A Comprehensive Project Report On

MOTIVES STUDY OF CONSUMERS PURCHASING LIFE INSURANCE PRODUCTS

PREPARED BY

NAME

ENROLLMENT NUMBER 108050592005

PATEL YATINKUMAR JAYANTILAL

PATEL LAKHANKUMAR AMARUTLAL 108050592033

SUBMITTED TO

GUJARAT TECHNOLOGICAL UNIVERSITY, AHEMEDABAD

MASTER OF BUSINESS ADMINISTRATION (MBA) THROUGH

S.R. LUTHRA INSTITUTE OF MANAGEMENT, SURAT BATCH 2010-2012

-1-|Page

COMPANY CERTIFICATE

-2-|Page

DECLARATION

We

undersigned

Mr.

YATINKUMAR

JAYANTILAL

PATEL

and

Mr.

LAKHANKUMAR AMARUTLAL PATEL, students of MBA hereby declare that this report is based purely on our work and has been carried out under the guidance of Miss. RUPAL KHAMBHATI, faculty of S. R. Luthra Institute of Management, Surat. This report is submitted as a part of study curriculum and as a partial fulfilment of the degree of M.B.A. Masters of Business Administration. Utmost care & complete effort has been taken to make this study as authentic as possible. We ensure that this project report has not been submitted for the award to any other university for degree, diploma or any other such prizes.

Date: Place: Surat

YATINKUMAR JAYANTILAL PATEL

LAKHANKUMAR AMARUTLAL PATEL

-3-|Page

CERTIFICATE
This is to certify that this Comprehensive Project Report titled MOTIVES STUDY OF CONSUMERS PURCHASING LIFE INSURANCE PRODUCTS has been completed by MR. YATINKUMAR JAYANTILAL PATEL and Mr. LAKHANKUMAR AMARUTLAL PATEL, students of S. R. Luthra Institute of Management, Surat. This project report incorporates the result of their study and analysis. The project is forwarded for further evaluation to Gujarat technological university. PLACE: SURAT DATE:

Project Guide

DIRECTOR (Dr. A. S. Charan)

-4-|Page

PREFACE
The MBA is well structured and integrated course of business studies. The main objective of practical training at MBA level is to develop skill in student by supplement to the theoretical study of business management in general. Industrial training helps to gain real life knowledge about the industrial environment and business practices. The MBA provides student with a fundamental knowledge of business and organizational functions and activities, as well as an exposure to strategic thinking of management.

In every professional course, training is an important factor. Professors give us theoretical knowledge of various subjects in the college but we are practically exposed of such subjects when we get the training in the organization. It is only the training through which I come to know that what an industry is and how it works. I can learn about various departmental operations being performed in the industry, which would, in return, help me in the future when I will enter the practical field.

Training is an integral part of MBA and each and every student has to undergo the training for 6 to 8 weeks in a company and then prepare a project report on the same after the completion of training.

During this whole training I got a lot of experience and came to know about the management practices in real that how it differs from those of theoretical knowledge and the practically in the real life. In todays globalize world, where cutthroat competition is prevailing in the market, theoretical knowledge is not sufficient. Beside this one need to have practical knowledge, which would help an individual in his/her carrier activities and it is true that Experience is best teacher.

-5-|Page

ACKNOWLEDGEMENT

First and foremost, we praise and thank God Almighty from the depth of our heart, which has been the source of strength in the completion of this project work. It is our profound concern to thank the Director, D r . A . S . C H A R A N , S. R. Luthra Institute of Management who paved the path for offering us this opportunity and avenues of infinite possibilities of knowledge. And w e a r e deeply indebted to Miss. RUPAL KHAMBHATI for her guidance, assistance and for giving all the formal support to conduct this study and for completing this project work. And at last we would like to thank other faculty members of S. R. Luthra Institute of Management who supported us in this project work. We also thank our friends and all other people who directly or indirectly help in this project work.

-6-|Page

TABLE OF CONTENTS
Sr. No. 1 2 3 4 5 6 7 8 9 10 11 12 Perticulers Company Certificate Student Decleration Institute Certificate Preface Acknowledgement Executive Summary Introduction Industry Profile Company Profile Review of Letrature Research Methodology Bibliography Page No. 2 3 4 5 6

-7-|Page

EXECUTIVE SUMMARY
Insurance is a vital economic activity and there is an excellent scope for its growth in the emerging markets. The opening up of the insurance sector has raised high hopes among people both in India and abroad.

The Government of India liberalized the insurance sector in March 2000, which lifted the entry restrictions for private insurance players, allowing foreign players to enter into the market and start their operations in India. The entry of private players helps in spreading and keeping the operation in the Indian insurance sector which in turn results in Restructuring and revitalizing of public sector companies. This project work entitled MOTIVES STUDY OF CONSUMERS PURCHASING LIFE INSURANCE PRODUCTS has been prepared by two researchers MR. YATINKUMAR JAYANTILAL PATEL and Mr. LAKHANKUMAR AMARUTLAL PATEL. This project work has been done through collecting primary data from respondents and also researchers have used secondary data. Questionnaire is always the best tool for collecting primary data, under this study the researchers use questionnaire to collect primary data. It has also used various secondary data from internet, books; annual report etc. From the primary data the researchers took help of SPSS (Statically analysis software for Cross Tabulation purpose). After the collection of data it has analyzed and than from that analysis, the conclusion and recommendation is made.

