Beruflich Dokumente
Kultur Dokumente
Submitted in partial fulfillment of the requirement for Post Graduate Diploma in Management
Submitted by Harish Babu Mulluri Roll No: 2B2-15, BIFAAS 2011- 2013
Declaration
I hereby declare that the project work A Study on Investors Perception on Unit Linked Insurance Policies submitted to Siva Sivani Institute of Management, is a record of an original work done by me under the guidance of Mr. D.Sreekanth, Asst. Professor-Finance Siva Sivani Institute of Management, Secunderabad and this project work is submitted in the partial fulfillment of the requirement for the award of Post Graduate Diploma in Management. The results embodied in this report have not been submitted to any other University or Institute for the award of any degree or diploma.
Kompally 12-12-2012
Certificate
I certify that the dissertation titled A Study on Investors Perception on Unit Linked Insurance Policies, submitted to Siva Sivani Institute of Management, Secunderabad, and is an original research work carried out by Mr. Harish Babu Mulluri under my supervision.
12-12-2012 Kompally
Acknowledgements
First and foremost, I sincerely thank to my industry guide Mr. Abhay Pratap Singh, Relationship Manager-Reliance Securities, Somajiguda, Andhra Pradesh for his guidance and encouragement in carrying out this project work. I would like to show my deep sense of gratitude to internal project guide, Mr. D.Sreekanth, Asst. Professor, Finance, Siva Sivani Institute of Management for his constant encouragement and support throughout this project, especially for the useful suggestions given during the course of the project period. He inspired and motivated me tremendously whenever I had any hesitation. Besides, I am also grateful to faculty members of Siva Sivani Institute of Management for their assistance in data collection. I take this opportunity to extend my deep appreciation to my family and friends, for all that they meant to me during the crucial times of the completion of my project. Apart from my efforts, the success of my project depends largely on the encouragement and guidelines of many others. I take this opportunity to express my gratitude to all the people who have been instrumental in the successful completion of this project.
Table of Contents
Chapter No 1 1.1 1.2 1.3 1.4 1.5 1.6 2 2.1 2.2 3 4 5 5.1 5.2 5.3 5.4
Description Introduction Introduction To Topic Need and Importance of Study Objectives of Study Research Methods Review of Literature Short Comings Industry and Company Profile Industry Profile Company Profile Theoretical Aspects Related To Project Data Analysis and Interpretation Suggestions, Findings and Conclusion Findings Suggestions Conclusion Appendix
Page No 9 10 19 19 19 20 21 22 23 29 38 42 57 58 59 59 60
List of Figures:
Page No.
43 43 44 44 45 45 46 46 47 47 48 48 49 49 50 50 51 52 53 54 55 56
References
Neelam Saini(2011),Unit Linked Insurance Plans, Journal On Banking Financial Services and Insurance Research, ISSN 2231-4288, Volume 1, Issue 3 (June, 2011). J. Shanmuganathan and Krishnaveni Muthiah, The Impact of the Tussle between IRDA and SEBI on Unit Linked Insurance Plans, European Journal of Social Sciences, ISSN 1450-2267 Vol. 33 No 3 September, 2012. S.Clifford Paul, D.Joseph Anbaras and Annette Barnabas, Study on Awareness of Indian Investors of Insurance, E-Journal of Business and Economic Issues, Fall 2010, Volume V, Issue III. Harnam Singh, An Empirical Study Of Life Insurance Product, International Journal of Multidisciplinary Research, Vol.1 Issue 8, December 2011, ISSN 2231 5780. Dr. Arnika Srivastava, Dr. Sarika Tripathi and Dr. Amit Kumar, Indian Life Insurance Industry, Journal of Arts, Science & Commerce, E-ISSN 2229-4686, ISSN 2231-4172. Mrs. Preeti Kulkarni, Why ULIP holders should stick to their strategy, Article in Economic Times (Sep 2012).
Chapter 1 Introduction
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Unit linked plans combines the protection of life insurance and benefits of mutual fund .The main reason for increasing interest towards unit linked plans is that they allow you to earn more return on your investment in this declining interest scenario, and at the same time offer financial protection to your family in unfortunate event of your death. They also allow you the flexibility of withdrawing or surrendering your unit wholly or partially to meet any contingency like your childrens education marriage, etc. ULIPS also known as UNBUNBLED, VARIABLE INSURANCE PLANS has possibly been the single largest innovation in the field of life insurance in the past several decades. It wasnt too long back, when the good old endowment plan was the preferred way to insure oneself against an eventuality and to set aside some savings to meet ones financial objectives. Then insurance was thrown open to the private sector. The result was the launch of a wide variety of insurance plans, including the ULIPs.
