Chapter 4 - Business Services

Goods
A good is a tangible item that can be supplied to a buyer and entails the transfer of
ownership from the seller to the buyer.

Services
Services are discreetly recognisable, basically intangible actions that satisfy
demands but are not always tied to the selling of a product or another service. For
example, banking services, telecommunication services etc,

Features of Services
1. Intangibility
● They cannot be touched. They are experiential in nature.
● Often, the quality of the item cannot be evaluated before consumption.

● Service providers should strive consciously to create a desired service in order

for the consumer to have a positive experience.

2. Inconsistency
● There is no such thing as a typical tangible product, hence services must be
performed uniquely each time.

● Customers have varying requirements and expectations in terms of services

they require.

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 ● Service providers must be able to adjust their offerings to better match the
needs of their clients.

3. Inseparability
● Simultaneous activity of production and consumption makes the production
and consumption of services seem to be inseparable.

● Services must be utilised in the order in which they are created.

● Service providers may use appropriate technology to create a substitute for

the person, but client interaction remains a fundamental aspect of services.

4. Inventory
● It is not possible to save services for later use.. That is, services are perishable,
and suppliers may only hold a limited amount of connected commodities, not
the service itself.
● This means that demand and supply must be regulated because the service
must be provided when the client requests it.

● They cannot be completed ahead of time and consumed later.

5. Involvement
● A service characteristic is the customer's involvement in the service delivery
process.
● Customers have the option of having services customised to meet their
individual needs.

Difference between goods and services

Basis Services Goods

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Nature An activity or process, A physical object, For
for example watching a example, video cassette
movie in a cinema hall. of movie

Type Heterogeneous Homogenous

Intangibility Intangible Tangible

Example; Doctor Example; medicine

treatment

Inconsistency Different customers Different customers

have different getting a standardized
demands. demand fulfilled.

Example; mobile Example; mobile

service may vary from phones
customer to customer.

Inseparability Simultaneous Separation of

production and production and
consumption takes consumption.
place.
Example; purchasing
Example; eating ice ice cream from a store.
cream in a restaurant

Inventory Cannot be kept in Can be kept in stock.

stock.
Example; train journey
Example; experience of ticket
a train journey.

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 Involvement Participation of Involvement at the time
customers at the time of delivery is not
of service delivery possible.
exists.
Example;
Example; Customer manufacturing a
tells the type of service vehicle
in a fast food joint.

Types of Services
1. Business services:
● Business services are those that are utilised by businesses in order to carry out
their operations.

● Banking, insurance, transportation, warehousing, and communication

services are just a few examples.

2. Social Services:
● Services that are generally supplied freely in the pursuit of particular social
goals are referred to as social services.
● These social aims could include raising the standard of living for the poorest
members of society, providing educational opportunities for their children,
and improving health and sanitation in slum regions.

● For example, certain Non-Governmental Organizations (NGOs) and

government institutions provide health care and education services.

3. Personal Services:
● Personal services are ones that differ in how they are received by various
clients. The nature of these services cannot be consistent.

● They will vary based on the type of service provided.

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 ● They will also be determined by the preferences and wants of the customers.
For example, tourism, recreational services, and restaurants.

Banking:
● Banking companies transact the business of banking for the aim of lending
and investing public money deposits repayable on demand or otherwise, and
withdrawable by checks, drafts, orders, or some other means.

● In simple terms, a bank accepts money on deposit that is repayable on demand,

as well as lending money to generate a profit margin.

Types of Banks

Basis Commercial Cooperative Specialised Central Bank

bank Banks Banks

Meaning They are Cooperative These banks The central

governed by banks are are foreign bank of any
Indian governed by exchange country
Banking provisions of banks, supervises,
Regulation state industrial controls and
Act 1949 and Cooperative banks, regulates the
according to it societies act. development activities of all
banking means banks, and the
accepting export-import commercial
deposits of banks that banks of the
money from cater to the country.
the public for unique
the purpose of demands of

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 lending or these
investment. operations.

Purpose Accepting It is meant These banks The central

deposits of essentially For are foreign bank of any
money from providing exchange country
the public for cheap credit to banks, supervises,
the purpose of their members. industrial controls and
lending or banks, regulates the
investment. development activities of all
banks, and the
export-import commercial
banks that banks of the
cater to the country.
unique
demands of Any country's
these currency and
operations. credit policies
are controlled
and
coordinated by
it.

Examples There are two a. Saraswat EXIM Bank RBI

types of bank cooperative
bank SIDBI
Public: In
which the Cosmos NABARD
government cooperative
has a major bank
number of
public sector
banks like SBI
PNB IOB etc.

Private Banks
are HDFC ,

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 ICICI, AXIS
etc.

Functions of Commercial Banks:

1. Acceptance of deposits:
● Because banks are both borrowers and lenders of money, deposits are the
foundation of loan operations. They pay interest as borrowers, and they
receive interest as lenders.

● Deposits are generally taken through a current account, saving account and
fixed deposit.
● Deposits in a current account can be withdrawn to the extent of the balance at
any time and without any specific, timely warning.
● Fixed accounts are time deposits that pay a greater interest rate than savings
accounts.

● A premature withdrawal is allowed, but the percentage of interest earned will

be lost.

2. Cheque facility:
● The cheque is the most advanced credit instrument, as well as a distinctive
feature and function of banks for deposit withdrawal.
● It is the most practical and cost-effective mode of exchange.

● There are two type of cheques:

○ Bearer cheques, which can be cashed at a bank counter right away.

