Insurance Service

8/8/2019 Insurance Service

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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 beexposed, 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 twoneeds:

a) Important life saving goals

b) To protect the property3) 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 financialinterests of one’s relatives stay shielded from

circumstances such as loss of income due to criticaldisease or death of the policyholder.



5) It provides a sense of security that no other from

of investment provides. Life insurance is consideredone of the most popular savings/investment

schemes that provides sound returns as well as

protection and also serves as a tax saving

mechanism6) 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 guaranteefull protection against risk of death of the saver. Lifeinsurance assures payment of entire amount assured,whereas in other saving schemes, only the amountsaved is payable

AIDS THRIFT: life insurance encourages thrift. It allowslong-term savings since payments can be madeeffortlessly because of the easy installment facility builtinto the scheme

ENHANCES CERDITWORTHINESS: In case of

insurance, it is easy to acquire loans on the sole securityof 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 insuranceco 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.



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 moneythe 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 hisretirement 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 themoney 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 onsuch 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 lifeassured 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 theinsurer. 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 isprofit. 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 atthe events insured.

Installment policies: Under this policy, the policy amount is

payable in installment.



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 assistanced) Waiver of premium rider

e) Accident and disability riders



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 tonatural disasters and personal property. Without it, fewer businesses could operate, jobs

would be lost and families would not have protectionagainst adversity.

Insurers are also financial intermediaries and playan important part in mobilizing savings andinvestment 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 insurerscovering those who suffer loss. Without this assurance individuals andfirms could incur significant losses and engage in activities to createwealth.

Substitutes for and complements Government welfareprograms: This is relevant for activities such as compulsory thirdparty insurance for motor vehicle accidents and life insurance.Insurance covering personal injury care and rehabilitation costs canassist in reducing government expenditure on these costs.

Facilitating trade and commerce: Several products andservices 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 livesbeing 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 atlarge.

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 thatcharacterizes 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 financialservice 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 categoryor 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 premiumpaid 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 deathand 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 asgratuity, 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

Insurance Service

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