Amity Campus

Uttar Pradesh
India 201303
ASSIGNMENTS
PROGRAM: BFIA
SEMESTER-VI
Subject Name
Study COUNTRY
Roll Number (Reg. No.)
Student Name

INSURANCE MANAGEMENT
SOMALIA LC
BFIA01512010-2013019
Mohamed Abdullahi Khalaf

INSTRUCTIONS
a) Students are required to submit all three assignment sets.
ASSIGNMENT
Assignment A
Assignment B
Assignment C

DETAILS
Five Subjective Questions
Three Subjective Questions + Case Study
Objective or one line Questions

MARKS
10
10
10

b)
c)
d)
e)

Total weight age given to these assignments is 30%. OR 30 Marks

All assignments are to be completed as typed in word/pdf.
All questions are required to be attempted.
All the three assignments are to be completed by due dates and
need to be submitted for evaluation by Amity University.
f) The students have to attach a scanned signature in the form.
Signature :
Date

05/05/2013

( ) Tick mark in front of the assignments submitted.

Assignment A

Assignment B

Assignment C

Page 2 of 22

INSURANCE MANAGEMENT (BFIA)

Assignment A
Q: 1).

What is risk and how risk is determined in life insurance?

Answer:
Risk is a condition whereby there is a possibility of loss occurring. In insurance the
subject matter insured is called the Risk.
In insurance, risk is the possibility of a loss or other adverse event that has the
potential to interfere with an organizations ability to fulfill its mandate, and for which
an insurance claim may be submitted.
Risk is the probability that a hazard will turn into a disaster. Vulnerability and
hazards are not dangerous, taken separately. But if they come together, they become a
risk or, in other words, the probability that a disaster will happen.
Nevertheless, risks can be reduced or managed. If we are careful about how we treat
the environment, and if we are aware of our weaknesses and vulnerabilities to existing
hazards, then we can take measures to make sure that hazards do not turn into
disasters.
There are two main components in the risk definition:
1) Uncertainty: it refers to a situation where an event may or may not happen.
For example: a building may or may not have a fire accidents.
2) Undesired Consequences: this refers to the negative results that may arise out
of an event, such as a fire accident which may result in damage to a property as
well as result in consequential loss of business due to stoppage of work.
Life insurance, like other types of insurance, is based on the concept of sharing risks.
In life insurance usually risk is determined by some factors, specially the factors
affecting mortality. The mortality is not the only risk but the capacity and willingness
of a person also influence the insurance decision. Besides mortality there are some
other factors which are needed in determination of risk in life insurance. They arehow long the customer keeps the policy, how efficient the company operates,
Investment, return of and on invested cash flows.
Q: 2).
What are the various assumptions underlying the calculation or
premium.
Answer:
A premium is a fee paid to the insurer to be covered under specified terms. It is two
types: net premium and gross premium. The net premium is based on the mortality
and interest rates whereas the gross premium depends upon the mortality rate, the
assumed interest rate, the expenses and the bonus loading.
Page 3 of 22

The various assumptions underlying the calculation of the premium are:

a) As many policies of given type are being issued as are the number of
persons.
b) Premiums are collected in advance or in the beginning of the period.
c) All collections are immediately invested and will remain invested until
money is needed for the payment of claims.
d) The insurer will receive an assumed rate of interest. The assumed rate
should be conservative to avoid future decline in interest rate.
e) The interest or dividend or any return of the invested funds is immediately
invested for re-earning.
f) Mortality rate will be the same as given in the mortality table and will be
uniformly distributed throughout the year.
g) All policies are of the same amount, say Rs. 1,000.
h) Claims will be paid only at the end of the period.
These assumptions may not be totally practicable, but they are taken as for making
calculation easy.
Q: 3).

How is reserve created and for what is it created?

