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IN IC 67 – MARINE INSURANCE

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

PRACTICE TEST 2

Question1 What is the basis of valuation in the case of package policy for rubber estates?
(a) Invoice value plus 7%
(b) Invoice value plus 10%
(c) Invoice value minus 10%
(d) Market value less unincurred expenses
(e) Market value less incurred expenses

Correct Answer Invoice value plus 10%

Answer Explanation Basis of valuation for package policy for rubber estates is invoice value plus 10%

Question2 __________ is not a policy, but is an agreement, whereby the insurer undertakes to insure
all shipments declared by the insured.
(a) Under Deck Warranty
(b) Specific Policy
(c) Open Cover
(d) Exports incentive insurance
(e) Multi Transit Policy

Correct Answer Open Cover

Answer Explanation Open Cover is not a policy, but is an agreement, whereby the insurer undertakes to insure
all shipments declared by the insured.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question3 In respect of marine claims arising and payable outside India, they are adjusted and settled
by _______ .
(a) Claim Settling Agents
(b) Insurance Brokers
(c) Lloyd's Agents
(d) The insurance company on behalf of the insured
(e) The insured himself

Correct Answer Claim Settling Agents

Answer Explanation In respect of marine claims arising and payable outside India, they are adjusted and settled
by Claim Settling Agents.

Question4 Which organisation provides an authentication service for trade finance documentation?
(a) IRDA
(b) IUMI
(c) GIC Re
(d) IUMI
(e) IMB

Correct Answer IMB

Answer Explanation The International Maritime Bureau (IMB) provides an authentication service for trade
finance documentation.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question5 Insurance is purchased to _____.

(a) Lower tax liability
(b) Obtain financial security
(c) Invest money
(d) Place a bet
(e) All of the above

Correct Answer Obtain financial security

Answer Explanation The main objective of insurance is to get financial security from losses which are insurable.

Question6 Which vessel is best suited to carry cargo like oil?

(a) Dredgers
(b) Lighter Abroad Ship
(c) Barge carrier
(d) Liquid bulk carrier
(e) Dry bulk carrier

Correct Answer Liquid bulk carrier

Answer Explanation A Liquid bulk carrier is best suited to carry cargo like oil.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question7 In ________ , an importer pays a fraction of the total amount of the items to be imported
in advance.
(a) Cash in advance
(b) Consignment purchase
(c) Open account
(d) CIF shipments
(e) Down payment

Correct Answer Down payment

Answer Explanation In the method of down payment, an importer pays a fraction of the total amount for the
items to be imported in advance.

Question8 Which type of cargo vessels loads at an advertised berth and runs to an advertised
schedule between her home port and her overseas terminus, calling en route at a varying
number of ports according to a particular service in which she is engaged?
(a) Tramps
(b) RO-RO vessels
(c) Cargo liners
(d) FOC vessels
(e) Chartered vessel

Correct Answer Cargo liners

Answer Explanation A Cargo Liner loads at an advertised berth and runs to an advertised schedule between her
home port and her overseas terminus, calling en route at a varying number of ports
according to a particular service in which she is engaged.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question9 ______ of the Marine Insurance Act, 1967 states that an insurer under a contract of marine
insurance has an insurable interest in his risk and may reinsure in respect of it.
(a) Section 5
(b) Section 7
(c) Section 8
(d) Section 9
(e) Section 11

Correct Answer Section 9

Answer Explanation

Question10 What is / are the reasons for losses in transportation of cargo?

(a) Handling and stowage losses
(b) Water damage
(c) Maritime perils
(d) Theft, pilferage and non-delivery
(e) All of the above

Correct Answer All of the above

Answer Explanation

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question11 What is the time limit for initiating legal action against ocean carriers in the event of loss or
damage to goods?
(a) Within six months after delivery of goods or the date when the goods should have been
delivered
(b) Within one year after delivery of goods or the date when the goods should have been
delivered
(c) Within two years after delivery of goods or the date when the goods should have been
delivered
(d) Within three years after delivery of goods or the date when the goods should have been
delivered
(e) Within five years after delivery of goods or the date when the goods should have been
delivered

Correct Answer Within one year after delivery of goods or the date when the goods should have been
delivered
Answer Explanation Legal action against ocean carriers in the event of loss or damage to goods can be brought
within one year after delivery of goods or the date when the goods should have been
delivered.

