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Introduction
INTRODUCTION
1.1 WHAT IS INSURANCE
Insurance is a risk management technique primarily used to hedge against the risk of a
contingent, uncertain loss that may be suffered by those individuals or entities that have
an insurable interest in scarce resources, by transferring the possibility of this loss from
one interested person, persons, or entity to another. The scarce resources referred to here
fall into three divisions: human resources, financial resources, and capital, or tangible
resources. In the context of insurance, scarce resources are also known as "exposures,"
because they are "exposed" to perils, those things, or forces, which cause destruction or
reduction, in the usefulness, or value, of an exposed resource. Human resources are thus
exposed to perils such as illness or death; financial resources to legal judgements that
may result from negligent acts, and capital resources to physical perils such as fire, theft,
windstorm, and vandalism, to name but a few. A hazard is the cause of a peril. It is that
thing or condition which increases the likelihood of a peril. Thus perils and hazards are
identified by the exposure that they threaten. For example a slippery roadway could be
viewed as a financial hazard, capital hazard, or human hazard by automobile owners, and
rightly so, since this condition increases the likelihood of an automobile accident that
might result in an unfavourable legal judgement, automobile damage, and bodily injury.
In the context of commercial trade, insurance is further defined as the equitable transfer
of the risk of a loss, from one entity to another, in exchange for consideration, payment,
in the form of a risk premium. The insurance premium develops at an actuariallydetermined rate. This rate is a factor used to determine the amount of premium to charge
for a certain limit, and type, of insurance on the scarce resource. The premium can further
be viewed as a guaranteed, known, relatively small financial loss to the insured, paid to
the insurer, in exchange for the insurer's promise to compensate (indemnify) the insured
in the case of a loss to the insured resource(s). The insured receives a contract, called
the insurance policy, which details the conditions and circumstances under which the
insured will be indemnified.
Insurance Services
1. Insurance is system by which the losses suffered by a few are spread over many,
exposed to similar risks. Insurance is a protection against financial loss arising on the
happening.
2. An unexpected event. Insurance policy helps in not only mitigating risks but also
provides a financial cushion against adverse financial burden suffered.
Insurance policies cover the risk of life as well as other assets and valuables such as
home, automobiles, and Jewelry.
The functions of Insurance can be bifurcated into two parts:
Primary Functions
Secondary Functions
Other Functions
Primary Functions
Secondary Functions
Prevention of Losses: Insurance cautions individuals and businessmen to adopt suitable
device to prevent unfortunate consequences of risk by observing safety instructions;
installation of automatic sparkler or alarm systems, etc. Prevention of losses causes lesser
payment to the assured by the insurer and this will encourage for more savings by way of
premium. Reduced rate of premiums stimulate for more business and better protection to
the insured.
Small Capital to cover Larger Risks: Insurance relieves the businessmen from
security investments, by paying small amount of premium against larger risks and
uncertainty.
Other Functions
Risk Free Trade: Insurance promotes exports insurance, which makes the foreign
trade risk free with the help of different types of policies under marine insurance
cover.
1912: The Indian Life Assurance Companies Act enacted as the first statute to
regulate the life insurance business.
1928: The Indian Insurance Companies Act enacted to enable the government to
collect statistical information about both life and non-life insurance businesses.
1938: Earlier legislation consolidated and amended to by the Insurance Act with
the objective of protecting the interests of the insuring public.
1956:245 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.
The General insurance business in India, on the other hand, can trace its roots to the
Triton Insurance Company Ltd., the first general insurance company established in the
year 1850 in Calcutta by the British.
Some of the important milestones in the general insurance business in India are:
1907 - The Indian Mercantile Insurance Ltd. set up, the first company to transact
all classes of general insurance business.
1968 - The Insurance Act amended to regulate investments and set minimum
solvency margins and the Tariff Advisory Committee set up.
107 insurers amalgamated and grouped into four companys viz. the National Insurance
Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company
Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.
On the basis of the risk they cover, insurance policies can be classified into two
categories:
the risks that we run during our lives. It protects us from the contingencies that could
affect us.
Life insurance is not for the person who passes away, it for those who survive. It is the
responsibility of every bread earner to guard against the events that could affect the
family in the unfortunate circumstance of his / her demise. Thus, having a life insurance
policy is very vital. Before going for a life insurance policy it is imperative that you know
about various types of life insurance policies. Major among them are:
Endowment Policy
Money-back Policy
Property (both movable and immovable), vehicle, cash, household goods, health,
dishonesty and also one's liability towards others can be covered under general insurance
policy. Under certain Acts of Parliament, some types of insurance like Motor Insurance
and Public Liability Insurance have been made compulsory.
Major insurance policies that are covered under General Insurance are:
Home Insurance
Health Insurance
Motor Insurance
Travel Insurance
Bajaj Allianz
ICICI Prudential
ING Vysya
Kotak Mahindra
LIC
both households and societies. Insurance can influence the probability of losses
through moral hazard, insurance fraud, and preventive steps by the insurance company.
Insurance scholars have typically used moral hazard to refer to the increased loss due to
unintentional carelessness and moral hazard to refer to increased risk due to intentional
carelessness or indifference. Insurers attempt to address carelessness through inspections,
policy provisions requiring certain types of maintenance, and possible discounts for loss
mitigation efforts. While in theory insurers could encourage investment in loss reduction,
some commentators have argued that in practice insurers had historically not aggressively
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pursued loss control measures - particularly to prevent disaster losses such as hurricanes because of concerns over rate reductions and legal battles. However, since about 1996
insurers began to take a more active role in loss mitigation, such as through building
codes.