Answer:
The reserve in life insurance is different from the reserve in other business. It is not an
accumulation of profit. In insurance, it is a liability which is to be met by the insurer
at and when it arises. It represents a liability which must be adequately met.
Definition: The reserve is that fund, which together with future premiums and
interest, will be sufficient to pay the future claims. This is called prospective definition
because here the future amounts are considered. Another definition of the reserve is
the retrospective definition under which the reserve is considered as the accumulation
at interest of the difference between the net premiums received in the past and the
claims paid out.
The reserve has nothing to do with an insurers actual past experience. It is always,
calculated on the assumption that experience has been in accordance with the
mortality table selected and interest rate assumed. However, the assumptions as to
future interest and mortality are made on a safe basis. It is, thus, clear that on each
policy a certain sum must be accumulated every day to be increased at an interest to
form fund to meet the future liability of the policy. This accumulation is called the
Reserve on the Policy.
Origin of Reserve
The reserve in any group of policies originates in the excess of premium receipts over
payment of claim. The premium receipts are more than the payments in the beginning
and less after a point. The excess receipts are accumulated at the assumed rate of
interest and build up the Reserve up to a point of time, the reserve grows,
particularly, because of such receipts. It is to be noted again here that the reserve is
Page 4 of 22

accumulated on the assumed mortality and interest. The reserve based on this
assumptions is compared to the funds based on the actual experience. The difference
may create surpluses, or deficit. As has been noted that the reserve accumulates at a
point and starts declining thereafter because of heavy mortality and receipts of
premium at the advanced age.
Sources of Reserve
1. Premium: The first and the foremost source of reserve is premium. It should be
noted that reserve is accumulated in level premium plan because the premium is more
the actual cost of insurance in the beginning. In other tow method of premium, reserve
cannot be accumulated. This is discussed as below:
(a) Assessment Premium Plan: The members of a group would, under this plan,
contribute to a fund which could be utilized in rendering assistance at the time of
death to the deceaseds deponents. The payment is made by contribution only at the
time of death. Therefore, there is no need to accumulate amount for payment of claim.
(b) Natural Premium Plan: Under this plan, the rate of premium will increase as the
insured grows older. It is based on the risk. Since, risk increases as the time passes,
the premium charged from the policy holder also increases. The premium increases
year after year with the increase in mortality rate and, so it is also called yearly
renewable premium plan. The reserve is not accumulated in this case, because
premium increases as the cost of insurance increases.
(c) Level Premium Plan: Here, the premiums to be paid are leveled so that usually
the same premiums are paid every year. The premiums in the early years are greater
than the actual cost (determined by the mortality rate) with the result that the excess
payments of premiums in the earlier years are accumulated as reserve which makes
up any deficiency out of lower premium in later years.
2. Interest: The second source of reserve is interest because the accumulated fund is
not remaining idle, it is invested. While calculating premium it was assumed that the
insurer will earn a certain rate of interest, so to earn at least that much of amount, the
accumulated funds have to be invested. The assumed rate of interest is the source of
reserve.
3. Nature of Policy: The reserve can be calculated only in those policies where

payment is not certain, reserve is generally not requiring. Thus amount of

reserve depends upon the duration of the policy and nature of the policy.
Q: 4).

What is fund and why the fund is invested?

Answer:

A premium is a fee paid to the insurer to be covered under specified terms.

Page 5 of 22

While calculating premium, it has been assumed that the accumulated premiums are
invested. The funds are invested to earn at least assumed rate of interest. The needs of
investment of funds are given here in brief.
NEEDS OF INVESTMENT
1. Payment of Claims: The first and most important obligation of the insurer is to pay
the amount of claims whenever they arise. For this, insurer is getting a substantial
amount in form of premiums and has to preserve them for payment later on, to keep
such amounts idle will be a failure on the part of the insurer who is expected to invest
them on behalf of the policy-holders.
2. To Avoid Financial Deficit: If funds are not invested, the total income of the
insurer will fall short of its requirement for meeting its commitments because a
particular rate of interest on its investments has been assumed while calculating the
rate or premium. Again, if funds are not invested and interest not earned, it would be
an under-estimation of its future liability which may prove disastrous at the time of
higher mortality.
3. National Interest: A huge fund of the society is taken by the insurers in form of
premiums. Therefore, it is essential for the insurers to invest the funds for the
economic development of the nation.
SOURCES OF FUNDS
The funds with the insurers are accumulated from the various sources, some of which
are given below:
(i) Premiums: The main source of funds is the premiums collected by the insurer. The
premiums may be single premium, level premiums or annuity considerations. The
excess of these premiums over the needed premiums for meeting claims and expenses
is the source of funds.
(ii) Interest: The second source of funds is the excess interest earned over the
assumed rate of interest. The assumed rates are lesser than the actual rate in most of
the cases. In reverse, the funds will decline.
(iii) Capital Gain: Funds obtained from the sale of share capital and debentures are
included under capital gains.
(iv) Savings in Expenses: Savings in expense loading, bonus loadings or mortality
savings are also contributing to the funds of the insurers.
(v) Non-Payment of Claims: In pure endowment or term insurance, the claims may
not arise, therefore, the premiums paid for such benefits are saved. Sometimes, in
certain cases, the claimants do not come for payment at all. Thus, saved money also
form part of the funds of insurers.

