Life insurance

Syllabus
• UNIT-1 Introduction:
• Meaning, Nature And Significance Of Insurance, Origin,
Development And Scope Of Insurance Life Insurance And General
Insurance; Assurance And Insurance, Re- Insurance And Double
Insurance, Risk And Underwriting.
•
• UNIT II Life Insurance Contract:
• Principles Of Insurance, Procedure Of Life Insurance, Proposal
Form, Non- Medical Insurance, Insurance Of Women’s Lives,
Nomination And Assignment, Surrender Value, Lapse And Revival Of
Policies.

Cont....
• UNIT III Life Insurance Premium And Claims:
Determination Of Life Insurance Premium, Mortality Tables,
Treatment Of Sub- Standard Risks, Payment Of Bonus, Settlement Of Life
Insurance Claims In Various Conditions.
• UNIT IV Life Insurance Policies
Basic Kind Of Life Policies – Whole Life Policies, Endowment Policies,
Term Policies, Important Life Insurance Policies Issued By LIC Of India, Group
Insurance And Salary Savings Scheme.
• UNIT V Life Insurance Salesmanship And IRDA:
Qualification And Essential Qualities Of Life Insurance Agents, Rights,
Duties And Training Of Life Insurance Agents. Organization, Functions And
Powers Of Insurance Regulatory & Development Authority (IRDA)

UNIT 1
INSURANCE
Meaning of Insurance – Insurance means a promise of compensation for any potential future losses. It facilitates
financial protection against by reimbursing losses during crisis. There are
of insurance options and an insurance
preference. Several insurances provide
different insurance companies that offer wide range purchaser
can select as per own convenience and comprehensive coverage
with affordable premiums.
Premiums are periodical payment and
premiums are
different insurers offer diverse premium options. The periodical insurance calculated
according to the total insurance amount.
In other words, a promise of compensation for specific potential future losses in exchange for a periodic
payment. Insurance is designed to protect the financial well-being of an individual, company or other entity in the
case of unexpected loss. Some forms of insurance are required by law, while others are optional. Agreeing to the
terms of an insurance policy creates a contract between the insured and the insurer. In exchange for payments
from the insured (called premiums), the insurer agrees to pay the policy holder a sum of money upon the
occurrence of a specific event. In most cases, the policy holder pays part of the loss (called the deductible), and
the insurer pays the rest.
Some important definitions of insurance are as follows:
Insurance is cooperative form of distributing a certain risk over a group of persons who are exposed to it.
Ghosh and Agarwal
Insurance is an instrument of distributing the loss of few among many.
Disnadle
The collective bearing of risk is insurance.
W. Beverideges
Characteristics of Insurance:-

1. Sharing of Risk: Insurance is a device to share the financial losses which might befall on an individual
or his family on the happening of a specified event. The event may be death of a bread-winner to the
family in the case of life insurance, marine-perils in marine insurance, fire in fire insurance and other
certain events in general insurance, e.g., theft in burglary insurance, accident in motor insurance, etc. The
loss arising nom these events if insured are shared by all the insured in the form of premium.
2. Co-operative Device: The most important feature of every insurance plan is the cooperation
of large number of persons who, in effect, agree to share the financial loss arising due to a particular risk
which is insured. Such a group of persons may be brought together voluntarily or through publicity or
through solicitation of the agents.
3. Value of Risk: The risk is evaluated before insuring to charge the amount of share of an insured, herein
called, consideration or premium. There are several methods of evaluation of risks. If there is expectation
of more loss, higher premium may be charged. So, the probability of loss is calculated at the time of
insurance.
4. Payment at Contingency: The payment is made at a certain contingency insured. If the
contingency occurs, payment is made. Since the life insurance contract is a contract of
certainty, because the contingency, the death or the expiry of term, will certainly occur, the payment is
certain. In other insurance contracts, the contingency is the fire or the
marine perils etc., may or may not occur. So, if the contingency occurs, payment is made, otherwise no
amount is given to the policy-holder.
5. Amount of Payment: The amount of payment depends upon the value of loss occurred
due to the particular insured risk provided insurance is there up to that amount. In life insurance, the purpose
is not to make good the financial loss suffered. The insurer promises to pay a fixed sum on the happening
of an event.

