The seven legal principles behind every valid claim — and the two government schemes that insure crores of Jan Dhan accounts for less than the price of a cup of tea a month. Covers the meaning and fundamental principles of insurance, classification, group and micro insurance, social security schemes, Bancassurance, the Insurance Ombudsman Scheme, and PMJJBY/PMSBY — with 50 exam-style MCQs with hidden answers.
Note: For the history, FDI norms, reinsurance and intermediaries side of insurance, see our companion Insurance Companies guide — this page focuses on the products and principles.
1 Meaning of Insurance
🛡️
Risk Pooling & Transfer
Insurance is a contract (policy) under which an insurer agrees, in return for a premium, to compensate the insured against a specified loss or risk — a mechanism for pooling and transferring risk away from any single individual.
2 Fundamental Principles of Insurance
🤝
Utmost Good Faith
Both parties must disclose all material facts honestly (Uberrima Fides).
💰
Insurable Interest
The insured must have a genuine financial stake in the subject matter insured.
⚖️
Indemnity
Compensation restores the insured to their pre-loss financial position — no profit from a claim (applies to general insurance; life insurance is a "benefit" policy, exempt from strict indemnity).
➗
Contribution
If multiple policies cover the same risk, insurers share the claim proportionately.
🔄
Subrogation
After paying a claim, the insurer steps into the insured's shoes to recover losses from a negligent third party.
🎯
Proximate Cause
The dominant, most direct cause of a loss must be a covered peril for the claim to be valid.
A seventh principle, Loss Minimisation, requires the insured to take reasonable steps to minimise loss once an insured event occurs.
💡
Memory Trick: "Uncle Ivan Is Cooking Soup, Please Mind!"
Utmost good faith, Insurable interest, Indemnity, Contribution, Subrogation, Proximate cause, loss Minimisation — the seven core principles of insurance.
JAIIB tip:Life insurance is NOT a contract of indemnity — since human life has no measurable monetary value, the full sum assured is paid regardless of the insured's actual financial dependents' loss.
3 Classification of Insurance
👤
Life Insurance
Covers the risk of death/survival; a "benefit" policy, not indemnity-based.
🏠
General/Non-Life Insurance
Fire, Marine, Motor, Health, Liability, Engineering and other property/casualty lines — indemnity-based.
4 Types of Insurance Business
Type
Covers
Fire Insurance
Loss/damage to property from fire and allied perils
Marine Insurance
Loss/damage to cargo/vessels during transit
Motor Insurance
Vehicle damage and third-party liability
Health Insurance
Medical expenses due to illness/injury
Liability Insurance
Legal liability to third parties
Life Insurance
Death/survival benefit to the insured/nominee
5 Group Insurance Schemes
A Group Insurance Scheme uses a single master policy to cover a defined group — typically an organisation's employees or an association's members — under uniform terms. Risk pooling across the group and lower administrative/underwriting costs make group cover cheaper per person than equivalent individual policies. Common examples: employer-provided group life, group health and group personal accident cover.
6 Micro Insurance
Micro Insurance products are designed for low-income individuals — small premiums, small sums assured, and simplified underwriting/documentation. IRDAI's dedicated Micro Insurance framework enables distribution through channels like NGOs, SHGs, MFIs and RRBs, directly furthering financial inclusion.
7 Insurance-Based Social Security Schemes
💉
Ayushman Bharat — PMJAY
Launched 2018; provides ₹5 lakh health cover per family per year to poor/vulnerable families.
Government life and accident insurance schemes (Section 10 below).
🧓
Atal Pension Yojana (APY)
A pension-linked social security scheme (covered in our Pension Funds guide).
8 Bancassurance
🏦
Banks as Insurance Distributors
Bancassurance is the distribution model where banks sell insurance products — typically as corporate agents of a partner insurer — through their existing branch network, leveraging customer relationships and reach for low-cost, high-volume insurance distribution.
9 Insurance Ombudsman Scheme
The Insurance Ombudsman Scheme provides policyholders a free, quick grievance-redressal mechanism for insurance disputes (claim delays/rejections, service deficiencies) — without needing to approach a court. Ombudsmen are located across regional zones in India, and complaints up to a specified value threshold can be filed.
JAIIB tip: This is the insurance-sector parallel to RBI's Banking Ombudsman/Integrated Ombudsman Scheme (see our Banking Structure guide) — both give consumers a free, out-of-court redressal route.