Page 6 of 22

Q: 5).
Explain in detail: (a) Proposal Form. (b) Medical Examination,
(c) Proof of age, and (d) Insurance of female lives.
Answer:
a) Proposal form- the first and important source of risk information is proposal form.
The proposer is ready to disclose all the material facts truly and fully. If any question
is not asked by the insurer, the proponent should reveal the information. Usually the
agents ask all the questions which are written in the proposal form. The proposal form
is of two parts- application form and personal statement. Application form includes
questions relating name, terms of insurance, sum to be assured, mode of premium
payment, date of birth, object of the insurance, name of the nominee, previous
insurance history, acceptance or rejection of proposal. Personal statement includes
name of the life to be assured, family history of father, mother, brother and sister in
connection with their death, illness and cause of death.
b) Medical examination- the medical examination has to identify the applicant to
avoid the case of impersonation. The knowledge of medical examiner to assured is also
required. Through the medical examination the examiner prepares a report. This
medical examiners report contains the information about measurement of height,
weight, condition of teeth, chest, heart, digesting power, nervous system operations
and other physical test of life.
c) Proof of age- To calculate the premium rate the most essential part is proof of age.
Unless age is proved the payment of claim is not made. Age must be admitted at the
time of proposal to avoid dispute. On the basis of age, in future, if a misstatement is
discovered after the policy has become a claim; the amount of the claim is adjusted In
accordance with the rectification of age. Age proof is essential at the proposal if the
policy is term insurance, non-medical policies and immediate annuity or the
insurance is taken at advance age or for a child.
d) Insurance of female lives- In the case of insurance, women have different needs to
men- as well as different roles in society, and different risk profiles. For this reason, a
range of insurance products have been created to meet the unique needs of female
policyholders. Women dont only face a very different set of life experiences to men, but
they also tend to play a very different role in society. This means that women often
need to focus on the needs of their families, and on their own needs, before they can
turn their attention to financial matters. Take pregnancy, for example. Between
staying healthy, going for regular check-ups, preparing for Babys arrival and actually
giving birth, do you really have time to worry about endless paperwork and policies.
Female lives will be classified into four categories such as women with earned income,
women with unearned income and women not covered by previous two categories.

Page 7 of 22

Assignment B
Q: 1).

What are the various factors affecting the calculation of premium.

Answer:
Insurance companies use different factors when determining premiums for a specific
type of insurance policy. This can include automobile insurance policies, health
insurance policies as well as a homeowners insurance policy. Many factors are similar
from one type of policy to another, however certain policies have special requirements
such as driving history and claims history that are factored into the premium.
The premium is two types: (1) Net Premium and (2) Gross Premium. The two
premiums are further sub-divided into two parts: (i) single premium, and (ii) level
premium. The net premium, is based on the mortality and interest rates whereas the
gross premium depends upon the mortality rate, the assumed interest rate, the
expenses and the bonus loading. Single premium is paid in one lump sum while the
level premium is paid periodically in instalments. The level premium may be yearly,
half-yearly quarterly and monthly. Firstly, net single premium is calculated and other
premiums are based on the calculation.
Q: 2).
Critically examine the various factors affecting risk. From where
this information of risk is obtained?
Answer:
There are various factors affecting the risks in insurance. In life insurance we can
focus on some important factors. These are age, build, physical condition, personal
history, family history, occupation, residence, personal habits, morals, race and
nationality, sex, economic status, defense service, plan of insurance etc. by focusing
on each of the factors very briefly we can critically examine the effect of these factors
in life insurance.
In life insurance, the factors which may affect the risk are usually those factors which
are affecting the mortality; they are also called factors affecting longevity of a person.
The mortality is not the only risk but the capacity and willingness of a person also
influence the insurance decision. These factors are discussed in following paragraphs:
1. Age: The age of the life to be assured is the most important factor to affect
mortality. Except for a few years of childhood, the premium is determined at every
year of the completion of age. The corporation asks for the age nearer to birthdays.
The person below six months and the person above six months older will be treated of
the same age. For instance, a person of 23 years 7 months and another person of 23
years 5 months will be treated the age of 23 years.
2. Build: Build refers to physique of proposed life and includes height, weight and the
distribution of weight and chest expansion. There are standards of weight according to
maximum weight reveal the indication of certain hidden diseases. Therefore this sign

