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What is Life Insurance?
A life insurance policy is a contract with an insurance company. In exchange for
premium payments, the insurance company provides a lump-sum payment,
known as a death benefit, to beneficiaries upon the insured's death.
Typically, life insurance is chosen based on the needs and goals of the owner.
Term life insurance generally provides protection for a set period of time, while
permanent insurance, such as whole and universal life, provides lifetime
coverage. It's important to note that death benefits from all types of life
insurance are generally income tax-free.
Life Insurance can be termed as an agreement between the policy owner and the
insurer, where the insurer for a consideration agrees to pay a sum of money upon
the occurrence of the insured individual's or individuals' death or other event, such
as terminal illness, critical illness or maturity of the policy.
History of Life Insurance
Bombay Mutual Assurance Society, the first Indian life assurance society, was
formed in 1870.
Other companies like Oriental, Bharat and Empire of India were also set up in the
1870-90s.
It was during the swadeshi movement in the early 20th century that insurance
witnessed a big boom in India with several more companies being set up.
By the mid-1950s, there were around 170 insurance companies and 80 provident
fund societies in the country's life insurance scene. However, in the absence of
regulatory systems, scams and irregularities were prevalent in most of these
companies.
As a result, the government decided to nationalize the life assurance business in
India. The Life Insurance Corporation of India was set up in 1956 to take over
around 250 life insurance companies.

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For years thereafter, insurance remained a monopoly of the public sector. The
sector was finally opened up to private players in 2001.
The Insurance Regulatory & Development Authority, an autonomous insurance
regulator set up in 2000, has extensive powers to oversee the insurance business
and regulate in a manner that will safeguard the interests of the insured.
Why to have a life insurance?
 To Pay Final Expenses
 To Cover Children’s Expenses
 Money when you need it
 TAX-SAVING PURPOSES
Types of life insurance
 Term life insurance
 Increasing /decreasing term policies
 Convertible term assurance policy
 Level term life insurance
 Renewable term life insurance
 Endowment insurance
 Joint life endowment plan
 Money back endowment plan
 Marriage endowment plan
 Permanent (whole) life insurance
 Ordinary whole life plan
 Limited payment whole life plan
 Unit linked plans

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Term life insurance
Term insurance is a pure life insurance product, which provides financial
protection in case of death of the life insured during the term of the policy. A term
insurance plan is the most affordable form of life insurance cover. It is designed to
financially protect ones family in case of death of the bread-earner.
It will help your family meet their financial needs from household expenses to
rentals in your absence. When you consider buying a term plan, you have to make
an educated choice about the life cover you select. There are some important
things you need to keep in mind when deciding the term plan and life cover you
opt for. The cover should help your family maintain their lifestyle, inflation should
be kept in account and lastly, it should take care of your existing liabilities
preventing the worries of EMI repayments.
Types of term insurance
Increasing Term Insurance
A term life policy that increases the death benefit each year during the term.
Concurrently, as the death benefit increases, so does the premium. If kept long
enough, the premium on this policy will increase faster than the death benefit.
Decreasing Term Insurance
Decreasing term life insurance provides a death benefit that gradually decreases
either monthly or annually over the span of the policy. Decreasing term life
insurance is commonly used as targeted coverage for one of the following debts:
Mortgage.
Convertible term assurance policy
Convertible Term insurance is a term plan with low and affordable
premium which can be later converted to an endowment or a whole life
plan. This is best suited for people who have just started working and are
not earning very high, but would like to purchase insurance for their family’s
protection and wish to take an endowment or a limited payment whole plan
later with a much higher premium. Thus in this plan, the premium is quite
low initially before the plan is changed or converted.

