INTRODUCTIONLife insurance is a contract between an insurance policy holder and an insurer,where the insurer promises to pay a designated beneficiary a sum of money (the"benefits") upon the death of the insured person. Depending on the contract,other events such as terminal illness or critical illness may also trigger payment.The policy holder typically pays a premium, either regularly or as a lump sum.Other expenses (such as funeral expenses) are also sometimes included in thepremium; however, in Australia the predominant form simply specifies a lump sumto be paid on the policy holders death. The advantage for the policy owner is"peace of mind" in knowing that the death of the insured person will not result infinancial hardship for loved ones. Life policies are legal contracts and the terms ofthe contract describe the limitations of the insured events. Specific exclusions areoften written into the contract to limit the liability of the insurer; commonexamples are claims relating to suicide, fraud, war, riot and civil commotion.
Brief History Of InsuranceThe story of insurance is probably as old as the story of mankind. Thesame instinct that prompts modern businessmen today to securethemselves against loss and disaster existed in primitive men also.They too sought to avert the evil consequences of fire and flood andloss of life and were willing to make some sort of sacrifice in order toachieve security. Though the concept of insurance is largely adevelopment of the recent past, particularly after the industrial era –past few centuries – yet its beginnings date back almost 6000 years.Life Insurance in its modern form came to India from England in theyear 1818. Oriental Life Insurance Company started by Europeans inCalcutta was the first life insurance company on Indian Soil. All theinsurance companies established during that period were brought upwith the purpose of looking after the needs of European communityand Indian natives were not being insured by these companies.However, later with the efforts of eminent people like Babu MuttylalSeal, the foreign life insurance companies started insuring Indian lives.But Indian lives were being treated as sub-standard lives and heavyextra premiums were being charged on them. Bombay Mutual LifeAssurance Society heralded the birth of first Indian life insurancecompany in the year 1870, and covered Indian lives at normal rates.Starting as Indian enterprise with highly patriotic motives, insurancecompanies came into existence to carry the message of insurance andsocial security through insurance to various sectors of society. BharatInsurance Company (1896) was also one of such companies inspiredby nationalism. The Swadeshi movement of 1905-1907 gave rise tomore insurance companies. The United India in Madras, NationalIndian and National Insurance in Calcutta and the Co-operativeAssurance at Lahore were established in 1906. In 1907, Hindustan Co-operative Insurance Company took its birth in one of the rooms of theJorasanko, house of the great poet Rabindranath Tagore, in Calcutta.The Indian Mercantile, General Assurance and Swadeshi Life (laterBombay Life) were some of the companies established during thesame period. Prior to 1912 India had no legislation to regulateinsurance business. In the year 1912, the Life Insurance CompaniesAct, and the Provident Fund Act were passed. The Life InsuranceCompanies Act, 1912 made it necessary that the premium rate tables
and periodical valuations of companies should be certified by anactuary. But the Act discriminated between foreign and Indiancompanies on many accounts, putting the Indian companies at adisadvantage.The first two decades of the twentieth century saw lot of growth ininsurance business. From 44 companies with total business-in-force asRs.22.44 crore, it rose to 176 companies with total business-in-forceas Rs.298 crore in 1938. During the mushrooming of insurancecompanies many financially unsound concerns were also floated whichfailed miserably. The Insurance Act 1938 was the first legislationgoverning not only life insurance but also non-life insurance to providestrict state control over insurance business. The demand fornationalization of life insurance industry was made repeatedly in thepast but it gathered momentum in 1944 when a bill to amend the LifeInsurance Act 1938 was introduced in the Legislative Assembly.However, it was much later on the 19th of January, 1956, that lifeinsurance in India was nationalized. About 154 Indian insurancecompanies, 16 non-Indian companies and 75 provident were operatingin India at the time of nationalization. Nationalization wasaccomplished in two stages; initially the management of thecompanies was taken over by means of an Ordinance, and later, theownership too by means of a comprehensive bill. The Parliament ofIndia passed the Life Insurance Corporation Act on the 19th of June1956, and the Life Insurance Corporation of India was created on 1stSeptember, 1956, with