Page 8 of 22

is not favourable. The relationship between height, weight, girth and expansion of
chest are the basic determinants of mortality expectations.
3. Physical Condition: The physical condition of the age life proposed has a direct
bearing on the mortality of the life. Insurer are, therefore, very particular about the
conditions of the applicants sight, hearing, heart, arteries, lungs, tonsils, teeth,
kidneys, nervous system, etc. The experts in the field can assess the longevity or
mortality of a person due to impairment of certain organs. The questions are also
designed to elicit information on the physic status of the applicant in proposal form.
The information is confirmed and supplemented by the medical examination. The
prime purpose of the medical examination is to detect any malfunctioning of the vital
organs of the body.
4. Personal History: The personal history of the life purposed would reveal the
possibility of death to him. The history may be connected with the (i) health record, (ii)
past habit, (iii) previous occupation, (iv) insurance history.
5. Family history: Like the personal history, family history also requires information
of habit, health, occupation and insurance of other family members, particulars of the
parents, brother and sisters. The childrens history of health is also required. The
certain diseases, like tuberculosis and insanity, etc., and longevity of the parents will
be relevant factors for determining the degree of risk of the proponents. The favourable
family history, however, is not considered for offsetting the adverse effect of the
personal history. The family history, is considered significant to know the
transmission of certain, characteristics by heredity, heart, lungs, build, etc., follow
family.
6. Occupation: Occupation is an important factor to affect the risk. It affects the
occupation in various ways. Firstly, the nature of work may be hazardous because he
may suffer an accident at any time while at work. Secondly, the morale of the workers
may go down. They may be tempted to indulge in intoxicating or liquor or forms of
immoral living. Thirdly, the chemical effect may be poisonous. For instance, the
workers may contact poison while engaged match or chemical factories. Fourthly, the
dusty or unventilated house, unhealthy or insanitary environments may deteriorate
the health of the workers. Fifthly, in certain occupation, the occupational diseases are
common. Sixthly, excessive mental and nervous strain may cause financial worries,
and lastly, the lesser income may affect the health of the worker.
7. Residence: The residence also affects the risk. The risk will be lesser in a good
climate area and more in a bad climate although the difference is narrowed down
because of better medical and sanitary facilities. Information about the previous
residence is equally important. The geographical location, atmosphere, political
stability, climate, construction of house, travel, etc., are important factor which may
affect the risk.
8. Present habits: The general mode of living of the proposer affects the risk.
Drunkards and non-temperate persons cause increase in mortality. Similarly,
temperate habits tend to increase longevity of a person. Excessive and careless
smoking tends to shorten the life due to development of nicotine poisoning. The past
Page 9 of 22

habits are also considered important. The intoxication affects the health of a person
and consequently his mortality. The general mode of living is also considered in
habits.
9. Morals: It has been observed that the departure from the commonly accepted
standards of ethical and moral conduct involve extra mortality. Infidelity and
departure from the code of sex behavior are seriously regarded because they may
affect the health. Unethical conduct is considered to be another form of moral hazard.
Insurance is not generally given bankrupt and reputed dishonest person.
10. Race and Nationality: The mortality are differs from race to race and nation to
nation. In India, person of high, race or caste are expected to live longer than the
scheduled caste or tribes. Similarly, countries near to equators have more mortality.
The climate and way of life of a country affects the health conditions of the people.
11. Sex: Mortality among female sex is, generally, higher than the male sex because
the physical hazard of maternity is present the former case. Moreover, the ladies are
physically more handicapped. The lesser education, conservatism and nonemployment of the ladies also affect the mortality. The absence of proper examination
of the ladies also count more hazard. The chances of moral hazard are also present in
the female insurance. So, unless woman has well financial for insurance, her proposal
not generally conceded.
12. Economic status: It is essential to examine that the family and business
circumstances of the proponents are such as to justify the amount of insurance
applied for. This investigation also reveals whether the income of the applicants bears
a reasonable relationship to amount of insurance which he proposes to carry. The
higher economy status generally a better field for insurance due to various reasons.
Educational, financial and professional consciousness make the proponent insurance
minded. The chances of death is also lower in higher strata of society.
13. Defense services: Though there has been much improvement in defense
technology, yet flying and gliding, etc., is still considered hazardous one. Sometimes,
certain restrictive clauses are imposed for insuring person engaged in such services.
In some other works, extra premiums are required. In commercial flying, no
occupational extra is required. The war clause is added to avoid the occupation risk in
defense, say, navy, air force and military.
14. Plan of insurance: Certain plans involve more responsibility to the insurer at
death and so these plans are restricted to only first class lives. Similarly, some plans
have lesser risk and therefore, can be issued without any extra investigations. For
example, the multi-purpose policy is issued only to first class lives and the pure
endowment policy can be issued to any one irrespective of health.
The mortality rate differs from race to race and nation to nation. The climate and way
of life of a country affect the health condition of the people.
There are also some factors affecting the risks of life insurance such as economic
status, defense service Personal and plan of insurance etc.
Page 10 of 22