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Level Term Life Insurance
Level term life insurance is the ideal option if you are looking for a set amount of
cover for a certain period. ... Decreasing life insurance policies pay out an amount
which reduces over time, and means your premiums will be cheaper than with a
level term life insurance policy.
Renewable Term Life Insurance
A renewable term is a clause in a term insurance contract that allows the
beneficiary to extend the coverage termfor a set period of time without having to
re qualify for coverage. A renewable term is contingent on premium payments
being up to date, as well as a renewal premium being paid by the beneficiary.
Endowment insurance
Endowment insurance plans is an investment oriented plan which not only pays in
the event of death but also in the event of survival at the end of the term.
Is a contract underwritten by a life insurance company to pay a Fixed term plus
Accumulated profits that are declared annually.
 Minimum age at entry : 12years
 Maximum age at entry: 65years
 Maximum age at maturity : 75years
Types of endowment insurance
Joint Life Endowment Plan
A Joint Life Insurance plan can be either an endowment policy or a basic term
plan, wherein two lives are covered instead of one. Joint Term Plan. In this type of
joint life insurance, both individuals pay a single premium for a fixed period.
Money Back Endowment Plan
The endowment plans pays the money, which includes the sum assured (or
cover) and bonus, on the maturity of the policy. Money back policy, on the other
hand, returns money usually as a fixed percentage of the sum assured to the
insured during the term of the policy at some regular frequency (e.g. 5 years).

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Marriage Endowment Plan
This plan has the specific condition that the sum assured is payable only after the
expiry of the term even if death of the life assured takes place earlier.
Educational Endowment Plan
These plans are specially designed to meet educational expense of children at a
future date. If the insured parent dies before the date of maturity the installment is
paid in lump sum with immediate effect which helps to meet the educational
expenses.
Permanent life insurance
Permanent insurance provides lifelong protection, and the ability to accumulate
cash value on a tax-deferred basis. Unlike term insurance, a permanent insurance
policy will remain in force for as long as you continue to pay your premiums.
It is the most common form of permanent life insurance. Whole life insurance
protects the insured against death, whenever it may happen. It means that there
is no fixed term under whole life insurance. Most policies provide a dividend to
the policy holder which helps with retirement. Whole life policies provide
insurance until the death of the insured person.
Types of whole life insurance
Ordinary Whole Life Plan
This is a continuous premium payment plan. The insured pays premium throughout
his life. It provides dual facility of protection plus savings.
Limited Payment Whole Life Plan
It provides the same benefit as above but premiums are paid for a limited period.
Premiums are sufficiently higher to cover the risk.

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Children’s life insurance
Since last few years insurance companies have started offering risk cover plans
like limited payment whole life, and endowment assurance plan from the age of
12years and money back plan from age of 13 years (completed).
New plans have been specifically designed for children where the risk of the child
starts much earlier say 7 years.
Child life insurance is a form of permanent life insurance that insures the life of a
minor. It is usually purchased to protect a family against the sudden and
unexpected costs of a child’s funeral or burial and to secure inexpensive and
guaranteed insurance for the lifetime of the child. It offers guaranteed growth of
cash value, which some carriers allow to be withdrawn (collapsing the policy)
when the child is in their early twenties. Child life insurance policies typically
offer the owner the option to purchase, or in some cases obtain additional
guaranteed insurance when the child reaches maturity.
Unit linked plans
A Unit Linked Insurance Plan (ULIP) is a product offered by insurance companies
that, unlike a pure insurance policy, gives investors both insurance and
investment under a single integrated plan.
It is a combination of an investment fund (such as mutual fund) and an insurance
policy.
The premium amount is invested in the stock market and returns better income on
the maturity period.
Policy Claim
Life insurance claim can arise either:
• On the maturity of the policy – Maturity Claim
• On death of the policy holder – Death Claim
• Survival up to specified period during the term – Survival benefits

