Rajasthan Board RBSE Class 12 Business Studies Chapter 13 Insurance-Introduction and Importance
RBSE Class 12 Business Studies Chapter 13 Textbook Exercise
RBSE Class 12 Business Studies Chapter 13 Very Short Answer Type Questions
What is Risk?
Any type of loss, uncertainty, destruction or accident is known as risk.
Insurance is providing an individual security from future risks and uncertainties.
Insurance is a cooperative device. How?
Insurance is based on the principle of cooperation : one for all and all for one. Insurance is a cooperative form of distributing a certain risk over a group of persons who are exposed to it. A large number of persons share the losses arising from a particular risk.
What do you mean by social security?
Meaning of social security is providing security to the people of society from accidents, sickness, old age, sudden death, etc.
State the difference between an agent and a servant.
According to the Supreme Court, difference between an agent and a servant are as follows :
- Remuneration of an agent is called commission or fees, while a servant’s remuneration is called salary.
- An Agent is not a servant, while a servant can be an agent at any point of time.
- An Agent can make a contract with third party, while a servant cannot.
Who can be an insurance agent?
A person with following qualifications can be an insurance agent:
- Must be an Indian citizen.
- Must be a major.
- Must be of sound mind.
- He should not be disqualified by any law/court for fraud, misrepresentation, or convicted of some crime, moral turpitude, or any such acts.
What is Pradhan Mantri Suraksha Beema Yojna?
A person within the age group of 18-70 years can have this insurance. Premium of ₹ 12 annually is credited from the insured’s account directly. This is an annual insurance. This insurance was started by prime minister Narendra Modi in 2015. In case of accidental death or full disability, ₹ 2 lakhs will be given to nominee, and in case of partial permanent disability, ₹ 1 lakh is given to nominee.
What is a social insurance?
Social insurance policy has been started to provide financial security to the weaker and poor people of the society. Insurance for unemployment, sickness, sudden accidents, old age, pregnancy, death etc. are covered under these social insurance policies.
In which epic ‘Yogshem’ is mentioned?
Yogshem is mentioned in Rigveda in context to insurance.
What is the basic objective of insurance?
The basic objective of insurance is to provide security to the insured from future uncertainties and risk.
Enlist any five group insurance policies.
Following are the five types of group insurance policies:
- Pension or employees provident fund.
- Group gratuity schemes.
- Group credit life insurance.
- Group term assurance plan.
- Group cash accumulation plan.
How does insurance help in economic growth?
Insurance companies, through their network of branches spread in different parts of the country, accumulate huge amount from the insured in the form of premium and this amount is invested in different development programmes which helps in economic growth.
Give any two points of importance of insurance from individual or family point of view.
Two points of importance of insurance from individual point of view are :
- Safety and security of the family.
- Prevention of social evils.
State any two points of need of insurance.
Two points of need of insurance are :
- Insurance provides protection from future uncertainties.
- Availability of credit against insurance policy.
How does insurance transfer the risk?
Insurance is based on the principle of one for all and all for one. Funds raised from premium help to transfer the risk by providing financial help to the insured.
RBSE Class 12 Business Studies Chapter 13 Short Answer Type Questions
The meaning of insurance is to provide security to an individual or group of individuals for future uncertainty and risks. Insurance has been defined by different experts from different prespectives.
- Social point of view :
Insurance is a plan by which large number of people associate themselves and transfer to their shoulders all risks that attach to individuals.
- Business point of view :
Insurance is a method in which a large number of people exposed to similar risks make contribution to a common fund, out of which the losses suffered by the unfortunate few due to accidental events are made good.
- Contractual point of view :
Insurance is a contract is which a sum of money is paid as premium as consideration of insurer’s incurring the risk of paying a large sum upon a given contingency.
Difference between Assurance and Insurance.
Following are the points of difference between Assurance and Insurance :
|S. No.||Basis of difference||Assurance||Insurance|
|1.||Use of words||Assurance word is basically used for contract.||Insurance word is used for all types of insurances specially marine, fire, etc.|
|2.||Risk||This word define certainty of risk||This word defines possibility of risk.|
|3.||Time of payment of claim||Either on the happening of event or on maturity.||Only at the happening of an uncertain event.|
|4.||Field||In assurance, field of insurance agent is limited to specific area of life insurance.||In insurance, field of insurance agent is widespread in many areas such as marine, fire, property, etc.|
|5.||Amount of insurance||In assurance, whole amount of insurance is paid the insured.||In insurance, it is not compulsory to pay the whole amount the sum insured.|
State the difference between insurance and gambling.