Question12 What is the restricted age limits for tankers, up to which underwriters will charge regular
premium for providing them with insurance cover?
(a) 2.5 years
(b) 5 years
(c) 10 years
(d) 15 years
(e) 25 years

Correct Answer 10 years

Answer Explanation The restricted age limits for tankers is 10 years, beyond which underwriters will charge
additional premium for acceptance of risk.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question13 How much will be the stamp duty payable for a cargo policy for voyage other than sea
voyage and where the sum insured is Rs. 2000 ?
(a) 10 paise
(b) 25 paise
(c) 50 paise
(d) 75 paise
(e) Re. 1

Correct Answer 25 paise

Answer Explanation A marine cargo policy should be stamped as per the Indian Stamp Act 1899.
For voyage other than sea voyage (i.e. transit by rail, road or air) -
1. 25 paise when the sum insured is Rs. 5000 or less
2. 50 paise when the sum insured is over Rs. 5000

Question14 The Cargo ISM Endorsement is about the safety aspect to be compulsorily complied with
by, among others, cargo ships of _____ or more.
(a) 1000 Gross Ton (GT)
(b) 800 Gross Ton (GT)
(c) 500 Gross Ton (GT)
(d) 300 Gross Ton (GT)
(e) 250 Gross Ton (GT)

Correct Answer 500 Gross Ton (GT)

Answer Explanation Applicable with effect from 1 July 2002 to shipments on board all other cargo ships and
mobile offshore drilling units of 500 gross tonnage or more.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question15 Which international policy is taken mainly for commodity trade where sales on high seas is
very common?
(a) Buyers contingency insurance
(b) Freight contingency insurance
(c) Floating policy
(d) Sales turnover insurance
(e) Increased value insurance

Correct Answer Increased value insurance

Answer Explanation When during the voyage, the high seas sales take place and with successive sales, if the
price of the commodity increases, the purchaser takes policy for difference in the value i.e.
his purchase price and the amount of insurance policy assigned to him.
In case of loss or damage, the final buyer will claim under all assigned policies and policy
taken by him independently, if any.

Question16 What is specified in Institute warranties?

(a) Classification requirements for the insured ship
(b) Registration warranty for fishing vessels
(c) Insurance requirements for the insured ship
(d) Lay-up requirements for the ship which is insured
(e) Limitations on the navigational limits for the insured ship

Correct Answer Classification requirements for the insured ship

Answer Explanation Institute warranties specify classification requirements for the insured ship with a
Classification Society which is a Member or Associate Member of International Association
of Classification Society or a National Flag Society.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question17 Assembling of one or more packages or items into a compact load, secured together and
provided with skids for easy handling. What is this process known as?
(a) Palletizing
(b) Shipping
(c) Unitising
(d) Containerization
(e) Bailing

Correct Answer Unitising

Answer Explanation Unitising is the assembling of one or more packages or items into a compact load, secured
together and provided with skids for easy handling. This method has various advantages in
cargo transportation.

Question18 A documentary credit is a signed instrument, embodying an undertaking by the _______ of

a buyer to pay his seller a certain sum of money on presentation of certain documents.
(a) Insurer
(b) Underwriter
(c) Supplier
(d) Banker
(e) Debtors

Correct Answer Banker

Answer Explanation A documentary credit is a signed instrument, embodying an undertaking by the BANKER of
a buyer to pay his seller a certain sum of money on presentation of documents which
shows the evidence of shipment of specified goods and subject to compliance with the
stipulated terms and conditions.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question19 A duty is imposed on the assured by the common law that he should at all times act as if he
were uninsured. In other words, he should take all reasonable measures to avert or
minimise a loss to his property. What is this clause known as?
(a) Sue and Labour
(b) Indemnity
(c) Good faith
(d) Subrogation
(e) Particular average

Correct Answer Sue and Labour

Answer Explanation

Question20 Mr. Anil Sood has declared the value of the goods to be of Rs. 800000 and has taken an
Annual Policy for his goods. These goods were damaged in transit. Later it was found that
the value of the goods should have been Rs. 1000000. Scrutinize this situation and choose
the correct option -
(a) Mr. Anil Sood shall have to bear the total loss of Rs. 1000000
(b) Mr. Anil Sood can pay extra premium and his total loss shall be reimbursed
(c) These goods will get forfeited due to wrong declaration
(d) Mr. Anil Sood shall have to bear the extra loss of Rs. 200000
(e) Mr. Anil Sood will not get any claim due to wrong declaration

