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Life Insurance


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Published in: Economy & Finance, Business

Life Insurance

  1. 1. LIFE INSURANCE <br />IN INDIA <br />
  2. 2. What is an Insurance ?<br /><ul><li>It is a form of risk management primarily used to hedge against the risk of potential financial loss by paying a small sum periodically .
  3. 3. It is a contract between the Insured and the Insurer, who sells the Policy. Insurance companies collect premiums to provide for this protection.
  4. 4. Can also be defined as the equitable transfer of risk of potential loss, from one entity to another, in exchange for a premium and duty of care.</li></li></ul><li>What is Life Insurance?<br />It is a contract between the policy taker and a life insurance company wherein the company provides the beneficiary with a pre-determined amount in case of the policy holder’s death during the contract term.<br />The primary purpose of life insurance is therefore protection of the family in the event of death. <br />Where the company pays the full insurance amount either on the death of the individual or the expiry of the policy which ever is earlier.<br />
  5. 5. Importance of having a Life Insurance<br />How are you benefited?<br /><ul><li>Guaranteed protection for your family
  6. 6. Financial security at old age.
  7. 7. Earlier a policy is purchased, higher the investment value. </li></ul>How is our economy benefited ?<br /><ul><li>Encourages individuals to undertake new and riskier ventures
  8. 8. Provides protection of standard of living of citizens</li></li></ul><li>History<br /> Insuring has been an ancient practice. It might not have existed as we see it now but the motive was simple- Risk Management.<br />Origin-Ancient Rome<br /> Citizens formed burial clubs that would meet the funeral expenses of its members as well as help survivors by making some payments.<br />Origin in India-Vedas<br />First insurance company-Calcutta(1818)<br /> The business of life insurance started with the establishment of the Oriental Life Insurance Company in Calcutta.<br />First major player in India- LIC(1956)<br /> The most popular life insurance company, LIC was formed WHEN THE PARLIAMENT PASSED LIC Act, 1956.<br />
  9. 9. <ul><li> Current statistic
  10. 10. Reasons for expansion
  11. 11. Major players</li></ul>in the market<br />LIFE INSURANCE SECTOR IN INDIA TODAY<br />
  12. 12. Life insurance sector in India<br /> This has been the fastest growing sector in India since 2000 as Government allowed Private players and FDI up to 26%. <br />April 2008- Janurary 2009<br />Indian life insurance sector witnessed 3.5% growth.<br /> (Source :The Insurance Regulatory Development Authority in its report for Jan 2009) <br />Projected growth for year 2009-<br /> The growth for the year 2009 has been estimated to be 20% driven by soaring demand for both single premium and unit-linked policies<br />
  13. 13.
  14. 14.
  15. 15. Reasons for expansion<br />1.Globalisation, Deregulation and privatisation<br /> In India Life Insurance sector was dominated by LIC until the turn of the Global Century. Thrown tremendous opportunities enabling rapid growth of private sector insurance companies and entry of private banks into the Insurance Sector.<br />2.Joint ventures<br />Some of the major companies are in the expansion mode and are entering into joint venture deals with the local insurers in an attempt to increase the global market share. <br />3.Awareness and better advertising<br />Awareness about Insurance in India has been growing with the entry of Global Players in the market.<br />4.Introduction of innovative products<br />The private companies are coming out with better products which are more beneficial to the customer.<br /> EXAMPLE- ULIPs or the Unit Linked Investment Plans <br />
  17. 17. MAJOR PLAYERS IN LIFE INSURANCE SECTOR<br />Life Insurers in the Public Sector <br />1. Life Insurance Corporation of India<br />Life Insurers in the Private Sector<br />1.ICICI Prudential Life Insurance Company Ltd.<br /><ul><li>Largest player in the market
  18. 18. Two faces </li></ul>1.ICICI Prudential Life Insurance Company <br />2.ICICI Lombard General Insurance Company Limited. <br /><ul><li>ICICI Prudential Life Insurance is a 74:26 joint venture between ICICI Bank India Ltd. and Prudential PLC based in UK. </li></li></ul><li>OTHER PLAYERS<br />Om Kotak Mahindra Life Insurance Co. Ltd.<br />Birla Sun Life Insurance Company Ltd.<br />SBI Life Insurance Company Limited.<br />ING Vysya Life Insurance Company Private Limited<br />Allianz Bajaj Life Insurance Company Ltd.<br />MetLife India Insurance Company Pvt. Ltd.<br />AMP SANMAR Assurance Company Ltd.<br />Dabur CGU Life Insurance Company Pvt. Ltd.<br />Tata AIG Life Insurance Company Ltd.<br /> HDFC Standard Life Insurance Company Ltd.<br />11. Max New York Life Insurance Co. Ltd.<br />
