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Question
State Whether the Following Statement Are True Or False (Give Reason)
The principle of indemnity is applicable to life insurance.
Options
True
False
Solution
This Statement is False.
- Indemnity means a guarantee or assurance to put the insured in the same position in which he was immediately prior to the happening of the uncertain event.
- The insurer undertakes to make payment of actual loss incurred by the insured.
- An insurance contract is signed only for getting protection against unpredicted financial losses arising to the future uncertainties. Compensation is paid in proportion to the losses incurred.
- All the above quality of indemnity is not applicable to Life insurance as human life cannot be valued in terms of money for calculating the actual loss.
- Thus, the principle of indemnity is applicable to life insurance.
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Policy value = ₹ 80,000
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Amount of money paid in 10 years = `square`
Annualized average rate per bonus = ₹ 20 per thousand per year
For one year, bonus = `square/1000 xx 80,000`
= ₹ 1,600
Bonus for 10 years = `10 xx square`
= ₹ 16,000
Total amount after 10 years = `square + 16000`
= ₹ `square`
Property value = ₹ 12,50,000
Rate of premium, r = ₹ 3%
If property is 80% insured
Policy value = 80% of its property value
= `square/100 xx 12,50,000`
= ₹ 10,00,000
Premium = `square/100 xx 10,00,000`
= ₹ `square`
