PRINCIPLES & PRACTICES OF LIFE INSURANCE

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Terminology of Insurance 1. Insurance 2. Insurer 3. Proposer 4. Insured 5. Life Assured 6. Proposal 7. Policy 8. Plan 9. Term 10.Sum Proposed
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11. Sum Assured 12. Premium 13. Mode 14. Lapsation 15. Revival 16. Date of Maturity 17. Participating Policies 18. Non Participating Policies 19. Days of Gross 20. Gross Premium
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21. Net Premium 22. Tabular Premium 23. Loading 24. FPR / Renewal Receipt 25. Notice for Renewal Premium 26. Nomination 27. Assignment 28. Actuaries 29. Mortality Tables 30. Mortality Experience / Mortality Tables
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31. Policy Reserve 32. Underwriting 33. Alteration in Policy 34. Claim 35. IRDA 36. Risk Speculation 37. Group Insurance 38. Reinsurance 39. Survival Benefit 40. Annuities 41. Loan 42. Surrender 2/16/2012
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Life Insurance History 1. Life Insurance in modern form based on England 2. Oriental Life Insurance Company (1818) 3. 285 Companies by 1868 4. 174 Companies ceased to exist by 1870 on passing Insurance Act, 1870 by British Parliament 5. Mainly for Europeans 6. Indian lives treated sub-standard-Extra 15%0 to 20%0
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First Indian Company Bombay Life Assurance Society in 1870

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8. Oriental Govt. Securities Life Assurance Company 1874 9. 44 Indian Company by 1914 10. 95 Indian Company by 1940 11. Insurance Act, 1938 was passed to regulate the sector 12. 209 insurers in 1948 with 713 crores business in force under 30,16,000 policies. Life Fund 150.39 crores 13. 250 Life Companies in 1956 14. Nationalization of life business in 1956

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Comparative Chart of Business

Year 1957 1999 2007 2008

No. of Policies (in lacs) 8 148 661 858

F.Y.P. (in crores) 14 4171 75406 92988

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Market Share (Public Companies Company Life Non Life Year 2008 63.64 59.70

Growth (YOY in 2008) Life Overall LIC 29.96% 22.82%

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Growth Rate (2008) (In percentage) Name of Co. Reliance Max New York Life Birla Sun Life Met Life Sahara Life ICICI Prudential Life Bajaj Allianz SBI Life
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Lives 127 108 72 -14 -24 59 96 -3

FYP 196 73 123 140 183 58 52 87

Market Share 2.96 1.71 2.11 0.89 0.13 8.93 6.98 5.15
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Highest Individual Insurance (2007) State Maharashtra Uttar Pradesh Andhra Pradesh Delhi No. of Policies (in lacs) 54.83 5021 4590 1810 Premium (in crores) 7190 5922 5150 3876

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LIFE INSURANCE COMPANY OPERATIONS & ETHICS

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Life Insurance Company Company that underwrites and issues life insurance Policies. Form of Organization - Sole Proprietor - Partnership - Corporation / Company - Mutual Assurance Companies

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Life Insurance & the Economy Essential roles in the economy of many: - Market Driven Organizations - Providers of Financial Security - Financial Intermediaries - Large Employers.

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Company Operations Operation an action or a process that a company performs to conduct its business. Life Insurance Company Operations include : Forming and organizing the insurance co. Assessing customer needs Developing Products Distributing Products Administering Product Ensuring Corporate success.
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Functional Areas in life Insurance Companies - Actuarial - Underwriting - Marketing - Customer Service - Claim Administration - Investments - Accounting - Legal

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- Compliance - HR - Information Systems. - Integration & Coordination among functional areas

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Risk Management in Life Insurance Companies Risk management Includes: identifying risk analysis risk assessing risk dealing with risk

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Types of Risks faced by Insurers - Product Design and Pricing Risk - Underwriting Risk - Credit Risk - Market Risk - Operational Risk - Liquidity Risk - Legal and Regulatory Risk - Strategic Risk

