Summary Book

IC-38- INSURANCE AGENTS-LIFE

CHAPTER TABLE OF CONTENT PAGE NUMBER
SECTION 1 - COMMON CHAPTERS
1 Introduction to Insurance 2
2 Customer Service 4
3 Grievance Redressal Mechanism 9
4 Regulatory aspects of Insurance Agents 11
5 Legal Principle of an Insurance Contract 16
SECTION 2 – LIFE INSURANCE
6 What Life Insurance Involves 19
7 Financial Planning 23
8 Life Insurance Products –I 24
9 Life Insurance Products –II 30
10 Applications of Life Insurance 33
11 Pricing and Valuation in Life Insurance 36
12 Documentation –Proposal Stage 39
13 Documentation –Policy Condition – I 41
14 Documentation –Policy Condition –II 43
15 Underwriting 48
16 Payments Under a Life Insurance Policy 55
SECTION 3 – HEALTH INSURANCE
17 Introduction to Health Insurance 58
18 Insurance Documentation 65
19 Health Insurance Products 68
20 Health Insurance Underwriting 71
21 Health Insurance Claims 78
Chapter 1 – Introduction to Insurance Top
History of Insurance:
Babylon Traders had agreement to pay extra to the lenders to write of the loans, in case a shipment has been
lost. These were called BOTTOMRY LOAN.
In India it was practiced in Surat & Baruch
Modern Days: World origin Can be traced to Lloyd Coffee House ( Marine insurance );
AMICABLE SOCIETY FOR PERPETUAL ASSURANCE in 1706 London. Considered as First Life Insurance Company
In India The Oriental Life Insurance CO Ltd (First Life Insurance company)
Triton Insurance Co Ltd ( First Non Life Insurance Company )
Bombay Mutual Assurance Society (First Indian Life Insurance Co, 1870)

National Insurance Co (Oldest running insurance company in India 1906)

Life Insurance Act 1912 Also provident fund act was passed to regulate the Insurance Business in India. Life
insurance act made it mandatory that premium rate table and valuation is made a must to be certified by
Actuary Insurance Act 1938 First legislation enacted to regulate the conduct of Insurance companies in India.
The controller of Insurance was appointed by Government,
under this Act.

Nationalization of Life Insurance -1 Sept 1956, LIC was formed. Before this 170 Life insurance company and 75
provident fund societies were present.

Nationalization of Non Life Insurance

General insurance business notification Act 1972. GIC (General Insurance corporation of India) and 4
subsidiaries were set up . Before this 106 Non life insurance companies were present Malhothra Committee &
IRDA:
Malhothra Committee set up, 1993.
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY 1999 .
Today 24 Insurance companies.

Risk Burden:
PRIMARY burden: losses actually suffered by households (business units) and are measurable and can be
settled easily
Secondary Burden: costs and strains that one has to bear mainly from the fact that one is exposed to loss
situation. Uncertainty over the event and loss that could happen makes it easy to transfer the risk to Insurance
companies.

Risk Management Techniques:

 Risk Avoidance ( controlling risk by avoiding loss) ,
 Risk retention ( one decides to bear the risk and its effect) ,
  Risk reduction and control( measure to reduce chances of occurrence is called loss prevention ,and
measure to reduce degree of loss is loss reduction ) ,
 Risk Financing( provision of funds to meet the loss )

Insurance Vs Assurance: Insurance refers to protection against an event that MIGHT happen,
Assurance refers to Protection against an event that WILL happen. Insurance provides covers against Risk,
Assurance provides protection against EVENT that is definite. Assurance policies are associated with Life
Insurance.
Social Security Employee state Insurance corporation 1948 (covers expenses due to sickness, maternity, death
for industrial employees): Crop Insurance Schemes (RKBY) for farmers, Rural Insurance Schemes; Insurance
industries also offer for social security i.e. Janta Personal, Jan Arogya.

Role of Insurance Industry in Economic development of the country

Why insurance Events are unpredictable and could cause economic loss or damage.
Chapter 2 – CUSTOMER SERVICE Top

a) Customer service – General concepts

1. Why Customer Service
Customers provide the bread and butter of a business and no enterprise can afford to treat them indifferently.
The role of customer service and relationships is far more critical in the case of insurance than in other
products. Insurance is a service and very different from real goods

b) Quality of service
High quality service and its attributes- “SERVQUAL”

‘SERVQUAL’ highlights
five major indicators of
service quality

Reliability Assurance Responsiveness Empathy Tangibles

Customer lifetime value may be defined as the sum of economic benefits that can be derived from building a
sound relationship with a customer over a long period of time
B. Insurance agent‘s role in providing great customer service

a) The Point of Sale – Best advice

b) The proposal stage
c) Acceptance stage
 Cover note
 Delivery of the policy document
 Policy renewal
d) The claim stage

C. Grievance redressal

c) Overview
Customers get upset and infuriated a lot more because of their interpretations about such failure.
There are two types of feelings and related emotions that arise with each service failure:
Firstly there is a sense of unfairness, aeeling
f of being cheated
The second feeling is one of hurt ego – of being made to look and feel small
Word of mouth publicity (Good/Bad) has significant role in selling and servicing. Remember good
service gets rewarded by 5 people being informed, where as bad service is passed on to 20 people.

d) Integrated Grievance Management System (IGMS)

IRDA has launched an Integrated Grievance Management System (IGMS) which acts as a central
repository of insurance grievance data and as a tool for monitoring grievance redress in the industry.
The complaints can be registered at:
http://www.policyholder.gov.in/Integrated_Grievance_Management.aspx

e) The Consumer Protection Act, 1986

This Act was passed “to provide for better protection of the interest of consumers and to make
provision for the establishment of consumer councils and other authorities for the settlement of
consumer’s disputes.” The Act has been amended by the Consumer Protection (Amendment) Act,
2002.

f) Definitions under the Act: ―Service‖ means service of any description which is made available
to potential users and includes the provision of facilities in connection with banking, financing,
insurance, transport, processing, supply of electrical or other energy, board or lodging or both,
housing construction, entertainment, amusement or the purveying of news or other information.
But it does not include the rendering of any service free of charge or under a contract of personal
service.
Insurance is included as a service
 “Consumer” means any person who:
g) Buys any goods for a consideration and includes any user of such goods. But does not include a
person who obtains such goods for resale or for any commercial purpose or
ii. Hires or avails of any services for a consideration and includes beneficiary of such services.

‘Defect’ means any fault, imperfection, shortcoming inadequacy in the quality, nature and manner of
performance which is required to be maintained by or under any law or has been undertaken to be
performed by a person in pursuance of a contract or otherwise in relation to any service.
‘Complaint’ means any allegation in writing made by a complainant that:
h) An unfair trade practice or restrictive trade practice has been adopted
ii. The goods bought by him suffer from one or more defects
iii. The services hired or availed of by him suffer from deficiency in any respect
iv. Price charged is in excess of that fixed by law or displayed on package

Goods which will be hazardous to life and safety when used are being offered for sale to the public in
contravention of the provisions of any law requiring trader to display information in regard to the
contents, manner and effect of use of such goods
‘Consumer dispute’ means a dispute where the person against whom a complaint has been made,
denies and disputes the allegations contained in the complaint.

b) Consumer disputes redressal agencies

 District Forum:
State Commission:
 National Commission

c) Procedure for filing a complaint

There is no fee for filing a complaint or filing an appeal whether before the State Commission or
National Commission.
The complaint can be filed by the complainant himself or by his annualized agent.
It can be filed personally or can even be sent by post.
It may be noted that no advocate is necessary for the purpose of filing a complaint.

d) Consumer Forum orders

i. To return to the complainant the price, [or premium in case of insurance], the charges paid by the
complainant
ii. To award such amount as compensation to the consumers for any loss or injury suffered by the
consumer due to negligence of the opposite party
iii. To remove the defects or deficiencies in the services in question
iv. To discontinue the unfair trade practice or the restrictive trade practice or not to repeat them
v. To provide for adequate costs to parties
e) Consumer disputes categories
i. Delay in settlement of claims
ii. Non-settlement of claims
iii. Repudiation of claims
iv. Quantum of loss
v. Policy terms, conditions etc

4. The Insurance Ombudsman

The Ombudsman, by mutual agreement of the insured and the insurer can act as a mediator and
annualize within the terms of reference.
The decision of the Ombudsman, whether to accept or reject the complaint, is final.
a) Complaint to the Ombudsman
b) Recommendations by the Ombudsman
c) Awards by Ombudsman

D. Communication process

Communication skills in customer service- One of the most important set of skills that an agent or service
employee needs to possess, for effective performance in the work place, is soft skills.

1. Communication and customer relationships

i. Every relationship begins with attraction:
ii. The second element of a relationship is one’s presence – being there when needed

i) Process of communication
ll communications require a sender, who transmits a message, and a recipient of that message. The
process is complete once the receiver has understood the message of the sender.
E. Non-verbal communication

Making a great first impression

j) Be on time always.
ii. Present yourself appropriately.
iii. A warm, confident and winning smile puts you and your audience immediately at ease with one another.
iv. Being open, confident and positive
v. Interest in the other person

1. Body language
a) Confidence
b) Trust

2. Listening skills
a) Active listening:
i. Paying attention
ii. Demonstrating that you are listening
iii. Provide feedback
iv. Not being judgemental
v. Responding appropriately
vi. Empathetic listening

F. Ethical Behavior
Ethical 8annualize automatically leads to good governance. Insurance is a business of trust. Issues of propriety
and ethics are extremely important in this business of insurance. Breach of trust amounts to cheating and is
wrong. Things go wrong when wrong information is given to the prospects tempting them to buy insurance or
the plan of insurance suggested does not cater to all the needs of the prospect.

Characteristics of Ethical behavior

a) Placing best interests of the client above one’s own direct or indirect benefits
b) Holding in strictest confidence and considering as privileged, all business and personal information
pertaining to client’s affairs
c) Making full and adequate disclosure of all facts to enable clients make informed decisions
Chapter 3- Grievance Redressal Mechanism Top
 Integrated Grievance Management System (IGMS) launched by IRDAI, as a central repository of Insurance
grievance data and tool for monitoring grievance redress in the industry. Policyholders can registered the
complaints at following URL. http://www.policyholder.gov.in/Integrated_Grievance_Management.aspx

 The Consumer Protection Act 1986 was passed to protect consumers interest and create consumer council.
The act has been amended by the Consumer Protection (Amendment) Act, 2002.

 Consumer means any person who buys goods for a consideration and includes any use of such goods. But
not for resale or any commercial purpose.

 The majority of consumer disputes categories as far as insurance business are concerned
I. Delay in settlement of claims
II. Non-settlement of claims
III. Repudiation of claims
IV. Quantum of loss
V. Policy terms, conditions etc.
 Ombudsman acts as a mediator/counselor by mutual agreement of the insured and the insurer. Complaints
to the Ombudsman have to be made in writing. Before presenting complaints in front of Ombudsman, first
it has to be put with insurer and if insurer has not reacted within 30days from date of complaint OR
rejected the complaint.
 Ombudsman can take complaint up to Rs. 20 Lakhs. Ombudsman has to provide Recommendations within
1 month, and the copies of the same have to send to both the parties. If the dispute is not settled then
Ombudsman will pass an Award to the insured within 3 months from the date of complaint.
 Chapter 4 – Regulatory Aspects of Insurance Agent Top

Regulations of Insurance Agents: Appointment of Insurance Agent Regulations came into force with effect
st
from 1 April 2016. The following definitions are relevant
Act Act means Insurance Act 1938 as amended time to time
Appointment Letter Letter issued by Insurer to any person to act as an agent.
Appellate Officer It is an officer authorized by Insurer to consider and dispose representations and appeals
received from an Insurance Agent.
Insurance Agent An Individual appointed by an Insurer for the purpose of soliciting or procuring
insurance business insurance including business relating to the continuance , renewal or
revival of policies of Insurance
Authority Authority means IRDA – Insurance Regulatory and Development Authority of India
established under the provisions of Section 3 of IRDA Act 1999( 41 of 1999 )
Composite Insurance An individual who is appointed as an insurance agent by two or more insurers
Agent subject to condition that he should not act as an agent for more than one life insurer ,
one general , one health insurer and one each of mono-line insurers.
Centralized list of List maintained by Authority ( IRDA ) which includes all the details of agents appointed
Agents by all insurers.
Centralized list of List of agents maintained by Authority ( IRDA ) whose appointment is cancelled
black listed Agents suspended by a designated official of the insurer on grounds of violation of code of
conduct and / or fraud.
Designated Official An official authorized by insurer to make an appointment of an individual as an
Insurance Agent.
Examination Body An Institution which conducts pre- recruitment test for insurance agents and which is
duly recognized by the Authority
Mono – Line Insurer As defined under sec 2(9) of Insurance Act 1938 means an insurer carrying on particular
Specialized line of business such as agriculture insurance , export credit guarantee
business
Multilevel Marketing Any scheme as defined in explanation to section 42 A of Insurance Act 1938
Appointment of Insurance Agent By Insurer

Form I-A The individual who wants to become an agent must submit the application in Form I-A
to the Designated Official of the Insurer
Check List The Designated Official must check that the applicant has :
1.Furnished the Agency Application in Form I-A complete in all respects
2.Has submitted the PAN details.
3.Has passed the Insurance Examination as specified under Regulation 6.
4. Has the requisite knowledge to solicit and procure insurance business , and capable
of providing the necessary service to policy holders,
5.The Designated official shall check that the applicant not holding agency for more
than one life insurer, one general insurer , one health insurer and each of the mono-
liner insurer and is not in the list of black listed agents.
The Designated officer The official after verifying all the above points shall issue an appointment letter within
shall also verify 15 days of receipt of all documents from the applicant.
He should allot an agency code number to the appointed agent . The code number shall
be prefixed by the abbreviation of the insurers name.
The letter should have terms and condition of governing appointment and
functioning of applicant as insurance agent and code of conduct.
The letter should be dispatched not later than 7 days after the appointment. The
applicant so appointed as insurance agent shall be provided identity card by the insurer
whom he/she is representing

