Insurance Digest - V3

Insurance Digest Version 3
Version 3
INDEX
S.No.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
TopicName
IntroductionofInsurance
PrinciplesofInsuranceandMethodsofInsurance
Insurance Institute of India and IRDAs Powers and Functions
RoleofIRDAandInsurableRisks
HistoryofLifeInsuranceCompaniesinIndiaandMalhotraCommittee
MalhotraCommitteeandLIC
FunctionsofLIC
TypesofLIC
LICInsurancePlans
GIC
InsuranceActs:
IRDAAct1999
InsuranceAct1938
InsuranceLawsAmendmentAct2015
RBI
Abbreviations(AZ)
FullFormsofFinancialTerms
PageNo.
34
56
7
8
9
10
11
12
13 15
1516
1621
2127
2732
3235
3547
4849
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2
INSURANCE
Insurance is defined as the equitable transfer of the risk of a loss, from one entity to
another,inexchangeforapremium,andcanbethoughtofaguaranteedsmalllossto
prevent a large possibly devastating loss.
DefinitionofRisks
Avariationinthepossibleoutcome.
Thedegreeofuncertaintyassociatedwithaparticularloss.
Greatertheaccuracywithwhichtheoutcomecanbepredictedtheloweristherisk.
Riskisthepossibilityofanunfortunateoccurrence.
Riskisthepossibilityofloss.
Thecombinationofhazards.
UncertaintyofLoss
Thetendencythatactualresultsmaydifferfrompredictedresults.
RequirementsofInsurableRisks
Shouldbeapurerisk.
Involvesachanceoflossornoloss.
LargeNumberofexposureunits.
Topredictaverageloss.
AccidentalandUnintentionalloss
Tocontrolmoralhazard.
Toassurerandomness.
DeterminableandMeasurableLoss
Tofacilitatelossadjustment
InsuranceIndustryofIndiaconsistsof 52 insurancecompaniesofwhich24arelifeinsurance
businessand28arenonlifeinsurancecompanies.
(AsperAugust,2015update)
Among the life insurers, Life Insurance Corporation (LIC) is the sole public sector
company. Apart from that, among the non life insurers there are six public sector
insurers.
Outof28nonlifeinsurancecompanies,fiveprivatesectorinsurersareregisteredtounderwrite
policiesexclusivelyinhealth,personalaccidentandtravelinsurancesegments.TheyareStar
HealthandAlliedInsuranceCompanyLtd,ApolloMunichHealthInsuranceCompanyLtd,Max
BupaHealthInsuranceCompanyLtd,ReligareHealthInsuranceCompanyLtdandCignaTTK
HealthInsuranceCompanyLtd.Therearetwomorespecializedinsurersbelongingtopublic
sector, namely, Export Credit Guarantee Corporation of India for Credit Insurance and
AgricultureInsuranceCompanyLtdforcropinsurance.
TheoldestexistinginsurancecompanyinIndiaisNationalInsuranceCompany,whichwas
foundedin1906andisstillinbusiness.
TheGovernmentofIndiaissuedanOrdinance on19January1956nationalizedtheLife
Page
3
Insurance Digest
Version 3
InsurancesectorandLifeInsuranceCorporation(LIC)cameintoexistenceinthesameyear.
ButLICstartsitsoperationsfrom1September,1956.
FunctionsandBenefitsofInsurance
InsurancefunctionsareoftwotypesPrimaryFunctionsandSecondaryFunctions.Theseare
explainedasunder:
PrimaryFunctions/Benefits:Insuranceisessentiallyarisktransfermechanismremovingfora
premiumthepotentialfinanciallossfromtheindividualandplacingitupontheinsurer.The
primarybenefitisseeninthefinancialcompensationmadeavailabletoinsuredvictimsofthe
variousinsuredevents.Onthecommercialside,thisenablesbusinessestosurvivemajorfires,
liabilitiesetc.
AncillaryFunctions/Benefits: Insurancecontributestosocietydirectlyorindirectlyinmany
differentways.Thesewillinclude:
EmploymentTheinsuranceindustryisasignificantfactorinthelocalworkforce.
FinancialServices Financialserviceshaveassumedamuchgreaterroleinthelocal
economy,insurancebeingamajorelementinthefinancialservicessector.
Loss Prevention and Loss Reduction (Loss Control): The practice of insurance
includesvarious surveysandinspections relatedtoriskmanagement.Ithelps inloss
prevention and loss reduction in other words we can say that loss control properly
implementedthroughinsurance.
Savings/Investments:Lifeinsurance,particularly,offersaconvenientandeffectiveway
of providing for the future. With the introduction of the Mandatory Provident Fund
Schemesin2000,thevalueofinsuranceproductsinprovidingforthewelfareofpeople
inoldageorfamilytragedyisveryevident.
EconomicGrowth/Development:Itwillbeobviousthatfewpeoplewouldventuretheir
capital on costly projects without the protection of insurance (in most cases, bank
financing will just not be available without insurance cover). Thus, developments of
everykind,fromerectionofbridgestobuildingconstructionandahostofotherprojects,
areencouragedandmadepossiblepartlybecauseinsuranceisavailable.
CoreFunctionsofanInsuranceCompany:
ProductDevelopment
CustomerServicing
MarketingandPromotion
InsuranceSales
Underwriting
PolicyAdministration
Claims
Reinsurance
ActuarialSupport
AccountingandInvestment
TrainingandDevelopment
By Ramandeep Singh
4
Page
PrinciplesofInsurance
1.
2.
3.
4.
5.
6.
7.
UtmostGoodFaith
InsurableInterest
PrincipleofIndemnity
PrincipleofContribution
PrincipleofSubrogation
PrincipleoflossMinimization
Principle of CAUSA PROXIMA
UtmostGoodFaith
Boththepartiesi.e.insuredandtheinsurershouldagoodfaithtowardseachother.
The insurer must provide the insured complete, correct and clear information of subject
matter.
Theinsurermustprovidetheinsuredcomplete,correctandclearinformationregardingterms
andconditionsofthecontract.
Thisprincipleisapplicabletoallcontractsofinsurancei.e.life,fireandmarineinsurance.
InsurableInterest
Theinsuredmusthaveinsurableinterestinthesubjectmatterofinsurance.
Inlifeinsuranceitreferstothelifeinsured.
Inmarineinsuranceitisenoughiftheinsurableinterestexitsonlyatthetimeofoccurrenceof
theloss.
Infireandgeneralinsuranceitmustbepresentatthetimeoftakingpolicyandalsoatthe
timeoftheoccurrenceofloss.
Theownerofthepartyissaidtohaveinsurableinterestaslongasheistheownerofit.
Itisapplicabletoallcontractsofinsurance.
PrincipleofIndemnity
Indemnitymeansaguaranteeorassurancetoputtheinsuredinthesamepositioninwhichhe
wasimmediatelypriortothehappeningoftheuncertainevent.Theinsurerundertakesto
makegoodloss.
Itisapplicabletofire,marineandothergeneralinsurance.
Underthistheinsureragreestocompensatetheinsuredfortheactuallosssuffered.
PrincipleofContribution
Theprincipleisacorollaryoftheprincipleofindemnity.
Itisapplicabletoallcontractsofindemnity.
Underthisprincipletheinsuredcanclaimthecompensationonlytotheextentofactualloss
eitherfromanyoneinsureroralltheinsurers.
PrincipleofSubrogation
Asperthisprincipleaftertheinsurediscompensatedforthelossduetodamagetoproperty
insured,thentherightofownershipofsuchpropertypassesontotheinsurer.
Thisprincipleiscorollaryoftheprincipleofindemnityandisapplicabletoallcontractsof
indemnity.
Insurance Digest
Version 3
PrincipleoflossMinimization
Underthisprincipleitisthedutyoftheinsuredtotakeallpossiblestepstominimizetheloss
totheinsuredpropertyonthehappeningofuncertainevent.
Principle of CAUSA PROXIMA
Thelossofinsuredpropertycanbecausedbymorethanonecauseinsuccessiontoanother.
Thepropertymaybeinsuredagainstsomecausesandnotagainstallcauses.
Insuchaninstance,theproximatecauseornearestcauseoflossistobefoundout.
Iftheproximatecauseistheonewhichisinsuredagainsttheinsurancecompanyisboundto
paythecompensationandviceversa
MethodsOfInsurance
Someimportantmethodsofinsurancearediscussedasunder:
Coinsurance When insurance companies shares risks between them known as Co
InsuranceorRiskssharedbetweeninsurers
DualInsuranceIfapersonhastakenmorethanonepoliciesforspecificpurposeorrisks
havingtwoormorepolicieswithsamecoverage
SelfInsuranceSituationswhereriskisnottransferredtoinsurancecompaniesandsolely
retainedbytheentitiesorindividualsthemselves
ReinsuranceIfoneinsurancecompanypassessomeorwholepartofriskstoanother
insurancecompanyorSituationswhenInsurerpassessomepartoforallrisksto
anotherInsurercalledReinsurer.
INSURANCEINSTITUTEOFINDIA
InsuranceInstituteofIndiawasestablishedin1955inMumbai.
TheinstituteisformerlyknownasFederationofInsuranceInstitute.
Thepurposeoftheinstitutewastoprovidenecessaryeducationtothosepeoplewhoengagedin
insuranceorinterestedininsurance.
InsuranceInstituteofIndiaiscloselyassociatedwithallthesegmentsoftheinsuranceindustrywhich
includesInsuranceRegulatoryAuthorityofIndia,PublicandPrivateSectorInsuranceCompanies.
InsuranceInstituteofIndiaalsoconducttheexaminationsatvariouslevels.
Itisonlyoneprofessionalinstitutionwhichdevotedsolelytoinsurancerelatededucation.
SuccessfulcandidatesgetcertificatesandawardsfromInsuranceInstituteofIndia.
ThisinstituteisrecognizedbyGovernmentofIndia.
IRDA
IRDAstandsforInsuranceRegulatoryandDevelopmentAuthority.
IRDAisanagencyofGovernmentofIndiaforsupervisionanddevelopmentofInsuranceSectorinIndia.
PowersandfunctionsofIRDA
Issuetotheapplicantacertificateofregistration,renew,modify,withdraw,suspendorcancelsuchregistration;
1. Protectionoftheinterestsofthepolicyholdersinmattersconcerningassigningofpolicy,nominationby
policyholders,insurableinterest,settlementofinsuranceclaim,surrendervalueofpolicyandothertermsand
conditionsofcontractsofinsurance;
2. Specifyingrequisitequalifications,codeofconductandpracticaltrainingforintermediaryorinsurance
intermediariesandagents
3. Specifyingthecodeofconductforsurveyorsandlossassessors;
4. Promotingefficiencyintheconductofinsurancebusiness;
5. Promotingandregulatingprofessionalorganizationsconnectedwiththeinsuranceandreinsurancebusiness;
6. LevyingfeesandotherchargesforcarryingoutthepurposesofthisAct;
7. Callingforinformationfrom,undertakinginspectionof,conductingenquiriesandinvestigationsincluding
auditoftheinsurers,intermediaries,insuranceintermediariesandotherorganizationsconnectedwiththe
insurancebusiness;
8. Controlandregulationoftherates,advantages,termsandconditionsthatmaybeofferedbyinsurersin
respectofgeneralinsurancebusinessnotsocontrolledandregulatedbytheTariffAdvisoryCommitteeunder
section64UoftheInsuranceAct,1938(4of1938);
9. Specifyingtheformandmannerinwhichbooksofaccountshallbemaintainedandstatementofaccounts
shallberenderedbyinsurersandotherinsuranceintermediaries;
10. Regulatinginvestmentoffundsbyinsurancecompanies;
11. Regulatingmaintenanceofmarginofsolvency;
12. Adjudicationofdisputesbetweeninsurersandintermediariesorinsuranceintermediaries;
13. SupervisingthefunctioningoftheTariffAdvisoryCommittee;
14. Specifyingthepercentageofpremiumincomeoftheinsurertofinanceschemesforpromotingandregulating
professionalorganizationsreferredtoinclause(f);
15. Specifyingthepercentageoflifeinsurancebusinessandgeneralinsurancebusinesstobeundertakenbythe
insurerintheruralorsocialsector;and
16. Exercisingsuchotherpowersasmaybeprescribed.
Insurance Digest
Version 3
RoleofIRDA
IRDAs primary function is to protect consumer interests. Thismeansensuringproperdisclosure,keeping

prices affordable but also insisting on mandatory products, and most importantly making sure that the
consumersgetpaidbyinsurers.
Further,ensuringthesolvencyofinsurers.
Growthofinsurancebusinessentailsbettereducationandproductiontocustomers,creatingbetterincentives
foragentsandintermediaries.
Ithasevolvedguidelinesontheentryandfunctionsofsuchintermediaries.Licensingofsuchagentsand
brokersarerequiredtochecktheirindulgenceinactivitiessuchastwisting,fraudulentpractices,rebatingand
misappropriationoffunds.
INSURABLERISKS
ForLifeInsurance,InsurableInterestmustexistatthetimeoftheapplicationoftheinsurancebutitneednotexistat
the time of the insureds death. For PropertyandCasuality insurance,insurableinterestmustexistatthetimeof
loss.
Aninsurancecompanymustbeabletopredictfuturelossesaccurately.Companymustdealonlywithinsurablerisks.
Notallrisksareinsurable anditisimportanttooutlinethoseriskstowhichinsuranceconceptscanbeproperly
applied.
LargeNumberofHomogeneousUnitsRisksarenotconsideredinsurableunlesstheinsurancecompany
hasalargeenoughnumberofsimilarrisksandknowsenoughitspreviouslossexperiencetobeabletopredict
thefuturereliably.
LossMustbeAscertainableTheinsurermustbeabletoplaceamonetaryvalueontheloss.InLife
Insurance, monetary value is placed on the insureds income earning capacity. It is very difficult to determine
economiclossunderhealthinsurance.Forthisreason,economiclossismeasuredbylostwagesorbyactual
medicalexpensesincurred.Thepotentiallossmustbemeasurablesothatbothpartiescanagreeontheprecise
amountpayableintheeventthelossoccurs.
LossMustbeUncertainUncertaintyarisesoutofnotknowingwhatisgoingtohappen,orbeingunableto
predictwhatisgoingtohappentotheindividualexposureunit.
EconomicHardshipThenatureofthelossmustbesuchthataneconomichardshipwouldoccurshouldthe
lossoccur.WecanunderstanditthroughexampleIfa man loses one days pay because of an injury, a loss
occurs,butitisnotsignificantenoughtobecoveredbyinsurance.
ExclusionofCatastrophicPerils Whiletheabilitytopredictfuturelosseswithareasonabledegreeof
accuracyiscriticaltotheinsuringfunctions,certaintypesofperilsdonotlendthemselvestoprediction.Perils
areusuallyexcludedfromcoverage.ExampleofExcludedcatastrophicperilsareWars,NuclearRisks,
Floodsetc.
HistoryofLifeInsuranceCompaniesInIndia
SomeoftheimportantmilestonesinthelifeinsurancebusinessinIndiaare:
1818:OrientalLifeInsuranceCompany,thefirstlifeinsurancecompanyonIndiansoilstartedfunctioning.
1870:BombayMutualLifeAssuranceSociety,thefirstIndianlifeinsurancecompanystarteditsbusiness.
