INTRODUCTION TO INSURANCE :

Insurance may be declared as a social device to reduce or eliminate risk of life and property.
Under the plan of insurance, a large number of people associate themselves by sharing risk,
attached to individual. The risk which can be insured against include fire, the peril of sea,
death, incident, & burglary. Any risk contingent upon these may be insured against at a
premium communication with risk involved.

“Insurance is contract between two parties where by one party called Insurer undertakes in
exchange for a fixed sum called premium to pay the other party happening of a certain
event.”

The insurance industry in India has come a long way since the time when business were
tightly regulated and concentrated in the hands of a few public sector insurer. Following the
passage of the Insurance Regulatory and Development Authority Act in 1999, India
abandoned public sector exclusivity in the insurance industry in favour of market- driven
competition. This shift has brought about major changes to the industry.

The inauguration of a new era of insurance development has seen the entry of international
insurers, the proliferation of innovative products and distribution channels, and the raising of
supervisory standards. In the mid of 2004, the number of insurers in India had been
augmented by the entry of new private sector players to total of 28, up from five before
liberalization. A range of new products had been launched to cater to different segments of
the market, while traditional agents were supplemented by other channels including the
Internet and bank branches. These developments were instrumental in propelling business
growth, in real terms, of 19% in life premium and 11.1% in non -life premiums between 1999
and 2003.
The are god reasons to expect that the growth momentum can be sustained. In particular ,
there is huge untapped potential in various segments of the market. While the nation is
heavily exposed to natural catastrophes, insurance to mitigate the negative financial
consequences of these adverse events in underdeveloped. The same is true for demand and
supply gaps. Major changes in both national economic policies and insurance regulation will
highlights the prospects of these segments going forward.

Insurance or assurance , device for indemnifying or guaranteeing an individual against loss.

Reimbursement is made from a fund to which many individuals exposed to the same risk
have contributed certain specified amounts, called premiums. Payment for an individual loss,
divided among many, does not fall heavily upon the actual loser. The essence of the contract
of insurance, called policy is mutuality. The major operation of an insurances company are
underwriting, the determination of which risk the insurer can take on; and rate the decision
regarding necessary prices for such risk. The underwriter is responsible for guarding against
adverse selection, wherein the excessive coverage of high risk candidates in proportion to the
coverage of low risk candidates.

In preventing adverse selection, the underwriter must consider physical, psychological and
moral hazards in relation to applicants. Physical hazards include those dangers which
surround the individual or property, Jeopardizing the well-being of the insured. The amount
of the premium is determined by the operation of the law of averages as calculated by
actuaries. By investing premium payments in a wide range of revenue producing projects,
insurance companies have become major suppliers of capital, they rank among the nation’s
largest institutional investors.

DEFINITION OF INSURANCE :

Insurance is contract where by, in return for the payments of premium by the insured, the
insures pay the financial losses suffered by the insured as a result pf the occurrence of
unforeseen events. With the help of insurance , large number of people exposed to a similar
risk makes contribution to a common fund out of which the loss suffered by the unfortunate
few, due to accidental events , are made good.

General Definition :

In the words of John Magee, “ Insurance is a plan by which large number of people associate
themselves and transfer to the shoulders of all, risks that attach to individuals.”

EVOLUTION OF INSURANCE :
In India, insurance has a large deep-rooted history. It finds mention in the writings of Manu
(Manusmrithi), Yagnavalkya (Dharmasastra) and Kautilya ( Arthasastra). The writing talk in
terms of pooling of resources that could be re-distributed in times of calamities such as fire,
floods, epidemics and famine. This was probably a pre-cursor to modern day insurance.
Ancient Indian history has preserved the earliest traces of insurances in the form of marine
trade loans and carrier’s contracts. Insurance in India has evolved over the time heavily
drawing from other countries, England in particular.

1818 saw the advent of life insurances business in India with established of the 1829 , the
Madras Equitable had begun transacting life insurance business in the Madras presidency,
1870 saw the enactment of the British Insurance Act and in the last three decades of the 19th
century, the Bombay Mutual(1871), oriental (1874) and Empire of India (1879) were started
in the Bombay Residency. This era however , was dominated by foreign insurance offices
which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool
and London Globe Insurance and the Indian offices were up for competition from the
foreign companies.

In 1914 , the government of India Started publishing returns of insurance companies in India.
The Indian Life Assurance companies Act in 1912 was the first statutory measures to regulate
life business. In 1928, the Indian insurances Compaines Act as enacted to enable the
Government to collect statistical information about both life and non-life business transacted
in India by Indian and foreign insurers including provident insurance societies. In 1938 with
a view to protecting the interest of the Insurance Public, the earlier legislation was
consolidate and amended by the Insurance Act, 1938 with comprehensive provisions for
effective control over the activities of insurers.