Correct Answer Mr. Anil Sood shall have to bear the extra loss of Rs. 200000
Answer Explanation The annual policy is subject to a condition of average. Accordingly, if the value of goods in
transit is more than the sum insured, the insured shall be considered as being his own
insurer for the difference, and shall bear the loss accordingly. Therefore Mr. Anil Sood will
have to bear the extra loss of Rs 200000.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question21 Which of the below options is a set of rules for issuance and use of letters of credit?
(a) MOU in Letter of credit
(b) Principles and Practices in Letter of credit
(c) International credit guidelines
(d) Rules for documentary credit
(e) Uniform Customs and Practice for Documentary Credits

Correct Answer Uniform Customs and Practice for Documentary Credits

Answer Explanation The Uniform Customs and Practice for Documentary Credits (UCP) is a set of rules on the
issuance and use of letters of credit. The UCP is utilised by bankers and commercial parties
in more than 175 countries in trade finance.

Question22 In the 'LABLE CLAUSE' the insurer’s liability is restricted to the cost of ______ .
(a) Concealed Damage
(b) Garbling
(c) Re-labeling
(d) Disposing
(e) Picking

Correct Answer Re-labeling

Answer Explanation Sometimes the labels attached for identification are detached from canned or bottled
goods or may cause discoloring by moisture. Label clause limits the insurer’s liability to the
cost of re-labeling the affected goods.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question23 Where parts of the goods are totally lost, the amount payable under the insurance is such
proportion of the insured value as __________ .
(a) the written down value of the part lost, bears to the total cost of the whole
(b) the salvage value of the goods lost, bears to the cost of the part lost
(c) the insurable value of the part lost, bears to the insurable value of the whole
(d) the market price of the part lost, bears to the market price of the whole
(e) the invoice value of the part lost, bears to the invoice value of the whole

Correct Answer the insurable value of the part lost, bears to the insurable value of the whole
Answer Explanation If the parts of the goods in cargo are totally lost, then the amount payable under the
insurance will be in such proportion of the insured value as the insurable value of the part
lost, bears to the insurable value of the whole.

Question24 To whom can the Duty and Increased Value Insurances be granted?
(a) It can be granted in favour of the exporter to whom the goods are sold
(b) It can be granted in whose favour the import license has been issued
(c) It can be granted in favour of the carrier to whom goods are handed
(d) It can be granted in favour of the consignee
(e) It can be granted in favour of the shipping company transporting the exporters goods

Correct Answer It can be granted in whose favour the import license has been issued
Answer Explanation The Duty and Increased Value (IV) insurances can be granted to the party in whose favour
the import license has been issued. The cover may be granted only in respect of goods
imported in India and when there exists insurance on CIF value of cargo itself & against the
same risks as the basic cargo insurance.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question25 Mr. Mandar found that there were many packages missing in his cargo which had arrived
by sea. The first action of Mr. Mandar would be -
(a) To immediately appoint a surveyor in respect of short landing
(b) To give written notices to the carriers within seven days of landing of goods
(c) To apply for a survey by the ocean carrier/ port authority
(d) To claim immediately on the Port Authority, Carriers or other Bailees
(e) To obtain a certificate of damage / shortage from port authorities

Correct Answer To claim immediately on the Port Authority, Carriers or other Bailees
Answer Explanation If it is found that there are some missing packages of goods in the cargo arrived by sea, and
then the first action would be to claim immediately on the Port Authority, Carriers or other
Bailees for any missing packages.

