Chapter 2 Business Services-1,
Chapter 2 Business Services-1,
1. Select the correct alternative and write answers to the following questions :
1. Which of the following principle is not an insurance principle?
(A) Principle of utmost good faith
(B) Principle of indemnity
(C) Principle of insurable interest
(D) Principle of profit
2. Which type of insurance is ancient and widely prevalent?
(A) Goods transit insurance
(B) Marine insurance
(C) Air insurance
(D) Rail/road insurance
3. How much can foreign insurance companies invest in Indian insurance companies?
(A) 25%
(B) 49%
(C) 74%
(D) 100%
4. How much amount is paid for Kisan Vikas Patra on maturity?
(A) Double
(B) Triple
(C) Four times
(D) Five times
5. Which type of insurance involves highest risk out of the following?
(A) Goods transit insurance
(B) Marine insurance
(C) Air insurance
(D) Rail/road insurance
6. In which types of money order service money does not reach the doorstep of the receiver?
(A) Ordinary money order
(B) Instant money order
(C) e-money order
(D) Special money order
2. Answer the following questions in one sentence each :
1. What is insurance?
Answer:
Insurance is a formal agreement in written form made between two parties. The party offering insurance is known as the insurer, while the one who purchases and benefits from the insurance is called the insuree.
2. What is an insurance policy?
Answer:
An insurance policy refers to a legal contract between the insuree and the insurance provider where the insurer agrees to compensate the insuree for financial losses under specified conditions.
3. What is life insurance?
Answer:
Life insurance is an agreement between an individual (insuree) and an insurance company, where the company agrees to pay a fixed sum of money to the nominee upon the death of the insuree, in return for regular premium payments.
4. What is meant by general insurance?
Answer:
General insurance refers to all types of insurance except life insurance. It includes health insurance, vehicle insurance, property insurance, etc.
5. Which is the quickest mode of transport?
Answer:
Air transport is considered the fastest means of transportation.
6. What do you mean by warehouse?
Answer:
A warehouse, also known as a godown, is a facility used for storing goods in large quantities before they are distributed or sold in the market. The act of storing goods here is termed warehousing.
7. What is a multiple unit train?
Answer:
A multiple unit train is a type of train that operates using several self-powered units rather than relying on a single locomotive to pull the entire train.
3. Answer the following questions in short :
1. Mention the principles of insurance.
Answer:
The key principles on which insurance is based include:
Principle of utmost good faith
Principle of indemnity
Principle of insurable interest
Principle of subrogation
2. List the types of General Insurance.
Answer:
General Insurance:
All forms of insurance excluding life insurance are termed general insurance.
It can be broadly categorized into three types:
(a) Goods transportation insurance:
Includes:
Marine insurance
Air insurance
Rail or road insurance
(b) Fire insurance
(c) Miscellaneous general insurance
3. Why doesn’t life insurance follow the loss-compensation principle?
Answer:
Since life holds unlimited value and cannot be measured in exact monetary terms, the insured person selects a sum assured based on the premium they can afford. Therefore, the principle of compensating actual loss does not apply to life insurance.
4. Explain Health Insurance.
Answer:
Health Insurance:
It is a form of general insurance that helps cover an individual’s medical and hospital expenses.
It proves beneficial in cases like sickness, injury, or accidents.
Health policies are usually taken for a year and must be renewed annually before expiry.
5. Write about the Public Provident Fund (PPF) scheme.
Answer:
In a PPF scheme, a person can open an account in a post office with a minimum deposit of ₹500.
To maintain the account, the depositor must contribute at least ₹500 each financial year for a continuous period of 15 years.
6. Which products are best suited for pipeline transport?
Answer:
Pipeline transport is ideal for moving liquids and gases such as crude oil, petrol, natural gas (PNG/CNG), water, etc.
4. Answer the following questions in brief :
1. What is the principle of Utmost Good Faith?
Answer:
Utmost Good Faith:
The primary purpose of insurance is not to earn profit but to serve a social purpose by providing financial protection against specific risks.