Following are the points of difference between insurance and gambling :
|S.No.||Basis of difference||Insurance||Gambling|
|1.||Presence of Risk||Insurance is done only in condition if risk exists.||Risk is emerged from gambling.|
|2.||Security from Risk||Insurance is done to provide security from risk.||Gambling is done to create risk.|
|3.||Measurement of risk||Measurement of risk in insurance is done in a scientific way.||Not possible to measure risk in gambling.|
|4.||Objective||Insurance is done to minimise the risk of future uncertainties.||Gambling is done for entertainment and for gaining profit.|
|5.||Gains of insurance||Insured have benefits in insurance.||A gambler doesn’t have insured benefits in gambling.|
|6.||Validity||Insurance contracts legal.||Gambling is not a legal contract.|
Insurance is a method of spreading the risks, not prevention of risk. Comment.
Under Insurance, an individual surrounded by general types of risk contributes in common funds in the form of premium. Upon occurrence of any type of mishappening, the individual is paid from the funds to cover his damage. Therefore, in insurance, a liability of an individual is transferred to others, but loss cannot be stopped or prevented. That is why, we can say that insurance is a method of spreading the risks, not prevention of risk.
Mention the primary functions of insurance.
Following are the primary functions of insurance :
- To provide certainty :
Insurance provides certainty of payment for the risk of loss. There are uncertainties of happenings of time and amount of loss. The insurer charges premium for providing the certainty.
- Provides protection :
The second main function of insurance is to provide protection from probable losses. Insurance cannot stop the happening of a risk or event, but it can compensate for losses arising out of it.
- Risk sharing :
Insurance is a plan which a large number of people associate themselves and transfer to their shoulders all the risks attached to individuals. So, insurance is a collective bearing of risk.
- Evaluation of risk :
Insurance evaluates the volume of risk insured to ascertain the insurance premium which forms the basis of insurance contract. Insurer measures the probability of losses by considering several factors, to determine the premium to be paid by insured.
- Investigation :
The purpose of insurance is to investigate in the area of insurance, so that, according to the changed needs or requirements, the insured can change his insurance plans.
Write a brief note on crop insurance.
Crop insurance has been very popular for the last few years because of the risk involved in farming. In this insurance, risk from climatic conditions, floods, drought, crop diseases, etc. are covered. In this, the insured is a farmer who secures his crop by paying premium against, future uncertainty. If the crop is damaged by unfortunate reasons, the insurance company compensates the farmer.
“Insurance gives peace of mind.” Comment.
Insurance gives peace of mind. Insurance makes the insured tension free. Businessmen insure themselves and their businesses from future risks and uncertainties which helps them to run their business smoothly and confidently. Individual by taking insurance is free to live his life without tension. Insurance helps in savings. According to Prof. Angel, “Insurance as an asset of savings has a tremendous effect ecologically because insurance is of partial compulsion nature.”
Importance of saving through life insurance are the following :
- Insurance is a regular and continuous process which helps in regular savings.
- Money saved in the form of insurance premium cannot be easily withdrawn.
- By making savings in banks, only principle amount and interest is receivable but in case of insurance, principle amount as well as insurance amount is paid.
- In insurance, payment of premium amount by insured is compulsory. Therefore, saving through insurance is regular.
Therefore, saving through banks through savings account is less effective and savings through insurance premium is consistent and regular. Now-a-days, insurance policies are made in a way which do both the task of insurance as well as savings. By providing security and savings, insurance gives peace of mind.
Insurance has elements of protection and investment both. How?
Investment is not a primary function of insurance, still, by appropriation, profit is possible by insurance. There is an element of investment present in life insurance along with security. Insurer pays small premiums regularly to the insurance companies. In case of death or casualties the insured amount is paid to the nominee, if insured lives till maturity then, the insured amount along with bonus is paid to the insured, which was saved by the insured with the insurance company in the form of small premiums.
RBSE Class 12 Business Studies Chapter 13 Long Answer Type Questions
Give various definitions of insurance. Explain its features.
In general meaning, insurance is providing security against future risks and uncertainties. This is a social and economic security provided by insurance agencies to an individual or group of individuals against different problems, risks and uncertainties of future. In other words, insurance is a tool of bearing burden of few by many. According to Calvin Cooleridge, “Insurance is a modern technique by which human can make uncertain certain or unequal equal. This is a tool by which success is made almost sure. By this the capable pays for helping the weaker and the weaker gets helps from the capable not by mercy by but by authority which he has purchased by paying premiums.” According to Sir Thomas, “Insurance is the only way by which losses of a few are transferred to many.” Therefore, insurance is a successful tool of providing security from future risks and uncertainties.
Definitions of insurance :
Following are the definitions of insurance :
(I) General Definitions :
- Sir William Beveridge defines :
“The collective bearing of risk is insurance.”
- John Magee defines :
“Insurance is a plan by which large number of people associate themselves and transfer to their shoulders all risks that attach to individuals.”
- Thomas defines :
“Insurance is a provision which a prudent man makes for the loss or inevitable contingencies of loss or misfortune.”
It is clear from all these definitions, that insurance is a social and cooperative device to transfer risk over a group of persons collectively who are exposed to it or to an institution.