○ Crossed checks; that should only be placed in the payee's account.

3. Lending of funds:
● From the money obtained through deposits, banks provide loans and
advances.

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 ● The advances can be made in the form of overdraft and cash credit discount
rate bills, common term loans, consumer credit and other miscellaneous
advances.

4. Remittances of funds:
● Because of the interconnection of branches, it is possible to move funds from
one location to another.

● Bank drafts, pay orders on mail transfer, and minimal commission charges are
all used to transmit monies.

5. Allied services:
● Bill payments, locker facilities, underwriting services come under this.
● Other services they provide include purchasing and selling shares and
debentures on behalf of clients, as well as other personal services.

E-banking:
● Online banking, often known as internet banking, e-banking, or virtual
banking, is an electronic payment system that allows bank or other financial
institution customers to execute a variety of financial transactions via the
bank's website.
● The word "internet banking" refers to the process of a client doing banking
transactions over the internet.

● This sort of banking makes use of the internet as the primary mode of delivery
for all banking transactions.

Benefits of E-banking:
● E-banking facilitates digital payments and increases financial statement
transparency.

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 ● Internet banking allows customers to conduct business transactions from
anywhere in the world as long as they have access to the internet (Apart from
periods of website maintenance).

● E-banking aids in the reduction of banking service operational costs. At a

cheap cost, better quality services can be provided.

● Lower operating cost results in higher interest rates on savings and lower rates
on mortgages and loans offered from the banks.

● Some banks offer high yield certificates of deposits and don't penalize
withdrawals on certificate of deposits, opening of accounts without minimum
deposits and no minimum balance.
● Electronic cash transfers allow online banking users to automatically fund
accounts from long-established bank accounts.
● A client can monitor his/her spending via a virtual wallet through certain
applications.
● Transactions are completed faster than with ATMs or traditional banking.

● Customers can get discounts from retail stores using credit cards and debit
cards.
● E-banking enables the bank to give consumers efficient, cost-effective, and
high-quality service. It aids the bank in attracting new customers and
successfully retaining existing ones.

● Customers can withdraw money from ATM machines at any time.

Insurance
● It is a contract or agreement in which one party (the insured) agrees to pay
another party (the insurer) an agreed sum of money (premium) when
something of worth in which the insured has a pecuniary stake is lost,
damaged, or injured. And, in exchange for the premium paid by the insured,
the insurer/insurance company agrees to assume the risk of the unforeseen
catastrophe and compensate the insured up to the agreed-upon amount.
● There are two major types of insurance:

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 o Life Insurance

o General Insurance.

● General insurance further includes

o Marine insurance

o Fire Insurance.

o Health Insurance.

o Burglary Insurance.
o Cattle Insurance.

o Crop Insurance.
o Vehicle Insurance etc.

Basic Terminology:
a. Insured: Insured is the one who takes up the insurance policy, and is exposed
to a certain risk.
b. Insurer: Insurer is the one who agrees to take the responsibility of the risk
the insured is exposed to.
c. Premium: It is a fee that the insured has to pay the insurer in return for the
risk taken up by the insurer on behalf of the insured.
d. Insurance Policy: It is a policy or document that specifies the terms and
conditions related to the insurance contract.

e. Sum assured: It is the amount for which the insurance policy is taken.

Features of Insurance
● Insurance is the exchange of a little monthly payment (premium) for the risk
of a significant potential loss.

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 ● The risk of loss still exists, but it is dispersed over a vast number of
policyholders exposed to the same risk.

● The premium paid by them is pooled out of which the loss sustained by any
policy holder is compensated.

● Risk is transferred from one party (Insured( to another party (Insurer).

● Insurance can be done for any type of risk, fire, threat, third party etc.

● Two parties are required namely the insured and the insurer for the insurance
contract to take place.

Functions of Insurance:
1. Certainty:
● Insurance tends to reduce the level of risks, and the insured receives the
payment for loss.
● The insurer charges for providing the certainty, in terms of premium.

2. Protection:
● Protection from probable chances of loss, such as loss due to fire, theft etc..
● Insurance cannot prevent a risk or event from occurring, but it can compensate
for losses incurred as a result of it.

3. Risk sharing:
● All those who have been affected by the loss, share it.

● Every insured member pays a premium to acquire their share.

4. Capital formation:
● The assets accumulated by insurers as a result of premium payments made by
the insured are invested in a variety of income-generating schemes.

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Principle of Insurances:

1. Principle Utmost Good faith:

● Insurance contracts require that both parties act with the utmost good faith.

● This means that both parties must provide all relevant information honestly
and completely. This not only measures the level of risk, but also helps
insurance companies accurately price premiums for insurance applicants.

● Insurance policies can be declared null and void if an applicant provides

wrong representation of material fact that was relied on by the insurance
company.

2. Principle of Insurable interest:

● The insurable interest requires that the owner of a particular insurance policy
has an insurable interest in the subject matter of the insurance policy. For
example, a wife having insurable interest in her husband’s life due to financial
dependency, a person’s interest in his property etc.

● In life insurance insurable interest must be present at the time of policy

implementation, but it is not required when claims are due.
● In fire insurance insurable interest on the subject matter must be present both
at time of effecting policy as well as when claim falls due.
● In marine insurance insurable interest must exist at the time the claim is due
or merely at the time of the loss.
● The insurance coverage in question may be null and void if there is no
insurable interest.

3. Principle of Indemnity:
● The indemnity concept ensures that an insurance contract protects and
compensates you in the event of damage, loss, or injury.

