Beruflich Dokumente
Kultur Dokumente
Ujjal Singh
3/24/2015
TABLE OF CONTENTS
NATURE OF LIFE INSURANCE CONTRACT...................................................................................................... 4
Features of life insurance contract: .......................................................................................................... 4
FUNCTIONS OF LIFE INSURANCE CORPORATION OF INDIA .......................................................................... 5
LIFE INSURANCE CORPORATION OF INDIA (LIC): MANAGEMENT, OBJECTIVES AND ACTIVITIES. ................ 7
Organisation and Management: ............................................................................................................... 7
Objectives of LIC: ...................................................................................................................................... 7
Activities of LIC: ......................................................................................................................................... 8
Investment Policy:..................................................................................................................................... 8
Functions of LIC ............................................................................................................................................. 9
What are the main futures of Life Insurance Corporation of India (LIC) ? ................................................. 11
What are the main features of LIC? ........................................................................................................ 11
1. Saving Institution: ........................................................................................................................... 11
2. Term Financing Institution: ............................................................................................................. 11
3. Investment Institutions: .................................................................................................................. 12
4. Stabiliser in Share Market: .............................................................................................................. 12
Defects .................................................................................................................................................... 12
1. Dependence on Institutional Sources of Finance: .......................................................................... 12
2. Defects of Loan Finance: ................................................................................................................. 12
3. Small Industries Ignored: ................................................................................................................ 13
4. Cheap Finance to Big Industries: ..................................................................................................... 13
5. More Loans to Developed Areas: .................................................................................................... 13
6. Problem of Overdoes: ..................................................................................................................... 13
Characteristics of lic .................................................................................................................................... 14
1. Sharing of Risk: .................................................................................................................................... 14
2. Co-operative Device: ........................................................................................................................... 14
3. Value of Risk: ....................................................................................................................................... 14
4. Payment at Contingency: .................................................................................................................... 15
5. Amount of Payment: ........................................................................................................................... 15
6. Large Number of Insured Persons ...................................................................................................... 15
7. Insurance is not a gambling: ............................................................................................................... 16
8. Insurance is not Charity: ..................................................................................................................... 17
(ii)
Insurable interest
(iii)
(iv)
Warranties
(v)
Proximate cause
(vi)
(vii)
Return of premium
(ii)
(iii)
(iv)
Legal consideration
(v)
Legal objective.
9. to do all such things as may be incidental or conducive to the proper exercise of any
of the powers of theCorporation.
10. In the discharge of any of its functions the Corporation shall act so far as may be on
business principles.
OBJECTIVES OF LIC:
The important objectives of LIC are as follows:
(i) To mobilise maximum savings of the people by making insured savings more
attractive.
(ii) To extend the sphere of life insurance and to cover every person eligible for
insurance under insurance umbrella.
(iii) To act as trustees of the insured public in their individual and collective
capacities.
(iv) Promote all employees and agents of the LIC, in the sense of participation and
job satisfaction through discharge of their duties with dedication towards
achievement of LIC objectives.
(v) To ensure economic use of resources collected from policy holders.
(vi) To conduct business with utmost economy and with the full realization that the
money belong to the policy holders.
ACTIVITIES OF LIC:
The LIC subscribes to and underwrites the shares, bonds and debentures of several
financial corporations and companies and grants term-loans. It maintains a
relationship with other financial institutions such as IDBI, UTI, IFCI, etc. for
coordination of its investment.
The LIC is a powerful factor in the securities market in India. It subscribes to the
share capital of companies, both preference and equity and also to debentures and
bonds. Its shareholding extends to a majority of large and medium sized nonfinancial companies and is significant in size.
It is no doubt to say that the LIC acts as a kind of downward stabilizer of the share
market, as the continuous inflow of fresh funds enables it to buy even when the share
market is weak.
INVESTMENT POLICY:
The investment policy of the LIC of India should bring a fair return to policy holders
consistent with safety. Since the funds at the disposal of the LIC are in the nature of
the trust money, they should be invested in such securities which do not diminish in
value and give the highest possible return.
In other words, principles of safety, yield, liquidity and distribution should be taken
into consideration while investing insurance funds. The way in which these funds are
invested is a great significance not only to policy holders but also to the entire
economy.
FUNCTIONS OF LIC
The Life Insurance business was nationalized on 19th January, 1956 and the Life
Insurance Corporation of India came into being on 1st September, 1956 to carry on
life business in India with capital of Rs.5 crores contributed by the Central
Government. The Corporation is a body corporate having perpetual succession with a
common seal with powers to acquire, hold and dispose of property and may by its
name sue and be sued. The functions of the Corporation shall be to carry on and
develop life insurance business to the best advantage of the community.