1912:TheIndianLifeAssuranceCompaniesActenactedasthefirststatutetoregulatethelifeinsurancebusiness.
1928:TheIndianInsuranceCompaniesActenactedtoenablethegovernmenttocollectstatisticalinformationabout
bothlifeandnonlifeinsurancebusinesses.
1938: Earlier legislation consolidated andamended tobythe Insurance Act with the objective of protecting the
interestsoftheinsuringpublic.
1956: 245 Indian and foreign insurers and provident societies are taken over by the central government and
nationalised.LICformedbyanActofParliament,viz.LICAct,1956,withacapitalcontributionofRs.5crorefrom
theGovernmentofIndia.
TheGeneralinsurancebusinessinIndia,ontheotherhand,cantraceitsrootstotheTritonInsuranceCompanyLtd.,
thefirstgeneralinsurancecompanyestablishedintheyear1850inCalcuttabytheBritish.
MALHOTRACOMMITTEE
ACommitteewassetupin1993underthechairmanshipofR.N.Malhotra,formerGovernoroftheReserveBankof
India, to make recommendations for reforms in the insurance sector. The Malhotra Committee recommended
introductionofaconceptofprofessionalizationintheinsurancesectortomakeoutastrongcaseforpavingthe
wayforforeigncapital.On7thJanuary,1944thecommitteesubmitteditsrecommendationstothefinanceministry.
Recommendations
1.
Privatesectorsshouldalsobepermittedtoperformbothlifeandgeneralinsurance.
2.
MinimumpaidupcapitalshouldbeRs.100croreincludingaminimumsubscriptionof26%andmaximum40%.
3.
CooperativesocietiesatstatelevelshouldbepermittedtoperformbusinesswithminimumpaidupcapitalofRs100
crore.
4.
Foreigncompaniesbeallowedtoentertheinsurancesector,preferablythroughjointventureswithIndianpartners.
5.
TheInsuranceRegulatoryandDevelopmentAuthority(IRDA)beconstitutedasanautonomousbodytoregulateand
developtheinsurancesector.
6.
Promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower
premiumswhileensuringthefinancialsecurityoftheinsurancemarket.
7.
Brokersrepresentingthecustomerbebroughtinasanothermarketinganddistributionchannel,apracticeprevalentin
mostdevelopedmarkets.
By Ramandeep Singh Page 9
8.
Raisethelevelofprofessionalstandardsinriskmanagementandunderwritingandspeedupsettlementofclaims.
9.
RestructuringofInsuranceIndustry
10. Alloldandnewinsurancecompaniesshouldberegulatedbysimilarrules
11. Strengtheningruralinsurance
12. PostallifeinsuranceshouldbeutilizedforpromotinglifeinsuranceinRuralareas
13. Licensesystemforinsurancesurveyorsshouldbeabolished
14. Insurancecompaniesshouldbegivenauthoritytorecruitthesurveyorsoftheirown
15. InsurancecompaniesshouldbepermittedtosettletheclaimsuptoRs1lakhonprimarysurveybasis.
LIC
LICstandsforLifeInsuranceCorporationofIndia.
LICwasfoundedon1September,1956.
HeadquarterofLICislocatedatMumbai,Maharashtra.
Thecompanywasfoundedin1956whentheParliamentofIndiapassedtheLifeInsuranceofIndiaActthat
nationalizedtheprivateinsuranceindustryinIndia.
OBJECTIVESOFLIC
VariousnecessaryobjectivesofLICarediscussedasunder:
Spread Life Insurance widely and in particular to the rural areas and to the socially and economically
backwardclasseswithaviewtoreachingallinsurablepersonsinthecountryandprovidingthemadequate
financialcoveragainstdeathatareasonablecost.
Maximizemobilizationofpeople'ssavingsbymakinginsurancelinkedsavingsadequatelyattractive.
Bearinmind,intheinvestmentoffunds,theprimaryobligationtoitspolicyholders,whosemoneyitholdsin
trust,withoutlosingsightoftheinterestofthecommunityasawhole;thefundstobedeployedtothebest
advantageoftheinvestorsaswellasthecommunityasawhole,keepinginviewnationalprioritiesand
obligationsofattractivereturn.
Conduct business with utmost economy and with the full realization that the moneys belong to the
policyholders.
Actastrusteesoftheinsuredpublicintheirindividualandcollectivecapacities.
Meetthevariouslifeinsuranceneedsofthecommunitythatwouldariseinthechangingsocialandeconomic
environment.
InvolveallpeopleworkingintheCorporationtothebestoftheircapabilityinfurtheringtheinterestsofthe
insuredpublicbyprovidingefficientservicewithcourtesy.
Promote amongst all agents and employees of the Corporation a sense of participation, pride and job
satisfactionthroughdischargeoftheirdutieswithdedicationtowardsachievementofCorporateObjective.
By Ramandeep Singh
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Insurance Digest
Version 3
profitablethebusinessoftheCorporation;and
(i) to do all such things as may be incidental or
conducivetotheproperexerciseofanyofthepowers
oftheCorporation.
FunctionsofLifeInsurance
Corporation
Thelifeinsurancebusinesswasnationalizedon19th
January,1956andtheLifeInsuranceCorporationof
Indiacameintobeingon1stSeptember,1956tocarry
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,holdanddisposeofpropertyandmaybyits
namesueandbesued.
ThefunctionsoftheCorporationshallbetocarryon
and develop life insurance business to the best
advantageofthecommunity.
TheCorporationshallhavepower
(a) to carry on capital redemption business, annuity
certain business or reinsurance business in so far as
such reinsurance business relating to life insurance
business;
(b) to invest the funds of the Corporation in such
mannerastheCorporationmaythinkfitandtotakeall
suchstepsasmaybenecessaryorexpedientforthe
protectionorrealizationofanyinvestment;including
the taking over of and administering any property
offeredassecurityfortheinvestmentuntilasuitable
opportunityarisesforitsdisposal;
(c) toacquire,holdanddisposeofanypropertyforthe
purposeofitsbusiness;
(d) 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
Corporationitisexpedientsotodo;
(e) toadvanceorlendmoneyuponthesecurityofany
movableorimmovablepropertyorotherwise;
(f) toborroworraiseanymoneyinsuchmannerand
uponsuchsecurityastheCorporationmaythinkfit;
(g) to carry on either by itself or through any
subsidiaryanyotherbusinessinanycasewheresuch
otherbusinesswasbeingcarriedonbyasubsidiaryof
an insurer whose controlled business has been
transferredtoandvestedintheCorporationbythisact;
(h) tocarryonanyotherbusinesswhichmayseemto
theCorporationtobecapableofbeing
convenientlycarriedoninconnectionwithitsbusiness
and calculated directly or indirectly to render
By Ramandeep Singh
(j) In the discharge of any of its functions the

Corporation shall act so far as may be on business
principles.
Page 11
TypesofLifeInsurance
1.
TermLifeInsurance
Termlifeinsuranceisinsuranceofthespecificperiodoftime.
Premiumsfortermcoverageareusuallyinitiallylowerthanothertypesoflifeinsurancebecause
thepolicyonlyprovidesadeathbenefitforadefinedperiod.
Someterminsurancepoliciescanbeextendedorconvertedintoanothertypeofcoverage.Term
Insuranceisthesimplestformoflifeinsurance.Itpaysonlyifdeathoccursduringthetermofthe
policy, which is usually from one to 30 years. Most term policies have no other benefit
provisions.
2.
WholeLifeInsurance
Wholelifeinsuranceprovidesalifetimedeathbenefitforasetpremiumamountandbuildscash
value you can use while youre living.
The strength of awhole life insurance policyis that it provides guaranteed cash values and
benefitsinreturnforfixedpremiums.Atradeofftoconsideristhatawholelifepolicymaybuild
cashvalueatalowerratethanalternativecoverageoptions.
Wholelifeorpermanentinsurancepaysadeathbenefitwheneveryoudieevenifyouliveto
100.
Wholelifeinsuranceisconsideredasa"deathbenefitwithasavingsaccount".
3.
UniversalLifeInsurance
UniversalLifeInsuranceisanewinsuranceproductwhichhasgreaterflexibilityinpremium
paymentsalongwiththepotentialforgreatergrowthofcashvalues.
Paidinpremiumsincreasetheircashvaluesbutadministrativeandothercostsreducetheircash
values.
Thereare severaltypes ofuniversallifeinsurancepolicies,includinginterestsensitive(also
knownas"traditionalfixeduniversallifeinsurance",variableuniversallifeVUL,guaranteed
deathbenefit,andequityindexeduniversallifeinsurance.
UniversalLifeInsuranceremovesthedisadvantageofwholelifeinsurancebecausepremiums
anddeathbenefitsareflexibleinuniversallifeinsurance.
4.
IndexUniversalLifeInsurance
IndexUniversalLifeinsuranceincludestheflexibilityofpremiumandadjustabledeathbenefit
thatUniversalLifeprovides.
IndexUniversalLifeInsurancecanprovidethepotentialforgreaterpolicyvaluegrowththan
UniversalLife,withlessrisktoyouthananyotheruniversallifepolicy
By Ramandeep Singh
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LICInsurancePlans
As individuals it is inherent to differ. Each individual's insurance needs and
requirements are different from that of the others. LIC's Insurance Plans are
policies that talk to you individually and give you the most suitable options that
can fit your requirement.
EndowmentPlan
SinglePremiumEndowmentPlan
NewEndowmentPlan
NewJeevanAnand
LIC'sJeevanRakshak
LIC'sLimitedPremiumEndowmentPlan
MoneyBackPlans
LIC'sNEWMONEYBACKPLAN20YEARS
LIC'sNEWMONEYBACKPLAN25YEARS
LIC'sNEWBIMABACHAT
TermAssurancePlans
LIC'sAnmolJeevanII
LIC'sAmulyaJeevanII
LIC'seTerm
LIC'sNEWTERMASSURANCERIDER(UIN:512B210V01)
PensionPlans
JeevanAkshayVI
LIC'sNewJeevanNidhi
VARISHTHAPENSIONBIMAYOJANA
MicroInsurancePlans
LICsNewJeevanMangal
MicroInsuranceForms
By Ramandeep Singh
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GroupScheme
LIC'sNewGroupLeaveEncashmentPlan
LIC'sNewGroupSuperannuationCashAccumulationPlan
LIC'sNEWONEYEARRENEWABLEGROUPTERMASSURANCEPLANI
LIC'sNEWONEYEARRENEWABLEGROUPTERMASSURANCEPLANII
LIC'sNewGroupGratuityCashAccumulationPlan
SocialSecurityScheme
AamAdmiBimaYojana
WithdrawnPlans
JeevanNischay
WealthPlus
JeevanAastha
JeevanVarsha
FortunePlus
HealthPlus
PensionPlus
NewJeevanDharaI
JeevanVriddhi
JeevanSugam
MortgageRedemption
CDAEndowmentVestingAt21
TheWholeLifePolicyLimited
Payment
JeevanArogya
TheWholeLifePolicy
JeevanPramukh
AnmolJeevanI
JeevanAmrit
JeevanBharthiI
TheMoneyBackPolicy25Years
JeevanSurabhi15Years
JeevanAnurag
ChildCareerPlan
JeevanKishore
MarriageEndowment
JeevanSaathi
JeevanAnkur
By Ramandeep Singh
MarketPlusI
ProfitPlus
MoneyPlusI
ChildFortunePlus
JeevanSaathiPlus
SamridhiPlus
JeevanNidhi
NewJeevanSurakshaI
JeevanVaibhav(SinglePremiumEndowmentAssurancePlan)
TwoYearTemporaryAssurancePolicy
FlexiPlus
CDAEndowmentVestingAt18
HealthProtectionPlus
BimaAccount1
BimaAccount2
JeevanMitra(DoubleCoverEndowmentPlan)
NewJeevanNidhi
JeevanMitra(TripleCoverEndowmentPlan)
TheWholeLifePolicySinglePremium
KomalJeevan
ChildFuturePlan
JeevanChhaya
EducationalAnnuityPlan
JeevanShreeI
TheEndowmentAssurancePolicyLimitedPayment
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14
NewJanarakshaPlan
JeevanTarang
JeevanAnand
JeevanAadhar
EndowmentPlus
BimaNivesh2005
JeevanDeep
JeevanMadhur
AmulyaJeevanI
TheMoneyBackPolicy20Years
TheEndowmentAssurancePolicy
BimaBachat
JeevanVishwas
NewBimaGold
JeevanSaral
JeevanMangal
JeevanMangal
LIC'sJeevanShagun
Health Plans
LicJeevanSurakshaPlan
GENERALINSURANCECORPORATIONOF
INDIA(GIC)
TheentiregeneralinsurancebusinessinIndiawasnationalizedbyGeneralInsuranceBusiness
(Nationalization)Act,1972(GIBNA).
General Insurance Corporation of India was incorporated on 22 November, 1972 under the
CompaniesAct,1956asaprivatecompanylimitedbyshares.
GICwasestablishedforthepurposeofsuperintending,controllingandcarryingonthebusiness
ofgeneralinsurance.
WhenGICwascomesintoexistence,GovernmentofIndiatransferredallthesharesofgeneral
insurancecompaniestoGIC.
After Insurance Regulatory and Development Authoritys (IRDA) cameintoforce,theactalso
introducedamendmenttoGIBNAandtheInsuranceAct,1938.
InNovember2000,GICwasrenotifiedastheIndianReinsureranditssupervisoryroleoverthe
foursubsidiarieswasended.
ThefoursubsidiarieswereNationalInsuranceCompany,NewIndiaAssuranceCompany,
OrientalInsuranceCompany,UnitedIndiaInsuranceCompany
The ownership of the four subsidiary companies and also of the GIC was vested with
GovernmentofIndia.
Hence,GICbecomewhollyownedcompanyofGovernmentofIndia.
GeneralInsurancebusinesscoversallinsuranceexceptlifeinsurance.GeneralInsurancemay
includeBusiness,Automobile,FireandHealthetc.
By Ramandeep Singh
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Page
ReinsuranceReinsuranceisaformofinsurancebetweeninsurers.Itoccurswhenaninsurer(there
insurer)agreestoacceptalloraportionofariskcoveredbyanotherinsurer.
INSURANCEACTS
1.
INSURANCEREGULATORYDEVELPMENTAUTHORITYACT(IRDA)1999
ThisActwaspassedbyParliamentinDec.1999&itreceivedpresidentialassentinJan.2000.Theaimof
the Authority is to protect the interest of holders of Insurance policies to regulate, promote and ensure
orderlygrowthofInsuranceindustry&formattersconnectedtherewithorincidentalthereto. Under this
Act,anauthoritycalledIRDAisestablishedwhichreplacesControllerofInsuranceunderInsuranceAct
1938.DefinitionsLikeanyotherAct,varioustermshavebeendefinedasfollowsundersection2:
a)
Appointed Day means the date on whichtheAuthorityisestablished.
b) Authority means the Insurance Regulatory and Development Authority.