Question26 Mr. Jindal secures a Marine Cover Letter for the goods he is shipping by sea. What is the
provision in the event of loss or damage to these goods before the shipment?
(a) As the loss has occurred before the shipment, no insurance claim will be honoured
(b) The basis of valuation shall be only the charges actually incurred and for which the insured
is liable. No claim can be made for the value of goods.
(c) The basis of valuation shall be based on one-third of the prime cost of the goods for which
the insured is liable
(d) The basis of valuation shall be the prime cost of the goods plus charges actually incurred
and for which the insured is liable
(e) The basis of valuation shall be for only the prime cost of the goods for which the insured is
liable

Correct Answer The basis of valuation shall be the prime cost of the goods plus charges actually incurred
and for which the insured is liable
Answer Explanation As per marine cover letter, the provision in the event of loss/damage to the goods prior to
shipment, the basis of valuation shall be the prime cost of the goods plus charges actually
incurred and for which the insured is liable. E.g. if freight is not incurred, there is no liability
for freight.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question27 Ram has dispatched goods to his buyer Shyam by registered post. Why is it important for
Ram to preserve the receipt given to him by the Post Office?
(a) In case the package is delivered with seals intact but with loss of contents, this receipt will
be required as proof
(b) Ram will send the receipt to Shyam and Shyam would need it to accept the delivery of the
goods
(c) The receipt will be used as proof in case of claim for non-delivery
(d) In case the address of the addressee was not mentioned clearly, then this receipt will be
required as proof for non-delivery of contents
(e) The receipt would be needed by Shyam to identify the goods against the receipt at the time
of delivery

Correct Answer The receipt will be used as proof in case of claim for non-delivery
Answer Explanation Shyam must preserve the receipt given to him by the Post Office as the receipt will be
required as proof in case of claim for non-delivery.

Question28 When a syndicate or an association of re-insurers come together to underwrite reinsurance

jointly, it is known as ______ .
(a) Excess of loss treaty
(b) Quota Reinsurance
(c) Reinsurance pool
(d) Reinsurance broking
(e) Proportional Reinsurance

Correct Answer Reinsurance pool

Answer Explanation When a syndicate or an association of re-insurers come together to underwrite reinsurance
jointly, it is known as Reinsurance pool. All members of the pool contribute all or part of
their premiums for a specified category of business into a common fund & they share the
claims, profits, losses & expenses.
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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question29 Which of the below point will NOT be considered by an underwriter while collecting trade
related details about the vessel ?
(a) Record of ownership and Quality of the management
(b) Nature of the cargo carried
(c) Particulars of the Ship Engine
(d) Trading warranties and navigational limits
(e) Whether vessel is given on Charter

Correct Answer Particulars of the Ship Engine

Answer Explanation An underwriter will not be concerned about particulars of engine.

Question30 In what way is the shortage of oil determined for settling claims for bulk oil?
(a) By comparing the quantity of oil leaving tank at the load port and the quantity of oil
received by the consignee at his warehouse/storage
(b) By comparing the quantity of oil leaving the consignor’s warehouse/storage and the
quantity of oil received by the consignee at his warehouse/storage
(c) By valuing the possible loss of oil before the tanker leaves the load port using past
experiences
(d) By comparing the quantity of oil leaving tank at the load port and the quantity of oil
received at final port
(e) By comparing the quantity of oil leaving tank at the final/destination port and the quantity
of oil received by the consignee at his warehouse/storage

Correct Answer By comparing the quantity of oil leaving tank at the load port and the quantity of oil
received at final port
Answer Explanation The shortage is decided by comparing the quantity of oil leaving tank at the load port and
the quantity of oil received at final port. The claim is to be calculated proportionately of
these quantities.
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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question31 The maximum limit of monetary liability payable by the MTO (Multimodal Transport
Operator) for loss wherein no sea or inland waterway leg is involved in the transit is
______ .
(a) 1 SDR per kg
(b) 2 SDR per kg
(c) 5 SDR per kg
(d) 7.77 SDR per kg
(e) 8.33 SDR per kg

Correct Answer 8.33 SDR per kg

Answer Explanation If no sea or inland waterway leg is involved in the transit, then the limitation is based solely
on weight, that is, 8.33 SDR per kg. of gross weight of goods lost or damaged.

Question32 When the goods are 'Free on Board' , to what extent is the responsibility of the seller?
(a) The seller is responsible till the time the ship which is carrying the goods is at sea
(b) The seller is responsible not at all responsible for the safety of the goods
(c) The seller is responsible till the time the goods passes ship’s rails till the cargo reaches its
destination port
(d) The seller is responsible till the time the goods are dispatched from his warehouse to the
time it reaches the destination port
(e) The seller is responsible till the time the goods are dispatched from his warehouse till
loading of the cargo in the ship till the goods passes the ships rails