changed into certainty by insuring property and life because the insurer promises to pay a definite sum at
damage or death.
8. Insurance is not Charity: Charity is given without consideration but insurance is not
possible without premium. It provides security and safety to an individual and to the society although it is
a kind of business because in consideration of premium it guarantees the payment of loss. It is a
profession because it provides adequate sources at the time of disasters only by charging a nominal
premium for the service.
Role and Importance of Insurance:-
Insurance has evolved as a process of safeguarding the interest of people from loss and uncertainty. It
may be described as a social device to reduce or eliminate risk of loss to life and property.
Insurance contributes a lot to the general economic growth of the society by provides stability to the
functioning of process. The insurance industries develop financial institutions and reduce
uncertainties by improving financial resources.
1. Provide safety and security: Insurance provide financial support and reduce uncertainties in business and
human life. It provides safety and security against particular event. There is always a fear of sudden loss.
Insurance provides a cover against any sudden loss. For example, in case of life insurance financial assistance is
provided to the family of the insured on his death. In case of other insurance security is provided against the loss
due to fire, marine, accidents etc.

2. Generates financial resources: Insurance generate funds by collecting premium. These funds are
invested in government securities and stock. These funds are gainfully employed in industrial
development of a country for generating more funds and utilized for the economic development of the
country. Employment opportunities are increased by big investments leading to capital formation.
3. Life insurance encourages savings: Insurance does not only protect against risks and uncertainties, but
also provides an investment channel too. Life insurance enables systematic savings due to payment of
regular premium. Life insurance provides a mode of investment. It develops a habit of saving money by
paying premium. The insured get the lump sum amount at the maturity of the contract. Thus life
insurance encourages savings.
4. Promotes economic growth: Insurance generates significant impact on the economy by mobilizing
domestic savings. Insurance turn accumulated capital into productive investments. Insurance enables to
mitigate loss, financial stability and promotes trade and commerce activities those results into economic
growth and development. Thus, insurance plays a crucial role in sustainable growth of an economy.
5. Medical support: A medical insurance considered essential in managing risk in health. Anyone can be a
victim of critical illness unexpectedly. And rising medical expense is of great concern. Medical Insurance
is one of the insurance policies that cater for different type of health risks. The insured gets a medical
support in case of medical insurance policy.
6. Spreading of risk: Insurance facilitates spreading of risk from the insured to the insurer. The basic
principle of insurance is to spread risk among a large number of people. A large number of persons get
insurance policies and pay premium to the insurer. Whenever a loss occurs, it is compensated out of funds
of the insurer.
7. Source of collecting funds: Large funds are collected by the way of premium. These funds are utilized in
the industrial development of a country, which accelerates the economic growth. Employment
opportunities are increased by such big investments. Thus, insurance has become an important source of

Functions ofInsurance:-
Principles of Insurance:-
The main motive of insurance is cooperation. Insurance is defined as the equitable transfer of risk of loss from
one entity to another, in exchange for a premium.
1.Nature of contract: Nature of contract is a fundamental principle of insurance contract. An insurance contract
comes into existence when one party makes an offer or proposal of a contract and the other party accepts the
proposal. A contract should be simple to be a valid contract. The person entering into a contract should enter with
his free consent.
2.Principal of utmost good faith: Under this insurance contract both the parties should have faith over each
other. As a client it is the duty of the insured to disclose all the facts to the insurance company. Any fraud or
misrepresentation of facts can result into cancellation of the contract.
3.Principle of Insurable interest: Under this principle of insurance, the insured must have interest in the subject
matter of the insurance. Absence of insurance makes the contract null and void. If there is no insurable interest, an
insurance company will not issue a policy.
An insurable interest must exist at the time of the purchase of the insurance. For example, a creditor has an
PRIMARY
FUNCTIONS
• PROVISION OF CERTAINTY OF
PAYMENT AT THE TIME OF
LOSS.
• PROVISION OF
PROTECTION
• RISK SHARING
SECONDARY
FUNCTIONS
• PREVENTION OF LOSS
• PROVISION OF CAPITAL
• IMPROVEMENT OF
EFFICIENCY
• ENSURING WELFARE OF
THE SOCIETY

