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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Insurance

Caselet: Mr. Rao has two fire policies on the same warehouse: Insurer A with sum insured Rs 6 lakh and Insurer B with sum insured Rs 4 lakh. The warehouse is worth Rs 10 lakh. A fire causes a Rs 5 lakh loss. Under the principle of contribution, the amount Insurer B bears is:

Insurer B bears Rs 2 lakh. Under contribution, the loss is shared in proportion to sums insured: B's share is 4/10 of the Rs 5 lakh loss. Insurer A bears the remaining Rs 3 lakh, so the insured is indemnified exactly once.

  1. ARs 2.5 lakh
  2. BRs 3 lakh
  3. CRs 2 lakhCorrect
  4. DRs 4 lakh

Explanation

Contribution shares the loss in proportion to sums insured. B's share = 4/(6+4) x 5 lakh = Rs 2 lakh, and A bears Rs 3 lakh. Rs 2.5 lakh wrongly splits equally, Rs 3 lakh is A's share, and Rs 4 lakh is B's sum insured, not its liability.

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