Insurance& its Classification ,Terms & policies

1. WELCOME TO THE
PRESENTION

2. Life insurance:
The contract where by the insurer in consideration of a
premium undertakes to pay a certain sum of money either
on the death of insured or on the expiry of a fixed period.
Features of life insurance:
contract:
1.Nature of General contract
2.Insurable Interest
3.Utmost Good Faith
4.Warranties
5.Proximate cause
6.Assignment and Nomination
7.Return of Premium
8.Others features

3. 1.Nature of General Contract:
a.agreement(offer and acceptance)
b.Competency of the parties
c.Free conse
d.Legal consideration
e.Legal objective
2.Insurable interest:

4.  Time of insurable interest
Services:
 Insurable interest must be valuable
 Insurable interest should be valid
 The legal responsibility may be basis of insurable
interest
 Insurable interest must be definite
 Legal consequence

5. The material facts are-
a. Duty of both parties
b. Full and true disclosure
c. Extent of the duty
d. Legal consequence
e. Indisputability of policy
Facts not required to be disclosed-
a.Circumstance which are diminishing the risk
b. Facts which are known or reasonably should be known
to the insurer in his ordinary course of business.
c. Facts which the insurer should infer from the
information given

6. d. Facts which are waived by the insurer
e. Facts of public knowledge
4.Warranties:
a. Informative Warranties
b. Promissory warranties
5.Proximate Cause:
Cases are observed in life insurance:
a. War risk
b. Suicide
c. Accident cause
6.Assignment and Nomination

7. 7.Return of premium
8.Others Features:
Life insurance policies have the following additional
features:
a. Aleatory contact
b. Unilateral contract
c. Condition contract
d. Contract of adhesion
e. Indemnity contract is not applied

8. classification of
policies

9.  The life insurance policies can be divides on the basis
of:
(a) Duration of a policy,
(b) Method of premium payment,
(c) participation in profit,
(d) Number of lives covered,
(e) Method of payment of claim amounts,
(f) Non-conventional policies

10.  (i) Whole life,
 (ii) Term insurance,
 (iii) Endowment insurance,
 (iv) Survivorship policy
 (i) Whole life policies:
Whole life policies are issued for life. It means that the
policy amount will be paid at the death of the life assured.
The whole life policy can be effected either by payment of:
(a) Single premium, (b) Continuous premium,
(c) Limited premium.

11.  (ii) Limited payment whole life policy:
The payment of premium is limited to certain period,
although the amount secured under this plan is payable on
the death of the policy holder. Premium under this plan is
higher than the premium payable under a whole life plan.
 (iii) Convertible whole life policy:
This is a whole life policy which gives it‘s holder an
option to get it converted at the end of five years, into an
endowment policy. if this option is exercised, the policy no
longer remains whole life policy, if it is not exercised the
policy continues to be a whole life policy.

12.  Term insurance is far a short period of years ranging from
3 months to seven years.
 The term insurance policies are useful to those:
(i) who need extra protection far a short duration
(ii)who need protection for long duration but are unable
to purchase for the time being due to ill health or lesser
income
(iii)a young businessman can take the policy to save the
business disaster during initial stage of the business
(iv)a mortgagor of the property may be benefited by this
scheme etc.

13.  Term insurance policies are following types:
(i)Straight-Term Insurance:
The corporation issues term insurance for two years,
which is also called as temporary assurance policy.
(ii)Renewable Term Policy:
These policies are renewable at the expiry of term for an
additional period without medical examination; but the
premium rate will be altered according to the age attained
at the time of renewal.
(iii)Convertible Term Policy:
Under this policy, option to convert it into whole life or
endowment policy is available. This plan is use to those who
are unable to pay the larger premium required for a whole
life or endowment policy.

14.  Endowment policies can be several. Some important
policies are as follows:
 (i)Pure endowment policy:
The sum assured is payable on the life assured’s
surviving the endowment term. In the event of his death
within the term, premiums may be returnable or not. This
policy can be issued in the life of adult as well as in the life
of child.
 (ii)Ordinary endowment policy :
This is the policy which actually represents the life
insurance in true sense. It provides an ideal combination
of both the family protection and the investment.