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As times progressed the plans were also successfully mapped along with life insurance need to retirement planning. In todays times, ULIP provides solutions for insurance planning, financial needs, financial planning for childrens future and retirement planning. These are provided by the insurance companies or even banks. These investments can also be used for tax benefit under section 80C. Since, the investment risk is borne by the policyholder, stock market regulator Securities and Exchange Board of India looked into dynamics of the ULIP-Scheme business. On April 9, 2010 SEBI barred 14 life insurance companies from selling or renewing ULIPs unless they registered with it. These ULIPs had already got the approval from IRDA which led to a legal tussle between two regulators. Finally on June 18 2011, in an amendment favoring IRDA over SEBI an act was signed by then President Smt. Pratibha Patil. There are many Unit Linked Insurance Plans available now with various flexibilities including that of choosing the portfolio on a la carte basis, various other schemes like top-ups, premium holidays and other customizations. Do post a comment in case of doubt or any further queries Features of ULIPs distinguish itself through the multiple benefits that it provides to the customer which are as follows Life protection Investment and Savings Flexibility Adjustable Life Cover Investment Options Transparency Options to take additional cover against- Death due to accident- Disability- Critical Illness- Surgeries Liquidity Tax benefits
Unit linked plans come in the form of units where the premium paid by you is used to buy units and an investment fund is allotted to you. Most of the companies offer two or more options to you with regard to the fund. The choice of the fund allows you to determine as to how much premium paid by you should be invested and in which financial instrument. The performance of the fund depends upon the current value of units in the market. The return given by this policy directly depends on the performance of the portfolio chosen by the policyholder which also further depends on the performance of the capital market. There is no guaranteed return on investments in Unit Linked Insurance scheme and the value of investments varies just like any other Mutual Funds. But it also offered a stock market driven potential for high returns on investments which came at the expense of market risks.
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The following points help us to get a better idea on ULIPs 1. Sum Assured: In ULIPs you are asked HOW MUCH PREMIUM CAN YOU PAY? & accordingly the Sum Assured is estimated. 2. Investments: ULIPs invest in Equities Bonds G-securities Money market 3. Flexibility: In ULIPs the investor can choose the fund in which he wants to allocate his portfolio. He can go for pure Equity, or a combination of deb equity, depending on his requirements. The investor also has the option of switching from one fund to another. 4. Top Up Facility: A top up is a onetime additional investment in the ULIP over and above the annual premium. This feature works well when you have a surplus that you are looking to invest in a market linked avenue, rather than keeping in an FD or Savings account. 5. Transparency: ULIPs are more transparent as their NAV is declared every day. As a result you can know how your ULIP has performed. 6. Liquidity: Since ULIPs investments are NAV based it is possible to withdraw a portion of your investments before maturity (after 3yrs lock in period is over).The withdrawal is possible provided the minimum fund value is maintained.
According to the IRDA, a company offering unit linked plans must give the investor an option to choose among debt, balanced and equity funds. If you opt for a unit-linked endowment policy, you can choose to invest your premiums in debt, balanced or equity funds. If you choose a debt fund, the majority of your premiums will get invested in debt securities like gilts and bonds. If you choose equity, then a major portion of your premiums will be invested in the equity market. The type of fund you choose would depend on your risk profile and your investment need. In case of death during the premium paying term or the term of the policy, the sum assured, or value of policy fund, whichever is higher, is paid to the beneficiaries. In case of survival up to maturity, the value of the fund is paid out. Therefore, the risk here is transferred to the policyholder and nothing is guaranteed. So, if the fund value falls below the amount invested, the policyholder will receive a lower amount. Taking a closer look at charges and fees one comes to knows that, there is an initial administrative charge deducted every month from units. This could be very high, around 15% per annum in the first year, around 7% p a in the second and around 2-3% p a thereafter. Suppose you buy a policy wherein the annual premium works out to Rs 10,000, in the first year, Rs 1,500 would be deducted towards administrative charges, Rs 700 in the second year and around Rs 300 from the third year. These rates vary from company to company but are more or less in this range. There is an investment management charge too, which would vary according to the fund selected; for instance, an equity fund would attract a higher investment management fee of around 1% p a compared with a debt fund that might attract a fee of 0.25%. So continuing with the same example, a sum of Rs 100 would be deducted from the annual premium if an equity fund is opted for. Next, companies charge an annual administration charge. In case of some companies this charge is a flat rate, say, Rs 20 per month. In the case of others, this charge is again a percentage of net assets for each fund. Finally, there is a deduction for risk cover. This goes towards contribution to the sum assured or the life insurance cover. It is based on mortality rates as calculated by actuaries. For comprehensively summarizing our example, we will assume the age of the male policyholder to be 30 years and sum assured Rs.1, 00,000. Of a total premium of Rs 10,000 paid in the first year, Rs 1,500 is deducted towards initial administration fees, Rs 100 towards investment management fees (assuming the fund opted for is equity) and Rs 240 towards annual administration fees. That leaves a balance of Rs 8,160 in the first year. Out of this, Rs 169 would be deducted towards risk cover. Hence, finally Rs 7,991 would be invested in the fund. In the second year, the
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figure would stand at Rs 8,791 and third year onwards, around Rs 9,191 for the term of the policy. So, every time you make your premium payment, only a part of it is actually invested in the fund of your choice. Fund Value: The fund value is the value of your investment as on a given date. This is influenced by the ups and downs in the Sensex. So Fund Value = Unit Price * Number of Units How much of the premium is used to purchase units The full amount of premium paid is not allocated to purchase units. Insurers allot units on the portion of the premium remaining after providing for various charges, fees and deductions. However the quantum of premium used to purchase units varies from product to product. The total monetary value of the units allocated is invariably less than the amount of premium paid because the charges are first deducted from the premium collected and the remaining amount is used for allocating units. Can one seek refund of premiums if not satisfied with the policy, after purchasing it? The policyholder can seek refund of premiums if he disagrees with the terms and conditions of the policy, within 15 days of receipt of the policy document (Free Look period). The policyholder shall be refunded the fund value including charges levied through cancellation of units subject to deduction of expenses towards medical examination, stamp duty and proportionate risk premium for the period of cover. What happens if payment of premiums is discontinued? a. Discontinuance within three years of commencement If all the premiums have not been paid for at least three consecutive years from inception, the insurance cover shall cease immediately. Insurers may give an opportunity for revival within the period allowed; if the policy is not revived within that period, surrender value shall be paid at the end of third policy anniversary or at the end of the period allowed for revival, whichever is later. b. Discontinuance after three years of commencement At the end of the period allowed for revival, the contract shall be terminated by paying the surrender value. The insurer may offer to continue the insurance cover, if so opted for by the policy holder, levying appropriate charges until the fund value is not less than one full years premium. When the fund value reaches an amount equivalent to one full years premium, the contract shall be terminated by paying the fund value.
