Top 35 Most Asked Insurance Interview Questions and Answers
1) What is Insurance?
Insurance is a type of contract represented by a policy. It is a contract between the policyholder and the insurance provider. Insurance is a kind of protection from financial loss. It is a form of risk management and is mainly used to hedge against the risk of an uncertain loss. It is a great way to manage your risks. When a person buys insurance, they get protection against unexpected financial losses. The insurance company pays them a contractual amount if something bad happens to them.
An insured individual or entity receives financial protection or reimbursement against losses from an insurance company. If a person doesn't have any insurance and an accident happens, he may be responsible for all the related costs. So, it is always a good idea to have the right insurance.
2) What do you understand by an insurance policy?
The insurance policy is a written contract between the policyholder and the Insurer. An entity or organization which provides insurance is called an insurer, an insurance company, or an underwriter, and the person or entity who buys the insurance is called a policyholder.
Insurance policies are mainly used to hedge against the risk of financial losses, both big and small, resulting from damage to the insured or their property or liability for damage or injury caused to the third party.
3) What do you understand by the term "insurance coverage"?
The term "insurance coverage" specifies that when an individual takes an insurance policy from an insurer or an insurance company, the insured things will be covered by the insurance company for a specific amount for themselves or the things that he had taken the insurance policy. It is a type of agreement that consists of some points according to the premiums paid by the policyholder. The person who takes an insurance policy has to pay premiums to the insurance company. According to their insurance coverage, the insurance company has to pay the insured in case of damage or claims made by the insured according to their "insurance coverage".
4) What are the different types of Insurance Coverage?
There are mainly two different types of Insurance Coverage:
5) What is a premium? How does an insurance company determine the premium?
A premium is a price or amount the policyholders have to pay for a contract of insurance to the insurance company. It is the price paid for protection from an uncertain loss, hazard, or harm. It can be paid monthly, quarterly, or annually according to their plan, in return for the coverage the policyholders have taken from the insurance company.
The word "premium" is derived from the Latin word "praemium", which means "reward" or "prize."
Insurance premiums are mainly determined by the likelihood of the insured things having a loss or a setback out of their control and are based on specific types of risk that are predictive of loss. Things that have lower risks also have a good chance of lower premiums.
6) What do you understand by the term "Beneficiary"?
The term "Beneficiary" is used for that person who gets nominated for the insured amount if the policyholder dies.
7) What is the key difference between "revocable beneficiary" and "irrevocable beneficiary" in insurance?
The "revocable beneficiary" is a designation in which the policyholder has all the rights to change the beneficiary name without the consent of the named beneficiary. On the other hand, the "irrevocable beneficiary" is a designation in which the policyholder must ask for the beneficiary's consent before changing the beneficiary's name. In this condition, the policyholders cannot change the beneficiary's name without their consent, even if they have purchased the insurance and paid the premiums.
8) What do you understand by "Insured" and "Insurer"?
The terms "Insured" and "Insurer" are used in the Insurance industry. Here, the insured is the person or organization that holds the policy, and the term Insurer specifies the company that covers the insured and pays the compensation.
9) What do you understand by the "contestable period" in an insurance policy?
In an insurance policy, the "contestable period" is usually a time of 1 or 2 years. The insurance company holds all the right to investigate the policy and the policyholders and decide whether to pay or not to pay the insured within this period.
10) What do you understand by no-claim bonus? What are its main benefits?
As the name suggests, a "no-claim bonus" or NCB is a benefit or a reward for the insurance policyholders who have not claimed insurance during the preceding year of coverage.
Advantages of no-claim bonus
The biggest advantages of a no-claim bonus are as follows:
11) What should you keep in mind while buying an insurance policy?
You should keep the following things in your mind while buying an insurance policy:
12) What do you understand by the "declaration page" in the insurance policy?
A declaration page is an official document or copy that contains all the information of the policyholder like name, address, vehicle information, type of coverage, and loss payee information. It is updated when you make changes during your policy term. For example, if you add a new endorsement, your insurance provider company updates the declaration page and sends you a revised copy.
13) What are the different types of benefits included in a personal accident policy?
Following is a list of the different types of benefits or coverage normally provided under a personal accident policy:
14) What do you understand by "Loss Payee"?
As the name suggests, the "Loss Payee" is a person or the bank that receives the insurance payment after losing the property or vehicle that the insurance policyholder owns. According to the laws, it is a clause in the insurance policy. It is used to cover the investment of other parties or banks from where you have got the loan against your vehicle or your property. For example, if you have a car on loan and have insurance for that car, if you met an accident, and your car is completely damaged beyond repair, your bank still owes money. When you claim the insurance, the insurance company will pay money directly to the bank or person you owe money. Here the bank is a loss payee.
