Guide for Applications of Life Insurance - IC 23

Key for Associateship Examination

Guide for
Applications of
Life Insurance
(Paper No. IC-23)

Authored by:
Dr. Rakesh Agarwal
M.Com(BIM),L.L.B, PGJMC, M.B.A, F.C.A.,DISA,F.I.I.I, Ph.D
Editor
The Insurance Times

Published By :
The Insurance Times
The First monthly Journal on Insurance in India in service
since 1981

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G
©
Dr Rakesh Agarwal, Kolkata
1st Edition July 2017
2nd Edition November 2018
3rd Edition January 2019

ISBN : 978-93-81489-41-3
Cost : ` 1500 - Self Learning Kit
MCQ Guide, Ebook, and Online Mock Test
All Rights reserved by the publishers. No part of this
publication can be published or reproduced in any form, by
shuffling of questions, remodelling of questions or by any
means i.e., electronic, mechanical, including photocopying
without the prior permission of the publishers.
Every effort has been made to avoid errors or omissions in
this publication. This is a guide book prepared on the basis
of syllabus of Insurance Institute of India for Associate Exam
to assist candidates to pass in exam successfully. We have
covered the excerpts from IC23 book of III, highlighing the
important points. The copyright of this material rests with
Insurance Institute of India.
The publishers will not be responsible for loss or damage due
to errors in this publication. Any error, mistake may be brought
to our notice, which shall be taken care in the next edition.
All disputes subject to Kolkata Jurisdiction.
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 Guide for Applications of Life Insurance - IC 23

Preface

We are happy to launch the 3rd Edition of Guide for

Applications of Life Insurance (IC 23).

Recently III has revised the syllabus and now all the
papers will be in Multiple Choice format.

W e have covered thoroughly the whole syllabus

prescribed by I.I.I and the questions and answers are
given based on each chapter. The book has been
prepared carefully to cover almost all types of questions
that can be asked in exam.

We hope the candidates will find this book very useful

in preparing for the examination. Please do go through
the tips given in this book for clearing the exam
successfully.

We are thankful to Shyam Agarwal, Associate Editor, The

Insurance Times and Dr Abhijeet Chattoraj, Editorial
Advisory Board, Member, The Insurance Times for
valuable inputs in the book and for his untiring effort in
preparation of the guide.

Though we have tried to make this publication error

free, if you come across any error please email/fax us
so that we can correct the same in next edition.

We wish you best of luck for the examination.

- Editor in Chief,
R. G. Agarwala
The Insurance Times

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Tips for passing the exam successfully

1. Plan out your study programme in advance so

that you do not leave any important topic.

2. We have covered questions in various pattern

and options so that the concept of subject is
clear to the candidates. Since the questions may
be twisted in the exam it is not advisable to
mug up the questions.

3. Before appearing in the examination try to solve

questions in exam conditions by setting up time
and solving the questions as if appearing in exam.

4. Do not consult too many things at a time

otherwise you will confuse everything. Go step
by step.

5. When you view the question paper in the exam

do not try to read all questions instantly as it will
waste your time and if you don't know answers
of some question you will get tensed.

6. Read and read carefully before answering any

question as the question might have been
twisted.

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 Guide for Applications of Life Insurance - IC 23

7. Before deciding the answer give stress on the

logic and you will get the correct answer.

8. Always keep some time to review the paper.

9. Once you complete reading a chapter in book,

attempt for online mock test. If you do not score
well again go to the chapter and study again
and reattempt the questions until you get good
marks.

10. In the new pattern of questions the questions

are large so before answering read questions
very carefully. A single not or negative or positive
construction may change the answer, so check
whether question is asking in affirmative or
negative.

11. When you receive the question paper first

answer the questions in which you are confident.
Say you know 40 out of 100 question then
answer them so that you are confident of
securing this mark. After this you again start
from beginning and read question twice/thrice if
you have confusion.