c)Chairperson means the chairperson of the Authority.
d) Fund means the Insurance Regulatory and Development Authority Fund.
e)Interim Insurance Regulatory Authority means the Insurance Regulatory Authority set up by the
CentralGovernment.
f) Intermediary or Insurance intermediary includes Insurance brokers, reinsurance brokers, insurance
consultants,surveyorsandlossassessors.
g) Member means a whole time or a part time member of the Authority and includes the Chairperson.
h)Notification means a notificationpublishedintheOfficialGazette.
i) Prescribed means prescribed by rules made under this Act.
j) Regulations means the regulations made by the Authority.
CompositionofAuthority
TheAuthorityshallconsistofninepersonsasperdetailsgivenbelow:.
(Section4)
Chairperson.Notmorethan5wholetimemembers.Notmorethan4parttimemembers.Thesepersons
shallbeappointedbytheCentralGovt.fromamongstpersonsofability,integrity&standingwhohave
knowledgeorexperienceinlifeInsurance,generalInsurance,actuarialscience,finance,economics,law
accountancy,administrationorotherdisciplinewhichwouldintheopinionoftheCentralGovt.beuseful
totheAuthority.
Tenure(Section5)
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TheChairmantenurewillbefor5yearsandeligibleforreappointmenttillheattainstheageof65
years.
Theappointmentofmemberswillbefor5yearsandeligibleforreappointmentbutnotexceeding
theage62years.
RemovalofMembers(Section6)
TheCentralGovernmentcanremoveanymemberoftheAuthorityifhe
a) Isdeclaredbankrupt
b) Hasbecomephysicallyormentallyincapableofactingasamember.
c) HasbeenawardedpunishmentbyanyCourt.
d) Hasacquiredsuchfinancialorotherinterestwhichaffecthisfunctionasamember.
e) Hassoabusedhispositionastorenderhiscontinuationinofficedetrimentaltothepublicinterest.But
nomembercanberemovedformtheofficeunless&untilthereasonableopportunityofbeingheardis
giventosuchmemberinthematter.
Salary&Allowances(Section7)
The Chairperson and full time members shall receive the salary & allowanceasprescribedbythe
Government.
Baronfutureemployment(Section8)
TheChairpersonandthewholetimememberscannotacceptanyappointmentwithoutGovt.approval
within2yearsfromthedateonwhichheceasesorretiresfromtheoffice.
1. ListtheCompositionofAuthority.
2. TheAuthorityshallconsistofninepersonsi.e.Chairperson,notmorethan5wholetimemembersand
notmorethan4parttimemembers.
3. MentionthemaximumageoftheChairpersonofIRDA.a.MaximumageofChairpersonofIRDAis
65 years.
Superintendence&Direction(Section9)
TheChairpersonshallhaveoverallcontrol&providedirectioninrespectofalladministrativemattersof
theAuthority.Hewillchairthemeetingasandwhenheispresentinthemeeting.
MeetingofAuthority(Section10)
ThemeetingoftheAuthoritywillbeheldatthetimeandplaceasdecidedbytheChairpersonasper
regulationmadeunderthisact.IftheChairpersonisunabletoattendthemeetingthenthememberswill
Insurance Digest
Version 3
AuthorityActDIPLOMAININSURANCESERVICESbyamajorityofvotesbythepresentandvoting.
IncaseofequalvotingthedecisionofChairpersonofthatmeetingwillbefinal.
InvalidationofproceedingsofAuthority(Section11)
TheproceedingsofAuthoritywillnotbecomeinvalidate(notvalidintheeyesoflaw)duetofollowing
reasons:DefectsintheformationoftheAuthority.DefectinappointmentofanyMember.
Officers&EmployeesofAuthority(Section12)
TheAuthoritymayappointofficersandemployeesasitconsidersnecessaryfortheefficientdischargeof
itsfunctions.Theterms&conditionsofsuchofficersshallbegovernedaspertheregulationsmadeunder
thisAct.
TransferofAssets,Liabilitiesetc(Section13)
As stated above that initially the Authority was formed under the name Insurance Regulatory Authority
(IRA) and later on the name was changed to Insurance Regulatory & Development Authority.(IRDA)
ThereforetheassetsandliabilitiesofIRAwillbetransferredtoIRDAonthedateofestablishmentofthe
Authority.
Duties,Powers&FunctionsofAuthority(Section14)Duties:
The Authority shall have the duty to regulate, promote and ensure orderly growth of the Insurance
businessandreinsurancebusinesssubjecttotheprovisionsofanyotherprovisionsoftheact.Powers&
Functionsto:
(a)Issuetotheapplicant(InsurancecompanyorInsuranceAgentorSurveyorsorInsuranceBrokersor
ThirdPartyAdministrators)acertificateofregistration,renew,modify,withdraw,suspendorcancelsuch
registration;
(b)Protectionoftheinterestsofthepolicyholdersinmattersconcerningassigningofpolicy,nomination
bypolicyholders,insurableinterest,settlementofinsuranceclaim,surrendervalueofpolicyandother
termsandconditionsofcontractsofinsurance;DIPLOMAININSURANCESERVICESMODULE5
NotesInsuranceRegulatory&DevelopmentAuthorityActLegalFramework8
(c) Specifyingrequisitequalifications, code of conduct andpractical trainingfor insurance brokers ,
agents,surveyors,ThirdPartyAdministrator;
(d) Specifyingthecodeofconductforsurveyorsandlossassessors(Whoassessthelossofpolicyholder
incaseofGeneralInsurance);
(e) Promotingefficiencyintheconductofinsurancebusiness;
(f) Promotingandregulatingprofessionalorganizationsconnectedwiththeinsuranceandreinsurance
business;
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(g) Levyingfeesandotherchargesoninsurancecompanies,Agents,InsuranceBrokers,Surveyorsand
ThirdpartyAdministrator;
(h) Calling for information from, undertaking inspection of, conducting enquiries and investigations
includingauditoftheinsurers,intermediaries,insuranceintermediariesandotherorganizationsconnected
withtheInsurancebusiness;
(i) Controlandregulationoftherates,advantages,termsandconditionsthatmaybeofferedbyinsurersin
respectofgeneralinsurancebusinessnotsocontrolledandregulatedbytheTariffAdvisoryCommittee
undersection64UoftheInsuranceAct,1938(w.e.f.,1/1/2007TAChasceasedtofunction).
(j) Specifyingtheformandmannerinwhichbooksofaccountshallbemaintainedandstatementof
accountsshallberenderedbyinsurersandotherinsuranceintermediaries;
(k) Regulatinginvestmentoffundsbyinsurancecompanies;
(l) Regulatingmaintenanceofmarginofsolvencyi.e.,havingsufficientfundstopayinsuranceclaim
amount;
(m) Tosettlethedisputesbetweeninsurersandintermediariesorinsuranceintermediaries;
(n) SupervisingthefunctioningoftheTariffAdvisoryCommittee;
(o) Specifyingthepercentageofpremiumincomeoftheinsurertofinanceschemesforpromotingand
regulatingprofessionalorganizationsreferredtoinclause(f);
(p) Specifyingthepercentageoflifeinsurancebusinessandgeneralinsurancebusinesstobeundertaken
bytheinsurerintheruralorsocialsector;and
(q) Exercisingsuchotherpowersasmaybeprescribed.
GrantsfromtheCentralGovernment(Section15)
TheGovernmentafterapprovalfromtheParliamentmaygrantfundstodischargetheirdutiesasperthis
Act.
ConstitutionofFunds(Section16)
(1) There shall be a fund to be called The Insurance Regulatory and Development Authority Fund and
thereshallbecreditedthereto:a.allGovernmentgrants,feesandchargesreceivedbytheAuthority;b.
all sums received by the Authority from such other source as may be decided upon by the Central
Government; c. the percentage of prescribed premium income received from the insurer/insurance
intermediaries.
(2)TheFundshallbeappliedformeeting: a.thesalaries,allowancesandotherremunerationofthe
members, officers and other employees of the Authority: b. the other expenses of the Authority in
connectionwiththedischargeofitsfunctionsandforthepurposesofthisAct.
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AccountsandAudit(Section17)
(1) The Authority shall maintain proper accounts and other relevant records and prepare an annual
statementofaccountsinsuchformasmaybeprescribedbytheCentralGovernmentinconsultationwith
theComptrollerandAuditorGeneralofIndia.
(2)TheaccountsoftheAuthorityshallbeauditedbytheComptrollerandAuditorGeneralofIndiaat
suchintervalsasmaybespecifiedbyhimandanyexpenditureincurredinconnectionwithsuchaudit
shallbepayablebytheAuthoritytotheComptrollerandAuditorGeneral.
(3) TheComptrollerandAuditorGeneralofIndiaandanyotherpersonappointedbyhiminconnection
withtheauditoftheoftheaccountsoftheAuthorityshallhavethesamerights,privilegesandauthority
inconnectionwithDIPLOMAININSURANCESERVICESMODULE5NotesInsuranceRegulatory
&DevelopmentAuthorityActLegalFramework10suchauditastheComptrollerandAuditorGeneral
generallyhasinconnectionwiththeauditoftheGovernmentaccountsand,intheparticularshallhave
therighttodemandtheproductionofbooksofaccount,connectedvouchersandotherdocumentsand
papersandtoinspectanyoftheofficesoftheAuthority.
(4) TheaccountsoftheAuthorityascertifiedbytheComptrollerandAuditorGeneralofIndiaorany
otherpersonappointedbyhiminthisbehalftogetherwiththeauditreportthereonshallbeforwarded
annuallytotheCentralGovernmentandthatGovernmentshallcausethesametobelaidbeforeeach
HouseofParliament.
EstablishmentofInsuranceAdvisoryCommittee(Section25)
(1) TheAuthoritymay,bynotification,establishwitheffectfromsuchdateasitmayspecifyinsuch
notification,aCommitteetobeknownastheInsuranceAdvisoryCommittee.
(2) TheInsuranceAdvisoryCommitteeshallconsistofnotmorethantwentyfivemembersexcludingex
officiomemberstorepresenttheinterestsofcommerce,industry,transport,agriculture,consumerfora,
surveyors,agents,intermediaries,organizationsengagedinsafetyandlossprevention,researchbodies
and employees association in the insurance sector.
(3) TheChairpersonandthemembersoftheAuthorityshallbetheexofficioChairpersonandexofficio
membersoftheInsuranceAdvisoryCommittee.
(4) TheobjectsoftheInsuranceAdvisoryCommitteeshallbetoadvisetheAuthorityonmattersrelated
toinsurance.
(5) The Insurance Advisory Committee may advise the Authority on such other matters as may be
prescribed.
MiscellaneousProvisions
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TheCentralGovernmentcanissuethedirectiontotheAuthorityonpolicymattersnotonadministrative
andtechnicalmattersandtheAuthorityisboundtofollowsuchdirection.TheCentralGovernmentcan
supersedeanyactoftheAuthority.MODULE5LegalFrameworkNotes11InsuranceRegulatory&
DevelopmentAuthorityActDIPLOMAININSURANCESERVICES.TheChairperson,Membersand
employeesofAuthorityshallbedeemedtobepublicservantwhileperformingthedutiesasperthe
provisionofthisAct.TheAuthoritycandelegateitspowerstoChairpersonormembersorofficersand
employeesoftheAuthorityasperregulationmadeunderthisact.TheAuthorityhasthepowertomake
rulesrelatedtosalary&allowancesandotherterms&conditionstobeapplicabletoitsChairperson,
members,employeesorofficers.TheAuthorityhaspowertomakeregulationstobefollowedatits
meetings.Therule&regulationmadebytheAuthorityshallbeplacedbeforetheParliament.Anyruleor
regulationsmadeunderthisactwillbartheapplicabilityofotherlawsoftheland.TheAuthorityhasthe
powerstomakeamendmentinInsuranceAct1938,LICAct1956&GIBNAct1972.
THEINSURANCEACT,1938ACT
[26thFebruary,1938]
AnActtoconsolidateandamendthelawrelatingtothebusinessofinsurance.WHEREASitisexpedient
toconsolidateandamendthelawrelatingtothebusinessofinsurance;Itisherebyenactedasfollows:
PARTI
PRELIMINARY1
(1) ThisActmaybecalledtheInsuranceAct,1938.
(2) ItextendstothewholeofPakistan.
(3) Itshallcomeintoforceonsuchdate3astheCentralGovernmentmay,bynotificationintheofficial
Gazette,appointinthisbehalf.2.InthisAct,unlessthereisanythingrepugnantinthesubjectorcontext,
(1) "actuary"meansanactuarypossessingsuchqualificationsasmaybeprescribed
(3)"approvedsecurities"meansGovernmentsecurities,andanyothersecuritychargedontherevenuesof
theCentralGovernmentorofaProvincialGovernment,orguaranteedfullyasregardsprincipaland
interestbytheCentralGovernmentoraProvincialGovernment;andanydebentureorothersecurityfor
moneyissuedundertheauthorityofanyActoftheCentralLegislatureoranyProvincialLegislaturebyor
onbehalfofthetrusteesoftheportofKarachiandanysecurityissuedbytheGovernmentofanAcceding
StateoranonAccedingStateandspecifiedasanapprovedsecurityforthepurposesofthisActbythe
CentralGovernmentbynotificationintheofficialGazette;
(3A)"approvedinvestments"meanssuchinvestmentsastheCentralGovernmentmay,bynotificationin Bythe
RamandeepofficialGazette,SinghspecifyasapprovedinvestmentsforthepurposesofthisAct;Page 21
(4) "Auditor"meansapersonqualifiedundertheprovisionsofsection144oftheCompaniesAct,1913,
toactasanauditorofcompanies;
(5) "certified"inrelationtoanycopyortranslationofadocumentrequiredtobefurnishedbyoronbehalf
of9[aninsureroraprovidentsocietyasdefinedinPartIIImeanscertifiedbyaprincipalofficerofto
suchinsurerorprovidentsocietytobeatruecopyoracorrecttranslation,asthecasemaybe;(5A)
"company"hasthemeaningassignedtoitinclause(2)ofsection2oftheCompaniesAct,1913;(5B)
"Controller of Insurance" or "Controller" means the officer appointed by the Central Government to
performthedutiesoftheControllerofInsuranceunderthisAct;
(6) "Court"meanstheprincipalCivilCourtoforiginaljurisdictioninadistrict,andincludestheHigh
Courtinexerciseofitsordinaryoriginalciviljurisdiction;
(6A)"employerofagents"meansapersoncertifiedundersection42Awhoprocuresinsurancebusiness
foraninsurerwhetherwhollyorinpartbyemployingorcausingtobeemployedinsuranceagentson
behalfoftheinsurer;
(6B)"fireinsurancebusiness"meansthebusinessofeffecting,otherwisethanincidentallytosomeother
classofinsurancebusiness,contractsofinsuranceagainstlossbyorincidentaltofireorotheroccurrence
customarilyincludedamongtherisksinsuredagainstinfireinsurancepolicies;
(6C) "general insurance business" means fire, marine or miscellaneous insurance business, whether
carriedonsinglyorincombinationwithoneormoreofthem;.