According to this principle, both the insurer and the insured must trust each other fully and share all relevant details truthfully. This means that the policyholder must claim compensation only for genuine and mentioned risks, and the insurer must provide the promised coverage in such events.
Both parties must disclose all important information while signing the policy, even if not specifically asked, if that detail could impact the contract or future claims.
Hiding crucial details can be considered as dishonesty and a breach of this principle.
If an insured person gives false or incomplete information and then suffers a loss, the insurer has the right to reject the claim and deny refund of the premium. In this case, the policyholder loses all rights to claim compensation.
2. Explain the principle of Indemnity.
Answer:
Indemnity:
This principle focuses on providing protection against expected future losses. The insurer agrees to compensate the insured only to the extent of actual loss suffered, ensuring the insured does not profit from the claim.
If a policyholder insures a property for a lower amount than its real value, only the insured amount will be paid, and any additional loss must be borne by the insured.
Example:
If a car worth ₹5 lakh is insured for ₹2 lakh and is totally damaged, the insurer will pay only ₹2 lakh.
If a product insured for ₹3 lakh is partially damaged and repairs cost ₹2 lakh, the insurer may compensate proportionately, e.g., ₹1,20,000.
However, if the item was fully insured for ₹5 lakh, the full amount would be reimbursed in case of total loss.
3. Explain the principle of Insurable Interest.
Answer:
Insurable Interest:
A person must have a direct interest in the subject matter of insurance to seek coverage.
This means the insured should face a financial loss if the insured object or person is damaged or lost.
For instance, you may insure your own house since you bear the loss if it’s damaged, but you cannot insure your neighbor’s house because you don’t suffer a financial loss from its damage.
4. “Insurance does not remove risk, but it compensates for the loss resulting from the risk.” Justify.
Answer:
As societies advance, the chances of various risks also increase.
These may include risks to life, health, property, machinery, goods, etc., which can arise due to natural events or human actions.
An insurance company cannot prevent such events but helps provide monetary support when losses occur.
Hence, while insurance cannot eliminate the actual risks, it helps reduce the burden of financial losses arising due to those risks.
5. “Godown creates time utility” – Discuss.
Answer:
A godown or warehouse is a storage facility where goods are kept until they are ready to be sold.
Goods are not always sold immediately after production. Sometimes, raw materials or semi-finished goods need to be stored until the next stage of processing.
Seasonal items, for instance, are stored for use or sale during other times of the year.
Perishable items like dairy, fruits, and ice cream need proper storage to remain fresh until sold.
Thus, godowns help maintain the availability of products over time, creating time utility by bridging the gap between production and consumption.
6. What are special godowns? Explain with examples.
Answer:
Special Godowns:
Specialized storage spaces designed to hold items that require extra care or conditions are called special godowns.
Examples include storage for explosives, chemicals, fireworks, gas cylinders, petrol, etc. These goods require safety and temperature control.
Likewise, perishable goods like milk, vegetables, or fruits also need specific storage conditions.
Constructing and maintaining such godowns is expensive due to the need for safety features and compliance with laws. For example, petrol storage tanks must be built using specific materials and designs like underground tanks with special bricks.
5. Answer the following questions in detail :
1. How is an insurance contract different from a general contract?
Answer:
An insurance contract is based on the principle of utmost good faith, where both parties must fully disclose all necessary facts. In contrast, a general contract is simply a mutual agreement between two parties that is legally enforceable under the law.
2. Mention and explain the types of life insurance.
Answer:
Life Insurance:
Life insurance is a formal agreement between an individual (the insured) and the insurance provider, in which the insurer commits to pay a certain amount to the nominee of the insured after his/her death, in return for regular premium payments.
There are two primary forms of life insurance:
(a) Whole life insurance
(b) Endowment insurance
A nominee is the individual named by the policyholder in the contract to receive the benefits after the policyholder’s death.
(a) Whole life insurance:
This type of policy requires the insured person to pay premiums regularly for their entire life. After their death, the agreed amount is paid to their nominee.
Although no sum can replace a person’s life, this financial support helps the family cope with monetary difficulties.