-8-|Page

-9-|Page

CONCEPT OF LIFE INSURANCE

Life has always been an uncertain thing. To be secure against unpleasant possibilities, always requires the utmost resourcefulness and foresight on the part of man. To pray or to pay for protection is the spirit of the humanity. Man has been accustomed to pray God for protection and security from time immemorial. In modern days Insurance Companies want him to pay for protection and security. The insurance man says "God helps those who help themselves"; probably he is correct. Too many people in this country are not in employment; and work for too many no longer guarantees income security. Several millions are part-time, self employed and low-earning workers living under pitiable circumstances where there is no security cover against risk. Further the inherent changing employment risks, the prospect of continual change in the work place with its attendant threats of unemployment and low pay especially after the adoption of New Economic Policy and the imminent life cycle risks - a new source of insecurity which includes the changing demands of family life, separation, divorce and elderly dependents are tormenting the society. Risk has become central to one's life. It is within this background life insurance policy has been introduced by the insurance companies covering risks at various levels. Life insurance coverage is against disablement or in the event of death of the insured, economic support for the dependents. It is a measure of social security to livelihood for the insured or dependents. This is to make the right to life meaningful, worth living and right to livelihood a means for sustenance. Therefore, it goes without saying that an appropriate life insurance policy within the paying capacity and means of the insured to pay premium is one of the social security measures envisaged under the Indian Constitution. Hence, right to social security, protection of the family, economic empowerment to the poor and disadvantaged are integral part of the right to life and dignity of the person guaranteed in the constitution. Man finds his security in income (money) which enables him to buy food, clothing, shelter and other necessities of life. A person has to earn income not only for himself but also for his dependents, viz., wife and children. He has to provide legally for his family needs, and so he has to keep aside something regularly for a rainy day and for his old age. This fundamental need for security for self and dependents proved to be the mother of invention of the institution of life insurance.

- 10 - | P a g e

WHAT IS INSURANCE
The business of insurance is related to the protection of the economic values of assets. Every asset has a value. The asset would have been created through the efforts of the owner. The asset is valuable to the owner, because he expects to get some benefit from it. The benefit may be an income or something else. It is a benefit because it meets some of his needs. In the case of a factory or a cow, the product generated by is sold and income generated. In the case of a motor car, it provides comfort and convenience in transportation. There is no direct income. Every asset is expected to last for a certain period of time during which it will perform. After that, the benefit may not be available. There is a life-time for a machine in a factory or a cow or a motor car. None of them will last forever. The owner is aware of this and he can so manage his affairs that by the end of that period or life-time, a substitute is made available. Thus, he makes sure that the value or income is not lost. However, the asset may get lost earlier. An accident or some other unfortunate event may destroy it or make it non-functional. In that case, the owner and those deriving benefits from there would be deprived of the benefit and the planned substitute would not have been ready. There is an adverse or unpleasant situation. Insurance is a mechanism that helps to reduce the effect of such adverse situations. Insurance, in law and economics, is a form of risk management primarily used to hedge Against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a potential loss, from one entity to another, in exchange for a premium. Insurer, in economics, is the company that sells the insurance. Insurance rate is a factor used to determine the amount, called the premium, to be charged for a certain amount of insurance coverage. Risk management, the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.

- 11 - | P a g e

- 12 - | P a g e

ORIGIN OF INSURANCE

PRACTICE OF INSURANCE IN INDIA: 1818-1956

It is claimed that insurance was practiced in India even in Vedic times in one form or the other. The Sanskrit term "Yogakshema" in the Rigveda meant some kind of insurance, which was practiced by the Aryans in India nearly 3000 years ago. During the Mughal period insurance took firm roots. There are even references to the cover against war risks. Losses due to the passage of royal troops through farms were compensated by the State as a gesture of goodwill. The year 1818 is an epoch -making year in the history of our country. The first Life Insurance Company on India soil appears to have been started in this year. A group of Europeans pioneered the establishment of the Oriental Life Insurance Society to afford relief to the distressed relatives of European. The venture was not quite successful but the company was reformed in 1829.The renewed Company also got into trouble in 1833 when Agency House of Calcutta, partners of the same, fell. Prince Dwarkanath Tagore was the only solvent partner & the sole responsibility for carrying on the institution developed on him. Meanwhile, early in Janury1834, the Government made up its mind to establish a Public Insurance Company & a Committee was set up for this purpose .A number of foreign Insurance Companies then operating in the country viewed this move with alarm. They set up Committees of their own enquire into their individual affairs. Dwarkanath Tagore, too, had a Committee appointed to look into the affairs of the Oriental. As a result, another company was born out of the previous one in the name of "New Oriental Company" In the reorganization of the "Oriental" in the year 1834, two other gentlemen were associated. One was Ramtanu Lahiri and the other Rustamjee Cowasjee. The latter was another prominent figure of the business world. Rustamjee entered insurance business in 1828, he was already known to the community and the Government as a wealthy Parsi merchant. Rustamjee's connection with insurance also started with "Laudable Societies", but he was later on associated with Companies like "Sun Life Office (1834) ", New Oriental (1835), Universal Life (1835), New Laudable (1840), and Indian Laudable (1841). He was also on the Committee of the Union Insurance Company which was formed by a group of five persons. This Company was issuing policies covering river-risks only. He was intimately connected with the Committee of Insurance Offices in Calcutta. Rustamjee Cowasjee & - 13 - | P a g e

Dwarkanath Tagore was probably the first Indians to join in partnership business with the Europeans & in the field of insurance they were pioneers on this side of the country. Apart from Calcutta, several enterprising people in Bombay started in 1823 the "Bombay Life" Assurance Company. The company went into liquidation soon and could not revive. In 1829, the "Madras Equitable "was formed. It finally ceased to function in 1921 due to financial difficulties after the First World War. The effort to set up a public insurance company at the government level also went in vain, mainly from objection of private operators. Majority of the early attempts to form insurance Offices were in the province of Bengal. This was due to its political & economic importance at that time. The contribution of Raja Ram Mohan Roy, one of the greatest social reformers of India, to the development of life insurance is very great. He was deeply concerned about the sad plight of desperate widows and helpless orphans.