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Are Investments Guaranteed in ULIPs Investment returns from ULIP may not be guaranteed. In unit linked products/policies, the investment risk in investment portfolio is borne by the policy holder. Depending upon the performance of the unit linked fund(s) chosen; the policy holder may achieve gains or losses on his/her investments. It should also be noted that the past returns of a fund are not necessarily indicative of the future performance of the fund. How ULIPs Manage Money Growth Fund Balance Fund Debt Fund Money Market Fund 100% equity 60% equity,40% debt 100% debt 100% MM instruments for a period of one Year
instruments. Above all, as in the case of other insurance products, the premiums are taxing deductible and the benefits i.e. the maturity benefit, withdrawal, surrender and death benefits are all tax-free.
Disadvantages Flexibility -- this can act a disadvantage since the person may use the withdrawal and may not end up building a huge corpus Initially heavy costs -- You pay around 15-40% for the first year and then around 5%for the next two years No control on costs One may try to time the market and may make errors
1.4.4 Tools:
Tools used for analyses of data are done by Chi-Square test. Chi-Square test: A chi-squared test is statistical hypothesis test in which the sampling distribution of the test statistic is a chi-squared distribution when the null hypothesis is true, or any in which this is asymptotically true, meaning that the sampling distribution (if the null hypothesis is true) can be made to approximate a chi-squared distribution as closely as desired by making the sample size large enough
offer attractive frontend commissions to agents. However, independent financial advisors believe that though there is a possibility of some distributors favoring ULIPs in the short term, the new directive would be beneficial for both the industry and investors in the long run. (Mr. Madhu T, the Economic Times, June2009). Mr. Deepak Shenoy ,in his article Comparing ULIP returns to Mutual Funds, he reveals that, over the last three years, their growth mutual fund has given better returns than the "MAXIMISER" option of their ULIPs.(Deepak Shenoy, The Indian Investors Blog, (August 2006). Mr. Murthaza and Sony, in their article An Overview on ULIP, This article is an initiative from Bajaj Allianz to create better understanding of ULIPs and its benefits so that investors can avail maximum returns from their investments.
1.6 Short Comings: This collection of the data sample and study of the project has been confined only to
Hyderabad city This project has not evaluated the performance of various companies under this group The study does not include any comparison with product of other companies. The study of the project has been focused only on Investor perception on ULIPs Some of the respondents could not give an accurate response to some of the questions
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We can say that the human life value is an ongoing generating asset, which can be lost on early death or disability caused by accidents. Insurance doesnt protect the assets but only compensates the economic or financial loss. Basically insurance covers tangible assets but the concept can be extended to intangible also
around for the last four to five years. Some have carried out extensive research on the Indian insurance sector. Others have set up liaison offices. All of them are waiting with bated breath for the opening up of the sector and taking a bite of the great Indian Insurance pie. India is marching ahead to more prosperous future. The economy is on a high growth path, domestic savings are growing, exports have risen and inflation has stabilized. Infrastructure sector, which even today is woefully inadequate to meet the expected increased industrial activities, has been accorded top priority by the government. All this should reflect in a growth rate of 7 to 8% for the next 3-4 years. With this scenario of high economic growth further reforms in the financial sector are in the Common Minimum Program of the Government. India is regarded as under- insured country with insurance penetration at a very low level of 0.6% of GDP. Insurance, as a rule, has always been given very low priority by corporate India. It is always taken with reluctance, usually only when it is compulsory, and then only by big industrial houses. Without exception it is always inadequate to meet the needs of the corporate sector. In addition to the tradition exposure of fire, floods, workers compensation and the interruption, Corporate India also has to address unpredictable changes in areas such as environment; security; occupational health and safety; public liabilities; Directors and Officers Liability and product liability It therefore becomes quite obvious that purchase of insurance, in itself, will not substitute for a soundly based and property implemented Risk Management Program as insurance can only offer some financial relief by replacing the plants; it cannot replace the loss in development of a business or development of the market.
1912 The Indian Life Insurance Company Act enacted. 1928 The Indian Insurance Companies Act enhanced to enable the government to collect statistical information about both life and non-life insurance business. 1938 The Insurance Act: Comprehensive Act to regulate insurance business in India 1956 The Indian and foreign insurers and provident societies taken over by the Central government and nationalized. LIC formed by an act of parliament. VIZ. LIC Act, 1956, with a capital contribution of Rs.5 crore from the government of India. 1972 Nationalization of general insurance business in India. 1993 Setting up of Malhotra Committee. 1994 Recommendations of Malhotra Committee.