(7) "Governmentsecurities"meansGovernmentsecuritiesasdefinedintheSecuritiesAct,1920;
(8) "insurancecompany"meansanyinsurerbeingacompany,associationorpartnershipwhichmaybe
woundupundertheCompaniesAct,1913,ortowhichthePartnershipAct,1932,applies;
(8A)"insurancesurveyor"meansaperson(certifiedunder1section44A)whoexaminesthegoods,
propertyoranyinterestsinsuredunderapolicyofgeneralinsurancetoascertainthecause,extentand
locationofanylossandtodeterminetheamountofsuchlossandtheamountwhichispayabletothe
insuredbytheinsurerorinsurersoranypersonliableinrespectofsuchloss;
(9)"insurer"means(a)anyindividualorunincorporatedbodyofindividualsorbodycorporate
incorporatedunderthelawofanycountryorStateoutsidePakistan,carryingoninsurancebusinessnot
beingapersonspecifiedinsubclause(c)ofthisclausewhich(i)carriesonthatbusinessinPakistan;or
(ii)hashisoritsprincipalplaceofbusinessorisdomiciledinPakistan;or(iii)withtheobjectof
obtaininginsurancebusiness,employsarepresentative,ormaintainsaplaceofbusiness,inPakistan;(b)
anybodycorporatenotbeingapersonspecifiedinsubclause(c)ofthisclausecarryingonthebusinessof
insurance,whichisabodycorporateincorporatedunderanylawforthetimebeinginforceinPakistan;
orstandstoanysuchbodycorporateintherelationofasubsidiarycompanywithinthemeaningofthe
CompaniesAct,1913,asdefinedbysubsection(2)ofsection2ofthatAct,and(c)anypersonwhoin
PakistanhasastandingcontractwithunderwriterswhoaremembersoftheSocietyofLloyd'swhereby
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suchpersonisauthorizedwithinthetermsofsuchcontracttoissueprotectionnotes,covernotes,orother
documentsgrantinginsurancecovertoothersonbehalfoftheunderwriters,butdoesnotincludean
insuranceagentlicensedundersection42oraprovidentsocietyasdefinedinPartIII;
(10) "insuranceagent"means aninsurance agent licensedunder section42being an individual who
receivesoragreestoreceivepaymentbywayofcommissionorotherremunerationinconsiderationofhis
solicitingorprocuringinsurancebusiness;
(11) "lifeinsurancebusiness"meansthebusinessofeffectingcontractsofinsuranceuponhumanlife
includinganycontractwherebythepaymentofmoneyisassuredondeath(exceptpoliciesfordeathby
accidentonly)orthehappeningofanycontingencydependentonhumanlifeorwhichissubjectto
paymentofpremiumsforatermdependentonhumanlifeandshallbedeemedtoinclude(a)the
grantingofdisabilityanddoubleortripleindemnityaccidentbenefits,ifsoprovidedinthecontractof
insurance ; (b) the granting of annuities upon human life ; and (c) the granting of superannuation
allowancesandannuitiespayableoutofanyfundapplicablesolelytothe reliefandmaintenanceof
personsengagedorwhohavebeenengagedinanyparticularprofession,tradeoremploymentorofthe
dependentsofsuchperson;
(12) "Manager"and"officer"havethemeaningsassignedtothoseexpressionsinclauses(9)and(11)
respectivelyofsection2oftheCompaniesAct,1913;
(13) "ManagingAgent"meansaperson,firmorcompanyentitledtothemanagementofthewholeaffairs
ofacompanybyvirtueofanagreementwiththecompany,andunderthecontrolanddirectionofthe
directorsexcepttotheextent,ifany,otherwiseprovidedforintheagreement,andincludesanyperson,
firmorcompanyoccupyingsuchpositionbywhatevernamecalled.Explanation.Ifapersonoccupying
thepositionofmanagingagentcallshimselfmanagerormanagingdirector,heshallneverthelessbe
regardedasmanagingagentforthepurposesofsection32ofthisAct;
(13A)"marineinsurancebusiness"meansthebusinessofeffectingcontractsofinsuranceuponvesselsof
anydescription,includingcargoes,freightsandotherinterestswhichmaybelegallyinsured,inorin
relation to such vessels, cargoes and freights, goods, wares, merchandise and property of whatever
descriptioninsuredforanytransitbyland,waterorair,orbyanycombinationthereofandwhetherornot
includingwarehouserisksorsimilarrisksinadditionorasincidentaltosuchtransit,andincludesany
otherriskscustomarilyincludedamongtherisksinsuredagainstinmarineinsurancepolicies;
(13B)"miscellaneousinsurancebusiness"meansthebusinessofeffectingcontractsofinsurancewhichis
notprincipallyofanykindincludedinclauses(613),(11)and(13A);
(13C)"PakistanInsuranceCorporation"meanstheCorporationestablishedunderthePakistanInsurance
CorporationAct,1952;
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Insurance Digest
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(13D)"policyholder"includesapersontowhomthewholeoftheinterestofthepolicyholderinthe
policyisassignedonceandforall,butdoesnotincludeanassigneethereofwhoseinterestinthepolicyis
defeasibleorisforthetimebeingsubjecttoanycondition;
(14)"prescribed"meansprescribedbyrulesmadeundersection114;and
(14A)"privatecompany"hasthemeaningassignedtoitinclause(13)ofsection2oftheCompaniesAct,
1913;
(14B)"publiccompany"meansacompanyincorporatedundertheCompaniesAct,1913orunderthe
Indian Companies Act, 1882, or under the Indian Companies Act, 1866, or under any Act repealed
thereby,whichisnotaprivatecompanyorasubsidiaryofaprivatecompany;and
(15)"scheduledbank"hasthemeaningassignedtoitinclause(m)ofsection2oftheStateBankof
PakistanAct,1956..
PARTIIPROVISIONSAPPLICABLETOINSURERS
(1) No person shall, after the commencement of this Act, begin to carry on any class of insurance
businessinPakistan,andnoinsurercarryingonanyclassofinsurancebusinessinPakistanshall,afterthe
expiryofthreemonthsfromthecommencementofthisAct,continuetocarryonanysuchbusiness,
unlesshehasobtainedfromtheControllerofInsuranceacertificateofregistrationfortheparticularclass
ofinsurancebusiness;Providedthatinthecaseofaninsurerwhowascarryingonanyclassofinsurance
businessinPakistanatthecommencementofthisAct,failuretoobtainacertificateofregistrationin
accordance with the requirements of this subsection shall not operate to invalidate any contract of
insurance entered into by him if before such date as may be fixed in this behalf by the Central
GovernmentbynotificationintheofficialGazette,hehasobtainedthatcertificate.
(2) Everyapplicationforregistrationshallbeaccompaniedby
(a) acertifiedcopyofthememorandumandarticlesofassociation,wheretheapplicantisacompanyand
incorporatedundertheCompaniesAct,1913orundertheIndianCompaniesAct,1882,orunderthe
IndianCompaniesAct,1866,orunderanyActrepealedthereby,or,inthecaseofanyotherinsurer
specifiedinsubclause(a)(ii)orsubclause(b)ofclause(9)ofsection2,acertifiedcopyofthedeedof
partnershiporofthedeedofconstitutionofthecompany,asthecasemaybe,or,inthecaseofaninsurer
havinghisprincipalplaceofbusinessordomicileoutsidePakistan,thedocumentspecifiedinclause(a)
ofsection63;
(b) the name, address and the occupation, if any, of the directors where the insurer is a Company
incorporatedundertheCompaniesAct,1913,orundertheIndianCompaniesAct,1882,orunderthe
IndianCompaniesAct,1866,orunderanyActrepealedthereby,andinthecaseofaninsurerspecifiedin
subclause(a)(ii)ofclause(9)ofsection2thenamesandaddressesoftheproprietorsandofthemanager
inPakistan,andinanyothercasethefulladdressoftheprincipalofficeoftheinsurerinPakistan,andthe
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Insurance Digest
Version 3
namesofthedirectorsandthemanageratsuchofficeandthenameandaddressofsomeoneormore
personsresidentinPakistanauthorizedtoacceptanynoticerequiredtobeservedontheinsurer;
(c) astatementoftheclassorclassesofinsurancebusinessdoneortobedone,andastatementthatthe
amountrequiredtobedepositedbysection7orsection98beforeapplicationforregistrationismadehas
beendepositedtogetherwithacertificatefromtheStateBankofPakistanshowingtheamountdeposited;
(d) wheretheprovisionsofsection6or97apply,astatementdulycertifiedbyanauditorshowingthe
totalpaidupcapitalorthetotalworkingcapitaloftheinsurerandadeclarationverifiedbyanaffidavit
madebytheprincipalofficeroftheinsurerauthorizedinthatbehalfthattheprovisionsofthosesections
astopaidupcapitalorworkingcapital,asthecasemaybe,havebeencompliedwith;
(e) in the case of an insurer having his principal place of business or domicile outside Pakistan, a
statement verified by an affidavit made by the principal officer of the insurer setting forth the
requirements(ifany)notapplicabletonationalsofthecountryinwhichsuchinsurerisconstituted,
incorporated or domiciledwhich are imposed bythe laws or practice of that countryupon Pakistan
nationalsasaconditionofcarryingoninsurancebusinessinthatcountry;
(f) acertifiedcopyofthepublishedprospectus,ifany,andofthestandardpolicyformsoftheinsurerand
statements of the assured rates, advantages, terms and conditions to be offered in connection with
insurancepoliciestogetherwithacertificateinconnectionwithlifeinsurancebusinessbyanactuarythat
suchrates,advantages,termsandconditionsareworkableandsound;Providedthatintheeaseofmarine,
accident and miscellaneous insurance business other than workmen's compensation and motor car
insurancetheControllerofInsurancemayexemptanyinsurerfromtheaboverequirementsregarding
prospectus,formsandstatementstosuchextentandforsuchperiodashemaydeemfit;and
(g) thereceiptshowingpaymentintheprescribedmanneroftheprescribedfeewhichshallnotbemore
thanfivehundredrupeesforeachclassofbusiness.
(3) InthecaseofanyinsurerhavinghisprincipalplaceofbusinessordomicileoutsidePakistan,the
ControllerofInsuranceshallwithholdregistrationorshallcancelaregistrationalreadymade,ifheis
satisfiedthatinthecountryinwhichsuchinsurerhashisprincipalplaceofbusinessordomicilePakistan
nationalsaredebarredbythelaworpracticeofthecountryrelatingto,orappliedtoinsurancefrom
carryingonthebusinessofinsurance,orthatanyrequirementimposedonsuchinsurertheprovisionsof
section62isnotsatisfied.
(4) TheControllerofInsuranceshallcanceltheregistrationofaninsurereitherwhollyorinsofarasit
relatestoaparticularclassofinsurancebusiness,asthecasemaybe,
(a) Iftheinsurerfailstocomplywiththeprovisionsofsection7orsection98astodeposits,or
(b) Iftheinsurerisinliquidationorisadjudgedaninsolvent,or
(c) Ifthebusinessoraclassofthebusinessoftheinsurerhasbeentransferredtoanypersonorhasbeen
transferredtooramalgamatedwiththebusinessofanyotherinsurer,or
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(d) Ifthewholeofthedepositmadeinrespectofaclassofinsurancebusinesshasbeenreturnedtothe
insurerundersection9;or
(e) If,inthecaseofaninsurerspecifiedinsubclause(c)ofclause(9)ofsection2,thestandingcontract
referredtointhatsubclauseiscancelledorissuspendedandcontinuestobesuspendedforaperiodof
sixmonths,andtheControllerofInsurancemaycanceltheregistrationofaninsurer
(f) Iftheinsurermakesdefaultincomplyingwith,oractsincontraventionof,anyrequirementofthisAct
oranyruleorordermadethereunder,and
(g) IftheControllerofInsurancehasreasontobelievethatanyclaimupontheinsurerarisinginPakistan
underanypolicyofinsuranceremainsunpaidforthreemonthsafterfinaljudgmentinregularcourseof
law.
(5)WhentheControllerofInsurancewithholdsorcancelsanyregistrationundersubsection(3)orclause
(a),clause(e),clause(f)orclause(g)ofsubsection(4),heshallgivenoticeinwritingtotheinsurerof
hisdecision,andthedecisionshalltakeeffectonsuchdateashemayspecifyinthatbehalfinthenotice,
suchdatenotbeinglessthanonemonthnormorethantwomonthsfromthedateofthereceiptofthe
noticeintheordinarycourseoftransmission.
(5A)WhentheControllerofInsurancecancelsanyregistrationunderclause(b),clause(c)orclause(d)
of subsection (4) the cancellation shall take effect on the date on which notice of the order of
cancellationisservedontheinsurer.
(5B)Whenaregistrationiscancelledtheinsurershallnot,afterthecancellationhastakeneffect,enter
intoanynewcontractsofinsurance,butallrightsandliabilitiesinrespectofcontractsofinsurance
enteredintobyhimbeforesuchcancellationtakeseffectshall,subjecttotheprovisionsofsubsection
(5D),continueasifthecancellationhadnottakenplace.
(5C)Wherearegistrationiscancelledunderclause(a),clause(e),clause(f),orclause(g)ofsubsection
(4),theControllerofInsurancemayathisdiscretionrevivetheregistration,iftheinsurermakesthe
depositsrequiredbysection7orsection98,orhashisstandingcontractrestoredorhashadanapplication
undersubsection(4)ofsection3Aaccepted,orsatisfiestheControllerofInsurancethatnoclaimupon
himsuchasisreferredtoinclause(g)ofsubsection(4)remainsunpaidorthathehascompliedwiththe
requirementforthenoncomplianceorcontraventionofwhichtheregistrationwascancelledunderclause
(f)ofsubsection(4)asthecasemaybe,andcomplieswithanydirectionswhichmaybegiventohimby
theControllerofInsurance.
(5D)Wheretheregistrationofaninsurancecompanyiscancelledundersubsection(4),theControllerof
Insurancemay,aftertheexpiryofsixmonthsfromthedateonwhichthecancellationtookeffect,apply
to
theCourtforanordertowinduptheinsurancecompany,ortowinduptheaffairsofthecompanyin
respectofaclassofinsurancebusiness,unlesstheregistrationoftheinsurancecompanyhasbeenrevived
undersubsection(5C)oranapplicationforwindingupthecompanyhasbeenalreadypresentedtothe
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Court.TheCourtmayproceedasifanapplicationunderthissubsectionwereanapplicationundersub
section(2)ofsection53,orsubsection(1)ofsection58,asthecasemaybe.
(6) 5Subjecttocompliancewiththeprovisionsofsections2C,5,subsection(2A)ofsection10and
section32andofanyordermadeundersection3B,theControllerofInsuranceshall,onbeingsatisfied
thattheapplicanthasfulfilledalltherequirementsofthissectionapplicabletohim,registertheinsurer
andgranthimacertificateofregistration.
(7) TheControllerofInsurancemay,onpaymentoftheprescribedfeewhichshallnotexceedtwentyfive
rupees,issueaduplicatecertificateofregistrationtoreplaceacertificatelost,destroyedormutilated,orin
anyothercasewhereheisofopinionthattheissueofaduplicatecertificateisnecessary.
INSURANCELAWS(AMENDMENT)ACT,2015
Indias top 5 insurance companies are expected to attract upwardsof$3billionofadditionalforeign
investmentintheimmediatefuturefollowingtherecentincreaseintheceilingonpermissibleforeign
investmentfrom26%to49%.Oneofthese,forinstance(HDFCStandardLife),wasitselfrecentlyvalued
inapubliclyannounceddealat$3.5billionwhichreflectsanimpressivetrajectoryforarelativeyoung
industry(outsideofstateownedinsurers).
