The second chapter of our Insurance learning course is “Life Insurance”. In this article, we’ll learn the 30 most important life insurance questions and their answers.
If you read every question and its answers carefully, you will be able to prepare for the insurance course in a very good way.
If you missed the first chapter of our insurance learning course, you can read it here.
By reading this post, you will also be able to quickly prepare for any competitive tests, such as school and college exams, vivas, and job interviews.
So let’s get started.
Life Insurance Questions and Answers
The 30 Important Life Insurance Questions and Answers are as follows:
Question 01: What is Life Insurance?
Answer: Life insurance is a system to deal with the risks associated with human life financially.
Human life is very precious. His dependents may face financial hardship due to his compulsions, illness, disability, or other factors, just as he may face a financial problem resulting from his death.
Therefore, financial protection against the potential loss of life is called life insurance.
Question 02: What are the Features of Life Insurance?
Answer: The top eight features of life insurance are as follows:
- Life insurance contracts are always related to human life.
- Unlike other contracts, a life insurance contract is not an indemnity contract. It is a contract of assurance.
- One of the most important characteristics of such a contract is the existence of an insurable interest.
- Like other agreements, life insurance agreements establish a relationship of ultimate goodwill between the two parties.
- This type of agreement isn’t solely for the purpose of making money. The goal of saving and investing is still alive and well.
- If the insured person dies, the name of the person or persons on whom the insurance company will pay the insurance claim must be approved in advance. The insured can make such nominations to one or more persons.
- After paying the installments for a long time, if the insured does not want to continue the life insurance policy, especially the whole life and term insurance policy, he can surrender it to the insurance company.
- The premium of life insurance depends on the risk of death.
Question 03: What is the Classification of Life Insurance?
Answer: The classification of life insurance is as follows:
Based on the duration of the policy:
- Endowment policy:
- Ordinary endowment policy
- Pure endowment policy
- Joint life endowment policy
- Educational annuity policy
- Multi-purpose policy
2. Whole life policy:
- Single premium whole life policy
- Continuous Premium whole life policy
- Limited payment whole life policy
3. Term policy:
- Temporary term policy
- Renewable term policy
Based on methods of premium payment:
- Single premium policy
- Level premium policy
Based on the number of lives covered:
- Single life policy
- Multiple life policies
- Joint life policy
- Last survivorship policy
Based on the method of claims payment:
- Lump-sum policy
- Instant or annuity policy
Question 04: Why is Life Insurance Called a Guarantee Agreement?
Answer: Life insurance is a guaranteed agreement. A guarantee contract is an agreement that says a certain amount of money will be given even if the other party loses money.
Property insurance is a contract of compensation because it is easy to determine the monetary amount of loss.
However, in the case of a life insurance claim, it is impossible to determine the loss.
As a result, in this case, the insurance company guarantees the insured they will pay out the amount of money in the event of death or disability.
Because of this, Life insurance is called a guarantee agreement.
Question 05: Why is Life Insurance Important in Establishing Social Comport?
Answer: Life insurance is a contract that protects a person’s life against the risk of death.
People have a limited lifespan. Nobody knows who is going to leave.
When a working man dies leaving small children, or when he is crippled in an accident and becomes ill, this family’s helplessness is indescribable.
In this case, life insurance stands in front of helpless people, assisting them in dealing with financial risks.
In this way, life insurance contributes to the establishment of social comfort.
Question 06: How does Life Insurance Provide Financial Protection for People’s Lives?
Answer: The insurance contract on a person’s life is known as life insurance.
Human life is always at risk. Nobody knows when they will die. Sickness, accidents, paralysis, and other such events are also common.
Life insurance protects you financially in this situation. At death, the insurance company distributes money to nominees or heirs. In addition, life insurance protects you in the event of illness, disability, or other unforeseen circumstances.
Loan benefits are available to term insurance policyholders. If necessary, the insured can obtain a surrender price from the insurance company. Take advantage of bonuses.
As a result, life insurance provides financial protection for people’s lives.
Question 07: Why is Endowment Life Policy More Popular?
Answer: Endowment insurance is insurance that is obtained for a specified period and then paid out when the insured person dies, or the insurance claim matures.
On the one hand, term life insurance provides security, while on the other, it provides savings and investment opportunities.
In this case, if the person dies before the end of the term, he is entitled to the entire amount, including the nominee or the maturity bonus.
The fact that the premium is paid in installments encourages the individual to save. If necessary, it is possible to take a loan against the policy.
Endowment life policy is more popular as a result of these factors.
Question 08: Why is Mortality Table Used in Life Insurance?
Answer: The mortality table is a table of probabilities of deaths per thousand in a given age group based on historical data.
It is impossible to determine the risk level at any age if the probable mortality rate cannot be determined. As a result, determining the policyholder’s age at a given period and the premium rate in the sum insured is impossible.