15.  (iii)Joint life endowment policy:
The policy covers more than one life under a single
policy. Under this plan, the sum assured is payable on the
expiry of the term or on the death of one of the assured
lives during the endowment period.
 (iv)Double endowment policy:
Under this policy, if the life assured dies during the
endowment period, the basic sum assured is payable and if
he survives to the end of the term, double of the sum
assured paid.
 (v)Fixed term endowment policy:
Under this plan, the sum assured is payable only at the
end of a stipulated period, but the premium ceases if death
of the policy-holder occurs earlier. This plan is issued on
without profit basis, paid-up values are paid under this
policy.

16.  1.Single Premium Policy:
In this policy, the whole Premium is paid at the
beginning of the policy . As compared to the annual
Premium payable ,it is costlier; but as compared to
aggregate of all annual Premiums payable, it is much
smaller because all the Premiums are received in advance
and the insurance can earn additional amount on the
Premiums received.

17.  2.Level Premium Policy:
Under this policy regular and equal Premium are paid
at a definite interval. This Premium is lesser than the single
Premium and is convenient to make Premium at a regular
period . This may take the shape of an expense and can be
constantly paid . The equal installments may be paid
monthly , trimonthly (quarterly ),half yearly and yearly.

18. Policies according to participation in profits may be
with profit and without profit policies-
(i) Without profit policies or non-participating policies .
The holder of without profit policies are not entitled to
share the profits of the insurer.
(ii) With profit policies or participating policies. The
holder of With profit policies are entitled to share the
profits of the insurer. Since the policy holders can share
the profit and not the loss , they can not be treated as co-
owner of the insurance business.

19.  The policy may be:
(i)Single life policies
(ii)Multiple life policy
(i)Single life policies:
Under this policy only one individual is insured. The
policy amount is payable only when the assured event
occurs.
(ii)Multiple life policy:
Here more than one life is assured.it may be:
>Joint life policy
>Last survivorship policy

20.  The policy amount may be paid in:
(i) Lump Sum Policies
(ii) Installment or Annuity policies:
(i) Lump Sum Policies:
where the sum assured is paid in lump sum in the events
insured against.
(ii) Installment or Annuity policies:
The policy amount is payable in installments. It is
beneficial to those whose earning capacities are reduced to
minimum in old age.

21.  The conventional policies have the main attributes of
protection at early death or living too long; but majority
of the population, is interested mainly in investment.
Some of the important policies are as follows:
(i) Policies under LIC Mutual Fund
(ii) Jeevan Akshay
(iii) Jeevan Kishor
(iv) Jeevan Chhaya
Every year, some policies are issued to benefit the people.

22.  An annuities is a periodical level payment
made in exchange of the purchase money for
the remainder of the life time of a person or
a specific period. The recipient is usually as
an annuitant.

23. Difference between annuity contract
and life insurance policies
 1)The annuity contract liquidates gradually the
accumulated funds whereas the life insurance contract
provides gradual accumulation of funds.
 2)The annuity contract is taken for one’s own benefit
but the life assurance is generally for benefit of the
dependents
 3)In annuity contract generally the payment stops at
death whereas in life insurance the payment is usually
given death.
 4)Annuity is protection against living too long whereas
the life insurance contract is protection against living
too short.

24.  1)Commencement of income
 2)Number of lives covered
 3)Mode of payment of premium
 4)Disposition of proceeds
 5)Special combination of annuities

25.  1)Immediate annuity: The immediate annuity
commences immediately after the end of the first
income period. For instance, if the annuity is to be
paid annually, then the first installment will be paid at
expiry of one year.
 2)Annuity due: Under this annuity, the payment of
installment starts from the time of contract. The first
payment is made as soon as the contract is finished.
The premium is generally paid in single amount; but
can be paid in installments as is discussed in deferred
annuity.