India currently has 52 registered insurance companies, including 24 engaged in life insurance. It is
estimatedthatoverthenextfiveyears,theindustrywillgrowataCAGRof1215%andrequire$8
billion of additional capital. This changing landscape presents new opportunities for strategic and
financialinvestments,andforconsolidationintheindustry,innosmallpartdrivenbytheregulatory
regime.
INSURANCEAMENDMENTACT
ThelongoverdueInsuranceLaws(Amendment)Act,2015wasenactedon23March,2015,inoneofthe
first legislative actions of Indias new government led by NarendraModi.Theamendmentwasfirst
presentedbeforeparliamentasfarbackas2008,butfailedtogettractionbecauseofthelegislativelog
jamintheinterveningyears.
The amendment also underwent a few material changes since it was first introduced, such as the
prescriptionforIndiancontroloverinsurancejointventures.However,theheadlineobjectiveof
increasingtheceilingonforeigninvestmentfrom26%to49%hasbeenachieved.
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HIGHLIGHTS
1.Foreigninvestmentceilinghikedfrom26%to49%
This ceiling applies to the paidup equity capital of an insurance company. The extent of foreign
investment is calculated on the same basis as before, i.e., on a proportionate basis. Thus, for example, if
aresidentshareholder(R)holdsa75%stakeinaninsurancecompany(I),andaforeigninvestor(F)in
turnholds49%ofR,thentheextentofforeigninvestmentinIequals75%X49%=36.75.
2.HoweverjointventuresmustbeIndiancontrolled
ThisisanewrequirementimposedbytheAmendment,whileraisingtheceilingonforeignownership
from26%to49%.Unfortunately,thereisnobrightlinedefinitionofwhatisadequatetosatisfythis
requirement.Aslongasthisisthecase,thedeterminationofwhetheraninsurerisIndiancontrolled
wouldhavetobemadeonacasetocase basis. It is clear from the amendment that control is viewed
morebroadlythansimplyowningamajorityofvotingsharesorappointingamajorityofdirectors,and
thatrightsunderashareholdersagreementwillbefactoredin.
3.Alternativetypesofcapitalinstruments(suchasnonvotingpreferenceshares)
Beforetheamendment,insurancecompanieswereonlypermittedtoissueequity/ordinaryshareswitha
uniform par value. The amendment, however, permits insurance companies to issue suchotherformof
capital as may be specified by the regulations. Permission to issue preference shares or debentures,
whichdonotcarryvotingrights,wouldopennewavenuesforaninsurertoraisemoreforeigncapital
withoutimpactingitscompliancewiththe49%ceilingonforeignownership(whichonlyappliesto
equitycapital)ortherequirementforIndiancontrol.
4.Indianpartnernolongerrequiredtodiveststakeexceeding26%after10years
Previously, the Insurance Act required the Indian promoter of an insurance company to sell down its
stakeinexcessof26%within10yearsofcommencingbusiness(withtheobjectiveofdiscouraging
concentrated ownership of insurance companies). However, given the limit on foreign ownership
(previously, 26%), this left the Indian promoter with little option but to attempt a listing or induct
additionalpartners.
5.Healthinsurancewillberegulatedasaseparateclassofinsurance
Healthinsuranceiscurrentlyregulatedasapartofthegeneralinsurancebusiness.Theamendmentnow
proposestoregulatehealthinsuranceonastandalonebasis.Theobjectbehindthisistogivehealth
insurancebusinessprioritythroughamorefocusedregulatoryregime.
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6.Foreignreinsurerspermittedtooperateoutofwhollyownedbranchoffices
Previously, only domestic insurance companies were permitted to sell reinsurance. Indias largest state
ownedgeneralinsurancecompany(GIC)iscurrentlytheonlyactivereinsurer.Thegovernmenthasnow
dispensed with the requirement for reinsurance business to be conducted only through a company
incorporatedinIndia.
7.Morepowersforinsuranceregulator,decisionsnowappealable
Undertheamendment,theInsuranceRegulatoryandDevelopmentAuthorityofIndiahasbeengranted
greaterflexibilitytoregulateinsurancecompaniesthroughitsrulemakingpowersonmatterssuchas
managementfees,commissionsandcompositionoftheinsurancecompany'sinvestmentportfolio.These
wereearlierhardwiredintotheprovisionsoftheInsuranceActitself.Simultaneously,theappeals'process
forquasijudicialandadministrativerulingsoftheauthorityhasbeenstreamlinedbydesignatingthe
securities appellate tribunal as the appellate forum. Earlier such appeals lay only to the central
government.
ConsiderationsForInvestors
1.Previousjointventureswerebasedontheassumptionthattheceilingonforeigninvestmentwouldbe
increasedfrom26%to49%inthenearfuture.Duringthistransitionperiod,theIndianpartnerintheJV
was expected to fund a substantial portion of the foreign partners capital commitment, and was
compensated with a fee for the time value of its money. Alternatively, the foreign partner was expected
tocontributeadisproportionateshare(inexcessofits26% shareholding) of JVs capital until the ceiling
onforeignownershipwasraised(atwhichpoint,thecapitalstructurewouldbeunwound).Asitturned
out,ittookmuchlongerthanexpectedfortheceilingonforeignownershiptoberaisedto49%,which
placedconsiderablestressonthecapitalstructureoftheseJVs.
2.Goingforward,thecapitalstructureofaninsuranceJVcannotbebasedontheassumptionthatthe49%
ceilingwillberaisedintheforeseeablefuture.Thus,theIndianpartner(s)musthavedeepenough
pockets to fund up to half of the JVs future capital requirements on a sustained basis. That said, there is
nowpotentialfortheforeignpartnertomeetfundinggapsthroughnonvotingpreferenceshares(subject
tospecificrules,whichareawaited).Needlesstosay,theeconomicsofsuchpreferenceshareswould
needtomakesense.
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3. The new requirement for insurance companies to be Indian controlled imposes constraints on
governancerights,whichaforeigninvestorwouldnormallyexpectina50:50jointventure.Forinstance,
inanothercontextinthepast,thegovernmenthastakenthepositionthatextensivevetorights/reserved
matters were a form of negative control. Thus, foreign investors would need to prioritize key
governance rights and reserved matters to get most bang for their buck. The idea would be to get
maximumleveragewithouttippingthescalesforthecontroltest.
4. Foreigninvestorsshouldalsolookforadditionalleverage(andeconomics)bysegmentingthevalue
chainintheinsurancebusiness,andoutsourcingfunctionstowhollyownedaffiliates.IRDAguidelines,
whichregulatethenatureofactivitiesthatcanbeoutsourced,willneedtobefactoredin.
5. Thepossibilityofnonvotingsecurities,restrictionsoncontrolbytheforeignJVpartnerandcapital
constraintsoftheIndianJVpartnermayopenthedoortoprivateequity/financialinvestors.
6. CapitalconstraintsofIndianparticipants,restrictionsonforeigncontrolandthoselookingtoexitmay
setthestageforconsolidationintheindustry.
SUMMARYOFINSURANCEAMENDMENTBILL
(2015):
FinallythelongawaitedInsuranceBillwaspassedintheRajyaSabhaon12thMarch,2015thereby
bringingusonestepclosertotheAmendmentAct.
IntroducedinLokSabhaon4thMarch,2015theAmendmentBillstarteditsjourneyasanordinancein
December
2014.
TheInsuranceOrdinance,nowtheInsuranceBillsoughttoprimarilyamendthethreemajorInsurance
Actsgivingeffecttovariousnewprovisionsandpropositions.
ThethreeActstobeamendedasperthenewBillare:
1. TheInsuranceAct,1938.
2. TheInsuranceRegulatoryandDevelopmentAuthorityAct,1999popularlyknownastheIRDAAct.
3. TheGeneralInsuranceBusiness(Nationalization)Act,1972.
TheamendmentsorthesalientfeaturesoftheInsuranceBillareasfollows:
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1. MostimportantandtrendingtopicTheBillincreasestheFDIcapinInsuranceSectorto49%(fromthe
earlier26%).Ofthe49%26%shallbeundertheAutomaticRouteandtheremaining23%shallhavethe
need of FIPBs approval.FIPBisForeignInvestmentPromotionBoard.
2. AndthatForeignReinsurerswillbeabletoentertheIndianreinsurancesectorwhichonlyhadthe
GovernmentownedGIC.RecentnewshasitthatUKs LloydsisintalkswiththeIRDAtoopenbusiness
inIndia;andmanyothersaremakingbeelinetotheIndianshorestoo.
3. Anothermeasurefortheinsurancecompaniesinrespectofraisingcapitalistheopeningofcapitalmarket
tothepublicsectorgeneralinsurancecompanies.
4. Andthestartupcapital(initialcapitalrequiredatthetimeofregistrationofthecompanyandstartof
businesssubsequently)forahealthinsurancebusinesswillbeRs.100crore.
5. InsuranceAgentswillbefinedRs.1croreformisselling insurance products. Now thats a relief to the
insureds(usthecustomers)whomostofthetimehavenoideawhichinsuranceproductisactuallythe
rightoneforthem.Also,unauthorizedagentswhoseonlyjobistodupeunsuspectingcustomerswill
befinesRs.10lakhsfortheirscams.Andthecustomers(insured)canutilizelegalcoursefortheredressal
oftheirgrievances.
6. Agents are now prohibited from acting as agents of more than one company for the same business
segment.Thatisoneagentcannotbealifeinsuranceagentofmorethanonelifeinsurancecompany.
Hecanalifeinsuranceagentandageneralinsuranceagentofthesamecompanyaslifeandgeneral
insurancesaretwoseparateline/businesssegments.
7. LifeInsuranceCompaniestoohavebeenprohibitedfromchallenginganylifeinsurancepolicyonany
groundafterthreeyearsofhavingsoldsuchpolicy.
8. LifeInsuranceCouncilandtheGeneralInsuranceCouncilwillbeempoweredtoactasselfregulating
bodiesfortheirrespectivesegmentofinsurancebusinessesandthecompaniesoperatingintheparticular
lineofbusiness.
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9. Forthecustomers(insureds) fasterpremiumpaymentandprocessing,fasterclaimsprocessingand
fasterandjustredressalhasbeenenvisagedandprovidedfor.
10. IRDAhasbeengivenmoreregulatorypowerstocontrolanymisuseofthissectortodupethemasses;
noncomplianceofIRDAruleandregulationscanresultinRs.25croresinfinesforcompanies!
Socustomerprotectionhasbeengivenaclearpriority.
Thereyou haveit 10important features of the Insurance Laws Amendment Bill, 2015; all of these
bulletedpointswillhaveeffectwhentheearliermentionedthreeActsareamended.
RBIHistoryandFunctions
RBIistheformidableinstitutionthatholdsour countrys banking/economy/industry sectors all together
and geared towards growth and development let me correct myself sustainable growth and
development, as our current Guvnor so aptly puts it!
1. BRIEFINTRODUCTIONANDHISTORY:
RBI as Indias central bank was conceptualized and putforwardbytheHiltonYoungCommittee
in192627.
In 1933, based on Hilton Young Committees Reports and further improving upon it, the Central
Banking Investigation Committees report waspresentedandpassedintheassembly.

1934,sawtheReserveBankOfIndiaAct,1934beingpassed.
1935,April1st,RBIstarteditsoperations,withitsheadquarterinCalcutta.
2yearslater,in1937,theHeadquarterwaspermanentlyshiftedtoBombay,(nowMumbai),whereit
stillexists.(allofthishappenedduringtheBritishRule!)
RBIwasnationalizedin1949,2yearsafterIndependence;theGovernoratthetimewasC.D.
Deshmukh.
In1985RBIcelebrated50yearsofitsexistence;75yearsin2010and100yearsin2035!
2.
RoleasCentralBankWhatdoesRBIdo?
RBI isthe Governments banker andperformsbankingfunctionsforthecentralandthestate
governments.
RBIisalsotheBankeroftheBanksitmaintainsoperationalbankingaccountsofallscheduled
banks.
Itistheregulatorandsupervisorof the countrys financial system;

and sets benchmarks and regulations for the proper operation of the countrys banking and financial
sector.
RBIistheIssuerofCurrencyitissuesbanknotesandexchangesordestroyscurrencynotesand
coinsnotfitforcirculation.
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RBI is instrumental in formulating, implementing and monitoring the countrys monetary policies;
monetary policies are set of policies formulated by the central bank toattempt to control the
economy,themoneysupplyandultimatelyinflation.
Through the provisions of the Foreign Exchange Management Act, 1999, RBIregulates and
facilitatesexternaltradeandpromotesdevelopmentandmaintenanceofforeignexchangemarket
inIndiathroughwhichIndiamaintainsitsforexreserves.
RBIs monetary policies are instrumentalinmaintainingpricestability intheeconomy RBIhas
battled inflationary trends in the Indian Economy. (Well cover it in another discussion!)
ItalsoactsasanadvisortotheGovernmentofIndiafromeconomicpointofview.
Itisthelikethe Godfather of the publics money,(albeitthesinisterintentions! RBIisall
good!) of the entire banking system and hence the protector of common publics deposits, the
influencebehindloanrates,thepolicymakerforfinancialinclusion,theinflationcheckeretc.
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3.THEGOVERNOR,THEDEPUTIESANDTHEBOARD:
4. TRIVIA:
ThefirstGovernorofRBIwasSirOsborneSmith(undertheBritishGovernment);firstIndian
Governor is Sir C. D. Deshmukh. RaghuramRajan is the 23rd Governor (current Guvnor) and ex
PMManmohanSinghwasthe15thGovernor!
TheBankingOmbudsmanScheme2006,hasbeenformulatedbyRBIfortheeffectiveaddressalof
customercomplaints;theBankingOmbudsmanAct,2005.
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RBI prints notes through, the Bharatita Reserve Bank Note Mudran Private Limited and
SecurityPrintingandMintingCorporationofIndiaLimitedawhollyownedcompanyofthe
GovernmentofIndia.
RBIdecidesthedesignofcurrencynotesandcoins.
RBIs logo/emblem/seal is of a palmtreeandatiger.
RBIhasstartedpublishingbimonthly policy updates since April 2014; its latest was in September
2014beingthe4thbimonthlyupdate.
RBIisamemberoftheAsianClearingUnion.
ItisalsoamemberoftheAllianceForFinancialInclusion.
RBIwasconceptualizedasperthevisionenvisagedbyDr.B.R.Ambedkarinhisbook The
ProblemoftheRupeeItsoriginanditssolution.
RBIhasservedasthecentralbanksofBurmaandPakistanforbriefperiodoftime.
RBI has a site named paisaboltahai! launchedin2012tomakethemassesawareofthefeatures
ofcurrencynotestomakethemvigilantandanaidinthefightagainstcounterfeitnotes.
RBIiscurrentlywithdrawingallthepre2005notesfromthesystemasameasuretocombatthetwin
maladiesofcounterfeitnotesandblackmoney.
ABBREVIATIONS
A
Accelerateddeathbenefits Ainsurancepolicywithanaccelerateddeathbenefitsprovision
willpayundercertainconditionsallorpartofthepolicydeathbenefitswhilethepolicyholder
isstillalive.Theseconditionsincludeproofthatthepolicyholderisterminallyillwithalife
expectancyoflessthan12months,hasaspecifiedlifethreateningdiseaseorisinalongterm
carefacilitysuchasanursinghome.Forgrouptermlifepoliciesorcertificates,theamountof
acceleratedbenefitislimitedbylawtothegreatestof$25,000or50percentofthedeathbenefit.
