The document discusses life insurance, including defining life insurance and its uses, features of life insurance policies, the growth of actuarial science, life insurance contracts and documents, and how insurance premiums are calculated. It also covers different types of life insurance policies and classifications of annuities, the need for annuity contracts, and the differences between annuities and life insurance.

1. Risk Management and Insurance
18MBAFM402
Unit-4
Life Insurance
Prof. Kiran Kumar M., East West Institute of Technology.
1
4/27/2020
Online Learning Session-2

2. Learning Outcomes
• Understanding Life Insurance and its use
• Understanding features of Life Insurance
• Learning about Growth of Actuarial Science
• Understanding Life Insurance Contract
• Understanding Life Insurance Documents
• Learning about Insurance Premium Calculations
Prof. Kiran Kumar M., East West Institute of Technology.
2
4/27/2020

3. Meaning
• Life insurance is a contract between an individual and an insurance company,
in which the insurance company provides financial security in return for
regular payments(known as premiums)to the insurance company.
• In case of the policyholder’s death or if the policy matures, the insurance
company shall pay a lump sum to the individual after a period of time or to
their family, on basis of the contract Typically, this type of policy is chosen
based on your needs and goals.
Prof. Kiran Kumar M., East West Institute of Technology.
3
4/27/2020

4. How Insurance can be useful
• Insurance can prove advantageous in meeting several financial goals of the individual and
his family. Here are some of the important ones:
• Financial cover against loss of life, which makes sure your family can support itself in your
absence
• Child’s education
• Child’s marriage
• Buying a house
• Pension or regular income post-retirement
• Post-retirement income for NRIs
Prof. Kiran Kumar M., East West Institute of Technology.
4
4/27/2020

5. Features of Life Insurance
• Policyholder: Policyholder is the individual who pays the premium for the life insurance policy and signs a life
insurance contract with a life insurance company.
• Premium: A premium is the cost the policyholder pays the life insurance company for covering his/her life.
• Maturity: Maturity is the stage at which the policy term is completed and the life insurance contract ends.
• Insured: Insured is the individual whose life is secured via the life insurance . After his/her death the
insurance company is accountable to provide a financial amount to the dependents.
• Sum Assured: The amount the insurance company pays the dependents of the insured if those events occur
which are specified in the life insurance contract.
• Policy Term: Policy term is the specified duration (listed in the life insurance contract) for which the
insurance company provides a life cover and the time period during which the contract is active (listed in the life
insurance contract).
• Nominee: A nominee is an individual listed in the life insurance contract who is entitled to receive the
predetermined compensation, as a part of the policy.
• Claim: On the insured's demise, the nominees can file a claim with the insurance provider in order to receive
the predetermined payout amount.
4/27/2020Prof. Kiran Kumar M., East West Institute of Technology.
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6. Actuarial Science
• Actuarial science is a discipline that assesses financial risks in the insurance
and finance fields, using mathematical and statistical methods.
• Actuarial science applies the mathematics of probability and statistics to
define, analyze and solve the financial implications of uncertain future
events.
• Traditional actuarial science largely revolves around the analysis of mortality
and the production of life tables, and the application of compound interest.
4/27/2020Prof. Kiran Kumar M., East West Institute of Technology.
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7. Actuarial Science Cont.
• Actuarial science became a formal mathematical discipline in the late 17th century
with the increased demand for long-term insurance coverage such as burial, life
insurance, and annuities.
• Actuarial science spans several interrelated subjects,
including mathematics, probability theory, statistics, finance, economics,
and computer science.
• Historically, actuarial science used deterministic models in the construction of tables
and premiums. In the last 30 years, science has undergone revolutionary
changes due to the proliferation of high-speed computers and the union
of stochastic actuarial models with modern financial theory.
4/27/2020Prof. Kiran Kumar M., East West Institute of Technology.
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8. Life Insurance Contract
• The parties between whom the contract is being created
• The property, asset, or life that is being insured
• The interest of the insured in the property, asset, or life that is being insured – provided that
he or she is not the absolute owner
• The risks that are being insured against
• The period during which the insurance is being continued
• Either a) A statement of the insurance premium that is due, or b) A statement of the basis
and the rates upon which the final premium will be determined and paid, provided that the
insurance is the type where the exact premium can only be determined upon the termination
of the contract
4/27/2020Prof. Kiran Kumar M., East West Institute of Technology.
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9. Life Insurance Documents
• Documents needed at the stage of the proposal(details about the proposer
details of the insurance policy, declaration). (Age proof, Proof of income)
• During the duration of the policy where several alterations may become
necessary
• At the end of the policy contract when insurer pays the final claim.
(First Premium Receipts and Renewal Premium Receipts, Policy Contract,
Endorsements.)
4/27/2020Prof. Kiran Kumar M., East West Institute of Technology.
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10. Insurance Premium Calculation
• Mortality and underwriting process
• Expenses and profit margins
• Exigency element
4/27/2020Prof. Kiran Kumar M., East West Institute of Technology.
10

11. Summary
• Understood Life Insurance and its use
• Understood features of Life Insurance
• Learnt about Growth of Actuarial Science
• Understood Life Insurance Contract
• Understood Life Insurance Documents
• Learnt about Insurance Premium Calculations
Prof. Kiran Kumar M., East West Institute of Technology.
11
4/27/2020

12. Risk Management and Insurance
18MBAFM402
Unit-4
Life Insurance
Prof. Kiran Kumar M., East West Institute of Technology.
12
4/27/2020
Online Learning Session-3

13. Learning Outcomes
• Understanding Classification of Life Insurance
• Understanding Annuities and Its need
• Learning about Annuity vs Life Insurance
• Understanding Classification of Annuities.
Prof. Kiran Kumar M., East West Institute of Technology.
13
4/27/2020