Refusal of Agency The Designated Official may refuse to grant agency to any applicant if the applicant does
not fulfill any of the conditions mentioned in the Regulations. The official has to
communicate the reason for refusal within 21 days of receipt of application.
The applicant who is refused can submit review application. The Appellate Officer shall
consider the application and communicate the final decision in writing within 15 days
of the receipt of review application
Composite Agent For composite Agent the applicant must furnish applicant in Form I-B and shall be dealt
as per the procedure.
Insurance Agency The applicant shall pass the Insurance Agency examination conducted by the
Examination examination body to be eligible to be considered for appointment as agent
Code of Conduct Every agent shall adhere to Code of Conduct specified below:
1.Identify himself and the Insurer he is representing
2. If prospect demands shall show the identity card and appointment letter.
3. Give complete details of the insurance product and take into account the needs of the
prospect while recommending the product.
4. Where the insurance agent is representing more than one insurer offering same line of
products, he should recommend the product best suited to the prospect according to his
 needs.
5. If asked by prospect the scale of commission of the insurance product offered should
be disclosed.
6. Indicate the premium to be charged by the insurer for the insurance product to be
offered..
7. Explain the prospect about the information required in the proposal form and the
importance of disclosure of material information while purchasing the insurance product.
8.Insurance Agent’s Confidential Report is very important and while submitting it with
every proposal form the agent shall bring into notice any adverse habits or
inconsistency of income or any facts about the prospect which are relevant in insurance
underwriting .
9. Obtain the requisite documents at the time of filling the proposal form or other
documents asked by the insurer for completion of the proposal form.
10. Advice every prospect to effect nomination under the policy.
11. Inform promptly the prospect about the acceptance or rejection of the proposal.
12. Help his customers in servicing matters like assignment, change of address etc.
13.Render assistance to the policyholders or claimants or beneficiaries in complying with
requirements for settlement of claims by insurer
Insurance Agent shall 1. Shall not procure insurance business without being appointed to do so by an insurer.
not do 2. Induce the prospect to omit any material information in the proposal form.
3. Induce the prospect to submit wrong information in the proposal form, or documents
submitted to the insurer for acceptance of proposal.
4. Procure insurance policies or induct any prospect into multi level scheme.
5. Behave in a discourteous manner with the prospect
6. Interfere with any proposal introduced by any other insurance agent.
7. Offer different rates, advantages, terms and conditions other than those offered by his
insurer.
8. Demand or receive a share of proceeds from beneficiary under an insurance contract.
9. Force a policyholder to terminate the existing policy and to affect a new policy from
him within 3 yrs from the date of such termination of the earlier policy.
10. Apply for fresh agency in case his agency is terminated by designated official and
period of 5 yrs has not elapsed from the date of such cancellation.
11. Become or remain director of any insurer.
Other Guidelines 1.Every insurance agent conserve the insurance business already procure by him and
make every attempt to ensure renewal premiums are submitted in stipulated time by
giving notices to policy holders orally and in writing.
2.Any person who acts as an insurance agent in contraventions to provisions of the
Insurance Act 1938 and Regulations made there under shall be liable to a penalty which
may extend to Ten thousand rupees and any insurer or any person acting on behalf of
insurer , who appoints any person as an insurance agent not permitted to act as such or
transact any insurance business in India through any such person shall be liable to
 penalty which may extend to one crore rupees.
3. The insurer shall be responsible for all acts and omissions of its agents including
violation of code of conduct specified and shall be liable to penalty which may extend to
one crore rupees.
Suspension of The appointment of an agent may be cancelled or suspended after due notice and
appointment of an giving him/her reasonable opportunity of being heard if he/she:
Agent 1.Violates the provisions of Insurance Act, 1938 (4 of 1938), Insurance Regulatory and
Development Authority Act , 1999(41 of 1999) or rules or regulations , made there under
and amended time to time
2. Attracts any of the disqualification mentioned above.
3. Fails to comply with the code of conduct stipulated in Regulations 8 and directions
issued by authority from time to time.
4. Violates term of appointment.
5, Fail to furnish any information relating to his/her activities as an agent as required by
the insurer or the Authority.
6. Fail to comply with the directions issued by the Authority.
7. Furnishes wrong or false information, or conceals or fails to disclose material facts in
the application submitted for appointment of insurance agent or during period of its
validity.
8. Does not submit periodical returns as required by the Insurer/ Authority.
9. Does not co-operate with any inspection or inquiry conducted by the Authority.
10, Fails to resolve the complaint of policyholder or fails to give satisfactory reply to the
Authority in this behalf.
11. Either directly or indirectly involves in embezzlement of premiums/cash collected
from policyholder / prospects on behalf of Insurer. However this proviso does not permit
an agent to collect cash / premium without specific authorization of Insurer.

Procedure for Cancellation of Agency

Effect of Suspension/ 1.On and from the date of suspension or cancellation of the agency , the insurance agent
Cancellation of Agency shall cease to act as an insurance agent.
Appointment 2.The insurer shall recover the appointment letter and identity card from the agent
whose appointment has been cancelled Regulations within 7 days from the issuance of
final order effecting the cancellation of appointment.
3.The insurer shall black list the agent and enter the details of the agent whose
appointment is suspended/ cancelled into the black listed data based maintained by the
Authority in online mode.
4. In case the suspension is revoked after disciplinary action by Designated official the
details of such agent shall be removed from the list of black listed agents.
5.The insurer also inform other insurers , Life or General or Health or Mono-line insurer
with whom he/she is acting as an agent , about the action taken against the agent for
 their records.
Procedures to be 1.He/She shall surrender his appointment letter and identity card to the designated
followed in respect of official of the insurer with whom he/she is currently holding an agency,
resignation/surrender 2.The insurer shall issue the cessation certificate as detailed in Form I-C within 15 days
of appointment by an from the date of resignation or surrender of appointment.
insurance agent 3.If agent is seeking fresh appointment with other insurer the agent has to furnish to
the new insurer all details of his/her previous agency and produce cessation certificate in
Form I-C , along with the agency application form.
4.The insurer will consider the agency application as stated above after a period of 90
days from the issue of cessation certificate by previous insurer
General conditions for .The insurer shall frame a “Board Approved policy “covering Agency Matters and file the
appointment of Agent same with the Authority before 31st March every year.
by insurer 2. No individual shall act as an insurance agent for more than one life insurer, one
general insurer, one health insurer and one each of mono-line insurers
3.No insurer shall on or after the commencement of the Insurance Laws ( Amendment
)Act, 2015 appoint any Principal Agent , Chief Agent , and special Agent and transact any
insurance business in India through them.
4.No person shall allow or offer to allow , either directly or indirectly or an inducement ,
to any person to take out or renew or continue an insurance policy through multilevel
marketing.
5.The Authority may make a complaint to appropriate police authorities relating to entity
or persons involved in multilevel marketing schemes.
6.Every insurer and Designated official shall maintain a register showing the details of
every agent appointed by them including the date on which appointment began and the
date of cessation if any.
7.The records as mentioned above shall be maintained by the insurer as long as the
insurance agent is in service and for the period of 5 yrs from the cessation of the
appointment.
Chapter 5- Legal Principle of an Insurance Contract Top
 Legal principles of insurance contract :-
Insurance contract:
 Insurance involves a contractual agreement in which the insurer agrees to provide financial
protection against certain specified risks for a price or consideration known as the premium.
 The contractual agreement takes the form of an insurance policy.

 Elements of a valid contract :-

 Offer and acceptance
 Consideration
 Agreement between parties
 Free consent
 Capacity of the parties
 Legality

 Free Consent :-
Consent is said to be free when it is not caused by
 Coercion: It involves pressure applied through criminal means.
 Undue influence: When a person who is able to dominate the will of another, used his/her position
to obtain an undue advantage over the others.
 Fraud: When a person induces another to act on a false belief that is caused by a representation he
or she does not believe to be true. It can arise either from deliberate concealment of facts or
through misrepresenting them.
 Mistake: Error in one’s knowledge or belief or interpretation of a thing or event. This can lead to an
error in understanding and agreement about the subject matter of contract.

 Utmost good faith (Uberrima Fides);

 It means that every party to the contract must disclose all material facts relating to the subject
matter of insurance.
 It is defined as involving a positive duty to voluntarily disclose, accurately and fully, all material facts
to the risk being proposed, whether requested or not.
 If utmost good faith is not observed by either party, the contract may be avoided by the other.
 Material Facts:

 It has been defined as a fact that would affect the judgment of an insurance underwriter in deciding
whether to accept the risk and if so, the rate of premium and the terms and conditions.

Material information that the proposer disclose while making a proposal form.
 Life Insurance: Own medical history, family history of hereditary illness, habits like smoking and
drinking alcohol, absence from work, age, hobbies, financial information like income details of
proposer, occupation, preexisting life insurance and policies.
 Fire Insurance: Construction and usage of building, age of the building, nature of goods in the
premises etc.
 Marine insurance: Description of goods, method of packing etc.
 Motor insurance: Description of vehicle, date of purchase, details of drivers.

 Breach of Utmost good faith:-

 Non Disclosure: Arises when insured is silent about material facts because insurer has not raised any
query. Sometimes proposer may have thought that a fact was not material. In such cases it is
innocent. When a fact is intentionally suppressed it is treated as concealment.

 Misrepresentation

 Innocent: Misrepresentation related to inaccurate statement which are made without any
fraudulent intention.
 Fraudulent: Misrepresentation on the other hand refer to false statement that are made with
deliberate intent to deceive the insurer or are made recklessly without due regard for truth.

 Insurable Interest:-

A person can become a proposed policy holder when he/she has an insurable interest in another
person’s life.
Insurable interest exists in the following entities.
 Own life
 Spouse
 Children
 Asset
 Creditor
 Employer-Employee
  Key man
 Partners
 Surety

 Proximate Clause:-
 Proximate principle is a key principle of insurance and is concerned with how the loss or
damage is actually occurred and whether it is indeed as a result of insured perils. If the loss has
been caused by the insured perils, the insurer is liable. If the immediate cause is an insured
peril, the insurer is bound to make the good loss, otherwise not.
 The insurer looks for the predominant causes which set into motion the chain of events
producing loss. This may not necessarily be the last event that immediately preceded the loss.
It is not necessarily an event which is closest to, or immediately responsible for causing the
loss.
Chapter 6 – What Life Insurance Involves Top

 Assignment Objectives:

1. Comparison of the changes if any of this chapter to the existing IC-33.

2. To create a good summary of the chapter capturing all key points, concepts and other facts.
3. To Create a question bank of all possible and relevant questions with answers from the chapter (
multiple or fill in the blanks as per the current exam format )

 Findings:

After in-depth study of this chapter in the newly introduced IC-38 I have found no addition to the
existing of the chapter, the content remains exactly the same with IC-33. Only difference in the
chronological order in IC-33 it was in chapter-2 and now in chapter -6.

 Summary of the Chapter with key Terminologies

This chapter basically deals with the insurance need of an individual i.e. how an advisor while meeting a
customer can determine his/her insurance need.
 Asset: Asset is kind of property that yields value or return.
 Human Life: Human life is an income generating asset.
 Human life Value (HLV): Measure for determining the how much insurance is needed by an
individual. HLV concept was developed almost 70 years ago by Prof. Hubener.
HLV considers human life as a kind of Asset or property that earns an income. HLV he value of
human life based on an individual‘s expected net future earnings.

Illustration to understand concept of HLV:

If a car which is an asset meets with an accident, the amount of damage can be very well
estimated but what in case of a human life when he /she die?
Suppose the damage/loss in the case of the car is estimated @Rs. 50,000, the insurer will
compensate the amount of Rs. 50,000 to the owner for this loss.(Principle of Indemnity:
compensating to the extent of the damage).
The damage caused to the family when a person (bread-winner) dies can be measure with the
help of HLV.

HLV formula=Annual earnings –spending on self/rate of interest= Net earnings /rate of

interest.
 Illustration:
Mr. X earns Rs. 1, 20,000 a year and spends Rs. 24,000 on himself.
The net earnings his family would lose were he to die prematurely is Rs. 96,000.
Annual earning of Mr. X- spending of X on himself.
1, 20,000-24,000=Rs. 96,000(Net earning the family will lose per year)/Rate of interest.
Say Rate of interest is 8%.
96,000/0.8=12, 00,000. Insurance requirement by Mr. X to make his family fully protected in his
absence.

Risk: The chance/probability of loss or damage as a result of an uncertain event. Asset may lose
its value if such event occurs
Example of risk: Damage to a building in monetary terms say Rs.2, 00,000 as a result of an
earthquake is the Risk.

 Typical Risks faced by people are:

1. Dying too early
2. Living with disability
3. Living too long

 Difference between Life Insurance and General insurance

 Indemnity means that after the occurrence of an event like fire, the insurer can assess the
exact amount of loss and pays compensation only to the amount of loss. No more or no less.