Risk Information is obtained from various sources because it is not possible to get all
information from one source. Moreover, information from various sources on a
particular item will provide an effective check. The following are risk information
sources:
Information on the factors affecting risk is collected before it can be evaluated to
determine the degree of risk. It is collected from various sources because it is not
possible to get all information from one source. Moreover, information from various
sources on a particular item will provide an effective check.
1. The proposal form: The first and important source of risk information is
application form. The proposer is required to disclose all the material facts truly and
fully. If any information is not asked by the insurer, the proponent should reveal the
information if he thinks it to be material. Usually, the agent asks all the questions
which are written in proposal form.
The proposal form is divided into two parts.
(i) Application form; and
(ii) Personal Statement.
The application includes questions pertaining to home, address, term of insurance,
sum to be assured, mode of payment, date of birth, object of insurance, name of the
nominee, previous insurance history, acceptance or rejection of the proposal,
engagement in navy, air force and military services or the intention to engaged in
these services. Double accident benefit is sought or not. There are some additional
questions to be answered by formal proposers, which are about education, their
income, income occupation and insurance of husband. There is declaration in the end
of the form which the basis of contracts between the insured and the insurer.
Part II of the proposal form is called personal statement which is filled by (1) either the
life to be assured, or (ii) the agent of development officer, writing at the dictation of the
life to be assured. This statement mentions name of the life to be assured, family
history of father, mother, brothers and sisters in connection with their health and
illness and cause of death. Questions about the bodily impairments, serious disease,
habits, operation, accident or injury. There are special questions for such as observing
of predate, conceptions, miscarriages and abortion for female proposers. Declaration of
the proposer is also essential.
In non-medical proposals some detail information is also required. Name and address
of family physician, absent on ground of ill-health, height, weight, name and address
of present and previous employers and declaration.
The proposal form gives all the required information of risk. Different types of proposal
forms are used for different policies.
2. Medical Examiners Report: The medical examiner has to identify the applicant to
avoid the case of impersonation. The knowledge of medical examiner to the assured is
Page 11 of 22

also required. General appearance is an important question where proposals apparent

