NCERT Solutions for Class 11 Business Studies Chapter 4

Explain briefly the principles of insurance with suitable examples.

The principles of insurance are explained below:

1. Principle of Utmost Good Faith: Uberrima fides is a Latin phrase meaning “utmost good faith”. It is the name of a legal doctrine which governs insurance contracts. This means that all parties to an insurance contract must deal in good faith, making a full declaration of all material facts in the insurance proposal. Any fraud or misrepresentation of facts can result into cancellation of the contract.
2. Principle of Insurable interest: The principle of insurable interest on life insurance is that a person or organization can obtain an insurance policy on the life of another person if the person or organization obtaining the insurance values the life of the insured more than the amount of the policy. In this way, insurance can compensate for loss. Absence of insurance makes the contract null and void. If there is no insurable interest, an insurance company will not issue a policy.
3. Principle of Indemnity: Indemnity is a guarantee to restore the insured to the position he or she was in before the uncertain incident that caused a loss for the insured. The insurance company promises to compensate the policyholder for the amount of the loss up to the amount agreed upon in the contract. This is a regulatory principle that provides compensation equivalent to the actual loss and not the amount exceeding the loss.
4. Principle of Subrogation: Subrogation is a term describing a legal right held by most insurance carriers to legally pursue a third party that caused an insurance loss to the insured. This is done in order to recover the amount of the claim paid by the insurance carrier to the insured for the loss. The principle of subrogation enables the insured to claim the amount from the third party responsible for the loss.
5. Principle of Contribution: The principle of contribution is implemented when multiple insurance policies are covering the same property or loss, the total payment for actual loss is proportionally divided among all insurance companies. If the same subject matter, except life is insured by more than one insurers, then the actual loss will be shared by all the insurers.
6. Principle of Mitigation: If means that the insured should try to minimise the loss of the subject matter of the insurer even if it is insured.
7. Principle of Proximate Cause: In law, a proximate cause is an event sufficiently related to an injury that the courts deem the event to be the cause of that injury. This principle is applicable when the loss is the result of two or more causes. The proximate cause means; the most dominant and most effective cause of loss is considered. This principle is applicable when there are series of causes of damage or loss.

Explain warehousing and its functions.

A warehouse is a building for holding or storing goods from the time of their production or purchase to final consumption. Warehouses are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They are usually large plain buildings in industrial parks on the outskirts of cities, towns or villages. It covers the gap between production and consumption. In addition to providing services of storage, warehouse also provides logistical service in a cost effective manner.
Functions of Warehouses:

1. Cost Effectiveness: Due to the storage space available goods can be stored and can reduce ordering cost significantly. It stores goods in surplus and there is no deficit at the time of demand.
2. Value Added Services: Warehouses also provide ancillary value added services like transit mixing, packaging and labelling.
3. Price Stabilization: Warehouses help to achieve equilibrium by equalizing demand and supply and helps achieve more stable prices of the product.
4. Financing: Warehouse owners advance money to owners of goods on the security of these goods and they also provide these goods on credit to customers. It can also help warehouse owners to borrow capital from banks.
5. Inventory Management: Warehouse owners can enhance inventory management skill and maintain proper records of inventory with methods like JIT system, LIFO, FIFO etc.
6. Consolidation: Consolidating is necessary for goods that are produced in small quantities but sold to customers in bulk. Warehouse help in consolidation of the goods

Write a detailed note on various facilities offered by Indian Postal Department.

Indian Post and Telegraph Department provides various postal services all over India. Various saving schemes are offered which includes:
1. Kisan Vikas Patra
2. National Savings Certificate
3. Fixed Deposit Scheme
4. Public Provident Fund
5. Recurring Deposit
6. Money order
Facilities of postal department are broadly divided

• a) Financial Facilities: Post and Telegraph Department provides financial services using post office’s saving schemes.
• b) Mail Facilities: It consists of facilities like parcel, insurance, registration etc. It consists of transmission of articles from one place to another.
• c) International Money Transfers: It enables money transfer from various countries in collaboration with Western Union Money Transfer.
• d) Passport Facilities: It works in tandem with Ministry of External Affairs and accepts application for passport.
• e) Speed Post: It provides fast and timely delivery of urgent posts.

Describe various types of insurance and exercise the nature of risks protected by each type of insurance.

Following are the types of insurance:

• a) Marine Insurance
• b) Fire Insurance
• c) Life Insurance

Explain in detail the warehousing services.

A warehouse is a building for holding or storing goods from the time of their production or purchase to final consumption. Warehouses are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They are usually large plain buildings in industrial parks on the outskirts of cities, towns or villages. It covers the gap between production and consumption. In addition to providing services of storage, warehouse also provides logistical service in a cost effective manner.
Primary warehousing services include the following:

1. Cost Effectiveness: Due to the storage space available goods can be stored and can reduce ordering cost significantly. It stores goods in surplus and there is no deficit at the time of demand.
2. Value Added Services: Warehouses also provide ancillary value added services like transit mixing, packaging and labelling.
3. Price Stabilization: Warehouses help to achieve equilibrium by equalizing demand and supply and helps achieve more stable prices of the product.
4. Financing: Warehouse owners advance money to owners of goods on the security of these goods and they also provide these goods on credit to customers. It can also help warehouse owners to borrow capital from banks.
5. Inventory Management: Warehouse owners can enhance inventory management skill and maintain proper records of inventory with methods like JIT system, LIFO, FIFO etc.
6. Consolidating is necessary for goods that are produced in small quantities but sold to customers in bulk. Warehouse help in consolidation of the good as it receives and consolidates goods from different production stations and dispatches it to customer on a single transportation shipment.

Secondary Functions of a Warehouse

1. Protection of goods: A warehouse provides protection to goods from all possible natural or unnatural loss or damage. It makes special arrangements for different products according to their nature. As all losses are borne by warehouse they take special measures in order to curb losses.
2. Risk Bearing: Warehouses also bear the accidental risk of storage of goods. Once the custody of goods are handed over to the ware housekeeper for storage, the responsibility of, these goods passes on to the ware housekeeper. Thus, any risk of spillage or brakeage of goods is borne by the warehouse keeper. It is the duty of warehouse keeper to return the goods in good condition, the warehouse becomes responsible for any loss, theft or damage etc.
3. Processing: Processing is a major step in converting the goods to consumable form. Certain commodities cannot be consumed in the form they are produced and go through processing.
4. Grading and branding: Warehouses also perform on demand functions of grading and branding of goods on behalf of the manufacturer, wholesaler or the importer of goods. They charge a fee for facilities for mixing, blending and packaging of goods for the convenience of handling and sale.