26.  3) Deferred annuity: In this annuity contract, the payment
of annuity starts after a deferment period or at the
attainment by the annuitant of the specified age. The
premium may be paid as a single premium or in
installment.

27.  1)Single life annuity: Under this annuity one single
person following is contractor. This annuity is most
beneficial to those who have no dependent and want
to use all this saving during his life time.
 2)Multiple life annuity: In this annuity more than one
life is contracted. The annuity is also two types
 a) Joint life annuity where payment of annuity stops at
the first death and
 b) Last survivor annuity where payment continues up
to the death of the last person of the group.

28.  1)LEVEL PREMIUM ANNUITIES: For availing the
annuity, the annuitant can deposit some amounts
periodically so that, at the end, he can get sufficient
amount of annuity in equal installments. During the
accumulation period before commencement of the
payment of annuity, he is given option to get surrender
value in cash or to get paid up values reduced in
proportion to the premium payable.
 2)SINGLE PREMIUM ANNUITY: The annuity in this
case is purchased by payment of a single premium.
Generally the life insurance amount is utilized for
purchasing this annuity.

29.  1)Life annuity: This annuity offers a regular income to
the annuitant throughout his life time. No payment is
made after his death. This beneficial not in every case.
When the annuity dies before receiving all the amount
of the purchase price he is at loss.
 2)Guaranteed Minimum annuity: Annuity payment up
to a period is guaranteed by the insurer. If the
annuitant dies before the specified period, annuity
will continue up to the unexpired period. This annuity
may be of two types :
 A)Immediate annuity with guaranteed payment.
 B)Deferred annuity with guaranteed payment.

31.  Mortality table is such data which records
the post mortality and is put in such form as
can be used in estimating the course of
future data. Thus the mortality table is to
predict future mortality. It is also described
as the picture of a generation of individual
passing through time. A large number of
persons are selected and they are observed
for death and survival rates till all of them
are dead.

32.  A. Observation of Generation
 In preparation of mortality table persons of a single age
are selected and they are observed up to death. No new
entries or withdrawals are assumed at any stage of the
study.
 B. Start from a point
 The mortality table stars from a point, which depends
on the requirement of the insurers, and will continue up
to the point all of them has been dead.

33.  C. Yearly Estimation
The mortality table records yearly death or survival rate.
Each or every year considered for calculating the rates.
 D. Mortality and Survival Rates
The mortality and survival rate of the generation who are
selected as a particular age are considered each and every
year. Any table giving mortality rates only is not mortality
table unless the mortality rate of generation is calculated
every year.

34. The best method of construction of mortality table will
be to select a large number of persons at attained age.
Attained age means nearer to the birth date. The attained
age will be selected at which policy is to begin. The
selected persons of the attained age will be observed and
the number of death will be recorded during a year till all
the persons selected are dead. Theoretically speaking this
type of mortality table will be the actual mortality table.

35. The death rate is calculated for every age. Separate
sample is taken for each age. The number of living in
each age is observed and the number of death during the
age is recorded. By dividing number of deaths by number
of living in each age, the death rate for the age is
calculated. A year is selected because a year constituted
various types of weather and therefore, low, high and
normal mortalities are averaged in the year. Secondly,
rates of premium insurance are quoted on yearly basis
and so the cost depending on mortality showed also be
based on yearly basis

36. For construction of mortality table, number of living
at the beginning of each age and the number of
deaths during the age are required. The mortality
table should be constructed to represent the past
experience as accurately as possible. So the figures of
mortality construction should be as accurate as
possible and based on a large number of persons. The
sources of mortality construction can be obtained
either from
a) Population statistics, and
b) Record of life insurance

37. The second factor after death rate is interest factor for
calculating net premium because the premium is obtained
in advance and claim is paid subsequently. So during this
period the insurer can earn certain rate of interest. Since
the insurer can earn additional amount on the premium
collected, its benefit should be given to the policy-holder.
The insurer therefore is required to assume a rate of return
that may be earned taking into consideration various
factors that would affect such earning. Insurers are
generally conservative in assuming such rate of return.
Since the premium is determined in advance the present
value or present net worth

38. should be calculated so that this value at an assuming
compound rate of interest must be adequate to pay the
amount of claim.