age, general health, habit, vaccination, deformity are asked. Measurement of height,
weight, condition of teeth, gums, ears, chest, heart, digestive tract, gentito-urinary
system, nervous system operations and other details, etc. are inquired by physical test
of the life to be assured. There are special questions for female proposers. Opinions of
the medical examiner for the longevity, suspected health, first class lives, etc., are
required. He has to declare that the findings are true and correct.
The information given by the medical examiner is deemed to be correct and it is
expected that the medical examiner would give true picture; but certain cases in India
have revealed that the reports of medical examiner are not hundred percent reliable.
Therefore, underwriting officers at divisional or zonal office are required to go into
details suspected cases because once proposal has been accepted it cannot be
repudiated on the ground of wrong medical reports.
3. Agents Report: Although agents has to pursue or canvass a lot for getting
proposal. Yet he is required to state whether the life to be assured, is insurable or not.
He has finish information of sum assured, name, acquaintances with the proposer,
time and place of first introduction, identity of the life, medical examiners name and
address, monthly income and occupation of the proposer, general state of health,
relationship with the agent, etc. The agent has also to disclose the financial and social
position of the proposer. The agent is required to disclose all the unfavorable
information of the life proposed. The agents report can be of great value to the
underwriting department because he has personal acquaintance with the life proposed
and can give a full and correct information of all the factors affecting the risk.
Insurers do not place too much reliance of the agents certificate e because, he, in his
zeal to increase his commission, might tend to colour his judgment. The comparison of
agents reports with information of other sources may reveal the fair or unfair reports
of the agent. In case of wrong information of material facts, his license may be
cancelled.
4. The inspection report: The insurer generally verify the information obtained by an
independent agency. Sometimes this investigation is conducted without the knowledge
of the applicant. Today, insurer have their own inspection staff who are generally
known as inspectors or field officers or development officers. When the amount of
insurance is not large, the inspectors make a general inquiry but when the amount is
substantial, a deep and thorough inquiry of habits, character, social condition,
occupation and health is required. In this case, the inspector interviews the
applicants neighbours, employers, bankers, business associates and other who have
had special information pertaining to business, personal ethics, temperate habit,
social behavior and health.
The main advantage of this source is that the inspectors provide fair and frank
information because they have no interest in the outcome of the case.
5. Private Friends Reports: The information from private friends is not generally
required. But for some checking purposes, confidential reports of the friends of the
proposer are considered. They are requested to reply those questions which are
Page 12 of 22

generally asked in agents report. Since friends are fully aware of the personal and
private life of the proposer, they can give better information than the agents. But
naturally the real friends does not want to harm his friend. So friends report may not
always correct.
6. Attending physicians: The attending or family physicians can give better records
of health, history of the proposed life and his family. It has been revealed that the
family physicians have given true and fair reports of the required information by the
insurers. The family physicians give the information only after charging a certain
amount of fees.
7. Medical Information Bureau: The organization commonly known as MIB is an
effective bureau for furnishing confidential medical reports. This bureau is common in
U.S.A, but in India such bureau has not started. The insurer are members of this
bureau and pay a certain fee annually. Sometimes they are required to pay
commission for furnishing information. The MIB has recorded sufficient information os
reputed and distinguished persons so the bureau is competent enough to report
adequate and fair information.
8. Neighbours and Business Associates: Confidential reports about the applicant can
be easily obtained from the neighbours and business associates although it may be
prejudice to the extent of friendship or enmity with the proposer. The obtained
information can be tallied with other information.
9. Commercial Credit Investigation Bureau: The bureau assembles financial and
social information of businessmen. The credit worthiness is decided by the Bureau.
The information given by the Bureau is treated confidential. These reports are
expected to be correct and fair to greater extent.
Q: 3).

Give the various solutions of the problems of investment

Answer:
While investing the funds, the insurer will have to face various problems, some of
which are given in the following sections:
1) The main problem of investment is to preserve the interest of the policy-holders.
The insurer keeps the money of the policy-holders as a trust money. To maintain the
trusteeship it is essential that the fund must be invested in such securities which are
sage and secured.
2) The payment of the claim amount is the second problem of the life insurer. The
insurer must have sufficient funds to pay the claims. So, the interest earned from the
investment must be adequate enough.
3) The assets of the insurer should be protected from any elements of fluctuations.
Therefore, the insurer must earn sufficient amount to pay its expenses. Moreover, the
earning should be constant and the market price of the securities must not fall
considerably.
Page 13 of 22

4) There should be complete good faith of the public in the insurers management of
funds. In case of doubtful investment the purpose of public may be defeated. The
insurer, therefore, may be loosing its business in future.
5) A great care has to be taken while selecting suitable channels of investment. The
principles of investment should be followed to a considerable extent. Investment
should be such that profit thereon should be followed to a considerable extent.
Investment should be such that profit thereon should be maximum without
hampering safety and marketability.

