IRDA - Life Insurance Agent Mock - 4

The agent has to show his licence to his prospect-customer on demand. Rest of the statements are incorrect. Sharing commission with a client is illegal.

Uberrima fides means "utmost good faith", which means every party to an insurance contract must disclose all material information.

All the options are correct, except option 3. Sharing commission with a client is illegal.

This policy is quite risky because your cash value and death benefit can fluctuate according to the performance of your investment portfolio. Therefore, if your underlying investments perform well, then your cash value and death benefit may increase accordingly. If your investments perform worse than you expected, your cash value and death benefit may decrease.

Insured - The person who obtains or is otherwise covered by insurance on his or her health, life, or property is called "insured". In consideration of this, the insured provides premium to the insurer (The Insurance Company).

Yes, a complaint can be launched against a private insurer. There are 17 Insurance Ombudsmen in different locations and you can approach the one having jurisdiction over the location of the insurance company office that you have a complaint against. 

All the above statements are correct.
According to Indian Stamp Act, "Policy of insurance" includes
(a) any instrument by which one person, in consideration of a premium, engages to indemnify another against loss, damage or liability arising from an unknown or contingent event
(b) a life policy and any policy insuring any person against accident or sickness, and any other personal insurance

Life insurance is a contract for payment of a sum of money to the person assured (or failing him/her, to the person entitled to receive the same) on the happening of the event insured against. Usually, the insurance contract provides for the payment of an amount on the date of maturity or at specified dates at periodic intervals or at unfortunate death if it occurs earlier. Obviously, there is a price to be paid for this benefit. Among other things, the contract also provides for the payment of premiums by the assured.
First Premium Receipt marks the beginning of the contract. 

Reversionary bonus is the bonus declared every year as a percentage of (Guaranteed Maturity Benefit/Sum Assured + Earlier Reversionary Bonuses). It is payable on death of the life assured or maturity of the policy.

This principle is an important element within a contract of insurance. It means that the insured must have an interest in the subject matter of the insurance. In a practical sense, this means that the insured must suffer a financial or economic loss. This also means that the interest in the property must be a real one and not a contrived one.
Tenant is a person who occupies land or property rented from a landlord. So, 'insurable interest' does not lie with the person.

An endowment policy is a life insurance contract designed to pay a lump sum after a specific term (on its 'maturity') or on death. Typical maturities are ten, fifteen or twenty years up to a certain age limit. Some policies also pay out in the case of critical illness.

The calculated difference between net premium and gross premium equals the expected present value of expense loadings less the expected present value of future expenses. The typical loading to a net premium would have 3 parts: (a) a percentage of premiums, (b) a constant amount for each ‘1000 sum assured’ and (c) a constant amount per policy.

A third-party administrator (TPA) is an organization that processes insurance claims or certain aspects of employee benefit plans for a separate entity.
Reimbursement of the hospitalization expenses can be claimed where cashless hospitalization facility is not availed or treatment is availed in a non-network hospital. In this case, one will have to settle the hospital bill, collect all original hospitalisation documents and submit the documents to TPA's office for their scrutinizing the same in terms of the policy and check the admissibility or otherwise of the claim/expenses. 

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.

Amount of annuity payable is inversely related to duration of annuity payments. The larger the annuity paid, the lesser the duration of annuity payments.

Hospital is an institution in which sick or injured persons are given medical or surgical treatment by professional doctors. Therefore, according to the definition of hospital, the first option is not correct and the rest are correct.
 

As the limitations of traditional life insurance plans became obvious, a number of shifts occurred in the product profiles of life insurers. These have been summarised below:
(a) Unbundling: This trend involved separation of the protection and savings elements, and consequently the development of the products which stressed on protection of savings, rather than a vague mix of both.
(b) Investment linkage: The second trend was the shift towards investment linked products which linked benefits to policyholders with an index of investment performance. There was consequently a shift in the way life insurance was positioned.
(c) Transparency: Unbundling also ushered greater visibility in the rate of return and in the charges made by the companies for their services (like expenses, etc.). All these were explicitly spelt out and thus, could be compared.
(d) Non-standard products: The fourth major trend has a shift from rigid to flexible product structures which is also seen as a move towards non-standard products. When we speak of non-standard, it is with respect to the degree of choice which a customer can exercise with respect to designing the structure and benefits of the policy.

A related doctrine is the insurance law doctrine of efficient proximate cause. Under this rule, in order to determine whether a loss resulted from a cause covered under an insurance policy, a court looks for the predominant cause which sets into motion the chain of events producing the loss, which may not necessarily be the last event that immediately preceded the loss. Many insurers have attempted to contract around efficient proximate cause through the use of "anti-concurrent causation" (ACC) clauses, under which if a covered cause and a non-covered cause join together to cause a loss, the loss is not covered.

Term insurance plan is pure risk cover which pays out the sum assured in case of death and does not have any maturity benefits. You do not get any maturity benefits in a pure term plan because it is a pure protection insurance plan.

Risk decreases as the number of exposures increases. This is the most important foundation of insurance. This is called the law of large numbers. This law is critical to understand the nature of risk and how it is managed. 

Insurers inspect the property before acceptance of a risk to assess the risk for rating purposes. Before acceptance of a risk, insurers arrange survey and inspection of the property to be insured, by qualified engineers and other experts. They not only assess the risk for rating purposes, but also suggest and recommend to the insured, various improvements in the risk, which will attract lower rates of premium. 

ROP plan offers premium refund at maturity if the policyholder survives the tenure.

In a non-medical case, risk can be assessed in the absence of medical report. No medical report is required in a non-medical case.

A prospectus should contain the facts that an investor needs to make an informed investment decision.

