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INSURANCE SERVICE

By :
Nagendra
venktesh
Meaning:
 Insurance, in law and economics, is a form of risk management
primarily used to hedge against the risk of a contingent loss.

 Insurance is defined as the equitable transfer of the risk of a


potential loss, from one entity to another, in exchange for a
premium.

 Insurance rate is a factor used to determine the amount, called the


premium, to be charged for a certain amount of insurance coverage

 Risk management, the practice of appraising and controlling risk,


has evolved as a discrete field of study and practice
Definition:
According To Insurance Act," The undertaking by
one person to indemnify another person against
loss or liability for loss in respect of a certain risk
or peril to which the object of insurance may be
exposed, or to pay a sum of money or other
thing of value upon the happening of a certain
event and includes life insurance”.
Types of Insurance:
Life insurance
Non - Life Insurance
(general insurance)

Property (eg.Builders risk insurance)


Aviation (eg.Private aircraft insurance)
Marine (eg. Marine hull insurance)
Miscellaneous (eg.Purchase insurance)
Life Insurance:

Insurance act,1938, defines life insurance


business as the business of effecting contracts
of insurance upon human life, including any
contract whereby the payment of money is
assured on death or the happening of any event
insured by the contract.
Needs of Life Insurance:
1) First and foremost point is life insurance is not for
policyholder, it is for his/her family
2) Life insurance is a unique investment that allows for two
needs:
a) Important life saving goals
b) To protect the property
3) Life insurance plays a vital role in one’s financial planning
process and securing the financial future of the survivors
4) The core feature of life insurance policy is that the financial
interests of one’s relatives stay shielded from
circumstances such as loss of income due to critical
disease or death of the policyholder.
5) It provides a sense of security that no other from
of investment provides. Life insurance is considered
one of the most popular savings/investment
schemes that provides sound returns as well as
protection and also serves as a tax saving
mechanism
6) It is a goal based savings.
7) Life insurance is the only investment option that
offers specific products tailored to different stages of
life.
Importance Of Life Insurance:
 PROTECTION: Saving through life insurance guarantee
full protection against risk of death of the saver. Life
insurance assures payment of entire amount assured,
whereas in other saving schemes, only the amount
saved is payable
 AIDS THRIFT: life insurance encourages thrift. It allows
long-term savings since payments can be made
effortlessly because of the easy installment facility built
into the scheme
 ENHANCES CERDITWORTHINESS: In case of
insurance, it is easy to acquire loans on the sole security
of any policy that has acquired loan value.
 TAX RELIEF: Life insurance is the best way to have the
benefits of tax deductions on income tax and wealth tax.
Players In Life Insurance:
Major Market Players In Life Insurance
• Bajaj allianz life insurance co ltd
• Birla sun life insurance co ltd
• Hdfc standard life insurance co ltd
• Icici prudential life insurance co ltd
• Life insurance corporation of india
• Max New York life insurance co ltd
• Bharti axa life insurance co ltd
• Canara Hsbc oriental bank of commerce life insurance
co ltd
• Aviva life insurance co. India ltd
Life Insurance Products :
Life insurance products can be categorized into the following types:
 Term insurance: It can be defined as “a policy in life insurance may be
defined as a contract that furnishes life insurance protection for a limited
numbers of years, the face value of the policy being payable only if death occurs
during the stipulated term, and nothing being paid in case of survival”.
 Term insurance can be issued for as short a period as a 1yr or 5,10,15 or 20yrs
or protection up to a certain age, say 60 or 65yrs.
 The important advantage of term insurance policy is its low cost.
 It is suitable where risk coverage is needed for a restricted period.
 Person having low income can provide for meeting family obligation at low cost.
 It is useful to those who need extra protection for a short duration.
Types Of Term Insurance:
 Level Term: A fixed amount of coverage with premiums that
are fixed over a certain period of time, usually remain level.
 Increasing\Decreasing Term: Amount of coverage increases
or decreases throughout the term, premiums typically remains
level.
 Renewable Term: Includes a renewal provision that gives the
policy-owner the right to renew the insurance coverage at the
end of the specified term without submitting evidence of
insurability.
 Convertible Term: It gives the policy holders the right to
convert the term policy to a permanent policy.
 Group Term: Insurance purchased typically by an employer
or professional association that is intended to cover several
people, usually resulting in reduced premiums.
 Whole Life Assurance: whole life insurance
policies are intended to provide life insurance protection
over one’s lifetime. It is a long-term insurance plan.
 It provides economic security to the dependents of
assured.
 It helps to discharge the liabilities after the death.
 The premium rates are lower in comparison to other
policies.
 It is useful in following situation:
 The assured has to make provisions for his dependents
after his death.
 Wants to meet the tax liability after the death.
 The assured does not require the sum during his lifetime.
 Whole life policies can be either participating
type or non-participating type,
 Participating type policies are those which are
entitled to a share in the distributable surplus