Insurers' business model
Underwriting and investing
The business model is to collect more in premium and investment income than is paid out
in losses, and to also offer a competitive price which consumers will accept. Profit can be
reduced to a simple equation: Profit = earned premium + investment income - incurred
loss - underwriting expenses.
Insurers make money in two ways:
1
Through underwriting, the process by which insurers select the risks to insure and
decide how much in premiums to charge for accepting those risks;
By investing the premiums they collect from insured parties. The most
complicated aspect of the insurance business is the actuarial science of
ratemaking (price-setting) of policies, which uses statistics and probability to
approximate the rate of future claims based on a given risk. After producing rates,
the insurer will use discretion to reject or accept risks through the underwriting
process.
At
the
most
basic
level,
initial
ratemaking
involves
looking
at
the frequency and severity of insured perils and the expected average payout resulting
from these perils. Thereafter an insurance company will collect historical loss data, bring
the loss data to present value, and comparing these prior losses to the premium collected
in order to assess rate adequacy. Loss ratios and expense loads are also used. Rating for
different risk characteristics involves at the most basic level comparing the losses with
"loss relativities" - a policy with twice as money policies would therefore be charged
twice as much. However, more complex multivariate analyses through generalized linear
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modelling are sometimes used when multiple characteristics are involved and a univariate
analysis could produce confounded results. Other statistical methods may be used in
assessing the probability of future losses.
Upon termination of a given policy, the amount of premium collected and the investment
gains thereon, minus the amount paid out in claims is the insurer's underwriting profit on
that policy. Underwriting performance is measured by something called the "combined
ratio" which is the ratio of expenses/losses to premiums. A combined ratio of less than
100 percent indicates an underwriting profit, while anything over 100 indicates an
underwriting loss. A company with a combined ratio over 100% may nevertheless remain
profitable due to investment earnings.
Insurance companies earn investment profits on "float". Float, or available reserve, is the
amount of money on hand at any given moment that an insurer has collected in insurance
premiums but has not paid out in claims. Insurers start investing insurance premiums as
soon as they are collected and continue to earn interest or other income on them until
claims are paid out. The Association of British Insurers (gathering 400 insurance
companies and 94% of UK insurance services) has almost 20% of the investments in
the London
Stock
Exchange.
In
the United
States,
the
underwriting
loss
of property and casualty insurance companies was $142.3 billion in the five years ending
2003. But overall profit for the same period was $68.4 billion, as the result of float. Some
insurance industry insiders, most notably HankGreenberg, do not believe that it is forever
possible to sustain a profit from float without an underwriting profit as well, but this
opinion is not universally held.
Naturally,
the
float
method
is
difficult
to
carry
out
in
an economically
depressed period. Bear markets do cause insurers to shift away from investments and to
toughen up their underwriting standards, so a poor economy generally means high
insurance premiums. This tendency to swing between profitable and unprofitable periods
over time is commonly known as the underwriting, or insurance cycle.
1.6 Life Insurance
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There are various kinds of insurance available in the market. In this particular project we
are concentrating on life insurance. Life insurance ensures that your family will receive
financial support in your absence. Put simply, life insurance provides your family with a
sum of money should something happen to you. It protects your family from financial
crises.
In addition to serving as a protective cover, life insurance acts as a flexible money-saving
scheme, which empowers you to accumulate wealth-to buy a new car, get your children
married and even retire comfortably. Life insurance also triples up as an ideal tax-saving
scheme.
Major risk a family is exposed due to death of the breadwinner of a family
In the above circumstance, the source of income comes to an end but not the expenses.
They remain, as they were earlier before the death of the breadwinner of the family.
Just in case, the income doesn't remain the same as earlier, the family has to downgrade
their standard of living. This kind of situation may affect the future of the family
drastically. To overcome all these risks, life insurance is mandatory for everyone who has
any dependant on his or her income besides any kind of liability like a home loan or
a personal loan or any other loan. In case of death of the insured, the money, which is
received from the Life
next
question
is
how
much
insurance
should
one
take?
To put that in simple words, the sum assured should be large enough to take care of your
entire family expenses along with your liabilities if any and also should fulfill all the
goals of your children's future or buying a home for your family or any other goal you
have. This is quite a sophisticated process and you should take professional help to know
how much sum assured you need. To have a fair idea of your life insurance requirement,
you can do the calculations on our site on our life insurance planner calculator. but before
you go ahead to buy a life insurance plan for yourself, we would suggest you to take
some kind of professional help. Taking a lower sum assured than your requirement means
that you are not adequately insured and in case of death, your family will have to make
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some kind of compromises either in regular expenses or for the goals you had set for your
family.
In case you have taken reverse route, like going in for more Insurance than you need,
implies that you are paying more premiums that is actually not needed. You can use this
money somewhere else to plan for some other goals you have for your future.
Need for Life Insurance
Today, there is no shortage of investment options for a person to choose from. Modern
day investments include gold, property, fixed income instruments, mutual funds and of
course, life insurance. Given the plethora of choices, it becomes imperative to make the
right choice when investing your hard-earned money. Life insurance is a unique
investment that helps you to meet your dual needs - saving for life's important goals, and
protecting
your
assets.
