This document provides an overview of insurance planning and various insurance concepts. It discusses risk and risk management, the concept of insurance, principles of insurance including utmost good faith, insurable interest, and indemnity. It also covers types of insurance policies for life and general insurance, products, tax benefits, underwriting, and claims processes. Key terms related to insurance are defined throughout the document.

1. B . Insurance Planning
By : Ashish Ramesh Bhave

2. Insurance Planning :
Risk : A condition where there is a possibility of adverse
outcome, however the outcome is uncertain.
This is applicable to individuals as well as corporate houses.
Probability of risk lies between 0 to 1.
Risk Management :
There are four ways to manage the risk.
Avoiding :
Controlling :
Accepting :
Transferring : Insurance.

3. Risk management process :
Risk
No Yes
Is it measurable? No Significant Non significant
Analyze it Avoid the risk Accept the risk
Avoidable Non avoidable
Avoid it Control the risk
Controllable Non controllable
Control it Insurance

4. Concept :
Insurance is the tool used for the protecting asset from risk
arises of uncertainties (insurance can protect only the
economic value of the asset), as there is a chance of
damage to asset before the expected life through accidental
occurrences.
Such accidental occurrences are called as PERIL.
Insurance is a contract between Insurer ( insurance co.) &
Proposer / insured ( cover holder), where insurer accepts the
risk according to the terms & conditions, and for same
insured pays some consideration called as premium.

5. Working principles of Insurance:
1. Uncertainty. : Covers only uncertainties
2. Shearing of losses. : The total loss is shearing among large no. of units
having same risk.
3. Law of Large numbers. : Large no. assure the correctness in the
statistics of premium calculations.

6. Following are the characteristics which can be covered by
insurance :
1. Loss must occur by chance
2. Loss must be definite, quantifiable.
3. Loss must be significant.
4. Loss rate must be predictable.
5. Loss must not be catastrophic to insurer.

7. Principles of Insurance:
1. Principle of Utmost Good Faith
2. Principle of Insurable Interest
3. Principle of Indemnity
–Principle of Contribution
–Principle of Subrogation
4. Principle of Proximate Cause
5. Principle of Average

8. Principle of Utmost Good Faith :
It is a voluntary duty to disclose all material facts which can affects the judgment in
analyzing the risk.
– Examples:
Life insurance – medical history, financial status,
lifestyle (smoking, drinking) etc.
General insurance – previous convictions, previous
losses, claims, policy cancellations.
Personal accident – nature of occupation
Fire Insurance – Construction of building
Motor Insurance – purpose for which vehicle is used
Marine Insurance – Method of packing
Normally all insurance application forms has questionnaire to collect this data.
The principle of utmost good faith is applicable while entering into the contract &
come in force again at the time of revival

9. Principle of Insurable Interest :
Generally insurable interest exits only if insured would
suffer a financial loss in the event of damage to or
destruction of the subject matter.
– Insurable interest can be acquired by:
Ownership, legal possession, custody of property
belonging to others
e.g. marriage-spouses on each others life,
Employer - employee vice versa,
partners,
debtor and creditor.
A parent usually deemed to have insurable interest in his or her child’s
life
The insurable interest is applicable at the time of entering in the
contract in the life insurance & applicable at the time of entering in the
contract as well as at the time of claim in the general insurance except
Marine insurance.

10. Principle of Indemnity:
States that If an individual suffers a loss under an insurance policy, he is entitled to
recover the actual amount of loss – no more and no less – up to the amount insured by the
policy and subject to any deductible or depreciation, if applicable.
The insurance is to protect the loss due to peril and not for making profit .
This principle exist to prevent people from trying to take advantage of insurance policies.
Dose not apply in life insurance & Accidental & Disability insurance
2 Corollaries
Principle of Contribution
Should the same risk be insured by two or more
companies, the compensation must be shared
between them
Principle of Subrogation
Once an insurance company pays out
compensation it becomes owner of the item
insured

11. Proximate cause:
The active efficient cause that sets in motion a chain of events which
bring about a result, without the intervention of any new force started and
working actively from a new independent source.
If an asset is covered for two or more perils and the damage is caused by more
than one peril happening at the same time then it becomes important to find out
which peril has the most powerful effect .
This applies for General insurance.