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1995 Setting up of Mukherjee Committee 1996 The government gives greater autonomy to LIC, GIC and its subsidiaries with regard to the restructuring of boards and flexibility in investment norms aimed at channeling funds to the infrastructure sector. 1998 The cabinet decides to allow 40% foreign equity in private insurance companres-26% to foreign companies and 14% to NRIs and FIIs. 1999 The standing committee headed by Murali Deora decides that foreign equity in Private insurance should be limited to 26%. The IRA bill is renamed the Insurance Regulatory and Development Authority (IRDA) Bill. Also, Cabinet clears IRDA Bill 2000 President gives assent to the IRDA Bill. In India insurance is a federal subject. The primary legislation that deals with insurance business in India is:
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Post Liberalization: The changing face of financial sector and the entry of several companies in the field of life insurance segment are one of the key results of these liberalization efforts. Insurance business by way of generating premium income adds significantly to the GDP. Estimates show that a meager 35-40 million, out of a population of 950 million, have come so far under the Insurance industry. The potential market is so huge that it can grow by 15 to 17 per annum. With the entry of private players the Indian insurance market may finally be able to make deeper penetration in to newer segments and expand the market size manifold. The quality of service will also improve and there will be wide range of product catering to the needs of different customers. The pace for claims settlements is also expected to improve due to increased competition. The life insurance market in India is likely to be risky in the initial stages, but this will improve in the next three to five years. Therefore it may be advantageous to be a second round entrant. In the life insurance market the need to build trust over time becomes important because the risk assessment systems and data that are a key to success in the insurance market are significantly underdeveloped in India even today. Reforms and Implications: The liberalization of the Indian insurance sector has been the subject of much heated debate for some years. The sector is finally set to open up to private competition. The Insurance Regulatory and Development Authority bill cleared the way for private entry into insurance, as the government was keen to invite private sector participation into insurance. To address those concerns, the bill requires direct insurers to have a minimum paid-up capital of Rs. 1 billion; to invest policy holders funds only in India; and to restrict international companies to a minority equity holding of 26 percent in any new company. Indian promoters will also have to dilute their equity holding to 26 percent over a 10-year period. Over the past three years, around 30 companies have expressed interest in entering the sector and many foreign and Indian companies have arranged alliances. Whether the insurer is old or new, private or public, expanding the market will present challenges. A number of foreign insurance companies have set up representative offices in India and have also tied up various asset management companies. They have either signed MOUs with Indian companies or are trying to do the same. Some have carried out extensive research on the Indian insurance sector. Others have set up liaison offices.
forces determining human attitudes. As a squeal to this quest for Security, the concept of insurance must have been born. The urge to provide insurance or protection against the loss of life & property must have prompted people to make some sort of sacrifice willingly in order to achieve security through COLLECTIVECO-OPERATION, in this sense; story of insurance is probably as old as the story of mankind Why Life Insurance: Protection of the interest of the family member. Provision for education and marriage of the children. Post retirement income for self and dependents Special needs for medical expenses. Provision for health /illness. Provision for housing. Provision for income tax rebate.
Life insurance companies in India 1. Bajaj Allianz Life Insurance Company Limited 2. Birla Sun Life Insurance Co. Ltd 3. HDFC Standard Life Insurance Co. Ltd 4. ICICI Prudential Life Insurance Co. Ltd. 5. ING Vysya Life Insurance Company Ltd. 6. Life Insurance Corporation of India 7. Max New York Life Insurance Co. Ltd 8. Met Life India Insurance Company Ltd. 9. Kotak Mahindra Old Mutual Life Insurance Limited 10. SBI Life Insurance Co. Ltd 11. Tata AIG Life Insurance Company Limited 12. Reliance Life Insurance Company Limited. 13. Aviva Life Insurance Co. India Pvt. Ltd. 14. Sahara India Life Insurance Co, Ltd.
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15. Shriram Life Insurance Co, Ltd. 16. Bharti AXA Life Insurance Company Ltd. 17. Future Generali Life Insurance Company Ltd. 18. IDBI Fortis Life Insurance Company Ltd. 19. Canara HSBC Oriental Bank of Commerce Life Insurance Co. Ltd 20. AEGON Religare Life Insurance Company Limited. 21. DLF Pramerica Life Insurance Co. Ltd. 22. Star Union Dai-ichi Life Insurance Comp. Ltd.