15) What do you understand by "Deductible" in Insurance? Why is it added to insurance?
In the context of insurance, the deductible is a decided amount that a policyholder has to pay from his pocket before the insurance company starts paying to the policyholder. In other words, we can say that an insurance company is liable to pay the claim amount only when it exceeds the deductible.
Reasons behind adding deductible in insurance:
16) What do you understand by the term "Annuity"?
In Insurance, the term "Annuity" specifies a policy issued by the insurance company to promise the policyholder a fixed income for the lifetime. It is a fixed amount of money that the policyholder gets each year for the rest of their life. According to this contract between the policyholder and the insurance company, the insurance company has to pay you either immediately or in the future after a certain period.
The policyholders get this payment monthly or quarterly. This is the best insurance policy for supplementing income after retirement to help you handle some of the basic living costs.
17) What are the main reasons behind buying travel insurance? / Why is it important to get travel insurance?
Travel insurance is one of the most important things you should buy if you travel with your family, especially abroad. It is important while traveling abroad because it covers several risks. For example, medical risks, travel risks, and also flight disruptions.
The following list specifies the main reasons to buy travel insurance:
Travel insurance covers against general risks of travel
The biggest advantage of travel insurance is that it covers risks during travel such as loss of passport and personal belonging cover, loss of checked-in baggage, etc. It ensures an additional layer of protection against financial loss. For example, if your flight is canceled for any reason, having travel insurance will give you compensation up to a particular limit as per coverage terms & conditions. Without travel insurance, it may be a very costly affair for you.
It covers medical emergencies during traveling.
A travel insurance policy covers the cost of medical treatment up to a specific limit. If you face any medical emergencies during traveling, the insurance company will reimburse the medical or accident treatment costs up to a particular mentioned limit. Insurance companies consist of a list of network hospitals where you can get treatment.
Travel insurance covers trip disruptions.
Suppose you face any trip disruptions that may cause you to cancel your trip or curtail your trip due to any reason. In that case, the policyholder gets coverage for canceled bookings, entire trip cancellations according to the policy, and terms & conditions against each cover.
It assists the policyholders.
The travel insurance companies provide all types of assistance in the case of any problems on your trip. You can get guidance to file your claims correctly and help you find a network hospital for treatment.
Along with these facilities, the travel insurance assists in losing your baggage, belongings, and money, losing your passport, personal liability, delayed baggage, travel delays, hijacking, repatriation, etc.
18) What do you understand by the term Co-insurance?
Co-insurance specifies a policy usually offered by health insurance companies. In this policy, the policyholder has to share the coverage with the insurance policy in a percentage of the policy value after paying the deductible or co-payment. Usually, it is an 80% and 20% split where the policyholder has to pay 20% while the insurance company pays 80% of the covered amount.
For example, suppose you have a health insurance policy for 120000 rupees, and the deductible amount is 20000. So after paying the deductible, the remaining amount is 100000, and the co-insurance is 80/20. You will have to pay 20000 out of your pocket, and the insurance company will pay the remaining 80000.
19) What are the different types of examples of Insurance?
Following is the list of the most common types of Insurance:
20) What do you understand by the Surrender Value?
The term Surrender Value specifies an amount the policyholder will get from the life insurance company if they decide to exit the policy before maturity. Eventually, it is a loss for the policyholders because they don't fulfill the insurance company's criteria. Some other names of surrender value are surrender cash value or, in the case of annuities, called annuity surrender value.
For example, suppose you have paid 15000 rupees (5000 per year x 3) in the initial three years for a sum assured of 1.5 lakh rupees, and you decide to exit the policy before maturity, so the minimum surrender value you can get is 30% of 10000, which is 3000 rupees.
21) What do you understand by Paid Value?
The paid value is an amount when the insurance policyholder stops paying the premiums after a specific duration but does not withdraw the amount. The policyholder gets the amount at the end of the term. In this case, the insurance company provides an assured amount but is reduced proportionally according to the time when the policyholder has stopped paying the premium.
The deduction from the matured amount depends on how soon before the maturity period that person has requested the paid value. In other words, we can say that when a person who has purchased insurance stops paying premiums after a specific duration, the insurance policy remains active but with a lower assured amount. This reduced amount is called paid value or paid-up value.
22) What do you understand by the term "Loss Payee"?
The term "Loss Payee" specifies a party, an institution, or a person that receives the insurance payment in the case of the loss of a vehicle or property they own. In the event of a loss, the payment is made under the policy concerning the insured, and it would go to the third party rather than to the beneficiary of the same.
It acts as a guard for the lender to protect it against unpaid loans. For example, suppose you have bought a car on loan and have car insurance. So, if your car would be crashed within the loan's payment duration, the money would go to the bank from where you have taken a car loan rather than your account.
