Accounts of Life Insurance Companies MCQs

Accounts of Life Insurance Companies MCQs
Advanced Financial Accounting MCQs
Multiple Choice Questions and Answers

Choose the correct option:

1. The Indian Insurance Act was enacted in the year:

a) 1938

b) 1956

c) 1972

d) 2002

2. Life Insurance Corporation (LIC) was nationalized in the year:

a) 1935

b) 1950

c) 1956

d) 1964

3. Insurance business in India is regulated by:

a) SEBI

b) RBI

c) IRDA

d) Government

4. Fixed payment at regular intervals made by the insured for a contract of insurance is called:

a) Commission

b) Premium

c) Bonus

d) Sum assured

5. Life insurance contract is a contract of:

a) Indemnity

b) Guarantee

c) Both of the above

d) None of the above

6. A valuation balance sheet is prepared by

a) A trading company.

b) A banking company.

c) A life insurance company.

7. Which of the following are the statutory books of Insurance Companies?

a) Register of policies

b) The Register of claims

c) The Register of Licenced Insurance Agents

d) All of the above

8. In case of life insurance companies, premium shall be recognised as income when:

a) It is received

b) It is due

c) When policy comes into force

d) Premium is not an income

9. In case of life insurance companies, which account is preapred to ascertain profit?

a) Revenue account

b) Profit and Loss account                           

c) Valuation balance sheet           

d) None of these

10. Valuation balance sheet is

a) A statement of assets and liabilities on a particular date.

b) Prepared to determine profit by comparing Life Assurance Fund with net liability.

c) A statement of all assets and liabilities as market value.

d) None of the above

11. In life insurance business , claims may arise on account of:

a) Death of policy holder

b) Maturity

c) Death or maturity

d) None of these

12. The agreement of insurance between insurer and insured is called as:

a) Policy

b) Premium

c) Annuity

d) None of these

13. Double insurance is common in _______ Insurance.

a) Life insurance  

b) Fire insurance

c) Marine insurance

d) Health insurance

14. The consideration in insurance for covering the risk is called:

a) Claim

b) Premium

c) Annuity

d) None of these

15. Match the following:

Whole life policy

The sum assured is given to the beneficiary only on death of policy holder.

Endowment policy

The sum assured is given on maturity or on the death of the insured.

Annuity

Specific amount is paid to the policy holder till his death.

Health plus policy

Medical insurance plus benefit of investment.

16. An arrangement between two insurance companies whereby one transfers a part of risk to other company is called:

a) Re-insurance

b) Double insurance

c) Joint insurance

d) Maha insurance

17. Revenue account is also called:

a) Profit and loss account

b) Shareholder’s account

c) Policyholder’s account

d) Creditors’ account

18. Match the following:

Schedule 1: Premium (Net)

Includes First premium, renewal premiums and single premium

Schedule 2: Commission

Includes commission paid + commission on re-insurance accepted – commission on re-insurance ceded

Schedule 3: Operating exp.

Office expenses + legal and audit fees + adv. & publicity

Schedule 4: Benefits paid (net)

Claims by death + claims by maturity + annuities paid surrenders + bonus

State whether the following statements are true or false:

1.    Life insurance is more appropriate to be called life assurance. [True]

2.    All insurance contracts are contracts of indemnity. [False]

3.    Life insurance contract is a contract of guarantee.                          [True]

4.    Life insurance contract is a contract of indemnity. [False]

5.    There is no difference between a wagering contract and contract of insurance. [True]

6.    Bonus payable on maturity of the policy is called reversionary bonus. [False]

7.    A life insurance business is said to have earned profit only if its life assurance fund exceeds its net liability on all outstanding policies. [False]

8.    Life assurance fund represents profits of the life insurance company.  [False]

9.    Surrender value paid is shown in the Revenue account in Schedule 4: Benefits Paid (Net).  [True]

10. A balance sheet of a life insurance company is called a ‘Valuation balance sheet’. [False]

Fill in the blanks:

1.    Life insurance is more appropriate to be called life assurance.

2.    Life insurance combines the elements of protection and savings.

3.    Revenue accounts of insurance companies are prepared under the provisions of IRDA Regulation’ 2002.

4.    Valuation balance sheet is prepared in case of life assurance business only to ascertain surplus or deficit.

5.    Annuity is an expense and it is shown under the head benefits paid (Schedule 4).

6.    Consideration for annuities granted is a source of income for a life insurance companies.

7.    Revenue account of Life Insurance companies: Form A - RA

8.    Profit and loss account of Life Insurance companies: Form A – PL

9.    Balance sheet of Life Insurance companies: Form A – BS.

10. Revenue account of life insurance and general insurance companies have 4 schedules.

11. Reinsurance premium whether ceded or accepted has been shown on gross basis before deducting commission.

12. Commission on reinsurance ceded is an income for a life insurance companies.

13. Commission on reinsurance accepted is an expense for a life insurance companies.

14. Liabilities under existing policies are determined by actuarial valuation.

15. Insurance is a contract between two parties where on party is called insurer and other party is called insured.

16. Bonus in reduction of premium is both at expense and income in revenue account.

17. The purpose of preparing the valuation balance sheet is to ascertain the Profit or loss made by life insurance business.

18. Valuation balance sheet is prepared once in every Two years in the case of life insurance business.

19. When an insurance company finds the risk heavy, part of the risk is insured with another company. Such a procedure is known as Reinsurance.

20. The excess of net liability over the ‘Life Assurance Fund’ represents the Deficiency for the inter-valuation period.

21. The concept of surrender value of a policy is peculiar to Life insurance only.

22. The concept of double insurance is peculiar to Life insurance only.

23. TDS on interest and dividends earned by a life insurance companies should be included in balance sheet under the head “Advance taxes paid and TDS”.

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