Life Stage
Primary Need
Asset creation
Asset creation &
married
Married with
protection
Children's education,
protection plans
Education insurance, mortgage
kids
Middle aged
protection
Planning for retirement
plans
Retirement solutions &
with grown up
mortgage protection
kids
Across all life-
Health plans
Health Insurance
stages
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Chapter 2
COMPANY PROFILE
15
2.2 HISTORY
The Oriental Life Insurance Company, the first corporate entity in India offering life
insurance coverage, was established in Calcutta in 1818 by Bipin Bernard Dasgupta and
others. Europeans in India were its primary target market, and it charged Indians heftier
premiums. The Bombay Mutual Life Assurance Society, formed in 1870, was the first
native insurance provider. Other insurance companies established in the preindependence era included
Bharat Insurance Company (1896)
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Indian Mercantile
General Assurance
The first 150 years were marked mostly by turbulent economic conditions. It witnessed
Indias First War Of independence, adverse effects of the World War I and World War II
on the economy of India, and in between them the period of worldwide economic crises
triggered by the Great depression. The first half of the 20th century also saw a heightened
struggle for Indias Independence. The aggregate effect of these events led to a high rate
of bankruptcies and liquidation of life insurance companies in India. This had adversely
affected the faith of the general public in the utility of obtaining life cover.
The Life Insurance Act and the Provident Fund Act were passed in 1912, providing the
first regulatory mechanisms in the Life Insurance industry. The Indian Insurance
Companies Act of 1928 authorized the government to obtain statistical information from
companies operating in both life and non-life insurance areas. The subsequent Insurance
Act of 1938 brought stricter state control over an industry that had seen several
financially unsound ventures fail. A bill was also introduced in the Legislative Assembly
in 1944 to nationalize the insurance industry.
Past Chairmen
Messrs. H.M.Patel, Gopalkrishnan, M.R.Yardi, M.R.Bhide, T.A.Pai, K.R.Puri, Jacob
Mathen, J.R.Joshi, A.S.Gupta, R.Narayanan, N.K.Shinkar, M.G.Diwan, K.P.Narasimhan,
N.N.Jambusaria,
J.Salunkhe,
N.M.Govardhan,
G.Krishnamurthy,
17
G.N.Bajpai,
2.3 NATIONALIZATION
In 1955, parliamentarian Amol Barate raised the matter of insurance fraud by owners of
private insurance companies. In the ensuing investigations, one of India's wealthiest
businessmen, Ram Kishan Dalmia, owner of the Times of India newspaper, was sent to
prison for two years. Eventually, the Parliament of India passed the Life Insurance of
India Act on 1956-06-19, and the Life Insurance Corporation of India was created on
1956-09-01, by consolidating the life insurance business of 245 private life insurers and
other entities offering life insurance services. Nationalization of the life insurance
business in India was a result of the Industrial Policy Resolution of 1956, which had
created a policy framework for extending state control over at least seventeen sectors of
the economy, including the life insurance.
2.4 CURRENT STATUS
LIC building, at Connaught Place, New Delhi, designed by Charles Correa, 1986.
Over its existence of around 50 years, Life Insurance Corporation of India, which
commanded a monopoly of soliciting and selling life insurance in India, created huge
surpluses, and contributed around 7 % of India's GDP in 2006.
The Corporation, which started its business with around 300 offices, 5.6 million policies
and a corpus of INR 459 million (US$ 92 million as per the 1959 exchange rate of
roughly Rs. 5 for a US $, has grown to 25000 servicing around 350 million policies and a
corpus of over 8 trillion (US$178.4 billion).
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Bear in mind, in the investments of funds, the primary obligation to its policy
holders, whose money it holds in trust. Without losing sight of the interest of the
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Conduct business with utmost economy and with the full realization that the
moneys belong to the policy holders.
Act as trustees of the insured public in their individual and collective capacities.
Meet the various life insurance needs of the community that would arise in the
changing social and economic environment.
Involve all people working in the corporation to the best of their capabilities in
furthering the interests of the insured public by providing efficient service with
courtesy.
2.8 PREMIUM
There are 5 modes of premium payment methods in LIC of India. LIC of India provides
rebates on the premium to be paid based on the mode of payment made by the policy
holder. The highest rebate is given to the yearly mode.
Quarterly: The premium has to be paid every 3 months in a policy year. Usually there are
no rebates given for this mode of premium payment.
Half yearly: The premium amount has to be paid every 6 months of the policy year.
Usually rebates are given to this kind of payment. However the rebate percentage varies
according to the policy.
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Yearly: This most welcomed mode of payment by LIC of India. The highest rebate is
given to this mode of payment since it eases the managing and accounting processes of
the company for the particular policy holder.
Monthly: The policy premium has t be paid every month of the policy year. A 5%
percentage of the premium amount has to be paid extra for this mode of premium. This is
not the recommended form of premium payment since it increases the overhead for both
the policy holder as well as the insurance company.
Salary savings scheme (SSS): In this mode of premium payment the policy premium will
be deducted from the salary of the policy holder every month automatically. The
difference between monthly mode and this mode is that the extra premium has not to be
paid in this mode of premium. For selecting this mode of premium the organization in
which the policy holder is working should support this practice.
Ways of paying LIC premium
Usually the premium payment for the LIC policies is made in three different ways. They
are:1
Payment through the LIC agent from whom the policy was bought: This is
most widely used method for paying the premium. The agents will remind
the policy holders when the due period is near. This avoids the lapse of
policies and increases the income of the corporation. But it is not sure that
all agents will remind near by the due time. According to the corporation it
is the sole responsibility of the policy holder to pay the premium on time.
However the corporation will also send a letter to the policy holder when
the due period is near.
Payment through the LIC branch offices: If the policy holder has decided
to pay the premium by himself he can pay the premium at any LIC branch
office across India. All the branches are interconnected through the
network. The policy holder will get the computer generated receipt as soon
as he pays the premium.