the objective of spreading life insurance muchmore widely and in particular to the rural areas with a view to reach allinsurable persons in the country, providing them adequate financialcover at a reasonable cost.LIC had 5 zonal offices, 33 divisional offices and 212 branch offices,apart from its corporate office in the year 1956. Since life insurancecontracts are long term contracts and during the currency of the policyit requires a variety of services need was felt in the later years toexpand the operations and place a branch office at each districtheadquarter. Re-organization of LIC took place and large numbers ofnew branch offices were opened. As a result of re-organisationservicing functions were transferred to the branches, and brancheswere made accounting units. It worked wonders with the performanceof the corporation. It may be seen that from about 200.00 crores ofNew Business in 1957 the corporation crossed 1000.00 crores only in
the year 1969-70, and it took another 10 years for LIC to cross2000.00 crore mark of new business. But with re-organisationhappening in the early eighties, by 1985-86 LIC had already crossed7000.00 crore Sum Assured on new policies.Today LIC functions with 2048 fully computerized branch offices, 109divisional offices, 8 zonal offices, 992 satallite offices and theCorporate office. LIC’s Wide Area Network covers 109 divisional officesand connects all the branches through a Metro Area Network. LIC hastied up with some Banks and Service providers to offer on-linepremium collection facility in selected cities. LIC’s ECS and ATMpremium payment facility is an addition to customer convenience.Apart from on-line Kiosks and IVRS, Info Centres have beencommissioned at Mumbai, Ahmedabad, Bangalore, Chennai,Hyderabad, Kolkata, New Delhi, Pune and many other cities. With avision of providing easy access to its policyholders, LIC has launchedits SATELLITE SAMPARK offices. The satellite offices are smaller, leanerand closer to the customer. The digitalized records of the satelliteoffices will facilitate anywhere servicing and many other conveniencesin the future.LIC continues to be the dominant life insurer even in the liberalizedscenario of Indian insurance and is moving fast on a new growthtrajectory surpassing its own past records. LIC has issued over onecrore policies during the current year. It has crossed the milestone ofissuing 1,01,32,955 new policies by 15th Oct, 2005, posting a healthygrowth rate of 16.67% over the corresponding period of the previousyear.From then to now, LIC has crossed many milestones and has setunprecedented performance records in various aspects of lifeinsurance business. The same motives which inspired our forefathersto bring insurance into existence in this country inspire us at LIC totake this message of protection to light the lamps of security in asmany homes as possible and to help the people in providing security totheir families.
Some of the important milestones in the life insurance businessin India are:1818: Oriental Life Insurance Company, the first life insurancecompany on Indian soil started functioning.1870: Bombay Mutual Life Assurance Society, the first Indian lifeinsurance company started its business.1912: The Indian Life Assurance Companies Act enacted as the firststatute to regulate the life insurance business.1928: The Indian Insurance Companies Act enacted to enable thegovernment to collect statistical information about both life and non-life insurance businesses.1938: Earlier legislation consolidated and amended to by theInsurance Act with the objective of protecting the interests of theinsuring public.1956: 245 Indian and foreign insurers and provident societies aretaken over by the central government and nationalised. LIC formed byan Act of Parliament, viz. LIC Act, 1956, with a capital contribution ofRs. 5 crore from the Government of India.The General insurance business in India, on the other hand, can traceits roots to the Triton Insurance Company Ltd., the first generalinsurance company established in the year 1850 in Calcutta by theBritish.
Some of the important milestones in the general insurance business in India are:1907: The Indian Mercantile Insurance Ltd. set up, the first companyto transact all classes of general insurance business.1957: General Insurance Council, a wing of the Insurance Associationof India, frames a code of conduct for ensuring fair conduct and soundbusiness practices.1968: The Insurance Act amended to regulate investments and setminimum solvency margins and the Tariff Advisory Committee set up.1972: The General Insurance Business (Nationalisation) Act, 1972nationalised thegeneral insurance business in India with effect from 1st January 1973.107 insurers amalgamated and grouped into four companies viz. theNationalInsurance Company Ltd., the New India Assurance Company Ltd., theOriental Insurance Company Ltd. and the United India InsuranceCompanyLtd. GIC incorporated as a company.