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'Largest E-Broking House & Best Equity Broking House for the year 2009' by Dun & Bradstreet 'Largest E-Broking House 2010' by Dun & Bradstreet 'My FM Stars of the Industry 2011' for excellence in Online Demat Reliance Securities Limited is now ISO 9001:2008 certified for Online Trading Platform 'Brand Leadership Legacy Award' at the Asian Leadership Awards - Dubai, 2011
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2.2.4 Financials
Reliance Securities, the equity broking arm of Reliance Capital, is one of the leading retail broking houses in India, providing customers with access to equities, equity options, and wealth management services, mutual funds, IPOs and investment banking. Reliance Securities had 6.64 lakh broking accounts as on March 31, 2011. The average daily equity broking turnover stood at 1,413 crore in wealth management, the AUM stood at 169 crore as on March 31, 2011, an annual growth of 85 per cent. In investment banking, the company handled 4 issues and mobilized 620 crore and did IPO funding of 3,164 crore. Reliance Securities achieved profit before tax of 22 crore for the year ended March 31, 2011, as against 28 crore in the previous year. Reliance Life Insurance (RLI) is amongst the leading private sector life insurers with a market share of 7.7 per cent in the private sector. It ranks among the top four private sector companies in terms of new individual business premium with a market share of 8.7 per cent. RLI garnered a total premium of 6,548 crore in the year, as against 6,588 crore in the previous year.RLI received new business premium of 3,035crore for the year as compared to 3,921 crore in the previous year. The renewal premium for the year was 3,536crore as against 2,684 crore in the previous year an increase of 32 per cent. The total funds under management increased by 31 per cent to 17,855 crore. During the year, RLI sold the highest number of individual premium policies in the private sector at 1.9 million. The Company invested a sum of 120 crore into the business by way of capital infusion during the year as against 231 crore in the previous year, a 48 per cent reduction. RLI did not require any fresh capital for the last 2 quarters of the financial year 201011.In fourth quarter of financial year 2010-11, Nippon Life, Japans largest private life insurer, signed a definitive agreement to acquire a 26 per cent stake in Reliance Life Insurance, subject to necessary regulatory approvals. This is the largest FDI in Indian Financial Services sector and by far, the largest FDI in Insurance sector. The transaction pegs the valuation of Reliance Life Insurance at 11,500 crore. Nippon Life Insurance will invest 3,062 crore to acquire 26 per cent in Reliance Life Insurance. A 121 year old life insurance company, Nippon Life is the 6th largest private life insurer in the world. As a strategic partner, Nippon Life will bring vast experience, expertise and global best practices in areas of product development, underwriting, investment management, distribution, customer relationship management and risk management. The distribution business of Reliance Capital, known as Reliance Money, is a comprehensive financial services and solutions provider, providing customers with access to mutual funds, life and general insurance products, money transfer, currency exchange, loans, gold coins and premium products. It has a pan-India distribution network of 6,200 outlets. Reliance Money sold nearly 1,500 kg. Of Gold in the financial year 2010-11, an increase of 235 per cent over the previous year figure of 433 kg. Reliance Money is now the largest private sector partner for Western Union Money Transfer, and has handled over 20 lakh money transfer transactions during the year.
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The business achieved profit before tax of 12 crore for the year ended March 31, 2011 as against a loss of 13 crore in the previous year. Reliance General Insurance is amongst the leading private sector general insurance companies in India with a market share of9.4 per cent. Reliance General Insurances gross written premium for the year ended March 31, 2011 was 1,655 crore as against 1,980 crore in the corresponding previous period.
Protection Plans:
Reliance Life Insurance e Term Plan Key Features: Get higher insurance protection at affordable premiums Option to choose life cover from the two options available in the plan to enhance protection Buy life insurance cover through simple online application process (conditions apply) Benefit from special rates for female lives Tax benefit u/s 80C & 10(10D), subject to conditions
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Reliance Life Insurance Money Multiplier Plan Key Features Double life cover This plan offers you a life cover of twice the basic sum assured. Increasing life cover every yearLife cover which increases with time, through Guaranteed Loyalty Additions. Triple survival benefits (on Maturity): Basic sum assured. Accrued Guaranteed Loyalty Additions. Guaranteed Maturity Addition. Longer the commitment, higher the benefits through an increasing Guaranteed Loyalty Additions every year and Guaranteed Maturity Additions with policy term. A host of optional rider benefits to enhance protection cover Reliance Cash Flow Plan Key Features Easy Liquidity - Get periodic cash flows at the end of the fourth year and thereafter at the end of every three years Wealth creation through bonus additions On maturity, receive accumulated bonuses along with final lump sum payout More value for your money by way of High Sum Assured Rebate Full Sum Assured plus bonuses in case of your unfortunate death. This is over and above the Survival Benefits already paid Option to add two Riders - Critical Illness Rider & Accidental Death Benefit and Total and Permanent Disablement Rider
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Reliance Life Insurance Guaranteed Money Back Plan: Key Features: Guaranteed Money Back benefits are payable every year during last five policy years. Guaranteed Loyalty Additions of up to 40% of base Sum Assured Guaranteed Maturity Addition of up to 20% of base Sum Assured On death, 100% of the base Sum Assured is paid and the nominee will also receive the money back benefits and the maturity benefits as mentioned under the contract at specified times. An additional Sum Assured up to ` 50 Lacs is payable on accidental deaths. A host of optional rider benefits to enhance protection cover Reliance Life Insurance Classic Plan II Key Features: Dual benefit of market linked return and insurance protection. Amount equivalent to base sum assured is payable in extra on account of accidental deaths. Investment opportunity with flexibility - Choose from 8 pure investment fund options Additional flexibility with options like Systematic Transfer Plan &Premium Redirection. Option to pay Top-up Premium(s). Liquidity in the form of partial withdrawals after completion of five policy anniversaries. Exchange option to take advantage of any new plans we may offer in the future. A host of optional rider benefits to enhance protection cover