Byacceptinganacceleratedbenefitpayment,apersoncouldberuledineligibleforMedicaidor
othergovernmentbenefits.Theproceedsmayalsobetaxable.
AccidentAnunforeseen,unintendedevent.
AccidentonlypoliciesPoliciesthatpayonlyincasesarisingfromanaccidentorinjury.
Accidentaldeathbenefits Ifalifeinsurancepolicyincludesanaccidentaldeathbenefit,the
causeofdeathwillbeexaminedtodeterminewhethertheinsuredsdeathmeetsthepolicys
definitionofaccidental.
Actualcashvalue(ACV) Thevalueofyourproperty,basedonthecurrentcosttoreplaceit
minusdepreciation.Alsosee"replacementcost."
Additional living expenses (ALE) Reimburses the policyholder for the cost of temporary
housing,food,andotheressentiallivingexpenses,ifthehomeisdamagedbyacoveredperilthat
makesthehometemporarilyuninhabitable.PoliciescaptheamountofALEpayableto20percent
ofthepolicy'sdwellingcoverage.
Adjuster An individual employed by an insurer to evaluate losses and settle policyholder
claims.Alsosee"publicinsuranceadjuster."
AdministrativeexpensechargeAnamountdeducted,usuallymonthly,fromthepolicy.
AgentApersonwhosellsinsurancepolicies.
AnnuitantApersonwhoreceivesthepaymentsfromanannuityduringhisorherlifetime.
Annuity Acontractinwhichthebuyerdepositsmoneywithalifeinsurancecompanyfor
investment.Thecontractprovidesforspecificpaymentstobemadeatregularintervalsforafixed
periodorforlife.
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Annuitycertain Anannuitythatprovidesabenefitamountpayableforaspecifiedperiodof
timeregardlessofwhethertheannuitantlivesordies.
AnnuityperiodThetimespanbetweenthebenefitpaymentsmadeunderanannuitycontract.
ApplicationAformtobefilledoutwithpersonalinformationthataninsurancecompanywill
usetodecidewhethertoissueapolicyandhowmuchtocharge.
Appraisal An evaluation of a home insurance property claim by an authorized person to
determine property value or damaged property value. Many policies provide an "appraisal"
processtoresolveclaimdisputes.Inthisprocess,youandtheinsurancecompanyhireseparate
damage appraisers. The two appraisers choose a third appraiser to act as an "umpire." The
appraisersthenreviewyourclaim,andtheumpirerulesonanydisagreements.Theumpire's
decisionisbindingonyouandtheinsurancecompany,butonlyforthelossamount.Ifthereisa
disputeoverwhatiscovered,youcanstillpursueasettlementofthecoverageissueafterthe
appraisaltakesplace.Youarerequiredtopayforyourappraiserandhalfoftheumpire'scosts.
AssignmentThetransferofallorpartofapolicyownerslegaltitleandrightstoapolicyto
anotherperson.Itispossibletochangethistypeoftransferatalaterdate.
Benchmarkrate(s)TheratessetannuallybytheCommissionerofInsurancethatrateregulated
insurancecompaniesusetoreferencetheirrates.Rateregulatedinsurancecompaniesfilingrates
withinarangeof30percentaboveorbelowthebenchmarksmayusethemimmediatelyupon
filingwithoutpriorapproval.Acompanythatwantstosetitsratesoutsidethisrangemustreceive
theCommissionerspriorapproval.
BeneficiaryTheperson,people,orentitydesignatedtoreceivethedeathbenefitsfromalife
insurancepolicyorannuitycontract.
BinderAtemporaryinsurancecontractthatprovidesproofofcoverageuntilapermanentpolicy
isissued.
Bodilyinjury(BI)Physicalinjurytoaperson,includingdeath.
CancellationTerminationofaninsurancepolicybythecompanyorinsuredbeforetherenewal
date.
CapitationAsystemwhereanHMOpaysadoctororhospitalaflatmonthlyfeeforthecareof
eachhealthplanmemberwhetherornotanyservicesaredelivered.
CarrierAcompanyorHMOthatprovideshealthcarecoverage.
Cashsurrenderoption Noforfeitureoptionthatspecifiesthepolicyownercancancelthe
coverageandreceivetheentirenetcashvalueinalumpsum.
CashvalueTheamountofmoneythelifeinsurancepolicyownerwillreceiveasarefundifthe
policyownercancelsthecoverage andreturnsthepolicytothe company. Alsocalled"cash
surrendervalue."
CertificatesofcoveragePrintedmaterialshowingmembersofagrouphealthbenefitplanthe
benefitsprovidedbythegroupmasterpolicy.
ChurningThiscanoccurwhenanagentpersuadesaconsumertoborrowagainstanexisting
lifeinsurancepolicytopaythepremiumonanewone.
ClaimApolicyholder'srequestforreimbursementfromaninsurancecompanyunderahome
By RamandeepinsuranceSinghpolicyforalosstoproperty.
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ClaimantApersonwhomakesaninsuranceclaim.
ClosedpracticeAprimarycarephysicianwhoisnotacceptingnewpatients.Note:Evenifyour
physicianisontheHMOorPPOlist,calltoseeifthepracticeisstillopenforacceptingnew
HMOorPPOparticipants.
CoinsuranceThepercentageofeachhealthcarebillapersonmustpayoutoftheirownpocket.
Noncoveredchargesanddeductiblesareinadditiontothisamount.
CoinsurancemaximumThemostyouwillhavetopayincoinsuranceduringapolicyperiod
(usuallyayear)beforeyourhealthplanbeginspaying100percentofthecostofyourcovered
health services. The coinsurance maximum generally does not apply to copayments or other
expensesyoumightberequiredtopay.
Collisioncoverage Paysfordamagetoacarwithoutregardtowhocausedanaccident.The
company must pay for the repair or up to the actual cash value of the vehicle, minus the
deductible.
CompanyprofileAsummaryofinformationaboutaninsurancecompany,includingitslicense
status,financialdata,complainthistory,andahistoryofregulatoryaction.
Complaint Awrittencommunicationprimarilyexpressingagrievanceagainstaninsurance
companyoragent.
ComplainthistoryInformationcollectedormaintainedbytheTexasDepartmentofInsurance
(TDI) relating to the number of complaints received against a particular insurer, agent, or
premiumfinancecompanyandthedispositionofthecomplaints.
Comprehensivecoverage(physicaldamageotherthancollision)Paysfordamagetoorloss
ofyourautomobilefromcausesotherthanaccidents.Theseincludehail,vandalism,flood,fire,
andtheft.
Conditionalreceipt Apremium receiptgiventoanapplicant thatmakes alifeandhealth
insurancepolicyeffectiveonlyiforwhenaspecifiedconditionismet.
ConsumerChoiceplans Healthcareplansofferedbycarriersthatdonotincludeallofthe
statemandated benefits. Consumer choice plans must provide members with a disclosure
statementandalistdescribingthemandatedbenefitsthatarenotcovered.
ContestableperiodAperiodofuptotwoyearsduringwhichalifeinsurancecompanymay
denypaymentofaclaimbecauseofsuicideoramaterialmisrepresentationonanapplication.
ContingentbeneficiaryAnotherpartyorpartieswhowillreceivethelifeinsuranceproceedsif
theprimarybeneficiaryshouldpredeceasethepersonwhoselifeisinsured.
ContractInmostcases,aninsurancepolicy.Apolicyisconsideredtobeacontractbetweenthe
insurancecompanyandthepolicyholder.
ConversionprivilegeTherighttochange(convert)insurancecoveragefromonetypeofpolicy
toanother.For example,theright tochange fromanindividualterminsurancepolicytoan
individualwholelifeinsurancepolicy.
CopaymentTheamountyoumustpayoutofyourownpocketwhenyoureceivemedicalcare
oraprescriptiondrug.CopaymentsusuallyrefertosetfeesthatHMOschargetoaccesshealth
careservices,buttheyalsomayapplytoaPPOinsurancecontract.
CoordinationofbenefitsAgroupplanprovisionthatstipulatestheprimarycarrierwhenyou
havemorethanonehealthplan.Thisensuresthatpaymentsmadebythecarriersdonoexceedthe
costoftheservicesprovided.
CreditlifeinsuranceThisisaspecialtypeofcoverageusuallydesignedtopayoffaloanor
chargeaccountbalanceifthepolicyholderdies.Somelendersorsellersmayrequirecreditlife
insurancebeforetheywillapprovealoan.Ifcreditlifeisrequired,thelenderorsellercannot
requirethepolicyholdertopurchaseitfromthemoraparticularinsurancecompany.Ifthe
policyholderhasanexistinglifepolicy,thecreditorhastoacceptanassignmentofbenefitsunder
theirexistingpolicyinsteadofrequiringthemtopurchaseacredit lifepolicy.Creditlife
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insurancepremiumratesforloansof10yearsorlessareregulatedbyTDI,butpremiumratesfor
loansthataremorethan10yearsoldareunregulated.
DeathbenefitAmountpaidtothebeneficiaryuponthedeathoftheinsured.
DeclarationspageThepageinapolicythatshowsthenameandaddressoftheinsurer,the
periodoftimeapolicyisinforce,theamountofthepremium,andtheamountofcoverage.
DeductibleTheamounttheinsuredmustpayinalossbeforeanypaymentisduefromthe
company.
DeferredannuityAnannuityunderwhichtheannuitypaymentperiodisscheduledtobeginat
somefuturedate.
DepreciationDecreaseinthevalueofpropertyovertimeduetouseorwearandtear.
DisabilitybenefitsInsurancecompanycoveragethatpaysforlostwageswhenyouareunable
toworkbecauseofanillnessorinjury.
DreaddiseasepoliciesPoliciesthatpayonlyifyoucontracttheillnessspecifiedinthepolicy.
(Alsocalledspecifieddiseasepolicies.)
EarnedpremiumTheportionofapolicypremiumthathasbeenusedtoactuallybuycoverage,
orthattheinsurancecompanyhas"earned."Forinstance,ifapolicyholderhasasixmonthpolicy
thatwaspaidforinadvance,twomonthsintothepolicy,therewouldbetwomonthsofearned
premium.Theremainingfourmonthsofpremiumis"unearnedpremium."
EffectivedateThedateonwhichaninsurancepolicybecomeseffective.
EligibleemployeeAnemployeewhomeetstheeligibilityrequirementsforcoverageinagroup
plan.Tobeeligibletojoinagroupplan,youusuallymustworkfulltimeforatleast30hoursa
week.Somegroupplansmayrequireemployeestobeacertainpaygradeorjobclassificationto
beeligibleforcoverage.
EmergencycareHealthcareservicesprovidedinahospitalemergencyfacilityorcomparable
facilitytoevaluateandstabilizesuddenandseveremedicalconditions.
EndorsementAwrittenagreementattachedtoapolicyexpandingorlimitingthebenefits
otherwisepayableunderthepolicy.Alsocalleda"rider."
ERISAplanHealthplanscreatedundertheEmployeeRetirementandIncomeSecurityAct
(ERISA)of1974.Theseplansareselffunded,whichmeansthatclaimsarepaidstrictlyfrom
employercontributionsandemployeepremiums.ERISAplansareadministeredbytheU.S.
DepartmentofLabor.(Alsoknownasaselffundedplan.)
EscrowMoneyplacedinthehandsofathirdpartyuntilspecifiedconditionsaremet.
EvidenceofinsurabilityToqualifyforaparticularpolicyataparticularprice,companieshave
therighttoaskforinformationabouthealthandlifestyle.Aninsurancecompanywillusethis
informationtheevidenceofinsurabilityindecidingifyourapplicationforinsuranceis
acceptableandatwhatpremiumrate.
ExclusionsorlimitationsProvisionsthatexcludeorlimitcoverageofcertainnameddiseases,
medicalconditions,orservices,aswellassomesicknessesoraccidentsthatoccurunderspecified
circumstances.
ExpirationdateThedateonwhichaninsurancepolicyexpires.
ExtendedterminsuranceoptionApolicyprovisionthatprovidestheoptionofcontinuingthe
existingamountofinsuranceasterminsuranceforaslongaperiodoftimeasthecontract'scash
valuewillpurchase.
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FacevalueTheinitialamountofdeathbenefitprovidedbythepolicyasshownonthefacepage
ofthecontract.Theactualdeathbenefitmaybehigherorlowerdependingontheoptions
selected,outstandingpolicyloans,orpremiumowed.
FeeforserviceAhealthplanthatallowsyoutogotoanyphysicianorprovideryouchoose,but
requiresthatyoupayfortheservicesyourselfandfileclaimsforreimbursement.(Alsoknownas
anindemnityplan.)
FileandUseResidentialpropertyratesutilizeasystemcalled"fileanduse."Underthissystem,
insurance companies file their rates with the TDI, but they do not need prior approval to
implementnewrates.IfTDIdeterminesthatacompany'sratesareexcessive,thecompanycanbe
orderedtopayrefundstothepolicyholdersitovercharged.Companiescanappealadverserate
decisions.
FirstpartyclaimAclaimfiledbyaninsuredagainsthisorherowninsurancepolicy.
FreeexaminationperiodAlsoknownas"10dayfreelook"or"freelook,"itisthetimeperiod
afteralifeinsurancepolicyoranannuityisdeliveredduringwhichthepolicyownermayreview
itandreturnittothecompanyforafullrefundoftheinitialpremium.Variablelifepoliciesare
requiredtoincludea"freelook"provision.Forothercoverage,itisatthecompanysoption.
G
Gapinsurance Insurancethatpaysthedifferencebetweentheactualcashvalueofavehicle
andtheamountstilltobepaidontheloan.Somegappoliciesmayalsocovertheamountofthe
deductible.
Gatekeeper ThephysicianselectedbyHMOmemberstoserveastheirpersonaldoctorand
provideallbasicmedicaltreatmentsandanyreferralstomedicalspecialists.Gatekeepersare
prohibitedinPPOsandotherindemnityhealthplans.(Alsoknownasaprimarycarephysician.)
Graceperiod(s)Thetimeusually31daysduringwhichapolicyremainsinforceafterthe
premiumisduebutnotpaid.Thepolicylapsesasofthedaythepremiumwasoriginallydue
unlessthepremiumispaidbeforetheendofthe31daysortheinsureddies.
Grievanceprocedure The required appeal process anHMO provides for you toprotest a
decision regarding medical necessity or claim payment. Insurance companies also may have
grievanceprocedures.
GrouplifeinsuranceThistypeoflifeinsuranceprovidescoveragetoagroupofpeopleunder
onecontract.Mostgroupcontractsaresoldtobusinessesthatwanttoprovidelifeinsurancefor
theiremployees.Grouplifeinsurancecanalsobesoldtoassociationstocovertheirmembersand
tolendinginstitutionstocovertheamountsoftheirdebtorloans.Mostgrouppoliciesareforterm
insurance.Generally,thebusinesswillbeissuedamasterpolicyandeachpersoninthegroup
willreceiveacertificateofinsurance.
Group of companies Several insurance companies under common ownership and often
commonmanagement.
