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1 MEANING OF INSURANCE
Insurance may be described as a social device to reduce or eliminate risk of loss to life and property. Insurance is a collective bearing of risk. Insurance is a financial device to spread the risks and losses of few people among a large number of people, as people prefer small fixed liability instead of big uncertain and changing liability. Insurance can be defined as a legal contract between two parties whereby one party called insurer undertakes to pay a fixed amount of money on the happening of a particular event, which may be certain or uncertain. The other party called insured pays in exchange a fixed sum known as premium. Insurance is desired to safeguard oneself and ones family against possible losses on account of risks and perils. It provides financial compensation for the losses suffered due to the happening of any unforeseen events.

1.2 IMPORTANCE OF INSURANCE

Insurance constitutes one of the major segments of the financial market. Insurance services play predominant role in the process of financial intermediary. Today insurance industry is one of the most growing sectors in India. There is lot of potential in the Indian Insurance Industry. There are many issues, which require study. The scope of the study of insurance industry of India would be very great as there are ongoing developments in the industry after the opening of the sector. The major issue right now is the hike in FDI (Foreign Direct Investment) limit from 26% to 49% in the insurance sector. Government may in near future allow 49% FDI in Insurance. This would lead to more capital inflow by foreign partners. Another major issue is the effects on LIC after the entry of private players in the market. Though market share of LIC has been affected, it has improved in terms of efficiency.

There are number of other hot topics like penetration of Health Insurance, Rural marketing of insurance, new distribution channels, new product ranges, insurance brokers regulation, incentive scheme of development officers of LIC etc. So it offers lot of scope for studying the insurance industry. Right now the insurance industry has great opportunities in a country like India or China which huge population. Also the penetration of insurance in India is very low in both life and non-life segment so there is lot potential to be tapped.

1.3 DIFFERENCE BEETWEN INSURANCE AND ASSURANCE

Assurance is older in history and it was used to describe all types of insurances. From 1826, the term assurance came to be used only for the risks covered by life insurance and the term insurance was exclusively used to denote the risks covered by marine, fire, etc. The word assurance indicated certainty. In life insurance, there is an assurance from the insurance company to make payment under the policyeither on the maturity or at earlier death. On the other hand the word insurance was used to denote indemnity type of insurances where the insurance company was liable to pay only in case of the loss damage the property. The insured event was bound to happen sooner or later under assurance but the event insured against may or may not happen under insurance.

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MAIN PRINCIPLES OF INSURANCE:

o o o o o o

Utmost good faith Indemnity Subrogation Contribution Insurable Interest Proximate Cause

Utmost Good Faith

It is the duty of the client to disclose all material facts relating to the risk being covered. A material fact is a fact that would influence the mind of a prudent underwriter while deciding whether or not to accept a risk for insurance and on what terms. This duty to disclose operates at the time of inception, at renewal as well as at any point midterm.

Indemnity
When the event that is insured against occurs, the Insured will be placed in the same monetary position that he/she occupied immediately before the happening of the event. In the event of a claim the insured must:

Prove that the event occurred Prove that a monetary loss has also occurred Transfer any rights that he/she may be having for the recovery from another source to the Insurer, if he/she is fully indemnified.

Subrogation
With regards to insurance, subrogation is a feature of principle of indemnity and therefore only applies to contracts of indemnity and hence does not apply
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to life assurance or personal accident policies. It aims to prevent an insured to recover more than the indemnity that he receives under his insurance (where that represents the full amount of his loss) and enables the insurer to recover or reduce the loss.

Contribution
The right of an insurer to call on other insurers similarly, but not necessarily equally, liable to the same insured to share the loss of an indemnity payment i.e. a travel policy might have an overlapping cover with the contents section of a household policy. The principle of contribution permits the insured to make a claim against one insurer. The insurer then has the right to call on any other insurers liable for the loss in order to share the claim settlement

Insurable Interest
If an insured wants to enforce an insurance contract before the Courts he must have an insurable interest in the subject matter of the insurance, which means that he benefits from its preservation and suffers from its loss. In case of nonmarine insurances, it is necessary for the insured to have insurable interest when the policy is taken out and also at the date of loss giving rise to a claim under the policy.

Proximate Cause
An insurer is liable to pay a claim under an insurance contract only if the loss that gave rise to the claim was proximately caused by an insured peril. This means that the loss should be directly credited to an insured peril without any break in the chain of causation.

