14.

1 THE INSURANCE INDUSTRY IN INDIA AN OVERVIEW

With the largest number of life insurance policies in force in the world, Insurance happens to be a mega opportunity in India. Its a business growing at the rate of 15-20 per cent annually and presently is of the order of Rs 1560.41 billion (for the financial year 2006 2007). Together with banking services, it adds about 7% to the countrys Gross Domestic Product (GDP). The gross premium collection is nearly 2% of GDP and funds available with LIC for investments are 8% of the GDP. Even so nearly 65% of the Indian population is without life insurance cover while health insurance and non-life insurance continues to be below international standards. A large part of our population is also subject to weak social security and pension systems with hardly any old age income security A well-developed and evolved insurance sector is needed for economic development as it provides long term funds for infrastructure development and strengthens the risk taking ability of individuals. It is estimated that over the next ten years India would require investments of the order of one trillion US dollars.

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14.2 IMPORTANCE OF INSURANCE

Insurance constitutes one of the major segments of the financial market. Insurance services play predominant role in the process of financial intermediary. Today insurance industry is one of the most growing sectors in India. There is lot of potential in the Indian Insurance Industry. There are many issues, which require study. The scope of the study of insurance industry of India would be very great as there are ongoing developments in the industry after the opening of the sector. The major issue right now is the hike in FDI (Foreign Direct Investment) limit from 26% to 49% in the insurance sector. Government may in near future allow 49% FDI in Insurance. This would lead to more capital inflow by foreign partners. Another major issue is the effects on LIC after the entry of private players in the market. Though market share of LIC has been affected, it has improved in terms of efficiency. There are number of other hot topics like penetration of Health Insurance, Rural marketing of insurance, new distribution channels, new product ranges, insurance brokers regulation, incentive scheme of development officers of LIC etc. So it offers lot of scope for studying the insurance industry. Right now the insurance industry has great opportunities in a country like India or China which huge population. Also the penetration of insurance in India is very low in both life and non-life segment so there is lot potential to be tapped. Before starting the discussion on insurance industry and related issues, we have to start with the basics of insurance. So first we understand what is

insurance? How the word insurance is different from the word assurance? etc.

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14.3 PRINCIPLES OF INSURANCE

An insurance contract is based on some basic principles of insurance. (1) Principle of Uberrima Fides or Principle of utmost good faith This principle is applicable to both life insurance and general insurance. It means maximum truth. Both the parties should disclose all material information regarding the subject matter of insurance.

(2) Principle of insurable interest This principle is applicable to both life insurance and general insurance. The assured must have insurance interest in the life or property insured. Insurable interest is that interest which considerably alters the position of the assured in the event of loss taking place and if the event does not take placed, he remains in the same old position.

(3) Principle of indemnity This principle is applicable to general insurance only. This means that if the insured suffers a loss against which the policy has been made, he shall be fully indemnified only to the extent of loss. In other words, the insured is not entitled to make a profit on his loss.

(4) Principle of Contribution This principle is applicable to contract of Indemnity. According to this principle the insured can claim the compeensation only to the extent of actual loss.

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(5) Principle of subrogation This principle is applicable to all contract of Indemnity. According to this principle when insured is compensated for the loss due to the damade to his insured property, then the ownership right of such property shifts to the insurer.

(6) Principle of Loss Minimization According to this principle it is the duity of insured to take all the possible steps to minimize the loss to the insured property on the happening of uncertain events.

(4) Principle of causa proxima It means when caused is caused by more than one cause. Property is insured against some causes and not all cause as per the subject matter to the insurance. If the proximation cause is the one which is insured against the insurance company is bound to pay the compensation.

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14.4 KEY MILESTONES

1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business. 1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and non-life insurance businesses. 1938: Earlier legislation consolidated and amended by the Insurance Act with the objective of protecting the interests of the insuring public. 1956: 245 Indian and foreign insurers along with provident societies were taken over by the central government and nationalized. LIC was formed by an Act of Parliament- LIC Act 1956- with a capital contribution of Rs. 5 crore from the Government of India.

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INDUSTRY REFORMS
Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies. Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations. The other decision taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies was the launch of the IRDA online service for issue and renewal of licenses to agents. The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products.