(profit) of life insurance company, whereby the
cash value of the policy can go up, with the
announcement of bonus/dividend.
 Non-participating policies have the same benefit
throughout the life of the policy.
 Following are the types of whole life policies:
 Ordinary whole life insurance,
 Limited payment whole life insurance,
 Convertible whole life insurance.
 Endowment Assurance: These are the most
commonly sold policies. These policies assure the benefits
under the policy will be paid on the death of the life insured
during the selected term or on his survival to the end of the
term.
 This is a mix of a term insurance and pure endowment.
 The premium is higher in endowment policies.
 This the most popular from of life assurance since it not only
makes provision for the family of the life assured in the
event of this early death, but also assures a lump sum at
any desired age.
 The assured when affecting a policy selects the number pf
years.
 Annuities: An annuity is a series of periodic
payments. An annuity contract is an insurance policy,
under which the annuity provider (insurer) agrees to pay
the purchaser of annuity (annuitant) a series of regular
periodical payments for a fixed period or during
someone’s life time.
 According to D.S.Hansell, ”Annuities are a form of
pension, whereby in return for a certain sum of money
the insurer agrees to pay the annuitant an annual
amount for a specified period or for the remainder of the
annuitant’s life”.
 A person who wants to get a regular income after his
retirement or in his old age takes-out annuity.
 Money-back Policy: These policies are structured
to provide sums required as anticipated expenses
over a stipulated period of time. With inflation becoming
a big issue, companies have realized that sometimes the
money value of the policy is eroded. That is why with
profit policies are also being introduced to offset some of
the losses incurred on accounts of inflation.
 A portion of the sum assured is payable at regular
intervals. On survival the remainder of the sum assured
is payable.
 In case of death, the full sum assured is payable to the
insured.
 under money-back policies premiums can be paid as per
the insurance company’s policy, could be quarterly, half-
yearly, or annually.
 Loan Cover Term Assurance Policy: loan cover
term policy is an insurance policy, which covers a
home loan. Such a policy covers the individual’s home
loan amount in case of an eventuality. The cover on
such a policy keeps reducing with the passage of time as
individuals keep paying their EMIs(Equated Monthly
Installments) regularly, which reduces the loan amounts.
 This plan provides a lump sum in case of death of the life
assured during the term of the plan. The lump sum will
be a decreasing percentage of the initial sum assured as
per the policy schedule. Since this is a non-participating
pure risk cover plan, no benefits are payable on survival
to the end of the term of the policy.
Other Classes Of Assurance:
1. Policies According to premium payment: policies
according to the premium payment may be of the following types:
 Regular Premium Policy: The premium is paid at regular
intervals, say yearly, half yearly, quarterly, monthly the policy is
known as regular premium policy.
 limited premium payment policy: The premium are payable for
a fixed number of installment or upto a certain age, such policies
are known as limited premium payment policy.
 Single premium policy: The assured is required to pay the entire
premium in one installment, at the beginning of the contract the
policy is known as single premium policy.
 Increasing premium policy: The rate of premium goes on
increasing year after year for the rest of the period of policy, it is
called increasing premium policy.
2. Policies According to participation in profits: It's of
two types namely:
 Without profit/Non-participating policies: The holder of
the ‘without profit policies’ are entitled to share the profit of the
insurer. These policy holders get only the sum assured and no bonus
is given to them.
 With profit/participating policies: The holders of the ‘with
profit policies’ are entitled to share the profit of the insurer. They are
entitled to get the share of profit, i.e., the bonus only when there is
profit. Where a policy is taken with profit, the insured is required to
may a lightly more premium than a without profit policy.
3. Policies According to the Number of person insured:
The policy amount may be paid in lump sum or in installments:
 Lump sum policies: The sum assured is paid in lump sum at
the events insured.
 Installment policies: Under this policy, the policy amount is
payable in installment.
4. Policies According to the Method of payment of
policy Amount: on the basis of number of person insured in a
policy, the policy may be:
 Single Life Policies: A single life policy insures you only and
pays out, on the death, or if you are diagnosed with a terminal
illness 18 months before the expiry of the policy term.
 Joint Life Policies: Joint life insurance allows two or more
people to combine what would equate to two individual life
insurance policies into one policy. There will be one premium
paid, one set of fees, and one death benefit, but there will be two
lives insured. These types of policies are usually used by spouses
or business partners who have combined interests and finances.
 There are two types of joint life insurance:
a) First to die life insurance
b) second to die life insurance
4. cntd..
 Group life policies: Group insurance enable a large number of
people being covered under one contract. As the name suggests,
these policies on a collective basis assures the members of a particular
group of persons under a single policy.
5. Other special Need plans:
 Non-Medical life insurance
 Salary saving scheme
 Unit linked plan
 Riders:
a) Term rider