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Feature of plan: This plan contains good feature of the conventional plans and
the flexibility of unit linked plans. It provides higher cover, smooth return,
liquidity and considerable flexibility. In this plan one has to choose the premium
he wants to pay whereas in normal plans one chooses the S.A. under this plan
death cover will be same irrespective of age at entry and term. The sum payable at
maturity however differs for different entry age and terms. This plan is very
22
appropriate for employees seeking life cover through salary savings schemes.
Surrender value: the policy can be surrender after it has been in force for at least
3 full years. The surrender value will be the greater then guaranteed surrender
value or special surrender value as given below:
Guaranteed surrender value (GSV): the GSV will be equal to the 30% of the
total amount of premium paid excluding the premium for the first year and all the
extra premiums and premium for accident / term riders.
Special surrender value (SSV): the special surrender value under the policy
shall be paid as the sum of (a) and (b) gives as under:
The loyalty additions, if any as announced while declaring the results of the
corporation's valuation as on 31st march, immediately preceding the date of
surrender.
Auto cover: the plan offers auto cover of 12 month after the policy has been in
force for a period of 3 years or more.
Flexible term: the policyholder can choose a maximum term but can surrender at
any time without any surrender penalty or loss.
Partial surrenders: the plan will allow partial surrender from 4th year onwards
subject to certain conditions for which please refer to policy document. Due to
23
existence of the flexible term and partial surrender the policyholder will enjoy a
lot of liquidity under the plan. The plan also provides for 15 days free look
period".
Optional rider: term assurance rider, accidental death and disability benefit rider
is available by the payment of an addition premium.
Maturity sum assured (MSA): has to be calculated on the basic premium only,
before mode rebate & death accident benefit.
Death benefit S.A. will be 250 times the monthly basic premium. To arrive at
DAB we have to calculate death benefit S.A. e.g. if yearly premium is Rs.6000
The death benefit S.A. = 6000/12 x 250 = 1,25,000 for this DAB will be @
Re.1per thousand which come out to be Rs.125
Plan parameters
Age at entry: Min.12 yrs (completed) Max. 60 yrs (NBD)
Maturity age: Min.70 yrs
Term: Min.10 yrs Max. 35 yrs
Min. premium
Age 12 to 49:Rs.250 P.M
Age 15 to 60: Rs.400 P.M
Max. Premium: No. Limits
Premium in
Multiples: Rs.50 p.m.
Mode of payment: YLY/ HLY/ OLY/ SSS
Accident benefit: Re. 1extra per
(max. 50 Lac inclusive all plan)
Policy loan: yes @ 10.5%
Housing loan: yes
Assignment: yes
24
25
26
The vested simple reversionary bonuses will be payable in one lump sum
on survival to the end of the selected accumulation period.
Maturity benefit:
The sum assured, along with vested reversionary bonus is payable in case
of death of the life assured during the accumulation period.
27
sum assured or for simple reversionary bonuses since, in such case, the
risk for life cover commences after 2 years from the death of taking of the
policy anniversary coinciding with or immediately following the date on
which life assured completes 7 years of age , whichever is later. After the
commencement of risk, the normal death benefit as stated above is
payable.
The sum assured along whichever along with loyalty addition, if any
payable in case of death of the life assured any time after the accumulation
period.
Optional
riders
(available
during
the
accumulation
period
only)
Accident benefit rider option (allowed for regular premium policies only):
Accident benefit option will be available under the plan by the payment of
conditional premium. Accident benefit rider shall be available for an amount not
exceeding the sum assured under the basic plan subject to an overall limit of
Rs.50Lakh taking all existing policies of the life assured under individual as will
as group schemes including those with in- built accident benefit taken with the
corporation and other insurance companies and the accident benefit rider sum
assured the new proposal into consideration. This benefit is available under
regular premium policies only and it is available under premium policies.
Term assurance rider option: term assurance as optional rider will be available
under this plan during the accumulation period. The premium for this option are
payable during the premium paying term and an amount equal to term assurance
sum assured will be payable on death during the accumulation period. The
maximum cover for rider will be Rs.25Lakh under all policies of the life assured
with the corporation taken together. The terms and condition applicable to this
rider will be as mentioned in circular Ref: Act l/1909/4 dated 24th October 2003.
Critical illness rider option: an amount equal to critical illness rider sum assured
will be payable in case of diagnosis of defined categories of critical illness during
28
the accumulation period subject to certain term and conditions. The maximum
cover for this rider will be Rs.5Lakh under all policy all policy of the life assured
with the corporation taken together. The term and conditions applicable to this
rider will be as mentioned in circular Ref: Act l/1906/4 dated 8th October 2003
and Act l/2034/4 dated 13th September 2005.
Premium waiver benefit option under critical illness rider: this is an optional
Benefit under regular premium policy which may be opted in case of the
following.
1
The sum assured under the basic plan is equal to the critical Illness rider
sum assured
The chosen accumulation period is such that the premium payment ceases
on or before the policy anniversary at which the life assured completes 60
years (nearest birthday) of age in case the life assured is diagnosed with
any of the critical Illnesses covered under the policy, the life total future
premium (i.e. premium for sum assured under the basic plan and the
premium policy is in full force. All there optional rider benefit mentioned
above shall be available during accumulation period only.
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Paid-up & surrender vales (GSV SSV): In case of regular premium policies, if
after at lest there full year's premium have been paid and any subsequent premium
be not duly paid, this policy shall not be wholly void, but the sum assured by it
shall be reduced to such a sum, called paid-up sum assured, as shall bear to the
total number of premiums originally stipulated in the policy. The policy so
reduced shall thereafter be fore from all liabilities for payment of the within
mentioned premium, but shall not be entitled to the future bonuses. The existing
vested reversionary bonuses, if any, shall remain attached to the reduced paid-up
policy.