JAIIB tip: Both schemes are enrolled and renewed via auto-debit from the linked savings account (often a PMJDY Jan Dhan account) — making banks the primary enrolment channel, another direct link to Bancassurance.
✓ Key Takeaways
Insurance pools and transfers risk via a premium-for-compensation contract.
Seven core principles: Utmost Good Faith, Insurable Interest, Indemnity, Contribution, Subrogation, Proximate Cause, Loss Minimisation — Life Insurance is exempt from strict indemnity.
Group Insurance pools risk under one master policy; Micro Insurance serves low-income segments via NGO/SHG/MFI/RRB channels.
Bancassurance uses bank branches to distribute insurance; the Insurance Ombudsman Scheme gives free, court-free grievance redressal.
PMJJBY: ₹2 lakh life cover, ₹436/year. PMSBY: ₹2 lakh accidental death cover, ₹20/year — both enrolled via bank-account auto-debit.
📝 Top 50 JAIIB-Style MCQs on Insurance Products
Test your understanding with these 50 practice MCQs, closely modelled on the JAIIB (IE & IFS) exam pattern. Each question has 5 options — the correct answer is hidden by default; tap "Show Answer" to reveal it along with a short explanation.
🛡️ Meaning of Insurance
1 Insurance is fundamentally a mechanism for:
A. Guaranteeing profit on every transaction
B. Pooling and transferring risk in exchange for a premium
C. Issuing currency
D. Setting interest rates
E. Regulating stock exchanges
Answer: B. Insurance pools and transfers risk for a premium.
⚖️ Fundamental Principles
2 The principle requiring both parties to disclose all material facts honestly is:
A. Utmost Good Faith
B. Subrogation
C. Contribution
D. Proximate Cause
E. Loss Minimisation
Answer: A. Utmost Good Faith requires full honest disclosure.
3 The principle requiring the insured to have a genuine financial stake in the insured subject matter is:
A. Indemnity
B. Insurable Interest
C. Contribution
D. Subrogation
E. Utmost Good Faith
Answer: B. Insurable Interest requires a genuine financial stake.
4 The principle ensuring the insured is compensated only for actual loss, not profit, is:
A. Indemnity
B. Subrogation
C. Proximate Cause
D. Insurable Interest
E. Utmost Good Faith
Answer: A. Indemnity restores pre-loss position, not profit.
5 Which type of insurance is NOT considered a strict contract of indemnity?
A. Fire insurance
B. Life insurance
C. Marine insurance
D. Motor insurance
E. Liability insurance
Answer: B. Life insurance is not an indemnity contract; it's a benefit policy.
6 If an insured has two overlapping policies covering the same risk, insurers share the claim under the principle of:
A. Contribution
B. Subrogation
C. Proximate Cause
D. Loss Minimisation
E. Insurable Interest
Answer: A. Contribution governs claim-sharing across overlapping policies.
7 After paying a claim, an insurer's right to step into the insured's shoes to recover from a negligent third party is called:
A. Subrogation
B. Contribution
C. Indemnity
D. Utmost Good Faith
E. Insurable Interest
Answer: A. Subrogation lets the insurer pursue recovery from a negligent third party.
8 The principle requiring the dominant, most direct cause of loss to be a covered peril for a valid claim is:
A. Proximate Cause
B. Contribution
C. Subrogation
D. Indemnity
E. Loss Minimisation
Answer: A. Proximate Cause identifies the dominant cause of loss.
9 The principle requiring the insured to take reasonable steps to minimise loss after an insured event occurs is:
A. Loss Minimisation
B. Indemnity
C. Contribution
D. Proximate Cause
E. Insurable Interest
Answer: A. Loss Minimisation requires reasonable mitigation efforts.
🗂️ Classification & Types
10 Insurance is primarily classified into Life Insurance and:
A. General/Non-Life Insurance
B. Only Health Insurance
C. Only Motor Insurance
D. Only Fire Insurance
E. No further classification exists
Answer: A. Life vs General/Non-Life is the primary classification.
11 Insurance covering loss/damage to cargo/vessels during transit is:
A. Fire Insurance
B. Marine Insurance
C. Life Insurance
D. Health Insurance
E. Liability Insurance
Answer: B. Marine Insurance covers transit cargo/vessel risk.
👥 Group Insurance
12 A Group Insurance Scheme uses:
A. A separate individual policy for each group member
B. A single master policy covering a defined group under uniform terms
C. No policy at all
D. Only foreign insurers
E. Only reinsurance treaties
Answer: B. A single master policy covers the whole group.