b) Critical illness or dreaded disease rider
c) Hospitalization and surgical assistance
d) Waiver of premium rider
e) Accident and disability riders
Non-Life/General Insurance:
A contract whereby, upon periodic payment of sum of
money called premium, the insurer undertakes to
compensate the insured in the event of any specified
loss or damage suffered by the latter, is known as
‘general insurance,
The typical characteristic of general insurance is that it
serves only as a protection contract, and not as an
investment contract.
The money paid as premium will come back to the
insured by way of claims only on the occurrence of
some specified events resulting in loss or damage to
the insured.
Need of Non- Life Insurance:
The need of non-life insurance arises due to following
reasons:
 Through general insurance, entities are protected
against bearing the full costs of an economics loss
 It provides coverage for all aspects of modern living,
from professional indemnity and public liability to
natural disasters and personal property.
 Without it, fewer businesses could operate, jobs
would be lost and families would not have protection
against adversity.
 Insurers are also financial intermediaries and play
an important part in mobilizing savings and
investment and in improving the allocation of
resources.
Importance of Non-Life Insurance:
Importance of non-life insurance is as follows:
 Promoting Financial Stability: This occurs though insurers
covering those who suffer loss. Without this assurance individuals and
firms could incur significant losses and engage in activities to create
wealth.
 Substitutes for and complements Government welfare
programs: This is relevant for activities such as compulsory third
party insurance for motor vehicle accidents and life insurance.
Insurance covering personal injury care and rehabilitation costs can
assist in reducing government expenditure on these costs.
 Facilitating trade and commerce: Several products and
services are made and sold only when adequate insurance is provided.
In the case of high risk new business ventures, the provision of
financing is often contingent upon assets and the entrepreneur’s lives
being adequately insured
 Encouraging loss Mitigation: Insurance companies
requires some policyholders to undertake loss management
activities, such as fire prevention, occupational health, and safety
activities. Any reduction in losses can benefit the community at
large.
 Fostering More Efficient Allocation of Capital:
Insurers spend time on collecting information to evaluate projects,
firms, and individuals. By comparison, individual savers and
investors typically do not have the time, resources, or ability to
collect this information.
 Helps to Manage Risk: Risk management is a key
contribution of the insurance industry. Uncertainty and risk
accompany most economic activities. Acquisition of assets that
characterizes most investments also implies the acquisition of risk.
Players In Non-Life Insurance:
1) In public sectors:
 National Insurance Company Limited,
 New India Assurance Company Limited,
 Oriental Insurance Company Limited,
 United India Insurance Company Limited.
2) In private sector:
 Bajaj Allianz General Insurance co.ltd,
 Reliance General Insurance co.ltd,
 Export credit guarantee corporation,
 Star Health and Allied insurance co.ltd,
 SBI general insurance co.ltd,
 Cholamandalam general insurance co.ltd,
 Shriram general insurance co.ltd,
 Future general India insurance co.ltd.
Non-Life Insurance Products:
General Insurance can be classified as follows:
 Fire insurance
 Automobile insurance
 Health insurance
 Marine insurance
 Business and commercial insurance
 Political risk insurance
 Professional indemnity insurance
 Property/casualty insurance
 Credit insurance
 Travel insurance
 Locked funds insurance
 Miscellaneous
Risk Appraisal And Selection:
Risk Appraisal: In its purest form gauges the risk of a
applicant. It refers to the process that a large financial
service provider, either a bank or an insurance company,
uses to provide access to products such as credit or
insurance to a customer.
Selection of a risk: It is a process whereby inferior
lives are “weeded-out”. The function of the selection
process is to determine whether the degree of risk
presented by applicant for insurance is commensurate
with the premium established for persons in his category
or some additional premium should be charged or the
applicant should be rejected the insurance.
Unit linked Insurance plans (ULIPS):
Unit linked insurance policy is one in which the customer is
provided with a life insurance cover and the premium
paid is invested in either debt or equity products or a
combination of the two.
In other words, it enables the buyer to secure some
protection for his family in the event of his untimely death
and at the secure some protection for his family in
untimely death and at the same time provides him an
opportunity to earn a return on his premium paid.
Types of ULIP:
 Pension plans: This comes in two variations, with and without
life cover and are meant for people who want to generate returns for
their sunset years.
 Children plans: Children plans, on other hand, are aimed at
taking care of their educational and other needs.
 Group Linked plans: It is basically designed for employers
who want to offer certain benefits for their employees such as
gratuity, superannuation and leave encashment.
 Capital Guarantee plans: This plan promises the policy
holder that at least the premium paid will be returned at maturity.
Advantage of ULIP
 Insurance cover plus savings
 Multiple investment option
 Flexibility
 Works like an sip
 Transparency
Disadvantages of ULIP
 No standardization
 Lack of flexibility in life cover
 Overstating the yield
 Internally made sales illustration
 Not all show the benchmark return
 Early exit options
 Creeping costs