  20. 20. PENSION SCHEMES<br />
  21. 21. DETAILS OF AN INSURANCE CONTRACT<br /><ul><li> Contract terms
  22. 22. Exclusions
  23. 23. Costs and insurability
  24. 24. Risk calculator
  25. 25. Risks covered</li></li></ul><li>Contract terms<br />There is no minimum premium amount for a policy.<br />The premium can be paid monthly/quarterly/half yearly/yearly premium/life insurance rate, which depends on the amount insured. <br />The company pays the full insurance amount <br /> 1.Death of the individual <br /> 2.The expiry of the policy( which ever is earlier). <br />The policy taker is eligible for tax rebate under Section 80 C of the Income Tax Act.<br />
  26. 26. The insured eventmust be based upon the lives of the people named in the policy<br />It includes death due to serious illness or unforeseen incident <br />The contract excludes<br />claims relating to-<br />fraud,<br /> 2.war <br />3.riot <br />4. civil commotion. <br />5. suicide<br />
  27. 27. Costs, insurability, and underwriting<br />The insurance company fixes the price of a policy with the intention of making profit.<br />The cost of insurance is determined using mortality tables calculated by actuaries<br />It is possible to derive life expectancy estimates from these mortality assumptions. <br />Such estimates can be important in taxation regulation<br />
  28. 28. FACTORS INSURANCE <br /> COMPANIES CONSIDER :<br /><ul><li>No history of cardiovascular disease, stroke, diabetes, cancer or alcohol/drugs.
  29. 29. No flying as a private pilot, or in aviation for two years prior to applying for policy.
  30. 30. Having an average, untreated blood pressure that doesn't exceed 150/90.
  31. 31. Having a cholesterol level that doesn't exceed 260</li></li></ul><li>Risk calculator<br />
  32. 32. Risks Covered By Life Insurance<br />The only risk covered by life insurance’s is that of death.<br />MISCONCEPTION-<br />It is a common misconception that if a person covered by a life insurance policy suffers a loss in form of an accident or ill health ,he is liable to receive claim from the insurance company but that is not true. <br />Claim can be received in case of a loss, only in the form of death.<br />For example- If Mr. X, who is covered by a life insurance policy, suffers a major heart attack but does not die, he or his family is not liable to receive claim from the insurance company to pay for the hospital charges etc. But if Mr. X dies due to the heart attack, his family is liable to receive claim from the insurance company.<br />
  33. 33. LIFE INSURANCE AS A PRODUCT:<br /><ul><li>Term Policy
  34. 34. Endowment Policy
  35. 35. Whole Life Policy
  36. 36. Unit Linked Insurance Plans [ULIP’s]</li></li></ul><li>Term Policy : It provides coverage for a specific/selected period or term (most often 1, 5, 10, 15 or 20 years). If death occurs during the term, the policy pays cash benefits to the beneficiary.<br />Endowment Policy :An endowment policy is a life insurance contract designed to pay a lump sum after a specified term (on its 'maturity') or on earlier death. Endowment policy typical maturities are 10, 15 or 20 years up to a certain age limit. <br />Whole Life Policy : whole life insurance covers the policyholder for his or her whole life. There is no fixed end date for the policy, as there is with term life insurance. When the policy holder dies, the face value of the policy, known as a death benefit, is paid to the beneficiary.<br />
  37. 37. ULIPs : Financial solutions that combine the safety of insurance protection with wealth creation opportunities having unprecedented flexibility and transparency. <br /> In ULIPs, a part of the investment goes towards providing the life cover. The residual portion of the ULIP is invested in a fund which in turn invests in stocks or bonds; the value of investments alters with the performance of the underlying fund opted by policy taker.<br /> Simply put, ULIPs are structured in such that the protection element and the savings element are distinguishable, and hence managed according to your specific needs. In this way, the ULIP plan offers unprecedented flexibility and transparency.<br />
  38. 38.