● An insurance contract's objective is to make you whole in the case of a loss,

not to allow you to profit.

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● Hence in case of insurance other than life insurance, one can only be
compensated for the amount of loss or the amount assured, whichever is
lower.

4. Principle of Proximate cause:

● When more than one event causes an accident or damage, the proximate cause
principle comes into play.

● The proximate cause insurance principle states that the nearest or closest cause
should be considered, and the insurance company will compensate only for
the causes that have been mentioned in the insurance contract, or any
proximate causes, and not the remote causes of damage.

5. Principle of Subrogation:
● In the insurance context, subrogation occurs when you are hurt by a negligent
third party and your insurance company reimburses you for your damages.

6. Principle of Contribution:
● This principle applies to all indemnity contracts. if the insured has taken more
than one policy on the same subject matter, the insured can only claim
reimbursement to the extent of actual loss from all insurers or from any one
insurer, according to this concept.
● Hence if a risk is insured from more than one insurer, and the loss amount is
less than the total sum assured, the insured will be compensated only for the
actual loss amount.
● For example, an insured has taken an insurance policy from three insurers of
Rs 50,000 each on the same subject matter, and the loss due to fire is only Rs
75000. So, in this case the insured will not get Rs 50,000 from each insurer,
instead he will be paid proportionately by all the insurers, in the ratio of sum
assured, such as 1:1:1, that is Rs 25000 from each insurer, or any other method
but the amount would not exceed Rs 75000.

7. Principle of Mitigation of Loss:

● You have an obligation as the owner of an insurance policy to take the
required precautions to minimise the loss of your insured property. You

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 cannot be careless or irresponsible simply because you are covered, according
to the law.

Types of Insurance

1. Life insurance:
● Life insurance is a contract in which the insurer agrees to pay the assured, or
the person for whose benefit the policy is taken, the assured sum of money on
the occurrence of a specified event contingent on human life or at the
expiration of a specified period, in exchange for a certain premium, either in
a lump sum or by other periodical payments.
● The policy is the written version of the agreement or contract that contains all
of the terms and conditions.
● The insured is the one whose life is protected..
● The insurance company is the insurer and the consideration paid by the
insured is the premium.

● The premium can be paid in instalments over time.

2. Fire insurance:

● In exchange for the premium paid, the insurer guarantees to make good any
loss or damage caused by fire over a specified period of time, up to the amount
specified in the policy.
● The fire insurance policy is usually for a year and must be renewed on a
regular basis.

● A claim for fire damage must meet the following two requirements:

o There must be a monetary loss.

o Fire must be unintended and accidental.

3. Marine Insurance:

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 ● A marine insurance contract is an arrangement in which the insurer agrees to
indemnify the insured against maritime losses in the way and to the extent
agreed upon.

● Marine insurance protects against losses caused by marine perils, often known
as sea perils. There are three factors to consider:

o Hull Insurance: Because the ship is exposed to several dangers at sea,

this insurance policy is designed to compensate the insured for losses
incurred as a result of ship damage.

o Cargo insurance: Cargo or the goods in the ship is exposed to

numerous dangers while being transported by ship, this insurance
covers the risk of voyage.
o Freight insurance: If the cargo is damaged or lost in transit, the
shipping business is not reimbursed for the freight payments, hence to
avoid this scenario, the shipping company takes up this insurance
policy.

Communication Services
● Business does not operate in a vacuum; it must communicate with others in
order to exchange ideas and information.
● To be effective, communication services must be efficient, accurate, and
quick. In today's fast-paced and competitive world, advanced technology is
critical for speedy decision-making.

● For example,

1. Telecommunication Services.

2. Postal Services

1. Telecommunication Services
● The key to the country's rapid economic and social development is world-
class telecommunication infrastructure.

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● Types of telecom services are:

a. Cellular mobile services: These are all types of mobile telecom services
including voice and non voice messages, data services and PPO services
utilising any type of network equipment within their service area.

b. Cable services: These are linkages and switched services within a licensed
area of operation how to operate media services, which are essentially one-
way entertainment related services.

c. Fixed line services: All sorts of fixed services, including voice and non-voice
communications, as well as data services, are used to establish linkage for
long-distance traffic. These make use of any form of network equipment,
which is typically connected by fibre optic cables.

d. VSAT services: VSAT (Very Small Aperture Terminal) is a satellite based

communication service. In both urban and rural locations, it provides
businesses and government organisations with a highly flexible and reliable
communication solution.
e. DTH services: DTH (direct to home) services are another satellite-based
media service offered by cellular providers.. With the help of a tiny dish
antenna and a set top box, one can receive media services directly from a
satellite.

2. Postal Services
● The Indian Postal and Telegraph Department provides a variety of postal
services throughout the country.

● The numerous services supplied by the postal department are essentially

classified into the following categories as a result of their regional and
divisional level arrangements:

● Financial facilities: These facilities are provided through the post

office's savings schemes like Public Provident Fund (PPF), Kisan Vikas
Patra, and National Saving Certificate.

● Mail facilities: Mail services include parcel services, which is the

transmission of articles from one location to another; registration

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 services, which ensures the security of the transmitted articles; and
insurance services, which provide coverage for any dangers faced
during postal transmission.

● Additional Services: Greeting cards, media mail, international money

transfers, speed mail, passport services, and e-billing.

Transportation Services
● Transportation includes freight services, as well as supporting and auxiliary
services, provided by all means of transportation, including rail, road, air, and
sea, for the movement of commodities and international passenger
transportation.

