life insurer does not provide guarantee for unit values in case of ULIP‟s.
As per IRDAI norms non-traditional savings life insurance products permitted in India include
unit linked insurance plans and variable insurance plans.
Separation of the protection and savings element refers to the unbundling of life insurance
products.

MRI provides financial protection for home loan borrowers.
Sum assured under keyman insurance policy is generally linked to business profitability.
Mortgage redemption insurance (MRI) can be categorised under decreasing term life
assurance.
Losses related to the extended period when a key person is unable to work are covered under
keyman insurance.
If the policyholder does not appoint a special trustee to receive and administer the benefits
under the policy, the sum secured under the policy becomes payable to the Official Trustee of
the State.
Term life insurance policy purchased under Section 6 of MWP Act is beyond the reach of court
attachments and creditors.
Maturity claims cheques are paid to trustees.
Death claims are settled in favour of trustees.
Keyman life insurance with benefits payable to Ajay will not be treated deductible as
compensation paid to employee.

The practice of charging interest to borrowers who pledge their property as collateral but
leaving them in possession of the property is called mortgage.
Mortgage Redemption Insurance can provide protection to home loan borrowers.
Policyholder discontinuing premium payment for a policy is termed as policy lapse.
Insured bears the investment risk in case of ULIP.
Price paid by an insured for purchasing the policy is termed as premium.
Rebate is not a factor in determining life insurance premium.
Surrender of policy in return for acquired surrender value is termed as policy withdrawal.
Excess value of assets over liabilities is one way of defining surplus.
ULIP premium comprises of policy allocation charge, investment risk premium and mortality
charge.
Life insurance companies may offer rebate to the buyer on the premium that is payable on the
basis of sum assured chosen by the buyer.

Higher the interest rate assumed, lower the premium
Business strain arises because of excess expenses at new business stage.
With regards to valuation of assets by insurance companies, book value is the value at which
the life insurer has purchased or acquired its assets.
In case of compound bonus, a company expresses the bonus as a percentage of basic benefit
and already attached bonuses
During the free look period, if the policyholder has bought a policy and does not want it, he /
she can return it and get a refund.
Passport is an example of a standard age proof.
Increased risky behaviour following the purchase of insurance can be attributed to moral
hazard.
Height, weight and blood pressure are among the few items that will be checked in a medical
examiner‟s report.
A prospectus is a formal legal document used by insurance companies that provides details
about the product.

The application document used for making the proposal is commonly known as the proposal
form.
Ration card is classified as a non-standard age proof.
Money laundering is the process of bringing illegal money into an economy by hiding its illegal
origin so that it appears to be legally acquired.
In case the policyholder is not satisfied with the policy, he / she can return the policy within the
free-look period i.e. within 15 days of receiving the policy document.
With regards to a policy returned by a policyholder during the free look period, the insurance
company will refund the premium after adjusting for proportionate risk premium for the period
on cover, medical examination expenses and stamp duty charges.
PAN Card is not a valid address proof
FPR is evidence that policy contract has begun.
Policy document is an evidence of the contract between insurer and insured.

If there is complex language used to word a certain policy document and it has given rise to an
ambiguity, it generally will be construed in favour of the insured.
Policy document is an evidence of the insurance contract.
The First Premium Receipt is the evidence that the policy contract has begun.
For the subsequent premiums received by the insurance company after the first premium, the
company will issue renewal premium receipt.
If the insured person loses the original life insurance policy document, the insurance company
will issue a duplicate policy without making any changes to the contract.
The policy document has to be signed by a competent authority and should be stamped
according to the Indian Stamp Act.
Policy schedule forms the first part of a standard insurance policy document.
The standard provisions section of an insurance policy document will have information on the
rights and privileges and other conditions, which are applicable under the contract.
“A clause precluding death due to pregnancy for a lady who is expecting at the time of writing
the contract” will be included in specific policy provisions section of a standard policy document

Where the nominee is a minor, the policyholder needs to appoint an appointee.
A nominee does not have any right to whole (or part) of the claim.
In order for the policy to acquire a guaranteed surrender value, premiums must be paid for at
least 3 consecutive years.
If the premium has not been paid even during days of grace, the policy is deemed to be lapsed.
The standard length of the grace period is one month or 31 days.
If the policyholder does not pay the premium by the due date and dies during the grace period,
the insurer will pay the claim after deducting the unpaid premium.
During the revival of a lapsed policy, evidence of insurability at revival is considered as the most
significant aspect by the insurance company.
For an insurance policy nomination is allowed under Section 39 of the Insurance Act, 1938.
Option II is incorrect. With regards to a policy against which a loan has been taken from the
insurance company, the nomination will NOT get cancelled due to assignment of the policy in
favour of the insurance company.