Types of life insurance policies.1. Whole Life Insurance In whole life insurance, insurance company collects premium from theinsured for whole life or till the time of his retirement and pays claim to the familyof the insured only after his death.2. Endowment Insurance In case of endowment insurance, the term of policy is defined for aspecified period say 15, 20, 25 or 30 years. The insurance company pays the claimto the family of assured in an event of his death within the policys term or in anevent of the assured surviving the policys term.3. Term Insurance Term Insurance, as the name implies, is for a specific period, and hasthe lowest possible premium among all insurance plans. You can select the lengthof the term for which you would like coverage, up to 35 years. Payments are fixedand do not increase during your term period. In case of an untimely death, yourdependents will receive the benefit amount specified in the term life insuranceagreement.4. Money-Back Plan In a Money-Back plan, you regularly receive a percentage of thesum assured during the lifetime of the policy. Money-Back plans are ideal forthose who are looking for a product that provides both – insurance cover andsavings. It creates a long-term savings opportunity with a reasonable rate ofreturn, especially since the payout is considered exempt from tax except underspecified situations.5. ULIP Unit-linked Insurance Plans (ULIPs), introduced by the privateplayers, are hugely popular, because they combine the benefits of life insurancepolicies with mutual funds. A certain part of the premium is invested in listed
equities/debt funds/bonds, and the balance is used to provide for life insuranceand fund management expenses.6. Pension Plan Insurance companies offer two kinds of pension plans –endowment and unit linked. Endowment plans invest in fixed income products, sothe rates of return are very low. Unit-linked plans are more flexible. You can stopcontributing after 10 years and the fund will keep compounding your corpus tillthe vesting date. You can opt for higher exposure in the stock market for your planif your risk appetite allows it. Lower risk options like balanced funds are alsooffered.7. Children Plan Childs Deferred Assurance: Under this policy, claim byinsurance company is paid on the option date which is calculated to coincide withthe childs eighteenth or twenty first birthday. In case the parent survives tilloption date, policy may either be continued or payment may be claimed on thesame date. However, if the parent dies before the option date, the policy remainscontinued until the option date without any need for payment of premiums. If thechild dies before the option date, the parent receives back all premiums paid tothe insurance company.
Review of LiteratureTheoretical StudiesThe main purpose of this study is to re-assess the validity of arguments emergingfrom the existing theoretical and empirical research works that there are a fewvariables which can significantly explain the current and future demand patternfor life insurance products. To strengthen the researchable issues for the study,we will briefly discuss selected theoretical studies which had identified indicatorsmotivating life insurance demand and consumption. Studies on life insuranceconsumption dates back to Heubner (1942) who postulated that human life valuehas certain qualitative aspects that give rise to its economic value. But his ideawas normative in nature as it suggested ‘how much’ of life insurance was to bepurchased and not ‘what’ was to be purchased. However, There were noguidelines regarding the kind of life policies to be selected depending upon theconsumers capacity and the amount of risk to be ‘insured’ in the product.Economic value judgments are made on both the normative as well as positiveissues. Subsequent studies by Yaari(1965), Mossin (1968), Hakansson (1969),Fisher (1973), Borch (1977) Pissarides (1980) Campbell (1980) Karni and Zilcha(1985 and 1986), Lewis (1989), Bernheim (1991) and others graduallyincorporated these positive issues. Their studies assimilated developments in thefield of risk and uncertainty following contributions from von Neumann andMorgenstern (1947), Arrow (1953), Debreu (1953), to mention a few. Theeconomics of insurance demand became more focused on evaluating the amountof risk to be shared/distributed between the insured and the insurer rather thanthe questions and methods for evaluation of life or property values at risk. Thiswas mostly due to association of risk(s) with individual life or property that calledfor an economic valuation of the cost of providing insurance.Empirical StudiesThis section presents a review of empirical studies on determinants of lifeinsurance. Most of these studies has focused on both the demand side factorsand the supply side factors. Fortune (1973) analysed the empirical implications of