13 Group insurance is typically cheaper per person than individual insurance because of:
A. Risk pooling and lower administrative/underwriting costs
B. Government subsidy on every group policy
C. Zero risk to the insurer
D. Mandatory reinsurance for every group member
E. No underwriting is ever performed
Answer: A. Risk pooling/lower costs make group insurance cheaper per head.
🌱 Micro Insurance
14 Micro Insurance products are designed primarily for:
A. High-net-worth individuals
B. Low-income individuals, with small premiums and sums assured
C. Large multinational corporations
D. Foreign governments
E. Institutional investors only
Answer: B. Micro Insurance targets low-income individuals.
15 Micro Insurance is commonly distributed through channels like:
A. NGOs, SHGs, MFIs and RRBs
B. Only foreign stock exchanges
C. Only large corporate brokers
D. Only investment banks
E. No distribution channel exists
Answer: A. NGOs/SHGs/MFIs/RRBs are key micro insurance distribution channels.
🌾 Social Security Schemes
16 Ayushman Bharat (PMJAY) was launched in:
A. 2015
B. 2016
C. 2018
D. 2021
E. 1999
Answer: C. Ayushman Bharat (PMJAY) launched in 2018.
17 PMJAY provides a health cover per family per year of:
A. ₹50,000
B. ₹1 lakh
C. ₹5 lakh
D. ₹10 lakh
E. ₹2 lakh
Answer: C. PMJAY covers ₹5 lakh per family per year.
18 PMFBY, the crop insurance scheme, was launched in:
A. 2015
B. 2016
C. 2018
D. 2021
E. 1999
Answer: B. PMFBY was launched in 2016.
🏦 Bancassurance
19 Bancassurance refers to:
A. Banks accepting insurance premiums as deposits
B. Banks distributing insurance products through their branch network
C. Insurance companies issuing currency
D. RBI regulating IRDAI
E. Insurance companies becoming banks
Answer: B. Bancassurance is bank-channel insurance distribution.
20 A key advantage of Bancassurance for insurers is:
A. Low-cost, high-volume distribution via existing bank branch networks
B. Elimination of all regulatory oversight
C. Guaranteed zero claims
D. No need for any customer data
E. Exemption from IRDAI regulation
Answer: A. Bancassurance offers low-cost, high-volume distribution.
⚖️ Insurance Ombudsman
21 The Insurance Ombudsman Scheme provides policyholders:
A. A costly, lengthy court process only
B. A free, quick grievance-redressal mechanism without needing to go to court
C. No recourse whatsoever
D. Automatic claim rejection
E. Mandatory arbitration in a foreign country
Answer: B. The Ombudsman Scheme offers free, quick, court-free redressal.
22 The banking-sector equivalent of the Insurance Ombudsman Scheme is:
A. RBI's Banking/Integrated Ombudsman Scheme
B. SEBI's ICDR Regulations
C. The Factoring Regulation Act
D. The Hire Purchase Act
E. FEMA, 1999
Answer: A. RBI's Banking/Integrated Ombudsman is the banking-sector parallel.
☂️ PMJJBY & PMSBY
23 PMJJBY stands for:
A. Pradhan Mantri Jeevan Jyoti Bima Yojana
B. Pradhan Mantri Jan Jagriti Bima Yojana
C. Pradhan Mantri Jal Jeevan Yojana
D. Pradhan Mantri Jan Bima Yojana
E. Pradhan Mantri Jeevan Beema Yatra
Answer: A. PMJJBY = Pradhan Mantri Jeevan Jyoti Bima Yojana.
24 PMJJBY provides life cover of:
A. ₹50,000
B. ₹1 lakh
C. ₹2 lakh
D. ₹5 lakh
E. ₹10 lakh
Answer: C. PMJJBY provides ₹2 lakh life cover.
25 PMSBY stands for:
A. Pradhan Mantri Suraksha Bima Yojana
B. Pradhan Mantri Sarvajan Bima Yojana
C. Pradhan Mantri Samagra Bima Yojana
D. Pradhan Mantri Seva Bima Yojana
E. Pradhan Mantri Surakshit Bharat Yojana
Answer: A. PMSBY = Pradhan Mantri Suraksha Bima Yojana.
26 PMSBY covers:
A. Life insurance for any cause of death
B. Personal accident (accidental death/disability)
C. Health/hospitalisation expenses
D. Crop loss
E. Vehicle damage
Answer: B. PMSBY is personal accident insurance.