The insurer assesses the individual’s income and capacity to pay premiums before deciding the insured amount and policy terms.
Unlike general insurance, the principle of indemnity does not apply here.
Once the insurer confirms that death was natural and not due to suicide or fraudulent activity, the full amount is paid to the nominee.
(b) Endowment insurance:
This policy assures payment either on the maturity of the policy or on the insured person’s death, whichever comes first.
The insured chooses a specific term for the policy, such as till age 50, and pays the premium accordingly.
If the insured survives till maturity, they receive the full amount. Otherwise, the nominee gets the amount in case of the insured’s death during the policy term.
3. List the types of general insurance and describe any two in detail.
Answer:
General Insurance:
Any insurance policy that does not cover life is referred to as general insurance. It is generally classified into three broad categories:
(A) Goods Transportation Insurance:
This includes insurance for goods transported via different modes:
Marine Insurance
Air (Aviation) Insurance
Rail/Road Insurance
When goods are moved from one place to another, there’s a risk of damage or loss. This insurance covers such risks.
1. Marine Insurance:
Shipping is a cost-effective but risky mode of transport. Damage to the vessel or goods due to sea-related hazards can result in heavy loss. Marine insurance covers such risks.
It is one of the oldest types of insurance, especially used before the 19th century.
The risk and slow speed of ships make this insurance crucial. Its premium is generally lower.
The concept was started by Lloyd’s of London around 325 years ago.
2. Aviation Insurance:
Aviation insurance provides cover for losses related to the operation and upkeep of aircraft and airports. It includes damage to planes and injuries to passengers or workers.
Air transport began in the 19th century, increasing the need for air cargo insurance.
Due to the high cost of air freight, only lightweight and high-value items are transported this way.
Premiums for aviation insurance are much higher than marine or road transport due to elevated risks.
3. Rail/Road Insurance:
This type of insurance protects goods being transported by trains or trucks from risks like theft, robbery, or damage.
(B) Fire Insurance:
This policy provides financial compensation for loss or destruction caused by fire.
It operates on the insurable interest principle—only the actual loss value is reimbursed to the insured.
(C) Other General Insurance:
New insurance types have emerged with time to meet evolving needs, including:
Singer’s voice insurance
Labour insurance
Third-party liability insurance
Employee fraud insurance
Medical (Mediclaim) insurance
Business interruption coverage
Student accident or liability insurance
Event cancellation insurance (e.g., concerts, sports matches)
4. Write a note on the Insurance Regulatory and Development Authority (IRDA).
Answer:
Insurance Regulatory and Development Authority (IRDA):
Established in 1999, the IRDA regulates and promotes the insurance sector in India.
It is a statutory and autonomous institution formed under the IRDA Act, 1999.
The IRDA allowed both Indian and foreign companies to participate in the insurance sector.
This move reversed the earlier nationalization, bringing privatization and competition.
Initially, foreign firms were permitted to hold up to 26% in joint ventures with Indian companies, which was later raised to 49% by 2015.
Main goals of IRDA include:
Offering more options to policy buyers when choosing insurance providers.
Fostering fair competition among companies for better service and pricing.
Expanding the insurance sector to boost economic development.
Promoting ethical practices within insurance companies.
Establishing a grievance redressal system for policyholders.
5. Present the classification of warehouses using a chart. Explain customs duty paid warehouses.
Answer:
Types of warehouses based on customs duty:
Warehouses for goods with customs duty paid
Bonded warehouses (customs duty not paid)
1. Warehouses where import duty is paid:
These facilities store imported goods on which customs (import) duty has already been settled.
Often, goods cannot be transported to their final destination immediately after arrival.
Therefore, such warehouses are located near entry points like ports, airports, or borders and are often public warehouses.
2. Bonded warehouses (Duty unpaid):
These storage units are used for holding imported goods before the importer pays the customs duty.
They are typically situated close to seaports, airports, or borders.
These warehouses are helpful for importers because:
They allow time for duty payment instead of paying upfront.
They offer the option to re-export goods directly from the warehouse.
They enable repackaging, sorting, or mixing of goods for better inventory management or re-export.