1.5 HISTORY OF INSURANCE

The concept of insurance is believed to have emerged almost 4500 years ago in the ancient land of Babylonia where traders used to bear risk of the Craven by giving loans, which were later repaid with interest when the goods arrived safely. The concept of insurance as we know today took shape in 1688 at a place called Lloyds Coffee House in London where risk bearers used to meet to transact business. This coffee house became so popular that Lloyds became the one of the first modern insurance companies by the end of the eighteenth century. Marine insurance companies came into existence by the end of the eighteenth century. These companies were empowered to write fire and life insurance as well as marine. The Great Fire of London in 1966 caused huge loss of property and life. With a view to providing fire insurance facilities,Dr. Nicholas Barbon set up in 1967 the first fire insurance company known as the Fire office. The early history of insurance in India can be traced back to the Vedas. The Sanskrit term Yogakshema (meaning well being),the name of Life Insurance Corporation of Indias corporate headquarters, is found in the Rig-Veda. The Aryans practiced some form of community insurance around1000 BC. Life insurance in its modern form came to India from England in 1818. The Oriental Life Insurance Company was the first insurance company to be setup in India to help the widows of European community. The insurance companies, which came into existence between 1818 and 1869, treated Indian lives as subnormal and charged an extra premium of 15 to 20 per cent. The first Indian insurance company, the Bombay Mutual Life Assurance Society, came into existence in 1870 to cover Indian lives at normal rates. The Insurance Act, 1938, the first comprehensive legislation governing both life and non-life branches of insurance were enacted to provide strict state control over insurance business. This amended insurance Act looked into investments, expenditure and management of these companies. By the mid- 1950s there were 154 Indian insurers, 16 foreign insurers, and75 provident societies carrying on life insurance business in India. Insurance business flourished and so did scams, irregularities and dubious investment practices by scores of companies. As a result the government decided to nationalize the life assurance business in India. The Life Insurance Corporation of India (LIC) was set up in 1956. The nationalization of life insurance was followed by general insurance in 1972.
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1.6 MEANING OF LIFE INSURANCE:

There are three parties in a life insurance transaction: the insurer, the insured, and the owner of the policy (policyholder), although the owner and insured are often the same person. Another important person involved in a life insurance policy is the beneficiary. The beneficiary is the person or persons who will receive the policy proceeds upon the death of the insured. Life insurance may be divided into two basic classes term and permanent. Term life insurance provides for life insurance coverage for specified term of years for a specified premium. The policy does not accumulate cash value. Permanent life insurance is life insurance that remains in force until the policy matures, unless the owner fails to pay the premium when due. Whole life insurance provides for a level premium, and a cash value table included in the policy guaranteed by the company. The primary advantages of whole life are guaranteed death benefits, guaranteed cash values, fixed and known annual premiums, and mortality and expense charges will not reduce the cash value shown in the policy. Universal life insurance (UL) is a relatively new insurance product intended to provide permanent insurance coverage with greater flexibility in premium payment and the potential for a higher internal rate of return. A universal life policy includes a cash account. Premiums increase the cash account. If you want insurance protection only, and not a savings and investment product, buy a term life insurance policy.

1.7 HISTORY OF LIFE INSURANCE

Risk protection has been a primary goal of humans and institutions throughout history. Protecting against risk is what insurance is all about. Over 5000 years ago, in China, insurance was seen as a preventative measure against piracy on the sea. Piracy, in fact, was so prevalent, that as away of spreading the risk, a number of ships would carry a portion of another ship's cargo so that if one ship was captured, the entire shipment would not be lost. In another part of the world, nearly 4,500 years ago, in the ancient land of Babylonia, traders used to bear risk of the caravan trade by giving loans that had to be later repaid with interest when the goods arrived safely. In 2100BC, the Code of Hammurabi granted legal status to the practice. It formalized concepts of bottomry referring to vessel bottoms andrespondentia referring to cargo. These provided the underpinning for marine insurance contracts. Such contracts contained three elements: a loan on the vessel, cargo, or freight; an interest rate; and a surcharge to cover the possibility of loss. In effect, ship owners were the insured and lenders were the underwriters. Life insurance came about a little later in ancient Rome, where burial clubs were formed to cover the funeral expenses of its members, as well as help survivors monetarily. With Rome's fall, around 450 A.D., most of the concepts of insurance were abandoned, but aspects of it did continue through the Middle Ages, particularly with merchant and artisan guilds. These provided forms of member insurance covering risks like fire, flood, theft, disability, death, and even imprisonment. During the feudal period, early forms of insurance ebbed with the decline of travel and long-distance trade. But during the 14th to 16th centuries, transportation, commerce, and insurance would again reemerge. Insurance in India can be traced back to the Vedas. For instance,yogakshema, the name of Life Insurance Corporation of India's corporate headquarters, is derived from the Rig Veda. The term suggests that a form of "community insurance" was prevalent around 1000 BC and practiced by the Aryans. And similar to ancient Rome, burial societies were formed in the Buddhist period to help families build houses, and to protect widows and children.