The Insurance Amendment Act of 1950 abolished principal Agencies. However, there were a
large number companies and the level of companies was high. There were also allegation of
unfair trade practices. The Government of Indian, therefore, decided to nationalize business.

An Ordinance was issued on 19th January ,1956 nationalising the Life Insurance sector and
Life Insurance Corporation came into existences in the same year. The LIC absorbed 154
Indian, 16 non-Indian insures are also 75 provident societies-245 Indian and foreign insurers
in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the
private sector.

CHARACTERISTICS OF INSURANCES:

 Sharing of Risks :

Insurance is a co-operative device to share the burden of risk, which may fall on
happening of some unforeseen events, such as the death of head of the family, or on
happening of marine perils or loss of by fire.

 Co-operative Device :

Insurance is a co-operative form of distributing a certain risk over a group of person

who are exposed to it(ghosh & Agarwal). A large number of person share the losses
arising from a particular risk.
 Evaluation of Risks:

For the purpose of ascertaining the insurance premium, the volume of risk is
evaluated, which forms the basic of insurance contract.

 Payments of happening of specified event:

On happening of specified event, the insurance company is bond to make payment to

the insured. Happening of the specified event is certain in life insurances but in the
case of fire, marine or accidental insurance. It is not necessary such cases the insurer
is not liable for payments of indemnity.

 Amount of Payment :

The amount of payment in indemnity insurance depends on the nature of losses

occurred, subject to a maximum of the sum insured. In life insurance, however, a
fixed amount is paid on the happening of some uncertain event or the maturity of
the policy.

 Large number of insured persons:

The success of insurance business depends on the large number of persons insured
against similar risk. This will enable the insurer to spread the losses of risk among
large number of persons, thus keeping th e premium rate at the minimum.

 Insurance is not a gambling :

Charity pays without consideration but in the case of insurance, premium is paid the
insured to the insurer in consideration of future payment.

 Protection against risks:

Insurances provides protection against risks involved in life, material & property. It
is a device to avoid or reduce risks.

 Spreading of risk :

Insurance is a plan in which spread the risk & and losses of few people among a
large number of people, John Magee Writes,- Insurance is plan by which the large
number of people associates themselves & transfer to the shoulders of all risks
attached to individuals.

 Transfer of risk :
 Insurance is a plan in which the insured transfer his risk on the insurer. This may be
the reason that Mayerson observes, that insurance is a device to transfer some
economic losses to the insurer, and otherwise such losses would have been borne by
the insured themselves.

 Ascertaining of losses :
By taking a life insurance policy, one can ascertain his future losses in terms of
money. This is done by the insurer to determining the rate of premium, which is
calculated on the basic of maximum risks.

 A contract :

Insurance is a legal contract between the insurer & insured under which the insurer
promise to compensate the insured financially within the scope of insurance policy,
& the insured promise to pay a fixed rate of premium to the insurer.

To conclude, insurance is a device for the transfer of risks from the insured to the
insurer, who agree to it for a consideration (known as Premium ) & promises that the
specified extent of loss suffered by the insured shall be compensated. It is legal
contract of a technical nature.

FUNCTION OF INSURANCE :

There are two main functions of insurance namely :

A) PRIMARY FUNCTION
B) SECONDARY FUNCTION
C) OTHER FUNCTION

Primary functions :
1) Provide protection :

The primary function of insurance is to provide protection against future risk

accidents and uncertainty. Insurance cannot check the happening of the risk , but can
certainty provide for losses of risk. Professor Hopkins observers , -Insurances
protection against economic loss, by sharing the risk with others.

2) Collective bearing of risk:

 Insurance is a device to share the financial loss of few among many others. Dinsdale
opines insurance is a maen by which few losses are shared among longer people.
Similarly , William Bevridge obsevers , -The collective bearing of risk is insurance .
All the insured contribute the premium towards a fund and out of which the person
exposed to a particular risk is paid.

3) Assessment of risk :

Insurance determines the probable volume of risk by evaluating various factors that
gives rise to risk. Risks is the basis for determing the premium rate also.

4) Provide certainty :

Insurance is device which help to change from uncertainty to uncertainty. This may
the reason that John Magee writes that the function of insurance is to provide
certainty. Similarly, Riegel and -miller observe – “Insurance is device where by the
uncertain risk may be made more certain.”

Secondary function :

1) Prevention of losses :

Insurance caution individual and businessmen to adopt suitable device to prevent

unfortunate consequences of risk by observing safety instruction, installation of
automatic sparkler or alarm systems, etc. Prevention of losses causes lesser
payment to the assured by the insurer and this will encourage for more business
and better protection to the insured.

2) Small capital to cover larger risks :

Dinsdale observes, insurance relieves the businessmen from security investment,
by paying small amount of premium against larger risks and uncertainty.