(II) Business / Functional Definitions :
These definitions are economic or business-oriented since they make clear how insurance acts as a device, providing financial compensation against risk and misfortune.
- D. S. Hansell defines :
“Insurance may be defined as a social device providing financial compensation for the effects of misfortune, the payments being made from the accumulated contributions of all parties in the scheme.”
- Reigal and Miller defines :
“Insurance is a social device whereby the uncertain risks of individuals may be combined in a group and thus made more certain. Small periodic contributions are made by the individuals providing a fund, out of which, those who suffer losses may be reimbursed.”
- Rober I. Mehr & Emerson Uammack define :
“Insurance may be defined as a device for reducing risk by combining a sufficient number of exposure units to make their individual losses collectively predictable. The predictable loss is then shared proportionately by all units in the combinations.”
- According to Federation of Insurance Institutes, Mumbai :
“Insurance is a method in which a large number of people exposed to similar risk make contribution to a common fund out of which, the losses suffered by the unfortunate few, due to accidental events, are made good.”
Thus, we can say that insurance is a social device whereby large number of people exposed to similar risk make a common fund by paying small contributions to protect themselves against risks and out of which those members who suffer economic losses, are compensated.
(III) Contractual / Legal definitions :
These definitions consider insurance as a contract to indemnify the losses on occurrence of certain contingency in future.
- Justice Tindall defines :
“Insurance is a contract in which a sum of money is paid as premium as consideration of insurer’s incurring the risk of paying a large sum upon a given contingency.”
- E. V. Patterson defines :
“Insurance is a contract by which one party, for a compensation called the premium, assumes particularly the risk of the other party and promises to pay him or his nominee a certain or ascertainable sum of money on a specified contingency.”
- Reigel and Miller defines :
“In its legal aspect it is a contract, the insurer agreeing to make good any financial loss the insured may suffer within the scope of contract.”
So, the legal definition of insurance states that insurance is a contract whereby one person called the insurer undertakes in return for the agreed consideration called premium to pay to another person called the insured, a sum of money or its equivalent on specified event.
Characteristics of Insurance :
Following are the main features of insurance :
- Insurance is a contract :
Insurance is a legal contract between the insurer and the insured, under which the insurer promises to compensate the insured financially within the scope of insurance policy and the insured promises to pay fixed rate of premium to the insurer.
- Based on principles :
Insurance is based on various principles like principle of good faith, principle of insurance benefit, etc.
- Evaluation of risk :
For the purpose of ascertaining the insurance premium, the volume of risk is evaluated, which forms the basis of the insurance contract. Higher the risk, higher will be the premium charged by insurance companies.
- Payment at the time of incident :
Payment of insured amount is done in insurance of specific incident. That, the incident will occur is confirmed in life insurance, whether death or maturity happens. So, payment is confirmed in both cases. But, in fire, marine and accidental insurance, the occurrence of incident is not compulsory.
- Payable amount :
Payable amount is different in life insurance and other types of insurance. In life insurance, the insured receives the entire insured amount, but in other types of insurance the value of actual damage suffered is compensated.
- Security from risk :
Insurance provides protection against the risk involved in life, material and property. It is a device to mitigate the loss from risks and not to eliminate the risks.
- Spreading the risk :
Insurance is a plan which spreads the risks and losses of few people among a large number of people.
- Regulated under law :
The government of every country enacts laws governing the insurance business so as to regulate and control its activities in the interest of the people. In India, the Life Insurance Act, 1956 and General Insurance, Act, 1972 and IRDA, control and regulate insurance.
- Not against social welfare :
Insurance can’t be done against social welfare. For example : theft, robbery, pick pocketing cannot be insured.
- Wider field :
The field of insurance is wider. It includes life insurance, marine, fire, property, motor vehicle, medical, crop insurance, etc.
- Insurance is not charity :
In case of insurance, premium is paid by the insured to the insurer in consideration of future payments. Insurance is an economic activity done with an objective of some economic gain, whereas charity is a social, religious activity, done without any such consideration.
- Not a gambling act :
Insurance is not a gambling act. Gambling is illegal which gives gain to one party and loss to the other. Insurance is a valid contract to indemnify against financial losses.
- Social cause :
Insurance is done in the society, by the people of society for the welfare of society. If there is no society, there is no insurance. This is a single solution to many problems of the society. Therefore, insurance is a social cause.
- Cooperative device :
Insurance is based on the principle of cooperation : one for all and all for one. Insurance is a cooperative form of distributing a certain risk over a group of persons who are exposed to it.
Explain in detail the scope of insurance.