1. General Insurance Policies are usually contracts of indemnity .Life Insurance contracts are
known as Life Assurance Contracts. The amount of benefit to be paid in the event of death has
to be fixed at the beginning itself. An assured sum is paid to the nominees of the insured when
he dies.
2. In General insurance contracts, the risk event protected against is uncertain. In Life
insurance, the risk event protected, i.e. death is certain, but the time of death is uncertain.
Thus it provides protection against the risk of premature death.
3. In general insurance, the probability of happening of the event does not increase with time.
In life insurance the probability of happening of the event (death) increases with age.
 Mortality: The probability of death in a particular age group in a specified time period, usually a
year.
Mortality is related to age and hence young people who are less likely to die are charged lower
premiums as compared to old people.
 Level premium is a premium fixed such that it does not increase with age but remains constant
throughout the contract period.
This means that premiums collected in early years would be more than the amount needed to
cover death claims of those dying at these ages, while premiums collected in later years would
be less than what is needed to meet claims of those dying at the higher ages. The level
premium is an average of both. This means that the excess premiums of earlier ages
compensate for the deficit of premiums in later ages.
The level premium has two components:
(1) Term or protection component, premium needed to pay the cost of risk
(2) Cash value element that constitutes the saving element.

 Reserve: The Premiums collected in early years of the contract are held in trust by the
insurance company for the benefit of its policyholders is called Reserves. An insurance
company keeps this reserve to meet the future obligations of the insurer.
 Life Fund: The excess amount also creates a fund known as the “Life Fund”. Life insurers invest
this fund and earn an interest.
 Risk Pooling: Refers to the spreading of financial risks evenly among a large number of
contributors (Policyholders).
 Outcome O f Risk Pooling: Ensures that in good as well as bad times the Life Insurance (
Insurance Co.) is able to pay a uniform rate of return( A uniform Bonus) through smoothing out
the returns across time.
 Life Insurance Contract: It is contract between the Insurer (Company) and the Policyholder
(Insured).
 Sum Assured: The amount that is contractually guaranteed, making life Insurance a vehicle of
financial security.
The element of Guarantee i.e. Sum Assured in a Life Insurance contract implies that life
insurance is subject to stringent regulation and strict supervision.
 Pure term insurance: Provides only death benefit. Have no savings and investment element.
 Savings Plan: Have large cash value or savings components.
Opportunity Cost: Refers to the cost that one has to bear in terms of opportunities one forgoes
by not placing one’s money elsewhere.
 Advantages of Cash value Contracts:
 Safe and secure investments.
 It is a Forced financial planning from regularity of premium payments.
  Insurers manage the investment on behalf of the individual.
 Provides Liquidity. Insured can take a loan and surrender the policy and thus convert it to
cash.
 Income Tax advantage.
 Safe from creditors’ claim in case of individual’s death or bankruptcy.

 Two ways to reduce risk in financial markets: Mutuality and diversification.

Diversification Mutuality
Funds are spread out among various assets. Funds of various individuals are combined
(Placing
Placing eggs in different baskets. All eggs in one basket.
Funds flow from one source to many Funds flow from many sources to one.
destinations.
 Chapter 7 – Financial Planning Top
 Individual Life’s Goal, translated into financial goals and managing one’s finances in ways that will help one to
achieve those goals is known as Financial Planning.
 Individual Life’s Goal can be of 3 types- Short Term Goals, Long Term Goals, and Medium Term Goals.
 Individual Life cycle passes through 7 stages, starting from Learner, Earner, Partner, Parent, As Provider, As Empty
Nester, and The Final Retirement Years.
 The 7 stages of Life cycle can be found in 3 phases of Economic Life Cycle. They are Student Phase, Working
Phase, and Retirement Phase.
 It is essential to save and purchase various financial assets in an individual’s life when he or she performs a
particular role, brings with it a number of needs for which funds have to be provided.
 Savings are considered as composite of two decision (i) Postponement of Consumption (an allocation of
resources between present and future consumption )(ii) Parting with liquidity in exchange for less liquid assets.
 Every Human Life has 3 types of Needs in his entire life cycle. They are (i) Specific and General Transaction Needs,
(ii) Meeting Contingencies, (iii) Wealth Accumulation.
 To Meet 3 types of Needs, there are 3 types of Products in the Financial market. (i) Transactional Products,(ii)
Contingency Products (iii) Wealth Accumulation Products.
 Risk Profile & Investment Style depends on Life stages. When one is young, one may take risk in order to
accumulate as much wealth as possible and when one nears retirement years one may tend to be quite
conservative.
 The Role of Financial Planning is the Process in which a client’s current and future needs are taken care of by
recommending appropriate financial products.
 Elements of Financial Planning are Investing Risk Management, Retirement Planning, Tax & Estate Planning ,
Financing one’s needs.
 Importance of Financial Planning arises due to (i) Disintegration of the joint family (ii) Multiple Investment choices
(iii) Changing life styles (iv)Inflation (v) Other contingencies and needs.
 Every Individual should do financial planning and it should start ideally, moment he/she earn his/her first Income.
 Types of Financial Planning are as follows:
I. Cash Planning-Managing Income & Expenditure Flow and systematically create and maintain a surplus of
cash for capital investment.
II. Investment Planning- Depends on Investment parameters (Risk Tolerance, Time Horizon, Liquidity,
Marketability, Diversification & Tax Consideration) and Selection of Appropriate Investment Vehicles ( Bank
FD, Small Saving Scheme of Post Office, Public Issue of Shares, Mutual Fund, Unit Linked Insurance Policies,
etc)
III. Insurance Planning- Identifying which type of Insurance Policy (Life Insurance, Health Insurance, and
Insurance of assets) and how much Insurance.
IV. Retirement Planning- Determining the amount of money needed by the Individual Post Retirement. It
involves 3 phases Accumulation, Conservation & Distribution.
V. Estate Planning- It is the Transfer of one’s Estate after one’s demise thru Assignment/Nomination/Will.
VI. Tax Planning- Planning how to gain maximum tax benefits from existing tax laws.
Chapter 8 – LIFE INSURANCE PRODUCTS –I Top
 Learning Outcomes

A. Overview of life insurance products

B. Traditional life insurance products

However a good’s usefulness or utility derives not from the good itself but from its features. This brings
us to the marketing perspective. From a marketing standpoint, a product is a bundle of attributes.
Firms differentiate their product offerings in the marketplace by packing together different types of
attributes or different bundles of the same attributes.

The difference between a product (as used in a marketing sense) and a commodity is thus that a
product can be differentiated. A commodity cannot.

Example: Colgate, Close up and Promise are all different brands of the same category of toothpastes.
But the features of each of these brands are different from the other.

Products may be:

k) Tangible: refers to physical objects that can be directly perceived by touch (for instance a car or a
television set)
ii. Intangible: refers to products that can only be perceived indirectly.

 Life Insurance is Intangible product!

We human beings possess an immensely valuable asset – our human capital – which is the source of
our productive earning capacity. However, there is an uncertainty about life and human well-being.
Events like death and disease can destroy our productive capabilities and thus cut down or erode the
value of our human capital.

The very word „insurance‟ in „life insurance‟ signifies the need to protect both oneself and one‟s loved
ones against financial loss upon death or permanent disability. There are other functions, such as
savings and investment, but death or dread disease coverage is the most common reason for taking out
life insurance.

This is done by creating an immediate estate in the name of the insured life, the moment the first
premium is paid by him. So, a life insurance policy, at its core, provides peace of mind and protection to
 the near and dear ones of the individual in case something unfortunate happens to him. The other role
of life insurance has been as a vehicle for saving and wealth accumulation. In this sense, it offers safety
and security of investment and also a certain rate of return.

 Additional Benefits:

Riders in Life Insurance Products

Riders are commonly used to provide some sort of supplementary benefit or to increase the amount of
death benefit provided by a policy.
By paying additional premium one can attach additional benefits to his policy
benefits like Disability cover, accident cover and Critical Illness cover.

 Traditional Life Insurance Products

 Term Insurance:
 A type of Insurance plan that covers against the financial impact of an unfortunate death.
There is no maturity benefits under this plan .

A term insurance policy also comes handy as an income replacement plan.

We can take Term insurance as a rider

 Convertibility
Convertible term insurance policies allow a policyholder to change or convert a term insurance policy
into a permanent plan like “Whole Life” without providing fresh evidence of insurability. This privilege
helps those who wish to have permanent cash value insurance but are temporarily unable to afford its
high premiums. When the term policy is converted into permanent insurance the new premium rate
would be higher.

USP
The unique selling proposition (USP) of term assurance is its low price.

Variants

 Decreasing term assurance

Decreasing Term Assurance plans have been marketed as mortgage redemption and credit life insurance.

Mortgage redemption:

Typically in such loans, each equated monthly installment (EMI) payment leads to a reduction of the
outstanding principal amount. The insurance may be arranged such that the amount of death benefit at
any given time equals the balance of principal owed.

The renewal premiums are generally level throughout the term.

Credit life insurance is a type of term insurance plan designed to pay the balance due on a loan
It may be also available for automobile and other personal loans. The benefit under these policies is often
paid directly to the lender or creditor if the insured borrower dies during the policy term.
The renewal premiums are generally level throughout the term.

 Increasing term assurance: Premium generally increases as the amount of coverage increases.
  Term insurance with return of premiums :
The plan leaves the policyholder with the satisfaction that he / she has not lost anything in case he/she
survives the term. Obviously the premium paid would be much higher than term assurance without
return of premiums.( Only Paid Premium will be return )

Considerations:
Price is in sum the primary basis of competitive advantage in term assurance plans.

Limitations of term plans:

The policy owner may be uninsurable after the term expires and hence unable to obtain a new policy at
say age 65 or 70. Individuals would seek more permanent plans for the purpose of preserving their
wealth against erosion from terminal illness, or to leave a bequest behind. Term assurance may not
work in such situations.

 Whole Life Insurance:

A type of Insurance plan that provides life cover till death occurs. The premiums can be paid
throughout one’s life or for a specified period of time which is limited and is less than one’s
lifetime.e.g. There is no maximum age limit till which this plan provides coverage.

After the insurance company takes the amount of money it needs from the premium, to meet the cost
of term insurance, the balance money is invested on behalf of the policyholder. This is called cash-
value.

A whole life policy is a good plan for one who is the main income earner of the family and wishes to
protect the loved ones from any financial insecurity in case of premature death.

 Endowment Assurance Plan:

An Endowment Assurance contract is actually a combination of two plans
 A term assurance plan which pays the full sum assured in case of death of the insured during
the term
 A pure endowment plan which pays this amount if the insured survives at the end of the term

The product thus has both a death and a survival benefit component
Variants
1) Money back plan: It is typically an endowment plan with the provision for return of a part of the sum
assured in periodic installments during the term and balance of sum assured at the end of the term.

2) Par and non-par schemes :

The term “Par” implies policies which are participating in the profits of the life insurer. “Non – Par” on
the other hand represent policies which do not participate in the profits.

Par : reversionary bonuses which, once attached, are guaranteed, the life insurer may also declare
terminal bonuses. These are contingent upon the life insurer earning some windfall gains and are not
guaranteed.

Non Par: IRDAI‟s new guidelines on traditional non-par policies provide that for these policies, the
benefits which are payable on the occurrence of a specific event are to be explicitly stated at the outset
and not linked to any index of benchmark.

Traditional with profits (participating) policies thus offer some linkage to the life office‟s investment
performance. The linkage however is not direct. What the policyholder gains by way of bonus depends
on the periodic (usually annual) valuation of the fund‟s assets and liabilities by the valuation actuary.

Surplus -> Reversionary bonus

IRDAI‘s new guidelines for traditional products

According to the guidelines, the product design of traditional plans would remain almost the same.

l) New traditional products will have a higher death cover.

m) For single premium policies it will be 125% of the single premium for those below 45 years and
110% of single premium for those above 45 years.
ii. For regular premium policies, the cover will be 10 times the 28nnualized premium paid for those
below 45 and seven times for others.

b) The minimum death benefit in case of traditional plan is at least the amount of sum assured and the
additional benefits (if any).
c) In addition to the sum assured, the bonus / additional benefits as specified in the policy and accrued
till date of death shall become payable on death if not paid earlier.

n) These plans would continue to come in two variants, participating and non-participating plans.

o) For participating polices the bonus is linked to the performance of the fund and is not declared or
guaranteed before. But, the bonus once announced becomes a guarantee. It is usually paid in case
of death of the policyholder or maturity benefit. This bonus is also called reversionary bonus.
ii. In case of non-participating policies, the return on the policy is disclosed in the beginning of the
policy itself.
 Chapter 9 – LIFE INSURANCE PRODUCTS –II Top
The chapter introduces you to the world of non-traditional life insurance products
A. Overview of non-traditional life insurance products

1. Non-traditional life insurance products – Purpose and need – One of the principal purposes of saving
and investing is to achieve inter-temporal allocation of resources, which is both efficient and effective.
i. Inter-temporal allocation – Sufficient funds are available to successfully satisfy various needs
as they arise in different stages of the life cycle
ii. Efficient allocation – a faster rate of accumulation and more funds available in future.
NEW
2. Limitations of traditional products –
a) Cash value component: Firstly, the savings or cash value component in such policies is not well
defined.
b) Rate of return: Secondly it is not easy to ascertain what would be rate of return on these policies.
c) Surrender value – The method of arriving at surrender value is not visible.
d) Yield – The yields on these policies may not be as high as can be obtained from more risky
investments.

3. The shifts –
a) Unbundling – This trend involved separation of the protection and savings elements and
consequently the development of products
b) Investment linkage – The second trend was the shift towards investment linked products, which
linked benefits to policyholders with an index of investment performance.
c) Transparency – Unbundling also ushered greater visibility in the rate of return and in the charges
NEW made by the companies for their services (like expenses etc.)
d) Non-standard products – The fourth major trend has been a shift from rigid to flexible product
structures, which is also seen as a move towards non-standard products.

