Q.(a) Explain the principles of Insurance. (any 5)

(a) The main principles of insurance are utmost good faith, insurable interest, indemnity, contribution, subrogation, proximate cause and mitigation of loss. (b) Income under the Income Tax Act consists of five heads: salaries, house property, business/profession, capital gains and other sources.

In the Tamil Nadu HSC Commerce syllabus, this Part-IV OR question covers insurance and direct taxes. Both alternatives are answered.

(a) Principles of Insurance (any five):

• Utmost good faith (uberrimae fidei): Both parties must disclose all material facts truthfully; concealment makes the contract voidable.
• Insurable interest: The insured must have a financial interest in the subject matter, so that its loss causes him a financial loss.
• Indemnity: The insured is compensated only for the actual loss suffered, not more — insurance restores the person to the former position (applies to general, not life, insurance).
• Contribution: If a property is insured with more than one insurer, each insurer shares the loss proportionately, so the insured does not gain more than the actual loss.
• Subrogation: After compensating the insured, the insurer acquires the insured's rights over the damaged property or against third parties responsible for the loss.
• Causa proxima (proximate cause): The insurer is liable only if the nearest/direct cause of the loss is a risk covered by the policy.
• Mitigation of loss: The insured must take all reasonable steps to minimise the loss when a mishap occurs.

(b) Items included in an Income (heads of income under the Income Tax Act):

• Income from salaries — wages, pension, allowances and perquisites received by an employee. …