● Transportation removes the barrier of location, that means the production and
consumption of goods may not take place at the same place, hence to avoid
the distance between the production and consumption location, transportation
comes to rescue.
● Both government and industry must be proactive and consider the efficient
operation of this service as a need for providing a lifeline to a business.

Warehousing Services
● Economic expansion has always placed a premium on storage. Initially, the
warehouse was thought of as a static unit for maintaining and storing
commodities in a scientific and systematic manner in order to preserve their
original quality, worth, and utility.
● Warehouses have progressed from being merely storage facilities to becoming
cost-effective logistical service providers.
● This makes the correct quantity, at the right moment, in the right physical
form, and at the right price, available.

Types of warehouses:

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1. Cooperative warehouse
● Some marketing cooperative societies for agricultural cooperative
societies have set up their own warehouses for members of their
cooperative society.

2. Government warehouse
● The government operates and manages these warehouses.

● They are managed by the government through public-sector

organisations.

3. Bonded warehouse
● Bonded warehouses are government-licensed facilities that receive
imported products in exchange for payment of taxes and customs
duties.
● These are things that have been brought in from other countries. Porters
are not allowed to take items from the airport's pier until the customs
duty has been paid.

4. Public warehouse
● After paying a storage fee or charges, traders, producers, or any
member of the public can utilise public warehouses to store their goods.
● The operation of the residences is regulated by the government through
the issuance of licences.

● Flexibility in terms of the number of sites, no fixed costs, and the

possibility to provide value-added services like packing and labelling
are all advantages.

5. Private warehouse
● They are run, owned, or leased by a business that handles its own
products, such as retail outlets or multi-brand multi-product businesses.

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 ● Control, flexibility, and other advantages such as improved dealer
connections are all advantages of private storage.

Functions of warehousing:

1. Consolidation:
● The warehouses gather and consolidate material/goods from various
manufacturing units before dispatching them to a specific consumer via a
single transportation package.

2. Break the bulk:

● Warehouses are responsible for dividing large quantities of items received
from manufacturing companies into smaller quantities.
● The smaller quantities are then transported according to the requirements of
clients to their places of business

3. Stockpiling:
● The seasonal storing of commodities for certain businesses is the next role of
warehousing. Raw materials, which are not required immediately for sale or
manufacturing, are stored in warehouses. They are made available to
enterprises according to the number of consumers they have.

4. Value added services:

● Certain value added services are also provided by the warehouses, such as
transit mixing, packaging and labelling.When prospective buyers inspect
goods, they may need to be opened, covered, and labelled again.

5. Price stabilization:
● Warehousing acts as a price stabiliser by altering the supply of commodities
to match the demand scenario. As a result, when supplies rise and demand
falls, and vice versa, prices are kept in check.

6. Financing:

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 ● Warehouse owners advance money to the owners in exchange for security of
products, and then sell goods to clients on credit terms.

Difference between Life Insurance, marine insurance, fire insurance:

Basis Life Insurance Fire Insurance Marine

Insurance

Subject Matter Human life is the The subject matter is The subject matter
subject matter of any physical is ship, cargo or
life Insurance. property or any asset freight.
that could be
damaged due to fire.

Element Life insurance can Fire insurance has Marine insurance

be used for both only the elements of has only the
protection and protection and not elements of
investment. the elements of protection.
investment.

Insurable Insurable interest Insurable interest on Insurable interest

Interest must be present at the subject matter must exist at the
the time of policy must be present both time the claim is
implementation, at time of effecting due or merely at
but it is not policy as well as the time of the
required when when claim falls loss.
claims are due. due.

Duration A life insurance The average length Marine insurance

policy normally of fire insurance policy is for one
lasts longer than a coverage is one year or the period
year and is year. of voyage or
purchased for a mixed.
period of time

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 ranging from 5 to
30 years or for the
rest of one's life.

Indemnity The notion of A contract of Marine insurance

indemnity does indemnification is is a contract of
not apply to life what fire insurance indemnity. The
insurance. The is. Only the exact insured can claim
sum assured is amount of loss can the market value
paid either on the be claimed from the of the ship and
happening of a insurer by the cost of goods
certain event or on insured.The loss destroyed at the
maturity of the resulting from the sea and the loss
policy. fire is covered up to will be
the policy's indemnified.
maximum level.

Loss Loss is not Loss is measurable. Loss is

Measurement measurable. measurable.

Surrender Surrender value or Fire insurance has There is no

Value Or Paid paid up value is a no surrender value surrender value or
Up Value term used to or paid-up value. paid-up value for
describe the worth marine insurance.
of a life insurance
policy.

Policy Amount One can be The policy amount In marine

insured for any cannot exceed the insurance the
amount in life value of the subject amount of the
Insurance. matter under fire policy can be in
insurance. the market value
of the ship or
cargo.

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Contingency Of There is an The event, i.e., fire The event i.e., loss
Risk element of devastation, may not at the sea may not
certainty. The occur. No claim may occur and there
event i.e. death of be made in case no may be no claim.
a policyholder is damage occurs. There is an
bound to happen. Hence there is an element of
Therefore a claim element of uncertainty.
will be present. uncertainty.

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 Important Questions for Class 11
Business Studies
Chapter 4 - Business Services

Very Short Answer Questions 1 or 2 Marks

1. State the five I's of services?
Ans: The five I’s of services are:
 Intangibility
 Inconsistency
 Inseparability
 Inventory
 Involvement.