As a result, mortality tables help the life insurance industry move away from the traditional trend of speculation, establish it on a scientific foundation, and set it as a sustainable business.
Question 09: What is a Whole Life Insurance Policy?
Answer: A whole life insurance policy is a contract in which the insurer agrees to pay the sum insured to the insured’s nominee or heirs upon the insured’s death in exchange for a one-time, fixed-term, or lifetime premium.
Only his heirs or nominees benefit from such insurance.
Question 10: What are The Features of a Whole Life Policy?
Answer: The top six features of a whole life policy are as follows:
- The premium rate for such insurance policies is usually lower.
- The insured can purchase this type of insurance policy with a one-time premium or a recurring premium.
- The main concern in this policy is the relatives’ financial security.
- Paying the insurance claim of such an insurance policy is simple for the insurer.
- In such an insurance policy, the insured is usually required to pay a life insurance premium.
- in this case, the relative’s expectation that “the insured person should live longer” frequently falls short. Which frequently causes headaches for the insured in their older life.
Question 11: What is an Endowment Policy?
Answer: An endowment policy is a policy in which the insurer guarantees that the sum assured will be paid to the insured in full at the policy’s specified maturity date, or sooner if the insured dies before that date.
In such a policy, the policyholder pays a fixed insurance premium until the end of the term. However, there is no need to pay a premium if the insured passes away.
Question 12: What are the Features of Endowment Policy?
Answer: The top five features of the endowment Policy are as follows:
- The Endowment Policy ensures financial stability and joint payment.
- A savings option is available in such an insurance policy.
- This type of insurance provides both savings and investment opportunities.
- After at least two years of operation, such an insurance policy can provide a loan facility to the insured.
- These types of insurance policies ensure that social insurance benefits are provided. Health insurance, education insurance, and personal accident insurance are just a few examples.
Question 13: What is Term Policy?
Answer: A term insurance policy is a life insurance policy that is only open for a limited time, usually three months to five years.
The insurance company pays the insured money to his nominee or heirs if the insured dies within that time frame.
However, the insurance company does not pay any money if the person does not die within that time frame.
The premium received is considered the insurance company’s profit. The premium is usually paid in one or several equal installments in this case, and the premium is relatively low.
The majority of these insurance policies are non-profit.
Question 14: What is Joint Insurance?
Answer: Joint insurance refers to an insurance system in which the same policy covers the lives of multiple people. Such insurance policies are called multi-life insurance policies.
Single life insurance policies were introduced at the start of life insurance. Still, later on, joint life insurance policies were introduced.
Under a single policy, joint insurance usually covers the risk of death of two to five people.
It lowers the insurance premiums. Only life insurance is covered under this type of policy.
Question 15: What is Group Insurance?
Answer: Group insurance is an insurance system that insures the lives of a specific group of people under a single policy.
This type of insurance is typically reserved for employees who work in the exact location. Employers can purchase such insurance to protect their employees in the future.
However, the organization can purchase such insurance for the cooperative or association’s members.
The United States was the first to introduce risk-only insurance, which was later expanded, including coverage for workers’ illness, disability, and other issues.
Question 16: What are the Features of Group Insurance?
Answer: The top five features of group insurance are as follows:
- In this case, a single policy covers the lives of many people in the group.
- In most cases, the employer collects such insurance policies for the company’s employees.
- In this case, the policy comes with a list of the insured’s information.
- In this case, each person’s sum insured is determined independently, and the premium is set at an average rate.
- This type of insurance policy can be either temporary or long-term. It can be renewed every year, even though it is only temporary.
The process of formation of a life insurance contract is as follows:
Question 17: What are the 9 Steps of the Formation of a Life Insurance Contract?
Answer: The 9 steps of formation of life insurance are as follows:
- Offer of proposal
- Consideration of proposal
- Collection of medical report
- Collection of the agent’s report
- Collection of extra information if necessary
- Proof of age
- Selection of proposal
- Acceptance of offer
- Issue of policy
Question 18: What is Premium?
Answer: Premium generally refers to overpayment. When a share is sold at a higher price than its book price, it is called a share premium sale.
But in the case of insurance, the term premium is used to mean the amount paid by the insured to the insurer. In reality, the premium is the exchange rate of the risk that the insurance company is willing to take.
In other words, the premium is the amount paid by the insured in exchange for the insurer’s promise to bear the risk or pay in the insurance contract.
In general, insurance premiums are paid once, but in the case of life insurance, premiums are paid regularly.
Question 19: Which Factors Govern the Rate of Premium in the Case of Life Insurance?
Answer: The factors governing the rate of premium in the case of life insurance are as follows:
- Proposed insured sum
2. Time period of insurance policy
3. Nature of risk:
- Age of the insured
- Profession
- Physical condition
- Character and habit
- Family history
- Residence
- Financial ability
- Education and standard of living
4. Nature of insurance policy
5. Investment facilities
6. Management expenses
Question 20: What is a Bonus?