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14.5 SOME TERMS RELATED TO INSURANCE

Insurer The insurer is the insurance company that offer the policies. Insured It is that person in whose name the insurance policy is made is refered as the policy holder or insured Policy The document laying down the term of contact is called insurance policy. Subject matter to Insurance The property which is insured is the subject matter of insurance. Premium The amount you pay to insurance company to uy the policy. Their are two typr of premiums. 1) Single Premium Policy 2) Annual Premium Policy Sum Assured It is that amount of money as insurance policy gurantee to pay before any bonuses are added. In other words it is the guarantee amount you will receive. Maturity Values It is that amount the insurance company has to pay you when the policy mature. Sum assured + Bonuses

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Term Term is the noumber of years you brought the policy for. Endowment Insurance You are lfe cover just like insurance if you die during this period, your beneficary will get what ever amount you are insured for. Term Life Insurance Term Life Insurance provides protection for a specified period of time. A death benefit is paid to the beneficiary if the insured dies within a specified period of time while the policy is still in force. Whole Life Insurance Whole Life insurance is a permanent life insurance and provides protection for life. As long as premiums are paid, a death benefit is paid to the beneficiary. ULIPs A ULIP is a life insurance which provides a combination of Life Insurance protection and investment. Money can be invested in the following fund:- Equity Fund, Debt Fund, Money Market Fund (Liquid Fund) and Balance Fund. Annuities Annuities are practically the same as pension. Pension provides periodical payments to the employees, who have retired. They are paid as long as the recipient is alive. Annuities are called the reverse of Life Insurance.

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15.1 INTRODUCTION TO THE COMPANY

COMPANY PROFILE OF RELIANCE LIFE INSURANCE

FOUNDER

Few men in history have made as dramatic a contribution to their countrys economic fortunes as did the founder of Reliance, Sh. Dhirubhai H Ambani. Fewer still have left behind a legacy that is more enduring and timeless.

As with all great pioneers, there is more than one unique way of describing the true genius of Dhirubhai: The corporate visionary, the unmatched strategist, the proud patriot, the leader of men, the architect of Indias capital markets, the champion of shareholder interest. But the role Dhirubhai cherished most was perhaps that of Indias greatest wealth creator. In one lifetime, he built, starting from the proverbial scratch, Indias largest private sector enterprise. When Dhirubhai embarked on his first business venture, he had a seed capital of barely US$ 300 (around Rs 14,000). Over the next three and a half decades, he converted this fledgling enterprise into a Rs 60,000 crore colossusan achievement which earned Reliance a place on the global Fortune 500 list, the first ever Indian private company to do so.

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Dhirubhai is widely regarded as the father of Indias capital markets. In 1977, when Reliance Textile Industries Limited first went public, the Indian stock market was a place patronised by a small club of elite investors which dabbled in a handful of stocks. Undaunted, Dhirubhai managed to convince a large number of firsttime retail investors to participate in the unfolding Reliance story and put their hard-earned money in the Reliance Textile IPO, promising them, in exchange for their trust, substantial return on their investments. It was to be the start of one of great stories of mutual respect and reciprocal gain in the Indian markets. Under Dhirubhais extraordinary vision and leadership, Reliance scripted one of the greatest growth stories in corporate history anywhere in the world, and went on to become Indias largest private sector enterprise. Through out this amazing journey, Dhirubhai always kept the interests of the ordinary shareholder uppermost in mind, in the process making millionaires out of many of the initial investors in the Reliance stock, and creating one of the worlds largest shareholder families.

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15.2 ABOUT RELIANCE

Reliance Life Insurance Company Limited is a part of Reliance Capital Ltd. of the Reliance - Anil Dhirubhai Ambani Group. Reliance Capital is one of Indias leading private sector financial services companies, and ranks among the top 3 private sector financial services and banking companies, in terms of net worth. Reliance Capital has interests in asset management and mutual funds, stock broking, life and general insurance, proprietary investments, private equity and other activities in financial services.

Reliance Capital Limited (RCL) is a Non-Banking Financial Company (NBFC) registered with the Reserve Bank of India under section 45-IA of the Reserve Bank of India Act, 1934.

Reliance Capital sees immense potential in the rapidly growing financial services sector in India and aims to become a dominant player in this industry and offer fully integrated financial services.

Reliance Life Insurance is another step forward for Reliance Capital Limited to offer need based Life Insurance solutions to individuals and Corporates.

