Group Insurance - A group of persons, who usually have a business or professional relationship to contract owner, are provided insurance coverage under a single contract . [ Ex – Employees, Savings account depositors, poorer sections of society, landless agricultural workers]
Ordinary – individually issued policies – majority of policies fall within the ordinary category
Industrial Insurance –includes life and health insurance policies issued to individuals in small amounts, premiums payable on a weekly or monthly basis. Not popular in India.
Credit insurance –This is issued through lending institutions to cover debtors’ obligations if they die or become disabled
LIFE INSURANCE PLANS
Historically, Life Insurance benefit patterns fit into one or a combination of :
Term life insurance (popular in the United States)
Whole life insurance
Endowment insurance (popular in India, Asian many African, European and Latin American Countries)
Annuity contracts - promise to pay insured a periodic payment.
Protection - limited number of years or age such as 65 or 70 years
Terminates with - no maturity value.
Upon survival - nothing paid
More comparable to property and liability insurance contracts than to other LI contract
Initial premium rates low compared to other LI products - period of protection is limited
Useful for - persons with low income and high insurance needs
Supplementary to - an existing life insurance program during the child rearing period
2) WHOLE LIFE INSURANCE
Protection - over one’s entire lifetime.
Upon death of insured - payment of the face amount regardless of when death occurs.
Face amounts payable remain at same level throughout policy duration, although dividends are often used to increase total amount paid on death.
Gross premium also remains at the same level through out premium payment period with some exceptions.
3) ENDOWMENT INSURANCE
PROMISE TO PAY - Policy amount on death of insured during a fixed term of years (+) Full-face amount at the end of the term if insured survives term
ENDOWMENT INSURANCE =
Term life insurance
(+) Pure endowment
[to pay face amount if insured dies during the period + to pay maturity amount only if insured is living at the end of a specific period, with nothing paid in case of prior death]
Sometimes traditional policies like Whole Life and Endowment needs to be combined, including the annuity to meet requirements of certain policyholders, to be covered for maximum risk
LIC TRIPLE COVER JEEVAN MITRA POLICY
On maturity - basic sum becomes payable
On death - 3 times the basic sum assured.
Accidental death - four times of the basic sum assured becomes payable
SOME OTHER POPULAR LIFE INSURANCE CONTRACTS
HEALTH INSURANCE - contingent claim contract on insured incurring additional expenses or losing income because of incapacity or loss of good health.
DISABILITY INCOME INSURANCE – Payment upon loss of earning loss of earning capacity
LONG TERM CARE INSURANCE – loss of earning capacity for a substantial period– reimbursement of hospital, physician, or other health care expenses
Some other popular life insurance contracts (Contd.)
CONVERTIBLE PLANS – provides that terms and conditions of policy to another policy within certain period
WITHOUT PROFIT POLICIES – not entitled to bonuses, declared after actuarial valuations
WITH PROFIT POLICIES – pay a slightly higher premium for bonuses
JOINT LIFE POLICES- two or more lives covered
CHILDREN PLANS- made by parent or guardian; risk on the life of child begins after specified period (deferment period)
RIDERS – a clause or conditions added on basic policy providing additional benefit at choice of proposer
ANNUTIES – practically same as pensions; reverse of life insurance
PRINCIPLES AND PRACTICE OF REINSURANCE
PRACTICE WHEREBY a reinsurer,
in return of a premium paid to it
indemnifies another person/company
for a portion or all of liability
taken up by the latter (reinsured) due to a policy of insurance that it has issued
SPECIFIC REASON — either nature of risk insured or business strategies of IC
REINSURANCE PRIMARILY DEALS WITH CATASTROPHE RISKS - predictable and cause greatest exposure for the insurance company (9/11 attacks)
Business hinges on successful PRUDENT PARTNERSHIPS by use of technology
RISK MANAGEMENT - involving transfer of risk from IC to Reinsurer
CONTRACT OF INDEMNITY – basis for providing insurance to IC
REINSURANCE AGREEMENT – entered into between IC and Reinsurer
GLOBAL SPREAD OF RISKS – local market bad losses do not impact local businesses; there are tie-ups with global reinsurers
HOW IT WORKS
IC insurer gives reinsurer a portion of the premium it collects from the insured and
in return IC is covered for losses above a particular limit.
PRINCIPLES AND ADVANTAGES OF REINSURANCE
PRINCIPLE OF UTMOST GOOD FAITH
PRINCIPLE OF INDEMNITY
NO REINSURANCE WITHOUT RETENTION :
IC must retain a part of Risk before reinsuring.
No reinsurance of complete risk
Those risks that are within retention capacity of IC must be retained completely
Safeguards capital and reinforces stability
Helps IC to upgrade itself
Also helps a company to withdraw from business
TYPES OF REINSURANCE
TREATY REINSURANCE – covers entire category of risk or line of business in advance.
Capacity + Coverage of all prerils with adequate limits + confidence on security of reinsurers + continuity of reinsurance after a loss
FACULTATIVE REINSURANCE - reinsurance of
current single risk and options are open for both reinsured and reinsurers
reinsurer retains the faculty or power to either accept or reject each individual risk offered to it by IC
OBJECTIVE - to expand retention within India, ensure best protection for reinsurance costs incurred and simplify administration.
RETENTION OF RISK - proportionate to financial strength and business volumes.
REINSURANCE WITH NATIONAL REINSURER - 10% of sum assured on each policy by IC (only in non-life sector)
REINSURANCE PROGRAMME - beginning F/Y and submitted to IRDA, 45 days` before
EXCESS OF REINSURANCE BUSINESS- to be placed outside India with reinsurers having at least BBB (S&P) rating for the preceding 5 years. (India's own sovereign rating)
LIC can continue to reinsure its policies with GIC ( private IC cannot)
Selection of a policyholder after recognising and evaluating hazard, fixing a premium and deciding all other terms and conditions
Safeguards - against any moral, morale or general hazard
Limiting factors – capacity, skilled human resources, compliance of regulatory provisions, availability of reinsurance
Line underwriting – Where daily underwriting carried out; underwriters usually located in offices of insurer
Staff underwriting – Where underwriter helps management in formulating and implementing underwriting policy. They are usually located at H.O.