A promise of compensation for specific potential future losses in exchange for a periodic payment.

designed to protect the financial well being of an individual, company or other entity in the case of unexpected loss. hedging instrument used as a precautionary measure against future contingent losses. A tool of risk management.

Only economic consequences of an asset loss can be insured . Insurance is relevant only if there are uncertainties. If there is no uncertainty about the occurrence of an event, it cannot be insured against. Such uncertain or accidental occurrences are called perils. Such perils expose an asset to risks. Hence, perils are the events, risks are the consequential losses.

Brings together persons with common insurance interests, sharing the same risks. Collects the share or contribution from all of them premium. Pays out compensations to those who suffer from risks claims. Premium is based on expectations of losses. The expectations are based on data of past occurrences

Insurable Interest The person opting for insurance must have pecuniary interest in the property he is going to get insured and will suffer financial loss on the occurrence of the insured event. Principle of utmost Good faith (Uberrima Fides) Disclose all material facts to the risk being covered. If the insurance contract is obtained by way of fraud or misrepresentation it is void.

Principle of Indemnity The insurance contract should be such that in case of loss due to the eventualities mentioned in the contract, the insured should be neither better off nor worse off after receiving the insured amount. Subrogation If you make a claim for injuries or damages under your insurance policy, and another person or company is at fault, your insurance company may choose to pay your claim and subrogate against the at-fault party.

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 may have overlapping cover with the contents section of a household policy. The principle of contribution allows the insured to make a claim against one insurer who then has the right to call on any other insurers liable for the loss to share the claim payment. Proximate Cause An insurer will only be liable to pay a claim under an insurance contract if the loss that gives rise to the claim was proximately caused by an insured peril. This means that the loss must be directly attributed to an insured peril without any break in the chain of causation.

Life Insurance Insures life of the person buying the Life Insurance Certificate. Once a LI is sold by a company, it becomes legally entitled to make payment to the beneficiary after the death of the policy holder. Medical Insurance Also known as mediclaim, the policy holder is entitled to receive the amount spent for his health purposes from the insurance company. General Insurance Involves insuring risks associated with general assets such as automobiles, business related, natural incidents, commercial and residential properties, etc.

Policy holder: The person who has taken the insurance policy and will have to pay the premiums. Beneficiary/ Nominee: The person who is entitled to receive the insured amount in case the policy holder dies. Insurer: The insurance company that offers the policy. Premium- When you take a policy, you will have to pay the insurance company a fixed amount every year. This is the premium. A one-time payment instead of an annual payment are single premium policies. Term - The number of years for which the policy is bought. If you buy it for 10 years, the policy is described as one with a 10-year term.

Bonuses i. Guaranteed bonuses Is a guaranteed return. Generally, it is not given for more than five years of the policy period. By and large, it is a percentage of the sum assured. This amount is paid to the policy holder after the end of the term. ii. Reversionary bonuses Based on the performance of the company, the insurance company declares a bonus for policy holders every year. The amount is got after the end of the term. Reversionary bonuses are declared after the completion of the guaranteed bonus period. Offered purely at the discretion of the insurance company and depends on the profits made that year. Sum assured (SA) This is also known as the cover or coverage and is the total amount that you are insured for.

Rider It is an optional feature that can be added on to a policy. You have to pay an additional premium to avail this benefit. For instance, you may take a life insurance policy and add on accident insurance as a rider. Surrender value Halfway through the policy, you might want to discontinue the policy and take whatever money is due to you. The amount the insurance company then pays is known as surrender value. The policy ceases to exist after this payment has been made. Paid up value If you discontinue to pay the premiums, but do not withdraw the money from your policy, the policy is referred to as paid up. The sum assured is reduced proportionately, depending on when you exit from the policy. You then get the amount at the end of the term.