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16.1 MEANING OF LIFE INSURANCE

There are three parties in a life insurance transaction: the insurer, the insured, and the owner of the policy (policyholder), although the owner and the insured are often the same person. Another important person involved in a life insurance policy is the beneficiary. The beneficiary is the person or persons who will receive the policy proceeds upon the death of the insured. Life insurance may be divided into two basic classes term and permanent. Term life insurance provides for life insurance coverage for a specified term of years for a specified premium. The policy does not accumulate cash value. Permanent life insurance is life insurance that remains in force until the policy matures, unless the owner fails to pay the premium when due. Whole life insurance provides for a level premium, and a cash value table included in the policy guaranteed by the company. The primary advantages of whole life are guaranteed death benefits, guaranteed cash values, fixed and known annual premiums, and mortality and expense charges will not reduce the cash value shown in the policy. Universal life insurance (UL) is a relatively new insurance product intended to provide permanent insurance coverage with greater flexibility in premium payment and the potential for a higher internal rate of return. A universal life policy includes a cash account. Premiums increase the cash account. If you want insurance protection only, and not a savings and investment product, buy a term life insurance policy. If you want to buy a whole life, universal life, or other cash value policy, plan to hold it for at least 15 years. Canceling these policies after only a few years can more than double your life insurance costs. Check the national Association of Insurance Commissioners website (www.naic.org/cis) or your local library for information on the financial soundness of insurance companies.

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16.2 CERTIFICATE GIVEN BY INSURANCE REGULATION AND DEVELOPMENT AUTHORTY (IRDA)

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16.3 LIFE STAGES IN LIFE INSURANCE

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AGR
18-25 Years

STATUS
Unmarried

INSURANCE NEEDS
1. Go on a holiday 2. Buy a nnew Car 3. Set up a new house 4. Set up a interiors 5. Buy jewellaey

SUGGESTED PRODUCTS
Short Term Endowment Products

25-30 Years

Married

1. High Debt 2. High Expenditure Phase 3. Loe Accumulated Wealth 4. Need for Planning Requirement Temporary Term Whole Life Product

30-45 Years

Matured couple

1. Retirement Planning 2. Wealth transfer or saving Vehical 3. Return on Investment 4. Opting for guaranteed Product

Profit or Unit Linked Plans Endowment Deferred Annuities Single Premium Annuities Long Term care Products Whole Life Products

45 Years & Above

Post Retirement

1. Protection in case you live long 2. Protection for spouse in case of death 3. Wealth accumulation for children

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16.4 RELIANCE LIFE INSURANCE PLANS Protection Plans

Protect your family even when youre not around by investing in Reliance Protection Plans. Choose a limited period plan or a lifetime protection plan depending on your needs. The latest Protection Plans are as below 1. Reliance Term plan 2. Reliance Simple Term plan 3. Reliance Special Term plan 4. Reliance Credit Guardian plan 5. Reliance Special Credit Guardian plan 6. Reliance Endowment plan 7. Reliance Special Endowment plan 8. Reliance Connect 2 Life plan 9. Reliance Whole Life plan 10. Reliance Wealth + Health plan 11. Reliance Cash Flow plan

Savings & Investment Plans

Reliance Savings & Investment Plans help you to set aside some money to achieve specific goals in life, which means that you can enjoy life and provide for your familys daily needs. The savings and investment Plans are as below 1. 2. 3. 4. 5. 6. 7. 8. Reliance Reliance Reliance Reliance Reliance Reliance Reliance Reliance Total Investment Plan Series I - Insurance Wealth + Health plan Automatic Investment plan Money Guarantee plan Cash Flow plan Market Return plan Endowment plan Special Endowment plan
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9. Reliance Whole Life plan 10. Reliance Golden Years Plan 11. Reliance Golden Years Plan Value 12. Reliance Golden Years Plan Plus 13. Reliance Connect 2 Life plan 14. Reliance life Highest NAV guarantee plan

Retirement Plans
Invest today in Reliance Retirement Plans and save money to enjoy life even after retirement. You will never have to depend on another person or make any compromises to maintain your current lifestyle. The latest Retirement Plans are as below 1. 2. 3. 4. 5. 6. 7. Reliance Reliance Reliance Reliance Reliance Reliance Reliance Total Investment Plan Series II Pension Golden Years Plan Golden Years Plan Value Golden Years Plan Plus Wealth + Health plan Automatic Investment Plan Money Guarantee Plan

Child Plans
Save systematically and secure your childs future needs by investing in Reliance Child Plans. You can always be there for your child when he or she needs you. The Childs plans are as below 1. Reliance Child plan 2. Reliance Secure Child plan 3.Reliance Wealth + Health plan

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16.5 SOME RELIANCE LIFE INSURANCE PLANS IN DETAIL (1) Reliance Children Plans
What could make you happier than knowing, that your child's future is secure? Nothing, we suppose. Which is why, Reliance Life Insurance brings to you Reliance Secure Child Plan, a unit-linked Insurance Plan, that gives you the freedom to enjoy today with your child, because his tomorrow is in safe hands.