expected utility hypothesis of choice under uncertainty for demand for lifeinsurance and concluded that demand depends on income, non-human wealthand the rate of discount. Headen and Lee (1974) studied the effects of short runfinancial market behaviour and consumer expectations on purchase of ordinarylife insurance and developed structural determinants of life insurance demand.They considered three different sets of variables:first, variables stimulatingdemand as a result of insurer efforts (e.g. industry advertising expenditure, size ofthe sales force, new products and policies, etc.); second, variables affectinghousehold saving decision (e.g. disposable, permanent and transitory income,expenditure expectation, number of births, marriages, etc.) and thirdly, variablesdetermining ability to pay and size of potential markets (e.g. net savings byhouseholds, financial assets, and consumer expectation regarding futureeconomic condition). They concluded that life insurance demand is inelastic andpositively affected by change in consumer sentiments; interest rates play a role inboth short and long run.Using an international dataset (12 countries over a period of 12 years), Beenstocket al. (1988) found that marginal propensity to insure 6 differs from country tocountry and premium vary directly with real rates of interest. The study tried toexamine the relationship between property liability insurance premium andincome. Truett et al. (1990) discuss the growth pattern of life insuranceconsumption in Mexico and United States in a comparative setting, during theperiod 1964 to 1984. They assumed that at an abstract level, demand dependsupon the price of insurance, income level of individual, availability of substitutesand other individual and environment specific characteristics. Further, theyexperimented with demographic variables like age of the insured and size ofpopulation within the age group 25 to 64 and also considered education level ofthe population under study to examine its bearing on insurance consumptiondecision. Their results show the existence of higher income inelasticity of demandfor life insurance in Mexico at low income levels. Age, level of education andincome were significant factors affecting the demand for life insurance in both thecountries.
Starting with a brief review of Lewis’s theoretical study and an assumption thatinhabitants of a country are homogeneous relative to those of other countries,the study by Browne et al. (1993) expanded the discussion on life insurancedemand by adding some variables namely, average life expectancy and enrolmentratio at third level of education. The study considering 45 countries for twoseparate time periods (1980 and 1987) concluded that income and social securityexpenditures are significant determinants of insurance demand. But, inflation wasfound to have a negative correlation. Dependency ratio, education and lifeexpectancy were not significant but incorporation of religion , a dummy variableshowed that Muslim countries have significant negative affinity towards lifeinsurance.
Objectives 1. Awareness’ of people’s in life insurance. 2. What type of policy they use. 3. Are they using Life insurance as investment?Research MethodologyResearch can be defined as the careful investigation or enquiry especially throughsearch for new facts in any branch of knowledge. Research is a systematic andobjective study of problemsRegarding the Project research methodology we have adopted the following:- 1. Studying different schemes available in the market and their objective. 2. Reference to various books, magazines to know different Life insurance plans. 3. Research done on customer’s needs and requirement to invest and hence the choice of their investment.Sources of Data:Both Primary and Secondary data are requiredPrimary details the first hand information collected directly from the respondents.The tool used here is questionnaire. Primary Data is collected through surveyamong existing Life insurance holders.Purpose of the maximum collection of Primary Data, a structured questionnairewas used wherein questions pertaining to the general awareness of people aboutLife insurance.
Secondary Data Internet Articles Newspapers MagazinesSample Size:Total number of respondents wills 100.
Q1. Are you aware of life insurance? No. of Respondents Percentage (%) a 100 100 b 0 0 No. of Respondents a b
Q2. Are you aware of life insurance? No. of Respondents Percentage (%) a 24 24 b 19 19 c 20 20 d 13 13 e 20 20 f 4 04
Q3. From what source did you get information about life insurance? No. of Respondents Percentage (%) a 21 21 b 34 c 22 d 13 e 10 f 0
Q4. Do you have any insurance policy? No. of Respondents Percentage (%) a 100 100 b 0 0
Q5. What type of life insurance policy do you have? No. of Respondents Percentage (%) a 24 24 b 20 20 c 19 19 d 13 13 e 20 20 f 4 4
Q6. For what reason have you taken Life Insurance policy? No. of Percentage Respondents (%)a 30 30b 34 34c 22 22d 14 14e 0 0
Q7. IF applicable, for what reason have you taken yours family member lifeinsurance? No. of Percentage Respondents (%)a 16 16b 13 13c 10 10d 04 04e 02 02
Q8. Rank top three according to their importance as investment? No. of Percentage Respondents (%)a 61 20b 59 19c 32 12d 50 16e 45 15f 31 10g 13 5h 9 3