2.
to invest the funds of the Corporation in such manner as the Corporation may think fit
and to take all such steps as may be necessary or expedient for the protection
or realization of any investment; including the taking over of and administering any
property offered as security for the investment until a suitable opportunity arises for its
disposal;
3.
to acquire, hold and dispose of any property for the purpose of its business;
4.
to transfer the whole or any part of the life insurance business carried on outside India to
any other person or persons, if in the interest of the Corporation it is expedient so to do;
5.
to advance or lend money upon the security of any movable or immovable property or
otherwise;
6.
to borrow or raise any money in such manner and upon such security as the Corporation
may think fit;
7.
to carry on either by itself or through any subsidiary any other business in any case where
such other business was being carried on by a subsidiary of an insurer whose controlled
business has been transferred to and vested in the Corporation by this act;
8.
to carry on any other business which may seem to the Corporation to be capable of being
conveniently carried on in connection with its business and calculated directly or
indirectly to render profitable the business of the Corporation; and
to do all such things as may be incidental or conducive to the proper exercise of any of
the powers of the Corporation.
10.
In the discharge of any of its functions the Corporation shall act so far as may be on
business principles.
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3. INVESTMENT INSTITUTIONS:
LIC is a big investor of funds in government securities. Under the law, LIC is required to invest
at least 50% of its accruals in the form of premium income in government and other approved
securities.
LIC funds are also made available directly to the private sector through investment in shares,
debentures, and loans. LIC also plays a significant role in developing the business of
underwriting of new issues.
4. STABILISER IN SHARE MARKET:
LIC acts as a downward stabiliser in the share market. The continuous inflow of new funds
enables LIC to buy shares when the market is weak. However, the LIC does not usually sell
shares when the market is overshot. This is partly due to the continuous pressure for investing
new funds and partly due to the disincentive of the capital gains tax.
DEFECTS
The development banks in India suffers from a number of defects as discussed below:
1. DEPENDENCE ON INSTITUTIONAL SOURCES OF FINANCE:
The capital resources of development banks mainly come from institutional sources. They have
not been able to raise funds directly from public as is done by the banks, insurance companies,
etc. Dependence on the institutional sources has enabled the development banks to get funds at
low yield rates. But, the low yield structure has come in the way of the popularly of development
banks. They could not make their bonds and debentures popular in the market and raise sufficient
funds from the public.
2. DEFECTS OF LOAN FINANCE:
The development banks mostly provide assistance in the form of debt capital, particularly in term
loans. No doubt, loan financing assures a stable return on funds and do not involve such
managerial problems as are faced during equity participation.
But the loan financing has its own drawbacks:
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(a) Loan financing has distorted the capital structure of the borrowing industrial concerns in
favour of loan capital. The burden of fixed interest payments is too*heavy and is one of the
reasons for the industrial sickness in the country,
(b) The government loses potential corporation tax because for the tax purposes, interest is
considered as a cost item while estimating corporate profits,
(c) The industrial concerns also prefer loans to debentures because default on loans are not made
public and can be negotiable with the lending agency,
(d) Loan financing has limited the development of the corporate bond market.
3. SMALL INDUSTRIES IGNORED:
An important objective of the development banks in India is to provide financial assistance to
new enterprises, small arid medium industrial units on priority basis. But in reality, the major
part of the assistance has been granted to the large and established industrial concerns. New and
small entrepreneurs are generally ignored by these banks.
4. CHEAP FINANCE TO BIG INDUSTRIES:
The big industrial houses not only receive large and growing, but also organised, assured and
cheap amounts of finance from development banks. In fact, the big industry sector has become
over-dependent on the development banks for meeting their financial needs. Organised nature of
financial resources of the development banks enable them to grant cheap credit.
5. MORE LOANS TO DEVELOPED AREAS:
The development banks are expected to reduce regional disparities by extending greater financial
assistance to the backward areas. But, experience has shown that these banks have contributed
more to the industrial concerns in the developed regions. About half of the total assistance has
been sanctioned for the four industrially advanced states of Maharashtra, Gujarat, Tamil Nadu
and West Bengal.
6. PROBLEM OF OVERDOES:
The development banks, particularly, the State Finance Corporations are facing serious problem
of over dues. The over dues restrict the recycling of funds of the financial institutions and limit
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their capacity to lend. The development banks also suffer from the defect of procedural delays in
sanctioning and disbursing loans.