4. The appeal – Needs met –

a) Direct linkage with the investment gains – gains which life insurance companies could make
through investment in a buoyant and promising capital market.
b) Inflation beating returns – The importance of yield also stems from the impact of inflation on
savings.
NEW c) Flexibility: A third reason for their appeal was their flexibility.
d) Surrender value – The policies also allowed the policyholders to withdraw from the schemes after
a specified initial period of years, after deduction of a nominal charge.

NEW
 B. Non-traditional life insurance products
1. Some non-traditional products -
a) Universal life – Universal life insurance is a policy that was introduced in the United States in 1979 and
quickly grew to become very popular by the first half of the eighties.
As per the IRDAI Circular of November 2010, “All Universal Life products shall be known as Variable
Insurance Products (VIP)”.

About Universal Life –

Universal life insurance characterized by its flexible premiums, flexible face
amount and death benefit amounts, and the unbundling of its pricing factors. The major innovation of
universal life insurance was the introduction of completely flexible premiums after the first policy year.
Flexibility also meant that the policyholder can make partial withdrawal & death benefits could be adjusted and
the face amounts could be varied.

New & In
Detail

Non-traditional life insurance products

In India, as per the IRDAI norms, there are thus only two kinds of non-traditional savings life insurance products
that are permitted:
 Variable insurance plans
 Unit linked insurance plans

 Variable life insurance –

This policy was first introduced in the United States in 1977. Variable life insurance is a kind of “Whole
Life” policy where the death benefit and cash value of the policy fluctuates according to the investment
performance of a special investment account into which premiums are credited. The policy thus
provides no guarantees with respect to either the interest rate or minimum cash value.
Variable life policies have become the preferred option for those who wanted to keep their assets
invested in an assortment of funds of their choice and also wanted to directly benefit from favorable
investment performance of their portfolio.
  Unit linked insurance –
Unit linked plans, also known as ULIP‟s emerged as one of the most popular and significant products,
displacing traditional plans in many markets. These plans were introduced in UK, in a situation of
substantial investments that life insurance companies made in ordinary equity shares and the large
capital gains and profits they made as a result.
Unit linked policies help to overcome both the above limitations. The benefits under these
contracts are wholly or partially determined by the value of units credited to the policyholder‘s account
at the date when payment is due.
ULIP was in
old IC -33

ULIP Premium Break-Up

The key point is that this value is defined by a rule or formula, which is outlined in advance. Typically the
value of the units is given by the net asset value (NAV), which reflects the market value of assets in which
the fund is invested. Two independent persons could arrive at the same benefits payable by following the
formula.

An endearing feature of unit linked policies is its facility of choosing between different kinds of funds
Equity Fund Debt Fund Balanced Fund Money Market Fund
This fund invests This fund invests major This fund invests This fund invests money
major portion of the portion of the money in in a mix of equity mainly in instruments such
money in equity and Government Bonds, and debt as Treasury Bills,
equity related Corporate Bonds, Fixed instruments. Certificates of Deposit,
instruments. Deposits etc. Commercial Paper etc.

The insured decides on the amount of premium he or she wishes to contribute at regular intervals.
Insurance cover is a multiple of the premiums paid. The insured has a choice between higher and lower
cover.
Key Terms
1. Universal life insurance
2. Variable life insurance
3. Unit linked insurance
4. Net asset value
Chapter 10 – Applications of Life Insurance Top

Life insurance does not merely seek to protect individuals from premature death. It has other applications as
well. It can be applied to the creation of trusts with resultant insurance benefits; it can be applied for creating
a policy covering key personnel of industries and also for redeeming mortgages.

Married Women’s Property Act

 Section 6 of the Married Women’s Property Act, 1874 provides for security of benefits under a life
insurance policy to the wife and children. Section 6 of the Married Women’s Property Act, 1874 also
provides for creation of a Trust.
 It lays down that a policy of insurance effected by any married man on his own life, and expressed on the
face of it to be for the benefit of his wife, or of his wife and children, or any of them, shall ensure and be
deemed to be a trust for the benefit of his wife, or of his wife and children, or any of them, according to the
interest so expressed, and shall not, so long any object of the trust remains, be subject to the control of the
husband, or to his creditors, or form part of his estate.
 Each policy will remain a separate Trust. Either the wife or child (over 18 years of age) can be a trustee.
 The policy shall be beyond the control of court attachments, creditors and even the life assured.
 The claim money shall be paid to the trustees.
 The policy cannot be surrendered and neither nomination nor assignment is allowed.
 It is important to appoint a trustee for administration of the Trust property, being the benefits under the
life policy. By creating a Trust to hold the insurance policies, the policyholder gives up his rights under the
policy and upon the death of the life insured. The trustee invests the insurance proceeds and administers
the Trust for one or more beneficiaries.
 Term life insurance policy purchased under Section 6 of MWP Act is beyond the reach of court attachments
and creditors.
 A trust is a legal agreement, which has three parties associated with it –
 A Policy holder,
 A trustee and
 A beneficiary.
 The trustee can either be a person or an entity who/which is responsible for managing the assets, the
ownership of which is entrusted to them as a ‘trust’ by the trustor.

 The beneficiary is an individual/entity who receives the benefits from the trust.

 The proposer can appoint:

 A person as a trustee;
 Two or more persons as trustees;
 A corporate trustee, such as a bank transacting trustee business.

 If a trustee is not appointed or not existing, Official Trustees will be appointed by a competent Government
Authority.

 The beneficiaries of a life insurance policy affected by the MWP Act can be:
 The wife alone;
 One or more children; or
 The wife and one or more children jointly.

 Insurance under the MWP Act is free from:

 Court attachments,
 Tax attachments, and
 Creditors

Key man Insurance:

 An insurance policy taken out by a business to compensate that business for financial losses that would
arise from the death or extended incapacity of an important member of the business.
 The policy’s term does not extend beyond the period of the key person’s usefulness to the business.
 Key man insurance policies are usually owned by the business and the aim is to compensate the business
for losses incurred with the loss of a key income generator and facilitate business continuity.
 Keyman insurance does not indemnify the actual losses incurred but compensates with a fixed monetary
sum as specified on the insurance policy.
 Keyman is a term insurance policy where the sum assured is linked to the profitability of the company
rather than the key person’s own income.
 A key person can be anyone directly associated with the business whose loss can cause financial strain to
the business. For example, the person could be a director of the company, a partner or someone with
specific skills or knowledge which is especially valuable to the company.
Mortgage Redemption Insurance (MRI) :
 It is an insurance policy that provides financial protection for home loan borrowers.
 It is basically a decreasing term life insurance policy taken by a mortgagor to repay the balance on a
mortgage loan if he/she dies before its full repayment.
 It can be called a loan protector policy.
 This plan is suitable for elderly people whose dependents may need assistance in clearing their debts in
case of the unexpected demise of the policyholder.
 The policy bears on surrender value or maturity benefits. The insurance cover under this policy decreases
each year unlike a term insurance policy where insurance cover is constant during the policy period.
Chapter 11 - Pricing and Valuation in Life Insurance Top

Insurance pricing – Basic elements

1. Premium

In ordinary language, the term premium denotes the price that is paid by an insured for purchasing an
insurance policy. It is normally expressed as a rate of premium per thousand rupees of sum assured. These
premium rates are available in the form of tables of rates that are available with insurance companies. The
rates that are printed in these tables are known as “Office Premiums”.

2. Rebates

Life insurance companies may also offer certain types of rebates on the premium that is payable. Two such
rebates are:

For sum assured: The rebate for sum assured is offered to those who buy policies with higher amounts of sum
assured

For mode of premium: The rebate may be offered for the mode of premium. Life insurance companies may
allow premiums to be paid on annual, half yearly, quarterly or monthly basis.

3. Extra charges

a) Standard lives: Group of individuals who are not subject to any significant factors that would pose an
extra risk. The rates charged are known as “ordinary rates”.
b) Sub Standard: If a person proposing for insurance suffers from certain health problems like heart ailments
or diabetes, it can pose a hazard to his life. The insurer may decide to impose an extra premium by way of
a health extra. Similarly sub standard can also be imposed if the person involves in any hazardous
occupation. The Premium charged would be extra when compared to the tabular Premium
4. Determining the premium

Life insurers will arrive at the rates that are presented in the premium tables for traditional life insurance policies
using the below elements. This tak is performed by an actuary.

p) Mortality and Interest: Mortality is the first element in premiums. It is the chance or likelihood that a
person of a certain age would die during a given period, of typically one year.
From our study of mortality and interest there are two major conclusions we can derive
 Higher the mortality rate in the mortality table, higher the premiums would be
 Higher the interest rate assumed, lower the premium”

Since Life insurers collect premiums at the beginning of a given term, these premiums
earn interest. While estimating the amount money that would be needed at hand to pay claims that
may arise in future, it is necessary to take this factor of interest into account

b)Net Premium: The estimates of mortality and interest give the “Net Premium” which is the estimate
of present value of future claim costs.

c) Gross premium: Gross premium is the net premium plus an amount called loading.

There are three considerations or guiding principles that needs to be borne in mind when determining the
amount of loading:

d) Adequacy: The total loading from all policies must be sufficient to cover the company’s total operating
expenses.

e) Equity: Expenses and safety margins etc. should be equitably apportioned

[Divided and shared] among various kinds of policies, depending on type of plan, age and term etc.

e) Competitiveness: The resulting gross premiums should enable the company to improve its competitive
position. If the loading is too high, it would make the policies very costly and people would not buy.

b) Expenses and reserves

Life insurers have to incur various types of operating expenses including:


Agents training and recruitment,

Commissions of agents,

Staff salaries,

Office accommodation,

Office stationery,

Electricity charges,

Other miscellaneous etc.
A life insurer incurs two types of expenses:

The first, known as “New Business Expenses”, are incurred at the beginning stage of the contract.

The second type of expenses, known as “Renewal Expenses,” is incurred during subsequent years.
 Lapses and contingencies: One source of risk is that of lapses and withdrawals. A lapse means that the
policyholder discontinues payment of premiums. Lapses can pose a serious problem.

Surplus and bonus

Surplus is the excess of value of assets over value of liabilities. If it is negative, it is known as a strain.

Surplus = Assets - Liabilities

Let us understand what the liabilities are. For a given block of life insurance policies, the life insurer has
to make provision for meeting future claims, expenses and other expected pay-outs that may arise. The
insurer also expects to receive premiums for these policies. Liabilities are thus determined as the
present value of all payments that have to be made less the present value of premiums expected to be
received on these policies.

Let us now look at how assets are valued. This can be done in one of three ways

i. At Book Value: This is the value at which the life insurer has purchased or acquired its assets
ii. At Market Value: The worth of the life insurer’s assets in the market place
iii. Discounted Present Value: Estimating the future income stream from various assets and
discounting them to the present

Bonus

Bonus is paid as an addition to the basic benefit payable under a contract.

The most common form of bonus is the reversionary bonus. Reversionary bonuses are the ones the
policyholder receives them when the contract becomes a claim by death or maturity.Bonuses may also be
payable on surrender.

Types of Bouns:

 Simple Reversionary Bonus: This is a bonus expressed as a percentage of the basic cash benefit
under the contract
 Compound Bonus: A bonus as a percentage of basic benefit and already attached bonuses. It is thus
a bonus on a bonus.
 Terminal Bonus: A bonus attaches to the contract only on its contractual termination (by death or
maturity).
 Contribution Method: This bouns will have the method of distribution of surplus which is adopted
in North America.

Unit Linked Policies

Unit linked policies involve different approach to the design of products and follow a different set of
principle. These Policies have certain distinct Features.

Firstly they adopt the principle of Unitizing. Benefits are determined by the value of units credited to the
policy holders’ individual account

Transparent Structure: The charges for the insurance Protection and expenses component of a unit linked
product are clearly specified. The value of units is defined by a rule or formula, which is out lined in advance.

Premium is divided into three parts- the policy allocation charge, mortality charge and the balanced of the
premium which is allocated towards the purchase of the units.
Chapter 12 -Documentation –Proposal Stage Top
 A prospectus

A prospectus is a formal legal document used by insurance companies that provides details about the product. It is like an
introductory document which helps the prospective policyholder to get familiar with the company’s products.

 Proposal Form

The insurance policy is a legal contract between insurer and the policyholder. As is required for any contract, it has a proposal
and its acceptance. The application document used for making the proposal is commonly known as the „proposal form‟. All the
facts stated in the proposal form become binding on both the parties and failure to appreciate its contents can lead to adverse
consequences in the event of claim settlement.

 Material Facts

For the purpose of these regulations shall mean and include all important, essential and relevant information in the context of
underwriting the risk to be covered by the insurer.

The IRDA has issued the IRDA (Standard Proposal Form for Life Insurance) Regulations, 2013.
The agent is the primary underwriter.

 Medical Examiner report

The life to be insured has to be medically examined by a doctor who is empanelled by the insurance company. Details pertaining
to physical features like height, weight, blood pressure, cardiac status etc. are recorded and mentioned by the doctor in his
report called the medical examiner’s report.
The medical examiner’s report is required typically when the proposal cannot be considered under non-medical underwriting
because the sum proposed or the age of the proposed life is high.

 Moral hazard

Moral Hazard is the likelihood that a client's behaviour might change as a result of purchasing a life insurance policy and such a
change would increase the chance of a loss.
The company may require that a moral hazard report has to be submitted by an official of the insurance company.
Age is a factor that insurance companies use to determine the risk profile of the life to be insured. Valid age proofs may be
standard or non-standard.