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Ethical Decision Making Ethics: A system of accepted standards of conduct and moral judgment that combines the elements of honesty, integrity and fair treatment. - Life Insurance and the Fiduciary Relationship - Ethical Dilemmas - Improving Ethics in the Life Insurance Industry - Establishing codes of Ethics - Establishing Corporate Ethics offices - Training to employees in Ethics - Consumer Education
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Organizational Structure of Insurance Companies Functions: Generally describes a distinct type of work, an extended step in a process, or an aspect of operation and management. Functional areas: Marketing Actuarial Underwriting Customer Service Claim Administration Investments Accounting Legal Compliance Human Resources Information Systems
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Coordination key to Effectiveness Components of Organizational Structure 1.Assigning Responsibility 2.Providing proper authority 3.Specific Accountability 4.Delegation

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Organizational Chart Formal internal organization of c company indicating (1) visual display of job (2) Chain of command/structure of authority (3) Unity of command (4) Pyramidal structure and level of authority

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- Policy owners & stockholders - Board of Directors - Company Management-CEO, strategic planning, technical Managementplanning - Centralized & Decentralized Organization - Line units & staff units

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Organizations of Work Activities 1. Functional 2. Product 3. Territory 4. Strategic Business 5. Matrix 6. New organizational

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Welcome to
Policy Servicing

By : J. L. Kapur
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2 ways to ensure that claim on policy is settled in favor of beneficiary on death of insured
 

nomination Section 39 assignment Section 38

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NOMINATION

1. 2. 3. 4. 5.

holder of the policy on his own life to appoint a person/s to receive policy monies death during the term of the policy. policy.

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How to effect Nomination

-At the time of taking policy-Proposal form -On the back of policy by endorsement -Notice to the Insurance Co. -Registrations of Nomination

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Effect of Nomination does not confer on nominee any right, title or interest in policy policyholder can change nominee without nominees consent death of nominee for a minor nominee, appointee is required

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ASSIGNMENT


On assignment of policy to assignee, policyholder loses all rights, titles and interest in the policy policy monies payable to assignee on maturity, or death of policyholder 1. Who can assign:-Holder of policy with assign:absolute rights must be major & competent to contract. 2. Must be supported by considerations.

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Types of Assignment

Absolute assignment  Conditional assignment



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Absolute assignment

Policy is assigned absolutely without any condition. condition.  Must by supported by consideration  Valuable consideration  natural love & affection


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Conditional assignment
 

policy is assigned with certain conditions. standard condition: Policy will revert back to policy holder if policy holder survives the date of maturity or on assignees predeceasing the policyholder

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Assignment
For assignment, endorsement of the fact of transfer of interest in policy from assignor to assignee is required. It must be signed by assignor, duly witnessed and sent to insurance company for registration.

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 It can be made by an endorsement on the policy or by a separate deed Notice of assignment to insurance company / written acknowledgement attestation by witness at least one. Effect of assignment on nomination Death of Assigner Minor Assignee. Can not give discharge. Testamentary guardian-father may appoint guardian by will for child during minority.
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Surrender Value
Cash value payable by insurer on termination of policy contract is surrender value. Cash value of Bonus to be paid.

If premium has been paid for at least 3 consecutive years, policy acquires surrender value

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Minimum Surrender Value

Minimum surrender value = 30% (total premium paid - premiums for 1st year - extra / additional premiums)

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Guaranteed surrender value

Guaranteed surrender value of policy = Surrender value + cash value of vested bonus

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Paid up value
Paid up value =premium paid *sum assured total premium payable

Special Surrender value = Surrender value factor * total paid up value + Bonus.

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Section 113 (2)

If the policy has acquired surrender value, it shall not lapse by non payment of further premium but shall be kept alive to the extent of paid up value acquired.