In the event of death of life assured during the accumulation period, the reduced
paid-up sum assured as defined above, along with vested reversionary bonus, if
any, shall be payable. No survival benefit will be payable for a reduced paid-up
policy. Provided the life assured is then alive, the vested bonuses and the reduced
paid-up sum assured as defined above shall be payable at the end of the
accumulation period.
Features of plan: Jeevan Anand plan is the combination of whole life policy and
endowment insurance policy the plan provides the per-decided S.A. and bonus at
the end of the stipulated PPT, but the risk cover on the life continues till death.
This policy is suitable for the people of all ages and social groups. The
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oriented.
Premiums are usually payable for the selected term of years or until death if it
occurs during the term period. Accident benefit is available during engaged in
hazardous occupations attracting occupational extra.
Plan parameters
Age at entry: Min.18 yrs Max. 65 yrs.
PPT maturity age: Max. 75 yrs
Sum assured: Min. 100000 Max. No. Limit
S.A. in multiples: 5000
Term: Min.5 yrs Max. 57 yrs
Mode of payment: YLY/HLY/QLY/SSS/MLY
Accident benefit: Incl. in. T.P.
Policy loan: yes
Housing loan: yes
Assignment: yes
Revival: yes
Surrender of policy: yes
Term rider: N.A.
CIR: yes
UNDERWRITING CNDITION
Form no: 300 (rev.)
Age proof: std/ NSAP- 1,2,3
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Death benefit:
If death occurs during the premium paying term S.A. + Bonus +FAB, if any is
payable and premium payment is ceased. An extra amount equal to the S.A. is
payable if death occurs after the premium paying term. No bonus is paid on death
after the premium paying term.
Accident benefit: The double accident benefit is available during the premium
paying term and thereafter up to age 70. The premium for this has been built into
the tabular premium rate.
Example: Mr. Sharad Panwar 25 years , opts for Jeevan Anand policy for 20
years with S.A. Rs.1 Lac. He has to pay annual premium of Rs.5490/- on
maturity, Mr. Sharad Panwar will get Rs. 1,98,000 /- (S.A. + Bonus as per 2005
rates i.e. Rs.43 per thousand per annum which become 43 x 100 x 20 = 86,000/-).
Even after the premium paying term is over, risk cover continues till the death of
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Feature of plan: Jeevan Anurag is a with profit plan specifically designed to take
care of the educational needs of children. The plan can be taken by a parent on his
or her own life benefits under the plan are payable at pre-specified duration
irrespective of whether the life assured survives to the end of the policy tremor
dies during the term of the policy. In addition, this plan also provides for an
immediate payment of basic S.A amount on the life assured during the term of the
policy. This plan is not allowed when occupation extra chargeable and to pregnant
ladies.
15 - Days cooling- off period: if you are not satisfied with the "term and
conditions of the policy you may return the policy to us within 15 days.
Paid up value: if at least three full year's premiums have been paid in respect of
this policy, any subsequent premium be not duly paid, this policy shall not be
wholly void, but the S.A. by it shall be reduced to such a sum, called the paid-up
value, as shall bear the same ration to the full S.A. as the number of premium
actually paid shall bear to the total number of premium originally stipulated in the
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policy. The policy so reduced shall thereafter be free from all liabilities for
payment of the within mentioned premium, but shall not entitled to the future
bonuses.
Guaranteed surrender value: this policy can be surrender for cash after the
policy is kept in force by payment of premiums for at least three years. The
guaranteed surrender value allowable under this plan for all modes, except the
premium mode will be equal to 30% of the premium paid excluding the premiums
paid for the first year and all extra premiums and the premiums paid for optional /
rider benefits. In case of single premium mode, the guaranteed surrender value
will be 90% of the premiums paid excluding all extra premiums and the
premiums paid for optional/ rider benefits.
Critical illness rider benefit: critical illness rider benefit will be available for an
amount not excluding the S.A. under the basic plan subject to overall cover of
5lakh under all polices of the life assured with the corporation taken together.
If premium waiver benefit is opted for then in case of diagnosis by any of the
critical illnesses condition covered under the policy, the total future premiums in
respect of the policy will be waived S.A under such polices will not exceed
Rs.5lakh.
Plan parameters
Age at entry: Min.20 yrs (NBD) Max.60yrs (NBD)
Maturity age: Max.70 yrs. (NBD)
Term: Min.5 yrs for S.P & 10 yrs for regular Max. 25 yrs
Sum assured: Min.50000 Max. No Limit
S.A in multiples: 5000
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during last 3 policy years is paid to the nominee. In addition he will also get 40%
of the basic S.A + Accured Reversionary bonus for the full term & terminal
bonus, is any is also paid.
Accident benefit: accident death and disability benefit will be available for an
amount not exceeding the S.A under the basic plan subject to overall cover of 50
lack under all policy of the life assured with the corporation taken together.
Example: Mr. Tushar Kapoor aged 35 years opted for jeevan anuurag plan, S.A 2
Lac, for a term of 15 years. He pays an annual premium of Rs.15323 /- if the
policy is in full force, Mr. Tushar Kapoor Will get 20% of S.A i.e. Rs.40000/- at
the start of 31th, 14th & 15th policy year and the balance 40% of S.A i.e.