27 PMSBY's sum assured for accidental death/full disability is:
A. ₹50,000
B. ₹1 lakh
C. ₹2 lakh
D. ₹5 lakh
E. ₹10 lakh
Answer: C. PMSBY provides ₹2 lakh for accidental death/full disability.
28 PMSBY's sum assured for partial disability is:
A. ₹50,000
B. ₹1 lakh
C. ₹2 lakh
D. ₹5 lakh
E. Nil; no cover for partial disability
Answer: B. Partial disability under PMSBY is covered at ₹1 lakh.
29 Both PMJJBY and PMSBY were launched in:
A. 2014
B. 2015
C. 2016
D. 2018
E. 1999
Answer: B. Both schemes launched in 2015.
30 PMJJBY's eligible age band is:
A. 18-50 years (renewable up to 55)
B. 0-18 years only
C. 70-90 years only
D. No age limit at all
E. 60-100 years only
Answer: A. PMJJBY covers ages 18-50, renewable up to 55.
31 PMSBY's eligible age band is:
A. 18-70 years
B. 18-50 years only
C. 0-18 years only
D. No age limit whatsoever
E. 80-100 years only
Answer: A. PMSBY covers ages 18-70.
32 Both PMJJBY and PMSBY are enrolled and renewed primarily via:
A. Auto-debit from a linked bank/post office savings account
B. Cash payment at a stock exchange
C. Manual cheque submission to RBI
D. A one-time lifetime payment with no renewal
E. Foreign currency wire transfer only
Answer: A. Both schemes use bank-account auto-debit for enrolment/renewal.
33 PMJJBY's current annual premium is:
A. ₹20
B. ₹330
C. ₹436
D. ₹1,000
E. ₹5,000
Answer: C. PMJJBY's current premium is ₹436/year.
34 PMSBY's current annual premium is:
A. ₹12
B. ₹20
C. ₹100
D. ₹330
E. ₹436
Answer: B. PMSBY's current premium is ₹20/year.
🧩 Mixed / Comprehensive
35 Which of the following would violate the principle of Insurable Interest?
A. Insuring your own house against fire
B. Insuring a stranger's house with no financial stake in it
C. Insuring your own car
D. A company insuring its own factory
E. Insuring your own life for your family's benefit
Answer: B. Insuring an asset with no financial stake violates insurable interest.
36 Which of the following best illustrates the principle of Subrogation?
A. An insurer, having paid a motor claim, sues the negligent third-party driver to recover the payout
B. An insurer refuses to pay any claim ever
C. An insured deliberately conceals a material fact
D. Two insurers refuse to split a claim
E. An insurer issues a policy with no premium
Answer: A. This is a textbook subrogation scenario.
37 Which of the following claims would most likely be rejected under the Proximate Cause principle?
A. A claim where the dominant cause of loss was an excluded peril, even if a covered peril played a minor role
B. A claim where the sole and direct cause was a covered peril
C. Any claim submitted on time with full documentation
D. A claim under a group policy
E. A claim for a micro insurance product
Answer: A. A dominant excluded cause fails the Proximate Cause test.
38 Which of the following best explains why life insurance is treated differently from general insurance regarding Indemnity?
A. Human life has no measurable monetary value, so the full sum assured is paid regardless of actual financial loss
B. Life insurance never pays out any claim
C. Life insurance is regulated by SEBI, not IRDAI
D. Life insurance premiums are always zero
E. General insurance has no indemnity principle either
Answer: A. Life's immeasurable value makes it a benefit, not indemnity, policy.
39 An employer providing group life cover to all its employees under one policy is using:
A. Group Insurance
B. Micro Insurance exclusively
C. Reinsurance
D. Forfaiting
E. A credit default swap
Answer: A. This is Group Insurance.
40 Which of the following would most plausibly be distributed via an SHG-based Micro Insurance channel?
A. A small-premium life/health cover for a rural low-income household
B. A large corporate D&O liability policy
C. A marine cargo policy for an oil tanker
D. A reinsurance treaty for GIC Re
E. An aircraft hull insurance policy
Answer: A. Small-premium household cover fits the Micro Insurance/SHG channel.
41 Which of the following describes a plausible reason a bank would want to sell insurance via Bancassurance?
A. It generates fee income by leveraging the bank's existing customer base and branch network
B. Banks are legally required to sell insurance at a loss
C. Bancassurance eliminates the need for any insurer
D. It has no revenue implication for the bank
E. It is banned under the Banking Regulation Act
Answer: A. Bancassurance generates fee income leveraging the bank's reach.