OVERSEAS INSURERS:
Initially, when Life Offices were established in large numbers in Britain, some of them ventured to issue sterling policies to the British residents in India. Premiums collected here were credited to England largely for British beneficiaries. Business seems to have been brisk and profitable and was usually under short term policies. Insurance mortality tables and insufficient mortality data of Englishmen in India made the premiums heavy-heavier than at home. Insurance was denied to the "natives" even if they wanted it- for their lives were always considered risky and sometimes valueless. When Indian lives were accepted as a very special case, the extras charged were still heavier. Prominent amongst the companies which came to India around this period was the "Medical Invalid and General" incorporated in London in 1841. As more areas were annexed and the 8 ruling power, with vested interests in developing trade, took charge , the "Medical" extended its area of operation, established large connections, absorbed the" Agra Life" and in 1835,took over the "New Oriental". P.M. Tate, the then manager of the "Medical", was a keen businessman, widely liked, influential and shrewd. With W.F. Ferguson, who was the manager of the "New Oriental" before amalgamation, he commenced very active operations which were temporarily affected by the 1857 "Mutiny". The Universal Life Insurance Company established in England in 1836 opened its Indian Branch in 1840 and enjoyed a long period of successful operations until it was taken over by the "North British" in May 1901. Insurance exceeding Rs. 10 crore were issued in India during this period. Another

- 14 - | P a g e

English Company operating in India at that time was the Colonial Life Assurance Company. It was established in 1846 under the auspices of the Standard Life Assurance Company. The original prospectus of this company declared its purpose as "extending to the Colonies of Great Britain and to Indian the full benefit of Life Assurance". It appointed agents with local boards which were first established on Calcutta, Bombay, Madras and Colombo. Later on this company was taken over by the "Standard Life" and made valuable contribution to investigations into the mortality experience of assured lives in India. Eventually it ceased its operations in India in 1938. It is difficult to say which was the oldest Life Policy in India, but the oldest known appears to be one sold by the Royal Insurance (which commenced business in India in 1845) on the life was to Cursetjee Furdonjee on 6th January 1848, no reference to any earlier policy being available. In the year 1853, the Liver pool and London and Globe Insurance Company established in England in 1836, commenced business in India. Sir Charles Forbes was its first agent, succeeded by M/s. Forbes, Forbes and Campbell. It accepted only European lives and commenced insuring Indian lives only after 1929.This too, was mainly to oblige good agents of the Company for classes other than life business. The North British and Mercantile was the next company to appear on the Indian scene. It started fire insurance business in the year 1861 and life business 1864. The London Assurance started life business in 1864, limited principally to European lives and closed down its life department when the Life Assurance Companies Act 1912 made submission of returns compulsory. On 3rd December, 1870, seven earnest men of Bombay with just seven rupees for initial expenses gave shape to a plan of offering insurance to the public without the risk of ruin and the "Bombay Mutual Life Assurance Society" came into existence.

THE BIRTH OF INDIAN INSURERS:

With the advent of the 20th century, the glorious renaissance of swadeshi days dawned. At the same time, well- to do Indians realized the potentiality of Indian Insurance business. The Swadeshi movement of 1905-1907 gave rise to more insurance companies. The United India in Madras, National Indian and National Insurance in Calcutta and the Co-operative Assurance at Lahore were established in 1906. In 1907, Hindustan Co-operative Insurance Company took its birth in one of the rooms of the Jorasanko House of the great poet Rabindranath Tagore, in Calcutta. The Indian Mercantile (1907) was started in Bombay, 9 General Assurance (1908) at Ajmer and the Swadeshi Life (Later Bombay Life) in Bombay in 1908. The end of the First World War (1914-18) witnessed an influx of insurance - 15 - | P a g e

companies in India. Famous Indian business houses started new insurance companies. Industrial and Prudential Bombay, Western India, Satara, were floated before the war, but by 1919, companies like Jupiter General, New India, Vulcan Insurance Company etc. came into being. Pandit K.Santhanam with blessing of Lala Lajpat Rai and Pandit Motilal Nehru started Laxmi Insurance Co. Similarly, Andhra Insurance was started in Masulipatnam, with the initiative of stalwarts like Dr. Pattabhi Sitaramaiah. From political platforms also, national leaders supported this cause. It is duty to every Indian to support only Indian Insurance. The keynote of our Swaraj is in placing all our insurance with our Indian companies", said Mahatma Gandhi in his message. "I hope Indians will realize the importance of patriotism only through Indian insurance institution", stated Pandit Jawaharlal Nehru. Thus, the cause of Indian insurance became a national issue.

PROGRESS IN INSURANCE BUSINESS:

The growth of Life Insurance in concrete terms could be said to being during the first two decades of twentieth century when most of the major companies were founded. They grew in terms of rise in the number of companies, in terms of number of policies and sum assured as well as total life fund. Indian Insurance Year Book, published for the first time in 1914, gives he figure of the total business-in -force as 22.44 crore which grew to Rs. 298 crore in 1938. In 1914, there were only 44companies transacting insurance business in India, and during the next 25 years their number rose to 176. The total progress on all the primary heads, viz. life fund (Rs. 50.50 crore), premium income (Rs. 10.50 crore) and new business (Rs. 43.30 crore) indicate that Indian Insurance Business had been making a definite headway during this year. The inter-war -years thus saw rapid growth life insurance in India. The promotion of new life insurance companies continued to be almost a craze and insurance companies mushroomed. In this period, 176 insurance companies were formed and many of them failed. Thus unhealthy growth was harmful to the interest of the policy holders and insurance business in India. Feeling concerned about it, the All India Life Assurance Offices' Association urged upon the Government in 1932 to undertake the insurance legislation to. (a) Compulsorily register all Life Insurance companies. (b) Secure a deposit of Rs.2 lakh from all Life Insurance companies. (c) Compel foreign companies doing business in India to keep sufficient funds in India securities to meet their liabilities under all policies issued in India.