Option IV is incorrect.
In case of Absolute Assignment, the policy vests absolutely with the assignee till maturity. In the
event of death of the insured during the policy tenure, the policy will NOT revert back to the
beneficiaries of the insured. The assignee will be entitled to policy benefits.
An alteration that involves splitting up of the policy into two or more policies is permitted.
A person suffering from AIDS is most likely to be declined life insurance cover.
A person drinking copious amounts of alcohol because he is inured is an example of moral

hazard.
Certain diseases can be passed on from parents to children and hence heredity history needs to
be considered in medical underwriting.
Underwriter decides acceptability of risks.
Claim rejection is not an underwriting decision.
Horoscope is not a standard age proof.
Banned substance abuse will affect a person‟s insurability negatively.

Numerical rating method of underwriting assigns positive rating points for all negative or
adverse factors (negative points for any positive or favourable factors).
Under risk classification, standard lives consist of those whose anticipated mortality
corresponds to the standard lives represented by the mortality table.
In Amruta‟s case, considering her pregnancy, the best option that the underwriter can choose
is to offer insurance to Amruta with a restrictive clause. This restrictive clause can be limiting
insurance payment in the event of pregnancy related death occurring within say three months
of delivery.
Mahesh‟s insurance proposal is not likely to qualify under non-medical underwriting because
his age is higher (50 years) and his occupation is more risky as compared to other occupations
in software, banking industry etc.
When deciding on a complex case like that of Sheena who is suffering from acute diabetes, the
underwriter will use the judgment method of underwriting.
Under risk classification, Santosh will be classified under preferred risks.

A claim is a demand that the insurer should make good the promise specified in the contract.
In case of a money-back policy the claim payment is made in the form of periodic payments.
In this case the entire payment of Rs. 50,000 will be made to Karan as the policy has been
assigned in favour of Karan on an absolute basis.
Documents like claim form by nominee, Certificate of burial or cremation, Treating physician‟s
certificate, Hospital‟s certificate, Employer‟s certificate etc. are required to be submitted in
case of natural death as well as accidental death. First Information Report (FIR), Inquest
Report, Post-Mortem Report, Final Report etc. are additional documents required to be
submitted in case of accidental death as compared to natural death.
If the insured dies within three years of policy duration, the death claim will be treated as early
death claim.
Option I is incorrect. There is no claim paid on maturity of a term insurance policy.
A payment made under a money-back policy upon reaching a milestone will be classified under
periodic survival claim.
If Shankar dies before the maturity of the ULIP policy, higher of sum assured or fund value will
be paid.

Option IV is the odd one out because it will be treated as a non- early claim. Option I, II and III
will be treated as early claims.
Inquest report is additionally required to be submitted in case of death by accident. The other
documents like claim form, certificate of burial or cremation, hospital‟s certificate are required
to be submitted by all beneficiaries in the event of death of life insured
As per IRDAI (Protection of Policyholders Interests) Regulations, 2002, a claim under a life policy
shall be paid or be disputed, within 30 days from the date of receipt of all relevant papers and
clarifications required.
Refer to Determinants of health
Secondary health care refers to the healthcare services provided by medical specialists and
other health professionals who generally do not have first contact with patient.
Tertiary Health care is specialized consultative healthcare, usually for inpatients and on referral
from primary/secondary care providers.
Health Insurance in India formally began with the beginning of the Employees‟ State Insurance
Scheme, introduced vide the ESI Act, 1948,
Refer to Employee State Insurance Scheme

Refer to Public health care
Third Party Administrators are a new type of service providers who came into business since
2001. They are not authorized to sell insurance but provide administrative services to insurance
companies.
As per IRDAI guidelines, the insurer has to process the proposal within 15 days‟ time.
Where the premium is tendered by postal or money order or cheque sent by post, the risk may
be assumed on the date on which the money order is booked or the cheque is posted as the
case may be.
A warranty is a condition expressly stated in the policy which has to be literally complied with
for validity of the contract
If certain terms and conditions of the policy need to be changed at the time of issuance, it is
done by setting out the amendments / changes through a document called endorsement.
In a hospitalization expenses policy, hospitalization as well as pre and post hospitalization

expenses are covered.