 Standard age proofs

• School or college certificate
• Birth certificate extracted from municipal records
• Passport
• PAN card
• Service register
• Certificate of baptism
• Certified extract from a family bible if it contains the date of birth
• Identity card in case of defence personnel
• Marriage certificate issued by a Roman Catholic church

 Non-standard age proofs

• Horoscope
• Ration card
• An affidavit by way of self-declaration
• Certificate from village panchayat
  Anti Money Laundering

Money laundering is the process of bringing illegal money into an economy by hiding its illegal origin so that it appears to be
legally acquired. The Government of India launched the PMLA,2002 to rein in money-laundering activities. The Prevention of
Money Laundering Act (PMLA), 2002 came into effect from 2005 to control money laundering activities. The AML program
should include:
I. Internal policies, procedures and controls
II. Appointment of a principal compliance officer
III. Recruitment and training of agents on AML measures
IV. Internal audit/control

 Know your customer

Know your Customer is the process used by a business to verify the identity of their clients. The objective of KYC
guidelines is to prevent financial institutions from being used by criminal elements for money laundering activities.
Documents required in KYC are:
• Photographs
• Age proof
• Proof of address – driving license, passport, telephone bill, electricity bill, bank passbook etc.
• Proof of identity – driving license, passport, voter ID card, PAN card, etc.
• Income proof documents in case of high-value transactions

 Free-look period

if the policyholder has bought a policy and does not want it, he/she can return it and get a refund subject to the
following conditions:
• He/she can exercise this option within 15 days of receiving the policy document.
• He/she has to communicate to the company in writing
• The premium refund will be adjusted for proportionate risk premium for the period on cover, expenses incurred by
the insurer on medical examination and stamp duty charges.
Chapter 13 - Documentation –Policy Condition - I Top
An insurance contract commences when the life insurance company issues a first premium receipt (FPR). The FPR is
the evidence that the policy contract has begun.

The insurance company will issue subsequent premium receipts when it receives further premiums from the
proposer. These receipts are known as renewal premium receipts (RPR). The RPRs act as proof of payment in the
event of any disputes related to premium payment.

Policy Document is evidence of the contract between the assured and the insurance company.

If the policy document is lost by the policy holder, it does not affect the insurance contract. The insurance company
will issue a duplicate policy without making any changes to the contract.

The policy document has to be signed by a competent authority and should be stamped according to the Indian
Stamp Act.

The standard policy document typically has three parts:

 Thepolicy schedule forms the first part. It is usually found on the face page of the policy.
- Policy owner’s name and address
- Date of birth and age last birthday
- Plan and term of policy contract
- Sum assured
- Amount of premium
- Premium paying term
- Date of commencement, date of maturity and due date of last premium
- Whether policy is with or without profits
- Name of nominee
- Mode of premium payment – yearly; half yearly; quarterly; monthly; via deduction from salary

The policy number – which is the unique identity number of the policy contract

Standard Provisions These standard provisions define the rights and privileges and other conditions, which are
applicable under the contract.

Specific Policy Provisions consists of specific policy provisions that are specific to the individual policy contract.
These may be printed on the face of the document or inserted separately in the form of an attachment. e.g. A
clause precluding death due to pregnancy for a lady who is expecting at the time of writing the contract.
 FPR ( First Premium Insurance contact commences as soon as FPR is issued
Receipt ) contains : Name & address of policyholder / Policy Number/ Premium amount paid /
method and frequency of premium payment / Next due date of premium / Date of
commencement of risk / final maturity date / SA/
RPR Renewal Premium Receipt : given the next premium, post the first, is paid
Policy Document Its the evidence of contract. Should be signed by competent authority and stamped
accordingly by Indian stamp act .
Policy schedule Name of Insurance company. Specific details in policy
documents
Policy owners Name , date of birth ,
plan and term of the policy ,
SA,
PREMIUM amount ,
Nominee name ,DOC ,
Date of maturity , Policy Number ,
Mode of premium payment

# This becomes the heart of the contract

# signature of the authorized person &stamped
# address of the local ombudsman
Standard Provision Defines the rights & privileges of the policyholders.
Carries days of grace , forfeiture options etc
Specific policy Printed either on the face of the document or inserted
provision separately in form of attachment.
Carries exclusion etc pertaining to the contract between the
individual and the company
Misc RPR acts as a proof for premiums paid as renewal
Policy document Lost Insurer will send duplicate policy without making any changes in the contract

New Changes in IC 38:

The Insurance Act The name and address of policy holder, the date when the policy was effected and the
2015 mandates record of any transfer, assignment or nomination of which the insurer has notice
The record of claims, every claim made together with the date of the claim, the name and
address of the claimant and the date on which the claim was discharged, or; in case the
claim which is rejected, the date of rejection and the ground thereof;
Every insurer shall, in respect of all business transacted by him, endeavour to issue policies above all specified
threshold in terms of sum assured and premium in electronic form, in the manner of the form to be specified by
the regulations made under this act (Insurance Act 2015)
Chapter 14 - Documentation –Policy Condition - II Top
# Grace Period:-

1) The “Grace Period “Clause grants the policyholder an additional period of time to pay the premium after it has
become due.
2) The standard length of a Grace Period is 1 month or 31 days.
3) Days of Grace may be computed from the next day after the due date fixed for the payment of the premium.
4) If Premium not paid during the grace period policy lapses.
5) If policyholder dies during the grace period, the insurer may deduct the due premium from the death benefit.

# Lapse and Reinstatement / Revival

1) If Premium not paid during the grace period policy lapses.

2) If premium has not been paid even during the days of grace practically all the permanent life insurance
contracts permit revival of the lapsed policy.
3) Reinstatement is the process by which a life insurance company puts back into force a policy that has either
been terminated because of non –payment of premiums or has been continued under one of the non
forfeiture provisions.
4) Revival can be accomplished only under certain conditions :
a) No Increase in risk for insurer.
b) Creation of reserve
c) Revival application within specific time period.
d) Satisfactory evidence of continued insurability.
e) Payment of overdue premiums with interest
f) Payment of outstanding loan.
5) Revival is often more advantageous because buying a new policy would call for a higher premium rate
based on the age the insured has attained on date of revival.
6) There are 4 types of revivals: - Ordinary Revival, Special Revival, Loan cum Revival and Installment Revival.
7) Ordinary Revival is one that involves payment of arrears of the premium with interest. It can be done only
when policy has acquired surrender value .Insurer may call for proof of good health.
8) Special Revival: When policy has run for less than 3 years and has not acquired minimum surrender value
but he period of lapse is large
9) Special Revival: A new policy has been written, whose date of commencement is within 2 years of the
original date of commencement of the lapsed policy.
10) Loan cum Revival Involves 2 transactions :-
a) Simultaneous Granting of a loan
b) Revival of the policy
 11) Loan Cum Revival can be done only if policy has acquired Surrender value.
12) Installment Revival: Is allowed when the policyholder is not in a position to pay arrears of the premium in a
lump sum and neither can the policy be revived under special revival scheme.
13) Installment Revival: Depending on the mode of payment (Quarterly or Half Yearly) the life assured may be
required to pay one half yearly or 2 quarterly premiums . The balance of arrears to be paid would be then
spread so as to be paid with future premiums on due dates.

# Non Forfeiture Provisions:-

1) Section 113 of Indian Insurance act allows the accrual of certain benefits to policyholders even when he is
unable to keep policy inforce because policy has cash value accumulated under the policy.
2) If premium have been paid for at least 3 consecutive years there shall be a guaranteed surrender value (GSV)
3) Recent Amendment: If the policy has not been surrenders it shall subsist as a policy with a reduced paid up
value.
4) Forfeiture options are :- a) Surrender Values, b) Policy Loans
5) Surrender Value: - Life Insurers have certain charts based on some predetermined formulas to calculate
surrender value however the final value depends on many factors like paid up additions, bonuses or
dividends, advance premium payments or policy loans etc.
6) Surrender Value arrived as a percentage of premiums paid is called GSV
7) Policy Loans: - Loan can be taken as a percentage of cash value accumulated (say 90 %) by using cash value as
security for loan.
8) Loans provide access to liquid funds while keeping the insurance alive.
9) Loan is to be recommended to the client seeking urgent funds by keeping him as client.
10) The policy owner is not legally obligated to repay the loan. He can repay all or part of loan at any time he
chooses. If loan has not been repaid the insurer deducts the amount of outstanding loan and interest from
the policy benefits.
11) No credit check is required for policy loan.
12) In case of loan the nominee’s right will affected to the extent of the insurer’s interest in the policy.
13) If interest charges are not paid they become part of the policy loan and are included in the loan outstanding.
 # Nomination :- ( Section 39) of Insurance act 1938

1) Nomination is where the life assured proposes the name of the person to whom the sum assured should be paid
by the company after their death.
2) The life assured can nominate one or more than one nominees.
3) Nominees are entitled to valid discharge and have to hold the money as a trustee on behalf of those entitled to
it.
4) Nomination can be done either at inception or later.
5) Nomination only gives right to receive the policy money in event of the death of life assured . A nominee does
not have any right to the whole (or Part) of the claim.
6) If Nominee is a minor, policyholder need to appoint an Appointee. Appointee needs to sign policy document to
show his or her consent to acting as an appointee.
7) Appointee loses their status when the nominee reaches majority age.
8) Life assured can change appointee any time.
9) If no appointee is given, on death of life assured the claim is paid to the legal heirs of the policyholder.
10) When more than one nominee is appointed, the death claim will be payable to them jointly or to the survivor or
survivors.
11) No specific share for each nominee can be made.
12) Nominations made after commencement of the policy have to be intimated to the insurers to be effective.
13) Nomination is not applicable to section 6 of MWP act.
14) Assignment cancels nomination.
15) Nomination shall be by endorsement
16) As per recent amendment in the insurance act, an insurer can accept any change or cancellation of a nomination
and may charge a fee from the policy holder.
Assignment :- ( Section 38) of Insurance act 1938

1) Assignment Refers to transfer of property by writing as distinguished from transfer by delivery. The
ownership of property consists of various rights in respect of such property, which are vested in one or more
person.
2) On assignment, nomination is cancelled except when assignment is made to insurance company for a policy
loan.
3) The person who transfers the right is called Assignor and the person to whom property is transferred is
called assignee.
4) The assignee would not be eligible to get a claim that for some reason is rejected to the assured.
5) There are 2 types of assignments: a) Conditional Assignment, b) Absolute Assignment.
6) Conditional Assignment provides that the policy shall revert back to the life assured on his or her surviving
the date of maturity or on death of the assignee.
7) Absolute Assignment provides that all rights that all rights, title and interest which the assignor has in the
policy are transferred to the assignee without reversion to the former or his /her estate in any event . The
policy thus vests absolutely with the assignee. He can deal with policy in whatever manner he or she likes
without consent of the assignor.
8) The assignor must have absolute right and title or assignable interest to the policy being assigned.
9) Assignment must be supported by valuable consideration, which may include love and affection.
10) Assignee can do another assignment but cannot do nomination because assignee is not the life assured.
11) The assignment has to be in writing and must be signed and attested by at least one witness.
12) Notice of assignment to be given to insurer, unless such notice in writing is received by the insurer, the
assignee would not have any right of title to the policy.
13) In case of conditional assignment the title to the policy would revert to the life assured in the event o death
of the assignee.
14) If the assignment were absolute, the tile would pass to the estate of the deceased assignee.
15) As per recent amendment in the insurance act, a life insurance policy can be assigned wholly or partially. In
case of partial assignment, liability of an insurer shall be limited to the amount secured by partial
assignment.
16) In partial Assignment the policy holder cannot further assign the residual amount under the policy.
17) An Insurer may accept or refuse the assignment and communicate the reasons for refusal within 30 days
from the date of notice of assignment by policy holder.
18) Nomination is applicable only where insurance act 1938 is applicable, however assignment is applicable all
over the world, according to the law of the respective country relating to transfer of property.
19) The assignment done cannot be cancelled but reassigned.
# Duplicate Policy:-

1) Life insurance companies have standard procedures in case of loss of policy document.
2) Satisfactory proofs may be required in case of loss of policy document
3) If payment is shortly due and amount to be paid is high, the insurer may also insist that an advertisement be
placed in a national paper with wide circulation reporting the loss.

# Alteration:-

1) Alteration can be done subject to consent of both the insurer and assured.
2) Normally alterations may not be permitted during the first year of the policy except change in the mode of
premium or alteration which are of a compulsory nature like change in name, readmission of age in case it is
provided higher or lower, request of grant of double accident cover or permanent disablity benefit etc
3) Some alteration may be affected by placing a suitable endorsement on the policy or on a separate paper.
4) Alterations which require material changes in policy conditions may require the cancellation of existing
policies and issue of new policies.
5) Some main types of alterations are :
a) Change in certain classes of insurance or term ( Where risk is not increased)
b) Reduction in the sum assured.
c) Change in mode of payment
d) Splitting up of the policy in to two or more policies.
e) Removal of an extra premium or restrictive clause.
f) Change form without profit to with profit plans
g) Correction in name
h) Settlement option for payment of claim and grant of double accident benefit.
Chapter 15 - UNDERWRITING Top

Underwriting is the process to assess the risks by the life insurance organization.

Key points: A. Underwriting, B. Non-medical underwriting, C. Medical underwriting

1. Underwriting purpose
There are two purposes:

A) To prevent anti-selection or selection against the insurer.

B) To classify risks and ensure equity among risks.

Definition: The term selection of risks refers to the process of evaluating each proposal for life insurance in terms of
the degree of risk it represents and then deciding whether or not to grant insurance and on what terms.

Anti-selection is the tendency of people, who suspect or know that their

chance of experiencing a loss is high, to seek out insurance eagerly and to gain
in the process.
Example: If life insurers were to be not selective about whom they offered insurance, there is a chance that people
with serious ailments like heart problems or cancer, who did not expect to live long, would seek to buy insurance.
In other words, if an insurer did not exercise selection it would be selected
against and suffer losses in the process.