12. As more and more exams are being conducted

in MCQ pattern the level of difficulty is

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increasing. A new trend has started where you

may find that most answers are right. Out of
this you will have to select the best option which
best resembles the question.

13. Adopt Elimination technique. For example out of

5 option first try to figure out the option which
is absolutely wrong. So go on eliminating the
wrong options to arrive at the correct option.

14. Don't leave any question unanswered. Since

there is no negative marking attempt all the
questions. Try to arrive at the most likely
answer.

15. In many questions you will find the answer All

above. Most likely in such type of questions the
answer will be All the above. But again exercise
caution become they may intentionally give this
option to confuse you.

16. Do not leave any chapter. Focus on all chapters

equally. MCQ questions are set from a pool of
questions. At times it happens that from a
particular chapter many questions are set. You
leave any chapter at your sole risk.

17. Along with this guide study the Ebook given

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 Guide for Applications of Life Insurance - IC 23

along with this book including the Online Mock

Test for assessing your preparation.

18. Relax, relax and relax while answering. Avoid

anxiety. If you will take strain then chances are
that you may answer incorrectly even the
questions you know.

19. Well we wish you Best of Luck for the exam

and hope you clear the paper in the coming
attempt.

— l —

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Contents

Application of Life Insurance

Highlights 11

MCQ Questions & Answers

Chapter -1
Financial Planning and
Life Insurance 100

Chapter -2
Life Insurance Planning 121

Chapter -3
Health Policies 156

Chapter -4
Pension and Annuities 182

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 Guide for Applications of Life Insurance - IC 23

Chapter -5
Takaful (Islamic Insurance) 232

Chapter -6
Reinsurance 270

Chapter -7
Tax Law and Life Insurance 305

Chapter -8
Life Insurance -
Claims Management 324

Answers for all Chapters 350

Additional Questions for Study 367

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 Guide for Applications of Life Insurance - IC 23

Application of Life Insurance

Highlights

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Chapter-1
Financial Planning and Life
Insurance
Financial planning pertains to direction. Financial
planning helps in identifying the direction in which our
financial life is going and the achievement made in
achieving our financial goals.

This chapter covers the concept of financial planning,

components of financial planning and the process of
financial planning. It also covers Risk Management
and the role of insurance in risk management.

1. Financial planning basics

Financial planning is utmost important at every
stage of our life. Starting from childhood, the
coins that go in the piggy bank helps child to
understand the habit of saving and know about
the value of money. Important aspects of
financial planning includes control over
expenses, saving money and investing for future
needs.We must first identify the goals that we
wants to achieve.

Financial Planning has 3 components:-

Financial Resources

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 Guide for Applications of Life Insurance - IC 23

Financial Tools
FInancial Goals

Stages of our life

The various stages of life are as follows
a) Initial stage
This is the stage when one starts earning and
intends to settle down

b) Prime earning stage

In this stage, earnings increase but expenses
also rise nearly as fast as one's income. The
various financial needs of this stage are:
i. Educational needs of children
ii. Buying/renovating the house
iii. Protection against life risks
iv. Planning for retired life

c) Pre-retirement stage
u Maintain the standard of living
u Higher education of children
u Marriage of children
u Care of old parents
u Health related issues
u Tax minimisation
u Asset accumulation

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u Fine tuning of financial plans to take care of

shortfalls

d) Post-retirement stage
u Health care needs for self and spouse
u Estate planning

2. Financial planning process

The Financial planning process consists of the
following six steps
u Gathering financial information
u Identification of financial goals
u Analysing financial preferences
u Developing a financial plan
u Implementing the financial plan
u Monitoring the financial plan

3. Financial Planner
Financial planner is mentioned in step four of the
financial planning process. He is the person who
develops the financial plan for the client. Similar
to a lawyer diagnosing and suggesting ways for
our legal problems, a financial planner diagnoses
and solves the financial problems. He is a
professional who helps people to deal with
various personal financial issues through proper

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 Guide for Applications of Life Insurance - IC 23

and systematic planning. The job of a financial

planner is to prepare a financial plan as per the
needs of the client and present a detailed
strategy, for meeting the goals of the client.
4. Key areas of financial planning
The key areas of personal financial

Key areas of financial planning

Insurance Investment Tax Retirement Estate

Planning Planning Planning Planning Planning

Risk Management
Risk management is the process of identifying,
assessing and controlling threats to an organization's
capital and earnings. These threats, or risks, could
stem from a wide variety of sources, including
financial uncertainty, legal liabilities, strategic
management errors, accidents and natural disasters.