2. What is the meaning of Banking?

Ans: Banking companies transact the business of banking for the aim of lending
and investing public money deposits repayable on demand or otherwise, and
withdrawable by checks, drafts, orders, or some other means. In simple terms, a
bank accepts money on deposit that is repayable on demand, as well as lending
money to generate a profit margin.

3. It is the prime responsibility of the insured to take reasonable steps to

minimize loss/damage to the insured property. Name the principle of
insurance.
Ans: Principle of Mitigation of Loss.
This principle states, as the owner of an insurance policy, the insured has an
obligation to take the required actions to limit the loss of his/her insured property.
The insured can't be careless or irresponsible just because he’s insured. The
insured shall treat the insured thing with the same care as he or she would if the
insurance were not present.

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4. Define Insurance.

Ans: Insurance is a device that spreads the risk of a loss produced by an

unpredictable event among a group of people who are exposed to it and who
prepare to protect themselves against it. It's a contract or agreement in which one
party agrees to pay an agreed amount of money to another party in the event of a
loss, damage, or injury to something of value in which the insured has a pecuniary
interest as a result of an uncertain event in exchange for a consideration.

5. Rahul's father wants to save Rs. 100,000 so that he can gift the money to
Rahul on his graduation day. Which type of deposit should he open with the
bank?
Ans: Fixed Deposit should be opened with the bank. Fixed accounts are time
deposits with higher rates of interest as compared to savings accounts.

6. Name two companies that offer DTH service in our country?

Ans: Airtel, Tatasky offers DTH services in our country.

7. A company insures its stock against fire for Rs. 15 Lakh. A fire broke down
and the total stock was lost. At the time of the fire, there was stock worth Rs.
25 Lakh. What is the value of compensation the company would be entitled
to?
Ans: The contract for fire insurance is a rigorous indemnity contract. An insurance
contract's objective is to make you whole in the case of a loss, not to allow you to
profit. Hence in case of insurance other than life insurance, one can only be
compensated for the amount of loss or the amount assured, whichever is lower.
As a result, the value of compensation the company would be entitled to is Rs 15
lakh.

Short Answer Questions 3 or 4 Marks

8. Mr. Satish gets his house insured against fire of Rs. 20 Lakh with insurer A
and for Rs. 10 Lakh with insurer B. A loss of Rs. 3 Lakh occurred.

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(a) How much compensation can be claimed from A and B separately and
Why?
Ans: According to this principle, the insurer can only seek compensation from all
insurers or from a single insurer to the extent of the real damage. If one insurer
provides the full compensation, the other insurers must pay a proportionate share
of the claim.
Total value of insurance: Rs. 20,00,000 + Rs. 10,00,000 = Rs. 30,00,000
20, 00, 000
A's Contribution  3, 00, 000 
30, 00, 000

A’s Contribution = Rs. 2 Lakhs

10, 00, 000
B's Contribution  3, 00, 000 
30, 00, 000

B’s Contribution =1 Lakh

(b) Name the principle of Insurance in the above case.
Ans: Principle of Contribution is followed. If an individual purchases many
insurance policies for the same item, the insurers will pool their resources to
reimburse the insured for the real loss. The insured can only claim reimbursement
to the extent of actual loss from all insurers or from any one insurer, according to
this concept.
It applies when:
 Different policies cover the same subject matter;
 The policies cover the same period that generated the loss;
 All the policies are in force at the time of loss; and
 One of the insurers has paid the insured more than his share of the loss, the
right of contribution arises.

9. Explain the function of Insurance

Ans: Insurance's Functions are as follows:
 Certainty:

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 Insurance tends to reduce the level of risks, and the insured receives the
payment for loss. The insurer charges for providing the certainty, in terms of
premium.
 Protection:
Insurance provides protection from probable chances of loss, such as loss
due to fire, theft etc. Insurance may not prevent a risk or event from
occurring, but it can compensate for losses incurred as a result of it.
 Risk sharing:
All those who have been affected by the loss, share it. Every insured
member pays a premium to acquire their share.
 Capital formation:
The assets accumulated by insurers as a result of premium payments made
by the insured are invested in a variety of income-generating schemes.
 Promote effectiveness and motivation:
Insurance has made significant contributions to the progress of industry and
commerce. Insurance businesses provide a variety of services that have
resulted in today's large-scale industrial and commercial enterprises.

10. Explain the Difference between Goods and services based on its nature.
Ans: On the basis of nature, the following differences exist between services and
goods:

Basis of Services Goods

Comparison

Nature An activity or process, for A physical object, For

example watching a movie in a example, video cassette of
cinema hall. movie

Type Heterogeneous Homogenous

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Intangibility Intangible Tangible
Example; Treatment from a Example; medicine.
doctor.

Inconsistency Different customers have Different customers getting

different demands. a standardized demand
fulfilled.
Example; mobile service may
vary from customer to Example; mobile phones
customer.

Inseparability Simultaneous production and Separation of production

consumption takes place. and consumption.
Example; eating ice cream in a Example; purchasing ice
restaurant. cream from a store.

Inventory Cannot be kept in stock. Can be kept in stock.

Example; experience of a train Example; train journey
journey. ticket

Involvement Participation of customers at Involvement at the time of

the time of service delivery delivery is not possible.
exists.
Example; manufacturing a
Example; Customer tells the vehicle
type of service in a fast food
joint.

11. Name the principle of insurance for each of the following statements:
(a) The insured is expected to disclose all the important facts related to the
property insured.
Ans: Principle of Utmost Good Faith.