Rs.80000 will be given at the end of 15th year along with reversionary bonuses
declared from time to time for the full term, plus terminal bonus, if any shall be
payable. in case Mr. Tushar Kapoor dies during 10th year his nominee will
receive
Rs.2
lakh.
No premiums are payable thereafter Moreover the nominee will get Rs.40000 /- at
the start of 31th, 14th & 15th policy year and on maturity Rs.80000 +
Reversionary Bonus + terminal bonus, if any.
36
37
38
39
40
SPANCO
1. Suspecting:
It is the first step. In this we have generate a list of people whom we know and suspect
that they may be interested to get a policy. The list may consist of friends, relatives,
neighbours etc. Everyone who we may suspect that she or he would may be interested to
buy a policy.
2. Prospecting:
Next comes prospecting. This is a step in which we will filter the list generated in the first
step and take out the eligible people from the list of suspected ones.
3. Appointment: After prospecting the eligible people we would approach them to get
appointments and so that we can have a detailed conversation regarding our products.
4. Negotiation:
41
Now we would have a detailed conversation with the customer regarding our product, its
features, benefits, etc. All the details attached to our product are being discussed with the
customer.
5. Close the sale:
After negotiating we would close the sale by getting a cheque from the customer n taking
all the details regarding the form from the customer.
6. Offers:
Now we would be leaving promising the customer to let him know about our future
products and offers duly.
This was all about spanco we worked on according to the same and had achieved great
success during our internship process. We learn many things like approaching people,
getting appointments, negotiating with them.
CHAPTER 3
42
OBJECTIVES
An attempt will also be made to study the viewpoint of policyholders and further
to suggest the modalities to improve the efficiency of LIC.
Secondary objectives
To find out the advantages of the policies offered by LIC over various companies.
43
The report gives the brief background of the sector and proceeds to highlight the
short comings of the existing setup and players. The benefits of liberalized sector
are enumerated. The report also tries to identify the market potential for insurance
products and the strategy that can we employed to exploit the same. The stress is
also given on knowing the awareness level of general public.
44
CHAPTER 4
SWOT ANALYSIS
STRENGTHS
1. Largest state-owned life insurance company in India, and also the country's largest
investor.
2. Has over 2000 branches across all parts of India and more than 10,00,000 agents.
3. With Largest fund base it is the biggest investor in India.
4. Have over 115,000 employees across India.
45
5. According to The Brand Trust Report, LIC is the 8th most trusted brand of India.
6. LIC has subsidiaries like LIC Housing Finance Limited, LIC Cards Services Limited.
WEAKNESSES
1. It has an image of a Government agency and hence lacks innovation.
2. Being a Government agency, red tape and bureaucracy causes problem.
3. Managing a huge workforce during economic crisis meant overburdened due to
salaries.
OPPORTUNITIES
THREATS
1. Economic crisis.
2. Entry of new NBFCs in the sector.
3. Varying Government policies.
HYPOTHESIS TESTING
At this stage, it is important to know that when a hypothesis is tested, there are four
possibilities:
1.
2.
3.
4.
In any hypothesis testing the researcher runs the risk of committing type I and type II
error.
CHI SQUARE TEST:
A chi-squared
test,
also
referred
to
as chi-square
test or
test,
is
any statistical hypothesis test in which the sampling distribution of the test statistic is
a chi-squared distribution when the null hypothesis is true. Also considered a chi-squared
test is a test 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.
H0 = There is no significance relationship between the made of income group and
preference of LIC.
H1 = There is a significance relationship between the made of income group and
preference of LIC.
X2
(O E)2
E
O = Observed frequency
E = Expected frequency
47
X2
(O E)2
E
O = Observed frequency
E = Expected frequency
INCOME
Preference of
Preference of other
CATEGORY
LIC
LIC Companies
10
21
4
35
0
9
6
15
TOTAL
10
30
10
50
Ei =
Row Total X Column Total
Grand Total
INCOME
Preference of
Preference of LIC
other LIC
TOTAL
10 x 35
Companies
10 x 15
10
50
50
=7
30 x 35
=3
30 x 15
CATEGORY
48
30
50
50
= 21
10 x 35
=9
10 x 15
50
50
=7
=3
ROW
COLUMN
FREQUENC
10
(O E) 2
OE
(O E)2
Y
1
1
2
2
3
3
1
2
1
2
1
2
O
10
0
21
9
4
6
E
7
3
21
9
7
3
3
-3
0
0
-3
3
9
9
0
0
9
9
1.2
3
0
0
1.2
3
TOTAL =
8.4
According to the table the degree of freedom is 2 i.e. (3 1) (2 1) and the critical value
of X2 is 5.991 since the value lies above the table value, the null hypothesis is rejected i.e.
there is a significant relationship between income group and preference of respondents.
49
16.91
CHAPTER 5
50
RESEARCH METHODOLOGY
RESEARCH METHODOLOGY
Research comprise defining and redefining problems, formulating hypothesis or
suggested solutions; collecting, organizing and evaluating data; making deductions and
reaching conclusions; and at last carefully testing the conclusions to determine whether
they fit the formulating Hypothesis.
In short, the search for Knowledge through Objective and Systematic method of finding
solutions to a problem is Research.
5.1 RESEARCH OBJECTIVES
OBJECTIVE means the purpose for which the research has been conducted. We have to
clearly define the objective of the project to be made. This is the first and the most
important part of the Research Methodology.
The primary objective of my research is to study, understand and critically analyse the
selling strategies of LIC.
51
To study the general profile of the organization and to study its various products.
To know the customers preference towards the company and the various selling
Open Ended: - Allows respondents to answer in their own words & are difficult to
Interpret and Tabulate.