39.  1. The total cost of an option.
 2. The difference between the higher price paid for a
fixed-income security and the security's face amount at
issue.
 3. The specified amount of payment required
periodically by an insurer to provide coverage under a
given insurance plan for a defined period of time. The
premium is paid by the insured party to the insurer,
and primarily compensates the insurer for bearing the
risk of a payout should the insurance agreement's
coverage be required .

40.  The premium is two types:
 1. Net Premium &
 2. Gross premium
 The two premium is sub-divided into two parts:
 1. single premium &
 2. level premium
 The net premium is based on the mortality & interest rate
whereas the gross premium depends upon the mortality
rate, the assumed interest rate , the expences and the
bonus loading. Single premium is paid in one lump sum
while the level premium is paid periodically in installment

41.  The level premium may be yearly, half-yearly, quarterly
and monthly. Firstly, net single premium is calculated
and other premiums are based on calculation.
Net Single Premium
Net single premium is that premium which is
received by the insurer in a lump sum and is exactly
adequate, along with the return earned thereon, to
pay the amount of claim wherever it arises whether at
death or at maturity or even at surrender. It does not
provide for expenses of management and for
contingencies.

42.  Determine what constitutes a claim
(a)death, (b)survival or (c)both
 Determine when claims are paid
(a)at the beginning (b)at the end or (c)during the year.
 Determine the number of insured.
 Determine the duration of the policy.
 Determine the probable number of claims per year.
 Determine the value of claims per year.
 Determine the number of years of interest involved and find
the present value of rupee.
 Determine the present value of the claim each year.
 Determine the present value of all future claims.

43.  A whole life policy continues for the whole of the
life and promises to pay the sum assured upon the
date of the insured to his beneficiary. This policy is
like the term insurance policy with only difference
that instead of being limited to a definite number
of years, it continues for the largest possible length
of life and will certainly be paid at some time. It has
been assumed in most of the mortality table that
the life will continue up to 100 years.

44.  In this policy, insurer promises to pay the insured
value in case the holder services a certain fixed period.
Thus the holder of 5 years pure endowment will be
paid only when he survives at the end of 5 years. The
insured can not get possession of the money
investment in a pure endowment before the expiration
of the endowment period. If the insured dies during
this period, all the premium paid is forfeited.

45.  Under this policy payment of claim amount is
made at the survival of the term or at the death of
the life assured whichever is earlier. Payment in
this case is certain. Since payment in based on the
death and survival, the net premium is calculated
on death or survival rate.

46.  Under the policy, double of the amount is paid if
the life assured survives at the end of the term in
policy and only single amount will be if the death
occurs in the terms. Thus it is first like ordinary
endowment policy with only difference that double
of the policy.

47.  In this case payment of annuity starts after a fixed
period called deferred period or deferment period .
since the premium has been received at the time of
contract and payment shall start only at the end of the
deferment period, the present value will defer with the
deferment period. The survival rate will also be
calculated after the deferment period.

48.  The gross premium is that premium which is charged
by the insured to meet the amount of claims and
expenses . Thus, the gross premium includes the net
premium and loading is the process to add the
expenses to net premium. The loading may at a certain
amount to meet the bonus charges on participating
policies .The policy holder are required to pay this
gross premium and they even do not know the net
premium.

50. Surrender value can be as that amount
of premiums paid which is returned to the
policy holder at the time of surrendering
the policy. Normally no surrender value is
paid if the policy lapses within two or
three years of its issue because huge
expenditures are involved during the
inception of the policy.