Do you see your child becoming a trailblazer? Will they create the ultimate symphony or give sports a new dimension?

Our children may just be the ones to end the arms race and wipe out poverty from the face of the Earth. But for them to be able to aim for the skies, YOU NEED TO ACT NOW! Introducing Reliance Secure Child Plan - a unique life insurance cum savings plan. secure the future of your child. Key Features Insurance cover on the life of child Your child is completely protected - we will continue to pay the premiums even if you are not alive Life time income to child in the event of disability Return Shield option to protect your investment returns Liquidity in the form of partial withdrawals Capital guarantee available on maturity and on death of the child for basic and top-up premiums Option to package with Accidental Death and Total and Permanent Disablement Rider, Critical Conditions Rider and Term Life Insurance Benefit Rider.

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(2)Reliance Health + Wealth Policy

UNDER THIS PLAN THE INVESTMENT RISK IN THE INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER. There are times when late working hours take precedence over your health check-ups. And there are times when a visit to the doctor seems more important than dividends on your shares. In the rat race to make money, we often forget to take care of ourselves. We understand this predicament. Here is a plan that will ensure that your wealth keeps increasing constantly and yet your health does not take a backseat. The Reliance Wealth Health Plan. A plan that gives you the benefits of wealth bhi. health bhi. Life changes. And as it does, so do your priorities. After all, the circumstances of your life can determine the type of health coverage you need. India has made rapid strides in the health sector. Since Independence, life expectancy has gone up markedly and survival rates have also increased, still critical health issues remain. Infectious diseases continue to claim a large number of lives. Reliance Wealth + Health Plan, a health insurance plan underwritten by Reliance Life Insurance Company Limited, is designed to work in conjunction with contributions towards savings. Key Feature A Unit Linked plan with Unique Savings Component Twin benefit of market linked return and health protection Choose from two different plan options Flexibility to take care of your familys health Flexibility to switch between funds / plan options Option to pay Top-ups

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(3) Reliance Pension Policy

UNDER THIS PLAN THE INVESTMENT RISK IN THE INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER. Retirement means different things to different people, while some want to relax and take a trip around the world, some want to start up a venture of their own, and pursue a dream harnessed for years. The power to make your autumn years special lies only with you. The Reliance Super Golden Years Plan gives you the power and the right kind of solution - A retirement plan that allows you to save systematically and generate the much-needed corpus to make your olden years look golden. Key Features Reliance Pension Policy : Invest systematically and secure your golden years A flexible unit-linked pension product that is different from traditional life insurance products with Vesting Age between 45 & 70 years Eight different investment funds to choose from Flexibility to switch between funds Option to pay Regular, Single as well as Top-up premiums Flexibility to advance / extend your Vesting Age Tax free commutation up to one third of Fund Value at Vesting Age

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(4) Reliance Whole life insurance policy

Youve always loved your family. As a loving person you want to be rest assured that they will be happy, even if something were to happen to you. With Reliance Whole Life Plan you can be sure that your family will receive that timely financial support they need. Go ahead, live your today to the fullest, without a worry about tomorrow. Key Features Insurance protection till age 85 Choice of extending your insurance coverage till age 99 Convenient Premium Payment Term Wealth creation through bonus additions More value for your money by way of High Sum Assured Rebate Get Sum Assured plus Bonuses in case of your unfortunate death Option to add two Riders Critical Illness and Accidental Death Benefit and Total and Permanent Disablement Rider Policy Loan available after three full years premium payment

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16.6 Major Players in the Life Insurance

Birla Sun Life Insurance Company: Birla Sun Life Insurance Company is a 74:26 joint venture between Birla group and Sun Life Financial. It is a private sector company. The company was registered on 31/1/2001. The market share for FY 2005- 06 was 1.89%. HDFC Standard: HDFC standard is a 74:26 joint venture between HDFC and Standard Life. It is a private sector company. The company was registered on 23/10/2000. The market share for FY 2005-06 was 2.87%. ICICI Prudential Life Insurance: ICICI Prudential Life is a 74:26 joint venture between ICICI and Prudential. It is a private sector company. The company was registered on 24/11/2000. The market share for FY 2005-06 was 7.35%. Life Insurance Corporation of India (LIC): Life Insurance Corporation of India is a 100% government held Public Sector Company. Being the first to be established LIC is the forerunner in the Life Insurance sector. The market share for FY 2005-06 was 71.44%. Kotak Mahindra OLD Mutual: Kotak Mahindra OLD Mutual is a 74:26 joint venture between Kotak Mahindra bank and Old Mutual. It is a private sector company. The company was registered on 10/1/2001. The market share for FY 2005-06 was 1.11%.