  39. 39. Procedures involved in Life Insurance<br />Nomination<br />Assignment or Transfer<br />Surrender Value<br />Trade Off Value (only applicable for ULIP’s)<br />Settlement Of Claims<br />
  40. 40. 1.NOMINATION <br />Definition-<br />Itis the process of identifying a person to receive the policy money in the event of the death of the Policyholder. <br />Basic Facts<br />Nomination is incorporated in the text of the policy at the time of its issue.<br />Change of Nomination can be done by the Policyholder any time during the term of the Policy and any number of times by giving a notice. <br />Further, Nomination can be removed any time by the Policyholder without giving prior notice to the Nominee<br />Nomination can be done only by a policyholder who is a MAJOR and on a policy on his own life.<br />
  41. 41. 2.ASSIGNMENT<br />Definition <br />It is transfer of rights, title and interest of the policy from one person to another<br /> Life insurance is a contract and is also a personal property. Hence, it can be transferred to another person.<br />Basic terms-<br /> “assignor” -The person who transfers his right <br />“assignee” -The person to whom the right is transferred<br />What happens after assignment?<br /> All rights, title and interest in respect of the property assigned are immediately transferred to the Assignee/s <br /> He or she becomes the owner/s of the policy subject to any lawful condition made in the assignment.<br />
  42. 42. TYPES OF ASSIGNMENTS<br />Conditional Assignment-<br /> Also known as Collateral whereby on the happening of a specified event which does not depend on the will of the assignor, the assignment will be suspended or revoked wholly or in part.<br />Absolute Assignment-<br /> All the rights, title and interest which the assignor has in the policy passes on to the assignee without reversion to the assignor or his estate in any event. Feature in a life insurance policy allowing a policy owner to freely assign (give, sell) a policy to another or institution. <br />
  43. 43. 3.Surrender Value<br />It is the amount payable to the policyholder on terminating the contract of insurance.<br /> LIC has a condition that the policy holder can surrender only after three years of policy<br />Surrender value is calculated as per company policy.<br />
  44. 44. Calculating the Surrender values -<br />Termination of contract before 3 years-<br /> surrender value =zero<br />Termination after 3 years-<br />1.Regular premium payment<br /> surrender value=30 % of premiums paid<br />2.Single premium policy<br /> surrender value=90%of premiums paid<br />
  45. 45. Surrender of policy is not recommended because-<br /> 1.The surrender value would always be proportionately low.<br />2.Incase policy holder goes for another insurance plan, amount of premiums would be much higher due to advancement of age.<br />Best strategy-<br /> Retention of earlier policies and continuation of all policies without allowing them to lapse.<br />
  46. 46. 4.Trade off value-<br />It is defined as the value of the units held by the policy holder.<br />This concept arises when an insured individual holds a Unit Linked Insurance Policy .<br />The risks are spread over a pool of investors who hold units.<br />It is based upon unit funds- Unit funds are the allocated portions of the premiums after deducting for all the charges and premium for risk cover under all policies in a particular fund as chosen by the policy holders are pooled together to form a Unit fund.<br />
  47. 47. Life is uncertain…<br />Know your rights and how <br /> to claim what is yours……..<br />Know your rights and how to claim what is yours……..<br />
  48. 48. 5. Settlement of Claims :<br />A Life Insurance Policy results into claim in the following situations:<br />1.On maturity of the policy i.e. completion of the term for which the insurance was taken.<br />2.On death of the life insured<br />
  49. 49. Settlement of claims on maturity<br />
  50. 50. The steps that a policyholder should follow to expedite the realization of his claim are as under:<br />1.In case intimation is not received<br /> The policyholder should contact the concerned Divisional Office and obtain a copy of the maturity intimation. <br />2.Policy Document <br />3.On receipt of the maturity intimation, the policyholder should send the original policy document along with the last receipt of insurance premium paid. <br />4.Age proof document<br />
  51. 51. In case of death<br />
  52. 52. Claims in case of death<br />
  53. 53. What is the procedure to be followed in case of claim by death of the policyholder?<br />The following are the main steps of the procedure for death claims-<br />Intimation letter<br />Content to be filled<br />Submission of proof of death<br />Submission of statements<br />Submission of age proof<br />Certificate of ownership<br />Payment and discharge<br />
  54. 54. 1.Intimation letter-<br />Needs to be sent by any of the following<br />nominee<br /><ul><li>assignee of the policy
  55. 55. Nearest relative of deceased policy holder. </li></ul>2.Contents of letter-<br /><ul><li>name of the life assured
  56. 56. a statement that the life assured is dead;
  57. 57. the date of death;
  58. 58. the cause of death;
  59. 59. the place of death; and
