1. Risk financing refers to a technique which ensures that funds will be available to reduce or avoid losses when they occur. True or False? Explain and give an example.
2. Subrogation will be applying if insured losses are caused by the third party? True or False? Explain and give an example.
3. In third party liability insurance, third party cannot be the insured and the members of their family. True or False? Explain?
4. Permanent life insurance provides insurance coverage throughout a specified period of time, as long as the necessary premiums are paid. True or False? Explain?
5. Non-financial risks are insurable risks. True or False? Explain and give an example.
EXPERT ANSWER
Q1:
FALSE: Risk financing is not treated as availalbility of funds when there are losses where as it is a method by which a firm can determine how to pay for losses in the most cost effective and timely manner. It can be made possible through various insurance schemes, hedging techniques, and alternative risk transfer schemes.
Q2:
TRUE: if the insured losses are caused by 3rd party, the insurance company will pay its clients and will use Subrogation to the 3rd party’s insurance company and claim the amount it paid to its client
Q3:
TRUE; In 3rd party insurance, the first party is considered as the insured, the 2nd party will be the insurance company and the 3rd party will be the one who has suffered any losses and is claiming the same. Since 1st party and 3rd party has a conflict of interest, both cannot be the same person or family members as this can be misused and is against the interest of insurance company. eg: Automobile insurance can be 3rd party insurance.
Q4:
TRUE; Permenant insurance policies have no expiry date ad will continue till lifetime unless Lapsed due to non payment of premiums.
Q5:
FALSE: Non financial risks cannot be calculated in terms of monetary value(eq choice of a poor brand) and hence are not insurable risk