42 Which of the following would be an appropriate first step for a policyholder with an unresolved insurance claim dispute, before escalating further?
A. Approach the insurer's own grievance cell, then the Insurance Ombudsman if unresolved
B. Immediately file a criminal complaint with no prior communication
C. Contact SEBI directly, bypassing IRDAI entirely
D. Wait 20 years with no action
E. Contact a foreign regulator
Answer: A. The insurer's grievance cell, then the Ombudsman, is the standard escalation path.
43 Which of the following is TRUE about the relationship between PMJDY and PMJJBY/PMSBY?
A. PMJDY (Jan Dhan) accounts are commonly used as the linked bank account for PMJJBY/PMSBY auto-debit enrolment
B. PMJDY has no connection to either insurance scheme
C. PMJJBY/PMSBY replaced PMJDY entirely
D. PMJDY is a health insurance scheme itself
E. PMJDY is regulated by IRDAI
Answer: A. PMJDY accounts commonly link to PMJJBY/PMSBY for auto-debit.
44 Which of the following would be classified as "General Insurance" rather than "Life Insurance"?
A. A motor own-damage policy
B. A term life policy
C. A ULIP
D. An endowment policy
E. A whole-life policy
Answer: A. A motor policy is General/Non-Life insurance.
45 Which of the following best captures why the Indian government offers PMJJBY/PMSBY at such low premiums?
A. To advance financial inclusion and provide affordable, basic social security to a broad population, including low-income groups
B. To generate maximum profit for the insurer
C. To eliminate all private insurance companies
D. Because the schemes carry no actual risk to insurers
E. Because premiums are irrelevant to policy design
Answer: A. Low premiums advance financial inclusion/social security goals.
46 Which of the following is an example of a violation of Utmost Good Faith?
A. An applicant concealing a pre-existing serious illness while buying a life policy
B. An applicant fully disclosing all known health conditions
C. An insurer paying a valid claim promptly
D. An insurer disclosing its own financial statements
E. A policyholder renewing on time
Answer: A. Concealing material facts breaches Utmost Good Faith.
47 Which of the following would most plausibly explain PMSBY's much lower premium compared to PMJJBY?
A. Accidental death/disability is statistically rarer than death from any cause, lowering the actuarial cost of cover
B. PMSBY offers no cover at all
C. PMSBY covers a much larger sum assured than PMJJBY
D. Premium levels bear no relationship to risk
E. PMJJBY is a free scheme with no premium
Answer: A. Lower accidental-cause probability justifies PMSBY's lower premium.
48 Which of the following government schemes is health-focused, distinct from PMJJBY/PMSBY's life/accident focus?
A. Ayushman Bharat (PMJAY)
B. PMFBY
C. Atal Pension Yojana
D. PMJJBY
E. PMSBY
Answer: A. PMJAY is the health-insurance-focused scheme.
49 Which of the following statements about the regulatory relationship between insurance products and IRDAI is accurate?
A. IRDAI oversees insurance product design, pricing norms, and consumer protection, including the Ombudsman framework
B. SEBI regulates all insurance products exclusively
C. RBI directly designs every insurance product
D. No regulator oversees insurance products
E. PFRDA regulates all insurance products
Answer: A. IRDAI oversees insurance products and consumer protection.
50 Overall, which statement best summarises the Insurance Products ecosystem covered in this guide?
A. A principle-driven (utmost good faith, insurable interest, indemnity, etc.) system of risk transfer, spanning group/micro products, Bancassurance distribution, Ombudsman-based grievance redressal, and affordable government social-security schemes like PMJJBY/PMSBY
B. An unregulated system with no consumer protection
C. A system limited exclusively to large corporates
D. A sector with no government involvement whatsoever
E. A system identical to banking with no distinct principles
Answer: A. This correctly captures the full insurance products ecosystem.
Disclaimer: This article is prepared for educational and exam-preparation purposes only. Scheme premiums/sums assured reflect the position as of September 2026 and are revised periodically by the government/IRDAI. Candidates should cross-check the latest official IIBF syllabus before the exam.
7 Insurance-Based Social Security Schemes
Ayushman Bharat — PMJAY
Launched 2018; provides ₹5 lakh health cover per family per year to poor/vulnerable families.
PMFBY
Pradhan Mantri Fasal Bima Yojana (2016) — crop insurance protecting farmers against yield loss.
PMJJBY / PMSBY
Government life and accident insurance schemes (Section 10 below).
Atal Pension Yojana (APY)
A pension-linked social security scheme (covered in our Pension Funds guide).