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Maturity Claim
• In case of Endowment type of Policies, amount is payable at the end of the
policy period.
• Discharge Form & Policy Document
• On receipt of these two documents postdated cheque is sent by post so as to
reach the policyholder before the due date
• The gross amount consists of Basic sum assured and bonus if any.
Survival Claims
• Same as maturity claims, sum assured becomes payable on expiry of full
term but on survival of the insured.
• In policies like, money back plan for 15 years term, 1/4th of the sum
assured becomes payable on the life assured on surviving 5 year, further
1/4th becomes payable after additional 5 years and rest balance at the end of
15 years.
How Does Life Insurance Work?
Home Insurance protects your house. Car Insurance protects your car.
Your insurance policy will pay out should your car get damaged, so you can repair
it without putting your hand in your pocket. Imagine trying to rebuild a house if
you didn’t have insurance!
How healthy are your savings?
While Life Insurance doesn’t apply quite so literally, it’s even more important as it
protects your loved ones if you die during the term of your policy.
Human life can’t be repaired (well not yet anyway…give it a few years!) – if you
die, you stay dead, but life insurance is vital for replacing your income if you die.
Look, you know it’s important, and you’re pretty sure you need it, but you have
questions. How about we start with the big one: “How does Life Insurance work?”

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Advantages of Life Insurance
1. Economic protection against the loss of life. The emotional loss
caused to the family of the insured cannot be measured in terms of money.
However, the financial responsibility of the insured towards his family members
are to an extent shared by the Life insurers. On the death of the insured, the family
will have some money to continue having a comfortable life. The life insurance
policy provides an option to choose the nominee.
2. A form of investment or saving. Many people buy life insurance as
part of their investments. Most insurance policies guarantees a fixed sum of money
payable either on the death of the insured or at the expire of the pre-determined
tenure. Hence, many people keep aside a part of their savings for the payment of
Life insurance premium in the form of investment.
3. Life insurance is simple to understand in terms of premium and
the maturity of the compensation. The investment amount, policy term, and the
maturity amount are clearly mentioned on the policy document.
4. Some Life insurance policies are flexible. The give the insured an
option to change the policy amount with the change in his needs. When the
insurance needs of the insured changes, they can talk to the insurer so that they can
adjust their insurance plan. However, it should be kept in mind that not all
insurance policies are flexible enough to satisfy the ever-changing need of the
policy holder. Hence, the policy buyer should read all the term and conditions of
the policy at the time of first purchase.
5. Loan against Life Insurance Policies (LAIP) is a newest form of
financial revolution. Many financial institutions offer loan against the surrender
value of the insurance policy. This a safe and quick way to generate cash.
6. The insured pays the premium depending on the sum
insured. Depending on the age of the insured, they can select the amount they
want to pay per month that won’t be a burden to them.
7. Enable the insured to be able to select their beneficiary. When
buying a policy, one has to choose who the beneficiary of the insurance policy will

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be. In this way, they make sure that the material needs of their loves ones would
always be met.
8. Reduces the financial implication of death. Life insurance
reduces the financial burden that comes with the death of the breadwinner.
9. There is a range of policies to choose from. Life insurance has a
range of policies to choose from. In some policies, one is compensated when a
certain period of time elapses.
10. Tax saving weapon. In most countries, the final amount that you get
from the insurer is not taxable. In India, the amount of Life insurance policy
premiums are allowed as deduction under section 80C of the Income Tax Act,
1961. The maturity proceeds are also exempted from Income Tax. Hence,
investment in a life insurance policy is an amazing tax saving weapon.
Disadvantages of Life Insurance
1. Insurance policies are expensive. Life insurance means that you
have to contribute your premium until you die or a fixed tenure that is very long.
This will be expensive for the insured. The part of the life insurance premium paid
towards risk coverage is an expense. However, the quantum of financial risk
mitigated by these policies are much more than these expenses. Hence, people treat
life insurance premiums as mandatory expense.
2. Some insurance companies may refuse to pay the sum
insured. Some insurers will use dirty tricks to evade the pay the sum insured
even after maturity of the policy. For this reason, it is important that you read all
the clauses of the life policy at the time of entering into the contract. Further, you
can consult your financial advisor before buying a policy.
3. People buying the insurance they don’t need. Some people may
buy the insurance policy when they don’t need one. Paying for a policy that do not
meet the need of the paying person is a waste of money.
4. Some people give falsified information. Some people give false
information to the insurance company e.g., age leading to the insurer making
losses.