Page 14 of 22

CASE STUDY
1. Calculate the value of an anticipated endowment assurance for a person aged 25
with the following benefits.
(i)
A sum of Rs.100 at the end of 2nd year.
PV = Sum[(1+r)^n -1/r]
= 100[(1.05)^2 -1]/0.05 = Rs 205
(ii)

A sum of Rs.200 at the end of 3rd year

PV = 200[(1.05)^3 -1]/0.05 = Rs 315.25
(iii) A sum of Rs.300 at the end of 5th year if the life assured is alive at the end
of respective years.
PV = 300[(1.05)^5 -1]/0.05 = Rs 1657.689
iv A sum of Rs.600 whenever the dies during the 5 years period
PV = 600[(1.05)^5 -1] /0.05 = Rs 3315.379
Use the data given above with 5 percent rate of interest
2. Calculate on the basis of mortality table given below, net annual premium at 5%
rate of interest for a 5 years Term Insurance for Rs.1,000 effective at the age of 60
years.
Age
60
61
62
63
64
65

Number living
1000
980
958
933
900
860

Number Dying
20
22
25
33
40
45

Mortality rate per1000

20
22.45
26.1
25.37
44.44
52.33

Total pv of all claims = Rs190.69

Premium per policy = 190.69/1000 = Rs 0.19069

Page 15 of 22

Assignment C
Q: 1).
a)
b)
c)
d)
Q: 2).
a)
b)
c)
d)
Q: 3).
a)
b)
c)
d)
Q: 4).
a)
b)
c)
d)

Risk is the possibility of an unfortunate _______________

Recurrence
Occurrence ()
Event
None of the above
Risk is a combination of ____________.
Events
Losses
Hazards ()
Doubts
Certainty is a state of being Free from ___________.
Touts
Doubts ()
Hazards
Loss
Risk gives rise to ________.
Clarity
Certainty
Uncertainty ()
Doubt

Q: 5).
__________ is a condition in which there is a possibility of an adverse
deviation from a desired outcome that is expected or hoped for.
a)
b)
c)
d)

Risk ()
Certainty
Uncertainty
Doubt

Q: 6).
________ is defined as the relative variation of actual loss from
expected loss.
a)
b)
c)
d)

Subjective risk
Risk
Objective Risk ()
None of the above

Page 16 of 22

Q: 7).
________ is defined as uncertainty based on a persons mental
condition or state of mind.
a)
b)
c)
d)

Subjective risk ()
Risk
Objective Risk
None of the above

Q: 8).
_________ refers to the long run relative frequency of an event based
on the assumptions of an infinite number of observations and of no change in
the underlying conditions.
a)
b)
c)
d)

Objective probability ()
Subjective Probability
Probability
Chance

Q: 9).
a)
b)
c)
d)

_________ is the individuals personal estimate of the chance of loss

Objective probability
Subjective Probability ()
Probability
Chance

Q: 10).
a)
b)
c)
d)

A peril refers to cause of ______ or ________ that may cause a loss.

Loss, contingency ()
Doubt, contingency
Loss, doubt
Doubt, hazard

Q: 11). Risk is a condition in which there is a possibility of _______ from a

_______ that is expected or hoped for.
a)
b)
c)
d)

Desired outcome, adverse deviation

Adverse deviation, desired outcome ()
No outcome, deviation
Exposure, Outcome

Q: 12).
a)
b)
c)
d)

Two aspects of probability are _________ and ____________.

Objective, financial
Subjective, financial
Objective, subjective ()
None of the above

Page 17 of 22

Q: 13).
a)
b)
c)
d)

Dynamic risks are those resulting from ________ in the ____________.

Change, economy ()
Change, financial position
Finalization, business
None of the above

Q: 14). A fundamental risk is a risk that affects the entire _______ or large
number of ___________.
a)
b)
c)
d)

Organization, members
Country, citizens ()
Business, employees
Economy, persons

Q: 15).
a)
b)
c)
d)

Temporary
Permanent
Feedback ()
Revert back

Q: 16).
I.
II.
III.
IV.
V.
a)
b)
c)
d)

a)
b)
c)
d)

Hazards can be classified as follows:Physical

Morale
Financial
Monetary
Moral

i, ii and iii
ii, iii and iv
iii, iv and v
i, ii and v ()

Q: 17).
I.
II.
III.
IV.
V.
VI.

Actuarial modeling involves a ____________ mechanism.