4.Principle of indemnity: Indemnity means security or compensation against loss or damage. The principle of
indemnity is such principle of insurance stating that an insured may not be compensated by the insurance
company in an amount exceeding the insured’s economic loss.
In type of insurance the insured would be compensation with the amount equivalent to the actual loss and not the
amount exceeding the loss. This is a regulatory principal. This principle is observed more strictly in property
insurance than in life insurance. The purpose of this principle is to set back the insured to the same financial
position that existed before the loss or damage occurred.
5.Principal of subrogation: The principle of subrogation enables the insured to claim the amount from the third
party responsible for the loss. It allows the insurer to pursue legal methods to recover the amount of loss, For
example, if you get injured in a road accident, due to reckless driving of a third party, the insurance company will
compensate your loss and will also sue the third party to recover the money paid as claim.
6.Double insurance: Double insurance denotes insurance of same subject matter with two different companies or
with the same company under two different policies. Insurance is possible in case of indemnity contract like fire,
marine and property insurance.
Double insurance policy is adopted where the financial position of the insurer is doubtful. The insured cannot
recover more than the actual loss and cannot claim the whole amount from both the insurers.
7.Principle of proximate cause: Proximate cause literally means the ‘nearest cause’ or ‘direct cause’. This
principle is applicable when the loss is the result of two or more causes. The proximate cause means; the most
dominant and most effective cause of loss is considered. This principle is applicable when there are series of
causes of damage or loss.
BENEFITS OF INSURANCE:
Benefits of insurance to
the individual
Peace ofmind
Adversion of
risk
Tools ofsavings
Benefits of insurance
to the business
Loss control
activities
Reduced credit risk
Reduced cost of
capital
Benefits of insurance to
the society
Protects wealth of
the country
Helps in economic
growth
Control inflation

Classifications ofInsurance:-
1. Classification on the basis of Nature of Business
I. Life Insurance: It may be defined as a contract in which the insurer in consideration of a certain premium
either in a lumsum or by a period payment agrees to pay the assured or to the person for whose benefit the
policies taken.
The risk insured against the risk is involved other matter than the company is not liable.
Fundamentals:-
A. Essentials of a valid contract
B. Principle of Utmost good faith
C. Principle of Insurable interest
II. Fire Insurance: It is a contract whereby the insurer in consideration of the premium paid undertakes to
make good any loss or damage cost by fire during specific period. Normally fire insurance is for one year
period and it will be renew from time to time.
CLASSIFICATIONS
Classification on theBasis
of Nature of Insurance
Life Insurance Fire Insurance
Social Insurance Marine Insurance
Classification from
Business point of view
Life Insurance
General Insurance
Classification fromRisk
point of view
Personal Insurance Property Insurance
Liability Insurance Fidelity Guarantee
Insurance

III.
C. Principle of indemnity.
Marine Insurance: It is an agreement whereby insurer undertakes to compensate the owner of a ship or
cargo for complete or partial loss of sea.
Fundamentals:-
A.Utmost goods faith
B.Contract of indemnity
C.Principle of insurable interest.
IV.Social Insurance: It has developed to provide economic security to weaker section of the society like pension
plans, unemployment security, sleekness insurance etc.
V.Miscellaneous Insurance: These are some as:
 Motor insurance
 Personal accident insurance
 Liability insurance
 Duty insurance
 Cash insurance.
2.Classification on the Basis of Business point of View
I. Life Insurance: It may be defined as a contract in which the insurer, in payments, agrees to pay the
assured, or to the person for whose benefit the policy is taken, the assured sum of money, on the
happening of a specified event contingent on the human life or at the expiry of certain period.
II. Non Life or General Insurance: It refers to fire, marine and miscellaneous insurance business whether
carried on singly or in combination with one or more of them.
3.Classification on the Basis Risk point of View
III.
I. Personal Insurance: It refers to the loss of life by accident or sickness. Life insurance covers elements
of investment or protection.
II. Property Insurance: It is a contract of indemnity by the insured of loss either necessary elements. It
contains home breaking or theft etc.
Liability Insurance: It is the major field of general insurance in this insurer promise to pay the damage of
property or to compensate loss to third party.