Maturity benefit The amount that the insurance company has to pay you when the policy expires is known as the maturity benefit. It generally comprises the sum assured + bonuses. For example: -Age of policy holder - 30 years, Beneficiary Spouse, Cover- Rs 2 lakh, Term- 20 years, Premium (per annum) - Rs 9,000 ,Type of policy - Endowment If the policy holder passes away Insured for 20 years (between the age of 30 and 50). If he passes away during this time, his spouse gets the maturity benefit. This will be Rs 2 lakh (Rs 200,000) along with the bonus (if any). If he lives to his 51st birthday , He is entitled to the maturity benefit which is: i. Sum assured: Rs 2 lakh (Rs 200,000). This amount is guaranteed. ii. Guaranteed bonus: This amount is guaranteed. iii. Reversionary bonuses: This is the amount which will be declared by the company every year based on its performance. It is considered only after the guaranteed bonus period is over. This amount is not guaranteed.

Survival benefit Some insurance policies make payments at specified intervals to the customer. Typically, they are called money back policies. The amounts paid are generally fixed and predetermined. They are called survival benefits. Here is an example:

Age of policy holder Beneficiary Cover Term Premium (per annum) Type of policy

30 years Spouse Rs 2 lakh 15 years Rs 18,000 Moneyback

The policy promises to give back a portion of the sum assured (10%, 15%, 20%, 25%) every three years. If you pass away If you die in the next 15 years, Rs 2 lakh (Rs 200,000) and bonuses (if any) will be paid to your spouse.

If you survive , this is what the insurance company will pay you: After three years: Rs 20,000 After six years: Rs 30,000 After nine years: Rs 40,000 After twelve years: Rs 50,000 What you will get on maturity You have been offered a sum assured of Rs 2 lakh (Rs 200,000). But you have already been paid Rs 140,000 as can be seen above. On maturity, the balance sum assured (Rs 60,000) + Guaranteed bonus + Reversionary bonus will be paid to you.

Basic elements 2 basic elements- Death cover and Survival benefit. Plans providing death cover are Term Assurance Plans. Plans providing survival benefit are Pure Endowment plans. If the insured dies within a specified period, no payment is made.

Term Assurance Plan : -Provides coverage for a specific period or term (most often 1, 5, 10, 15 or 20 years). -If death occurs during the term, the policy pays cash benefits to the beneficiary. -Once the term is over and if the policy is not renewed, the coverage ceases. -If death occurs after the coverage ceases, no cash benefits are paid out. It is the most straightforward type of life insurance. Sometimes it is called "pure" insurance, since the policy has no financial investment value and most of your premium goes to pay for coverage, with only a small amount used to pay the insurance company's costs.

policy runs as long as the policyholder is alive. requires the insurer to pay regular premiums throughout the life. the insured amount and the bonus is payable only to the nominee of the beneficiary upon the death of the policyholder. no survival benefit. a major drawback is that the policyholder is not entitled to any money during his or her own lifetime. For all practical purposes, some insurers pay some amount even at a certain old age, may be 80.

Endowment assurance policy is a combination of term insurance plan and a pure endowment plan. the sum assured is paid on survival of the specified period or on earlier death. there is both a death benefit or the maturity benefit. If the policy holder dies before the maturity of the policy, his nominee gets the sum assured or the death benefit and the policy terminates. If the policy holder survives till the end of the term,he gets the maturity benefit as per the terms and conditions of the policy.

Is also a form of financial saving i.e. if the person covered remains alive beyond the term of the policy, he gets investment benefits, usually referred to as guaranteed additions, in addition to the sum assured. A term insurance plan with a pure endowment plan of double the value is called a Double Endowment Assurance plan. Other types of endowment, like a marriage endowment plan, which stipulates the date on which the sum assured will be paid if the life insured dies early. Another endowment plan option is the Educational Annuity plan, where the sum assured would be paid in instalments, commencing from a date which may be chosen as the likely date when the child is pursuing higher or professional education. Have a fixed term or limited term . E.g. a 20-year endowment policy or a 25-year endowment assurance plan.

An endowment assurance plan normally has 2 variants- with profit or without profit policy. With profit policy or participating policy enjoys the right to participate in the growth of the insurance company and is eligible for bonuses. Without profit or Non-participating policy is not entitled to any bonus declared by the insurance company and hence are not very popular too. Participating endowment policy has an extra premium as compared to the non-participating endowment policy.