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(b) Insured must have some economic interest in the subject matter of
Insurance contract.
Ans: Principle of Insurable Interest.
(c) To claim for insurance the insured must take reasonable steps to minimize
the loss.
Ans: Principle of Mitigation of loss.
(d) Insured is entitled to recover the loss suffered by him, up to the limit of the
policy amount.
Ans: Principle of Indemnity.

12. Explain the types of Life Insurance Policies?

Ans: Different types of life insurance policies include:
 Whole Life Policy: In this type of policy, the sum due to the insured is not
paid until the assured passes away. The money is then solely due to the
deceased's beneficiaries or heirs.
 Endowment Life Assurance Policy: The insurer agrees to pay a set amount
when the insured reaches a certain age or dies, whichever comes first. In the
event of the assured's death, the payment is payable to his legal heirs or
nominee stated therein. Otherwise, the payment will be paid to the assured
when a certain amount of time has passed.
 Joint Life Insurance: This coverage is purchased by two or more people.
The premium is paid jointly or by either of them in installments, or in a lump
sum assured sum or policy money is due to the other survivor or survivors
upon the death of any one of them.
 Policy on Annuities: After the person reaches a particular age, the promised
sum or policy money is paid out in monthly, quarterly, or annual
installments.
 Policy on Children's Endowment: A person purchases this policy for his or
her children in order to cover the costs of their education or marriage. The
agreement specifies that the insurer will pay a certain amount when the
children reach a certain age.

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13. Explain electronic banking and state its three benefits?
Ans: Online banking, often known as internet banking, e-banking, or virtual
banking, is an electronic payment system that allows bank or other financial
institution customers to execute a variety of financial transactions via the financial
institution's website. The word "internet banking" refers to the process of a client
doing banking transactions over the internet. This sort of banking makes use of the
internet as the primary mode of delivery for all banking transactions.
The following are some of the advantages:
 Availability 24x7: E-banking is available 24 hours a day, 365 days a year.
At any moment, a client can log into his or her own bank account and
execute financial activities online. Customers benefit from increased
flexibility and comfort because they do not have to visit their banks in
person.
 Convenient access: Transactions may be done on mobile phones and PCs as
needed.
 E-banking decreases bank workload: E-banking reduces bank workload
by allowing a substantial part of tasks to be performed electronically.

14. Explain the Functions of Warehousing?

Ans: The functions of warehousing are:
 Storage: Warehouses make it easier to store products and raw materials that
aren't needed right away for sale or manufacture, while also protecting them
from rotting and damage.
 Value-added services: They provide producers with value-added services
such as product grading, packaging, and labelling.
 Financing: The warehouse receipt can be used as collateral to borrow
money from banks or other financial organisations by the owner of the
products or raw materials kept in the warehouse.
 Break the bulk: Warehouses are responsible for dividing large quantities of
items received from manufacturing companies into smaller quantities. The
smaller quantities are then transported according to the requirements of
clients to their places of business

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  Consolidation: The warehouses gather and consolidate material/goods from
various manufacturing units before dispatching them to a specific consumer
via a single transportation package.
 Stockpiling: The seasonal storing of commodities for certain businesses is
the next role of warehousing. Raw materials, which are not required
immediately for sale or manufacturing, are stored in warehouses. They are
made available to enterprises according to the number of consumers they
have.
 Price stabilisation: Warehousing provides the role of price stabilisation by
adapting the supply of products to the demand condition.

15. Explain the three important insurances involved in Marine Insurance?

Ans: A marine insurance contract is an arrangement in which the insurer agrees to
indemnify the insured against marine losses in the way and to the extent agreed
upon. Marine insurance protects against losses caused by marine perils, often
known as sea perils.
There are three important insurances under this:
 Ship or Hull Insurance: Because the ship is exposed to several dangers at
sea, this insurance policy is designed to compensate the insured for losses
incurred as a result of ship damage.
 Cargo insurance: Cargo or the goods in the ship is exposed to numerous
dangers while being transported by ship, this insurance covers the risk of
voyage.
 Freight insurance: If the cargo is damaged or lost in transit, the shipping
business is not reimbursed for the freight payments, hence to avoid this
scenario, the shipping company takes up this insurance policy.

Long Answer Questions 5 or 6 Marks

16. Describe briefly Types of warehouses?
Ans: Warehousing is the process of keeping things in a systematic and orderly way
in order to preserve their worth and quality. Warehouses provide not only storage
but also logistical services by locating the appropriate amount in the right place at
the right time and at the right price.

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The different types of warehouses are:
 Private Warehouses: Large manufacturers and merchants own and run
private warehouses to meet their own storage needs. Big businesses who
require a lot of storage space on a regular basis and can afford it build and
manage their own warehouses.
 Public Warehouses: A public warehouse is a specialised business entity
that charges a fee for providing storage facilities to the general public. An
individual or a cooperative organisation may own and operate it. It operates
under a government-issued license and follows all applicable rules and
regulations. Small producers and traders can store their goods for free in
public warehouses. To assure the safe custody of commodities, these
warehouses are well-built and guarded 24 hours a day, seven days a week.
Public warehouses are typically found around railway, highway, and canal
intersections.
 Duty-paid Warehouses: If an importer encounters any difficulties in
transporting goods after paying duty, the products can be housed at a duty-
paid warehouse. All duty-paid warehouses are open to all importers and are
public warehouses. Importers benefit from duty-paid warehouses because
the items are properly cared for and processed, such as sorting and
repacking.
 Government Warehouses: The federal and state governments, as well as
public authorities, own, administer, and control these warehouses. Because
owning a warehouse is difficult for small farmers, businesses, and traders,
these government warehouses aid them in storing their goods for a fee.
 Co-operative Warehouses: Co-operative societies own, manage, and
administer these warehouses. They mostly provide warehousing services at
the most affordable prices. Farmers, traders, and the general public benefit
greatly from these types of warehouses.
 Cold storage warehouses: Cold storage warehouses are used to store
perishable goods such as fruits, flowers, vegetables, dairy products, and
other perishable items. Goods are held and chilled at extremely low
temperatures in cold storage facilities in order to preserve them and utilize
them in the future. These warehouses have made international trade possible.

