Non-Life Insurance Products: formula sheet

Key formulas

Indemnity payout (basic)

Claim payable = lower of (actual loss, sum insured)

Before any deductible. You cannot gain from a loss.

Payout with deductible

Claim payable = (Loss − Deductible), limited to sum insured

This assumes the deductible is applied to the loss before the cap. The order depends on the policy wording, and some policies apply the deductible after the sum insured cap. Check the wording.

Contribution (ratable proportion)

Insurer's share = (Its sum insured ÷ Total sum insured of all policies) × Loss

Used when the policies cover the same risk and same interest. Each share is also limited to that insurer's sum insured.

Average (underinsurance)

Claim = (Sum insured ÷ Value of property at loss) × Loss

Applies only if the policy has an average clause. If the sum insured is less than the value, you bear part of the loss.

Subrogation limit

Insurer's recovery ≤ amount paid to the insured

Any surplus recovered above the insurer's payment belongs to the insured.

Indemnity payout

Payout = lower of (admissible expenses − co-pay − deductible, sum insured available)

Sub-limits can reduce admissible expenses further. Follow the order in the question or policy.

Co-payment

Insured's share = co-pay % × admissible claim

Applies to each admissible claim. The insurer pays the balance.

Top-up

Payout = single claim − deductible (up to top-up sum insured)

Each claim is tested separately against the deductible.

Super top-up

Payout = aggregate claims in the year − deductible (up to super top-up sum insured)

Claims in the year are added together before the deductible applies.

Floater vs individual

Floater: one shared sum insured; Individual: separate sum insured per person

A floater can be used up by one member.

Portability

Credit for waiting periods served is carried to the new insurer, up to the previous sum insured

Extra cover bought at the new insurer starts its own waiting periods. Verify the application timing in current IRDAI rules.

Permanent total disability payout

PTD benefit = 100% × Sum insured (as per policy)

Percentages are set by each policy. Check the benefit table in the question.

Permanent partial disability payout

PPD benefit = Table percentage × Sum insured

The table percentage depends on the body part lost or impaired.

Temporary total disability payout

TTD benefit = Weekly benefit × Number of weeks of disability (up to the policy maximum)

Paid only while disabled. It stops at the weekly cap or maximum weeks.

Total claim with several benefits

Total payable = Sum of the benefits, subject to the overall sum insured

Follow the policy. Death after a permanent disability claim does not usually pay twice for the same sum.

PA vs health rule

PA = fixed benefit on accident event; Health = indemnity of actual expenses

Use this to separate the two in any comparison question.

Average clause

Claim = Loss × Sum insured ÷ Value of property at the time of loss

Applies only when the sum insured is less than the value. The claim never exceeds the sum insured.

Underinsurance test

Sum insured < Value of property → average applies

If the sum insured is equal to or above the value, the full loss is paid, up to the sum insured.

Building valuation basis

Sum insured (building) = Reinstatement cost, excluding land

Land is not damaged by fire, so exclude its value.

Indemnity limit

Payout ≤ lower of actual loss and sum insured

You cannot profit from a claim. Any excess or deductible is further subtracted as per the policy.

Professional indemnity

Claim by client for negligent advice or service → PI policy responds

Covers legal liability and defence costs for errors or omissions. It does not cover deliberate fraud or dishonesty.

Public liability

Injury or property damage to a third party (public) → public liability responds

Covers harm to outsiders, not your own property or your own employees.

Indemnity limit

Claim payable = lower of (loss after deductible, sum insured or limit)

Use for any liability or cyber question with a limit and deductible.

Travel cover match

Medical, baggage, delay, cancellation, passport loss, personal accident

These are the core travel covers. Pre-existing illness and adventure sports are usually excluded unless added.

Claim sequence

Intimation → Documents → Survey/Verification → Decision → Settlement (or repudiation) → Grievance

Use this order to eliminate options that put settlement before intimation or survey.

Cashless vs reimbursement

Cashless: insurer pays network hospital. Reimbursement: insured pays first, insurer repays later

Reimbursement is the only route at a non-network hospital.

Claim payable with deductible and co-pay

Payable = (Admissible loss − Deductible) × (1 − Co-pay %), capped at the sum insured

Check the policy wording for the exact order in which the terms apply. This is a common model for exam arithmetic.

Grievance escalation

Insurer's grievance officer → insurer's senior level → IRDAI grievance channel → Insurance Ombudsman → consumer forum or court

Go to the insurer first. Legal forums remain open as well.

Policy selection checklist

Need → Sum insured → Exclusions and waiting periods → Sub-limits and co-pay → Insurer service → Premium

Premium is the last factor, not the first.

Quick revision

• Non-life insurance covers risks other than death, mainly through indemnity contracts.
• Indemnity means compensation for actual loss, not profit from a loss.
• Insurable interest means you must stand to lose financially if the insured event happens.
• Utmost good faith means you must disclose all material facts honestly.
• Sum insured is the maximum the insurer will pay, not a promised payout.
• Co-payment is a share of the claim you bear; a deductible is an amount subtracted before the insurer pays.
• Waiting periods and exclusions can delay or deny a health claim.
• Personal accident and disability covers often pay a fixed benefit rather than actual expenses.
• Motor third-party cover is legally required in India; own-damage cover is separate.
• Under-insurance of property can reduce your claim proportionately.
• Liability policies cover legal liability to others, not your own loss.
• Check the policy wording and documents first when a claim is delayed or rejected.

Common mistakes

• Mixing up contribution and subrogation. Fix: Contribution is among insurers (many policies). Subrogation is against a third party who caused the loss.
• Paying the full sum insured as the claim. Fix: It is only the maximum. Payout is the actual loss, up to the sum insured.
• Treating critical illness cover as reimbursement of hospital bills. Fix: Critical illness plans are usually fixed benefit and pay a lump sum on diagnosis of a listed illness.
• Confusing top-up with super top-up. Fix: Top-up tests each claim separately. Super top-up adds all claims in the year.
• Treating PA as a substitute for health insurance. Fix: Remember that PA pays a fixed benefit for accident outcomes and does not cover illness. Health pays actual medical expenses.
• Thinking PA pays for disease-related disability. Fix: Disability must arise from an accident. Disease-related income loss needs critical illness or other cover.
• Using market value including land to value the building. Fix: Use reinstatement cost of the structure only. Land is not lost in a fire.
• Applying the average clause when the sum insured equals or exceeds the value. Fix: Check first. Average applies only on underinsurance.
• Choosing public liability for a client's claim about negligent advice Fix: Advice or service errors by a professional go to professional indemnity. Physical injury or property damage to the public goes to public liability.
• Assuming travel insurance covers every pre-existing illness Fix: Pre-existing conditions are usually excluded or restricted. Read the exclusions.

Exam tips

• Learn one-line definitions of each principle. Questions often test the exact wording and the trap of swapped principles.
• Expect small calculations on deductible, contribution and average. Write the order of steps before computing.
• Remember the timing rule: non-life insurable interest must exist at the time of loss.
• Negative marking is 25% of the marks assigned to the question: 0.25 on a 1-mark MCQ and 0.5 on a 2-mark caselet question in X-B. Eliminate options before you guess, since a guess between two options has positive expected value.
• Expect definition questions that ask you to separate indemnity from fixed benefit.
• Practise the top-up versus super top-up contrast, since it is a favourite trap.
• In caselets, read the client's budget and existing cover before choosing a product.
• Wrong answers cost marks, so skip if you cannot separate co-pay from deductible.