- 16 - | P a g e

INSURANCE ACT, 1938

The Insurance Act, 1938, was the first comprehensive legislation governing not only life but also non- life branches of insurance to provide strict state control over insurance business. In sub- sections to dealt with provident companies, mutual offices and co-operative societies as well. The silent features of the Act were as follows: (A) Constitution of a Department of Insurance under a superintendent vested with Wide powers of supervision and control over all kinds of insurance companies. (B) Regulation for the compulsory registration of insurance companies and for filing Of returns of investment and financial conditions. (C) Provisions for deposit, to prevent insurers of inadequate financial resources of Speculative concerns for commencing business. (D) Provisions that 55% of the net life fund of an Indian or non- Indian insurer should Invested in Indian Government and approved securities with at least 25% in Indian Government Rupee securities. All other companies, i.e., foreign companies must Invest 100% of their Indian liabilities in Indian Government and approved securities, With at least 33.3% Indian Government securities. (E) Prohibition of rebating, restriction of commission, licensing of agents etc. Maximum rates of commission were fixed at 40% of the first premiums and 5% of the Renewal premium in respect of life assurance business. The agent must be licensed, to Improve the status of the profession. (F) Periodical valuation of Indian Insurance business of foreign companies and the Business of Indian companies. (G) Provision for policyholders' directors, making it possible for the representatives of Policyholders to be on the Board of directors. (H) Standardization of policy conditions required all companies to file standard forms And tables of premium approved by an Actuary. Under this requirement, the initial Deposit for life insurance business was raised from Rs. 25000 in Government Securities to Rs. 50000 in cash approved securities, which was subsequently to be Rose by installments to Rs. 2 lakh within a specified time limit.

- 17 - | P a g e

PRESENT SCENARIO OF INSURANCE INDUSTRY:

India with about 200 million middle class household shows a huge untapped potential for players in the insurance industry. Saturation of markets in many developed economies has made the Indian market even more attractive for global insurance majors. The insurance sector in India has come to a position of very high potential and competitiveness in the market. Indians, have always seen life insurance as a tax saving device, are now suddenly turning to the private sector that are providing them new products and variety for their choice. Consumers remain the most important centre of the insurance sector. After the entry of the foreign players the industry is seeing a lot of competition and thus improvement of the customer service in the industry. Computerization of operations and updating of technology has become imperative in the current scenario. Foreign players are bringing in international best practices in service through use of latest technologies. The insurance agents still remain the main source through which insurance products are sold. The concept is very well established in the country like India but still the increasing use of other sources is imperative. At present the distribution channels that are available in the market are listed below. Direct selling Corporate agents Group selling Brokers and cooperative societies Banc assurance

Customers have tremendous choice from a large variety of products from pure term (risk) insurance to unit-linked investment products. Customers are offered unbundled products with a variety of benefits as riders from which they can choose. More customers are buying products and services based on their true needs and not just traditional money back policies, which is not considered very appropriate for long-term protection and savings. There is lots of saving and investment plans in the market. However, there are still some key new products yet to be introduced - e.g. health products. The rural consumer is now exhibiting an increasing propensity for insurance products. A research conducted exhibited that the rural consumers are willing to dole out anything between Rs 3,500 and Rs 2,900 as premium each year. In the insurance the - 18 - | P a g e

awareness level for life insurance is the highest in rural India, but the consumers are also aware about motor, accidents and cattle insurance. In a study conducted by MART the results showed that nearly one third said that they had purchased some kind of insurance with the maximum penetration skewed in favour of life insurance. The study also pointed out the private companies have huge task to play in creating awareness and credibility among the rural populace. The perceived benefits of buying a life policy range from security of income bulk return in future, daughter's marriage, children's education and good return on savings, in that order.

BASIC FUNCTIONS OF THE INSURANCE INDUSTRY 1. Risk Perception and Evaluation:

The fundamental function of an insurer is to provide a cover against the detriment caused to the insured due to the happening of certain specified and agreed events. Thus, prior to providing such umbrella through a product, the insurer has to assess the risk involved in the transaction. The insurer has to identify the element of risk prevalent in the concerned industry or a particular unit. The perception of risk requires the study of variables through various methods including the application of scientific and statistical techniques and correlation thereof with the industry or unit under study in light of their basic environmental and infrastructural characteristics. After the identification and categorisation of the risks perceived, the probability of happening of the loss-causing events and the severity of the loss has to be assessed.

2. Designing the Insurance Product:

On the basis of the risks perceived, the insurer develops a product to cover the stipulated risks. While designing an insurance product, an insurer decides its cost to be charged from the insured in the form of premium, reduction thereof in certain cases like not lodging any claim during the previous covered period(s), suggesting the implementation of risk-mitigating measures, etc. The features of a product should be flexible enough to provide for the determination of premiums, rebates, additional premiums, etc. depending upon the risk benchmarks as determined.

3. Marketing of the Product:

The core function of the marketing force of an insurance company is to generate awareness about the insurance products among the target market. But in the Indian scenario, where the insurance penetration is too low as compared to the other nations, the marketing force needs - 19 - | P a g e

to perform the pro-active role in developing an insurance culture. It is through the efficiency of the sales force of an insurance company that the desirability and the success of a product are determined. In Indian insurance market, the function is, basically performed by the agents. The persons desiring to function as insurance agents have to obtain license to act as such from the IRDA or an officer authorised by the Authority in this behalf. The agents approach the prospective buyers and apprise them of the basic features of the products. In order to dispense with the functions, the agents need to possess adequate knowledge of the insurance industry, products and the modalities attached therewith.

