Introduction to insurance

Contents:Understanding the concept of insurance Classes of insurance

Life insurance General insurance

Insurance regulation

Risk management
Risk retention Risk transfer

Concept of insurance
Spreading of risks Sharing of losses

INSURANCE CONCEPTS

How Insurance Works.

Group Same Risk Individuals Agree to share the loss Risk is spread in bearable small losses Fair arrangement Occurrence is RANDOM, ACCIDENTAL, & Not deliberate creation of the insured person.

Insurable risk - requirements

Large number of exposure units Accidental and unintentional Determinable and measurable Not to be catastrophic Chance of loss must be calculable Premium to be economically feasible

Learning Insurance

What Is Insurance
Protection of economic value of assets. Tangible assets are human beings, house, furniture, motor cycle etc. Intangible assets are liabilities

Risk as defined under insurance

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NEED FOR INSURANCE

Insurance as a risk management tool

Risk as defined in case of insurance

Why insurance
Risk of calamities Provision too costly or an individual or a family Sharing the costs of calamities

History of Insurance
It started from Lloyds coffee house London First policy issued in England in 1583 In India first policy issued in 1870

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History of Insurance
LIC of India formed in 1956 after nationalization of life insurance Business of 245 private insurance companies General insurance business of 107 insurance companies was nationalized in 1972 & four public sector General Insurance Companies were formed

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Insurance sector opened up in India for private players in 1990s

Classes of Insurance
Life insurance B. General insurance
A.

1. Fire insurance 2. Marine insurance 3. Miscellaneous insurance

i. ii. iii. iv. v. Motor insurance Mediclaim insurance Householders insurance Shopkeepers insurance Engineering insurances, etc.

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Fundamental Principles of Insurance

1.

2.

Contract between insurer and insured Insurable interest

Means financial interest

3.

Utmost good faith

Greater duties of faith on proposer & insurer

4.

Indemnity
Actual compensation of loss.

5.
6.

Subrogation
1. Transfer of rights of insured to insurer.

Contribution
Sharing of loss by all insurers.
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Note: Principles 4, 5 & 6 are not applicable in case of life insurance policies

STAKEHOLDERS

INSURERS
INSURED INTERMEDIARIES

Market Intermediaries
Who procure the insurance business:

Insurance Agents
Direct Corporate agents

Insurance brokers
Direct Reinsurance Composite

Banks (Bancassurance)

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Basic life insurance policies

Term assurance policy or term plan Whole life policy Endowment plan Money back plan Unit linked insurance policies Annuity / pension plans

Term assurance policy

Provides death cover only during policy period Premium is low No refund of premium Sum assured paid on death

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Whole Life Policy

Death cover only Period is not specified Premium is low & paid life time No refund of premium Sum assured paid on death

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Endowment Assurance Plan

Covers death & survival benefits Sum assured paid on death or on maturity of policy Period of policy at the option of proposer

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Money Back Policy

Available for different periods Covers death & survival benefits Lump sum paid periodically Full sum assured paid on death

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Unit Linked Insurance Policies (ULIP)

Each premium split into units and risk premium for life cover Units are priced as per current market value Sum assured & current value of units or whichever is higher paid on death as per policy condition Current value of units paid on maturity

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Annuity (Pension) Plans

These are pension plans Immediate annuity or deferred annuity starts at specified age periodically Single premium paid for immediate annuity Premium in installments paid for deferred annuity Life cover simultaneously

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Life Insurance: Important aspects 1

Policies available with bonus or without bonus Death due to accidents can be covered for additional sum assured Policies available exclusively for women & children Additional cover for major diseases available

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Life Insurance Policies: Important aspects 2

Guaranteed bonus policies available Policies available for limited period premium payment & risk for longer policy period Premium payment options: monthly, quarterly, half yearly, yearly

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Life Insurance Policies: Important aspects 3

Loans available on certain policies, subject to terms and conditions Lapsed policies can be revived Policy can be surrendered before maturity Nomination & assignment can be done

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Various costs associated with insurance policies:

Risk premium Premium allocation charges Policy administration charges Fund management charges Guarantee charges

General Insurance Policies

Fire policies Motor vehicle policies Personal line policies Health insurances Liability insurances

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Motor Vehicle Policies

Liability only motor policy

Mandatory motor vehicle policy

Package motor policy

Additionally insures loss and damage of the motor vehicle due to theft and accidents along with third party risk

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Personal Line Insurances

House holders policy Shop keepers policy Personal accident policy Group personal accident policy Fidelity guarantee policy

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Health Insurance

Medi claim policy Overseas medi claim policy Videsh yatra mitra policy Corporate frequent travelers policy Employment & study policy Group medi claim policy Cancer policy

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Liability Insurances

Public liability policy Products liability policy Professional indemnity policy Directors liability policy Employees liability policy

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THANK YOU!