23) Is it a good idea to replace the policy with another policy with better returns?
It depends on the situation. If you are an insurance policyholder and it is not long after you have bought the policy, you can replace the policy with another policy if you see better returns. But if you have purchased that policy long ago and already paid many premiums, then it is not advisable as you will lose all the benefits of the previous policy. Also, the premium will go high as you grow older. Another issue you will see in this case is that the two-year contestability period will also begin again.
24) What is the procedure to claim an insurance policy?
If you are an insurance policyholder, then you can follow the steps given below to claim an insurance policy:
25) What would happen if an insurance policyholder fails to make required premium payments? / What happens if a person doesn't pay premium payments?
Generally, every insurance company provides a grace period of 10-15 days to the insurance policyholders if they fail to pay the premium before the due date. However, if the policyholders don't pay the premium even in the grace period, their policy will lapse. After that duration, if the policyholders want to revive their policy, they would have to pay the due premium and interest charged on the premium since the due date to revive the policy. Different insurance companies have different norms for reviving their lapse policies.
On the other hand, if the policyholder paid premium payments for a substantial duration, i.e., generally more than 2-3 years, and then they stop paying the premium, the insurance company will deduct the premium from the accumulated sum. It continues till there is an available fund. After that, the company terminates the policy. This is common practice with permanent life insurance policies.
26) What is the difference between a participating policy and a non-participating policy?
Following is the key difference between a participating policy and a non-participating policy:
In a participating policy, the insurance company has to share its generating profit with the policyholders and gives them dividends.
On the other hand, in a non-participating policy, the company doesn't share any profits with the policyholders.
27) Can a beneficiary claim the insurance policy if the insurance policyholder has been missing for multiple years?
The concept of adding a beneficiary and an insurance policy was introduced to deal with these types of cases when the insurance policyholder died suddenly or has been missing for multiple years. So, yes, a beneficiary can claim the insurance policy if the insurance policyholder has been missing for multiple years, but a few conditions must be fulfilled.
These conditions are as follows:
28) Is it safe to pay the premium through an insurance agent? / Can an insurance policyholder pay the premium through an insurance agent? Is it safe to do so?
Yes, paying the premium through an insurance agent is safe. Generally, in India, people choose to pay the premium through their agent, but they must keep something in their mind.
29) What do you understand by a general insurance policy? What does it cover?
In India, there are mainly two types of insurance policies: general insurance and life insurance. The general insurance policy generally covers legal liabilities, travel, accident, health, personal property (house or car), machinery breakdown, theft, etc. The general insurance policies are also called non-life insurance policies. These insurance policies generally offer payments according to the loss from a specific financial event.
30) What is the free look period in an insurance policy? Can an insurance policyholder get the full payment on canceling the new policy in the free look period?
In insurance policies, a free look period is a time or duration when the insurance policyholders can cancel their newly bought policy without any penalties or surrender charges. Generally, it is a period of 10 to 15 days, but it depends on the insurance company and can vary. During the free look period, the policyholder can decide whether or not to keep the insurance policy. If the policyholders are not satisfied with the benefits or services, they can cancel the contract and receive a full refund.
So, it is possible to get a full refund if the policyholder cancels the insurance policy within the free look period.
Note: Free-look period is available only for life insurance policies.
31) What do you understand by the term elimination period in insurance?
The term elimination period is used in health insurance policies. It specifies a time between an injury and the receipt of benefit payments. In other words, we can say that the elimination period is the duration between the beginning of an injury or illness and getting the benefit payments from the insurance company. The companies with a longer elimination period charge lower premiums and vice versa.
32) Is it possible for a person to take two life insurance policies and claim both?
Yes, a person can take two life insurance policies and claim both.
33) What do you understand by assessment year and previous year in the context of income tax?
According to income tax law, the previous year is when income is earned. On the other hand, the assessment year is when the income earned is assessed. In other words, income earned this year is taxable in the next year and is also known as the assessment year. According to the layman's language, the current financial year is the previous year. For example, 2020-21 is the previous year, and 2021-22 is the assessment year.
34) Is it possible for a policyholder to limit the premium payments for a smaller amount of years than its duration?
It depends on the policies of the insurance companies. Some insurance companies provide the facility where the policyholder can pay premium payments in three, five, seven, or ten years according to their income and get the whole coverage they would have received within the usual duration.
35) What do you understand by the term "no physical exam" in the context of insurance policy?
The term "no physical exam" is used in health insurance and life insurance policies. Some insurance companies use this term to increase their policyholders or customers. These insurance companies provide freedom to the policyholders to take policy and skip the mandatory physical test by certain life insurance companies. The insurance companies which provide this facility are more expensive, and the policyholders have to pay a higher premium on their policy.