4. Selling of the Products:

The term selling in the context of insurance industry connotes the issuance of policies to the applicant proposer. The non-life insurance policy basically embodies the covenant between the insurer and the insured wherein the former agrees to indemnify the latter for the loss caused to him on the happening of the certain agreed events up to a specified limit. The life insurance policy generally contains the agreement whereby the insurer agrees to pay to the insured or the beneficiary of the policy an agreed amount on the expiry of the term of the policy or in the event of the death of the insured respectively. The additional benefits in the shape of Riders viz. Accidental Death Benefit, Double Sum Assured, Critical Illness benefits, Waiver of Premiums, etc. can also be appended with the policy on the payment of an additional premium in Indian industry, the function is, generally performed by the insurer. In addition, the insurance companies depute their Direct Selling Representatives to look after the function. They receive the proposal documents, vet them and issue policies to the proposers.

5. Management of Portfolio:
The management of the portfolio includes the assessment of requirement of funds, identification of various sources of finance, the evaluation of the sources in the light of their cost, availability, timing, etc., reconciling the features of various sources with the needs of the company and the selection of appropriate conjunction of sources. The insurer possesses huge amount of funds, which need proper management. The management of the portfolio of an insurance company requires the identification of investment avenues, evaluation thereof and the selection of the most appropriate mix of alternatives where the funds of the company can be invested. The selection requires the knowledge of finance related functions and

- 20 - | P a g e

techniques apart from the in-depth know of the patterns of requirement of funds in the company as well as in the industry as a whole.

FOREIGN DIRECT INVESTMENT (FDI) POLICY IN INSURANCE SECTOR

As per the current (Mar 06) FDI norms, foreign participation in an Indian insurance company is restricted to 26.0% of its equity / ordinary share capital. The Insurance Regulator has stipulated that foreign investment in Indian Insurance companies be limited to 26% of total equity issued (FDI limit) with the balance being funded by Indian promoter entities. The limit to foreign investment includes both direct and indirect investment and has been a cause of significant lobbying by foreign insurance companies for a change in regulations to increase the FDI limit to 49% of equity issued. The Indian government has supported an increase in the FDI limit, which requires a change in the Insurance Act. The Union Budget for fiscal 2005 had recommended that the ceiling on foreign holding be increased to 49.0%. A change in the Insurance Act requires a passage of the bill in both houses of Parliament. The Indian government has tabled the bill in the Upper House of Parliament in August 2010.

- 21 - | P a g e

INITIAL

PUBLIC

OFFER

(IPO)

RULES

FOR

INDIAN

LIFE

INSURANCE COMPANIES
A key piece of legislation impacting on the Life Insurance industries capital raising abilities is the lock-in period of 10 years for investment to be limited to promoter group equity investments. Under the Insurance Guidelines, Indian Life Insurance companies can opt for a public issue of equity through an Initial Public Offer (IPO) after 10 years of operations. In October 2010, the securities market regulator, Securities and Exchange Board of India (SEBI), issued disclosure norms for Indian Life Insurance Companies seeking to make an initial public offer for sale of equity shares to the public. And recently it has been approved by the sebi to the private companies to issue IPO in the market for additional capital All life insurance companies in India have to comply with the strict regulations laid out by Insurance Regulatory and Development Authority of India (IRDA). Life Insurance Corporation of India (LIC), the state owned behemoth, remains by far the largest player in the market. The private companies have come out with products called ULIPs (Unit Linked Investment Plans) which offer both life cover as well as scope for savings or investment options as the customer desires. These type of plans are subject to a minimum lock-in period of three years to prevent misuse of the significant tax benefits offered to such plans under the Income Tax Act. Comparison of such products with mutual funds would be erroneous.

LIST OF LIFE INSURERS

Apart from Life Insurance Corporation, the public sector life insurer, there are 22 other private sector life insurers, most of them joint ventures between Indian groups and global insurance giants.

LIFE INSURER IN PUBLIC SECTOR

1. LIFE INSURANCE CORPORATION OF INDIA, LIC

- 22 - | P a g e

LIFE INSURERS IN PRIVATE SECTOR

1. SBI LIFE INSURANCE 2. METLIFE INDIA LIFE INSURANCE 3. ICICI PRUDENTIAL LIFE INSURANCE 4. BAJAJ ALLIANZ LIFE 5. MAX NEW YORK LIFE INSURANCE 6. SAHARA LIFE INSURANCE 7. TATA AIG LIFE 8. HDFC STANDARD LIFE 9. BIRLA SUN LIFE 10. KOTAK LIFE INSURANCE 11. AVIVA LIFE INSURANCE 12. RELIANCE LIFE INSURANCE COMPANY LIMITED 13. ING VYSYA LIFE INSURANCE 14. SHRIRAM LIFE INSURANCE 15. BHARTI AXA LIFE INSURANCE CO LTD 16. FUTURE GENERALI LIFE INSURANCE CO LTD 17. IDBI FORTIS LIFE INSURANCE 18. AEGON RELIGARE LIFE INSURANCE 19. DLF PRAMERICA LIFE INSURANCE 20. CANARA HSBC ORIENTAL BANK OF COMMERCE LIFE INSURANCE 21. INDIA FIRST LIFE INSURANCE COMPANY LIMITED 22. STAR UNION DIA-ICHI LIFE INSURANCE CO. LTD