51. Bases of calculating
surrender value

52. There are two bases of calculating surrender value:
1. Accumulation Approach
2. Saving Approach
*The Accumulated Approach:
Under this approach, surrender value is the accumulation
of over charges in the net premium, which upon the surrender
of the policy is no longer required to pay the amount of
claims, therefore he should pay all the accumulated reverse.
The full amount of reserve to a particular policies can not be
given as a surrender value because there are certain expenses
and loss because of surrendering the policioes. Thus,
Surrender Value=Full Reserve – Surrender Charges

53. *Surrender Charges:
The surrender charges are those expenses and losses which
occurred on account of a surrender or lapsation of policy. The
surrender charges are as follows:
>Initial Expenses
>Adverse Financial selection
>Adverse Mortality Selection
>Contribution to Contingency Reserve
>Contribution of Profits
>Cost of Surrender

54. *Saving Approach:
The Saving Approach is more scientific because it reveals
the reason of payment of surrender value. Under this
method, the surrender value is paid in lieu of the claim
amount. The surrender value on this policy can be
calculated as bellow:
Surrender Value=(Sum assured+ Accumulated value of
future expenses + Future reversion ally bonus, if
participating policy) – (Accumulated value of all future
premiums + Expenses incurred in processing the surrender
value)

55. Forms of payment
of Surrender Value

56. The policyholders can get the surrender values in the
following forms:
1.Cash surrender value:
Then policyholder can get the value of surrender in cash.
when the policyholder gets the cash, the contract comes to an
end and the insurer has no obligation to pay on that particular
policy.
2.Reduced paid up insurance:
Here, the surrender value is not pais immediately, but
original policy is reduced in certain proportion and the
reduced amount is paid according to the term of the policy.
3.Extended term insurance:
The net cash value arisen at the time of surrender of a policy
can be used for payment of as single premium for purchase of
term insurance.

57. 4.Automatic premium Loan:
Under this scheme , the surrender value is used for
payment of future premium. Thus, the policy will continue
up to the period the surrender value is adequate enough to
meet the amount of future premiums.
5.Purchase of Annuity:
The policyholder, with the surrender value , can purchase
an annuity. Thus instead of taking surrender value in cash,
the annuity is purchased from the available surrender value.

59. Valuation is a process to value the net liabilities of a life
insurer as on a particular date. It determines the total
amount of reserve that an insurer must have to meet his
obligations.
Purpose of valuation:
There are two purpose of the valuation:
*To determine the solvency: The life insurer must find
out whether he has sufficient funds to meet the current
obligations or not. In case of insolvency, he has to curtail
his expense and increase the income.
*To determine the visible surplus: The excess of receipt
over expenditures of a period can not be regarded as profit
of the year because unless all the claims are paid out,
insurer can not know the actual amount of profit.

61. The valuation involves calculation of net liabilities apart from
this main process, the valuation also includes comparison of
insurance funds with the net liabilities during a particular
period. The processes are as follows:
1.Calculation of net liabilities:
The net liabilities may be calculated with prospective
method or retrospective method. If death occurred as
anticipated, interest earned is also as expected & expense are
also incurred according to assumptions.
This calculation follows:
1. Prospective Value
2. Retrospective Method

62. 2.Calculation of life insurance fund:
The life insurance is obtained from the revenue account of
the insurer. The previous fund is shown in the credit side of
the revenue account in respect of life insurance. The
difference between debit & credit side will disclose the life
insurance funds available to insurer at the end of the period.
3.Comparison of net liabilities with life insurance fund:
The comparison of net liabilities with life insurance fund
will disclose surplus or deficiency. If the former is less than
the later one, deficiency is arrived.

64. The amount of an asset or resource that exceeds the portion
that is utilized. A surplus is used to describe many excess
assets including income, profits, capital and goods. A surplus
often occurs in a budget, when expenses are less than the
income taken in, or in inventory when fewer supplies are used
than were retained.
Sources of surplus: The sources are:
1.Excess interest: The excess of actual interest over the
assumed one gives rise to surplus.
2.Saving from Mortality: If the actual rate of mortality is
lesser than the assumed rate of mortality, surplus is created by
the excess amount.
3.Saving from Loading: If assumed loading is more than the
actual expenses, surplus will arise.