CHARACTERISTICS OF LIC
The insurance has the following characteristics which are, generally, observed in case of life,
marine, fire and general insurances.
1. SHARING OF RISK:
Insurance is a device to share the financial losses which might befall on an individual or his
family on the happening of a specified event. The event may be death of a bread-winner to the
family in the case of life insurance, marine-perils in marine insurance, fire in fire insurance and
other certain events in general insurance, e.g., theft in burglary insurance, accident in motor
insurance, etc. The loss arising nom these events if insured are shared by all the insured in the
form of premium.
2. CO-OPERATIVE DEVICE:
The most important feature of every insurance plan is the co-operation of large number of
persons who, in effect, agree to share the financial loss arising due to a particular risk which is
insured. Such a group of persons may be brought together voluntarily or through publicity or
through solicitation of the agents.
An insurer would be unable to compensate all the losses from his own capital. So, by insuring or
underwriting a large number of persons, he is able to pay the amount of loss. Like all cooperative
devices, there is no compulsion here on anybody to purchase the insurance policy.
3. VALUE OF RISK:
The risk is evaluated before insuring to charge the amount of share of an insured, herein called,
consideration or premium. There are several methods of evaluation of risks. If there is
expectation of more loss, higher premium may be charged. So, the probability of loss is
calculated at the time of insurance.
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4. PAYMENT AT CONTINGENCY:
The payment is made at a certain contingency insured. If the contingency occurs, payment is
made. Since the life insurance contract is a contract of certainty, because the contingency, the
death or the expiry of term, will certainly occur, the payment is certain. In other insurance
contracts, the contingency is the fire or the marine perils etc., may or may not occur. So, if the
contingency occurs, payment is made, otherwise no amount is given to the policy-holder.
Similarly, in certain types of life policies, payment is not certain due to uncertainty of a
particular contingency within a particular period. For example, in term-insurance then, payment
is made only when death of the assured occurs within the specified term, may be one or two
years. Similarly, in Pure Endowment payment is made only at the survival of the insured at the
expiry of the period.
5. AMOUNT OF PAYMENT:
The amount of payment depends upon the value of loss occurred due to the particular insured
risk provided insurance is there up to that amount. In life insurance, the purpose is not to make
good the financial loss suffered. The insurer promises to pay a fixed sum on the happening of an
event.
If the event or the contingency takes place, the payment does fall due if the policy is valid and in
force at the time of the event, like property insurance, the dependents will not be required to
prove the occurring of loss and the amount of loss. It is immaterial in life insurance what was the
amount of loss at the time of contingency. But in the property and general insurances, the amount
of loss as well as the happening of loss, are required to be proved.
6. LARGE NUMBER OF INSURED PERSONS
To spread the loss immediately, smoothly and cheaply, large number of persons should be
insured. The co-operation of a small number of persons may also be insurance but it will be
limited to smaller area. The cost of insurance to each member may be higher. So, it may be
unmarketable.
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Therefore, to make the insurance cheaper, it is essential to insure large number of persons or
property because the lesser would be cost of insurance and so, the lower would be premium. In
past years, tariff associations or mutual fire insurance associations were found to share the loss at
cheaper rate. In order to function successfully, the insurance should be joined by a large number
of persons.
7. INSURANCE IS NOT A GAMBLING:
The insurance serves indirectly to increase the productivity of the community by eliminating
worry and increasing initiative. The uncertainty is changed into certainty by insuring property
and life because the insurer promises to pay a definite sum at damage or death.
From a family and business point of view all lives possess an economic value which may at any
time be snuffed out by death, and it is as reasonable to ensure against the loss of this value as it is
to protect oneself against the loss of property. In the absence of insurance, the property owners
could at best practice only some form of self-insurance, which may not give him absolute
certainty.
Similarly, in absence of life insurance, saving requires time; but death may occur at any time and
the property, and family may remain unprotected. Thus, the family is protected against losses on
death and damage with the help of insurance.
From the company's point of view, the life insurance is essentially non-speculative; in fact, no
other business operates with greater certainties. From the insured point of view, too, insurance is
also the antithesis of gambling. Nothing is more uncertain than life and life insurance offers the
only sure method of changing that uncertainty into certainty.
Failure of insurance amounts gambling because the uncertainty of loss is always looming. In
fact, the insurance is just the opposite of gambling. In gambling, by bidding the person exposes
himself to risk of losing, in the insurance; the insured is always opposed to risk, and will suffer
loss if he is not insured.
By getting insured his life and property, he protects himself against the risk of loss. In fact, if he
does not get his property or life insured he is gambling with his life on property.
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