 Modern Insurance Illegal almost everywhere else in Europe, life insurance in England was vigorously promoted in the three decades following the Glorious Revolution of 1688. The type of insurance we see today owes it's roots to 17th century England. Lloyd's of London, or as they were known then, Lloyd's Coffee House, was the location where merchants, ship owners and underwriters motto discuss and transact business deals. While serving as a means of risk-avoidance, life insurance also appealed strongly to the gambling instincts of England's burgeoning middle class. Gambling was so rampant, in fact, that when newspapers published names of prominent people who were seriously ill, bets were placed at Lloyds on their anticipated dates of death. Reacting against such practices, 79 merchant underwriters broke away in 1769 and two years later formed a New Lloyds Coffee House that became known as the real Lloyds. Making wagers on people's deaths ceased in 1774 when parliament forbade the practice. Insurance moves to America The U.S. insurance industry was built on the British model. The year 1735saw the birth of the first insurance company in the American colonies in Charleston, SC. The Presbyterian Synod of Philadelphia in 1759, sponsored the first life insurance corporation in America for the benefit of ministers and their dependents. And the first life insurance policy for the general public in the United States was issued, in Philadelphia, on May 22, 1761. But it wasn't until 80 years later (after 1840), that life insurance really took off in a big way. The key to its success was reducing the opposition from religious groups.In 1835, the infamous New York fire drew people's attention to the need to provide for sudden and large losses. Two years later, Massachusetts became the first state to require companies by law to maintain such reserves. The great Chicago fire of 1871 further emphasized how fires can cause huge losses in densely populated modern cities. The practice of reinsurance, wherein the risks are spread among several companies, was devised specifically for such situations. With the creation of the automobile, public liability insurance, which firstmade its appearance in the 1880s, gained importance and acceptance?
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More advancement was made to insurance during the process of industrialization. In 1897, the British government passed the Workmens Compensation Act, which made it mandatory for a company to insure its employees against industrial accidents. During the 19th century, many societies were founded to insure the life and health of their members, while fraternal orders provided low-cost, membersonly insurance. Even today, such fraternal orders continue to provide insurance coverage to members, as do most labor organizations. Many employers sponsor group insurance policies for their employees, providing not just life insurance, but sickness and accident benefits and old-age pensions. Employees contribute a certain percentage of the premium for these policies. Final Thoughts Even though the American insurance industry was greatly influenced by Britain, the US market developed somewhat differently from that of the United Kingdom. Contributing to that was America's size; land diversity and the overwhelming desire to be independent. As America moved from colonial outpost to an independent force, from a farming country to an industrial nation, the insurance business developed from a small number of companies to a large industry. Insurance became more sophisticated, offering new types of coverage and diversified services for an increasingly complex country.

1.8 KEY FEATURES OF LIFE INSURANCE

1) Nomination: When one makes a nomination, as the policyholder you continue to be the owner of the policy and the nominee does not have any right under the policy so long as you are alive. The nominee has only the right to receive the policy monies in case of your death within the term of the policy. 2)Assignment: If your intention is that your policy monies should go only to a particular person, you need to assign the policy in favor of that person. 3)Death Benefit: The primary feature of a life insurance policy is the death benefit it provides. Permanent policies provide a death benefit that is guaranteed for the life of the insured, provided the premiums have been paid and the policy has not been surrendered. 4)Cash Value: The cash value of a permanent life insurance policy is accumulated throughout the life of the policy. It equals the amount a policy owner would receive, after any applicable surrender charges, if the policy were surrendered before the insured's death. 5)Dividends: Many life insurance companies issue life insurance policies that entitle the policy owner to share in the company's divisible surplus. 6)Paid-Up Additions: Dividends paid to a policy owner of a participating policy can be used innumerous ways, one of which is toward the purchase of additional coverage, called paid-up additions. 7)Policy Loans: Some life insurance policies allow a policy owner to apply for a loan against the value of their policy. Either a fixed or variable rate of interest is charged. This feature allows the policy owner an easily accessible loan in times of need or opportunity.
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8)Conversion from Term to Permanent: When in need of temporary protection, individuals often purchase term life insurance. If one owns a term policy, sometimes a provision is available that will allow her to convert her policy to a permanent one without providing additional proof of insurability. 9)Disability Waiver of Premium Waiver of Premium is an option or benefit that can be attached to a life insurance policy at an additional cost. It guarantees that coverage will stay in force and continue to grow.

1.9 BENEFITS OF LIFE INSURANCE

1)Risk cover: Life Insurance contracts allow an individual to have a risk cover against any unfortunate event of the future. 2)Tax Deduction: Under section 80C of the Income Tax Act of 1961 one can get tax deduction on premiums up to one lakh rupees. Life Insurance policies thus decrease the total taxable income of an individual. 3)Loans: An individual can easily access loans from different financial institutions by pledging his insurance policies. 4)Retirement Planning: What had provided protection against the financial consequences of premature death may now be used to help them enjoy their retirement years. Moreover the cash value can be used as an additional income in the old age. 5)Educational Needs: Similar to retirement planning the cash values that flow from ones life insurance schemes can be utilized for educational needs of the insurer or his children.

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1.10 ROLE OF LIFE INSURANCE IN THE GROWTH OF THE ECONOMY

The Life Insurance Industry has an enviable track record among public sector units. It has a Consistent profit and dividend paying record accompanied by a steady growth in its financial resources. Through investments in the Government sector and socially- oriented sectors the Industry has contributed immensely to the nation's development. The industry is recognized as one of the largest financial Institutions in the country. The ventures initiated by the industry in the areas of Mutual Fund, Housing Finance has done exceedingly well in recent years. To protect the countrys foreign exchange reserves, the reinsurance arrangement are so organized that maximum retention is made possible within the country while at the same time protecting interests of the policy holders.

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