65. 4.Lapses & Surrender: If the surrender value given is less
than the reserve accumulated or amount of surrender to be
given.
5.Bonus Loading: On particular policies, bonus loading is
added to declare at least certain minimum rate of bonus.
The unutilized portion of it along with interest thereon is
added to surplus.
**Miscellaneous Sources: Saving in various types of annuity
contract may given rise to surplus . Similarly in pure
endowment or term insurance, some amount may remain
unpaid, which will be taken as a surplus.

67. There are two methods:
1.Uniform Bonus plan:
Under this method, a uniform bonus rate is given to all
policyholders of a particular type. The bonus rate is based on
the policy amount. Here, higher the policy amount, higher
will be the bonus amount to a policy. This system is popular &
make no distinction between policies on the basis of their
contribution to the surplus.
2.Contribution Method:
The essential principle of this method is that the divisible
surplus should be allotted to the various policies in
proportion to the individual contribution of each policy to the
surplus. The higher the contribution of a policy , the higher
should be the amount of bonus declared on it.

68.  Democratic Leadership: This principle states that leader
should give respect to the opinions and views of his
subordinates.
 Follow up: a manager should find out whether the
subordinates are working properly and what problems they
are facing.

70.  Life insurance is the contract of assurance. In
this case, the insurance claim refers to the
insured sum.
 Insurance Claim:
In life insurance policy including profit, the
insured sum with adding profit which amount of
money is paid to the insurer is called the
insurance claim.

71.  The insurance claim is paid in the following
cases:
1.In term policy, the claim is paid within the
specified period if the insurer die.
2.In pure endowment policy, the claim is paid if
the insured is alive till the mentioned period.
3.In whole life policy, the claim is paid if the
insured die.

72. The Procedure for
settlement of claim

73. 1.Payment of claim after certain period:
In case of the endowment policy, when the matured time
is completed, the insured can apply to the insurer to pay the
claim disclosing the policy.
2.Payment of claim after the death of the insured:
Except pure endowment policy, in case of other policies if
the insured die before the matured time or in case of whole
life policy or term policies if the insured die on time then
the nominated person or the successors prescribed in
policies can take proper step to accept the amount of the
claim. In this case there must be done following activities:
a. Proof of the age of the insured
b. Proof of death of the insured
c. Succession certificate
d. Payment of claim

74.  a. Proof of the age of the insured :
If any insured person cannot give the proof of his age in
alive, then after his death the nominated person have to
give such proof. Such as: S.S.C certificate or job register or
the certificate of 1st class gazetted officer.
 b. Proof of death of the insured:
In case of such insurance claim, the proof of age of the
insured has to give to the insurer. The following proofs are
considered acceptable by law:
> The death certificate given by the doctor who was present
in the time of the death of the insured.
> If the proof given by the local authorities such as the
chairman of the union parishod, ward commissioner etc.
> If the insured die by accident, the police enquiring report
& the certificate of the public doctor are given to the insurer.

75.  c. Succession certificate:
If the insured nominates any person in the policy, then he
has to give the proof about his identity. If the insured does
not nominates any person, then the successor of the insured
by law has to prove his heir ship. Then he has to collect the
succession certificate from the district judge.
 Payment of claim:
After finished the above conditions if the insurance
company is satisfied, then it can take proper step to pay the
claim. If the real age is greater than the prescribed age then
premium is cut from the insurance claim. Again, if the real
age is less than the prescribed age, then which amount of
premium is given more, that premium is returned.

76.  3.Payment of claim in case of missing person:
If the insured person is missing from for 7 years, it is
determined that he is dead. In that case, a member of
the family needs to apply in the judge court that court
considers him as dead. If the court satisfied with the
police enquiring report then it declared the insured
person as dead & specified his right successor.
If such proof is given to the insurance company by
the successor, then the company pay the claim.

77. THANKS TO ALL

78. THE END