It is called Anticipated Endowment Plan i.e. the customer can anticipate when the sum assured would be paid to him. A certain percentage of the sum assured (survival benefit ) comes back to the policy holder on survival after say every 3 or 5 years, as pre-determined. If the policy holder dies before the policy matures, then the entire sum assured is paid to the family as death benefit, irrespective of the survival benefits paid or not.

It is effectively a combination of a term insurance plan for full sum assured and a number of different pure endowment plans. This policy could be taken by someone who might require liquidity at regular intervals for purposes like childrens education, wedding, purchase business equipment, buy an asset or some other planned expense. Since death benefit is guaranteed irrespective of the survival benefits already paid , makes it a compelling insurance policy to buy.

It is an insurance policy on the lives of children, who are not majors. Since the age of child is below 18 years, the proposal will have to be made by a parent or a guardian. The premium considered at the commencement of the policy is relatively lower because of the young age. Usually, a child insurance plan can be purchased when the child is 3 months old (or 91 days of age). According to the rules of IRDA (Insurance Regulatory and Development Authority), the risk cover on the life of the insured child will commence only when the child attains a specified age. This time gap between the date of commencement of insurance policy and the commencement of risk is called Deferment period. The date, on which the risk will commence, at the end of the deferment period is called the Deferred Date.

No mortality charges till the deferred date. If the child expires before the deferred rate, no sum assured given, only paid premiums returned. After the child attains 18yrs of age or any later date after that, as per the policy, the title of the policy automatically passes on to the child from the guardian. This is called vesting. The first policy anniversary after the childs 18th birthday, is called the Vesting Date. After vesting, the insurance policy becomes a contract between the insurance company and the child. A big asset for the childs future to take care of various financial commitments

Also called retirement plan or annuities. An investment is made either in a single lump sum payment or through instalments and is paid over a certain number of years. In return ,a specific sum is received every year, every halfyear or every month, either for life or for a fixed number of years. does not provide any life insurance cover. Instead, offers a guaranteed income either for life or a certain period . The individual has the option of withdrawing up to one third of the maturity amount in cash. The policy holder will have to buy an annuity with (at least) the remaining two thirds amount from any life insurer of his choice. Plans can be with cover or without cover.

Immediate annuity plans - The annuity/pension commences within one year of having paid the premium (which is usually a one-time premium). The premium paid here is also known as the purchase price. Currently in India, very few life insurance companies offer immediate annuity plans. E.g. LIC's Jeevan Akshay II . Deferred annuity The annuity is 'deferred' up to a time, which is decided upon by the policyholder. For example, if an individual buys a pension plan with tenure of 30 years (also known as the 'deferment period'), then his annuity will begin 30 years hence. Premiums can be paid as a 'single premium' or as regular premium. Presently, most pension plans available are deferred annuity plans.

1. Lifetime annuity without return of purchase price: The individual receives pension for as long as he lives. The pension ceases on occurrence of an eventuality and the insurance contract comes to an end. 2. Annuity for life with a return of the purchase price: The individual receives pension till he is alive. In the event of an eventuality, the purchase price (maturity amount, which includes SA + bonuses/additions ) of the annuity is paid out to his nominees/beneficiaries.

3. Lifetime annuity guaranteed for a certain number of years: The individual receives a pension for a certain number of years (as prescribed by the plan) irrespective of whether he is alive for the said period or not. Moreover, if he survives the period, he continues to receive pension for the rest of his life. e.g. - if the individual has opted for 'Lifetime annuity guaranteed for 15 years', and he meets with an eventuality after only 3 years, then his nominees will keep receiving annuity for the remaining 12 years . 4. Joint life/ Last survivor annuity: The individual receives a pension till he is alive. In case of an eventuality, his spouse receives the pension. Some companies offer both, 'with' and 'without return of purchase price'. Under the 'Joint life / last survivor annuity with return of purchase price', in case of an eventuality to both the individual as well as his spouse, the purchase price of the annuity is 'returned' to the nominee.