Health insurance deals with morbidity (rate of incidence of disease).
Under the cashless service, the insured does not pay and the insurance company settles the bill
directly with the hospital.
PPN stands for Preferred Provider Network.
Statements I, II and IV are correct. Statement III is incorrect as a shopkeeper cannot take group
insurance for its customers.
Chapter -20 Answers
Underwriting is the process of risk selection and risk pricing.
The principle of utmost good faith in underwriting has to be followed by both the insurer and
the insured.
Insurable interest refers to the pecuniary or the financial interest of a person in the asset he is
going to get insured and can suffer financial loss in the event of any damage to such asset.
Percentage and numerical assessment is made on each component of the risk in numerical
rating method, and not medical underwriting method.
In a group health insurance, when all members of a group are covered under a group health
insurance policy, the individuals constituting the group cannot anti-select against the insurer.

In addition to employee-employer groups, insurers have provided group health insurance
coverage to varied type of groups such as: labour unions, trusts and societies, professional
associations, clubs and other fraternal organisations.
The morbidity of an individual is not affected by their spouse‟s job, though their own
occupation is one of the important factors which can affect their morbidity.
According to the principle of indemnity, insured is compensated for the actual costs or losses,
but to the extent of the sum insured.
The primary source of information about an applicant, for the underwriter is his proposal form
or application form, in which all the critical information related to the health and personal
details of the proposer are collected.
The underwriting process is completed when the received information is carefully assessed and
classified into appropriate risk categories.
A more careful analysis of difficult or doubtful cases is made possible by numerical rating
method because past experience with reference to the doubtful points is expressed numerically
in terms of a known standard and shadings.
Human Resource Department is not the stakeholder in insurance claim process
Indoor case paper or case sheet is a document which is maintained at the hospital end,
detailing all treatment given to patient on day to day basis for entire duration of hospitalization.

Reserving refers to the amount of provision made for all claims in the books of the insurer
based on the status of the claims
Fitness certificate from the treating doctor certifying that the insured is fit to perform his
normal duties is required in case of Temporary Total Disability
Bail bond cases and financial emergency cases are paid upfront by Assistance Company and
later claimed from insurance company.
Customers are primary stakeholder in insurance claim process
In case of insurance claim denial, individuals can approach legal authorities.
This is an example of impersonation, as the person insured is different from person treated.
Domiciliary treatment is provided in health insurance policy, only when the patient cannot be
removed to Hospital/Nursing Home for lack of accommodation therein
Current Procedure Terminology (CPT) codes capture the procedures performed to treat the
illness.

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KEY – Question Bank

Strictly for training & internal circulation Page 1

2. The correct option is III.

3. The correct option is II.

Insurance is a method of risk transfer.

4. The correct option is I.

5. The correct option is III.

6. The correct option is III.

Risk transfer through risk pooling is called insurance.

7. The correct option is II.

8. The correct option is IV.

9. The correct option is II.

Origins of modern insurance business can be traced to Lloyd‟s.

10. The correct option is IV.

Strictly for training & internal circulation Page 2

Insurance pays when there is loss of asset.

12. The correct option is II.

Rs. 200 per household should cover the loss.

13. The correct option is I.

Insurance is a method of sharing the losses of a „few‟ by „many‟.

14. The correct option is I.

15. The correct option is II.

1. The correct option is III.

2. The correct option is III.

3. The correct option is II.

4. The correct option is IV.

Scepticism does not go on to make a healthy relationship.

Strictly for training & internal circulation Page 3

Being extremely judgemental is not an element of active listening.

6. The correct option is III.

Placing self-interest ahead of client‟s interests is not ethical behaviour.

7. The correct option is II.

Insurance is not a tangible good.

8. The correct option is I.

Cleverness is not an indicator of service quality.

9. The correct option is I.

Motor third party liability insurance is mandatory in India.

10. The correct option is II.

11. The correct option is I.

12. The correct option is IV.

13. The correct option is II.

14. The correct option is IV.

15. The correct option is III.

Strictly for training & internal circulation Page 4

16. The correct option is IV.

1. The correct option is I.

2. The correct option is III.

IGMS stands for Integrated Grievance Management System.

3. The correct option is II.

4. The correct option is II.

5. The correct option is III.

6. The correct option is IV.

Insurance Ombudsman operates only within the specified territorial limits.

7. The correct option is I.

The complaint to the ombudsman is to be made in writing.

8. The correct option is III.

Strictly for training & internal circulation Page 5

9. The correct option is III.

Complainant need not approach a consumer forum prior to the Ombudsman.