Child Plans
Reliance Child Plan Key Features: Risk protection for you during the term of the Policy Accumulated bonus at the end of the Policy Term 25% of Sum Assured payable every year as lump sum Benefit during the last four Policy Anniversaries All future premiums are waived in the event of unfortunate loss of life Guaranteed Fixed Benefits continue even after loss of life of the Policy holder More value for your money by way of High Sum Assured Rebate Choose to add the Benefit of two Riders - Critical Illness and Accidental Death Benefit and Total and Permanent Disablement Rider Policy participates in profit even after the loss of life of the life Assured
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Weaknesses Dependence on fellow subsidiaries for various supplies. Extra control or interference from fellow subsidiaries. Sudden expansion in year 2007-08 by establishing more than 125 branches has increased operations and administration expenses due to which losses incurred. Due to the emphasis on recruiting young people in the company, staff is in experienced. Clientage is not so loyal as compared to the clientage of other competing companies in the same industry The phenomenon of job hopping is very common in the company. So, the problem of loyalty towards the company on behalf of the employees is a major problem
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Opportunities Low retail penetration of financial services products in India Tremendous brand strength hand extensive distribution reach Opportunity to cross sell services Increasing per-capita GDP Changing demographic profile of the country in favor of the young Threats Competition from local and multinational players Execution risk Regulatory changes Attraction and retention of human, capital
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culminated in SEBIs April 10 order banning 14 private insurers from selling any new ULIP product without registering with SEBI. The main contention by SEBI was that ULIPs ultimately are investment products. As mentioned earlier, they have a very significant investment in the capital markets. So, it does make sense to bring such products under the purview of the capital market regulator. But a couple of things regarding SEBIs ban order stuck out. Firstly, it quite conspicuously left out the public sector insurers (read LIC) from the ambit of the ban. Given the size of these insurers, its hard to explain why they were treated differentially than the private insurers. Secondly, the manner in which it placed the ban. It should never have been a unilateral decision. The insurance regulator IRDA was not kept in the loop while taking this drastic step which ultimately gave rise to the bitter public dispute between the two regulators. The central government had to finally step in to resolve this turf war between the regulators. The verdict was finally ruled in favor of IRDA with the government promulgating an ordinance to amend existing laws to include ULIPs under the life insurance business. This highly publicized tussle brought various aspects of ULIPs into limelight. There already were a number of concerns being raised by various stakeholders regarding some of the problems this product had. First of all, it had a significant entry load as high as 30% in some cases. This encouraged distributors to push the product to the investors and often led to misrepresentation of information related to the product in order to sell more and more of them. Secondly, the surrender charges, imposed on premature encashment of investment units, were exorbitant. In some cases, surrender charges went up to as high as 90% if the policy was surrendered in the first three years. IRDA had already started the process of instituting more stringent rules to overcome these aspects of ULIPs. However, the events over the past few months precipitated in some sweeping changes being suggested by the regulator. Lets analyze some of the new guidelines it has provided on the product and its possible impacts on the insurers and the investors: Increasing the Lock-in Period to five years from the current three. The premium paying term has also been increased to five years To spread out the front end expense evenly over the lock-in period. This is good news for the investors as it would insure that the insurance seller is not miss-selling the product to realize short term gains. Also, with rational front end cost, more investors would be able to afford these investments Capping the surrender charges to 15% of fund value as well as in absolute terms. Again, this would be beneficial for the investors as they would now incur a smaller cost while switching from one policy to another. However, this would mean a big loss in revenues for the insurers. According to estimates, around 25-30% of the policies lapse within the current lock-in period of three years with surrender charges ranging from 50%-90%. This
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combined with the spreading out of the entry load would mean a significant reduction in the revenues of the insurers as well as an increase in their time to break even. The risk cover has been increased to at least 10 times the annual premium being paid. This would mean that the insurers would have to set aside larger capital which would dampen their profitability. It would also deter marginal companies from entering in this segment. As regards pension products, all ULIP pension/annuity products shall offer a minimum guaranteed return of 4.5% per annum. This will ensure that the life time savings of the pensioners are protected from any adverse fluctuations. Currently, there are some unitlinked pension plans that can invest up to 100 per cent in equities. However, with the guaranteed return clause, exposure in fixed income securities will increase
So it is quite evident that the new regulations, which the insurance companies are required to comply with by September 1st, would serve to reduce the attractiveness of ULIPs for these companies. However, looking on the positive side, it would create a level playing field for other products like Mutual Funds whose popularity had waned significantly over the past year. And most importantly, the investors will most certainly be better off with these changes. On how the insurance companies would deal with these changes, only time will tell. But I have a strong feeling that after MFs and ULIPs, its time for another new kid on the block. A year from now, the dialectic may shift to yet another product.
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Data Analysis:
1. Gender Figure No: 4.1
Interpretation: Out of the sample size 100, male respondents are 73 and the female respondents are 27. 2. Age group. Figure No: 4.2
Interpretation: The pie chart shows most of the age is between 18-30% which constitutes 74% of the sample size of 100. The age group between 31-40 constitutes for 11%, age group 41-50 constitutes for 10% and the age group above 50 constitutes for 5%.