Alterations can be done by both of the methods. Alterations may not be permitted in the first year, but in the subsequent years, alterations can be done by placing a suitable endorsement on the policy or on a separate paper. Other alterations which require material change in the policy conditions may require cancellation of existing policy and issuance of new policy.

The most common underwriting decision is to accept at an ordinary rate.

Acceptance at ordinary rates (OR) is the most common decision. This rating indicates that the risk is accepted at the same rate of premium as would apply to an ordinary or standard life. 

Adhesion contract is a legally binding agreement between two parties to do a certain thing, in which one side has all the bargaining power and uses it to write the contract primarily to his or her advantage.

The grace period for renewal beyond expiry date of a health insurance policy is 30 days.

Policy Allocation Charge would be high in the initial years.

This is deducted from the premium upfront. It is a percentage of the premium appropriated towards charges before allocating the units under the policy. This charge is levied to recover the initial expense incurred towards issuing the policy such as the distributor fee and the cost of underwriting. The balance is the investable amount used to purchase units of the funds chosen by the policyholder. Though the Insurance and Regulatory and Development Authority, or IRDA, has set guidelines that ensure a cap on these charges from the fifth year onwards, the premium allocation charges in the first few years continue to remain significantly high. 

An agent arranges for a customer to get the necessary insurance.

Goodwill is the established reputation of a business and regarded as a quantifiable asset. It is calculated as a part of its value when it is sold.

The main advantage of a policy loan over other loans is that there is no credit check; the interest rate is usually much lower; the policyholder can pay back the loan according to virtually any repayment schedule; and, in fact, the policyholder is not even legally obligated to pay back the loan.

The time limit set for completing a claim investigation is 6 months.

A rider is a provision of an insurance policy that is purchased separately from the basic policy and that provides additional benefits at additional costs. So, term insurance cannot be taken as a rider.

Earned surplus is the sum of a company's profits, after dividend payments, since the company's inception. A portion of the surplus would be left for distribution to shareholders.

The statement in option 2 is wrong as many of the private sectors have come under this and have taken the share from LIC. Therefore, a consumer friendly insurance sector is needed for economic development of the country.

An insurance contract has to fulfill the requirements of the Indian Contract Act, 1872.

As per IRDA norms, both products are permitted in India.

In endowment plan of insurance, medical examination is never required, whatever be the amount of sum insured.

The most common type of plans available in the market with guaranteed returns are called endowment plans. These plans are actually called endowment assurance plans. These are a combination of pure term plan and pure endowment plan. Pure term plan has only death benefit with no maturity benefit, whereas pure endowment plan has only maturity benefit with no death benefit. However, endowment assurance plans have death benefit if the life assured dies within the policy term as well as maturity benefit if he survives till the policy matures. Hence, it is a complete win-win situation for the policyholder. 

Correct Answer: Only I
Policy decisions in an insurance organization mean decisions relating to different kind of plans of insurance to be offered to the public. 

There is an Ombudsman for defined territorial limits. There are 17 Insurance Ombudsmen in different locations and you can approach the one having jurisdiction over the location of the insurance company office that you have a complaint against. 

Correct Answer: Selling is both an art and a science.

To correctly answer the question of whether selling is an art or a science, one must first understand that the foundation of selling is influence. The activities that a sales person engages in (such as pre-call planning, discovering prospect needs, presenting product or service and closing the sale) are done for the purpose of more capably influencing prospects. Influence is essential to selling because information alone will rarely persuade a person to act. What moves people is not merely information, but how that information is presented. This is supported by hundreds of scientific studies that have conclusively proven that a person’s perception and interpretation of a persuasive message is shaped by how that message is conveyed. In the last few decades, there have been thousands of scientific studies focused on obtaining an exact understanding of what enables and creates influence. The conclusions of this mountain of research revolutionized what scientists know about how influence occurs. There is now a consensus within the scientific community regarding the behaviors and mindsets that support and enhance influence. This has transformed the process of influencing another from an art to a proven science. 

Financial planning is not only for wealthy individuals, but for everyone. Everyone should have confidence in their finances and a financial plan that can help them live a comfortable life. 

Term insurance is mainly suitable for income replacement.

Under regular term plans, the amount is paid as lump sum in the event of death of the policyholder. Under income replacement term plans, the sum assured is not paid in lump sum, but as monthly payout for a fixed number of years. This monthly payout takes away the pressure to generate income from your investment. 

A keyman life insurance policy is a policy that a company purchases on a key executive's life. The company is the beneficiary of the plan and pays the insurance policy premiums. It is also known as "key man insurance", "key woman insurance" or "business life insurance."

If there is any delay in settlement of claim within 30 days other than an early claim, the insurer has to pay bank interest + 2% rate of interest.

ULIP is a life insurance product which provides risk cover for the policy holder along with investment options to invest in any number of qualified investments such as stocks, bonds or mutual funds. In ULIPs, premium allocation charges, deducted from the premium, are for expenses incurred in issuing the policy.

In both the cases, special reports are necessary. If the insurance is being proposed for the first time after 50 years of age, there is a need to suspect moral hazard and enquire about why such insurance was not taken earlier. We must also note that chances of occurrence of degenerative diseases, like diseases of the heart and kidney failure, increase with age and become high at older ages.
Life insurers may also seek for some special reports when proposals are submitted for high sums assured/advanced ages or a combination of both.

Insurance is necessary to cover the risk of living too long. To guard against unpredictable events that may have serious financial repercussions, one must buy insurance. The 2^nd statement is not correct because the insurance does not pay you any premium on monthly basis or pensions which would make one less dependent on others. It provides you with risk coverage. 

These annuities may be purchased with a single payment or, as is more often the case, with a series of periodic payments.
 

All the given statements are correct.