Insurance, in the modern form, originated in the 13th century. If we talk about origin and development of insurance, we find references of marine insurance. Marine insurance is the oldest form of insurance, followed by life insurance, fire insurance and other types of insurance. Today, different types of insurance are available according to the need and type of risks. For the convenience of study, we can classify insurance on the following basis :
I. Classification on the basis of nature of insurance.
II. Classification on the basis of business.
III. Classification on the basis of risks.
I. On the basis of nature of insurance :
1. Life insurance :
Life insurance may be defined as a contract in which the insurer, in consideration of a certain premium, either in a lump sum or by other periodic payments, agrees to pay the assured or to the person for whose benefit the policy is taken, the assured sum of money, on the happening of a specified event, contingent on the human life. Life insurance provides economic protection to the insured and his family members. In India, alongwith LIC, some private companies like Kotak Mahindra, Bajaj Allianz and ICICI Prudential are working.
2. Fire insurance :
A fire insurance is a contract to indemnify the insured for destruction of or damage to property caused by fire. The insurer undertakes to pay the amount of the insured loss, subject to the maximum amount stated in the policy. Fire insurance is essentially a contract of indemnity not against the accident but against the loss caused by the accident. The insurable interest must be present in the subject both at the time of effecting the policy and at the time of loss. Fire insurance policy is issued for one year. Perils covered under fire insurance are loss by fire, lightening, explosion, impulsion, aircraft damage, riot, strike, malicious terrorism, storm, cyclone, tempest, tornado, floods, etc.
3. Marine insurance :
A marine insurance is an insurance contract to indemnify against loss arising from certain perils and sea risks, to which shipment merchandise and other interest in a maritime adventure may be exposed during a certain vogage or a certain period of time.
Marine insurance involves different types of insurance related to ship, cargo and freight namely, single vessel policy, fleet policy, floating policy, freight policy, currency policy, ship construction policy, etc.
4. Social insurance :
Social insurance has been developed to provide economic security to the weaker section of the society who is unable to pay the premium for adequate insurance. Examples of such insurance are unemployment insurance, sickness insurance, sudden death, old age, pregnancy, etc.
National Labour Commission defines social insurance as a plan which provides the amount as profit out of the accumulated fund contributed by insured service providers and the government rightfully to low income people.
Following are the types of social insurance :
- Sickness insurance :
In this type of insurance, medical benefits, medicines, reimbursement of salary during the sickness period, etc. are given to the insured person who falls sick.
- Death insurance :
Economic assistance is given to the dependents of the assured in case of death occurring during employment. The employer can transfer his such liability by getting insurance policy for his employees.
- Disability insurance :
There is a provision of compensation in case of total or partial . disability suffered by factory employees due to accident while working in factories. According to Employees Compensation Act, the responsibility to pay compensation vests with the employer, but the employer transfers his liability on the insurer by taking group insurance policy.
- Unemployment insurance :
In case an insured becomes unemployed due to a certain specific reason, he is given economic support till he gets employment.
- Old age insurance :
In this type of insurance, the insured or his dependents are paid economic assistance after a certain age. This is a plan to get the benefits from such social insurance schemes. Government schemes provide insurance to daily wage earners, rikshaw pullers, landless labourers, sweepers, craftsmen, etc.
5. Miscellanous insurance :
Increasing urbanisation, industrialisation, automation and technical development, etc. have given rise to a number of risks or hazards. There are various insurance plans to provide security against extended and diversified risks. The important among them are :
- Motor vehicle insurance :
This insurance is compulsory for buses, trucks, cars, scooters, motorbikes, etc. so that the losses due to accidents can be claimed from the insurance company. In motor vehicle insurance, the owner’s liability to compensate people who were killed or injured through negligence of the motorist or the driver is passed on the insurance company. This insurance is valid for one year. This insurance covers the loss of three parties, loss due to damage or destruction of vehicle, any loss to the owner and loss to third party due to the vehicle.
- Personal accidental insurance :
Personal accidental insurance is an annual policy which provides compensation in the event of injury, disability or death caused solely by violent, accidental, external and visible events. For groups of people, insurance companies have devised group personal insurance policies. This policy offers total amount of fixed payment to insured in case of an accident, permanent total disability and death of insured and a specified percentage of the sum insured in case of permanent partial disability.
- Burglary insurance :
Burglary is under the category of insurance of property. In case of burglary policy, the loss of damage of household goods and property and personal loss due to theft, burglary, house breaking and any other act of such nature are covered. This policy is usually taken by cinema halls, petrol pumps, hotels, banks and financial institutions.
- Cattle insurance :
It is an insurance for indemnity against the loss of death of cattle like camels, bull, sheep, buffaloes, cows, etc. resulting from accident, disease or pregnancy, as the case may be.
- Crop insurance :
This insurance plan provides a measure of financial support to farmers in the event of crop failure due to drought or flood. This insurance covers against all risks of loss or damages relating to production of rice, wheat, millets, oilseeds, pulses, etc.
- Crime insurance :
This type of insurance manages the loss of exposure resulting from criminal acts such as robbery, burglary, extortion and other form or theft or other such offenses with the potential to cause financial ruin,, It also covers computer frauds, provides premises coverage, transit coverage, depositor’s forgery coverage, etc. to protect a commercial organisation from such losses.