3) Contributes towards the development of larger industries :

Insurances provide development opportunity to those larger industries having

more risks in their setting up. Even the financial institution may be prepared to
give credit to sick industrial units which have insured their assets including plant
and machinery.

Others functions :
 Means of savings and investment :

Insurance serve as saving and investment, insurance is a compulsory way

of saving and it restricts the unnecessary expenses by the insured’s for the
purpose of availing income-tax exemption also, people invest in insurance.

 Source of earing foreign exchange :

Insurance is an international business . The country can earn foreign

exchange by way of issue of marine insurance policies.

 Promotes exports insurance makes the foreign trade risk free with the help
of different types of policies under marine insurance cover.

INTRODUCTION TO LIFE INUSRANCE CORPORATION :

Life Insurance Corporation of India (LIC) is an Indian state owned

insurance group and investment corporation owned by the Government of
India. The Life Insurance Corporation of India was founded in 1956 when
the Parliament of India passed the Life Insurance of India Act that
nationalised the insurance industry in India. Over 245 Insurance
companies and provident societies were merged to create the state owned
Life Insurance Corporation of India. It is an financial service industry and
founded on 1st September 1956. Headquarters are located at Mumbai and
the products like Life insurance , health insurance, investment
management, banking mutual fund. It’s owned by Government of India.
And the subsidiaries of Life Insurance Corporation are IDBI bank, LIC
Housing finance, LIC Pension fund Ltd, LIC International, LIC Cards
services, LIC Mutual Fund.

As of 2019, Life Insurance Corporation of India had total life fund of

Rs.28.3 trillion. The total value of sold policies in the year 2081-19. It has
290 million policy holders.

LIC’s contribution to the five year plans over the years :

Growth as a monopoly

From its creation, the life insurance corporation of India, which

commanded a monopoly of soliciting and selling life insurance in India,
created huge surpluses and by 2006 was contributing around 7% of India
GDP. The corporation which started its business with around 300 offices,
5.7 million policies and a corpus pf INR 45.9 crores(US$92 million as per
the 1959 exchange rate of roughly of Rs.5 for US$), had grown to 25000
servicing around 350 million policies and a corpus of over Rs.800000
crore (US$ 120 billion ) by the end of 20th century.

FIVE YEAR PLANS OF LIC :

From 1947 to 2017, the Indian economy was premised on the concept of
planning. This was carried through the Five- year plans, developed,
executed, and monitored by the planning Commission (1951-2014) and the
NITI Aayog (2015-2017). With the prime minister as the ex-office
chairman, the commission has a nominated deputy chairman, who holds
the rank of a cabinet minister. Montek Singh Ahluwalia is the last deputy
chairman of the commission (resigned on 26 may 2014). The twelfth plan
completed its term in march 2017. Prior to the Fourth plan, the allocation
of state resources was based on schematic patterns rather than a
transparent and objective mechanism, which led to the adoption of Gadgil
formula in 1969.

Revised versions of the formula have been used since then to determine
the location of central assistance for state plans. The new government led
by Narendra Modi, Elected in 2014, has announced the dissolution of the
planning commission, and its replacement by think tank called the NITI
Aayog (an Acronym for national Institution for Transforming India).

Advantages and Disadvantages of Life Insurance corporation :

There are plenty of benefits of buying life insurance, here are the five most
common :

 Life Insurances gives you inner peace :

When you get home or auto insurance, you’re obviously hoping not
to experience a car crash, burglary or flood, and term life insurance
is similar. You plan not to use it. If you outlive the term, you don’t
get the money you spent on the premium back (but you’re still
alive, which is incalculably valuable ), so you shoud think about
what the policy bought you, namely peace of mind. Even a good
life comes with some worries, especially if you have kids and/or a
partner, and a life insurance policy can give you tremendous
tranquility, knowing that there is a financial backup plan for your
dependents. If you’re interested in inner peace, its also worth
 noting that term life insurance is cheaper and less time consuming
than a yoga retreat, and you don’t need to leave the house for it.

 Life insurance gives your family peace of mind :

The sense of calm you feel when you know you’ve protected your
family with life insurance will also be felt by your family
themselves (definitely the adults, and probably the kids once they
understand wta things cost). If you’ve the bread winner, your
partner will have the proceeds of the policy to help with financial
needs during a difficult time, which makes for a markedly less
stressed household, which is better for everyone in it (including
you).

 Life insurance is cheaper and easier than you think :

Permanent life insurance coverage lasts a lifetime, but can be

costly. Term life insurance covers you for a fixed number of year,
is surprisingly affordable. For example, a 35-year old woman in
excellent health could buy a 20-year, $500000 haven term policy,
issued by MassMutual, for about $20 per month. Also, the process
is quick and easy. You can rustle up an intial quote for yourself by
answering a few questions