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17. A factory owner gets his stock of goods insured, but he hides the fact that
the electricity board has issued him a statutory warning letter to get his
factory's wiring changed. Later on, the factory catches fire due to a short
circuit of wiring. Can he claim compensation ?
Ans: No, he cannot claim the compensation. This is because he has hidden a very
crucial fact about his factory wirings. Therefore, he has violated the principle of
Utmost Good faith.
This principle states that the insurance contracts require that both parties act with
the utmost good faith. This means that both parties must provide all relevant
information honestly and completely. This not only measures the level of risk, but
also helps insurance companies accurately price premiums for insurance
applicants. Insurance policies can be declared null and void if an applicant
provides wrong representation of material fact that was relied on by the insurance
company.

18. Write notes on the RTGS system and NEFT. Also, state the difference
between them.
Ans: The notes are:
 NEFT: The acronym NEFT stands for National Electronic Funds Transfer. It
is an internet technique for moving payments within India from one banking
institution to another (usually banks). The system was introduced in November
2005, and it was designed to take over the SEFT clearing system's query bank.
NEFT is a Deferred Net Basis system, in which transactions are packaged and
deferred for a defined period of time. Also, in NEFT, the transactions are
processed in batches with no minimum and maximum limits.
 RTGS: The abbreviation RTGS stands for Real Time Gross Settlement. RTGS
is a real-time gross funds transfer system that allows money to travel from one
bank to another in real time. RTGS is the fastest way to transfer money when
using the banking method. The term 'real-time' refers to the lack of a waiting
period in the payment process, as the transaction will be finished, as soon as
the processing is done. Also, gross settlement means a transfer is performed
one by one, without being grouped with other transactions.
Following are the difference between RTGS and NEFT:

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 Basis RTGS NEFT

Full form Real Time Gross Settlement National Electronic Funds

Transfer

Introduced in 2004 2005

Transaction RTGS processes transactions in NEFT processes transactions

type real-time,in which processing of in batches.
transactions takes place
continuously, and throughout the
day.

Type of RTGS is a gross settlement NEFT is a Deferred Net Basis

system system, in which a transfer is system, in which transactions
performed one by one. are packaged and deferred for
a defined period of time.

Value of Minimum 2 lakhs, while no No minimum or maximum

transactions maximum limit. limit, however the value per
transaction is limited to Rs.
50,000

Suitable for Large Transactions Small transactions

19. Divya Garments Ltd. has a loan of Rs. 10,00,000 to pay. They are short of
funds so they are trying to find means to arrange funds. Their manager
suggested claiming from the insurance company against stock lost due to a
fire in the warehouse. He actually meant that they can put their warehouse on
fire and claim from an Insurance company against stock insured. They will
use the claim money to pay the loan.
(a) Will the company receive a claim if the surveyor from the company comes
to know the real cause of the fire?
Ans: No, the company will not be reimbursed if the surveyor discovers the true
cause of the fire, and the contract will be voided.

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(b) Which values did the company ignore while planning to arrange money
from the false claims?
Ans: When attempting to arrange money from a false claim, the principle of
utmost good faith is disregarded. Insurance contracts demand that both parties
operate in the best interests of the other. This means that both parties must provide
all relevant information honestly and completely. This maintains impartiality while
also assisting insurance firms in appropriately pricing premiums for applicants. If
an applicant makes a major fact deception that the insurance company relies on,
the policy might be deemed null and void.
Hence, the values disregarded are trust, honesty and transparency.
(c) Explain three elements of fire insurance.
Ans: There are three aspects to fire insurance:
 Insurable Interest: The insured must have an insurable interest in the
insurance's subject matter. The insurance contract is void if there is no
insurable interest.
 Utmost Good Faith: When providing information to the insurance company
about the subject matter of the policy, the insured should be accurate and
honest .
 Indemnity: The contract for fire insurance is a rigorous indemnity contract.
In the case of a loss, the insured can sue the insurer for the full amount of the
loss. This is subject to the maximum amount of insurance coverage for the
subject matter.

20. Write a detailed note on various facilities offered by the Indian Postal
Department and different types of telecom services offered?
Ans: The Indian Postal and Telegraph Department provides a variety of postal
services throughout the country.
Facilities provided by Indian Postal Department
 Financial facilities:
Post offices provide a range of savings options to the general public. These
facilities are provided through the post office's savings schemes like:

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 o Public Provident Fund (PPF)
o Kisan Vikas Patra
o National Saving Certificate (NSC)
o Recurring Deposit Scheme
o Fixed Deposit Scheme
 Mail facilities:
Mail services include:
o Parcel facilities: They make it easier to transport an item from one
location to another.
o Registration services: These services ensure that the article being
sent is secure.
o Insurance facilities: These cover the risks associated with postal
transmission.
The following are some of the mail services supplied by banks:
o Postcards: This is the least expensive method of mail delivery.
o Letter: It is enclosed in an envelope and guarantees the
confidentiality of the information communicated.
o Registered mail: Registered mail ensures that the mail sent to the
recipient is delivered or returned to the sender if it is not.
 Additional Services:
Greeting cards, media mail, international money transfers, speed mail,
passport services, and e-billing services are also offered by these
departments.
Telecom Services
 Cellular mobile service: This includes voice and non-voice transmission, as
well as data transmission.
 Radio paging service: This is a one-way communication system that sends
out information in the form of a tone, numeric, or alphanumeric message.