- 23 - | P a g e

- 24 - | P a g e

LIFE INSURANCE IN INDIA

The Parliament of India passed the Life Insurance Corporation Act on the 19th of June 1956, and the Life Insurance Corporation of India was created on 1st September, 1956, with the objective of spreading life insurance much more widely and in particular to the rural areas with a view to reach all insurable persons in the country, providing them adequate financial cover at a reasonable cost. LIC Started it functioning with a 5 crore capital from the government and still paying the dividend to the government. LIC had 5 zonal offices, 33 divisional offices and 212 branch offices, apart from its corporate office in the year 1956. Since life insurance contracts are long term contracts and during the currency of the policy it requires a variety of services need was felt in the later years to expand the operations and place a branch office at each district headquarter. Re-organization of LIC took place and large numbers of new branch offices were opened. As a result of reorganisation servicing functions were transferred to the branches, and branches were made accounting units. It worked wonders with the performance of the corporation. It may be seen that from about 200.00 crores of New Business in 1957 the corporation crossed 1000.00 crores only in the year 1969-70, and it took another 10 years for LIC to cross 2000.00 crore mark of new business. But with re-organisation happening in the early eighties, by 1985-86 LIC had already crossed 7000.00 crore Sum Assured on new policies. Life Insurance is the fastest growing sector in India since 2000 as Government allowed Private players and FDI up to 26%. Life Insurance in India was nationalized by incorporating Life Insurance Corporation (LIC) in 1956. All private life insurance companies at that time were taken over by LIC. In 1993 the Government of Republic of India appointed RN Malhotra Committee to lay down a road map for privatization of the life insurance sector. While the committee submitted its report in 1994, it took another six years before the enabling legislation was passed in the year 2000, legislation amending the Insurance Act of 1938 and legislating the Insurance Regulatory and Development Authority Act of 2000. The same year that the newly appointed insurance regulator - Insurance Regulatory and Development Authority IRDA --started issuing licenses to private life insurers.

- 25 - | P a g e

 MISSION, VISION,OBJECTIVES AND COMMITMENT OF LIC

Mission:
"Explore and enhance the quality of life of people through financial security by providing products and services of aspired attributes with competitive returns, and by rendering resources for economic development."

Vision:
"A trans-nationally competitive financial conglomerate of significance to societies and Pride of India."

Objectives:
1. Spread Life Insurance widely and in particular to the rural areas and to the socially and economically backward classes with a view to reaching all insurable persons in the country and providing them adequate financial cover against death at a reasonable cost. 2. Maximize mobilization of people's savings by making insurance-linked savings adequately attractive. 3. Bear in mind, in the investment of funds, the primary obligation to its policyholders, whose money it holds in trust, without losing sight of the interest of the community as a whole; the funds to be deployed to the best advantage of the investors as well as the community as a whole, keeping in view national priorities and obligations of attractive return. 4. Conduct business with utmost economy and with the full realization that the moneys belong to the policyholders. 5. Act as trustees of the insured public in their individual and collective capacities. 6. Meet the various life insurance needs of the community that would arise in the changing social and economic environment. 7. Involve all people working in the Corporation to the best of their capability in furthering the interests of the insured public by providing efficient service with courtesy. - 26 - | P a g e

8. Promote amongst all agents and employees of the Corporation a sense of participation, pride and job satisfaction through discharge of their duties with dedication towards achievement of Corporate Objective.

COMMITMENT TO CLIENTS - SETTLEMENT OF CLAIMS :

1. NO. 1 INSURANCE COMPANY IN THE WORLD in terms of settlement of claims. PER SECOND LIC settles more than 2 claims!!! 2. LIC settled 149 lacs claims during the year 2008/2009. 3. Prompt settlement of claims - 97% maturity claims settled on or before Due date.93.22% Non-early death claims settled within 20 days of intimation. 4. Lowest outstanding claim ratio in the world (Maturity+SB = 0.26%) (Death Claim = 2.21%).

ADVANCED TECHNOLOGY - FOR BETTER CUSTOMER SERVICES.

1. Computerized and networked 2048 Branch Offices and 810 Satellite Offices throughout the country. 2. LIC is the SECOND largest PC user in the country. 3. Premium payment facility extended through network of 2048 Branches and 810 Satellite Offices, 9500 Empowered Agents and 510 Senior Business

Associates,ECS,ATM of Corp. & Axis Banks, through internet, online portals, Collecting Bank (Axis Bank), AP online, MP online, Through SMS.

- 27 - | P a g e

ORGANISTIONAL STRUCTURE OF LIC AT TOP LEVEL MANAGEMENT

Here in the LIC the organisational structure is formally made at the top level with the central office controlling the other departments done on the basis of the geographical form of departmentation. In LIC this is the line form of organisational structure followed where in the vertically form of authority and responsibility flows.

- 28 - | P a g e

ORGANISTIONAL STRUCTURE OF LIC AT ORGANISATIONAL LEVEL

- 29 - | P a g e

ORGANISTIONAL STRUCTURE OF LIC AT BRANCH LEVEL

- 30 - | P a g e

SWOT ANALYSIS
STRENGHTS 1. The ONE & ONLY - Government owned Life Insurance Company in India. 2. The most trusted & oldest insurance company in India since 1956. 3. Largest insurance company in the world on Customer Base (25 Crore customers). 4. Only 4 countries in the World have more population than LIC's policy holders!!! 5. No. I Insurance Company in the world in terms of agency force (13 lacs agents). And No. I Insurance Company in the world on selling of policies 3.59 crore policies. 6. 2nd Biggest Real Estate Owner next to Indian Railways. 7. LIC has highest number of Club Member Agents. 8. It is the pride taking fact that this PSU is working for 60 years and has not incur losses for a single year WEAKNESS 1. Due to heavy customer base the management of it is not up to that level 2. It is over employed and so expenses are high 3. The infrastructure is not as advanced as other rivals 4. It is under the influence of government and mobilize their fund accordingly OPPORTUNITY 1. It can make use of its hefty funds properly in profitable area rather than following the traditional way 2. With the heavy team force and personnel can attain the new venture development 3. LIC has a good amount of funds which should be used for the development of the country. 4. It can start its subsidiaries in other companies and can expand the scope of development THREATS 1. New Private companies are emerging with a qualitative approach and customer oriented so LIC cannot posses the monopoly. 2. Due to availableness of newer product the lapsation of policies can be a major problem Private companies are attracting the LIC employees and get through the strategy.

