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Wm 5 insurance planning retirement planning

yogesh ingle
yogesh ingle
yogesh ingleAssistant Professor at Sheila Raheja School of Business Management and Research

Life insurance- types of policies, general insurance, health insurance- mediclaim, calculation of Human Life Value.

Wm 5 insurance planning retirement planning

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Insurance
A financial tool specially
created to reduce the financial
impact of unforeseen events
and to create financial security.
Insurance is carried out in two
ways,
Social Insurance
Private Insurance
Social Insurance
The State or government takes care of those who
are subjected to losses due to some risk event.
Examples are, providing a pension, free medical
treatment, meeting the cost of hospitalization etc.
The Employees’ State Insurance scheme (ESI)
that provides medical care and other benefits to
employees.
Employees’ Provident Fund Organization (EPFO)
that provides pensions and survivors’ benefits in
the event of an employee’s death are the popular
schemes under this head.
Private Insurance
Individuals and groups can buy
insurance from an insurance company by
entering into a contract of insurance with
the company.
The insurance company enters into a
contract (an insurance policy) whereby it
(insurer) undertakes, in exchange for a
small amount of money (premium), to
provide financial protection by agreeing to
pay the insuring person (insured) a fixed
amount of money (sum assured) on the
happening of a certain event (insured
peril).
PRINCIPLES OF INSURANCE
1. Law of large numbers
2. Insurable interest
3. Utmost good faith
4. Indemnity
5. Subrogation and contribution
6. Proximate cause
Law of large numbers
 Insurance works on this law of large numbers.
 Insurance companies are able to make near accurate
predictions about their risks because they typically spread
that risk amongst thousands, even millions, of members who
have signed contracts with them and who are their policy
holders.
 This is the reason why when you purchase an insurance
policy, the insurance company is able to give you an
assurance that your losses would be compensated if they
occur due to the insured event.
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Wm 5 insurance planning retirement planning

