TN Board 11th Commerce Important Questions Chapter 15 Insurance

Students get through the TN Board 11th Commerce Important Questions Chapter 15 Insurance which is useful for their exam preparation.

TN State Board 11th Commerce Important Questions Chapter 15 Insurance

Very short answer questions

Question 1.
Write short notes on Surrender value?
Answer:
The surrender value is the cash value of the policy which is payable to the policyholder if he decides to terminate the contract. This surrender value is usually obtained from the paid-up value by applying a percentage factor. The surrender value signifies the number of premiums paid that is returned to the policyholder at the time of surrendering the policy.

Question 2.
Write short notes on Double insurance?
Answer:
When more than one insurance policy is taken to cover the same subject matter i.e. risk, then it is known as Double Insurance.

Question 3.
What do you mean by Indemnity?
Answer:
Indemnity means security or compensation against loss or damages. In insurance, the insured would be compensated with the amount equivalent to the actual loss.

Question 4.
What are the features of Life insurance?
Answer:

1. Life insurance provides protection to the family at the premature death of an individual.
2. It gives an adequate amount at an old age when earning capacities are reduced.
3. Life insurance is not only a protection but is a sort of investment because a certain sum is returnable to the assured at the time of death or at the expiry of a certain period.

Short answer questions

Question 1.
What are the types of Insurance?
Answer:
Insurance covers different types of risks. All contracts of insurance can be broadly classified as follows:

1. Life Insurance (or) Life Assurance,
2. Non-life Insurance (or) General Insurance.

It can be further classified into:

1. Fire Insurance,
2. Marine Insurance,
3. Health Insurance and
4. Miscellaneous Insurance.

Question 2.
What is contribution?
Answer:
The same subject matter may be insured with more than one insurer then it is known as ‘Double Insurance’. In such a case, the insurance claim to be paid to the insured must be shared on contributed by all insurers in proportion to the sum assured by each one of them. It may be noted that in the case of multiple insurances, the insured can claim the loss from any of the insurers subject to the condition that the insured cannot recover more than the amount of actual loss from all taken together.

Question 3.
What is the meaning of insurance?
Answer:
Insurance is a contract between the insurer and the insured under which the insurer undertakes to compensate the insured for the loss arising from the risk insured against, in consideration the insured agrees to pay premium regularly.

Question 4.
Explain the types of marine insurance?
Answer:

1. Hull or Ship Insurance: When a ship is insured against any type of danger, it is known as hull insurance. This policy is taken to indemnify the insured for losses caused by damage to the ship.
2. Cargo Insurance: When a marine insurance policy is taken by the cargo owner to be compensated for loss caused to his cargo during the Voyage, it is known as cargo insurance. The cargo to be transported by ship is subject to many risks, as the risk of theft, loss of goods in the voyage, etc.
3. Freight Insurance: When a marine insurance policy is taken to guard against non-recovery of freight, it is known as freight insurance. The shipping company is mainly interested in freight, which it – gets either in advance or on the arrival of goods. However, it will not get the freight, if the goods are lost during transit. So, to ensure the freight, it takes freight insurance. A contract of marine insurance covers the ship, cargo, and freight.

Question 5.
Explain the types of business risk?
Answer:

1. Speculative Risks: Speculative risks are the kind of risks that have the possibility of gain as well as the possibility of loss. Such risks are the result of market conditions. Favorable market conditions result in gains whereas unfavorable market conditions result in losses, eg: Use of better technology helps to produce better quality products at cheaper prices. This may increase the demand and thus result in higher profits.
2. Pure Risks: Pure risks are the type of risks where a business suffers loss only if the risk occurs. Non-occurrence of such risks leads to the absence of loss, eg: Business may suffer loss only if fire, theft or strike occurs.
3. Insurable Risks: Insurable risks are the type of risks where a business can insure the probable losses by paying a predetermined premium to an insurance company. At the time of loss, the insurance company pays compensation on the basis of agreed terms and conditions. Loss arising from natural and physical risks can be insured as the probability of risk can be determined, eg: a Company can insure its stock against fire or theft and if it loses its stock due to fire or theft in office, the insurance company pays compensation only up to an extent of the value lost.
4. Uninsurable Risk: Losses arising from unforeseen natural events, political changes, or trade cycles are called uninsurable risks. Loss due to earthquake or flood or cyclone cannot be estimated and their probability cannot be calculated. Government directly takes care of the affected persons. Losses to businesses due to policy decisions of ruling political parties in a country, or due to economic depression cannot be insured. These uninsurable risk events are called uncertainties. The concept of risk is different from uncertainty. During uncertain events, decisions cannot be taken.

Question 6.
What is the need for Insurance?
Answer:
Business involves many risks. Goods are damaged or destroyed while they are in transit or in godowns. This loss is reduced largely by insuring the goods. A family generally depends on the income earned by the head of the family, who is a daily wage earner (breadwinner). If he suddenly dies, the family may be left in a very difficult situation. Insurance substitutes this uncertainty by providing financial compensation.