2. Equity among risks

Let us now consider equity among risks. The term “Equity” means that
applicants who are exposed to similar degrees of risk must be placed in the
same premium class.
a) Risk classification

The underwriter engages in a process known as risk-classification i.e. individual lives are categorised and assigned to
different risk classes depending on the degree of risks they pose. There are four such risk classes.

Diagram 1: Risk classification

A) Standard lives
These consist of those whose anticipated mortality corresponds to the
standard lives represented by the mortality table.
B) Preferred risks
These are the ones whose anticipated mortality is significantly lower than
Standard lives and hence could be charged a lower premium.
C) Substandard lives
These are the ones whose anticipated mortality is higher than the average
or standard lives, but are still considered to be insurable. They may be
accepted for insurance with higher (or extra) premiums or subjected to
certain restrictions.
D) Declined lives
These are the ones whose impairments and anticipated extra mortality are
so great that they could not be provided insurance coverage at an affordable
cost. Sometimes an individual’s proposal may also be temporarily declined if
he or she has been exposed to a recent medical event, like an operation.

3. Selection process
Underwriting or the selection process may be said to take place at two levels:
1. At field level
2.At underwriting department level

Diagram 2: Underwriting or the selection process

a) Field or Primary level:
Field level underwriting may also be known as primary underwriting. Agent plays a critical role as primary
underwriter.
A special report can be asked by the underwriter from the field is called as Moral Hazard report. In which details of
financial status, health and other details were asked.
Fraud monitoring and role of agent as primary underwriter:
The agent plays a important role as he is the best person to judge the facts and moreover he has direct and personal
contact with the life insured.

b) Underwriting department level:

The second level of underwriting is at the department or office level. It involves specialists and persons who are
proficient in such work and consider all the relevant data on the case to decide whether to accept a proposal for life
insurance and on what terms.

4. Methods of underwriting:

Underwriters use two methods for underwriting.

1) Judgement method: In which subjective judgment is used, when a case is complex.

2) Numerical method: In this method underwriter assigns points for negative cases positive points and for
positive cases negative points.
Underwriting Decisions:

a) Acceptance at ordinary rates (OR) is the most common decision. Indicates that the risk is accepted at the same
rate of premium as would apply to an ordinary or standard life.

b) Acceptance with an extra: This is the most common way of dealing with the large majority of sub-standard risks.
It involves charging an extra over the tabular rate of premium.

c) Acceptance with a lien on the sum assured: A lien is a kind of hold which the life insurance company can exercise
(in part or whole) on the amount of benefit it has to pay in the event of a claim.

d) Acceptance with a restrictive clause: For certain kinds of hazards a restrictive clause may be applied which limits
death benefit in the event of death under certain circumstances.

e) Decline or postpone: Finally, a life insurance underwriter may decide to decline or reject a proposal for insurance.
This would happen when there are certain health /other features which are so adverse that they considerably
magnify the incidence of the risk.
1. Non-medical underwriting
Majority of proposals are accepted or assessed without conducting medical examinations are termed as Non-
medical proposals.

2. Conditions for non-medical underwriting

In non-medical underwriting calls for certain conditions to be followed.

1. Firstly only certain categories of females, like working women, may be eligible.

2. Upper limits on sum insured may be imposed.

3. Age at entry limits may be imposed.

4. Restriction being imposed with regard to certain plans of insurance – term insurance.

5. Maximum term of insurance may be limited to twenty years /up to age 60.

6. Class of lives: Non-medical insurance may also be allowed to certain specific categories of individuals.
 2. Rating factors in underwriting:

Rating factors refer to various aspects related to an individual like his financial, personal, lifestyle, habits, family
history and aspects which affects his life in terms of his mortality.

Two broad categories are there Moral hazard and Physical hazard.

Income, occupation and life styles are part of moral hazard is assessed under the domain of financial underwriting
and medical aspects of health are assessed as a part of medical underwriting.

Factors which influences the ratings:

a) Female Insurance.
b) Minors
c) Large Sum Assured
d) Age.
e) Moral hazard.
f) Occupation.
g) Life style and habits.

Lifestyle and habits are terms, which cover a wide range of individual characteristics. Generally the agents‟
confidential reports and moral hazard reports are expected to mention if any of these characteristics are present in
the individual’s lifestyles, which suggest exposure to risk. In particular three features are important:
i. Smoking and tobacco use: It has now been well recognised that use of tobacco is not only a risk in itself but also
contributes to increasing other medical risks.

ii. Alcohol: Drinking alcohol consumed in excess for a long time it can have a significant impact on mortality risk.
Long term heavy drinking can impair liver functioning and affect the digestive system. It can also lead to mental
disorders.

iii. Substance abuse: Substance abuse refers to the use of various kinds of substances like drugs or narcotics,
sedatives and other similar stimulants.
Medical Underwriting:

Medical factors influence an underwriter’s decision and these are generally assessed through medical underwriting.
These are medical examiner’s report.

Medical underwriting focuses on Family history, Personal history and personal characteristics.
Chapter 16- Payments Under a Life Insurance Policy Top
A claim is a demand that the insurer should make good the promise specified in the contract.

There are two types of claim – Survival claim and Death claim.

Survival Claim

1. Survival Benefits Payment

 For money-back policies the insurance company makes specific payments to the policy holder at specific times
during the term of the policy.
 These payments are called as periodical survival benefits which is also known as an installment payable upon
reaching the milestone under money back policy.

2. Surrender of Policy
 Sometimes during the tenure of a policy the policyholder may face financial problems and may
 not be in a position to continue paying the premiums. During such times policy can be surrendered only if it
has acquired Paid- up Value.
 Reduced Sum Assured or Paid up Value is payable in case of death of insured or at the time of maturity.
 The amount payable to insured is called Surrender Value which is percentage of premium paid.
 The surrender value is higher of GSV or SSV.

3. Rider Benefit
A payment under a rider is made by the insurance company on the occurrence of a Specified event according to
the rider terms and conditions. Example of riders- Accidental Death Benefit rider (ADB), Critical illness rider (CI)
and Hospital Care rider.

4. Maturity Claim
 The amount payable on maturity = sum assured + any accumulated bonuses- any outstanding premiums and
interest thereon.
 In some cases the premiums paid over the tenure of the plan are returned on maturity. These plans are
termed as “return of premium” (ROP) plans by some insurers.
 In the case of ULIPs, the insurance company pays the fund value (or in some cases the fund value and the sum
insured) as the maturity claim, at the end of the plan’s term.
 In the case of a money-back policy, the sum insured - survival benefits + bonuses are paid at the end of the
policy.
 Action on Maturity Claim is initiated by insurance company.
Death Claim

A death claim is where the life insurance company pays the sum insured to the
Nominee/beneficiary on the death of the insured during the terms of the plan.

 If the policy is a participating policy, the insurance company will also pay the bonuses accumulated until then.
 If the policy holder had taken out any loans, then the outstanding amount of the loan, the interest and any
outstanding premium and interest thereon will be deducted before the final amount is paid.
 In Death claims, the process is started by the claimant, who will advise the insurance company of the death of
life insured.

Death Claim may be classified as:

Early Death Claim - if claim occurs within three years from risk commencing date or from revival.
Non- early Death Claim - if the insured expires after three years from risk commencing date.

Documents required to be submitted for Death Claim:-

1. Claim Form by nominee.

2. Certificate of Burial or Cremation.
3. Treating Physician’s Certificate
4. Hospital’s Certificate.
5. Employer’s Certificate.
6. Certified Court Copies of Police reports like First Information Report (FIR), Inquest report, Post Mortem report.

Repudiation of death claim

Insurer may repudiate any death claim if it is detected that the proposer had made any incorrect statements or had
suppressed material facts relevant to policy and the contract becomes void.

Indisputability Clause- Section 45 of Insurance Act 1938

 This Act protects the insured from rejection of claim by the insurer, provided the policy has completed 3 years
and insured has not suppressed any material facts.
 No Policy of Life insurance shall be called in question on any ground whatsoever after the expiry of three years
from date of issuance of policy or date of revival or date of rider to the policy whichever is later.
Presumption of Death

 Sections 107 and 108 of Indian Evidence Act 1872 deal with presumption of death, Under this Act if an
individual has not been heard of for seven years they are presumed to be dead.
 If the nominee or heirs claim that the life insured is missing and must be presumed to be dead, insurers insist
on a decree from a competent court.
 However, the insurer may also act on its own, without a decree of the court, if reasonably strong
circumstantial evidence exists to show that the life insured could not have survived a fatal accident or hazard.
 It is necessary that premiums should be paid till court decrees presumption of death. Insurers may waive the
premiums during the seven year period.

Claim Procedure for Life Insurance Policy.

 The IRDA (Protection of Policyholders Interests) Regulations, 2002 provides as follows:
 A life insurance policy shall state the primary documents which are normally required to be submitted by the
claimant in support of a claim.
 A life insurance a company, upon receiving a claim, shall process the claim without delay.
 Any queries or requirement of additional documents, to the extent possible, shall be raised all at once and not
in a piecemeal manner, within a period of 15 days of the receipt of the claim.
 A claim under a life policy shall be paid or be disputed giving all the relevant reasons, within 30 days from the
date of receipt of all relevant papers and clarifications required.
 Where in the opinion of the insurance company the circumstances of a claim warrant an investigation, it shall
initiate and complete such investigation not later than 6 months from the time of lodging the claim.
 Subject to the provisions of section 47 of the Act, where a claim is ready for payment but the payment cannot
be made due to any reasons of a proper identification of the payee, the life insurer shall hold the amount for
the benefit of the payee.
 Such an amount shall earn interest at the rate applicable to a savings bank account with a scheduled bank
(effective from 30 days following the submission of all papers and information).
 Where there is a delay on the part of the insurer in processing the claim for a reason other than the one
covered by sub-regulation (4), the life insurance company shall pay interest on the claim amount at a rate
which is 2% above the bank rate prevalent at the beginning of the financial year in which the claim is reviewed
by it.
 Chapter 17 - INTRODUCTION TO HEALTH INSURANCE Top

Learning Outcomes
A. What is Healthcare
B. Levels of Healthcare
C. Types of Healthcare
D. Factors affecting health systems in India
E. Evolution of Health Insurance in India
F. Health Insurance Market

Definition of Health According to World Health Organisation (WHO):

Health is a state of complete physical, mental and social wellbeing and not merely the absence of disease.
‘hoelth’, which means ‘soundness of the body’

Key terms
a) Healthcare b) Commercial insurance c) Nationalization d) Primary, Secondary and Tertiary Healthcare e)
Mediclaim f) Broker g) Agent h) Third Party Administrator i) IRDAI j) Ombudsman k) NAPP l) ISP m) ASHA
n)NRHM
Determinants of health

a) Lifestyle factors –
 Hurry worry & curry (mostly in the control of the individual concerned) may lead to ill health which are
within control of individual for their good health.
 Personal responsibility of an individual plays a deciding role in controlling diseases due to life style factors.
b) Environmental factors – Surrounding in which we live in.
c) Genetic factors – Which comes from our generation (our family)
Healthcare -Healthcare is nothing but a set of services provided by various agencies.

An effective Health care must have following:

 Appropriate to the needs of the people
 Comprehensive
 Adequate
 Easily available
 Affordable
Healthcare facilities availability in an area depends upon various health care factors indicators of the area
 Size of population
 Death rate
 Sickness rate
 Disability rate
 Social and mental health of the people
 General nutritional status of the people
 Environmental factors such as if it is a mining area or an industrial area
 The possible health care provider system e.g. heart doctors may not be readily available in a village but
may be in a district town
 How much of the health care system is likely to be used
 Socio-economic factors such as affordability

Types & Levels of of Healthcare

Healthcare is broadly categorized into 3 levels

1. Primary healthcare
2. Secondary healthcare
3. Tertiary healthcare
 It is to be noted that as the level of care increases, the expenses associated with the care also increase.
 The infrastructure for different levels of care also varies from country to country, rural-urban areas, while
socio-economic factors also influence the same.
Factors affecting the health systems in India
1. Demographic or Population related trends –Population & associated economic condition of poverty
2. Social trends –moving trend of society from rural to urbanization (accessibility/availability/affordability)
3. Life expectancy – Enhancement to the expectancy to life but lack of quality expectancy(healthy &
quality life expectancy) -
Infrastructure for ‘Geriatric’ (old age related) diseases.
Evolution of Health Insurance in India
a) Employees’ State Insurance Scheme- Employees’ State Insurance Scheme, introduced vide the ESI Act,
1948,- introduced for blue-collar workers employed in the formal private sector-ESIC (Employees State Insurance
Corporation) -the implementing agency for workers earning wages up to Rs. 15,000 are covered-employee and
employer contribute 1.75% and 4.75% of pay roll respectively; state governments contribute 12.5% of the medical
expense.
The benefits
a) Free comprehensive healthcare at ESIS facilities
b) Maternity benefit
c) Disability benefit
d) Cash compensation for loss of wages due to sickness and survivorship and
e) Funeral expenses in case of death of worker
o It also supplemented by services purchased from authorized medical attendants and private
hospitals.
o ESIS covers over 65.5 million beneficiaries as of March 2012

b) Central Government Health Scheme

Introduced in 1954 for the central government employees including pensioners and their family members
working in civilian jobs.
 comprehensive medical care to employees and their families
 partly funded by the employees and largely by the employer (central government)
 Services provided through CGHS’s own dispensaries, polyclinics and empanelled private hospitals
 contribution from employees is quite nominal though progressively linked to salary scale – Rs.15 per month
to Rs.150 per month.
The benefits
o covers all systems of medicine, emergency services in allopathic system, free drugs, pathology and
radiology, domiciliary visits to seriously ill patients, specialist consultations etc.
o CGHS had a membership base of over 800,000 families representing over 3 million beneficiaries.
c) Commercial health insurance
In early days before nationalization & after nationalization as commercial health insurance was loss making
business so it was limited to some of the corporate clients by non insurers.
In 1986, the first standardised health insurance product for individuals and their families was launched in
the Indian market by all the four nationalized non-life insurance companies (these were then the subsidiaries of the
General Insurance Corporation of India)-The product was MEDICLAIM
-coverage for the hospitalisation expenses up to a certain annual limit of indemnity with certain exclusions
such as maternity, pre-existing diseases etc.

