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 is a unique investment that allows for two needs: a) Important life saving goals b) to protect the property. Life Insurance is considered one of the most popular savings / investment schemes that provides sound returns as well as protection.
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 is a unique investment that allows for two needs: a) Important life saving goals b) to protect the property. Life Insurance is considered one of the most popular savings / investment schemes that provides sound returns as well as protection.
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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 is a unique investment that allows for two needs: a) Important life saving goals b) to protect the property. Life Insurance is considered one of the most popular savings / investment schemes that provides sound returns as well as protection.
Copyright:
Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online from Scribd
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)
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