Question 7.
What is life insurance and mention its features?
Answer:
Life insurance contract may be defined as the contract, whereby the insurer in consideration of a premium undertakes to pay a certain sum of money either on the death of the insured or on the expiry of a fixed period which Never is earlier. Since the value of life cannot estimate in terms of money, the principle of indemnity is not involved in life insurance. A person can take any number of policies in his own life.

Question 8.
Write short note on marine insurance.
Answer:
Marine insurance is the most important and challenging branch of insurance. It has developed over many countries. Under this, the insurer undertakes to indemnify the insured against marine losses. The principles of utmost good faith, indemnity, insurable interest and proximate cause, will apply to marine insurance. But insurable interest is present at the time of loss of the insured property.

Question 9.
What is fire insurance and bring its importance?
Answer:
A fire insurance contract does not ensure the safety of the insured property. Its purpose is to see that the insured does not suffer pecuniary loss from the insured property due to fire. If the insured property is transferred to another person, the contract of insurance comes to an end. It is not connected with the subject matter of insurance. Thus fire insurance is a mere personal contract between the insurer and the insured. If the loss is due to ‘fire’ within the meaning of the policy, it is immaterial about the cause of the policy and the insurer is liable to indemnify the insured.

Question 10.
What is Economic causes?
Answer:
These include uncertainties relating to demand for goods, competition, price, collection of dues from customers, change of technology or method of production, etc. Financial problems like rising in interest rate for borrowing, levy of higher taxes, etc., also come under this type of cause as they result in the higher unexpected cost of operation of the business.

Long answer questions

Question 1.
Distinguish between Insurance and Assurance.
Answer:

Insurance	Assurance
Loss due to risk is not certain to happen which may or may not take place.	Each person has to die sooner or later. So loss due to the risk of death is certain.
This is a contract for a short period (one year).	But it is a long-term contract (for 15 years or more).
The value of the subject matter can be easily determined.	It is difficult to determine the value of human life which is the subject matter of contract.
It is the contract of indemnity.	It is not a contract of indemnity.
When the insurer compensates for the loss suffered by a person, he acquires the rights and remedies available to that person.	This does not apply here.

Question 2.
What are the principles of insurance?
Answer:
There are special principles applicable to contracts of insurance. They are:

1. Insurable Interest: Insurable interest is necessary for a valid contract of insurance. Insurable interest must be a pecuniary interest. A person is said to have an insurable interest in a property, as to have benefited from its existence and prejudice by its destruction. The time when insurable interest should exist differs according to the nature of insurance.
2. Utmost good faith: A contract of insurance is a contract of utmost good faith. The proposer is bound to make frill disclosure of all facts. Misrepresentation, non-disclosure of fraudulent misrepresentation in any document leads to disowning the insurer from all liabilities under the contract.
3. Indemnity: ‘To indemnity means ‘to make good the actual loss suffered. The principle of indemnity is applicable to property insurance alone. Insurance contracts are contracts of indemnity. This means that the insured should be placed after a loss, in the same position as he was immediately before the loss.
4. Proximate cause: Proximate means nearest. It is only the nearest reason to be taken into account. The insurer is liable only if the nearest cause comes within the meaning of risk insured.
5. Contribution: Where a property is overinsured by double insurance, each insurer is bound as between himself and other insurers, to contribute in proportion to the amount for which he is liable under his contract with the insured.
6. Subrogation: Subrogation means the transfer of rights and remedies of the insured to the insurer after the indemnity has been effected. According to this principle, after the insured is compensated for the loss, the right of ownership of such damaged part of the property passes to the insurer.

Question 3.
What are the kinds of life policies?
Answer:
The life insurance policies can be divided on the basis of

1. Duration of Policy: (a) Whole Life Policy, (b) Term policy.
2. Method of payment of premium.
3. Policies according to participation in profits (a) with profit policies and (b) without profit policies.
4. Policies according to the number of persons insured in a policy, the policy may be:
   (a) Single life policy, (b) Multiple life Policy, (c) Joint life Policy, (d) Last Survivorship policy.
5. Policies according to the method of payment of claims- (a) Lump-sum policies,
   (b) Installment or Annuity Policies.

There are other life insurance policies which are as follows:

1. Money-Back policy
2. Children’s Deferred Assurance (C.D.A)
3. Group insurance policy
   (a) Employer-Employee groups
   (b) Labour – Union Group
   (c) Creditor – Debtor Group.

Question 4.
What is the classification of marine policies?
Answer:
Marine Policies are of different types. On the basis of the subject matter marine policies are classified into-

1. Cargo Insurance,
2. Hull Insurance,
3. Freight Insurance,
4. Liability Insurance.

On the basis of duration, policies may be classified into

1. Time Policies,
2. Voyage Policy.

On the basis of duration, term policies are classified into

1. Construction or builders risk policies,
2. Port Risks Policies,
3. Floating Policies,
4. Open cover policies.

Question 5.
Explain the types of fire policies.
Answer:

1. Floating Policy: It is a policy covering stock in different places within the limits of one city/town/village by charging 25% of premium over and above the highest rate applicable to anyone at risk. The goods should belong to a single owner. No floating policy can be issued in respect of the immovable property.
2. Declaration Policy: Declaration policies may be granted only in respect of the own stocks of the insured or which are in the insurer’s custody. Generally, levels of stock will vary frequently depending on purchases and sales. The owner takes a policy for a maximum expected level and a premium is paid. Every month the owner. declares the level of stock. In the end, the premium is adjusted accordingly.
3. Reinstatement Policy: This policy is also known as a new or old policy. This policy is issued in respect of building, plant, and machinery, furniture and fixtures, and fittings only. The payment to be made is the cost of reinstatement of the building or the cost of replacement of the machinery to a condition equal to prior to the loss.