Provide a combination of risk cover and investment. The dynamics of capital market have a direct bearing on their performance. Risk is borne by the investor. Give you flexibility to invest as per your risk profile, financial commitments and convenience.- Equity, balanced, debt. Transparent about premium invested and charges.

They allow you to track your portfolio. Offer the benefit of a single premium top up which allows you to invest ad hoc additional amounts. Give you the option of a premium vacation. Switch option available. May have the Partial Withdrawal option which facilitates withdrawal of a portion of the investment in the policy. This is done through cancellation of a part of units. Withdrawal is allowed, provided the fund does not fall below the minimum fund value.

Unit Fund - The allocated (invested) portions of the premiums after deducting for all the charges and premium for risk cover under all policies in a particular fund as chosen by the policy holders are pooled together to form a Unit fund. Unit- It is a component of the Fund in a Unit Linked Policy. Net Asset Value (NAV) - NAV is the value of each unit of the fund on a given day. The NAV of each fund is displayed on the website of the respective insurers.

Fund Type
Equity Funds

Nature of Investments

Risk Category

Primarily invested in company stocks Medium to High with the general aim of capital appreciation Income, Fixed Interest Invested in corporate bonds, Medium and Bond Funds government securities and other fixed income instruments Sometimes known as Money Low Cash Funds Market Funds invested in cash, bank deposits and money market instruments Balanced Funds Combining equity investment with Medium fixed interest instruments

The different types of fees and charges are given below. However, insurers have the right to revise fees and charges over a period of time. Premium Allocation Charge is a percentage of the premium appropriated towards charges before allocating the units under the policy. This charge normally includes initial and renewal expenses apart from commission expenses. Mortality Charges are 4charges to provide for the cost of insurance coverage under the plan. Mortality charges depend on number of factors such as age, amount of coverage, state of health etc Fund Management Fees - These are fees levied for management of the fund(s) and are deducted before arriving at the Net Asset Value (NAV) . Policy/ Administration Charges - These are the fees for administration of the plan and levied by cancellation of units. This could be flat throughout the policy term or vary at a predetermined rate.

Surrender Charges - A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions. Fund Switching Charge - Generally a limited number of fund switches may be allowed each year without charge, with subsequent switches, subject to a charge. Service Tax Deductions - Before allotment of the units the applicable service tax is deducted from the risk portion of the premium.

Joint life insurance policies are similar to endowment policies. Offer maturity benefits to the policyholders, apart from covering risks. They are categorized separately as they cover two lives simultaneously. Suitable for a married couple or for partners in a business firm.

The SA is payable on the first death and again on the death of the survivor during the term of the policy. Vested bonuses + SA is paid after the death of the survivor or after the maturity date if one or both the lives survive to the maturity date. The premiums payable cease on the first death or on the expiry of the selected term, whichever is earlier.

Accident benefits equivalent to the SA are available on the first death. In case both the lives are covered under Double Accident Benefit (DAB), the surviving life is covered under DAB until the end of the policy year, in which the first life dies under the cover of the policy.
Both the policy holders can avail these benefits, if Both the policy holders die simultaneously owing to an accident. OR Both of them die within the specified period as a result of the same accident OR The second policy holder also dies in the same policy year as result of another accident. Nomination is allowed under the policy.

Offers life insurance protection to various groups such as employers-employees, professionals, cooperatives, weaker sections of society, etc. Have low premiums and simple insurability conditions. Premiums are based upon age combination of members, occupation and working conditions of the group. Premium is the same amount for all the insured persons in the group

It allows the insured to convert a term policy to a permanent policy (Whole life policy or an Endowment policy ) at a later date. The insured person is not required to undergo any new or additional screening at the time the policy is converted, regardless of his/her medical condition. It benefits by providing less expensive term life insurance now while maintaining the option to convert to a permanent policy at a later date.

Plans are offered primarily by LIC. Two of LIC plans- Jeevan Aadhar (Whole life policy with limited premium payment )and Jeevan Vishwas (Endowmen plan). Extra premium is charged in cases like loss of both arms, deaf in both ears etc. Plans are company specific.