Correct Answer The seller is responsible till the time the goods are dispatched from his warehouse till
loading of the cargo in the ship till the goods passes the ships rails
Answer Explanation The responsibility a seller has in case the goods are Free on Board is from his warehouse till
loading of the cargo in the ship till the goods passes the ships rails. If the goods are lost or
damaged before becoming FOB, the seller has to replace the goods.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question33 Two conditions are attached to the subject of insurable interest - which are they?
(a) 1. The insurer must have an insurable interest in the object when the insurance is effected
2. He must have an interest in the object at the time of the loss
(b) 1. The assured must have a reasonable expectation of acquiring an insurable interest in the
object being insured
2. He must have an interest in the object at the time of the loss
(c) 1. The insurer must have a reasonable expectation of acquiring an insurable interest in the
object being insured
2. He must have an interest in the object at the time of the loss
(d) 1. The assured must have an insurable interest in the object when the insurance is effected
2. Have a reasonable expectation of acquiring an insurable interest in the object
(e) 1. The assured must have an insurable interest in the object when the insurance is effected
2. He must have an interest in the object at the time of the loss

Correct Answer 1. The assured must have a reasonable expectation of acquiring an insurable interest in the
object being insured
2. He must have an interest in the object at the time of the loss

Answer Explanation As per Marine Insurance Act 1963, there must be physical object exposed to marine perils
& the insured must have some legal relationship. It further states when the insurable
interest must attach. According to it, the assured must have a reasonable expectation of
acquiring an insurable interest in the object being insured and he must have an interest in
the object at the time of the loss.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question34 Which classification society was established in India in 1975?

(a) Indian Shipping Classification Society
(b) Indian Register of Shipping
(c) Lloyds Registry Indian Subsidiary
(d) Indian Port of Registry
(e) Indian Institute of Shipping

Correct Answer Indian Register of Shipping

Answer Explanation Indian Register of Shipping (IRS) is a classification society established in India in 1975. It’s a
full-fledged member of International Association of Classification Societies (IACS) & its
classification is valid for any amount.

Question35 As per The Carriage by Air Act, in case of delay of either to goods or luggage, the maximum
time limit for giving notice of claim for compensation is ______ .
(a) 3 days from the date when the consignment was expected to be delivered
(b) 15 days from the date when the consignment was expected to be delivered
(c) 7 days from the date when the consignment was expected to be delivered
(d) 21 days from the date when the consignment was expected to be delivered
(e) 30 days from the date when the consignment was expected to be delivered

Correct Answer 21 days from the date when the consignment was expected to be delivered
Answer Explanation

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question36 If the policy/certificate makes a provision for settlement of claims abroad, the Lloyd's
Agent can ______ .
(a) A Lloyd Agent has no role to play in such case
(b) transfer the claims to the home country for settlement as he cannot do so on behalf of the
underwriters
(c) transfer the claim to the underwriter, who then settles it
(d) adjust and settle such claims on behalf of the underwriters concerned
(e) transfer the claim to the concerned insurance company and arranges for a settlement

Correct Answer adjust and settle such claims on behalf of the underwriters concerned
Answer Explanation If a policy/certificate has a provision for settlement of claims abroad, the Lloyd’s Agent can
adjust and settle such claims on behalf of the underwriters concerned.

Question37 What do the Institute Warranties specify?

(a) Registration warranty for fishing vessels
(b) Limitations on the navigational limits for the insured ship
(c) Classification requirements for the insured ship
(d) Lay-up requirements for the ship which is insured
(e) Insurance requirements for the insured ship

Correct Answer Classification requirements for the insured ship

Answer Explanation Institute warranties specify classification requirements for the insured ship with a
Classification Society which is a Member or Associate Member of International Association
of Classification Society or a National Flag Society.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question38 How did the Chinese merchants who were engaged in trade on the Yangtze river distribute
their risk?
(a) They used to distribute their cargo to different boats
(b) By using the principle of 'Yogakshema'
(c) By issuing Respondentia bonds
(d) By issuing Bottomary bonds
(e) By using the technique of General Average