- 31 - | P a g e

- 32 - | P a g e

REASONS TO BUY LIFE INSURANCE

(Source: Article From Beaton Insurance Services )

JOHN BEATON When you plan for the future, one of the things you count on is continued income for yourself and your family. Your premature death could result in a drastic reduction of your family's standard of living. There are no U-turns on the road of life. We are all travelling on an inevitable trip from birth to eventual death. You may die sooner than expected or hopefully live a long and prosperous life. Life insurance addresses the tragedy of premature death by providing tax free funds to help survivors who depended on you, get on with their lives. At death, your capital (cottage, land, business, non-registered and registered assets) can be transferred to your spouse without tax. However, 50% of the capital gain and 100% of the registered assets will be taxable upon the death of the last surviving spouse, at which time, all assets are counted in the final tax return propelling many taxpayers from an insignificant tax bill to the highest tax bracket. You may want to preserve your estate value for your children. Life insurance can be purchased for a fraction of the total projected tax bill payable at death. Life insurance is sometimes acquired for a child as the beginning of a lifetime financial plan. Quickly paid up whole life plans with growing cash values are very inexpensive when children are young and can become a valuable asset when paid up. Successful business owners, proud of their accomplishments may want to pass their businesses on to their children so that they can continue to profit from the parent's labour. Don't just leave it to them in your will. First make sure you teach them how to run it. And then make sure the tax department doesn't benefit from their inheritance more than your children do. One way to do that is to buy life insurance, the value of which equals the amount of taxes your kids will have to pay on your business the day they inherit it. If they don't have cash to pay those taxes, they may be forced to sell the business at a fire sale price to raise the money quickly. [The tax department has not been known to grant time to pay.] Business people also find life insurance valuable to fund partnership agreements. Upon the death of a business partner, that partner's surviving family can be quickly and efficiently - 33 - | P a g e

bought out for a fair price with life insurance proceeds. The absence of funds to complete such a buyout could result in the survivors becoming new participants in the activities of a business they may not understand. A business may not survive this kind of interference from the surviving family. Key person life insurance is also used to protect businesses against the loss of important employees without whom, the daily business would suffer. The proceeds from this kind of coverage give a business time to find an appropriate replacement. The alternative to life insurance in either of these scenarios is to have created a sinking fund long before a death takes place or borrow the money at time of death. Whole Life insurance can provide additional income at retirement through policy cash values. If you want to be remembered in a larger sense, Life insurance can enormously increase the amount of money you could bequest to a favorite charity or organization. Financial Security Life insurance is a financial security blanket for your family in the event of a tragic accident or misfortune. It helps offset any loss of income that may occur in the event of your death. Offset Expenses Life insurance can help offset funeral expenses and cover excessive medical bills. Taxes Life insurance may help with probate or estate taxes associated with your assets after your passing. Family Insurance can provide for your surviving family members, including your spouse, children or other relatives. You can designate several beneficiaries on your policy. Annuity Insurance some plans include annuities that offer rates of return on the money you pay for a life insurance policy. This can act as retirement policy if your family never makes a claim on your life insurance policy. Peace of Mind If you can afford to pay the monthly fees, there is no need to leave your surviving family members with financial concerns. This is a small price to pay for your peace of mind and their future security.

- 34 - | P a g e

WHY DO A PERSON NEED LIFE INSURANCE?

(Source: Article by Nationwide Financial Services) Think you dont need life insurance if you dont have kids? Think again. It may seem like an unnecessary expense. But there are many reasons to have life insurance, even if youre not supporting a family. 1. Mortgage protection Whether you live by yourself, with a spouse or significant other, you may want to buy life insurance as mortgage protection. Think about it you dont want the person you live with to be homeless if you die unexpectedly, do you? Term life insurance can be used to pay off an outstanding mortgage balance. Just select a term that matches the length of your mortgage payment period. Some companies even offer decreasing term insurance, which means the death benefit decreases along with your mortgage balance. 2. Income replacement You and your significant other may have planned for a future based on two incomes but what if one of you passes away unexpectedly? Life insurance can be used to replace the lost income so the survivor can maintain the same standard of living. 3. Final expenses Youve seen the commercials funeral expenses, burial costs and medical bills can add up to a hefty amount. The last thing you want is for your loved ones to shoulder this extra burden. 4. College funding Life insurance can help fund a college education. If you die, the death benefit may be invested and potentially grow to the needed amount by the time your children reach college age. Feel better knowing that you helped prepare for their future even if you are not there to see it. 1. Life insurance correctly planned will on premature death provide funds to deal with monies due, mortgages, and living expenses. It offers protection to the family you leave behind and serves as a cash resource. 2. It secures your hard earned estate on death by providing tax free cash which can be utilized to pay estate and death duties and to tide over business and personal expenses. 3. Life insurance can have a savings or pension component that provides for you during retirement.

- 35 - | P a g e

4. Some policies have riders like coverage of critical illness or term insurance for the children or spouse. There are certain rules regarding eligibility for riders which you will need to determine clearly. 5. Having a valid insurance policy is considered as financial assets which improves your credit rating when you need health insurance or a home loan or business loan. 6. In case of bankruptcy, the cash value as well as death benefits of an insurance policy is exempt from creditors. 7. Life insurance can be planned such that it will cover even your funeral expenses. 8. Term life insurance has double benefits, it protects and you can get your money back during strategic points in your life. 9. Insurance protects your business from financial loss or any liabilities in case a business partner dies. 10. It can contribute towards maintaining a family's life style when one contributing partner suddenly dies. Insurance is vital to good financial planning and security but you would need to assess your personal risk and long term commitments. Insurance stands a person in good stead throughout life and can be used in case of emergencies during a life time by requesting a withdrawal or loan.