Riders are additional optional benefits that can be attached to a life insurance policy. These can be purchased at a marginally additional premium. a) Waiver Of Premium Payment of premiums is waived off when the insured person suffers total disability. In such a case, further payment of premiums is exempted but the policy continues. Need: This optional benefit ensures that the policy continues to invest the regular premium as planned and that the objective for taking the insurance policy is not compromised. b) Critical Illness Cover If any critical illness is diagnosed in a policyholder during the course of the policy, the sum assured is paid out to the insured person as a lump sum amount. the policy continues though the critical illness cover ceases to exist.

Need: To live up to exorbitant medical costs, which can be covered to some extent, at a nominal extra premium. c) Accidental Death Benefit An additional amount is payable in the case of accidental death of the insured during the term of the rider. Need: To compensate for additional financial inconveniences to the family/dependents due to the event.
d) Accelerated Sum Assured The insured person is paid the sum assured on being diagnosed as suffering from any of the critical illness. After the settlement of claim the basic policy is terminated. Need: The accelerated sum assured is useful when one wants critical illnesses to be covered but desires the same at a marginal cost as compared to Critical illness cover.

Plan Option Accelerated Benefit Plan

Death Benefit(on death of insured parent during the policy term)

Maturity Benefit

Sum Assured + Bonuses Declared.

Sum Assured + Bonuses Declared

The policy terminates immediately.

Your family need not pay any further premiums and the policy continues.

Maturity Benefit Plan

Sum Assured + Bonuses Declared

Double Benefit Plan

Sum Assured.
Your family need not pay any further premiums and the policy continues.

Sum Assured + Bonuses Declared

Our insurance regulator, IRDA, allows every policyholder 15-days from the receipt of the policy to return your policy to the insurance company. It is a very consumer friendly facility that protects the interests of a policyholder. You can ask for your premium to be returned to you. Brings in transparency in the process of buying Insurance.

It is the practice of mitigating insurance risks. Risks are shared with another insurance carrier in exchange for paying that other carrier a part of the premium. This makes it possible for larger policies to be written. Simplifies things for the customer and generally does not affect rates. The practice of reinsurance could date back to as early as the 1300s.

Typically, reinsurance is applied to larger insurance policies or a large number of small high risk policies. Companies may also engage in the practice when they do not specialize in a particular insurance product. It provides the opportunity for a company with more expertise in a certain area to step in and handle those matters.

Principle of Utmost Good Faith: Reinsurers maintain utmost faith in underwriters of their company. These underwriters in turn maintain utmost good faith in the underwriters of the primary insurance company. Principle of Indemnity: The principles of indemnity of the insured risk apply automatically on reinsurance. No reinsurance without retention.

There are two basic methods of reinsurance: Treaty Reinsurance is a method of reinsurance requiring the insurer and the reinsurer to formulate and execute a reinsurance contract. The reinsurer then covers all the insurance policies coming within the scope of that contract. Facultative Reinsurance Here, the ceding company cedes and the reinsurer assumes all or part of the risk assumed by a particular specified insurance policy. Reinsurance is negotiated separately for each insurance contract It is normally purchased for individual risks not covered by the reinsurance treaties. Underwriting expenses are higher relative to premiums written on facultative business because each risk is individually underwritten and administered.

It is one of the most important services that an insurance company can provide to its customers. Insurance companies have an obligation to settle claims promptly. You will need to fill a claim form and submit all relevant documents such as original death certificate and policy bond to your insurer to support your claim. Most claims are settled by issuing a cheque within 7 days from the time they receive the documents. If the insurer is unable to deal with all or any part of your claim, you will be notified in writing.

Maturity Claim Death Claim Claim intimation In case a claim arises: Contact the respective life insurance branch office or Contact your insurance advisor Claim requirements For Death Claim: 1)Death Certificate 2) Original Policy Bond 3) Claim Forms issued by the insurer along with supporting documents For Accidental Disability / Critical Illness Claim: 1Copies of Medical Records, Test Reports, Discharge Summary, Admission Records of hospitals and Laboratories. Original Policy Bond Claim Forms along with supporting documents For Maturity Claims: Original Policy Bond , Maturity Claim Form .