  60. 60. policy number / s
  61. 61. claimant’s relationship with the assured or his status (nominee, assignee, etc.). </li></li></ul><li>3.Submission of Proof of Death <br /> TO be submitted is a certificate by Municipal Death Registry or by Public Record Office which maintains the records of births and deaths in the locality. <br />4.Statements-<br />from the doctor who attended the deceased policyholder’s last illness. <br />of treatment in the hospital where the policyholder died. <br />of burial or cremation to be given by an independent person who attended the funeral and has seen the dead body. <br />from the employer if the policyholder was in employment at the time of death. <br />
  62. 62. 5.Submission of Proof of Age<br />Examples of age proofs-<br /><ul><li>Horoscope
  63. 63. Certificate of baptism ceremony among Christians
  64. 64. Birth certificate
  65. 65. High School Certificate </li></ul>6.Certificate of Ownership. <br />A.It is not required–<br /><ul><li>When the policy is validly assigned, or a nominee has been </li></ul> designated.<br />B.It is required–<br /><ul><li>When policy has not been validly assigned
  66. 66. Corporation would then require legal evidence, such as-
  67. 67. Succession Certificate
  68. 68. Letters of Administration or
  69. 69. Will.</li></li></ul><li>7.Payment and Discharge<br />All the previous mentioned formalities must be completed<br />The insurance company then issues a discharge form for completion <br />It is to be signed by the person entitled to receive policy money. <br />The person might be either-<br /><ul><li>the nominee, in case nomination was made under the policy;
  70. 70. the assignee, in case the policy was validity and unconditionally </li></ul> assigned; <br /><ul><li>the legal representative or successor. </li></ul>4. Proceeds from the policy may be paid as a lump sum or as an annuity, which is paid over time in regular recurring payments for either a specified period or for a beneficiary's lifetime.<br />
  71. 71. Early death claims:<br />Life insurance claim If death occurs in less than three years from the date of the policy,<br /><ul><li>Requirements to make the claim:
  72. 72. Policy Document
  73. 73. Assignment / Re-assignment Deed, if any
  74. 74. Age Proof Document
  75. 75. Legal Evidence of Title Statement
  76. 76. Certificates-
  77. 77. Of the Doctor who attended last the deceased policyholder
  78. 78. Of treatment issued by the hospital authorities
  79. 79. Of the employer if the deceased was an employee
  80. 80. Of Identity and burial by a person who attended the funeral
  81. 81. of Death </li></li></ul><li>The Future is calling….<br />Rural India<br />Potential waiting <br />to be tapped….<br />A promising market<br />Next is what?.....<br />
  82. 82. A promising market<br />Life insurance market in semi-urban and rural territories is expected to rise to US$ 20 Billion mark in the upcoming four years from the existing value of less than US$ five Billion<br />Vast untapped potential– barely 6% of India’s insurable population is insured<br />Indian insurance industry is slated to touch $ 25 bn by 2010 assuming 7% GDP growth <br />More job opportunities in the insurance sector<br />
  83. 83.
  84. 84. Life insurance sector in rural india<br /> Only 8-10% rural households are covered under life insurance schemes and remaining 90% can be targeted for new innovative insurance schemes.<br />Future of rural life insurance<br />offers tremendous growth opportunities for insurance companies <br />insurers should develop viable and cost-effective distribution channels;<br />Nearly 20% of all farmers in rural India own a Kissan Credit cards.<br />The 25-30 million credit cards offer a huge data base and <br />opportunity for insurance companies.. <br />Hiring insurance agents provides job opportunities<br />
  85. 85.
  86. 86. Example-Rural Postal Life Insurance Scheme <br />Aim-To give protection to the rural people for any eventuality.<br />Contents<br />The new policy will be of Rs. of 1,00,000/- of sum assured .<br />Person has to contribute only Rs. 1.25 per month or Rs.15/- per year as premium. <br />
  87. 87. CRITICISM<br />Although some aspects of the application process (such as underwriting and insurable interest provisions) make it difficult, life insurance policies have been used in cases of exploitation and fraud.<br />Incompetent Personnel and facilities in the industry <br /> Some companies are interested in making huge profits rather than helping the general public with insurance.<br /> In the process they hire unskilled people and provide poor infrastructural facilities. <br />Murder and exploitation<br /> In the case of life insurance, there is a motivation to purchase a life insurance policy, particularly if the face value is substantial, and then kill the insured.<br />Delay in settlement of claims<br />
  88. 88. CONCLUSION<br /><ul><li>Though there has been progress in sale of policies, lack of awareness of life insurance still exists.
  89. 89. One should purchase a policy at the earliest because of-</li></ul>i. lower premiums<br />ii.higher returns<br /><ul><li>Despite a few of its disadvantages purchase of a life insurance policy is a smart move especially because the insurance sector is germinating in India.</li>