- Other insurance plans :
In addition to the above, insurance plans are also available for protection of jewellery, bullock cart, TV, laptops, hotels clients’ insurance, sports insurance, baggage insurance, beauty insurance, etc.
- Pradhan Mantri Suraksha Beema Yojana :
It is a government-backed accident insurance scheme formally launched by Prime Minister Shri Narendra Modi on 9th May, 2015. It is available to the people between 18 to 70 years of age who have bank accounts. It attracts an annual premium of ₹ 12 exclusive of all taxes. It is a one-year insurance. In case of accidental death or full disability, the payment made to the nominee will be ₹ 2 lakh, and in case of partial disability, it would be ₹ 1 lakh.
- Pradhan Mantri Jeevan Jyoti Beema Yojana :
It is scheme for life insurance launched by Prime Minister Narendra Modi in 2015. PMJJBY is available to the people of age group 18 to 50 years who have bank accounts, providing cover of ₹ 2 lakh in case of death. Yearly premium of ₹ 330 is to be made by the insured which will be debited from the bank account of the individual in a single instalment.
What do you mean by social security ? Discuss the role of insurance in social security.
The word ‘social security’ has different meanings in different countries. Like other socio-economic concepts, the connotation of the term ‘social security’ varies from country to country with varying political ideologies. In general sense, social security refers to protection provided by the society to its members against providential mishaps over which a person has no control. Thus, social security is protection against disabilities, sickness, maternity, old age, etc.
According to International Labour Organisation :
“Social security is the security that society furnishes through appropriate organisations against certain risks to which its members are exposed.”
According to William Beveridge :
“Social security means the securing of income to take the place of earnings when they are interrupted by unemployment, sickness or accident.”
It is clear from the analysis of the above definitions, that social security is the protection that a society provides to individuals and households to ensure access to health care and to guaranteed income security.
Role of Insurance in Social Security :
Insurance plays an important role in providing social security, which can be understood from the following points :
- Provision of income or wealth in old age :
Old age insurance is one of the most important parts of national social security system and is designed to ensure that a person recieves regular monthly income in his/her old age. The insurance company may pay the entire amount of insurance in lump sum or annually.
- Security to dependents on sudden death :
In the event of the death of an insured as a result of employment injury or any other reason, insurance companies provide financial security to the dependents, survivors of insured to help them discharge the liabilities after death of the insured.
- Helpful in case of sickness :
As we know, that the objective of social security is compensatory, restorative and preventive, insurance provides economic security in case of a serious disease of the insured under sickness benefit scheme and extended sickness and enhanced sickness benefits to save the insured from hardships during any long-term disease.
- Security in case of accident :
Life insurance policies usually contain the terms of accident insurance. Under it, an insured by paying some extra premium, can get accident insurance for his life. There are group as well as individual accident policies offered by LIC.
- Security to dependents with disablities :
Insurance companies issue special policies for life of those parents whose one dependent is suffering from disability. Such dependents are nominated in the insurance policy, whereas the insurance coverage is provided to the parent.
- Security of professionals :
The professionals like doctors, lawyers, engineers can take insurance against the liabilities of losses due to their unintentional mistakes to be secured and to avoid any kind of trouble or interruption in their life.
- Security against unemployment :
Unemployment insurance is based on compulsory para-government insurance system, providing unemployment benefits to those registering as unemployed often on the condition ensuring that they seek work and do not currently have a job. When any insured employee is terminated, he gets compensation of the agreed amount for a specified period.
- Security under public liabilities :
Insurance companies provide numerous loss prevention insurance plans to those industrial and commercial organisations which perform very risky and hazardous production that may be harmful and dangerous and can cause physical human loss not only in their own organisation, but also to the public.
Define an insurance agent. Explain the functions and duties of an insurance agent.
Definition of Insurance Agent :
Insurance agent is the salesperson of the insurer. An agent is one who is licensed under Section 42 of the Insurance Act, 1938, and who receives or agrees to receive payment by way of commission or remuneration in consideration of his soliciting or procuring insurance business including business relating to the continuance, renewal or revival of policies of insurance. [Sec. 2 (10) of Insurance Act, 1938.] In simple words, we can say that an insurance agent is a licensed representative of the insurer who agrees to work for the insurer in exchange of commission or remuneration. He plays a promotional job.
Functions of Insurance Agent :
- To solicit and procure new business :
An agent is bound to obtain certain specified amount of new business as required under the rules. He should always make effort in getting new insurance proposals beyond his prescribed limit.
- To conserve the present business :
In addition to procuring new business, he should ensure the continuation of the policies already issued and prevent them from lapsing on account of default in the payment of premium.
- Assist in selection of suitable policy :
The agent should give proper guidance and help to the prospects in selection of a suitable policy, keeping in view the needs of the proposer by guiding him.