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Interpretation: The above pie diagram shows the Annual Income of the respondents. Of the total 100 respondents the annual income between Rs.250000 Rs.400000 constitute of 27% , and the annual income less than Rs.150000 constitutes for 33%, the annual income between Rs.150000Rs.250000 constitutes for 19% and the respondents whose annual income is above Rs.400000 constitute for 21%. 4. Savings Per Annum Figure No: 4.4
Interpretation: The above pie diagram shows the annual savings of the respondents. Majority of the savings of the respondents is less than 15000 which constitute for 41%, and annual savings of the respondents between Rs.15000 Rs.40000 constitute for 20%, the annual savings of the respondents between Rs.40000 - Rs.100000 constitute for 24% and the annual savings of the respondents higher than Rs.100000 constitute for 15%.
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Interpretation: The above graph shows the qualification the respondents. Of the total of 100 respondents the majority of the respondents are Graduates which constitute for 51, and the post graduates constitute for 44 and others constitute for 5. 6. Occupation Figure No: 4.6
Interpretation: The graph shows the occupation of the respondents. The majority of the respondents work for a private company which constitute for 54, and the respondents who work for Government Service constitute for 13, Self Employed constitute for 15 and the others constitute for 18.
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Interpretation: The above pie diagram shows the mode of savings of the investors. While majority of the respondents prefer for Bank Deposits, percentage of respondents for investments constitute for 33% and fixed deposits constitute for 22% and other constitute for 6%. 8. What Do You Consider While Making An Investment Decision? Figure No; 4.8
Interpretation: The above diagram shows whose decision the respondents consider the most. Most of the respondents take their own decision which constitute for 40%, decision of the family respondents constitute for 33%, respondents who consider their friends decision constitute for 19% and others constitute for 8%.
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Interpretation: This graph shows the opinion of the respondents about investment. Out of the 100 respondents 18 respondents have the opinion on investment as Tax savings, while 33 respondents have the opinion of expecting good returns, 44 respondents expect for a better future and others constitute for 5. 10. Preferably You Would Like To Invest In? Figure No: 4.10
Interpretation: The above graph shows preference of the respondents for investment. Majority of the respondents prefer to investment in Mutual Funds which constitute for 33, while 23 respondents would like to invest in shares, 28 respondents prefer to invest in insurance products and other type of investments constitute for 10.
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Interpretation: The above graph shows the frequency of investment of the respondents. Majority of the respondents prefer to invest only once a year which constitute for 62, while the respondents who would like to between 2-4 times a year constitute for 30 and the respondents who like to invest more than 4 times a year constitute for 8. 12. How Long Do You Invest Figure No: 4.12
Interpretation: The above graph shows the tenure of the investment of respondents. Most of the respondents prefer for short returns. The respondents who would like to invest for lee than 2 years constitute for 40, while the respondents who would like to invest between 2- 5 years constitute for 31. The respondents who would like to invest between 5-10 years constitute for 24 and the respondents for more than 10 years constitute for 5.
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Interpretation: The above graph shows the opinion of respondents towards insurance. Majority of the respondents consider Insurance as a risk coverage which constitute for 64 and the respondents who have an opinion on Insurance as investment constitute for 34. 14. Do You Have An Insurance Policy? Figure No: 4.14
Interpretation: The above graph shows the number of respondents who hold an insurance policy. Out of 100 respondents 78 respondents have Insurance while the remaining 22 respondents do not hold an insurance policy.
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Interpretation: This pie diagram shows how many respondents have an idea on ULIPs. Majority of respondents dont have an idea on ULIPs. Only 28 respondents have an idea on ULIPs and the remaining 78 respondents dont have an idea on ULIPs
Interpretation: This diagram shows the respondent who hold an ULIP. Out of the 100 respondents only 18 respondents do hold an ULIP and the remaining 82 respondents dont hold an ULIP.
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Interpretation: This graph shows the ranking of the life insurance companies. Out of the 100 respondents 20 respondents rank Bajaj Allianz first, 18 respondents rank ICICI as first rank, 14 respondents rank Reliance first rank, 14 respondents rank Tata Aig first Rank and 14 respondents rank ING Vysya as first rank.
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18. How Do You Consider The Following Factors Influence Your Investment Decision While Taking An Insurance Policy? Figure No: 4.18
Interpretation: The above graph shows the factors that influence an investor while taking an insurance policy.
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Male Female
73 27 100
Interpretation: Above table shows the relationship between Gender and Risk Tolerance of Respondents. Let us consider H0: Gender and Risk Factor of Respondents are independent. H1: Gender and Risk Factor of Respondents are dependent. Conducting chi square test at 5% level of significance, it is found that 2 = 11.43 as the computed value which is very less than the table value 16.92 so we accept H0. Hence we can conclude that Gender and Risk Tolerance of an investor are two independent attributes. Generally, it is considered that women tend to be risk averse in comparison with men.
b. Age and Investment Avenues: Age of investor and the Investment Avenues preferred by an investor are two independent attributes. The relationship between the Age and Investment Avenues preferred by the investors can be presented with the help of following table and diagram:
Shares 14 1 2 1 18
Insurance Products 21 6 4 1 32
Others 5 2 3 2 12 74 11 10 5 100
Above table shows the relationship between Age and Investment Avenues preferred by the Respondents. Let us take, H0: Age and Preferred Investment Avenues by investors are independent. H1: Age and Preferred Investment Avenues by investors are dependent. Conducting chi square test at 5% level of significance, it is found that 2 = 15.89, but the computed value is less than the table value 26.1 so we accept H0. Hence null hypothesis rejected and we can conclude that age and preferred investment avenues by the investors are two dependent attributes of the investor.