Guaranteedrenewable Policiesthatmaynotbenonrenewedorcanceled,exceptincertain
cases.Aninsurermaycancelaguaranteedrenewablepolicyforfailuretopaypremiums,fraud,or
intentionalmaterialmisrepresentation.Italsomaycancelyourpolicyifthecompanyformally
leavestheindividualorgrouphealthmarket.
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HealthbenefitplanInmostcases,healthcareservicesprovidedtoemployeesbyanemployer.
ItcanbeanindemnityplanoranHMOplan.
HealthcarereimbursementaccountsAlthoughnotaninsurancebenefit,theseaccountsallow
youtosetasidepretaxdollarstopayformedicalcareormedicalcostsnotcoveredbyyour
regularhealthbenefitplan.
Health maintenance organization (HMO) Managed care plans that provide health care
servicestotheirmembersthroughnetworksofdoctors,hospitals,andotherhealthcareproviders.
HMOsarepopularalternativestotraditionalhealthcareplansofferedbyinsurancecompanies
becausetheycoverawidevarietyofservices,usuallyatalowercost.
Home service life A method of selling and servicing insurance, mostly life and health
insurance, and does not identify the type or relative cost of the product that is sold. Some
companiesthatmarketonahomeservicebasissellwhatisknownas"industriallifeinsurance."
Thesearemostoftenlowdeathbenefitpolicieswithfaceamountsthatmayvaryfrom$1,000to
$5,000andwhichaccumulatecashvaluesataverylowrate.Theyareintendedprimarilytocover
theexpensesofalastillnessandburial.Therelativecostofindustriallifeinsuranceisextremely
highcomparedtosomeothercashvaluepoliciesandtermlifeinsurancepolicies.
Hospital confinement policies Policies that pay a fixed amount each day you are in the
hospital.
HospitalsurgicalpoliciesInsurancepoliciesthatcoverhospitalandsurgicalservices.
Incontestability Aprovisionthatplacesatimelimituptotwoyearsonalifeinsurance
companysrighttodenypaymentofaclaimbecauseofsuicideoramaterialmisrepresentationon
yourapplication.
IndemnityplanAhealthplanthatallowsyoutogotoanyphysicianorprovideryouchoose,
but requires that you pay for the services yourself and file claims for reimbursement. (Also
knownasfeeforservice.)
Independentadjuster Apersonwhochargesafeetoaninsurancecompanytoadjustthe
companysclaim.
IndependentReviewOrganization(IRO)IfyourhealthinsurerorHMOdeclinestopayfor
healthcareyoubelieveismedicallynecessaryorappropriate,youmayrequestthatitcontactTDI
andrequestthatanindependentgroup(IRO)reviewthedecision.AnIROreviewisnotrequired
forselffundedERISAplans.Unlessyourconditionislifethreatening,youmustcompletethe
standardappealprocessbeforerequestinganIROreview.IROsarenotaffiliatedwithyourhealth
plan.ThehealthplanmustpayfortreatmenttheIROdeterminesisnecessary.
IndexedlifeinsuranceAwholelifeplanofinsurancethatprovidesforthefaceamountofthe
policyand,correspondingly,thepremiumrate,toautomaticallyincreaseeveryyearbasedonan
increaseintheConsumerPriceIndex(CPI)oranotherindexasdefinedinthepolicy.
Inflation protection Automatically adjusts home insurance policy limits to account for
increasesinthecoststorepairorrebuildaproperty.
Inpatientmedicalcare Medicalandsurgicalcareusuallyreceivedinahospitalorskilled
nursinghomeenvironment.
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InsurableinterestAnyfinancialinterestapersonhasinthepropertyorpersoninsured.Inlife
insurance,apersonsorpartysinterestfinancialoremotionalinthecontinuinglifeofthe
insured.
InsuredThepersonororganizationcoveredbyaninsurancepolicy.
InsurerTheinsurancecompany.
InterpleaderThisisaprocedurewhenconflictingclaimsaremadeonalifeinsurancepolicyby
twoormorepeople.Usingthisproceduretheinsurancecompanypaysthepolicyproceedstoa
court,statingthecompanycannotdeterminethecorrectpartytowhomtheproceedsshouldbe
paid.
IrrevocablebeneficiaryAnamedbeneficiarywhoserightstolifeinsurancepolicyproceedsare
vestedandwhoserightscannotbecanceledbythepolicyownerunlessthebeneficiaryconsents.
JustifiedcomplaintAcomplaintthatexposesanapparentviolationofapolicyprovision,
contractprovision,rule,orstatute;orwhichindicatesapracticeorservicethataprudent
laypersonwouldregardasbelowcustomarybusinessormedicalstandards.
K
L
LapseTheterminationofaninsurancepolicybecausearenewalpremiumisnotpaidbytheend
ofthegraceperiod.
LiabilityResponsibilitytoanotherforonesnegligencethatresultsininjuryordamage.
LiabilityinsuranceAnautoinsurancecoveragethatpaysforinjuriestotheotherpartyand
damagestotheothervehicleresultingfromanaccidentthepolicyholdercaused.Italsopaysif
theaccidentwascausedbysomeonecoveredbythepolicyholder'spolicy,includingadriver
operatingthecarwiththeirpermission.
LiabilitylimitsThemaximumamountyourliabilitypolicywillpay.Yourpolicymustpayat
least$30,000foreachinjuredperson,uptoatotalof$60,000peraccident,and$25,000for
propertydamageperaccident.Thisbasiccoverageiscalled"30/60/25"coverage.
LiabilitycoverageCoverslossesthataninsuredislegallyliable.Forhomeownersinsurance,
forexample,liabilitycoverageprotectsthepolicyholderagainstfinanciallossiftheyaresuedand
foundlegallyresponsibleforsomeoneelse'sinjuryorpropertydamage.
LifetimemaximumThetotaldollaramountahealthcareplanwillpayoverapolicyholders
lifetime.
LongtermcarebenefitsCoveragethatprovideshelpforpeoplewhentheyareunabletocare
forthemselvesbecauseofprolongedillnessordisability.Benefitsaretriggeredbyspecific
findingsof"cognitiveimpairment"orinabilitytoperformcertainactionsknownas"Activitiesof
DailyLiving."Benefitscanrangefromhelpwithdailyactivitieswhilerecuperatingathometo
skillednursingcareprovidedinanursinghome.
LossTheamountaninsurancecompanypaysonaclaim.
LossofuseAprovisioninhomeownersandrentersinsurancepoliciesthatreimburses
policyholdersfortheadditionalcosts(housing,food,andotheressentials)ofhavingtolive
elsewherewhilethehomeisbeingrestoredfollowingadisaster.
LosshistoryReferstothenumberofinsuranceclaimspreviouslyfiledbyapolicyholder.A
companywillconsiderlosshistorywhenunderwritinganewpolicyorconsideringarenewalof
By Ramandeep Singh
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41
anexistingpolicy.Companiesviewlosshistoryasanindicationofthelikelihoodthataninsured
willfileaclaiminthefuture.
MajormedicalpoliciesHealthcarepoliciesthatusuallycoverbothhospitalstaysand
physiciansservicesinandoutofthehospital.
ManagedhealthcareAsystemthatorganizesphysicians,hospitals,andotherhealthcare
providersintonetworkswiththegoalofloweringcostswhilestillprovidingappropriatemedical
services.Manymanagedcaresystemsfocusonpreventivecareandcasemanagementtoavoid
treatingmorecostlyillnesses.
MandatedbenefitsHealthcarebenefitsthatstateorfederallawsaysmustbeincludedinhealth
careplans.
MandatedofferingsHealthcarebenefitsthatmustbeofferedtotheemployerororganization
sponsoringagrouppolicy.Thesponsorisnotrequiredtoincludethebenefitsinitsgroupplan.
MarketvalueThecurrentvalueofyourhome,includingthepriceofland.
MaterialmisrepresentationAsignificantmisstatementonanapplicationform.Ifacompany
hadaccesstothecorrectinformationatthetimeofapplication,thecompanymightnothave
agreedtoaccepttheapplication.
MaximumoutofpocketexpenseThemaximumamountsomeonecoveredunderahealthcare
planmustpayduringacertainperiodforexpensescoveredbytheplan.Untilthemaximumis
reached,thepersoncoveredisrequiredtopayacopaymentorapercentageoneachclaim.
Medicalpaymentsandpersonalinjuryprotection(PIP)Bothautoinsurancecoveragespay
limitedmedicalandfuneralexpensesifthepolicyholder,afamilymember,orapassengerinthe
carisinjuredorkilledinamotorvehicleaccident.PIPalsopayslostincomebenefits.
MedicallynecessarycareHealthcarethatresultsfromillnessorinjuryorisotherwise
authorizedbythehealthcareplan.Thistermcanbedefineddifferentlyfromonehealthcareplan
toanother.
MortalitychargeThecostoftheinsuranceprotectionelementofauniversallifepolicy.This
costisbasedonthenetamountatriskunderthepolicy,theinsuredsriskclassificationatthe
timeofpolicypurchase,andtheinsuredscurrentage.
MortalityexpensesThecostoftheinsuranceprotectionbaseduponactuarialtableswhichare
basedupontheincidenceofdeath,byage,amonggivengroupsofpeople.Thiscostisbasedon
theamountatriskunderthepolicy,theinsuredsriskclassificationatthetimeofpolicypurchase,
andtheinsuredscurrentage.
MultipleemployerplansBenefitplansthatserveemployeesofmorethanoneemployerand
aresetupundertermsofacollectivebargainingagreement.
MultipleEmployerWelfareArrangements(MEWAs)Ingeneral,employeeassociationplans
(notsetupunderacollectivebargainingagreement)thatprovidebenefitstoemployeesofmore
thanoneemployer.IftheMEWAassumesallorpartoftheplansinsurancerisk,itmustbe
licensedbyTDI.
NameddriverexclusionAnendorsementtoanautoinsurancepolicythatprovidesthatapolicy
doesnotcoveraccidentswhenaspecificallynamedpersonisthedriver.
NameddriverpolicyAnautoinsurancepolicythatdoesn'tprovidecoverageforanindividual
residinginanamedinsured'shouseholdspecificallyunlesstheindividualisnamedonthepolicy.
By Ramandeep Singh
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Thetermincludesanautoinsurancepolicythathasbeenendorsedtoprovidecoverageonlyfor
driversspecificallynamedonthepolicy.
NetworkAllphysicians,specialists,hospitals,andotherproviderswhohaveagreedtoprovide
medicalcaretoHMOmembersundertermsofthecontractwiththeHMO.Insurancecontracts
withpreferredproviderbenefitsalsousenetworks.
NonnetworkprovidersHealthcareprovidersandtreatmentfacilitiesnotundercontractwith
theHMOorthosethatdonothaveaninsurancePPOcontract.
NonownerspolicyAutoinsurancecoveragethatoffersliability,uninsuredmotorist,and
medicalpaymentstoanamedinsuredwhodoesnotownavehicle.
NonparticipatingpolicyAlifeinsurancepolicythatdoesnotgrantthepolicyownertheright
topolicydividends.
NonrenewalAdecisionbyaninsurancecompanynottorenewapolicy.
OutofareaTheareaoutsidethecountiesorZIPcodesinwhichanHMOprovidesregularand
preventivecoverage.
OutofnetworkservicesHealthcareservicesfromprovidersnotinanHMOsoraPPOs
network.Exceptincertainsituations,HMOswillonlypayforcarereceivedfromwithinits
network.IfyoureinaPPOplan,youwillhavetopaymoretoreceiveservicesoutsidethePPOs
network.
OutofpocketmaximumThemostyouwillhavetopayduringapolicyperiod(usuallyayear)
beforeyounolongerhavetopayyourshareofcoinsuranceforcoveredhealthservices.Once
you'vereachedyouroutofpocketmaximum,yourhealthplangenerallypays100percentofyour
healthcarecosts,uptoyourpolicy'scoveragelimit.Youarestillresponsibleforpayingyour
premium.Dependingonyourplan,youalsomayhavetocontinuepayingcopaymentsandsome
otherexpenses.
OutpatientservicesServicesusuallyprovidedinclinics,physicianorprovideroffices,
hospitalbasedoutpatientdepartments,homehealthservices,ambulatorysurgicalcenters,
hospices,andkidneydialysiscenters.
PaidupThiseventoccurswhenalifeinsurancepolicywillnotrequireanyfurtherpremiumsto
keepthecoverageinforce.
PaidupadditionsAdditionalamountsoflifeinsurancepurchasedusingdividends;these
insuranceamountsrequirenofurtherpremiumpayments.
PerilAspecificriskorcauseoflosscoveredbyapropertyinsurancepolicy,suchasafire,
windstorm,flood,ortheft.Anamedperilpolicycoversthepolicyholderonlyfortherisksnamed
inthepolicy.Anallriskpolicycoversallcausesoflossexceptthosespecificallyexcluded.
PersonalpropertyAlltangibleproperty(otherthanland)thatiseithertemporaryormovablein
someway,suchasfurniture,jewelry,electronics,etc.
Pointofservice(POS)plansPOSplansallowanHMOtocontractwithaninsurancecompany
togiveenrolleestheoptionofreceivingservicesoutsidetheHMOsnetwork.InTexas,HMOs
mustcontractwithaninsurancecompanytoofferPOSplans.
PolicyThecontractissuedbytheinsurancecompanytotheinsured.
PolicyloanAnadvancemadebyalifeinsurancecompanytoapolicyowner.Theadvanceis
securedbythecashvalueofthepolicy.
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PolicyownerThepersonorpartywhoownsanindividualinsurancepolicy.Thispersonmaybe
theinsured,thebeneficiary,oranotherperson.Thepolicyownerusuallyistheonewhopaysthe
premiumandistheonlypersonwhomaymakechangestoapolicy.
Policy period Theperioda policy is in force, from the beginning or effective date tothe
expirationdate.
Precertification Arequirementthatthehealthcareplanmustapprove,inadvance,certain
medicalprocedures.Precertificationmeanstheprocedureisapprovedasmedicallynecessary,not
approvedforpayment.
PreexistingconditionAmedicalproblemorillnessyouhadbeforeapplyingforhealthcare
coverage.
Preferredproviderorganization(PPO) Atypeofplaninwhichphysicians,hospitals,and
otherprovidersagreetodiscountratesforaninsurancecompany.Theseprovidersarepartofthe
PPOsnetwork.InsurancecontractswithPPOprovisionsreimburseatahigherpercentageifyou
useprovidersinthenetwork.IfyougotoprovidersoutsidethePPOsnetwork,youwillhaveto
paymoreforyourcare.
Premium Theamountpaidbyaninsuredtoaninsurancecompanytoobtainormaintainan
insurancepolicy.
PremiumloadAnamountdeductedfromeachlifeinsurancepremiumpayment,whichreduces
theamountcreditedtothepolicy.
PreventivecareHealthcareservicessuchasroutinephysicalexaminationsandimmunizations
thatareintendedtopreventillnessesbeforetheyoccur.
PrimarycarephysicianThephysicianselectedbyHMOmemberstoserveastheirpersonal
doctorandprovideallbasicmedicaltreatmentsandanyreferralstomedicalspecialists.Primary
care physicians are prohibited in PPOs and other indemnity health plans. (Also known as a
gatekeeper.)
Propertydamage(PD)Physicaldamagetoproperty.
