insights into Insurance business, its regulation and types of insurances are covered. it also covered the regulatory frame work of the Insurance Industry. Insurance is a contract (policy) in which an insurer indemnifies another against losses from specific contingencies or perils. There are many types of insurance policies. Life, health, homeowners, and auto are among the most common forms of insurance. The core components that make up most insurance policies are the premium, deductible, and policy limits.

1. UNIT 3
Fundamentals of Life Insurance

2. SITUATIONAL CASE
Ramaswamy, aged 45, and Vijayalakshmi, aged 41, are married and
have two children; the elder son is studying in his ten plus two, and
the other son is in the tenth grade. Ramaswamy earns Rs. 1,25,000
as an engineer in the panchayat raj department of AP. The couple
has recently purchased a flat in a prime location at Visakhapatnam.
Ramaswamy has taken a housing loan of Rs. 45,00,000 along with
his GPF of Rs. 8,00,000 lakh and his savings of Rs. 24,00,000. He is
paying an EMI of Rs. 36,000/month and Rs 3500/- per month
towards his GPF loan. Both amounts are deducted from his monthly
salary. One day, while returning from the office, a minitruck, due to
break failure, rammed into Ramaswamy's bike from behind; he had
a severe head injury and could not survive. On his death,
Ramaswamy’s wife received an amount of Rs.5,00,000 under an
individual life insurance policy taken by Ramaswamy. Although his
wife would receive a monthly pension of Rs. 35,000 and a
compensated job for a monthly salary of Rs. 20,000, which is not
large enough to repay all the loans they have taken to purchase the
flat. In addition, other financial commitments such as monthly EMI,
credit card debts, household expenses, and the two children’s
education. Ramaswamy's unaccepted and untimely death led to
economic insecurity for the family.
How do you think such an uncertain situation could have been

3. LEARNING OBJECTIVES
After completing this unit, you should be
able to:
Explain the financial impact of
premature death.
Explain the types of life insurance and
their basic characteristics and approach
for estimating the amount of life
insurance to own.
Explain the economic justification of life
insurance.

4. RISK IN A PERSON’S LIFE
In people’s life, however, there are
different kinds of risk. Such as:
Illness, premature death, injury, loss
of income, decrease In income,
unemployment, underemployment.

5. PREMATURE DEATH MEANING
Premature death can be defined as the death of
a family head/ sole earning member with
outstanding unfulfilled financial obligations,
such as dependents to support, children to
educate, and a mortgage to pay off.
Costs of Premature Death can cause serious
financial problems for the surviving family
members.
additional expenses (such as funeral expenses,
medical bills, estate settlement costs.
Insufficient income, reduction in living
standard, certain noneconomic costs ( such as
emotional grief, loss of a parental role, etc.)

6. LIFE INSURANCE
Life insurance is a
source/medium/platform for
providing substantial financial
support for one’s family after
retirement or protecting the family
due to untimely death.
It is sound financial planning for
your family for a better tomorrow.
It helps in achieving one’s long-
term goals in life.
At the professional level, a life
insurance policy is a contract
between oneself (insured) and the
agent or insurance company
(insurer).

7. LIFE INSURANCE
Life Insurance can
be defined as a
contract between an
insurance
policyholder and an
insurance company,
where the insurer
promises to pay a
sum of money in
exchange for a
premium, upon the
death of an insured
person or after a set
period(Maturity).

8. FUNDAMEN
TAL LEGAL
PRINCIPLE
S OF LIFE
INSURANC
E
1. Consideration – The premium amount is the primary consideration for the
insured
• The first payment and the continuing expense of premiums matter to him the most.
• For an insurer, his consideration is the offer to pay out for the sum insured if the life
insured dies during the respective policy period.
a. Both the parties, that is, the insurer and the
insured must agree with what they are contracting for the specific
period of policy.
2. The life insurance policy must have an “insurable interest.”
specification.
3. Capacity conditions on contract- People under the age of 18 years i.e,
Minors are restricted by the Family Law Reform Act of 1969. Because of
certain restrictions, the contract cannot be forced against them. Hence,
many insurers will not issue a policy to someone under 18.
4. Utmost Good faith- a higher degree pf honesty must exist in both parties.

9. TYPES OF LIFE INSURANCE
Term Insurance
Term insurance with return of premium
Unit Linked Insurance Plans
Endowment Insurance
Moneyback policy
Whole Life Insurance
Other Types of Life Insurance -Child Insurance Plans, Retirement Plans

10. TERM
INSURANCE
1.Term life insurance is the most
popular type of life insurance.
2.It offers a death benefit to the
policy beneficiaries if the
policyholder passes away during
the policy term.
3.The most distinctive feature of
this plan is the high amount of
coverage offered at extremely
nominal premium rates
4.In general, term life insurance
does not offer maturity benefits

11. TERM
INSURANCE
Term plan with return of premiums
(TROP) if the policyholder outlives
the policy term.
Term plan can be opted for
additional riders-Accidental Death
Benefit or Child Support riders.