Correct Answer They used to distribute their cargo to different boats

Answer Explanation Chinese merchants who were engaged in trade on the Yangtze river used to distribute their
cargo to different boats so that the risk was distributed.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question39 What is the difference between Garbling Clauses and Institute Classification Clauses?
(a) As per the Garbling Clause, the insurer will pay the cost of sifting, clearing and separating
sound material from the whole. As per the Institute Classification Clause, the insurer will
pay the cost of re-baling both sound and damaged material.
(b) As per the Garbling Clause, the insurer will pay the cost of sifting, clearing and separating
sound material from the whole. The Institute Classification Clause is applied where the
name of the cargo carrying vessel is not known-namely in cover notes and open covers
(c) As per the Garbling Clause, the insurer will pay the cost of re-baling both sound and
damaged material. The Institute Classification Clause is applied where the name of the
cargo carrying vessel is not known-namely in cover notes and open covers
(d) As per the Garbling Clause, the insurer will pay the cost of picking sound material from the
whole. As per the Institute Classification Clause, the insurer will pay the cost of re-baling
both sound and damaged material.
(e) As per the Garbling Clause, the insurer will pay the cost of picking sound material from the
whole. As per the Institute Classification Clause, the insurer will pay the cost of sifting,
clearing and separating sound material from the whole.

Correct Answer As per the Garbling Clause, the insurer will pay the cost of sifting, clearing and separating
sound material from the whole. The Institute Classification Clause is applied where the
name of the cargo carrying vessel is not known-namely in cover notes and open covers
Answer Explanation

Question40 ___________ should predominate the construction of a policy.

(a) Technical and Non-technical terms used in the policy
(b) Clauses under which the policy has been drafted
(c) Various phrases used in the policy
(d) Proper grammar used in the policy
(e) Intention of the parties to the contract

Correct Answer Intention of the parties to the contract

Answer Explanation The intention of the parties to the contract predominate the construction of a policy.

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WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question41 Every contract of insurance is a contract of ‘Uberrimai Fidei’ which means ______ .
(a) Indemnity
(b) Utmost Good faith
(c) Efficiency
(d) Loss and injury
(e) Legally enforceable contract

Correct Answer Utmost Good faith

Answer Explanation Every contract of insurance is a contract of ‘Uberrimai Fidei’ that is, one which requires
utmost good faith on the part of both, the insurer and the assured.

Question42 In Hull Risk, the Total Loss is a rate percent applied to the ________ of the vessel.
(a) Age
(b) Deductible amount
(c) Insured value
(d) Deadweight Tonnage (DWT)
(e) Gross Register Tonnage (GRT)

Correct Answer Insured value

Answer Explanation The total loss element of hull risk is a rate percent applied to the insured value of the
vessel and is conditioned mainly by the value factor of the ship.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question43 Mohan has received an export order to Bangladesh for leather goods and shoes. Mohan
feels that he should adopt the 'Cash in Advance' payment method instead of the 'Open
Account' method as 'Open Account' method does not provide any protection against non
payment. Give your comments as to whether the 'Cash in Advance' method would pose a
lesser risk of non payment as compared to 'Open Account'.
(a) Yes, in 'Cash in Advance' payment method, Mohan will receive the payment before the
goods are shipped and so there is no fear of non payment
(b) No, in 'Open Account' method there is no risk as the bank performs credit risk of the buyer
and so this eliminates issues of non-payment
(c) No, in 'Open Account' method there is no risk as the buyer issues a negotiable instrument
and so there is no risk of non-payment
(d) No, in 'Open Account' method there is no risk as the credibility of the buyer is confirmed
before delivering goods so there is no risk of non-payment
(e) Yes, in 'Cash in Advance' payment method, Mohan receives the payment after the goods
are shipped and so there is no fear of non payment

Correct Answer Yes, in 'Cash in Advance' payment method, Mohan will receive the payment before the
goods are shipped and so there is no fear of non payment
Answer Explanation The cash in advance is definitely favourable to the exporter as he receives the payment in
advance i.e. prior to the shipment of the goods and there is no risk at all of any default or
delay in payment. The risk if any is of the importer and not exporter.

(In Open Account, there is no negotiable instrument as this type of payment is mostly seen
in cases where the importer / buyer has a strong credit history and is well known to the
seller)

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question44 Which treaty has the features of both facultative cessions and obligatory treaties ?
(a) Auto-Fac treaty
(b) Excess of Loss Treaty
(c) Pooling Arrangements
(d) Quota Share Treaty
(e) Surplus treaty

Correct Answer Auto-Fac treaty

Answer Explanation Facultative obligatory treaties are also known as Auto-Fac treaties. It has the features of
both facultative cession and obligatory treaties. The name itself suggests that Facultative
obligatory treaty (Fac-Oblig) has both the elements.