IV. Fidelity Insurance: The insurer undertaker certain premium for losses arising out of accidental measure
in case where new and untrained employees are given position.
Or
Insurance is divided into two parts known as General Insurance and Private/ Life Insurance. General insurance is
the insurance other than the life insurance. General insurance includes the insurance related to health,
home, marine, auto, travel, agriculture etc. and Private or Life insurance as the name indicate is the
insurance of life. Life insurance is also known as the private insurance. Let have a look on all the types of
insurance:
1. GENERAL INSURANCE:
Insurance other the life insurance is known as the general insurance. General insurance is offered by both public
sector and private sector companies. General insurance is further
divided into four types but it includes some more types of insurance:
 FIRE INSURANCE:
Fire insurance covers the damages of property etc. from the fire. Fire insurance helps to an individual to recover
from the loss due to the fire. When a structure is covered by fire insurance, the insurance policy will pay
out in the event that the structure is damaged or destroyed by fire.
 HEALTH INSURANCE:
Health insurance is an insurance policy where the insurer assures the insured to compensate the loss incurred due
to injury or illnessIn this insurance policy, the insurer pays the medical expense of an individual or a
group of consumers.
 MARINE INSURANCE:
Marine Insurance covers the loss or damage of ships, cargo, terminals, and any transport or cargo by which
property is transferred, acquired, or held between the points of origin and final destination. This type of
insurance normally includes the loss or damages of ships, cargo, terminals, and any transport or cargo.
 AUTO INSURANCE:
Auto insurance often referred to as vehicle or motor insurance covers any loss resulting from traffic accident.
Auto insurance (also known as vehicle insurance, car insurance, or motor insurance) is insurance

his near and dear ones. A must for everybody, life insurance provides covers the Assured against
uncertainties of life. Insurance is basically a protection against a financial loss which can arise on the
happening of an unexpected event. By entering into contract the Insurance company One agrees to pay
the Policy holder or his family members a predetermined sum of money in case of any unfortunate event
for a predetermined fixed sum payable which is in normal term called Insurance Premiums. Life Insurance
are the most sought after products of the insurance industry. Everybody infact every earning member of a
family needs this cover to ensure that on the event of his/her death, the family doesn't suffer due to lack of
financial flow. An Insurance company collects a small percentage from you and in return promises to pay
your family a predetermined sum in case of an unfortunate event. Based on one's financial capability and
need one can select a pure risk insurance like Term Insurance or Endowment Insurance , Whole Life
Insurance, Money Back Policy or a Unit Linked Insurance Policy(ULIP) which are a mix of life insurance
as well as Investment's. Insurance of life which provides a security from any uncertain event is known as
life insurance.
The Responsibilities of the Insured and Insurer:-
Insurance policies are looked at as one-sided contracts because the only person making a legally binding
promise is the insurer. However, that doesn’t mean the insured can live life as though they have no duties
when it comes to having an insurance policy. For the policyholder to receive the benefits of their policy
and for it to be continuously renewed, they have certain things they need to handle too. Here’s a look at
the responsibilities of both parties to help you understand it from both perspectives.
The Insurer
1. Pay Benefits: Once an insurable accident happens and the damages have been reviewed, if it’s found
that the claim qualifies based on the benefits, time periods and exclusions given in your policy, your

you have a life insurance policy with cash values, your benefits may decrease if you have any outstanding
loans.
2.Risk Assessment: Underwriters are hired by insurance companies to figure out the amount of risk that
each potential insured person presents and to charge a premium in accordance to that. If they don’t do this
then they risk having more claims than premiums and not being able to hold up there end of the bargain
for policy holders.
3.Reserves for Policy: Insurance companies have to set aside a certain amount of their income for policy
reserves. Policy reserves mirror the potential amount of claims they’ll be required to pay. Because the
money is in reserves, it ensures they’ll be able to pay it out.
4.Privacy Protection: In order to protect your privacy, insurance companies have to abide by privacy and
HIPAA regulations. Therefore, they have to keep and give out your information in accordance with strict
rules for your protection. In case you want someone else to have access to your information, that person
may be required to have a power of attorney or written proof of authorization on file, according to
whatever’s dictated by the privacy guidelines.
The Insured
1.Application honesty: A potential insured person can’t lie to an insurance company; otherwise the
policy will be under false pretenses. If any false information is discovered in the underwriting, there’s a
chance that you’re policy will be canceled and you will be returned all the premium payments you made.
2.Keep down exposure to risk: If insurance companies discover you’ve been behaving recklessly, in a
way that could increase your chances of a claim, they’ll consider discontinuing your insurance coverage.
3.Pay your premiums: Your responsibility as an insured person is to pay your premiums on time,