- To enquire into full details of prospects :
It is an important duty of the insurance agent to enquire into all the requisite information from the prospective insured. This becomes necessary to ascertain the extent of risk.
- Inform the agency about the factors which can cause damage to insured :
It is the duty of an agent to inform the agency about all the related information which can influence the insurance policy by any means.
- Assuring the age of insured :
It is the duty of an agent to assure date of birth of an insured at the time of starting the policy. This helps in future settlements of policies.
- To motivate the policy holders to pay premium in time :
It is the duty of an agent to inform the insured to pay premium in time and get benefits of payments by avoiding penalties applicable in late payments.
- To prevent the policy from lapsing :
Agent should inform the disadvantages of policy lapse to the insured.
- Inform the insured for appointing nominee(s) :
It is the duty of an agent to make sure that the nominees column is filled by the insured. This helps in future settlements of policies without any ambiguity.
- To prepare the necessary documents :
This proposer has to submit other important documents like birth certificate, medical certificate, etc. The agent can help the proposer by guiding him.
- Other important duties of an agent :
- Inform about the policies to the insurer.
- By knowing the requirements of prospects, providing him the best suitable policy.
- Working hard with honesty.
- Introducing himself as an insurance agent, and if asked, to show his I.D.
- If asked by the insured, telling him about the rate of commission.
- Calculating the amount of premium which is payable by the insured.
- Explaining the details of insurance application form to the prospect.
- Informing the prospects about the refusal of insurance application by the insurance agency.
- Following the rules and regulations of insurance authority,
- Providing insurance bond to the insured within 45 days.
Explain the socio-economic significance of Insurance.
There are elements of kindness in Insurance. Insured and insurer both deserve for good fortune. Insurance protects an individual right from his/her from birth, to death. Insurance is the biggest gift to the modern human society. Importance of insurance is not only limited to an individual or family, but it is widespread for the development of a nation. Use of insurance is increasing in modem time. Insurance not only fulfills the requirement of an individual or a group of people, but it is also helpful in development and growth of a society by providing security.
It is not only the mixture of principle of insurance and techniques, but also a mix of personal and group benefits. It helps in growth of a nation and society by its huge network and by encouraging savings. Therefore, it is clear that insurance is important for an individual and for the society. Prof. Dinsally defines, “No one can live without insurance in modern world.” Today, insurance is the lifeline of the modern society.
Economic Significance of Insurance :
(i) Protection from risk : A business is exposed to several risks. There can be risk of theft, damage, etc. to property, goods and profit, from natural calamities, by sea perils, by fire, by negligence of human beings, etc. Insurance provides protection from various risks by indemnifying the insured businessmen against the losses due to the specified event.
(ii) Protection to business due to sudden death of the key person :
The successful operation and development of business largely depends on its directors, managers and administrative personnel. Sudden death of a key person badly affects the functioning of the business. Insurance plays an important role by insuring the life of the key person in the business, so that the future of business can be protected from uncertainties.
(iii) Increase credit worthiness :
Insurance extends credit to industrial and commercial institutions. An entrepreneur gets insurance for his business unit, plant and machinery or permanent assets purchased by him and can get credit easily.
(iv) Increases business and industrial efficiency :
Insurance provides protection from various kinds of risks and financial security against losses. This reduces the fears and worries of businessmen and promotes mental peace. Therefore, the efficient management of business activities becomes possible. Similarly, by taking group insurance policy for employees and by taking policy of assets, businessmen can claim compensation from the insurance company. All this helps in enhancing the efficiency of business.
(v) Protects the interests of employees :
Insurance provides protection to employees also, because in case of business losses, they will also be adversely affected. They can loose their jobs or can be deprived of various benefits like gratuity, bonus, pension, etc. The employer can take different types of insurance policies to protect the interest of the workers and employees.
(vi) Promotes foreign trade :
Import and export trade is usually affected by marine perils, failure to receive payment from foreign buyers and other losses. Insurance helps in the development of foreign trade by settling insurance claims against losses of ships, cargo, vessel freight and other related risks and uncertainties.
(vii) Reduces cost :
Insurance enables a manufacturer to sell the product at lower price because through insurance he is able to cover many risks of production in exchange for a small premium. In the absence of insurance plans, the business has to bear risks of different nature like fire, riots, strikes, dacoity, explosion, theft, accidents, natural calamities, marine losses, etc. All these types of risks are covered by insurance.
(viii) Financial assistance to industries :
All the insurance organisations provide long-term and short-term capital to commerical and industrial organisations. Insurance companies also extend credit facilities to those financial institutions that provide longterm credit to business organisations. Therefore, we can say that insurance directly assists in establishment and development of industries.
(ix) Underwriting of shares and debentures :
Insurance companies undertake underwriting of new issue of shares and debentures of newly-formed public companies. By subscribing to the shares and debentures of newly-formed companies, they resolve their problem of finance and capital.