1. Risk Management Process

Here a systematic process is followed whereby
the risks with the greatest loss and the highest
probability of occurring are handled first, and
risks with lower probability of occurrence and
lower loss are taken careoff later.

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Answers - Chapter 1 21. e. All of the above.

22. b. Individual factors like
Financial Planning and robbery
Life Insurance 23. a. Particular
24. e. Dynamic
1. b. Collecting coins in
25. e. Only a, b and c
piggy bank
26. d. Only a and b
2. d. All of the above
27. c. 3
3. d. All of the above
28. d. Direct
4. e. All of the above
29. e. All of the above
5. c. Educational needs of
30. e. Only a and b
children.
31. a. Direct loss
6. e. All of the above
32. b. Liability risk
7. d. All of the above
33. b. V, II, I, III, IV
8. a. Increasing life
34. a. Identification and
expectancy
assessment
9. a. I, II, III, IV, V, VI
35. e. All of the above
10. e. Only a and b
36. c. Risk avoidance
11. d. All of the above
37. c. This involves
12. d. All of the above.
accepting the loss
13. b. This is the
when it occurs.
implementation stage.
38. a. Risk reduction
14. a. Implementing the
39. e. All of the above.
financial plan
40. d. All of the above.
15. c. One should always
41. d. Implementation
maintain a high
42. a. Initial risk management
standard of living and
plans will never be
accordingly plan his
perfect.
finance.
43. a. Personal risk
16. e. All of the above
44. d. All of the above.
17. d. Liquidating all existing
45. d. Insurer
assets and cleaning
46. b. Policyholder
outstanding debt
47. c. Premiums
18. e. All of the above
48. e. Policy
except d
49. c. Both a and b
19. d. All of the above
50. e. All of the above
20. b. Spectacular
51. a. Insurance

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 Guide for Applications of Life Insurance - IC 23
52. e. All of the above 7. e. Only a and b
53. a. Insurable interest 8. e. All of the above
54. d. All of the above 9. a. Planning for current
55. c. Age needs
56. e. All of the above 10. e. All of the above
57. a. Rs 37, 50, 000 11. b. Protection for family
58. a. Insurable interest is not 12. a. Increases
required to buy Life 13. d. All of the above
Insurance 14. e. All of the above
59. c. Once implemented it is 15. d. The Life Insurance
permanent in nature investment does not
60. d. All of the above have variety of
e. Only b and c products for life
61. c. Statement 1 is true and stages.
2 is false 16. b. I - c, II - b, III - a
62. b. Consequential loss 17. c. Pension plans
18. e. Only a and b
63. a. The cost of 19. a. Security
transferring the risk is 20. d. IRDAI
equal to or greater 21. e. Annual
than the loss 22. b. Insurance plans does
associated with the not provide attractive
risk tax benefits at the time
of exit
23. c. Doesn't fall
Answers - Chapter 2
24. a. Long term disability
insurance
Life Insurance Planning
25. e. All of the above
Set - I 26. a. They offer survival
benefits
1. e. All of the above
27. b. Slightly higher than
2. e. Only a and b
28. d. All of the above
3. e. All of the above
29. a. Money back
4. a. Financial obligations
30. d. Never
5. d. Capital retention
31. d. Unit link life insurance
6. c. Financial obligations +
32. e. Annuities
Assets = Needed
33. e. Only a and b
Insurance

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