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LIC AAO notification which was released on Mar 2, 2019, has come up with a new section for Mains exam viz. Insurance and Financial Market Awareness. This section will have 30 questions of 2 marks each and should be solved within 20 minutes. The minimum qualifying marks for is 30 (27 for SC/ST). As the name indicates the Insurance and Financial Market Awareness Section will have questions pertaining to general awareness of Insurance and Financial Markets. If prepared well, this section can be high scoring. Answering a question takes less time as there is no solving involved. Either you know the answer or you don’t know the answer.

We have already published an article on the Definitions of Important Financial Terms for competitive exams. Here is the second part of this article. To ease out your preparation, we have now come out with the Important Terms of Insurance Industry.

Free PDF of Insurance and Financial Market Awareness Definitions




Actual Cash Value The cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence
Actuarial Science A discipline that applies mathematical and statistical methods to assess risk in insurance, finance and other industries and professions
Actuary A person with expertise in the fields of economics, statistics and mathematics, who helps in risk assessment and estimation of premiums etc for an insurance business
AD&D Accidental Death and Dismemberment Insurance is a policy that pays benefits to the beneficiary if the cause of death is an accident. This is a limited form of life insurance which is generally less expensive.
Agent A person licensed by state to sell Insurance. The Agents serve as an intermediary between the insurance company and the insured.

l Captive Agent – One who sells Insurance of a specific Company

l Independent Agent – One working independently and selling Insurance of many companies.

Annuity A long-term contract sold by an insurance company designed to provide payments to the holder at specified intervals, usually after retirement
Banccasurance Banccasurance means selling of insurance products through banks. The insurance companies and the banks come up in a partnership wherein the bank sells the tied insurance company’s insurance products to its clients via cross-selling.
BCAR Best’s Capital Adequacy Relativity is a rating of the strength of an insurance company’s balance sheet. It examines an insurer’s leverage, underwriting activities, and financial performance and uses this information to test various scenarios to see how each would impact the insurer’s balance sheet. The basic formula for BCAR is adjusted policyholders’ surplus (APHS) divided by net required capital (NRC).
Broker A specialist in insurance and risk management. Brokers act on behalf of their clients and provide advice in the interests of their clients. Insurance brokers can be best described as a kind of super-independent agent.
Burglary Insurance When the insurance company undertakes to indemnify  the insured against losses from burglary
Casualty  Insurance It is primarily concerned with losses caused by injuries to persons and legal liability imposed upon the insured for such injury or for damage to property of others. It also includes such diverse forms as plate glass, insurance against crime, such as robbery, burglary and forgery, boiler and machinery insurance and Aviation insurance.
Coinsurance An amount, generally expressed as a fixed percentage, an insured must pay against a claim after the deductible is satisfied.
Composite Insurance Companies Insurance companies which sell both life and non-life insurance
Convertible Insurance Plan It allows insured to convert a term policy to a permanent policy at a later date. This plan is designed to meet the needs of those who are initially unable to play larger premium required for whole life insurance plan.
Death claim A type of claim made by the nominee of the insured to the insurance company due to death of the insured
Encumbrance A claim on property, such as a mortgage, a lien for work and materials, or a right of dower. The interest of the property owner is reduced by the amount of the encumbrance.
Endowment Life Insurance A life insurance policy which, apart from covering the life of the insured, helps the policyholder save regularly over a specific period of time so that he/she is able to get a lump sum amount on the policy maturity in case he/she survives the policy term.
Fidelity Insurance A protection against the risks of loss on account of embezzlement or defalcation of cash or misappropriation of goods by employees
Fire Insurance A contract whereby the insurer, on payment of premium by the insured, undertakes to compensate the insured for the loss or damage suffered by reason of certain defined subject matter being damaged or destroyed by fire.
Freight Insurance When freight is payable by the owner of cargo on safe delivery at the port of destination, the shipping company may insure the risk of loss of freight if the cargo is damaged or lost. This insurance is called Freight Insurance.
Group Life Insurance A type of insurance coverage offered to a group of people, usually, employees of a company, members of a union or association etc
Hull Insurance Where the ship is the subject matter of insurance
Insurable and Uninsurable Risks A risk that conforms to the norms and specifications of the insurance policy in such a way that the criterion for insurance is fulfilled is called insurable risk. In case of a scenario where the loss is too huge that no insurer would want to pay for it, the risk is said to be uninsurable.
Insurable Risk A situation that an insurance company will protect you against because it is possible to calculate how likely it is to happen, how much damage it will cause, etc.
Insurance Retention The amount of money an insured person or business becomes responsible for in the event of a claim
Joint Life Insurance Plan These policies are designed to cover couples or partnership in the event of either partner’s death.
Lapse Ratio The ratio of number of life insurance policies that lapsed within a given period to the number  in force at the beginning of that period.
Lapsed Policy A policy for which all benefits to the policy holder cease and is terminated due to non-payment of premium amount on the due date or even after the grace period
Life Insurance A contract whereby the insurer undertakes to pay a certain sum either on the death of the insured or on the expiry of a certain number of years. In return, the insured agrees to pay an amount as premium either in a lump sum or in periodical installments.
Marine Insurance An agreement (contract) by which the insurance company (also known as underwriter) agrees to indemnify the owner of a ship or cargo against risks, which are incidental to marine adventures. It also includes insurance of the risk of loss of freight due on the cargo. There are 4 types of Marine Insurance policies:

l Time Policy

l Voyage Policy

l Mixed Policy

l Floating Policy

Maturity claim A maturity claim is sent along with the original policy document to the insurance company before the maturity date to get timely settlement from the insurance company as a post dated cheque or ECS (Electronic Clearance Service) payment on the maturity date.
Maturity Date A date on which the principal amount of a note, draft, acceptance bond or other debt instrument becomes due and is repaid to the investor and interest payments stop
Micro Insurance Plan Offers coverage to low income households are micro insurance
Mortality Charge Amount charged every year by the insurer to provide the life cover to the policyholder on the life of the Life Insured
Motor Vehicle Insurance Insurance of all types of motor vehicles passenger cars, vans, commercial vehicles, motor cycles, scooters, etc. Covers the risks of damage of the vehicle by accident or loss by theft, and also risks of liability arising out of injury or death of third party involved in an accident.
Paid up value If the insured have paid premiums for minimum of three years and they couldn’t pay premium any further, the policy doesn’t get cancelled and the sum assured is reduced in proportion to the number of premiums paid by the insured.
Principles of Insurance l Utmost Good Faith

l Insurable Interest

l Principle of Indemnity

l Principle of Contribution

l Principle of Subrogation

l Principle of loss Minimization

l Principle of CAUSA PROXIMA

Property Insurance Covers a wide variety of items from goods in transit or in store to building or contents
Reinsurance An insurance that an insurance company buys for its own protection. The risk of loss is spread so a disproportionately large loss under a single policy doesn’t fall on one company. Reinsurance enables an insurance company to expand its capacity; stabilize its underwriting results; finance its expanding volume; secure catastrophe protection against shock losses; withdraw from a line of business or a geographical area within a specified time period.
Single Life Insurance Plan This policy covers one person only and pays out the chosen amount of cover if that person dies, during the length of the policy, after which the policy would end.
Surrender Value An amount a policyholder will get from the insurance company if he decides to exit the policy before maturity. Surrender value is payable only after the payment of premium of three full years.
Term Insurance Plan This policy provides the insured person coverage for a certain period of time.
Terminal bonus Also known as persistency bonus which is paid once, i.e. at the time of maturity of the policy. It is a sort of loyalty bonus given to a policyholder for maintaining the policy till maturity. Its value is not guaranteed and will be disclosed only at the time of policy maturity.
Third Party Administrators They are a vital link between health insurance companies, policyholders and health care providers.The TPAs maintain databases of policy holders and issue them identity cards  with unique identification numbers and handle all the post policy issues including claim settlements.
ULIP Unit Linked Insurance Policy is a product offered by insurance companies that, unlike a pure insurance policy, gives investors both insurance and investment under a single integrated plan.
Whole Life Insurance It is a life insurance contract with level premiums that has both insurance and an investment component.


Hope the above study material help you in your preparation. Wait for the next article in this series of Insurance & Financial Market Awareness. Also, consider taking a Free Mock Test of LIC AAO to get a frank assessment of your performance.

LIC AAO Study Material

S. No.Topic

Topics of Insurance Market Awareness

1History of the Insurance sector in India
2Opening Up of the Insurance Sector
3Current Scenario of the Life Insurance Industry
4What is Insurance?
5Principles of Insurance
6An Overview of Life Insurance
7An Overview of General Insurance
8Insurance and Industries/ Business
9All about IRDA
10Roles and Functions of IRDA
11Insurance Regulatory Framework
12An Overview of LIC
13Other institutions in Indian Insurance Market like Insurance Ombudsman
14An Overview of Bancassurance
15An Overview of ULIPs
16Various Government Insurance Schemes
17Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB – PM-JAY)
18Pradhan Mantri Suraksha Bima Yojana (PM – SBY)
19PM Jeevan Jyoti Bima Yojana (PMJJBY)
20PM Fasal Bima Yojana (PM-FBY)
21Other Important Government schemes
22Insurance and Financial Market Awareness Definitions- PDF- Part 1

Topics of Financial Market Awareness

1Indian Financial System- An Introduction
2An Overview of Capital Market
3An Overview of Money Market
4Definitions of Different Types of Money Market Instruments
5Primary and Secondary Market
6Financial Institutions- Banking and Non-Banking
7All about RBI
8Roles and Functions of RBI
9Other Market Regulators like SEBI
10Payments Banks and Small Banks
11Secondary Market and its Instruments
12Mergers, Amalgamations and Takeovers
13Important World Financial Bodies – World Bank, IMF etc.
14An Overview of Bond Market
15Insurance and Financial Market Awareness Definitions- PDF- Part 2

Wishing you all the best for your preparation!

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