  • 1. Insurance A financial tool specially created to reduce the financial impact of unforeseen events and to create financial security.
  • 2. Insurance is carried out in two ways, Social Insurance Private Insurance
  • 3. Social Insurance The State or government takes care of those who are subjected to losses due to some risk event. Examples are, providing a pension, free medical treatment, meeting the cost of hospitalization etc. The Employees’ State Insurance scheme (ESI) that provides medical care and other benefits to employees. Employees’ Provident Fund Organization (EPFO) that provides pensions and survivors’ benefits in the event of an employee’s death are the popular schemes under this head.
  • 4. Private Insurance Individuals and groups can buy insurance from an insurance company by entering into a contract of insurance with the company. The insurance company enters into a contract (an insurance policy) whereby it (insurer) undertakes, in exchange for a small amount of money (premium), to provide financial protection by agreeing to pay the insuring person (insured) a fixed amount of money (sum assured) on the happening of a certain event (insured peril).
  • 5. PRINCIPLES OF INSURANCE 1. Law of large numbers 2. Insurable interest 3. Utmost good faith 4. Indemnity 5. Subrogation and contribution 6. Proximate cause
  • 6. Law of large numbers  Insurance works on this law of large numbers.  Insurance companies are able to make near accurate predictions about their risks because they typically spread that risk amongst thousands, even millions, of members who have signed contracts with them and who are their policy holders.  This is the reason why when you purchase an insurance policy, the insurance company is able to give you an assurance that your losses would be compensated if they occur due to the insured event.
  • 7. Insurable interest Insurable interest exists when an insured person derives a financial benefit from the continued existence of the insured object or suffers a financial loss from the loss of the insured object. A person has an insurable interest in something when loss-of or damage- to that thing would cause the person to suffer a financial loss.
  • 8. Utmost good faith Disclosure of all material information has to be made by both the parties to the contract. Hence the contracts of insurance are referred to as contracts of utmost good faith.
  • 9. Principle of indemnity  The insurance contract is for compensating the person who experiences a loss so that he is brought back to the same financial position as before the loss.  The insurance policy indemnifies or guarantees compensation only for the amount of loss and for nothing more.  Life insurance contracts hence follow a different principle. The life insurer pays an amount that is fixed at the beginning of the contract. Such amount is known as sum assured. Thus, life insurance contracts are known as contracts of assurance rather than contracts of indemnity
  • 10. Subrogation  The insured’s right to claim from anywhere else is taken over by the insurer when he pays a claim. Since the insurer has paid the amount of loss to the insured, the insurer would be the one who has borne the loss. Hence, the name of the insurer should be substituted for the insured and the right to recover the amount of loss from the person causing loss has to be transferred to the insurer who paid for the loss and compensated the insured.  This taking over of the insured’s right by the insurer is called ‘subrogation’.  In other words, on payment of the claim, the insured’s right to claim from anywhere else gets ‘subrogated’ to the insurer
  • 11. Contribution The principle of contribution refers to the right of an insurer who has paid a loss under a policy to recover a proportionate amount from other insurers who are also liable for the loss.
  • 12. Principle of proximate cause The word ‘proximate’ means ‘nearness’ or ‘closeness’. If loss to an insured property is the result of two or more causes acting simultaneously or in succession (one after another), it becomes necessary to choose the most important, the most effective or the most powerful cause which has brought about the loss. This cause is termed as “proximate cause”, all other causes being considered as “remote”.
  • 13. PERSONAL NEEDS Life insurance Health insurance Property insurance Travel insurance Pensions Group insurance
  • 14. Life Insurance Life Insurance is a financial cover for a contingency linked with human life, like, death, disability, accident, retirement etc.
  • 15. Why you should buy Life Insurance: To ensure that your immediate family has some financial support in the event of your demise To finance your children’s education and other needs To have a savings plan for the future so that you have a constant source of income after retirement To ensure that you have extra income when your earnings are reduced due to serious illness or accident To provide for other financial contingencies and life style requirements
  • 16. Who needs Life Insurance: Primarily, anyone who has a family to support and is an income earner needs Life Insurance. In view of the economic value of their contribution to the family, housewives too need life insurance cover. Even children can be considered for life insurance in view of their future income potential being at risk.
  • 17. How much Life Insurance is needed: How many dependents you have Whether you have any debts or mortgages What kind of lifestyle you want to provide for your family How much you need for your children’s education What your investment needs are What your affordability is
  • 18. Need of Wealth Manager/ Insurance agent To understand your insurance needs and suggest the right type of cover.
  • 19. Kinds of Life Insurance Policies: Term Insurance Whole Life Insurance Endowment Policy Money back plans or cash back plans Annuity (Pension) Plans Unit Linked Insurance Policy
  • 20. Term Insurance A pure risk cover instrument for uncertainties of life An absolute must financial tool for everyone No maturity benefit is associated with term insurance plans Sum assured as death benefit is mostly 20 times the annual income of the policyholder Only death benefit is offered by term insurance Example: http://www.licindia.in/Products/Insurance-Plan/jeevan-anmol