(x) Contribution in management :
The insurance companies hold the right to appoint an efficient and effective person as a director in the board of directors of that business organisation which has taken loan from insurance companies. This not only protects the interest of insurance companies, but it also helps in keeping the management of business house very strong and dynamic.
(xi) Contribution to the development of stock market :
Investment in stock market securities by the insurance companies has been helpful in creating and promoting good investment avenues in the country. They not only invest in shares and debentures, but also accept private placement offers, thus making direct investment in the securities issued by industries and business organisations.
Social Significance of Insurance :
- Safety and security of the family :
Insurance brings stability in life of people in the society. The death of the bread earner of a family can disturb and destruct the lives of his dependents. Life insurance not only provides financial security and safety to a person, but also protects the family from disintegration.
- Distribution of risk :
Insurance distributes the risk of a person among a large number of people. That is why it is considered to be a cooperative device of bearing the risks collectively. In words of Riegel & William, “Insurance represents the highest degree of cooperation for mutual benefits”.
- Prevention of social evils :
Lack of education and economic evils like unemployment induce people to get into evils like theft, dacoity, prostitution and other social evils. Insurance helps a person and his family to become self-sufficient economically by providing coverage against life and property.
- Signifies developed culture :
Insurance signifies progressive and developed social culture. The countries without insurance are said to be the backward ones.
- Improves standard of living of people :
Insurance is a means of earning and savings, investment and transferring the risk. Insurance helps a person to become economically self-sufficient, strong, relieved from economic worries by insuring against risk and by providing direct employment to large number of people.
- Awareness towards health :
By the method of publicity, insurance creates awareness among the people about the need of medical investigations, prevention of diseases, self precautions and maintaining good health. While taking health insurance policy, medical checkup is compulsory and it proves to be of importance for the insured.
- Promotes education :
Insurance facilitates and encourages educational opportunities in the society. Insurance companies support education for children. They encourage higher education by providing the facility of educational loan.
- Development of employment opportunities :
Insurance companies provide employment to large number of people directly and indirectly. Thousand of people are working in insurance companies as development officers, branch managers, agents, clerks, etc. More than 85,000 people are employed in GIC and 1,50,000 people in LIC. Number of agents working in government and private agencies is in lakhs.
- Fulfillment of social responsibility:
Each person in a society has a responsibility towards other people in different roles for example, a father has responsibility towards his family, employer towards his workers, producer towards customers, etc. Insurance helps the people in the society to successfully meet their economic liabilities and social responsibilities.
- Helps in implementation of social responsibility :
Through insurance, the plans of social security of poor and backward sections of society can be implemented and enforced. In our country, government has started many plans beneficial for societies. These schemes and plans ensure social security to weaker and backward sections of societies. For example Pradhan Mantri Jeevan Jyoti Beema Yojana, Atal Pension Yojana, Pradhan Mantri Suraksha Beema Yojana.
- Economic Independence :
Insurance helps the society in becoming economically independent. By pooling small savings of the insured and distributing the losses of the huge risk among many, insurance makes all the people in society economically self-reliant.
- A means of social change :
Insurance is an important means of social change. Supporting this statement, Mehr & Cammack have aptly said, “Insurance can be an important means of social change. It is a measure of bringing important change in the mind sets, standard of living, lifestyle, etc. of the people in society.” .
RBSE Class 12 Business Studies Chapter 13 Additional Questions
RBSE Class 12 Business Studies Chapter 13 Very Short Answer Questions
Define insurance in the words of Sir William Beveridge.
Sir William Beveridge defines insurance as, “The collective bearing of risk is insurance.”
Give a working definition of insurance.
Insurance is a method in which a large number of people exposed to similar risk make contribution to a common fund out of which, the losses suffered by the unfortunate few, due to accidental events, are made good.
Write two features of insurance.
Two features of insurance are:
- It is a cooperative device.
- It is a risk-bearing activity.
What is an insurance form?
An Insurance form is a written document by which insurance contract is done between two parties, the insurer and the insurance agent.
Differentiate between insurance and assurance.
By the term insurance, we mean possibility of risk but not certainty. By the term assurance, we mean certainty of risk.
Differentiate between insurance and gambling.
Insurance is done for providing security from existing risk. Gambling is done for entertainment and for creating risk for earning gain.
Write primary functions of insurance.
- Providing financial assistance against loss.
- Spreading risk from one to many.
Which organisation in India was established for regulation of insurance agencies ?
For regulation of insurance agencies in India, Indian Regulation Development Authority (IRDA) was established.
Define social insurance.
Social insurance is a scheme which provides weaker sections of society financial help by right which is collected from premium and government’s help.
Define unemployment insurance?
In case if an employee becomes unemployed due to some special reasons, he is provided financial help till next employment.
Insurance companies provide crop insurance to farmers, to protect them from which conditions?