12. USES OF
TERM
INSURANCE
Relatively lower premium, especially
at younger ages. More selection
under the keen price competition.
appropriate if the need for
protection is temporary.
can be used to guarantee future
insurability
Limitations of Term Insurance
premiums increase with age and
eventually reach prohibitive levels.
Not suitable for people beyond 65.
inappropriate if you wish to save
money for a specific need.

13. WHOLE
LIFE
INSURA
NCE
PLAN
Offers coverage right until the death of
the policyholder
Participating or non-participating policy,
Several whole life insurance plans may
also offer partial withdrawals after
completing the premium payment term.

14. TYPES OF WHOLE LIFE
INSURANCE POLICIES
INDEXED WHOLE LIFE INSURANCE
VARIABLE WHOLE LIFE INSURANCE
WHOLE LIFE INSURANCE WITH ADJUSTABLE PAYMENT OPTIONS
SINGLE-PREMIUM WHOLE LIFE INSURANCE
LIMITED PAYMENT OF WHOLE LIFE INSURANCE
MODIFIED WHOLE LIFE INSURANCE
UNIVERSAL LIFE INSURANCE

15. TYPES OF WHOLE LIFE
INSURANCE POLICIES
Whole life insurance for family financial planning
Joint life insurance
Life insurance for children
Guaranteed issue whole life insurance

16. UNIT LINKED INSURANCE PLAN
(ULIP)
You may face a dilemma in life about choosing between any of the two options – investment or
insurance.
Unit Linked Insurance Plans or ULIPs as they are popularly called are market-linked insurance plans
which help you plan for Long Term Savings and financial Protection.
Being one of the types of life insurance, it has a lock-in period of five years, making it a long-term
investment instrument with risk protection.
Offers dual benefits of investment and life insurance.
Benefits:
1.Flexible investment options
2.Transparency
3.Liquidity when you need it
4.Disciplined and regular savings
5.Tax benefits
6.Spread of risk

17. ENDOWMENT
POLICY
Endowment policies -insurance and savings.
Along with giving you the life cover and provide
saving element
Over a period it provide a lump sum at maturity.
Help fulfill long-term goals in life.
It help on creating a financial cushion to meet
various financial objectives.

18. SIGNIFICANCE OF AN ENDOWMENT
PLAN
Endowment life insurance plan is a good investment option for financial goals such as:
1.i.A child’s higher education
ii. Daughter’s marriage
iii. A dependent relative's or family member's financial security
iv. Preservation of wealth for a long time
v. Legacy or wealth distribution to the next generation.
2.Addition of Riders-. Premium Waiver, Terminal/Critical Illness, Accidental Death Benefit

19. BEST ENDOWMENT PLAN

20. TYPES OF ENDOWMENT PLAN
1. Unit Linked Endowment Plan
2.Guaranteed Endowment Plan
3.Low-cost Endowment Plan
4.Non-profit Endowment Plan

21. MONEYBACK
POLICY
The payout you receive is called "Survival Benefits.“
The remaining sum assured is paid on maturity
along with vested bonuses, if any.
A money-back policy offers you survival benefits,
investment opportunities, and maturity benefits.

22. FEATURES OF MONEY BACK PLAN
1.Guaranteed Returns
2.Financial Support upon Death of the Insured
3.Bonus Additions
4.Income During the Policy Tenure
5.Add-on Riders
6.Retirement Plan

23. OTHER
TYPES OF
LIFE
INSURAN
CE
Child Insurance Plans
When it comes to life insurance types, a child plan is an
investment + insurance plan that helps you meet your
child’s financial needs. A child insurance plan will help
you create wealth for your child’s future needs like
education.
You can start investing in these plans from the birth of
your child. You get the flexibility of investing your hard-
earned money into several funds on the basis of your
financial condition and goals in mind.
Retirement Plans
Retirement Plans are amongst the types of life
insurance policies that provides financial security and
help you with wealth creation after your retirement. With
Retirement Plan, you will get a sum of money as
pension in the vesting period.
In case of your untimely demise during the policy term,
your nominee will get the death benefits. Retirement
Plans comes with death benefit as well as vesting
benefit providing protection to you and your family
members.

24. ECONOMIC JUSTIFICATION OF
HAVING A LIFE INSURANCE POLICY
Life insurance provides cash when you need it
most.
Guaranteed protection
Income replacement
Tax-free benefit
Guaranteed cash value growth
Dividend potential
Optional riders

25. UNIT THREE
END