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Features of surrender value

Surrender value arises out of reserves created under each policy. Hence surrender value will differ from policy to policy Surrender value will be as per calculations Printed on the policy document. Surrender value tables are prepared by the actuarial department of the company.
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Loan Calculation
Loan can be granted against life insurance policies Loans up to 90% of the surrender value For paid up policies, lesser percentage of loan (up to 85%) allowed

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Alterations
To make any alterations in policy, policy must be in full force  alteration should not result in increased risk leading to adverse selection against insurer


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Permissible Alterations
    

address mode of premium payment from without profit to with profit name nominee / assignee

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change in plan provided it does not lower premium splitting policies into two or more policies grant double accident benefit grant WOP for policy on minor option for settlement by installments

   

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Duplicate policy


Loss or damage to policy document does not absolve insurer of his liability to pay policy monies when claim arises. Claimant must furnish indemnity bond with surety of financial standing. Insurers cost of issuing duplicate policy (cost of advertisement, stamp duty, etc.) must be borne by claimant

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Welcome to Claims

By : J. L. Kapur
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Servicing of Life Insurance Contract

Start Long Term Contract(2035 years) Settlement of claim Alterations/ endorsements etc.

End

Issuance of first premium receipt(FPR) Renewal notices/ren ewal receipts

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Claim


Claim is a natural culmination of the promise made by the company at the time of entering into a contract

DEATH CLAIMS

MATURITY CLAIMS

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Solvency of the company

- Effectiveness of the Unit to prevent fraudulent claims from being settled - Protect the interest of shareholders, Body of Policyholder & Industry - Image Building - Feedback emerging risks.

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Definition of Death claim



A claim is called a death claim if the life assured dies while the policy is in force If the policy was in full force at the time of death, full sum assured along with accrued bonuses will be paid All unpaid premiums along with interest will be deducted from the claim amount Intimation of death to be made in writing to the Insurance company
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Difficulties in death claim settlement

Lodged Policy Document:


for loan taken against policy, policy would be lodged with the creditor (insurer or any other creditor) Assignment of the policy to the creditor should have been done in case of loans Discharge from assignees is necessary before settling the claim
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Difficulties in death claim settlement

Stolen Policy Document :
police complaint must be lodged  company must have copy of FIR  any loss treated with caution due to possibility of moral hazard  indemnity bond to hand original policy, if ever found, to insurer


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Cont.

Policy is irretrievably lost:



cause may be mutilation /fire/flood etc. indemnity bond can be dispensed with if remnants of the policy are produced as proof of loss

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Cont.

Policies under MWPA:



claim has to be necessarily settled with named trustees. cannot be claimed by creditors

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Cont..

Policyholder is missing:
 

death cannot be inferred automatically claimants must approach appropriate court to get decree drawing presumption of death this decree must be presented to the insurance company payment of premium
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Types of death claim

EARLY CLAIMS (Death within 2 years from the date of FPR)

NON-EARLY CLAIMS (Death after 2 years from the date of FPR)

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Procedure for settling Death Claim



Ascertain Policy details (No,relevant branch etc) Ascertain the condition of the policy(full force/partly paid up/lapsed) person giving Intimation of death(nominee/ relative/ stranger etc) place,time & cause of death place from where intimation has been received
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Cont.

Death Certificate
Primary Evidence of Death Establishes the identity of the decreased Name, Age, Date, time and place of death to be cross checked with other information Issued by - Municipal Corporation. - Secretary of Gram Panchyat

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Cont
 

Ascertain the cause of death In case of unnatural death,FIR, medical report,court verdict etc to be called for Murder of a policy holder needs special attention & investigation Accidental death has to be proved and cannot be presumed Claim form to be completed by the claimant

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Requirements for early death settlement

    

Intimation of death Policy document Proof of age, if age not admitted already Death certificate from an authorised agency Statement from last medical attendant, giving particulars of last illness Cont..

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Requirements for early death settlement



Statement from the hospital, where the policyholder was last admitted. Statement from the person who has seen the dead body and attended the funeral Statement from the employer Sick leave Alternative proof of death may be accepted under certain circumstances(e.g air crash,missing at high sea etc.) Investigation report by the investigating officer commenting on any non disclosure of material fact
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Sec 45 of Insurance Act 1938

No policy shall be questioner after 2 years from the date of risk by the insurer on the ground that the statement or answers given in the proposal or medical report or any document was inaccurate or false unless the insurer shows that such statement was - On material matter - It was fraudulently made - Policy holder knew that it was false