- 36 - | P a g e

The Best Motives for Buying Life Insurance (Source: Article Bysuze Orman Life Insurance)
Insurance is one of those things that you never miss it until you need it. Life insurance is something you may be uncomfortable discussing, but you really should acquire. It is a financial safeguard that could eventually protect your family. 1. Financial Security Life insurance is a financial security blanket for your family in the event of a tragic accident or misfortune. It helps offset any loss of income that may occur in the event of your death. 2. Offset Expenses Life insurance can help offset funeral expenses and cover excessive medical bills. 3. Taxes Life insurance may help with probate or estate taxes associated with your assets after your passing. 4. Family Insurance can provide for your surviving family members, including your spouse, children or other relatives. You can designate several beneficiaries on your policy. 5. Annuity Insurance Some plans include annuities that offer rates of return on the money you pay for a life insurance policy. This can act as retirement policy if your family never makes a claim on your life insurance policy. 6. Peace of Mind If you can afford to pay the monthly fees, there is no need to leave your surviving family members with financial concerns. This is a small price to pay for your peace of mind and their future security.

- 37 - | P a g e

- 38 - | P a g e

RESEARCH METHOLOGY
Research Methodology can be defined as the plan and structure of enquiry formulated in order to obtain answers to research questions on business on business aspects. Research Methodology can be understood as that which gives the blueprint for collection, measurement and analysis of business data. The research plan constitutes the overall program of the business research process. The planning process includes the framework of the entire research process, starting from developing hypothesis to the final evaluation of collected data.

Research Methodology is essential because it facilitates the smooth flow of various research results can be obtained with minimum utilization of time, money and effort. Therefore it can be said that Methodology is highly essential for planning research activities. If research Methodology is not properly prepared, it will jeopardize the whole research process and will not meet its purpose.

PROBLEM STATEMENT:
Motives study of consumers purchasing life insurance products.

OBJECTIVES OF THE STUDY:

To examine the current status, volume of competitions and challenges faced by the Life Insurance Corporation of India to find out the motives which are to be targeted and form new products. To know the consumer preference for buying life insurance policy from LIC and motivational determinants to purchase it.

RESEARCH DESIGN: Descriptive research design.

TYPES OF DATA USED FOR THIS STUDY

Primarily it has used primary data for this research collected through questionnaire. It is necessary to note that researchers also used some secondary data from various sources for this project report.

- 39 - | P a g e

SAMPLE SELECTION AND SAMPLE SIZE

The first step of research is sample selection, for which the respondents were Policy holders of various life insurance companies. The total Respondents covered were 150 . The same numbers of questionnaires were distributed, & 150 fully-completed questionnaires were received. Results are based on the response of these 150 respondents.

SAMPLING METHOD
The Respondents were selected by the convenience sampling method. The selection of units from the population based on their easy availability and accessibility to the researcher is known as convenience sampling. Convenience sampling can be used as a part of a preliminary research that forms a basis for conducting the detailed research. Convenience sampling is at its best in surveys dealing with an exploratory purpose for generating ideas and hypothesis. Researchers used the non probabilistic Sampling method for this project report.

SELECTION OF SAMPLE FROM POPULATION

This project report is prepared by two students; both are belonging to Surat. So it is decided to take of responses from the consumers of Life Insurance Products of LIC living in Surat city. As a result of this decision they took 150 responses from Surat city. And the respondents were the customer of the mentor at the organisation

QUESTIONNAIRE AS A TOOL OF COLLECTING INFORMATION

A questionnaire is a research instrument consisting of a series of questions and other prompts for the purpose of gathering information from respondents. Although they are often designed for statistical analysis of the responses, this is not always the case. The questionnaire was invented by Sir Francis Galton.

Questionnaires have advantages over some other types of surveys in that they are cheap, do not require as much effort from the questioner as verbal or telephone surveys, and often have standardized answers that make it simple to compile data.

Sample Size Sample

150 Policy Holders of various life insurance companies - 40 - | P a g e

Sampling Method

Non probabilistic Sampling method. Convenience Sampling Method.

Data Collection Tool Sample Selection Research Design Data Sources

Questionnaire 150 From Surat City Descriptive Research Design Primary Data with the help of Questionnaire Secondary data via internet, books, magazines etc.

- 41 - | P a g e

BIBILIOGRAPHY

ARTICLES
JOHN BEATON, Reasons To Buy Life Insurance, http://www.beaton-insurance.com/whylife.html. NATIONWIDE FINANCIAL SERVICE, Why Buy Life Insurance, http://www.nationwide.com/why-buy-life-insurance.jsp EHOW.COM, Motives Buying Life Insurance, http://www.ehow.com/facts_5028510_motives-buying-life-insurance.html PAUL W WILSON, 10-Key-Reasons-Why A Person Needs Life Insurance http://ezinearticles.com/?10-Key-Reasons-Why-A-Person-Needs-LifeInsurance&id=144005

WEBSITE

LIFE INSURANCE CORPORATION OF INDIA, Industry Profile,Company Profile,

http://www.licindia.in/

Beaton Insurance Services

15310 Pacific Avenue White Rock, British Columbia, Canada V4B 1P9 Tel: (604) 535-2404 Toll Free Canada: 1-800-667-8818 Website: http://www.beaton-insurance.com E-mail:john@beaton-insurance.com

Copyright 1996 - 2011 Beaton Insurance Services All rights reserved.

- 42 - | P a g e