Question45 The Special Storage Risks Insurance (SSRI) is basically to cover which type of risks?
(a) It is to cover the risks on goods when they leave the exporter’s warehouse and reach their
destination port
(b) It is to cover the risks on goods when they leave the exporter’s warehouse and are loaded
on the ship
(c) It is to cover the risks on goods when they leave the exporter’s warehouse and reach the
buyers warehouse
(d) It is to cover the risks on goods that are in the warehouse of the exporter
(e) It is to cover the risks on goods during storage at destination railway yard or carrier’s
premises, pending clearance by the consignees

Correct Answer It is to cover the risks on goods during storage at destination railway yard or carrier’s
premises, pending clearance by the consignees
Answer Explanation Special Storage Risks Insurance offer to cover the risk on goods during storage at
destination railway yard or carrier’s premises, pending clearance by the consignees on
termination of cover under an Open Policy.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question46 A cargo of _____ can gain weight in case it is shipped under imperfect condition.
(a) Fruits
(b) Vegetables
(c) Grains
(d) Crude Oil
(e) All of the above

Correct Answer Grains

Answer Explanation Certain cargo like grains would gain weight in case they are shipped under imperfect
condition. In cargo insurance, the susceptibility of goods to damage by various causes is a
vital consideration.

Question47 A person books 10 boxes by a MTO (Multimodal Transport Operator). The weight of these
boxes was 2000 kgs. These goods were lost in transit. Calculate the amount the MTO will
have to pay?
(a) 1600 SDR
(b) 8777 SDR
(c) 3666 SDR
(d) 6666 SDR
(e) 7777 SDR

Correct Answer 6666 SDR

Answer Explanation The liability of the MTO is limited to 666.67 SDR (Special Drawing Rights) per package or 2
SDR per kg. of gross weight of the goods lost or damaged, WHICH EVER IS HIGHER.
In the above problem -
Liability on the basis of packages is 10 boxes X 666.67 SDR = 6666.7 SDR
Liability on the basis weight is 2000 kgs X 2 SDR = 4000 SDR
So MTO Liability would be 6666 SDR which is higher of the two.
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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question48 How is the CIF option (Cost, Insurance and Freight) different from the Cost and Freight
(CFR) option?
(a) In CIF. the value is inclusive of the insurance premium
(b) In CIF option, the seller is liable for the cargo delivery – ‘warehouse to warehouse’
(c) In CIF option, the seller is responsible for the cargo up to the destination port
(d) In CIF option, the seller is responsible for the cargo up to the ship’s rails
(e) In CIF, the value consists of sea freight also as the seller arranges for services of shipment
up to destination port

Correct Answer In CIF. the value is inclusive of the insurance premium

Answer Explanation The distinguishing feature of the Cost Insurance & Freight (CIF) option which makes it
different from the Cost & Freight (CFR) option is that CIF value is inclusive of the insurance
premium.

Question49 Everest insurance company is a property reinsurer. Like every insurance company, it is also
worried about big cumulative losses like losses of over Rs. 20 crores. How can it protect
itself?
(a) By Excess of loss reinsurance treaty
(b) By Surplus share reinsurance treaty
(c) By Self Insurance
(d) By Quota share reinsurance treaty
(e) By Reinsurance pool

Correct Answer By Surplus share reinsurance treaty

Answer Explanation An insurance company which is interested in protecting itself against huge cumulative
losses like - exceeding Rs. 20 crores during the year can get the best protection by using
‘Surplus share reinsurance treaty’.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

Question50 Mr. Shah has insured his business with Max Insurance Co. Max Insurance Co. has insured
50% of this risk with PQR Insurance Co. What is the status of PQR Insurance Co. here?
(a) Ceding Company
(b) Risk Taking Authority
(c) General Insurer
(d) Direct Insurance Co.
(e) Reinsurer

Correct Answer Reinsurer

Answer Explanation Section 9 of the Marine Insurance Act 1963 states that an insurer under a contract of
marine insurance having an insurable interest in his risk can reinsure in respect of it. PQR
Insurance here would thus be the reinsurer.

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PRACTICE TEST 2

WWW.TOP4SURE.IN IC 67 – MARINE INSURANCE

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