ProviderAhospital,pharmacist,registerednurse,organization,institution,orpersonlicensed
toprovidehealthcareservicesinTexas.Aphysicianalsomaybereferredtoasaprovider.The
termproviderisoftenusedcollectivelytorefertoindividualorfacilitieswhoprovidehealth
services.
Provider network All the doctors, specialists, hospitals, andother providers whoagree to
providemedicalcaretoHMOorPPOmembersundertermsofacontractwiththeHMOor
insurancecompany.
PublicinsuranceadjusterAnindividualemployedbyapolicyholdertonegotiateaclaimwith
theinsurancecompanyinexchangeforapercentageoftheclaimsettlement.Publicinsurance
adjustersmustbelicensedbyTDI.
Q
R
RatedpolicyApolicyissuedatahigherpremiumtocoverapersonclassifiedasagreaterthan
averagerisk,usuallyduetoimpairedhealthoradangerousoccupation.
RefundAnamountofmoneyreturnedtothepolicyholderforoverpaymentofpremiumorifthe
policyholderisdueunearnedpremium.
ReinstatementTheprocessbywhichalifeinsurancecompanyputsapolicybackinforceafter
itlapsedbecauseofnonpaymentofrenewalpremiums.
RenewalContinuationofapolicyafteritsexpirationdate.
By Ramandeep Singh
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Rentalreimbursementcoverage Autoinsurancecoveragethatpaysasetdailyamountfora
rental car ifthe policyholder's car is being repaired because of damage covered by the auto
policy.
RentersinsuranceAformofpropertyinsurancethatcoversapolicyholder'sbelongingsagainst
perils.Italsoprovidespersonalliabilitycoverageandadditionallivingexpenses.Possessionscan
becoveredfortheirreplacementcostortheactualcashvalue,whichincludesdepreciation.
Replacement cost Insurance coverage that pays the dollar amount needed to replace the
structureordamagedpersonalpropertywithoutdeductingfordepreciationbutlimitedbythe
policy'smaximumdollaramount.
Rescission The termination of an insurance contract by the insurer when material
misrepresentationhasoccurred.
ResidualmarketInsurers,suchasassignedriskplansandtheTexasFAIRPlan,thatexistto
providecoverageforthosewhocannotgetitinthestandardmarket.
Return premium A portion of the premium returned to a policy owner as a result of
cancelation,rateadjustment,oracalculationthatanadvancepremiumwasinexcessoftheactual
premium.
RiderAwrittenagreementattachedtothepolicyexpandingorlimitingthebenefitsotherwise
payableunderthepolicy.Alsocalledan"endorsement."
Ruleof78 Thisisamethodforcalculatingtheamountofunusedpremiumthattakesinto
accountthefactthatmoreinsurancecoverageisrequiredintheearlymonthsoftheloan,since
thepayoffoftheloanisgreater.Astheloanispaidoff,lesscoverageisbeingpaidfor,sothe
refundpercentagedecreases.
Ruleofanticipation Thisisasimilarmethodto"Ruleof78"wheretheamountofunused
premiumtakesintoaccountthefactthatmoreinsurancecoverageisrequiredintheearlymonths
oftheloan,sincethepayoffoftheloanisgreater.Astheloanispaidoff,lesscoverageisbeing
paidfor,sotherefundpercentagedecreases.
SelffundedplansPlansfundedstrictlyfromemployercontributionsandemployeepremiums.
These plans are authorized by the federal Employee Retirement and Income Security Act
(ERISA)of1974andareregulatedbytheU.S.DepartmentofLabor.Stateregulationofthese
plans is limited. Although an insurance company may be hired to administer the plan, the
insurancecompanyassumesnorisk.(AlsoknownasERISAplans.)
ServiceareaThecounties,orportionsofcounties,whereanHMOorPPOprovidescoverage.
SingleinterestinsuranceInsurancecoverageforonlyoneofthepartieshavinganinsurable
interestinthatproperty.Forinstance,ifapolicyholderstillowesmoneyontheirmortgageand
theydonot havehomeowners insurance,the lendermaytakeoutasingle interestinsurance
policytoprotectitsowninterestintheproperty.Singleinterestinsuranceprotectsonlythepolicy
owner,notthehomeowner.
Singlepremiumwholelifepolicy Atypeoflimitedpaymentpolicythatrequiresonlyone
premiumpayment.
Skillednursingcare Careneededafteraseriousillness.Itisavailable24hoursadayfrom
skilledmedicalpersonnelsuchasregisterednursesorprofessionaltherapists.Adoctororders
skillednursingcareaspartofatreatmentplan.
SpecifieddiseasepoliciesPoliciesthatpayonlyifyoucontracttheillnessspecifiedinthe
policy.(Alsocalleddreaddiseasepolicies.)
SpecifiedmedicallimitationsAdollarlimitplacedontreatmentofcertainmedicalconditions
ortypesoftreatment.
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StaffadjusterEmployeeoftheinsurancecompanysclaimsdepartment.
SubrogationAssignmentofrightsofrecoveryfrominsured.
SuicideclauseLifeinsurancepolicywordingwhichspecifiesthattheproceedsofthepolicy
willnotbepaidiftheinsuredtakeshisorherownlifewithinaspecifiedperiodoftimeafterthe
policysdateofissue.
SurchargeAnextrachargeaddedtoapremiumbyaninsurancecompany.Forautomobile
insurance,asurchargeisusuallyaddedifapolicyholderhasatfaultaccidents.
SurpluslinesCoveragefromoutofstatecompaniesnotlicensedinTexasbutlegallyeligibleto
sellinsuranceona"surpluslines"basis.Surpluslinescompaniesgenerallychargemorethan
licensedcompaniesandoftenofferlesscoverage.
SurrenderchargesChargesthataredeductedifalifeinsurancepolicyorannuityiscashedin
(surrendered).Thesechargesalsoaredeductedifthepolicyholderborrowsmoneyonthepolicy
orifthepolicylapsesfornonpayment.
TexasHealthInsurancePoolTheHealthPoolprovideshealthinsurancetoTexansunableto
obtaincoveragebecauseoftheirmedicalhistoryorforcertainotherreasons.
Thirdpartyadministrator(TPA)Anorganizationthatperformsmanagerialandclerical
functionsrelatedtoanemployeebenefitinsuranceplanbyanindividualorcommitteethatisnot
anoriginalpartytothebenefitplan.
ThirdpartyclaimAclaimfiledagainstanotherperson'sinsurancepolicy.
TowingandlaborcoverageAutoinsurancecoveragethatpaysfortowingchargeswhenacar
cantbedriven.Alsopayslaborcharges,suchaschangingaflattire,attheplacewherethecar
brokedown.
UnderwriterThepersonwhoreviewsanapplicationforinsuranceanddecidesiftheapplicant
isacceptableandatwhatpremiumrate.
UnderwritingTheprocessaninsurancecompanyusestodecidewhethertoacceptorrejectan
applicationforapolicy.
UnearnedpremiumTheamountofaprepaidpremiumthathasnotyetbeenusedtobuy
coverage.Forinstance,ifapolicyholderpaidinadvanceforasixmonthpremium,butthen
cancelthepolicyaftertwomonths,thecompanymustrefundtheremainingfourmonthsof
"unearned"premium.
Uninsured/underinsuredmotorist(UM/UIM)coverageAutoinsurancecoveragethatpays
forthepolicyholder'sinjuriesandpropertydamagecausedbyahitandrundriveroramotorist
withoutliabilityinsurance.Itwillalsopaywhenmedicalandcarrepairbillsarehigherthanthe
otherdriversliabilitycoverage.
UniversallifeinsuranceThekeycharacteristicofuniversallifeinsuranceisflexibility.Within
limits,apolicyholdercanchoosetheamountofinsuranceandthepremiumtheywanttopay.The
policywillstayinforceaslongasthepolicyvalueissufficienttopaythecostsandexpensesof
thepolicy.Thepolicyvalueis"interestsensitive,"whichmeansthatitvariesinaccordancewith
thegeneralfinancialclimate.Loweringthedeathbenefitandraisingthepremiumwillincrease
thegrowthrateofyourpolicy.Theoppositealsoistrue.Raisingthedeathbenefitandlowering
thepremiumwillslowthegrowthofyourpolicy.Ifinsufficientpremiumsarepaid,thepolicy
couldlapsewithoutvaluebeforethematuritydateisreached.(Thematuritydateisthetimeyour
By Ramandeep Singh
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Insurance Digest
Version 3
policy ceases and cash surrender value would be payable if the policyholder is still living.)
Therefore,itisthepolicyholder'sresponsibilitytoconsistentlypayapremiumthatishighenough
toensurethatthepolicysvaluewillbeadequatetopaythemonthlycostofthepolicy.The
companyisrequiredtosendanannualreportandalsotonotifythepolicyholderiftheyarein
dangeroflosingtheirpolicyduetoinsufficientvalue.
UsualandcustomaryThechargeformedicalservicesthatreferstotheamountapprovedby
thecarrierforpayment.Thesechargesmaybebasedonratesusuallychargedbyphysiciansand
providersinyourarea;rateaveragescompiledbyindependentratingservices;orrateaverages
compiledbytheinsurancecompany.
Utilization review The review process aimed at helping HMOs and insurance companies
reducehealthcarecostsbyavoidingunnecessarycare.Thereviewincludesevaluatingrequests
for medical treatment and determining, on a casebycase basis, whether that treatment is
necessary.
VariableannuityAformofannuitypolicyunderwhichtheamountofeachbenefitpaymentis
notguaranteedandspecifiedinthepolicy,butwhichinsteadfluctuatesaccordingtotheearnings
ofaseparateaccountfund.
Variablelifeinsurance Atypeofwholelifepolicyinwhichthedeathbenefitandthecash
value fluctuate according to the investment performance of a separate account fund that the
policyholderselects.BecausetheinvestmentaccountisregulatedbytheSecuritiesandExchange
Commission, the policyholder must be presented with a prospectus before they purchase a
variablelifepolicy.
Viatical settlement agreements Viatical settlements involve the sale of an existing life
insurance policy by a viator (person with a life threatening or terminal illness) to a viatical
settlementcompanyinreturnforacashpaymentthatisapercentageofthepolicysdeathbenefit.
WholelifeinsuranceWholelifeinsurancepoliciesareonetypeofcashvalueinsurance.Whole
lifepoliciesofferprotectionthroughalifetimethatis,forapersons"wholelife."Fromtheday
apersonbuysthepolicy,theypayascheduledpremium.Thescheduledpremiummaybelevelor
mayincreaseafterafixedtimeperiod,butitwillnotchangefromtheamount(s)showninthe
policyschedule.Itisimportanttolookatthepolicyscheduletounderstandwhatthepremium
paymentswillbeandthattheyareaffordableovertime.Thispremiumisbasedonageatthetime
ofpurchase.Initially,itwillbehigherthanthepremiumpaidforatermpolicy,buttheyarelikely
todecreaseovertimeifthepolicyiskeptforalongtime.Partofeachpremiumpaymentwillgo
tocashvaluegrowth,partforthedeathbenefitandpartforexpenses(suchascommissionsand
administrativecosts).Thereisnoneedtorenewwholelifepolicies.Aslongasthepremiumis
paidwhendue,coveragewillcontinueinforce.
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FullFormsofFinancialTerms
Importantfinancialtermsforbankingexams:
Term
Fullform
EFFCA/c
LRS
NIM
LIBOR
ExchangeEarnerForeignCurrencyAccount
LiberalisedRemittanceScheme
NetInterestMargin
LondonInterBankOfferedRate
MIBOR
IBRD
MLAT
NACP
CDM
CRAR
GPRS
CDMA
GSM
BIMSTEC
MumbaiInterBankofferedRate
InternationalBankforReconstruction&Development
MutualLegalAssistanceTreaty(SAARC)
NationalAidsControlProgramme
CleanDevelopmentMechanism
CapitaltoRiskWeightedAssetsRatio
GeneralPacketRadioService
CodeDivisionMultipleAccess
GlobalServicesforMobile
BayofBengalInitiativeforMultiSectoralTechnical&Economic
Cooperation
CommodityTransactionTax
NationalActionPlanforClimateChange
UNFrameworkConventiononClimateChange
NationalElectronicFundTransfer
InternationalHockeyFederation
InternationalFederationofAssociationFootball/Federation
InternationaldeFootballAssociation(Frenchacronym)
FinancialSectorLegislativeReformCommission
NewDelhiMetalloBetaLactamese1
CertifiedEmissionReductions
NationalPaymentCorporationofIndia
IndianFinancialServicesCode
MagneticInkCharacterRecognition
ConventiononBiologicalDiversity
ConferenceofParties
Access,Benefit&Sharing
NationalFinancialSwitch
CentreforScience&Environment
MicroFinanceInstitution
QualifiedForeignIndividuals
NagMissileCarrier
NationalCommissionforHigherEducation&Research
CabinetCommitteeonEconomicAffairs
PassThroughCertificate
CapitalAssetsManagementEarningsLiquiditySystems
CTT
NAPCC
UNFCCC
NEFT
FIH
FIFA
FSLRC
NDM1
CER
NPCI
IFSC
MICR
CBD
COP
ABS
NFS
CSE
MFI
QFI
NAMICA
NCHER
CCEA
PTC
CAMELS
Page
48
SECC
FCEB
NELP
FIPB
ITER
INDU
MCX
BAFTA
NIA
CENVAT
IIP
SPV
IMPS
OMO
GAAR
FCNR(B)
MNP
WIMAX
NCTC
XBRL
SACOSAN
IMEI
UNICEF
OIC
GCC
SIM
NADA
CASA
CERN
CBDR
Economic&CasteCensus
Socio
ForeignCurrencyExchangeableBonds
NewExplorationLicencingpolicy
ForeignInvestmentPromotionBoard
InternationalThermonuclearExperimentReactor
IndianNationalDefenceUniversity(Gurgaon,Haryana)
MultiCommodityExchange
BritishAcademyFilm&TelevisionAwards
NationalInvestigationAgency
CentralValueAddedTax
IndexofIndustrialProduction
SpecialPurposeVehicle
InterbankMobilePaymentService
OpenMarketOperation
GeneralAntiAvoidanceRule
ForeignCurrencyNonResidentBank
MobileNumberPortability
WorldwideInteroperabilityofMicrowaveAccess
NationalCounterTerrorismCentre
ExtensibleBusinessReportingLanguage
SouthAsianConferenceonSanitation
InternationalMobileEquipmentIdentity
UNInternationalChildrenEmergencyFund
OrganisationofIslamicConference
GulfCooperationCouncil
SubscriberIdentityModules
NationalAntiDopingAgency
CurrentAccount,SavingAccount
EuropeanCentreforNuclearResearch
Commonbutdifferentiatedresponsibility
By Ramandeep Singh
49
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Principle of CAUSA PROXIMA

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IRDAs primary function is to protect consumer interests. Thismeansensuringproperdisclosure,keeping

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(j) In the discharge of any of its functions the

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Appointed Day means the date on whichtheAuthorityisestablished.

b) Authority means the Insurance Regulatory and Development Authority.

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Banking Investigation Committees report waspresentedandpassedintheassembly.

RBI isthe Governments banker andperformsbankingfunctionsforthecentralandthestate

Itistheregulatorandsupervisorof the countrys financial system;

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