Close Ended: - Pre-specify all the possible answers & are easy to Interpret and Tabulate.
TYPES OF QUESTIONS USED IN THIS PROJECT
Close ended Questions
To know the choice of the people regarding various matters.
Dichotomous Questions
Which has only two answers Yes or No
53
Sample Size
I have restricted the sample size to 60 respondents. This was done keeping in mind the
time constraints and the fact that I felt that this number would be enough to serve the
information needs required to show the trends.
5.6 LIMITATIONS OF THE RESEARCH:
The only limitation in this survey was that I could not conduct a
marketing.
Response of customers could be biased.
CHAPTER 6
DATA ANALYSIS AND
INTERPRETATION
54
QUESTIONNAIRE ANALYSIS
Q1. What is your Gender?
Gender
24%
76%
Male
Female
Interpretation:64% of the respondents are male and 36% of the respondents are female.
Q2. What is your Age?
55
Age
18-30 Yrs.
30-40 Yrs.
40-50 yrs.
Above 50 yrs.
7%
37%
23%
33%
Interpretation:-7 % of the respondents are age between 18-30 years of age, 23% of the
respondents are between the age group of 30 to 40 years, 33% of the respondents are the
age between 40-50 years, 27% of the respondents are above age 50 years.
Q3. What is your Occupation?
Occupation
Private Job
Government Job
Business
Retired
12%
36%
38%
14%
Interpretation:- 36% of the respondents are engaged in the Business, 14% are retired,
and 38% of the respondents are in Govt. service while 12% of the respondents are private
job.
Q.4 What is your Educational Qualification?
56
Education
Up to senior Secondary
Under Graduate
Post graduate
PHD
10%
15%
30%
45%
21%
3%
40%
36%
8,00,000
12,00,000
50000
Above 10 lac
Chart-5
Interpretation:- 40% of the respondents fell under the annual family income of below
8,00,000, 36% of the Respondents are in between annual family income of 12,00,000 and
21% of the respondents are in between annual family income of 5,00,000 while 3% of the
respondents fell in the annual family income of above 10,00,000.
57
According to you, which have played a major role in the field of lifeinsurance companies?
13
14
12
10
10
10
8
Pvt.Employees
Govt.Employees
5
5
3
Bussiness Man
2
0
LIC
HDFC
ICICI
Others
Interpretation - From the above table, it is found that from the given three Sector Private,
Govt. And Business 10 out of 20 (50%), 13 out of 20 (72%), 10 out of 20 (50%), are in the
favour of LIC, 5 out of 20 (25%), 3 out of 20 (12%) and 5 out of 20 (25%) are in favour of
HDFC, 3out of 20 (12%), 3 out of 20 (12%) and 4 out of 20 (20%) are in favour of ICICI ,
whereas only 2 out of 20 (10%), 2 out of 20 (10%) 1 and out of 20 (5%) favour other
companies.
9
Which insurance companies have been successful to make strong public base
by advertisement?
58
16
14
14
12
12
12
10
Pvt.Employees
Govt.Employees
Bussiness Man
6
4
4
3
0
LIC
HDFC
ICICI
Others
Interpretation - From the above table, it is found that from the given three Sector Private,
Govt. And Business 12 out of 20 (55%), 14 out of 20 (72%), 12 out of 20 (55%), are in the
favour of LIC, 3 out of 20 (15%), 2 out of 20 (10%) and 4 out of 20 (20%) are in favour of
HDFC, 4out of 20 (20%), 3 out of 20 (15%) and 3 out of 20 (15%) are in favour of ICICI ,
whereas only 1 out of 20 (5%), 1out of 20 (5%) 1 and out of 20 (5%) favour other
companies.
10 Which Insurance company has gained massive public support in the current
fiscal year?
59
16
14
14
12
12
10
10
Pvt.Employees
Govt.Employees
Bussiness Man
3
2
2
1
0
LIC
HDFC
ICICI
Others
Interpretation - From the above table, it is found that from the given three sector
Private, Govt. And Business 12 out of 20 (36%), 14 out of 20 (42%), 10 out of 20 (30%),
are in the favour of LIC 3 out of 20 (9%), 2 out of 20 (6%) and 5 out of 20 (12%) are in
favour of HDFC and ICICI, whereas only 2 out of 20 (6%), 2 out of 20 (6%) 1 and out of
20 (3%) favour other companies.
11 Do you think insurance policy is in the direction of public welfare?
60
18
16
16
14
13
12
12
10
8
Yes
No
4
2
0
Category 1
Category 2
Category 3
Interpretation - The above table shows that from private sector 13 out of 20 (30%) agree
and 7 out of 20 (21%) disagree, from govt. sector 16 out of 20 (48%) think it right but 4
out of 20(12%) dont think it so and from business man 12 out of 20 (36%) are in favour
of the above statement but 8 out of 20 (24%) dont favours it.
12 Is Retirement bond or Pension policy launched by the number of private
player as well as public Sector Company in the direction of secured old?
20
18
18
16
15
13
14
12
YES
10
7
8
6
2
0
Pvt.Emp.
Govt. Emp.
61
Business man
NO
Interpretation - It is obvious from the above table that 15 out of 20 (45%), 18 out of 20
(54%) and 13out of 20 (39%) from the given three think retirement bend or pension
policy a legitimate step in the direction of secure old age but 5 out 20 (15%), 2 out of 20
(6%) and 7 out 20 (21%) dont agree with the opinion of the majority class.
13 Do you think that risk coverage factor included in Insurance policy attracts
general public towards the policy?