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 Max New York Life: Max New York Life is a 74:26 joint venture between J & Bank, Pallonji & Co and MetLife. It is a private sector company. The company was registered on 6/8/2001. The market share for FY 2005-06 was 1.23%. Aviva Life Insurance India: Aviva Life insurance is a 74:26 joint venture between Aviva and Dabur. It is a private sector company. The company was registered on 14/5/2002. The market share for FY 2005-06 was 1.14%. ING Vysya Life insurance: ING Vysya Life Insurance is joint venture between Exide (50%), Gujarat Cements (14.87%), Enam (9.13%) and ING (26 %). It is a private sector company. The company was registered on 2/8/2001. The market share for FY 2005-06 is 0.79%. Met Life India: Met Life India is a 74:26 joint venture between 74:26 JV between J & Bank, Pallonji & Co and MetLife. It is a private sector company. The company was registered on 6/8/2001. The market share for FY 2005-06 was 0.40%. Bajaj Allianz Life Insurance Co.: Bajaj Allianz Life Insurance Company is a 74: 26 Joint venture between Bajaj Auto limited and Allianz AIG. The company was registered on 3/8/2001. The market share for FY 2005-06 was 7.56%. SBI Life Insurance Company Ltd: SBI Life Insurance Company is a 74: 26 Joint venture between SBI and Cardiff S.A. The company was registered on 31/3/2001.It is a private sector company. The market share for FY 2005-06 was 2.31%.
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 The TATA AIG Group: TATA AIG group is a 74:26 JV between Tata Group and AIG. It belongs to the private sector. The company was registered on 12/2/2001. The market share for FY 2005-06 was 1.29%. Sahara India Life Insurance Company Ltd.: -First Wholly Indian Owned Private Life Insurance Company. The Company commenced operations from 30th October 2004. The market share for FY 2005-06 was 0.06 %.

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16.7 KEY FEATURES OF LIFE INSURANCE

1) Nomination: When one makes a nomination, as the policyholder you continue to be the owner of the policy and the nominee does not have any right under the policy so long as you are alive. The nominee has only the right to receive the policy monies in case of your death within the term of the policy. 2) Assignment: If your intention is that your policy monies should go only to a particular person, you need to assign the policy in favor of that person. 3) Death Benefit: The primary feature of a life insurance policy is the death benefit it provides. Permanent policies provide a death benefit that is guaranteed for the life of the insured, provided the premiums have been paid and the policy has not been surrendered. 4)Cash Value: The cash value of a permanent life insurance policy is accumulated throughout the life of the policy. It equals the amount a policy owner would receive, after any applicable surrender charges, if the policy were surrendered before the insured's death. 5) Dividends: Many life insurance companies issue life insurance policies that entitle the policy owner to share in the company's divisible surplus.

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6) Paid-Up Additions: Dividends paid to a policy owner of a participating policy can be used in numerous ways, one of which is toward the purchase of additional overage, called paid-up additions. 7) Policy Loans: Some life insurance policies allow a policy owner to apply for a loan against the value of their policy. Either a fixed or variable rate of interest is charged. This feature allows the policy owner an easily accessible loan in times of need or opportunity. 8) Conversion from Term to Permanent: When in need of temporary protection, individuals often purchase term life insurance. If one owns a term policy, sometimes a provision is available hat will allow her to convert her policy to a permanent one without providing additional proof of insurability. 9) Disability Waiver of Premium Waiver of Premium is an option or benefit that can be attached to a life insurance policy at an additional cost. It guarantees that coverage will stay inforce and continue to grow.

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16.8 BENEFITS OF LIFE INSURANCE

1) Risk cover: Life Insurance contracts allow an individual to have a risk cover against any unfortunate event of the future. 2) Tax Deduction: Under section 80C of the Income Tax Act of 1961 one can get tax deduction on premiums up to one lakh rupees. Life Insurance policies thus decrease the total taxable income of an individual. 3) Loans: An individual can easily access loans from different financial institutions by pledging his insurance policies. 4) Retirement Planning: What had provided protection against the financial consequences of premature death may now be used to help them enjoy their retirement years. Moreover the cash value can be used as an additional income in the old age. 5) Educational Needs: Similar to retirement planning the cash values that flow from ones life insurance schemes can be utilized for educational needs of the insurer or his children.

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