12. Insurance Terms :
Types of deductibles which form part of general insurance policy in most cases
Excess
• Portion of any claim that is not covered by insurance provider
• Deductible must be met before benefits of the policy can apply
• Motor insurance deductible applies to claims arising from damage to his
own vehicle.
• Travel insurance policies have deductibles
• Health insurance policies have deductible which does not
• Cover cost of routine visits
Franchisee
• Kind of excess with a difference
• Like in excess if reported claim is below limit of franchisee it is not payable
• If claim amount is more than franchisee amount the insured gets full amount of
claim without any deduction

13. Types of insurance policies :
3 types of life insurance policies
– Term Insurance (Risk Cover only ): provides life insurance protection for a
specific
period of time
– Pure endowment plan (Pure Investment): insurer pays fixed sum of money
periodically, while insurer will give survival benefit to insured
– Endowment (Combination of Term Insurance + Pure endowment ) : in addition to
life insurance protection, it also builds internal cash values. So policy holder
gets
both life cover as well as maturity survival benefit.

14. Types of insurance policies :
Term Insurance Plans
Level term
Decreasing term
Increasing term
Renewable term
Convertible term
Term insurance with return of premium
Level term: Sum Assured (SA) same and uniform throughout term of policy, in case
of death anytime during term, SA is payable.
Decreasing term: Premium remains constant, but benefit payable decreases with
time: for mortgage
Increasing term: premium and benefit increases with time, wherein the increase
could be linked to fixed %
Renewable term: policy is issued for fixed term, with option to policy holder to
renew
without providing proof of health status

15. Types of insurance policies :
Convertible term: policyholder has option to convert his term insurance to a
permanent insurance plan without undergoing medical test
Term insurance with return of premium: same as level term, except policyholder
on survival gets back full premium paid

16. Life insurance products.:
Whole life policy
Ordinary life insurance:
Limited paying life insurance
Endowment Policy
Money Back Policy
Unit Linked Policy
Pure Investments
Annuities/Pension plans
ULIP ( Unit linked insurance plan ) :
Policy rider:
Gives additional benefits that supplement basic benefit of SA. You have to pay
extra premium for same.

17. Life insurance products.:
Riders :
Critical illness cover rider
Disability benefit rider:
Waiver of Premium (WOP)
Accident death benefit:
Level term cover rider:
Payor rider.

18. General Insurance Products
Home Insurance
Motor Insurance
Accident & Disability Insurance
Mediclaim
Critical Illness
Overseas Travel: Actual Travel
Guard Policy
Liability insurance

19. Tax Benefits on Insurance.
Section 80C deduction: Upto 1 lac for premium paid on life of self, spouse,
children including adult children and married daughter
Section 80D deduction: for medical insurance and all health riders
upto 15000 pa (Rs. 20000 for senior citizens)
Section 10(10D): Any sum received under insurance policy including maturity
bonus etc is exempt. If annual premium is > 20% of SA on maturity,
then differential between SA & Premium paid is taxable

20. Accident & Disability Insurance
Cover:
Physical loss to an individual due to accidental bodily injury (including fatal)
24 hour worldwide cover
Any individual aged between 5 and 70, Subject to medical exam at 70,
person can be covered upto 80
Scope of Cover
Death 100% of SI
Permanent Total Disablement 100% of SI
Loss of 2 limbs/2 eyes or 1 limb + 1 eye 100% of SI
Loss of 1 limbs or 1 eyes 50% of SI
Permanent Partial Disablement Varying % of Sum insured as per policy
Temporary Total Disablement : 1% of SA per week, subject to Rs. 3000 max per
week, for max of 104 weeks

21. Accident & Disability Insurance :
Exclusions:
Compensation under more than one clause for same period of disability not
exceeding CSI
Any payment after admission of claim for 50%/100% of CSI
Any claim in the same period of insurance exceeding the CSI
Suicide, attempt there at, criminal breach of law, accidental death/injury under
influence of liquor/drugs
Pregnancy related claim
War and nuclear perils