c. Age and Risk Factor: Age of investor and the Risk factor of an investor are two independent attributes. The relationship between the Age and Risk Factor of an investors can be presented with the help of following table and diagram: Age/Risk Factor 18-30 31-40 41-50 >50 Highly Important 21 3 2 1 27 Important 34 5 3 3 45 Neutral 11 1 2 1 15 Unimportant Highly Unimportant 6 2 1 1 2 1 0 0 9 4
74 11 10 5 100
Above table shows the relationship between Age and Risk Factor preferred by the Respondents. Let us take, H0: Age and Risk Factor preferred by investors are independent. H1: Age and Risk Factor preferred by investors are dependent. Conducting chi square test at 5% level of significance, it is found that 2 = 5.58, but the computed value is very less than the table value 32.9 so we accept H0. Hence null hypothesis rejected and we can conclude that age and preferred investment avenues by the investors are two dependent attributes of the investor.
d. Age and Income Factor: Age of investor and the Income factor of an investor are two independent attributes. The relationship between the Age and Income Factor of an investors can be presented with the help of following table and diagram: Age/Income Factor 18-30 31-40 41-50 >50 Highly Important 18 2 1 2 23 Important 39 6 5 1 51 Neutral 11 1 2 0 14 Unimportant Extremely Unimportant 2 4 1 1 1 1 1 1 5 7
74 11 10 5 100
Interpretation: Above table shows the relationship between Age and Income factor of Respondents. Let us consider H0: Age and Income Factor of Respondents are independent. H1: Age and Income Factor of Respondents are dependent. Conducting chi square test at 5% level of significance, it is found that 2 = 9.302 as the computed value which is very less than the table value 32.9 so we accept H0. Hence we can conclude that Gender and Risk Tolerance of an investor are two independent attributes. Generally, it is considered that women tend to be risk averse in comparison with men.
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5.1 Findings
Age and risk factor are independent. Risk factor is not relevant to age while taking an
ULIP policy Age and income factor are independent. Income factor is independent of age while taking an ULIP policy. Age is not a consideration while investing. Gender is independent of risk factor. Gender has no dependency with risk factor while taking an ULIP policy. ULIPs are liquid and offer flexibility to the investor after some period. Majority of the respondents do hold a life insurance. 78% of the respondents hold a Life insurance policy and 22% of the respondents dont hold a life insurance. 64% of the respondents are of opinion that insurance is for risk coverage. Only 36% of the respondents look it in investment perspective. 39% of the respondents would like to invest in Mutual funds, 28% of the respondents in Insurance products and 23% off respondents in Stocks. Only 25% of the respondents have an idea on ULIP policy, and the remaining 75% dont have an idea on ULIP policies. And 18% of the respondents do hold an ULIP policy. Respondents rank safety, return on investment and sum assured as important factors while taking an ULIP policy. Out of 100 respondents 62 respondents would like to invest only once in a year,30 respondents would like to invest 2-4 times a year and 8 respondents would like to invest more than 4 times a year 44% of respondents rank investment is for better future, 33% of respondents are of opinion of good returns and 17% of respondents are of opinion of tax savings. 33% of respondents would like to save in investments, 39% in bank deposits and 22% of respondents in fixed deposits.
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5.2 Suggestions: Awareness on ULIP has to be increased As people consider risk factor is important company should give minimum guarantee of
money so that people may consider this policy as most secured and also giving good profit. Company should come up with group unit linked plans so that people may have option to go for unit-linked policy. The unit-linked policies are suitable to those who are active investors and at the same time they want to cover their life. Life insurance is the classical example of unsought goods. The nature of that is the consumer does know about or does not normally think of buying. It requires personal selling support. So agents should be fully informative and they should be able to tell the entire information customer needed.
5.3 Conclusion:
The above study showed that unit linked policy has attractive market. But main problem is awareness. Companies should explain the advantages they are getting out of unit-linked policy. They should come up with some salient features like different investment criteria, group investment plans etc. In India people are not willing to invest their money in market but they make idle investment. So it is the work of middlemen win the willingness of people to invest in market. Also company should concentrate on death benefit and term of policy.
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<15000
3. You would prefer savings in which form? Bank Deposits Fixed Deposits Investments Others ________
4. What do you consider while making investment decision? Family Advice Friends Advice Your Own Advice Others ________
5. Your opinion about investment: Tax Saving Good Returns Better Future Other __________
6. Preferably you would like to invest in: Mutual Funds Stocks and shares Insurance products Other _________
7. How frequently do you invest? Once a year 2-4 times a year More than 4 times a year
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10. Do you hold ant ULIP policy Yes No If yes company name________________
11. How long do you invest? < 2 yrs 2-5 yrs 6-10 yrs > 10 yrs
12. Rank Life insurance companies that you are aware of? ICICI Reliance Tata Aig Bajaj Allianz ING Vysya
13. How do you consider the following factors inflence your investment decision? Factors Brand image Risk factor Income Sum assured Claim settlement Safety Liquidity Tax saving Performance of past schemes Return on investment Market conditions Withdrawl benefits Savings component Maturity benefits Charges levied 5 4 3 2 1