the insurance company is no longer responsible for their end of the deal. (Having a life insurance policy
with cash values could be an exception.)
4. Keep your information current: If you move, change your beneficiaries, or you no longer own the
property that you had insured, make sure you let your insurance provider know.
Rights of Policyholders:-
1.Get what you pay for: As a policyholder, you have the right by law to be treated fairly and with
respect. Your insurer must serve you to the best of its ability. Basically, this means that if you are paying
for insurance cover and it is detailed in your policy schedule, you must receive it.
2.Be fully informed when purchasing a policy: Your insurer is required to offer you financial advice and
products that best suit your needs. They must explain all the terms and conditions clearly.
3.Confirm information submitted for an insurance application: You should always read and confirm
the accuracy of the insurance application yourself. You can request to
be shown a copy of the policy before you purchase it and be advised on all excesses, which is the first
amount payable by you in the event of a loss, if any is applied.
THE BASIC LOGIC OF INSURANCE IS TO:
Provide Financial Security to your family.
Protect your Assets such as Car, Equipments, House etc from Accidents or natural disasters.
As a means of Investments and Savings

Difference between Insurance and Assurance:-
Both insurance and assurance are financial products offered by companies operating commercially but of late the
distinction between the two has increasingly become blurred and the two are taken to be somewhat similar.
However, there are subtle differences between the two which are as follows.
Insurance policy refers to protection against an event that might happen whereas assurance policy refers to
protection against an event that will happen. This means that insurance policy is taken to prevent a risk or provide
cover against a risk while assurance policy is taken against an event that is definite.
Assurance policies are undertaken by people knowing that their death is certain. They keep on paying premiums
knowing that their heirs will receive a big amount whenever they die. Company issuing assurance policy is
assured of the death of the person and also that it has to pay the amount whenever the person dies. Because of this
assurance factor, such a policy is called assurance policy.
In case of insurance policy, the company pays the amount to the dependants of the person if all the premiums
have been paid on time and the person dies within the duration of the policy. In most of the cases, the person does
not die within the term of the policy, hence it is called life insurance.
Insurance Policy Assurance Policy
protection against an event that might happen Protection
definite
against an event that is
In life insurance, the dependants receive the
policy if all premiums paid on time and the person dies within the duration of
policy.
In life assurance, a person can choose to
cash out his policy
anytime he so desires.

DIFFERENCE BETWEEN L.I. AND G.I.
BASIS LIFE INSURANCE GENERAL INSURANCE
1. TYPE Life insurance is a non-personal
insurance contract. This means that the policyholder and the person
being insured do not have to be the same person.
General insurance is always a
personal contract where the insurance company contracts with you
directly for insurance protection.
2. SIGNIFICANCE Life insurance insures your life or the
life of someone that you have an
economic interest in, like your spouse, children, siblings or business
partners.
General insurance insures homes,
automobiles and other personal
property. This type of insurance is sometimes referred to as "property
and casualty" insurance.
3. BENEFIT The benefit of life insurance is that it
pays off any financial obligations you have left after you die. It can pay
more than that, however, because life insurance pays a fixed amount.
General insurance is beneficial in that
the insurance ensures that, almost regardless of the damage done, that
the property will be repaired or replaced.
4. EXPERT INSIGHT When buying life insurance, only buy
enough insurance to cover your current and expected future financial
liabilities.
When purchasing general insurance,
the maximum coverage should not extend beyond the total replacement
value of your property.
5. FUNCTION It ensures you that after you die, the
insurance policy serves your family financially.
It ensures that this gives you the
amount of damage which is insured.

Life insurance

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