Health Insurance Market

Health insurance market consists of many types & number of players
  providing the health care facilities called- Providers
 Insurance services
 Intermediaries ( infrastructure providers/support system providers)
The above players may be government or private sectors.
A. INFRASTRUCTURE:
1. Public health sector
National level State level District level village level
Implementation of national health policies through community volunteer who are the link between village
community & government infrastructure. These are following
Anganwadi workers/ Trained Birth Attendants (TBA)/ Village Health guides / ASHA (Accredited Social Health
Activist)

Sub-centres have been established for every 5,000 population (3,000 in hilly, tribal and backward areas)

Primary Health Centres which are referral units for about six sub-centres have been established for every 30,000
population (20,000 in hilly, tribal and backward areas)

Community Health Centres are the first referral units for four PHCs and also provides specialist care.(for every 1
Lakh population)

Rural hospitals includes the sub-district hospitals called as the sub-divisional / Taluk hospitals / specialty hospitals

Speciality and teaching hospitals include the medical colleges (about 300 in number presently)

Other agencies belonging to the government, such as hospitals and dispensaries of railways, defence and similar
large departments (Ports/ Mines etc.) restricted to the employees of the concerned department

a) The Anganwadi workers (1 for every 1,000 population) – enrolled under govt nutritional development
programme & ICDS of ministry of HRD.
 b) The Trained Birth Attendants (TBA) and the Village Health guides (an earlier scheme of health departments
in states).
c) ASHA (Accredited Social Health Activist) volunteers, selected by the community under the NRHM (National
Rural Health Mission) programme, who are new, village-level, voluntary health workers trained to serve as
health sector’s links in the rural areas.
Sub-centres have been established for every 5,000 population (3,000 in hilly, tribal and backward
areas) and are manned by a female health worker, also called the Auxiliary Nurse Mid-wife (ANM) and a
male health worker.
Primary Health Centres which are referral units for about six sub-centres have been established for every
30,000 population (20,000 in hilly, tribal and backward areas).
one medical officer and 14 para-medical workers (which includes a male and a female health
assistant, a nurse-midwife, a laboratory technician, a pharmacist and other supporting staff).
Community Health Centres are the first referral units for four PHCs and also provides specialist care.
According to the norms each CHC (for every 1 lakh population) should have at least 30 beds, one operation
theatre, X-ray machine, labour room and laboratory facilities and should be staffed by at least four
specialists i.e. a surgeon, a physician, a gynaecologist and a paediatrician supported by 21 para-medical and
other staff.
Rural hospitals have also been set up and these includes the sub-district hospitals called as the sub-
divisional / Taluk hospitals / specialty hospitals (estimated to be about 2000 in the country)
Speciality and teaching hospitals are fewer and these include the medical colleges (about 300 in
number presently) and other tertiary referral centres. These are mostly in district towns and urban areas but
some of them provide very specialized and advanced medical services.
Other agencies belonging to the government, such as hospitals and dispensaries of railways, defence and
similar large departments (Ports/ Mines etc.) also play a role in providing health services. However, their
services are often restricted to the employees of the concerned organizations and their dependents.

2. Private sector providers- provides all three level of health care services primary, secondary as well as tertiary
through

 Voluntary,
 Not-for-profit organizations individuals
 For-profit corporate
 Trusts
 Solo practitioners
 Stand-alone specialist services
 Diagnostic laboratories
 Pharmacy shops &
 Also the unqualified providers (quacks)
The following are the reference data with reference to the private sector
 o 77% of the allopathic (MBBS and above) doctors are practicing in the private sector
o Private health expenditure accounts for more than 75% of all health spending in India
o The private sector accounts for 82% of all outpatient
o 52% of hospitalization at the all India level2
Apart of it India also has the largest number of qualified practitioners in other systems of
Medicine (Ayurveda/ Siddha/ Unani/ Homeopathy)

3. Pharmaceutical industry –Large pharmaceutical industry of 55000 cr which rise to this level from rs 10 cr of
industry of 1950
o Central level price regulator of the industry is NPPA(national pharmaceuticals pricing authority)
o Only small no. of drugs are price controlled otherwise else are manufactured at free price regime
which is tightly observed by price regulator managed by drug controller of states.
B. INSURANCE PROVIDERS:
Insurance companies provide the bulk of health insurance services

Most encouraging is presence of standalone health insurance company- presently 5 in number.

C. INTERMEDIARIES:
Intermediaries are governed by IRDA involved in providing services to clients which are as follows
1. Insurance Brokers – individuals or corporates and work independently of insurance companies. Represent
people & getting commission from company!
2. Insurance Agents: usually individuals but some can be corporate agents. Represent company place for
insurance with the company who provided him the agency.
3. Third Party Administrators : service provider came into being in 2001provide administrative services to
insurance compnies
4. Insurance Web Aggregators - newest types of service providers to be governed by IRDAI regulations through
their web site & telemarketing solicit insurance business through distance marketing.
5. Insurance Marketing Firms - latest types of intermediaries to be governed by IRDAI. Can perform the
following activities by employing individuals licensed to market; distribute & service such products
Insurance Selling Activities: To sell by engaging Insurance Sales Persons (ISP) insurance products of two Life,
two General and two Health Insurance companies at any point of time, under intimation to the Authority.
Any change can be done with prior approval of authority only.
Insurance Servicing Activities: outsourcing activities/ approved person for repositories/licensed surveyor
& loss assessor
Financial Products Distribution: To distribute by engaging Financial Service Executives (FSE) who are
individuals licensed to market, distribute and service such other financial products namely:
MF/pension products/banking/NBFC/postal financial products.

D. OTHERS IMPORTANT ORGANIZATIONS

 Insurance Regulatory and Development Authority of India (IRDAI) which is the Insurance regulator formed
by an Act of Parliament which regulates all business and players in the insurance market. It came into being in 2000.
General Insurance and Life Insurance Councils, who also make recommendations to IRDAI for governing
their respective life or general insurance business,.
Insurance Information Bureau of India was promoted in year 2009 by IRDA and is a registered society with a
governing council of 20 members.
IIB formed with a purpose to collect; analyze & create & help to reach to various decisions.
IIB handles the Central Index Server which acts as a nodal point between different Insurance Repositories.
IIB has already launched its hospital unique ID master programme by enlisting the hospitals in 'the preferred
provider network'
IIB would be maintaining a health insurance grid connecting TPAs, insurers and hospitals.
Educational institutions-III/national insurance academy
Medical Practitioners also assist insurance companies and TPAs in assessing health insurance risks for acceptance &
claim settlement.
Legal entities such as the Insurance Ombudsman, Consumer courts as well as civil courts for redressal of customer
complaints/ grievances

Summary
a) Insurance in some form or other existed many centuries ago but its modern form is only a few centuries old.
Insurance in India has passed through many stages with government regulation.
b) Health of its citizens being very important, governments play a major role in creating a suitable healthcare
system.
c) Level of healthcare provided depends on many factors relating to a country’s population.
d) The three type of healthcare are primary, secondary and tertiary depending on the level of medical attention
required. Cost of healthcare rises with each level with tertiary care being the costliest.
e) India has its own peculiar challenges such as population growth and urbanization which require proper
healthcare.
f) The government was also the first to come up with schemes for health insurance followed later by commercial
insurance by private insurance companies.
g) The health insurance market is made up of many players some providing the infrastructure, with others providing
insurance services, intermediaries such as brokers, agents and third party administrators servicing health insurance
business and also other regulatory, educational as well as legal entities playing their role.
 Chapter 18 - Insurance Documentation Top

1. Proposal forms
The first stage of documentation is basically the proposal form through which the insured informs:
― who he/she is
― what kind of insurance he/she needs
― details of what he/she wants to insure and
― for what period of time

Elements of a proposal

i. Proposer‘s name in full

ii. Proposer‘s address and contact details
iii. Proposer‘s profession, occupation or business
iv. Details and identity of the subject matter of insurance
v. Sum insured indicates limit of liability of the insurer under the policy and has to be indicated in all proposal forms.
vi. Previous and present insurance
vii. Loss experience
viii. Declaration by insured
ix. Where a proposal form is not used, the insurer shall record the information obtained orally or in writing, and
confirm it within a period of 15 days thereof with, the proposer and incorporate the information in its policy.

Medical Questionnaire
In case of adverse medical history in the proposal form, the insured person has to complete a detailed questionnaire
relating to diseases such as Diabetes, Hypertension, Chest pain or Coronary Insufficiency or Myocardial Infarction.

2. Role of intermediary
The intermediary has a responsibility towards both parties i.e. insured and insurer
An agent or a broker, who acts as the intermediary between the insurance company and the insured has the
responsibility to ensure all material information about the risk is provided by the insured to insurer.

C. Prospectus
A Prospectus is a document issued by the insurer or on its behalf to the prospective buyers of insurance. It is usually
in the form of a brochure or leaflet and serves the purpose of introducing a product to such prospective buyers.
Issue of prospectus is governed by the Insurance Act, 1938 as well as by Protection of Policyholders‟ Interest
Regulations 2002 and the Health Insurance Regulations 2013 of the IRDAI.
Insurers of Health policies usually publish Prospectuses about their Health insurance products. The proposal form
in such cases would contain a declaration that the customer has read the Prospectus and agrees to it.

D. Premium receipt
When the premium is paid by the customer to the insurer towards premium, the
Insurer is bound to issue a receipt. A receipt is also to be issued in case any
Premium is paid in advance.

1. Payment of Premium in Advance (Section 64 VB of Insurance Act, 1938)

As per Insurance Act, premium is to be paid in advance, before the start of the insurance cover.

Policy Document
The policy is a formal document which provides an evidence of the contract of Insurance. This document has to be
stamped in accordance with the provisions of the Indian Stamp Act, 1899.

1. Conditions
A condition is a provision in an insurance contract which forms the basis of the agreement.

2. Warranties
Warranties are used in an insurance contract to limit the liability of the insurer under certain circumstances. Insurers
also include warranties in a policy to reduce the hazard.

I. Renewal Notice
Most of the non-life insurance policies are issued on annual basis. There is no legal obligation on the part of insurers
to advise the insured that his policy is due to expire on a particular date. However, as a matter of courtesy
and healthy business practice, insurers issue a renewal notice in advance of the date of expiry, inviting renewal of
the policy.
J. Anti-Money Laundering and Know Your Customer Guidelines

Money Laundering is the process by which criminals transfer funds to conceal the true origin and ownership of the
proceeds of criminal activities. By this process, money can lose its criminal identity and appear valid.

According to the Know Your Customer guidelines, every customer needs to be properly identified by collection of
the following documents:
1. Address verification
2. Recent photograph
3. Financial status
4. Purpose of insurance contract
Chapter 19- Health Insurance Products Top

Health insurance products available in the Indian market are mostly in the nature of hospitalization products. These
types of expenses are very high and mostly beyond the reach of the common man due to increasing cost of
healthcare, surgical procedures, new and more expensive technology coming in the market and cost of newer
generation of medicines.

The first retail health insurance product covering hospitalization costs – Mediclaim - was introduced by the 4 public
sector insurers in 1986.

COVERAGE OPTIONS AVAILABLE:

1. Individual Coverage.

2. Family Floater: In the variant known as a family floater policy, the family consisting of spouse, dependent
children and dependent parents are offered a single sum insured which floats over the entire family.

Key terms in health policies:

1. Network Provider
Network provider refers to a hospital/nursing home/day care center which is under tie-up with an insurer/TPA for
providing cashless treatment to insured patients.

2. Cashless service:
A cashless service enables the insured to avail of the treatment up to the limit of cover without any payment to the
hospitals

3. Third party administrator (TPA):

TPAs are independent entities who are appointed by insurers for processing and finalizing health claims.

4. Preferred provider network (PPN)

An insurer has the option to create a preferred network of hospitals to ensure quality treatment and at best rates.
When this group is limited to only a select few by the insurer based on experience, utilization and cost of providing
care, then we have what is known as the preferred provider network.
 5. Hospital
A hospital means any institution established for in-patient care has at least 10 inpatient beds in those towns having
a population of less than 10, 00,000 and 15 inpatient beds in all other places.

DOMICILIARY HOSPITALIZATION:

The condition of the patient is such that though the illness requires attention at a hospital, the condition of the
patient is such that he cannot be moved to a hospital or there is lack of accommodation in hospitals.