Certification of risk include:

Financial and non financial risk

Objective and subjective risk
Static and dynamic risk
Acceptable and unacceptable risk
Fundamental and particular risk
Pure and speculative risks
All of the above ()
i,iii,iv,v,vi
i,ii,iii,iv,v
i, ii,iii,iv,vi
Page 18 of 22

Q: 18).
I.
II.
III.
IV.
V.
a)
b)
c)
d)

Risk
Risk
Risk
Risk
Risk

a)
b)
c)
d)

a)
b)
c)
d)

the possibility of an unfortunate occurrence

a combination of hazards
predictable
certainty of loss
possibility of loss

Pure risks include:

Personal risks
Fundamental risks
Property risks
Liability risks
Technological risks
i, ii and iii
i, iii and iv ()
ii, iv and v
ii, iii,and v

Q: 20).
I.
II.
III.
IV.
V.

is
is
is
is
is

All of the above ()

i, ii, and iv
ii, iii and v
i,ii and v

Q: 19).
I.
II.
III.
IV.
V.

which of the statements are true:

Personal risks include:

Risk
Risk
Risk
Risk
Risk

of
of
of
of
of

premature death
property
insufficient income during retirement
poor health
unemployment

All of the above

i, iii, iv and v ()
ii, iii, iv and v
None of the above

Q: 21). Insurance is defined as a co-operative device to ______ the loss

caused by a particular risk over a number of persons who are exposed to it
and who agree to ensure themselves against that risk.
a)
b)
c)
d)

Reduce
Stop
Spread ()
Divide

Page 19 of 22

Q: 22).

Risk is uncertainty of a financial loss.

a) True
b) False ()
Q: 23).
a)
b)
c)
d)

Personal
Public
Registered ()
Mortgaged

Q: 24).
a)
b)
c)
d)

The business can obtain loan by _______ the policy.

Hedging
Pledging ()
Lending
None of the above

Q: 27).
a)
b)
c)
d)

Insurance policies are _______ from tax.

Subtracted
Deducted
Adjusted
Exempted ()

Q: 26).
a)
b)
c)
d)

Insurance eliminates_______

Fear ()
Dependency
Protection
Capital

Q: 25).
a)
b)
c)
d)

Insurance protects ______ property.

Insurance may provide __________ Indemnification to business.

Keyman ()
Lockman
Chairman
None of the above

Q: 28). ______ was made to provide workers and their families, working in
the industries located in certain notified areas.
a)
b)
c)
d)

Motor vehicle act, 1988

Public liability act, 1991
Workman compensation act, 1923
Employee state insurance act, 1948 ()

Page 20 of 22

Q: 29). _______ made the liability of the employer fixed and he is now
required by law to pay compensation to victims of accidents while on duty.
a)
b)
c)
d)

Employee state insurance act, 1948

Public liability act, 1991
Workman compensation act, 1923 ()
Motor vehicle act, 1988

Q: 30). As per _______ no uninsured vehicle is allowed to ply the roads in

any public place in India.
a)
b)
c)
d)

Employee state insurance act, 1948

Public liability act, 1991
Workman compensation act, 1923
Motor vehicle act, 1988 ()

Q: 31). A contract of ________ means the insured must accept the entire
contract with all of its items and conditions
a)
b)
c)
d)

Peril
Bailment
Adhesion ()
Indemnity

Q: 32).
a)
b)
c)
d)

Insurance
Faith ()
Control
Protection

Q: 33).
a)
b)
c)
d)

Principal of Uberrima Fides or Utmost good ______.

Rescission is an agreement by both parties to _________ a contract.

End ()
Start
Carry forward
None of the above

Q: 34). A condition precedent is something that must be done by one party

to ______ the other parties duty to perform.
a)
b)
c)
d)

Deactivate
Activate ()
End
Terminate

Page 21 of 22

Q: 35). Majority of products and services are produced only if _______ is

available to them.
a)
b)
c)
d)

Marine Insurance ()
Fire Insurance
Theft Insurance
Liability Insurance

Q: 36).
a)
b)
c)
d)

IRDP stands for:

Integrated Rural Development Programme ()
International Rural Development Programme
Indian Rural Development Programme
None of the above

Q: 37). ________ Insurance is offered through some form of government,

usually on a compulsory basis.
a)
b)
c)
d)

Private
Public ()
Social
Personal

Q: 38). The increase in GDP is positively co related with the growth of trade
and commerce in the economy.
a) False
b) True ()
Q: 39).
a)
b)
c)
d)

Objective, subjective
Functional, contractual ()
Ancient, modern
None of the above

Q: 40).
a)
b)
c)
d)

The definition of insurance can be ____________ and ______________

Insurance provides _______ of payment against the _______ of loss.

Uncertainty, certainty
Certainty, uncertainty ()
Option, certainty
Option, uncertainty

Page 22 of 22