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  Fixed-line service: This type of service entails the installation of fibre optic
cables across the nation for the transmission of data, including voice and
non-voice communications.
 Cable service: This service transmits media-related information to a
designated operational region for which a licence has been obtained. The
information flow is one-way with this sort of telecom service.
 VSAT service: VSAT stands for "Very Small Aperture Terminal" and refers
to a satellite-based communication service that allows information to be sent
to far-flung and remote locations. As a result, businesses benefit from a
broader reach and greater flexibility.
 DTH service: DTH stands for Direct-To-Home, and it is a form of
telecommunications service provided by DTH providers. Customers receive
TV channels through satellites from the corporations. Customers may watch
several channels by connecting their television to a tiny dish antenna and a
set-top box.

21. State Six Difference Between Life Insurance, Fire Insurance, and Marine
Insurance?
Ans: The difference between Life Insurance, Fire Insurance, and Marine Insurance
is:

Basis Life Insurance Fire Insurance Marine

Insurance

Subject Human life is the The subject matter is The subject

Matter subject matter of life any physical property matter is ship,
Insurance. or any asset that could cargo or freight.
be damaged due to
fire.

Element Life insurance can be Fire insurance has Marine insurance

used for both only the elements of has only the
protection and protection and not the elements of
investment. elements of protection.

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 investment.

Insurable Insurable interest Insurable interest on Insurable interest

Interest must be present at the subject matter must exist at the
the time of policy must be present both time the claim is
implementation, but at time of effecting due or merely at
it is not required policy as well as when the time of the
when claims are due. claim falls due. loss.

Duration A life insurance The average length of Marine insurance

policy normally lasts fire insurance policy is for one
longer than a year coverage is one year. year or the period
and is purchased for of voyage or
a period of time mixed.
ranging from 5 to 30
years or for the rest
of one's life.

Indemnity The notion of A contract of Marine insurance

indemnity does not indemnification is is a contract of
apply to life what fire insurance is. indemnity. The
insurance. The sum Only the exact amount insured can claim
assured is paid either of loss can be claimed the market value
on the happening of from the insurer by the of the ship and
a certain event or on insured. The loss cost of goods
maturity of the resulting from the fire destroyed at the
policy. is covered up to the sea and the loss
policy's maximum will be
level. indemnified.

Loss Loss is not Loss is measurable. Loss is

Measurement measurable. measurable.

Contingency There is an element The event, i.e., fire The event i.e.,
of Risk of certainty. The devastation, may not loss at the sea
event i.e. death of a occur. No claim may may not occur and
policyholder is be made in case no there may be no

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 bound to happen. damage occurs. Hence claim. There is an
Therefore a claim there is an element of element of
will be present. uncertainty. uncertainty.

22. Explain in detail the principles of Insurance?

Ans: Insurance is a service that protects you from certain sorts of risks that can
occur as a result of unforeseeable circumstances. It provides confidence to
individuals by offering a set amount of money in the event of death or damage to
personal property. In exchange for this assurance, the insured must pay a premium.
The concepts of insurance on which insurance contracts are built are as follows:
 Principle of Absolute good faith: Both the insurer and the insured must
believe in each other and the contract they have signed. For example, if
Rahul has a heart condition, he should tell his insurance firm about it while
purchasing a life insurance policy.
 Principle of Insurable interest: The insurable interest requires that the
owner of a particular insurance policy has an insurable interest in the subject
matter of the insurance policy. For example, a wife having insurable interest
in her husband’s life due to financial dependency, a person’s interest in his
property etc.
 Principle of Indemnity: The goal of an insurance contract, according to the
indemnity principle, is to restore the insured to the same financial position as
before the loss. to he or she For example, if a person loses Rs. 1 lakh in a
fire, the insurance company will only accept a claim up to Rs. 1 lakh and not
more.
 Principle of Proximate cause: The proximate cause insurance principle
states that the nearest or closest cause should be considered, and the
insurance company will compensate only for the causes that have been
mentioned in the insurance contract, or any proximate causes, and not the
remote causes of damage. For example, if a person is injured in a fire, this
should be included in the contract so that the individual may collect the
insurance benefits.
 Principle of Subrogation: Once the compensation is paid, the insurer gains
ownership of the damaged item, preventing the insured from profiting from
the sale of the damaged property. For example, if a person receives Rs. 1

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 lakh for a damaged stock, the stock's ownership will be transferred to the
insurance company, and the person will no longer have control over the
stock.
 Principle of Contribution: If an individual purchases many insurance
policies for the same item, the insurers will pool their resources to reimburse
the insured for the real loss. If a person A insures his or her home for Rs. 2
lakh with insurance B and Rs. 1 lakh with another insurer, say C, then in the
event of a loss of Rs. 90,000, insurer B and insurer C will pay A Rs. 90,000
in total and no more.
 Mitigation: The insured shall treat the insured thing with the same care as
he or she would if the insurance were not present. For example, if a person
obtains fire insurance, he or she should take all reasonable steps to minimise
property damage in the event of a fire, just as he or she would have done if
the insurance had not been purchased.

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