22. Mediclaim :
Covers:
Expenses incurred by insured for hospitalization/domiciliary for illness/diseases
or injury sustained. Includes:
Hospital charges(room, boarding, operation theatre)
fees for surgeon, anaesthetist, nursing, specialist etc.
diagnostic tests, cost of medicines, blood, oxygen etx,
cost of appliances like pacemaker, artificial limns etc.
Domiciliary Hospitalization is capped at 20% of Sum
Assured
Any person in age group of 5 to 75 years, children between 3 months and 5 years
can be covered only along with parents.
Usually claim permitted only subject to minimum hospitalization of 24 hours
except for specific ailment

23. Mediclaim :
Exclusions:
Diseases contracted within 30 days of insurance
Dental treatment except arising out of accident.
Debility and General Run Down Conditions.
Sexually transmitted diseases and HIV (AIDS)
Circumcision, Cosmetic surgery, Plastic surgery unless required to treat injury
or illness
Vaccination and Inoculation
Pregnancy and child birth
War, Act of foreign enemy, ionizing radiation and nuclear weapon.
Treatment outside India
Naturopathy
Experimental or unproven treatment
All external equipments such as contact lenses, cochlear implants etc.

24. Underwriting & Rate Making
Underwriting is a process by which insurance company gathers and
Analyzes data to evaluate an application for insurance. They may gather the
required information from one or more of the following sources:
From application
From insurance agent/financial planner
Investigation of persons background, lifestyle, etc
Physical examination, medical tests of the person
Information bureaus

25. Underwriting Process
Financial underwriting: determines whether the amount coverage
sought accurately reflects the amount of loss in case of damage
Medical underwriting: verifies the true nature of health of individual
Classification of Risks:
Physical hazards: age, sex, build, physical condition, physical impairments,
personal history, family history etc.
Are Accepted with Extra premium.
Occupational hazards: nature of occupation Are Accepted with Extra premium.
Moral hazard: dishonesty. Are Declined.

26. Policy conditions :
Days of grace : This is the additional time in days given to the policy
Holder to pay premium even after due date, in this time policy remains
active.
As per the premium frequency this grace period is given
Yearly premium : 30 days grace.
Half yearly premium : 30 days grace.
Quarterly premium : 30 days grace.
Monthly premium : 15 days grace.
If the premiums are not paid even after the grace period the policy gets lapsed
and all the benefits are forfeited.
How ever there are some non-forfeit options are also given to favor the policy
holders

27. Non forfeiture options :
Paid up value (Cash value of policy ) : This gives the cash value on the
Policy & calculated as
= ( total premium paid / total premium payable * SA ) + Bonus.
Surrender value : This gives the payable value on the Policy & calculated as
= PV * Surrender value factor ( SVF ).
Loan : The traditional policies has this option where the policy holder can take a
loan on the policy & pay the remaining premiums through that & can continue the
policy. Policy holder has to repay this loan.
= SV * Loan factor.

28. Policy need analysis :
The decision on the required insurance cover can be taken on the basis
Of Human life value calculations & can be calculated as
HLV = NPV ( E (earnings) – M (personal expenses) )^n
Can be calculated by using FV200V
Set : Begin.
N : no of years of working
I % : ( (1+discount rate)/(1+income growth rate) -1 ) * 100
PV : Solve ? ( HLV)
PMT : E-M
FV : 0
P/Y : 1
C/Y : 1

29. Policy need analysis :
How ever the optimisation can be done on the basis of need based analysis which
we use as our system where we can help client.
Insurance laddering system.

30. Claims :
There are different types of claim
Maturity claim : Given at the time completion of the term.
SA + bonus + loyalty addition.
Survival benefit : as per prescribed in policy contract.
Death claim : SA + accrued bonus.
In Ulip plan :
Maturity claim : SA or Fund value whichever is higher.
Death claim : SA or Fund value whichever is higher.
.