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Investigation
- Identify areas where suppression / misrepresentation concerning past health & habits - Leave record from employer - Consulting Doctor / Hospital / Medical Claim history - From the neighbors Life style health & habits. - From other Insurance Companies Existing & previous Insurance
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Maturity Claims
Maturity claims include the following:
1)Survival benefit claims 2)Fixed percentage of basic sum assured in case of money back policies

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Documents required for maturity claims

     

Completed Claim form Discharge voucher signed by the original claimants Original policy document Proof of assignment/reassignment Discharge voucher from the assignee incase the policy is assigned Proof of age if not submitted earlier

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Conditions applicable


In case of outstanding loans on the policy, the survival benefit amount will have to be adjusted towards repayment of outstanding loan with interest When a policy is financed through the funds of a HUF , the claim has to be settled with the Karta of the HUF

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Section 113 (2)

If the policy has acquired surrender value, it shall not lapse by non payment of further premium but shall be kept alive to the extent of paid up value acquired.

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Features of surrender value

Surrender value arises out of reserves created under each policy. Hence surrender value will differ from policy to policy Surrender value will be as per calculations Printed on the policy document. Surrender value tables are prepared by the actuarial department of the company.
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Loan Calculation
Loan can be granted against life insurance policies Loans up to 90% of the surrender value For paid up policies, lesser percentage of loan (up to 85%) allowed

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REVIVAL
 Risk

cover ceased on lapsed policies  Insurer also lose future income  Agent loses his commission  Adverse selection insurer liability high selection  Revival is possible  Policy brought back into full force  Revival after 5 year lapse is not allowed
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REVIVAL CONT
 Underwriting

process is identical  Proof of continued insurability  Revivals normal requirements

 

Insurability Arrears of premiums with interest

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1. Ordinary revival scheme

A- Without evidence of good health (!) Revival with in 6 months of first FUP (2) POLICY MATURING WITHIN A YEAR (3) In force for at least 5 years-12 months of FUP years(4) No death cover B- With satisfactory evidence of good health (1) Up to 7months if issued at OR (2) New proposal can be considered under nonnon-medical

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( 3 )Policy has completed half of the term or ( 4 )10 years which ever is more and FUP is Between 12 to 18 months. ( 5) RISK IS TO BE CALCULATED AT THE TIME OF REVIVAL.

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Special revival scheme

 Unable

to pay the full arrears  No surrender value acquired  Lapsed period 6months2years 6months  One revival permitted  New policy is dated back as original was in force but not more than 2 years  DOC is changed, term remain same.  Age revised
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 Difference  Be

of original & revised premium to

paid.  Endorsement attached with policy.  Endorsement fee  Financial burden is much less


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Installment Revival
 Assured

not able to pay arrears in lump sum & not eligible for special revival  Lapsed for more than one year  No loan outstanding  Requirements
-six months premium to be paid -arrears spread over 2 years & due dates in the current policy year -policy endorsed accordingly

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Loan cum revival scheme

( 1 ) Loan for payment of arrears of premium & interest ( 2 ) Policy have sufficient SV STEPS: - Loan value calculated - amount utilised towards arrears - Balance , if any, paid to insured or recovered from him - Evidence of insurability required.

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M W P ACT POLICY
        

Section 6 of MWP act, 1874 Creation of a trust for beneficiaries Wife & children normally covered No control of life assured Creditors/ banks have no access Benefit to named parties jointly or to the survivors or survivor. An addendum is to be completed. No loan available
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Policy for handicapped

       

Physically handicapped are insurable. Loss limbs, eyes, hearing completely Partially handicapped insured generally without any extra. Key man insurance 1. only term insurance plains 2. firm or company is policyholder & pay the premium. Claim to PH .
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UNDER WRITING
 Medical

& non- medical non Special reports  Agents confidential report````  Age proof  Under writing decisions;  1. accepted at OR  2.accepted for shorter term
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Under writing conti

      

3. accepted for a different plan 4.accepted with extra 5. accepted with lien 6. accepted with extra exclusions 7. postponed for a specific period 8. decline FACTERS considered for under writing
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1.physical1.physical- health, age, height, weight 2. financial 3. moral hazard 4.physical hazard RATING SYSTEM

 NUMERCAL

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