18
16
16
14
12
12
11
10
8
9
8
No
6
4
4
2
0
Pvt. Emp.
Yes
Govt, Emp.
Business Man
Interpretation - From the above table it is found that 12 out of 20 (36%) from Private
sector 16 out of 20 (48%). From Govt. sector and 11 out of 20 (33%) thinks risk coverage
factor attractive but rest 8 out of 20 (24%), 4 out of 20 (12%) and 9 out 20 (27%) from
the above them sector dont think it so encouraging towards saving trend whereas 3 out
of 20 (9%), 2 out of 20 (6%) and 4 out of 20 (12%) dont think it so.59.
62
14. What according to you, the term plan that only covers risk and doesnt cover
maturity benefit on survival at the end of the term provides security cover over
policy holders or a smart way of accumulative money from policy holders?
16
15
14
12
10
12
11
9
8
6
Sec Curvurity
Accumulative Money
4
2
0
Pvt. Emp.
Govt. Emp
Business Man
Interpretation - It is obvious from the above data that 11 out of 20 (33%), from the Pvt.
Sector, 15 out of 20 (45%) from Govt. sector and 12 out of 20 (36%) think term plan as a
security cover but 9 out of 20 (27%), 5 out of 20 (15%) and 8 out of 20 (24%) from the
three respective group think it as a way of accumulating money insurance company.
15. Do you think that the arrival of so many private companies in this insurance
sector envisage a lot of choice to policy holder?
63
20
18
18
16
16
16
14
12
10
Yes
No
8
6
4
4
2
2
0
Pvt. Emp.
Govt. Emp.
Business Man
Interpretation - From analyzing the above data it is found that 16 out of 20 (48%) from
Pvt. Sector, 18out of 20 (54%) from Govt. sector and 16 out of 20 (48%) think that the
arrival of private players envisage a lot of choice to policy holder. But 4 out of 20 (12%),
2 out of 20 (6%) and 4 out of 20 (12%) dont think it so.
16. Do you agree that customer-centricity and transparency are the buzzwords for
success in this evolving industry?
64
25
20
20
19
18
15
Yes
No
10
5
2
0
Pvt. Emp.
1
0
Govt. Emp.
Business Man
Interpretation - From this above data, it is found the 18 out of 20 (54%) from Pvt.
Sector and 20 out of 20 (60%) from Govt. Sector 19 out of 20 (57%) from Business men
agree with this statement whereas only 2 out of 20 (6%) from Pvt. Sector and 1 out of 20
(3%) from Business men do not agree with this statement.
65
CHAPTER 7
Findings And Recommendations
66
Although there are a lot of private insurance companies but the main share is still for
the only public insurance company that is LIC.
There are a lot of new companies entering in the insurance making it more competitive.
Its important for any insurance company to choose an appropriate selling strategy for
its products.
There are many opportunities still to be availed by the private sector insurance
companies.
67
RECOMMENDATIONS
In the modernized well advanced hi-tech approach to the customer every possible
facilities and effort to build up the confidence of the rising policy holders towards.
Insurance companies, to complete one another nothing is left to recommend. But some
recommendations that are intensely felt and highly required for insures to sustain in the
market. These are as follows:
a) More and more transparency should be ascertained between insurers and policy
holders.
b) Particularly, in the emerging boom in the insurance company, every insurance
company should be customer centered, and well versed in the handling
of problem and grievances of the policy holders.
c) Each and Every product launched by the Insurance Company should be in favor
of increasing need of policy holders.
d) The no. of people holding health insurance policy was very low and
the reason behind this is that the people are not awarded of the
difference between the health and life insurance policy. So company
should work to make people aware of the same.
e) Majority of people consider the Insurance premium paid by them as
reasonable. This is not true. Agents should work and clarify the
people about the difference between the two.
IRDA should be more and more responsible to the insurance sector by determining some
standard. It should be mandatory to every insurer to make more and more responsible and
responsive to the policy holders so that comprehensive understanding may be developed
among policy holders. It may be beneficial on both sides.
68
CHAPTER 8
Lessons Learnt
Lessons Learnt
69
1.
2.
3.
4.
70
CHAPTER 9
Bibliography/ Appendices
BIBLIOGRAPHY
71
Newspapers / Magazines
Insurance Post
BOOKS
Dr. Gupta S.P& Dr. Gupta M.P., Business Statistics by Addition 2004, New Delhi,
WEBSITES
w.w.w.liclndia.com
www.lrdaindia.org.com
www.indiainfoline.com
www.icici.com
Appendices
72
73
6. According to you, which have played a major role in the field of life-insurance
companies?
LIC
HDFC
ICICI
Others
7. Which insurance companies have been successful to make strong public base by
advertisement?
LIC
HDFC
ICICI
Others
8. Which insurance company has gained massive public support in the current
fiscal year?
LIC
HDFC
ICICI
Others
9. Do you think insurance policy is in the direction of public welfare?
Yes
No
10. Is retirement bond or pension policy launched by the number of private player as well
as public sector Company in the direction of secured old?
Yes
No
74
11. Do you
policy
attracts
12. What according to you, the term plan that only covers risk and doesnt cover
maturity benefit on survival at the end of the term provides security cover over
policy holders or a smart way of accumulative money from policy holders?
Security Cover
Accumulative Money
13. Do you think that the arrival of so many private companies in this insurance
sector envisage a lot of choice to policy holder?
Yes
No
14. Do you agree that customer-centricity and transparency are the buzzwords for
success in this evolving industry?
Yes
No.
15. Do you think that the arrival of so many private companies in this
Yes
No
16.Do you
Yes
No
75
the
76