14. Classification
of Life
Insurance
Whole life
Policy
Endowment
Insurance
policy
Term
Insurance
policy
Money-Back
Policy
Joint Life
Policy
Annuity
Policy
Pension Plan
Policy
ULIP (Unit
Linked
Insurance
Policy)
4/27/2020Prof. Kiran Kumar M., East West Institute of Technology.
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15. Whole life policy
• Under this policy, a person is insured for whole life. The insurance company
cannot pay any money to the insured until he is alive.
• The premium for such policy is very low. Under this policy, the money is
payable only after the death of the insured person to his legal heir or his
nominee.
• This policy is more beneficial for the family of the deceased, as it
provides financial assistance to the family after the death of the insured
person.
4/27/2020Prof. Kiran Kumar M., East West Institute of Technology.
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16. Endowment insurance policy
• Insurance is taken for a specific time in such policies.
• In this policy, the sum assured along with the bonus is given on his death to
the dependent of the family or on the expiry of the particular time, the
insured get the specific sum along with bonus.
• Such insurance plans are famous these days as it protects the family of the
dead person or provides old-age pension to the insured.
4/27/2020Prof. Kiran Kumar M., East West Institute of Technology.
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17. Term insurance policy
• The period of such policies is specific. The premium of this policy is the
lowest among all the insurance schemes.
• Throughout the term of the policy, the premium is fix, and it does not
change.
• In the term life insurance agreement, dependents will receive the specified
benefited amount in case of untimely death of the person.
4/27/2020Prof. Kiran Kumar M., East West Institute of Technology.
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18. Money-Back policy
• Money-Back policy gives a regular percentage of the sum assured during the
life time of the policy.
• It also guarantees the benefit of a full sum assured in the event of the
decease of the insured to the dependents of the family.
• Such types of policies give a dual benefit one is saving and other is the
insurance cover.
4/27/2020Prof. Kiran Kumar M., East West Institute of Technology.
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19. Joint life policy
• Under this policies two or more people can be insured at a time. Insurable
interest (trust) should be there among the person who takes such policies.
• It is for those people who have common interest and require joint safety for
their lives. This policy can be taken by business partner or husband and wife
or any person who has trust on another person.
• The sum assured is payable at the end of the specified term or the first death
of either of the two lives assured, if earlier.
4/27/2020Prof. Kiran Kumar M., East West Institute of Technology.
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20. Pension plan policy
• In such policies the insured has to pay the premium of the policy in
installments or in the lump sum for a specific period of time.
• The insured will receive back a specific sum periodically from a mentioned
date onwards, either for life or for the fixed number of years.
• Generally such kinds of policies are for those people who have some extra
money and want to use the same after his retirement.
4/27/2020Prof. Kiran Kumar M., East West Institute of Technology.
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21. ULIP (Unit Linked Insurance Policy)
• ULIP (Unit Linked Insurance Policy) is very popular policy. The private
companies introduced ULIPs to merge the profits of life insurance policies
with mutual funds.
• In such kinds of a policy's specific amount of premium is invested in listed
companies or bonds, funds and remaining amount is used in fund
management expense and life insurance to provide balance.
4/27/2020Prof. Kiran Kumar M., East West Institute of Technology.
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22. Need of Annuity Contract
• An annuity is a financial product that pays out a fixed stream of payments to
an individual, and these financial products are primarily used as an income
stream for retirees. Annuities are created and sold by financial institutions,
which accept and invest funds from individuals.
• An annuity contract is beneficial to the individual investor in the sense that
it legally binds the insurance company to provide a guaranteed periodic
payment to the annuitant once the annuitant reaches retirement and requests
commencement of payments. Essentially, it guarantees risk-free retirement
income.
4/27/2020Prof. Kiran Kumar M., East West Institute of Technology.
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23. Annuity Vs Life Insurance
• An annuity is a type of policy issued by an insurance company that allows you to save
money for retirement. The money you pay in can be either a lump sum or a number of
payments. These contributions then earn interest, generally tax-deferred, and after a period
of time, provide you with a stream of income.
• Both annuities and life insurance should be considered in your long-term financial plan
• life insurance provides economic protection to your loved ones if you die before your
financial obligations to them are met, while annuities guard against outliving your assets.
• An annuity is a long-term contract you purchase from an insurance company. It is designed
to help accumulate assets to provide income for retirement. Annuities do have limitations. If
early withdrawals occur penalties may apply and earnings are taxable as ordinary income and
may be subject to a 10% federal tax penalty if withdrawn prior to age 59½
4/27/2020Prof. Kiran Kumar M., East West Institute of Technology.
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24. Classification of Annuities
• Single Premium Immediate Annuity: The amount is paid in lump sum and the benefits are derived
from the immediate next month onwards.
• Single Premium Deferred Annuity: Again, the amount is paid in lump sum but the withdrawals can
be made only after specified time limit.
• Annual Premium Deferred Annuity: The premium paid to the insurance company is either in form
of quarterly, or monthly or bi-annual or annual installments. Withdrawals are deferred to a later date.
• Variable Annuity: This is more of a combination annuity scheme where you can chose either to pay a
lump sum amount or in installments. You can choose the investment vehicle as well. Thus, the growth
of your fund depends on vehicle chosen.
4/27/2020Prof. Kiran Kumar M., East West Institute of Technology.
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25. Summary
• Understood Classification of Life Insurance
• Understood Annuities and Its need
• Learnt about Annuity vs Life Insurance
• Understood Classification of Annuities.
Prof. Kiran Kumar M., East West Institute of Technology.
25
4/27/2020
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