Student Activity.

(a) Sanjana insured her factory for Rs. 5 Lakh against fire. Due to fire, she suffered a loss of Rs. 2 lakh. How much amount she can recover from the insurance company? Why?
Answer:

1. Sanjana insured her factory value worth Rs. 5 lakhs against fire.
2. She suffered a loss of Rs. 2 lakhs. She can get Rs. 2,00,000 only from the insurance company.
3. If the loss due to fire exceeds Rs. 5,00,000 she cannot get an actual loss on compensation (subject to average clause). She will get only Rs. 2,00,000.

(b) A factory owner gets his stock of goods insured, but he hides the fact the electricity board has issued him a statutory warning letter to get his factory’s wiring changed. Later on, the factory catches fire due to a short circuit of wiring. Can he claim compensation?
Answer:
No, he cannot claim compensation. Because already electricity board has issued him a statutory warning letter to get his factory’s wiring changed. Due to inadequate wiring, the factory catches fire so he cannot get compensation.

Multiple choice questions

1. ……… is not a contract of indemnity.
(a) Insurance
(b) Assurance
(c) Banking
(d) All the above
Answer:
(b) Assurance

2. ……….. is necessary for a valid contract of insurance.
(a) Insurable interest
(b) Indemnity
(c) Contribution
(d) utmost good faith
Answer:
(a) Insurable interest

3. In which year crop insurance scheme was introduced in India?
(a) 1948-49
(b) 1978-79
(c) 1985-86
(d) 1990-91
Answer:
(c) 1985-86

4. ……… is no limit in law.
(a) Life Insurance
(b) Fire Insurance
(c) Marine Insurance
(d) Burglary Insurance
Answer:
(a) Life Insurance

5. Policy is only for a period up ………. months
(a) 8 months
(b) 9 months
(c) 12 months
(d) 10 months
Answer:
(c) 12 months

6. The transfer of rights and remedies of the insured to the insurer means:
(a) proximate cause
(b) contribution
(c) utmost good faith
(d) subrogation
Answer:
(d) subrogation

7. The policy that covers the risk only during a particular period is known as:
(a) whole life policy
(b) term policy
(c) single life policy
(d) lump-sum policy
Answer:
(b) term policy

8. The policy which includes liability arising out of damages etc to the harbor is known as:
(a) hull insurance
(b) cargo insurance
(c) voyage policy
(d) liability insurance
Answer:
(d) liability insurance

9. A master policy taken out by any trade union for the benefit of its members is known as:
(a) creditor-debtor group
(b) group insurance policy
(c) labor union group
(d) joint life policy
Answer:
(c) labour union group

10. In mediclaim policy according to scheme a maximum benefit amount is:
(a) 10000
(b) 150000
(c) 100000
(d) 300000
Answer:
(b) 150000

11. In which year Children’s money-back plan was introduced?
(a) 1986
(b) 1988
(c) 1989
(d) 1995
Answer:
(d) 1995

12. In which year Insurance Act was amended in India?
(a) 1940
(b) 1928
(c) 1938
(d) 1945
Answer:
(c) 1938

13. Which one is the principle of insurance?
(a) Co-operation
(b) Mutual interest
(c) Indemnity
(d) None of these
Answer:
(a) Co-operation

14. What is the minimum period of life assurance?
(a) More than one year
(b) 5 year
(c) 10 years
(d) 15 years or more
Answer:
(d) 15 years or more

15. Which of the following is covered under life assurance policy?
(a) Act only
(b) Cargo insurance
(c) Declaration policy
(d) Money back policy
Answer:
(d) Money back policy

16. Which of the following is not a function of insurance?
(a) Risk sharing
(b) Assist in capital formation
(c) Lending of funds
(d) None of the above
Answer:
(c) Lending of funds

17. Which of the following is not applicable in life insurance contract?
(a) Conditional contract
(b) Unilateral contract
(c) Indemnity contract
(d) None of the above
Answer:
(c) Indemnity contract

18. In which of the insurance policy loss cannot be measured?
(a) Life insurance
(b) Marine insurance
(c) Fire insurance
(d) All of the above
Answer:
(a) Life insurance

19. It is the duty of the insured to make an effort for minimization of loss it is the principle of:
(a) utmost good faith
(b) contribution
(c) mitigation
(d) insurable interest
Answer:
(c) mitigation

20. Insurers must have some pecuniary interest in the subject matter of interest. It is the principle of:
(a) mitigation
(b) contribution
(c) utmost good faith
(d) insurable interest
Answer:
(d) insurable interest