Answer: Any receipt, whether expected or not, is referred to as a bonus. The company pays bonuses to employees in addition to wages or salaries as part of the company’s profits.
Suppose a portion of the profit is distributed among the policyholders in the life insurance business. In that case, this is referred to as a bonus.
A bonus is an additional payment made by an insurance company as a result of a capital gain.
Question 21: What is Annuity in Life Insurance?
Answer: It is considered an annuity in the insurance world because it pays a person at a fixed rate every year on behalf of the insurance company until death or for a set period.
The insured’s interest in the annuity system is to receive regular allowances or annuities after a set period or during retirement.
The premium or installment is usually paid all at once in this case. However, such a premium can now be paid in installments over a set period.
Furthermore, such annuities are given to the insured’s nominee or designated persons for a set period when he or she dies.
Question 22: What are the Features of Annuity?
Answer: The top four features of annuity are as follows:
- An annuity is receiving a fixed rate of allowances for a set period or until death.
- In this case, the annuity payer pays the insurance company the premium all at once or in installments over a set period.
- The payment of such an annuity begins with the premium payment or after a certain period, depending on the agreement.
- People believe that insurance will only be used as a last resort to collect such policies.
Question 23: What is Surrender Value?
Answer: Surrender value refers to the amount of premium paid that is returned to the policyholder when the policy is surrendered.
Suppose the insured is unable or unwilling to continue a life insurance policy for any reason. In that case, he may surrender the policy to the insurance company and receive a payment in exchange. This is known as the surrender value of the insurance policy.
The cost of such a surrender is determined by the amount of premium paid against the policy by the insured.
Question 24: What are the Features of the Surrender Value?
Answer: The top five features of the surrender value are as follows:
- An insurance policy’s exchange value is its surrender value.
- The surrender value is a portion of the premium received.
- The value is determined by the payment period and the amount of premium received.
- If the insured does not pay a minimum two-year installment, the surrender value is not paid. And
- Endowment and lifetime insurance policies raise the issue of such payment.
Question 25: What is Mortality Table?
Answer: The mortality table is a table that contains the number of possible deaths per thousand in a given age group based on past statistics and experience.
This table has aided in the transition of the life insurance industry from traditional speculation to scientific accounting.
As a result, an insurer can learn about the potential mortality rate per thousand people of a certain age in a given area and proceed with the business plan by calculating the risk appropriately.
Question 26: What is Reinsurance?
Answer: A reinsurance arrangement is when an original insurer who has insured a risk insures a portion of that risk with a different insurer.
Re-insurance occurs when an insurer or insurance company entrusts a portion of the risk it has assumed to another insurance company through a special reinsurance agreement.
When an insurance company determines that the amount of risk it has assumed is excessive and that an unnatural level of risk poses a severe threat to its business, it enters into such an agreement with another insurance company. It transfers its accepted liability, or a portion of it, to the new insurer.
Question 27: What is Dual or Double Insurance?
Answer: Dual or Double insurance is when a single item is insured by more than one insurance company. Such insurance is used because it is risky to insure multiple valuable assets with a single insurance company in some cases.
Dual or Double Insurance is not applicable for life insurance.
For example, suppose a ship worth $200 Million is insured by a single company. That company goes bankrupt as a result of the ship’s total loss.
It can be insured in that case by dividing it among several insurance companies rather than insuring it with a single company. This is referred to as dual or double insurance.
Question 28: What are the Features of Dual or Double Insurance?
Answer: The top four features of dual or double insurance are as follows:
- The single content is insured with multiple insurance companies in this case.
- The purpose of dual or double insurance is to protect against the possibility of not receiving the sum assured.
- This is a type of insurance that is typically used for large amounts of money.
- In the case of partial losses, the proportional assistance principle is applicable.
Question 29: What are the Six Steps of Payment of a Claim after the Death of the Insured?
Answer: The six steps of payment of the claim after the death of the insured are as follows:
- Informing the death of insured
- Fill up the claim form
- Enclosing documents
- Submission of the evidence of the nominee
- Submission of succession certificate
- Payment of Claim
Question 30: What is the Process of Payment of a Claim in the Case of a Missing Person?
Answer: The claim can be delayed due to a lack of evidence regarding the death of the missing policyholder. There is no other option in this situation but to go to court.
Suppose a person has been missing for seven years or more. In that case, a family member can petition the court on the nominee’s behalf to have them declared dead.
If the court was satisfied with the police investigation report and thorough investigation into the missing person’s disappearance, the court declared the person dead.
Based on proper proof, the insurance claim is then paid to the nominee or heirs.
I hope that by the end of this post, you have a good understanding of the life insurance chapter. If you have any doubts or questions, don’t hesitate to contact us or leave a comment so that we can respond soon.
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- 25 Important Miscellaneous Insurance Questions and Answers [With PDF]