Broad classification of health insurance products:

A hospital daily cash policy provides a fixed sum to the insured person for each day of hospitalization.

a) Indemnity covers: These products constitute the bulk of the health insurance market and pay for actual medical
expenses incurred due to hospitalization.

b) Fixed benefit covers: ls called as ‘hospital cash’, these products pay for a fixed sum per day for the period of
hospitalization.

c) Critical illness covers:

Critical illness policy is a benefit policy with a provision to pay a lump sum amount on diagnosis of certain named
critical illness.

d )Personal accident cover:

A Personal Accident (PA) Cover provides compensation in the form of death and disability benefits due to
unforeseen accidents.

e) Overseas health insurance or travel insurance:

Overseas Mediclaim / Travel Policies provide cover to an individual against exposure to the risk of accident, injury
and sickness during his stay overseas.
Classification based on customer segment

A )Individual cover

b) Group cover
A group policy is taken by a group owner who could be an employer, an association, a bank’s credit card division,
where a single policy covers the entire group of individuals.

c) Mass policies
Mass policies for government schemes like RSBY covering very poor sections of the population.

d) Senior Citizen Policy: These plans are designed to offer cover to elderly people who often were denied coverage
after certain age (e.g. people over 60 years of age).

Health plus Life Combi Products:

These products which offer the combination of a life insurance cover of a life insurance company and a health
insurance cover offered by non-life and/or standalone health insurance company.

Micro insurance and health insurance: Micro-insurance products are specifically designed to aim for the protection
of low income people from rural and informal sectors. Sum insured below 30000.

Micro insurance is governed by the IRDA Micro Insurance Regulations, 2005.

Grace period in health Insurance:

Grace period for renewal: As per IRDAI guidelines, a 30 days grace period is allowed for renewal of individual health
policies.
Chapter 20 - Health Insurance Underwriting Top
 UNDERWRITING - The process of assessing the risk is known as UNDERWRITING, It’s a process of risk
selection and risk pricing.

 MORBIDITY - The likelihood and risk of a person becoming ill or sick thereby requiring treatment or
hospitalization. Health insurance is based on the concept of MORBIDITY.

 FACTORS INCREASING MORBIDITY – AGE, OVERWEIGHT, UNDERWEIGHT, PERSONAL HISTORY OF DISESASE,

HABITS, CURRENT HEALTH STATUS, OCCUPATION.

 FACTORS DECREASING MORBIDITY- LOWER AGE, HEATHY LIFE STYLE.

 AGE affects the chance of sickness as well as death, The chances for sickness are frequent, so, the underwriting
norms and guidelines for health coverage are much tighter than death coverage

 FACTORS AFFECTING CHANCESOF ILLNESS - Age, Gender, Habits, Occupation, Family history, Build, Past illness
or surgery, Current health status, Environment and residence.

Underwriting - Basic concepts

Purpose of # to prevent anti selection or selection against insurer

Underwriting - # classify risk & ensure equity among risk . ( similar risk profiles would be laced
in similar premium bracket )

Anti selection - Tendency of people who suspect or know their chances of high loss , try to seek
insurance .
Risk Classification: Standard Risks Good health .anticipated mortality corresponds to standard
lives represented by mortality table
Preferred Risks Anticipated mortality is significantly lower and are charged
lower premium
Anticipated mortality is higher , but still considered as
Sub standard Risks insurable .may be excepted with higher premium than
standard
Declined Risks Very high risk. Cannot be insured
 Selection process: At Field level or Done by agents or company representative.
primary Moral Hazard report also might be sought by company
Underwriting representative .
Department Level Done at company office. Involves specialist.

FILE AND USE GUIDELINES - Issued by IRDAI, Every health insurers should follow these guidelines and take approval
from the Authority at the time of:

A) Introduction of new product.

B) Revision or Modification of the health policy – should inform to the Policy holder three months before the
modification.

C) Withdrawal of health insurance product

Appointed Actuary should review the product at least once a year,

And apply for Revision under FILE and USE procedure if it requires.

IRDA GUIDELINES FOR

PORTABILITY OF HEALTH POLICIES - It is applicable for

A) all individual policies and family floater Policies issued by non life-insurance companies,
B) Group health insurance policy to an individual health insurance Policy or family floater policy with the same
insurer.

 PORTABILITY is allowable at the time of renewable of the policy.

 The policy holder should submit the portability form along with the Proposal form to the new
insurance company at least 45 days before the premium renewal date.
 No commission is payable to intermediary for porting the policy.
Basic principles relevant to underwriting :

1. UTMOST GOOD FAITH( UBERRIIMA FIDES) - Both parties should disclose all material facts relating to
subject matter of Insurance , accurately , whether requested or Not .

2. Insurable interest - Considered as legal pre requisite for insurance

Tools for Underwriting:

 PROPOSAL FORM : This is the base of contract, It contains health and personal details

of the Proposer.

 AGE PROOF : Premium are determined on the basis of age of the insured.

Standard - School certificate / PAN card / Pass port /

service register / Baptism certificate / marriage
certificate issued by Catholic Roman church

Non standard Ration card/elder’s declaration/voter’s ID/grama

panchayath
.

 FINANCIAL DOCUMENTS :

Required in cases of Personal accidents covers/ High sum assured coverage/

When the stated income and occupation compared to the coverage sought,

Show a mismatch.

 MEDICAL REPORTS: It depends upon the age and coverage of the insured
 REPORTS OF SALES PERSONNEL : Grassroots level underwriters of the company and
the Information given by them in their report could form an important consideration.
UNDERWRITING PROCESS

Medical Usually called medical examiner report . Health status age are important
Underwriting underwriting consideration for health insurance

Medical Factors that influence underwriting :

Family History #Certain disease are heredity
#Average longevity of family . Eg if parents died due to heart
problem etc , means offspring might not live long
# Family living environment . Some times living conditions
cause risk of infection etc
Personal History Refers to past impairments of various systems of human body
which life assured has suffred from e.g Cardiovascular , cancer
, TB , Nervous system etc

Personal Build : height , weight , chest &girth of abdomen indicate the

characteristic health . For given age , there are certain height weight ration
indicating good health .
Chest should expand 4 cm in normal person and abdominal
girth should not be more than expanded chest

NON- MEDICAL UNDERWRITING - Insurance companies create a ‘medical grid’ at what age and stage medical
underwriting is required.

NUMERICAL RATING - Numerical and percentage rating is done for assessing the risk.

Age, sex, race, occupation, residence, environment, build,

habits, family and personal history are examined and scored numerically.

UNDERWRITING DECISIONS-

 Acceptance Risk at standard rates

 Acceptance with Extra premium
 Postpone the cover for a stipulated period/term
 Decline the cover
 Counter offer(Restrict or deny part of the cover)
 Impose a higher deductible or co-pay
 Levy permanent exclusions under the policy.
GROUP HEALTH INSURACNE - Group insurance is underwritten mainly on the law of averages. While accepting a
group for health insurance, the insurers consider the health status of few members in the group.

Factors consider for the standard Underwriting process of Group health insurance :

a) Type of group
b) Group size
c) Type of industry
d) Eligible person for coverage
e) Level of coverage( whether uniform for all or differently)
f) Composition of the group in terms of age, sex, single or multiple locations
g) Difference in health care costs across regions in case of multiple locations
h) Past claims experience of the proposed group

Group Health insurance coverage for varied types of groups are :

Employee-employer groups, Labour unions, trusts and societies, Multiple employer groups, franchises dealers,
professional associations, clubs.

Central and state government is sponsoring group health insurance policies for poorer sections of the society e.g.
RSBY, Yehaswini.

Irregular types of group formation for taking advantage of group health insurance benefit at cheap prices is called
‘group of convenience’.

e.g. Employer welfare association, credit card holders of a specific companies, Customers of a particular business
where insurance is offered as an add on benefit, Borrowers of a bank and professional associations or societies.

Underwriting of Overseas Travel Insurance: acceptance as per the individual company guidelines

A) Premium rate depends upon the age of the proposer and the duration of foreign travel
B) Medical treatment is costly overseas. So Premium rate are higher than domestic health insurance policies
(USA and Canada premium rate is higher than other foreign countries)
C) Pre existing illness is carefully considered at the proposal stage.
Underwriting of personal Accident Insurance:

OCCUPATION is the main factor for rating of Personal Accident Insurance. Risk associated with profession or
occupation varies in accordance with their nature of work performed.

Classification of risk on the basis of Occupation:

 Risk Group I (Normal)– Accountants, Doctors, Lawyers, Architects, Engineers, teachers, bankers, persons
engaged in administration functions

 Risk Group II(Medium) - Builders, contractors, Engineers engaged in superintending functions only,
veterinary doctors, manual labours, drivers, machine operators, Professional athletes and sportsmen

 Risk Group III(High) – Person working in underground mines, explosives, workers of high voltage electricity,
circus personnel, person engaged in hazardous hobbies like mountaineering, winter sports, ballooning ,
racing on wheels or horseback , river rafting, polo and engaged in occupation/activities of similar risk.

Medical examination is not required for Personal Accident insurance.

War and allied risks are covered to Indian personnel working in foreign countries on civilian duties.

Personnel accident policies issued during peace time ( 50% extra of the normal rate

P.A policies issued during abnormal period(War like conditions)- 150% extra over the normal rate

Group discount is allowable if the number of insured persons exceeds 100 in a group policy.

The groups available group discounts are :

Employer – employee groups/ pre determined groups where premiums paid by state or central government/
Members of registered societies/ Members of service clubs/Holders of credit cards of banks/diners/master/visa/
share holders of banks/public limited companies

On-duty covers- Personal accident coverage at the time of working hours, 75% of appropriate premium charges, The
cover applies to accident to the employee arising out at the time of employment

Off duty covers – Coverage at time of not on official duty, 50% of appropriate premium charged.
Rating under renewal of group policies based on claim experience:

 Favorable experience is rewarded with a discount in the renewal premium

 Adverse experience penalized by loading of renewal premium
 Normal rate apply, if claim experience is 70 percent.

Risk transferring methods ( large group policies):

Coinsurance- Sharing of risk by more than one insurer. Allocating a percentage of risk to each insurer. Thus the
insurance may be accepted by two insurers. The lead insurer (Insurer A) handling all matters relating to the policy
issuance and settlement. Other insurer (Insurer B) would reimburse lead insurer (insurer A) the percentage of claim
paid.

Reinsurance- Insurer reinsuring his risks with other insurance companies is known as reinsurance.
Chapter 21 - Health Insurance Claims Top
 This chapter explains management of claims, health insurance claims, documentation, reserving, TPA,
claim management of personal accident and overseas travel insurance.
 Stakeholders in claim process :
1. Insurance company shareholders,
2. Underwriters,
3. TPA,
4. Regulator,
5. Providers/ Hospitals,
6. Insurance Agents/Brokers,
7. Customers: who buys insurance is the primary stakeholder as well as receiver of the claim.
 Efficient claim management ensures that right claim is paid to right person at the right time.
 A claim may be serviced either by the insurance company itself or through the services of a Third
Party Administrator (TPA) authorized by insurance company.
 The claim under an indemnity policy could be a
a) Cashless claim: The customer does not pay the expenses at the time of admission or treatment. The
network hospital provides the services based on a pre approval from the insurer/ TPA and later
submits the documents to the insurer/ TPA for settlement of the claim.
b) Reimbursement claim: the customer pays the hospital from his own resources and then files his claim
with Insurer/TPA for payment of the admissible claim.
 Typically it is required before hospitalization in case of planned admission and within 24 hours of
hospitalization in case of an emergency.
 Coding of claims: The most important code set used is the World Health Organization (WHO)
developed International Classification of Diseases (ICD) codes.
 Current Procedure Terminology (CPT): CPT codes capture the procedures performed to treat illness.
 Insurer are relying on the coding increasingly and Insurance Information Bureau (IIB), which is part of
IRDAI, has started an information bank where such information that can be analyzed.
 Domiciliary Hospitalization : Treatment taken at home in India for a period exceeding 3 days for an
ailment which normally requires treatment at hospital/nursing home. It is provided only when the
patient cannot be removed to Hospital/Nursing Home for lack of accommodation therein.
 Pre existing illness refer to “Any condition, ailment or injury or related conditions for which insured
person had signs or symptoms and /or was diagnosed and/or received medical advice/treatment
within 48 months prior to his/her health policy with the company whether explicitly known to him or
not.
 Initial waiting period: A typical health insurance policy covers illnesses only after an initial 30 days
(except accident related hospitalization).
 Floater policy: Policies based on floater basis where the sum insured is available across the family.
 No claim bonus: in case the insured has not claimed from his policy in the previous year/s. No claim
bonus often comes in the form of additional sum insured, which in fact increases the Sum Insured of
the patient/insured.
 The customer has the option to approach the following in case of denial of claim:
1. Insurance Ombudsman OR
2. The Consumer forums OR
3. IRDAI OR
4. Law courts (legal authorities) OR
5. Representation to the insurer
 Impersonation : The person insured is different from person treated.
 Claims are chosen for investigation based on two methods

Routine claims and Triggered claims

 Important documentation in health insurance claims:

1. Discharge summary: It is most important document that is required to process a health insurance
claim. It details the complete information about the condition of the patient and the line of
treatment.
2. Investigation report
3. Consolidated and detailed bills
4. Receipt for payment
5. Claim form
6. Identity proof
7. Documents contingent to specific claims: Case indoor papers in case of complicated or high value
claims. Indoor case paper or case sheet is a document which is maintained at the hospital end,
detailing all treatment given to patient on day to day basis for entire duration of hospitalization.
 Reserving: The amount of provision made for all claims in the books of the insurer based on the
status of the claims.
 TPA : IRDA allowed TPAs to be introduced into the market under license from IRDAI, provided they
complied with The IRDAI (Third Party Administrators- Health Insurance) Regulations, 2001 notified
on 17th Sept 2001.
 Claim documentation in Permanent Total Disability and Permanent Partial Disability:
1. Duly completed Personal Accident claim form signed by the claimant.
2. Attested copy of First Information Report if applicable
3. Permanent disability certificate from a civil surgeon or any equivalent competent doctors certifying
the disability of the insured.
 Bail bond cases and financial emergency cases are paid upfront by Assistance company and later
claimed from insurance company.