  • 21. Whole Life Insurance  Whole Life plan is also called as straight life, ordinary life.  It remains throughout the insured whole lifetime provided the premiums are paid.  A certain aforementioned amount is paid to the nominee in the event the insured dies. The policyholder at any time withdraw the policy or borrow against it.  The maturity age for this policy is 100 years.  If the insured lives past the maturity age, the policy will become matured endowment.  The death benefit under this plan is tax free.  Example:  http://www.licindia.in/Products/Insurance-Plan/LICs-Jeevan- Umang
  • 22. Endowment Policy  Sum assured in an endowment policy is payable either on survival to the ter or on death occurring within the term.  Endowment policies are available as ‘With Profit’ and ‘Without Profit’ plans.  Under Endowment policies, bonus for the full term is payable on the date of maturity or in the event of death, whichever is earlier.  Premiums for endowment policies can be limited to shorter term or can be p as single premium.  Premiums cease on death or on expiry of the term, whichever is earlier  Example:  http://www.licindia.in/Products/Insurance-Plan/LIC-s-Jeevan-Pragati
  • 23. Money back plans or cash back plans  Provides insurance cover during the policy term.  Pays out regular benefits throughout the term.  Works as an insurance policy as well as a long-term investment with good returns.  Provides tax benefits.  Less risky than other investments offering similar returns like mutu funds.  Enables long-term savings and regular income.  Ensures that amounts are disbursed regularly.  Some plans extend the insurance coverage guaranteed death benefit even after the maturity date and the last survival period, up to when the life insured attains the age of 100.  There are optional riders that cover things like specific illnesses,
  • 24. Annuity (Pension) Plans Pension is therefore an ideal method of retirement provision because the benefit is in the form of regular income. It is wise to provide for old age, when we have regular income during our earning period to take care of rainy days. Financial independence during old age is a must for everybody. Example: http://www.licindia.in/Products/Pension-Plans
  • 25. There are two types of annuities (pension plans). Immediate Annuity Deferred Annuity
  • 26. Immediate Annuity In case of immediate Annuity, the Annuity payment from the Insurance Company starts immediately. Purchase price (premium) for immediate Annuity is to be paid in Iumpsum in one installment only.
  • 27. Deferred Annuity  Under deferred Annuity policy, the person pays regular contributions to the Insurance Company, till the vesting age/vesting date.  He has the option to pay as single premium also.  The fund will accumulate with interest and fund will be available on the vesting date.  The insurance company will take care of the investment of funds and the policyholder has the option to en cash 1/3rd of this corpus fund on the vesting age / vesting date tax free.  The balance amount of 2/3rd of the fund will be utilized for purchase of Annuity (pension) to the Annuitant.
  • 28. Unit Linked Insurance Policy  Unit Linked Insurance Policies (ULIPs) offer a combination of investment and protection and allow you the flexibility and choice on how your premiums are invested.  IN UNIT LINKED PLANS,THE INVESTMENT RISK PORTFOLIO IS BORNE BY YOU AS YOU ARE THE INVESTOR
  • 29.  Typically, the policy will provide you with a choice of funds in which you may invest. You also have the flexibility to switch between different funds during the life of the policy.  The value of a ULIP is linked to the prevailing value of units you have invested in the fund, which in turn depends on the fund’s performance.  In the event of death or permanent disability, the policy will provide the Sum Assured (to the extent you are covered) so that you can take comfort in knowing that your family is protected from sudden financial loss.  A ULIP has varying degrees of risk and rewards. There are various charges applicable for Unit Linked Policies and the balance amount out of the premium is only invested in the fund/funds chosen by you.
  • 30. It is important to ask your insurer or agent or broker questions to understand the sum total of charges that you have to incur. It is important to assess your risk appetite and investment horizon before deciding to buy a ULIP policy. You must also read the terms and conditions of the policy carefully to understand the features of the policy including the lock-in period, surrender value, surrender charges etc. All the types of plans mentioned above can be offered under ULIP plans. Example: http://www.licindia.in/Products/Unit-Plans/LIC-s-NEW- ENDOWMENT-PLUS
  • 31. Health Insurance It is a contract between an insurer and an individual / group in which the insurer agrees to provide specified health insurance cover at a particular “premium” subject to terms and conditions specified in the policy
  • 32. What a Health Insurance policy would normally cover a) Room, Boarding expenses b) Nursing expenses c) Fe e s o f s u r g e o n , a n e s t h e t i s t , p h y s i c i a n , consultants, specialists d) Anesthesia, blood, oxygen, operation theatre charges, surgical appliances, medicines, drugs, diagnostic materials, X-ray, Dialysis, chemotherapy, Radio therapy, cost of pace maker, Artificial limbs, cost or organs and similar expenses
  • 33. What are the forms of Health Insurance available? A variety of products are now available which offer a range of health covers, depending on the need and choice of the insured. The health insurer usually provides either direct payment to hospital (cashless facility) or reimburses the expenses associated with illnesses and injuries or disburses a fixed benefit on occurrence of an illness. The type and amount of health care costs that will be covered by the health plan are specified in advance Example: http://www.licindia.in/Products/Health-Plans/Plan-parameter