IC38 Principles of Insurance MCQs (Free Practice Questions)

Looking for IC38 Principles of Insurance MCQs? Here are 30 important practice questions with answers and explanations to help you pass the IC38 exam on your first attempt. Practice these important IC38 MCQs on Principles of Insurance to strengthen your exam preparation. Each question includes the correct answer and a quick explanation.

IC38 Principles of Insurance MCQs

Q1. Which principle states that both parties must disclose all material facts?

A. Indemnity
B. Subrogation
C. Utmost Good Faith
D. Contribution

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✅ Correct Answer: C
Explanation: Both insurer and insured must disclose all important facts honestly.

Q2. The principle of indemnity ensures:

A. Profit to insured
B. Loss sharing
C. Compensation for actual loss
D. Premium reduction

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✅ Correct Answer: C
Explanation: It restores the insured to the original financial position before loss.

Q3. Subrogation means:

A. Sharing loss
B. Transfer of rights to insurer
C. Compensation to insured
D. Payment of premium

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✅ Correct Answer: B
Explanation: Insurer acquires the right to recover from third party after claim payment.

Q4. Contribution applies when:

A. One policy exists
B. Multiple insurers cover same risk
C. No insurance exists
D. Only life insurance is taken

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✅ Correct Answer: B
Explanation: Multiple insurers share the claim proportionately.

Q5. Insurable interest must exist at:

A. Claim stage only
B. Policy maturity
C. Policy inception
D. Any time

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✅ Correct Answer: C
Explanation: Insurable interest is required at the beginning of policy.

Q6. Which principle prevents the insured from making profit?

A. Indemnity
B. Utmost Good Faith
C. Subrogation
D. Contribution

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✅ Correct Answer: A
Explanation: Indemnity ensures no profit from insurance claim.

Q7. Which insurance does NOT follow indemnity?

A. Fire insurance
B. Marine insurance
C. Life insurance
D. Motor insurance

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✅ Correct Answer: C
Explanation: Life insurance pays fixed sum, not actual loss.

Q8. Material facts refer to:

A. Irrelevant details
B. Important information affecting risk
C. Premium amount
D. Policy document

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✅ Correct Answer: B
Explanation: Material facts influence insurer’s decision.

Q9. The principle of proximate cause deals with:

A. Premium payment
B. Nearest cause of loss
C. Policy duration
D. Risk sharing

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✅ Correct Answer: B
Explanation: It identifies the main cause of loss.

Q10. Contribution ensures:

A. Profit to insurer
B. Fair distribution of loss
C. No claim settlement
D. Higher premium

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✅ Correct Answer: B
Explanation: Loss is shared among insurers.

Q11. Insurable interest means:

A. Financial interest in subject matter
B. Emotional attachment
C. Legal dispute
D. Ownership only

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✅ Correct Answer: A
Explanation: Insured must suffer financial loss on damage.

Q12. Which principle applies after claim settlement?

A. Indemnity
B. Subrogation
C. Utmost Good Faith
D. Insurable Interest

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✅ Correct Answer: B
Explanation: Insurer can recover from third party.

Q13. Non-disclosure of material facts leads to:

A. Claim approval
B. Policy continuation
C. Policy void
D. Premium reduction

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✅ Correct Answer: C
Explanation: It violates utmost good faith.

Q14. Indemnity is based on:

A. Estimated value
B. Market value
C. Sentimental value
D. Future value

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✅ Correct Answer: B
Explanation: Compensation is based on actual market loss.

Q15. Proximate cause means:

A. Remote cause
B. Indirect cause
C. Immediate cause
D. Unknown cause

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✅ Correct Answer: C
Explanation: Closest cause responsible for loss.

Q16. Contribution is applicable when:

A. One insurer exists
B. Same risk insured by many
C. No insurance
D. Life insurance only

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✅ Correct Answer: B
Explanation: Multiple policies cover same subject.

Q17. Utmost good faith is also called:

A. Caveat emptor
B. Uberrimae fidei
C. Pro rata
D. Indemnity rule

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✅ Correct Answer: B
Explanation: Latin term meaning complete honesty.

Q18. Which is NOT a principle of insurance?

A. Indemnity
B. Subrogation
C. Gambling
D. Contribution

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✅ Correct Answer: C
Explanation: Insurance is not gambling.

Q19. Insurable interest in life insurance must exist:

A. At inception only
B. At claim only
C. Always
D. Never

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✅ Correct Answer: A
Explanation: Required at policy start.

Q20. Principle of indemnity applies to:

A. Life insurance
B. General insurance
C. Health only
D. Term plans

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✅ Correct Answer: B
Explanation: It applies to non-life insurance.

Q21. Subrogation prevents:

A. Fraud
B. Profit from claim
C. Double insurance
D. Premium increase

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✅ Correct Answer: B
Explanation: Ensures insured does not claim twice.

Q22. Contribution is based on:

A. Equal share
B. Proportionate share
C. Random share
D. Fixed share

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✅ Correct Answer: B
Explanation: Insurers pay proportionately.

Q23. Which principle is violated if false info is given?

A. Indemnity
B. Good faith
C. Subrogation
D. Contribution

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✅ Correct Answer: B
Explanation: False info breaks honesty requirement.

Q24. Which principle ensures fairness?

A. Indemnity
B. Contribution
C. Both
D. None

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✅ Correct Answer: C
Explanation: Both ensure fair claim settlement.

Q25. Insurable interest must be:

A. Illegal
B. Financial
C. Emotional
D. Temporary

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✅ Correct Answer: B
Explanation: Financial interest is required.

Q26. Which principle applies to third-party recovery?

A. Contribution
B. Subrogation
C. Indemnity
D. Good faith

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✅ Correct Answer: B
Explanation: Insurer recovers from responsible party.

Q27. The principle of indemnity avoids:

A. Loss
B. Profit
C. Risk
D. Premium

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✅ Correct Answer: B
Explanation: No profit allowed from insurance.

Q28. Proximate cause is used to:

A. Fix premium
B. Identify cause of loss
C. Increase coverage
D. Reduce claim

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✅ Correct Answer: B
Explanation: Determines valid claim cause.

Q29. Contribution applies only when:

A. Different risks
B. Same subject matter
C. No subject
D. Life insurance

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✅ Correct Answer: B
Explanation: Same risk must be insured.

Q30. Which principle is most fundamental?

A. Subrogation
B. Indemnity
C. Utmost Good Faith
D. Contribution

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✅ Correct Answer: C
Explanation: It is the foundation of insurance contracts.

Practice More

• Revise Chapter 3 Principles of Insurance Notes
• IC38 Introduction to Insurance MCQs (30 Important Questions with Answers)
• IC38 Mock Test Series

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