- Climatic conditions
- Crop disease
- Machinery failure.
What is personal insurance?
Providing security from risk of life to an individual is called personal insurance.
What is properly insurance?
Permanent or temporary, living or non-living, all types of property insurance is called property insurance.
RBSE Class 12 Business Studies Chapter 13 Short Answer Type Questions (SA – I)
Insurance provides security from man-made risks. Explain.
Today, insurance sector is providing security to commercial organisations from man-made risks or human mis-conduct. General insurance companies and their assisting companies have launched various insurance schemes which cover losses from strikes, riots, misconduct, losses, theft, dacoity, etc. Commercial and industrial organisations are benefitted from these insurance schemes. Likewise, cash is also insured which is moved from one place to another physically. By this, business firms become tension free from possibility of robbery of cash and can do business without undue worries. Therefore, insurance agencies help in providing security from man-made risks. ‘
How has insurance contributed in capital formation?
Insurance sector has contributed in capital formation in the country, extensively. LIC and other insurance companies have collected huge amount of capital in the form of premium from country and abroad. Insurance companies have provided capital in almost every business sector in country. Insurance sector has provided capital worth ₹ 1,50,000 crore to the economy till 31st March, 2002. Out of this ₹ 20,000 crore has been provided to the private, joint and cooperative sectors, and the rest has been given to public entreprises. This capital has helped in completing many public projects and along with this, private, joint and cooperative firms have also benefitted.
RBSE Class 12 Business Studies Chapter 13 Short Answer Type Questions (SA – II)
Insurance has contributed in the development of basic infrastructure. Explain.
Insurance sector has contributed in the development of basic infrastructure, which has made possible in the provision of various facilities in the country. Industrial areas, transportation, electricity, store houses, farming, etc. have been developed through insurance. LIC, GIC and their assisting agencies have contributed largely in development of basic infrastructure. LIC alone has contributed ₹ 6,112 crore for electricity projects, 18,916 crore for housing projects and ₹ 1,736 crores for water supply projects and ₹ 343 crore for road projects till 31st March, 1999. Therefore, it is a clear that insurance sector has significantly contributed in the development of basic infrastructure.
RBSE Class 12 Business Studies Chapter 13 Long Answer Type Question
“Running business without insurance is impossible.” Explain.
Lord Hardwicke defines :
“Without insurance, no economy or trade can survive.”
Peter F. Ducker defines :
“It is not possible for industrial economy to work without insurance.”
In reality, today, in all types of business, insurance is compulsory. Insurance helps the entrepreneur by providing security from losses. It is a base of enterprise goodwill. It helps in providing financial support to business due to loss of important person for enterprise. It makes the enterprise efficient by providing a tension-free atmosphere, reduces the cost of product by providing cover from risk, helps in innovation and research, provides basic infrastructure for industries by capital formation. Insurance has helped very big corporate firms to develop and work in a tension-free atmosphere. Therefore, it is true that running business without insurance is impossible in today’s world.
Write prohibitive functions of an insurance agent.
An insurance agent is prohibited from doing certain functions through LIC Regulatory Act, 1972.
The important ones among them are :
- He is prohibited from collecting any fund or accept any risk on behalf of the corporation adversely by his acts.
- He is prohibited from depositing any advance installment of premium on behalf of the proposer or assured from his own pocket.
- He is prohibited from printing, publishing or circulating any leaflets, handbills or advertisement, letters heads, etc. relating to life insurance in any media, without prior permission of the divisional manager.
- He is prohibited from granting any rebate or commission to any proposer or assured.
- He is prohibited from doing the insurance business without holding a valid license.
- He is prohibited from interfering in the matter of other agents.
Differentiate between insurance and assurance.
Following are the points of differences between insurance and assurance :
|Basis of difference||Insurance||Assurance|
|1. Meaning||Insurance refers to an arrangement which provides cover for an event that can happen, but not necessarily, like flood theft, fire, etc.||Assurance is a provision for coverage of an event whose happening is certain as death.|
|2. Based on||Principle of indemnity.||Principle of certainty.|
|3. Protection against||An anticipated event.||A definite event.|
|4. Timing for payment of claim||Only at the happening of uncertain event.||Either on the happening of the event or on maturity.|
|5. Duration||Only for one year, renewable every year.||Long-term, running over number of years.|
|6. Type||General insurance.||Life insurance.|
|7. Purpose||To indemnify the insured against any kind of risk.||To assure payment on the happening of specified event.|
|8. Policy||Taken to prevent a risk or provide against it.||Taken against an event whose occurrence is certain.|
|9. Insurer||Undertakes to reinstate the insured to his/her previous position.||Undertakes to pay the sum assured when the event takes place.|
|10. Insured||Undertakes to pay premium regularly, in exchange for indemnity against risk.||Undertakes to pay premium regularly in exchange for benefit on the occurrence of the event covered.|