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5. The beneficiary may decide to waste the amount they
receive. The beneficiary may not use the funds as it was intended leading to
wastage of the sum insured.
6. Many life insurance policies keep on changing. In such
policies, the premium amount is low during the initial years. However, the
premium amount do not remain constant. They keep changing with time. You may
be required to pay more premium as you grow older than when you were young.
7. Having it doesn’t necessarily mean better quality of
life. Life insurance may mean poor quality of life to be able to pay the premium.
The deduction may be too many.
8. There are so many complex insurance policies. The insurance
policies are complex that one may not be able to understand. There are ‘good’ and
there are ‘not so good’ insurance companies. Similarly, there are some ‘not so
simple’ insurance policies that is beyond the understanding capability of a common
man. Hence, it can be a very daunting task to choose the right life policy.
9. The investment is not highly paying. Life insurance is primarily an
instrument to cover risk. The investment function is of secondary nature. Unlike
other types of investment that have high returns, life insurance does not give high
returns. Hence, people seeking high return on their investment may not find it
attractive for investment.
Death Claims
2 Types:
• Premature death claim – within 3 years
• Other claim – after 3 years
 Intimation of death is to be given by a proper person in writing.
1. Original Policy Bond
2. Death Certificate
3. Proof of relationship with the deceased person

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In case of Accidental Death
Postmortern Report, FIR Copy, Final Police Report is also required
Exclusions in Accident Benefit
• Suicide or attempted suicide or intentional self-inflicted injury.
• Under influence of drugs or alcohol, narcotics or psychotropic substance not
prescribed by a Medical Professional.
• War, Invasion, Civil War, Riots, Revolution or any war like operation.
• Criminal or unlawful act
• Service in the military or police
• Flying activity other than as a paying passenger.
• Racing vehicle.
Permanent disability benefits
• An additional sum equal to the sum assured will be paid in monthly
installments spread over10 years.
• Future premiums are waived
• Max. Limit of additional benefit is 5, 00,000 or 10, 00,000 depending upon
the insurer.
Pre-condition for granting such benefits are:
 Disability should be solely and directly as a result of accidental injury.
 Disability must be permanent
 Injury and disability must occur before the insured attains 60 years of age.

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Premiums paid for Health Related Riders:
 Some of the critical illness, hospitalization cash and other health related
riders attached to a Life Insurance policy may also be eligible for rebate
under section 80D of the Insurance Act.
 This deduction is available to both Individuals & HUF.
 Rs.15,000 is the maximum amount deductible during the year for an
individual as well as a senior citizen.
 Condition for applicability of deduction is that the premium must be paid by
cheque in the previous year out of the income chargeable to tax.
Death Claims and Maturity Benefits:
 Life Insurance Policies are under an EEE (Exempt-Exempt-Exempt) regime
i.e. that the Premiums Paid, Income earned by the Investments, and payment
of Maturity proceeds or claim are all exempt “E” from tax under section
10(10)(D) of the Income Tax Act.
 The only policies that are not eligible for exemption on payment on maturity
or claim are Single Premium Policies or Policies where the sum assured was
less than 5 times the Premium paid.
Top 10 Life Insurance company
1. LIC
2. SBI Life Insurance
3. HDFC Life
4. Bajaj Allianz
5. Birla Sun Life
6. PNB Metlife
7. Kotak Life
8. Reliance Life
9. Shriram Life
10.Bharti Axa

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Functions of an Actuary in Life Insurance Business
• Main function of an actuary in life insurance is to do assessment and
valuation of mortality risk.
• Due to medical advancement now the life span of an individual can be
determined which reduce the uncertainty of death.
• Due to which medical selection by the insurer is necessary and desirable
both on the grounds of “actuarial fairness” i.e. charging premiums to
different lives on the basis of their different levels of risk and for financial
viability of the insurance company.
Current News in Life Insurance Sector
• Life insurance premium collection down by 22%
- LIC premium collection down by 20.5% and 22 private life insurance
premium down by 25%.
• AUM of life insurer cross Rs. 15 lakh crore, due to rise in renewal premium
which means that increasing number of policy holder are renewing their
policies.