Professional Documents
Culture Documents
Insurance
and Life Insurance in different perspectives Legal aspects of Life Insurance business in India Principles of insurance and their applications to Life Insurance Important types of Life Insurance
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What Is Insurance ?
It
is a tool in the management of risks a device through which the risks faced by the individuals are pooled together and thereby all the members of pool will share the losses suffered by a few individuals.
Transferring
the risks from the individuals to the pool reduction of the overall risk faced by the pool Social tool as a social safeguard against the losses expected to be suffered due to unexpected events by a few members of the society Commercial or legal tool where a third party does this activity of pooling of risks and sharing of losses with a commercial interest
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Kenneth Black (Jr.) and Harold Skipper (Jr.) have defined insurance under two different perspectives : Economic Perspective Insurance is a financial intermediation function by which individuals exposed to a specified contingency each contribute to a pool from which covered events suffered by participating individuals are paid. Individuals purchase the right to collect from the pool if the insured contingency occurs. Insurance then is a contingent claim contract on the pools assets.
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Legal Perspective
Insurance
is an agreement (the insurance policy or insurance contracts), by which one party, called the policy owner, pays a stipulated consideration, called premium, to the other party called Insurer in return for which the insurer agrees to pay a defined amount of money or provide a defined service if a covered event occurs during the policy term.
is a contract in which the Insurer, in consideration of a certain premium, either in a lump sum or in any other periodical payments, in return agrees to pay to the assured, or to the person for whose benefit the policy is taken, a stated sum of money on the happening of a particular event contingent on the duration of human life.
Essential Features :
It
is a contract relating to human life The contract provides for payment of lump sum money The amount is paid at the expiration of a certain period or on death of a person.
In India, Life Insurance business is defined under Section 2 (11) of Insurance Act, 1938, which reads :
Life Insurance business means the business of effecting contracts of insurance upon human life, including any contract whereby the payment of money is assured on death (except death by accident only) or the happening of any contingency dependent upon human life and any contract which is subject to payment of premium for a term dependent on human life and shall be deemed to include the granting of :
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Disability and double or triple indemnity accident benefits, if so provided in the contract of insurance; Annuities upon human life; and Superannuation allowances and annuities payable out of any fund applicable solely to the relief and maintenance of persons engaged or who have been engaged in any particular profession, trade or employment or of the dependents of such persons.
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The insurance contracts, which deal with disability, accidental death alone, sickness etc. are excluded from the purview of life insurance. However, life insurance contracts can have benefits payable on the accidental death or disability of the persons insured as additional benefits on the basic life insurance contracts.
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and acceptance Consensus ad idem (meeting of the minds) Parties competent to contract Consideration Legality of purpose
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Interest :
The object of insurance should be lawful. The person proposing for insurance must have interest in the continued life of the insured and would suffer pecuniary loss if the insured person dies. This is known as Insurable Interest.
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In Life Insurance the presence of insurable interest is essential at the time of effecting the Contract of Insurance. If there is no insurable interest, the contract becomes wagering and hence illegal. Every individual has unlimited insurable interest on his/her life. Husband has insurable interest on the life of his wife and vice versa
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The creditors have insurable interest on the lives of debtors to the extent of indebtedness. Business partners have insurable interest in the lives of other partners to the extent of their financial interest in the partnership Employers have insurable interest in the lives of employees who are key to the profitability of the business.
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Doctrine
In Life Insurance contracts, a very high degree of good faith is required to exist between the parties to the contract, viz., the insurer and the insured. This is called the principle of utmost good faith (Uberrima fides) It is the duty of the proposer to disclose the material information for proper assessment of risk by the insurer
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All the required information for the assessment of risk is known only to the proposer and the insurer has no knowledge of the risk The proposer may not be having technical knowledge about the insurance products, the benefits, pricing aspects etc. and hence will have to rely upon the insurer to ensure that the terms of the contract are fair and equitable.
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Doctrine of Adhesion
The
terms of the contract are most of the times fixed by one party (the insurer) and with minor exceptions, must be accepted or rejected in total by the other party (the proposer).
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Principle of Indemnity
Insurance
contracts other than life insurance contract are contracts of indemnity in the sense that the amount payable by the insurer in case of the contingency stated in the policy occurring is limited to the loss that the insured will suffer. The insurance contract promises to keep the insured indemnified against the financial loss that he would suffer on account of the happening of the event.
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Life Insurance
Intended to provide Life Insurance protection over ones lifetime provides for payment of the assured amount upon the insureds death regardless of when it occurs.
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The
payment of assured sum is a certainty; only the time of the payment of the assured sum is an uncertainty
Ordinary Whole Life Insurance Limited Payment Whole Life Insurance Convertible Whole Life Insurance
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Endowment Insurance
Benefits
under the policy paid on the death of the life insured during the selected term or on his survival to the end of the term.
Normal durations ranging from 10 to 30 years or more; shorter term policies ranging from 3 to 10 years Single premium endowment insurance policies Money Back or Cash Back or Anticipated Endowment Insurance Policies
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Term Insurance
Insurance
protection for selected term only in case the insured person dies during the term, the benefits are payable. In case of his survival till the end of selected term, the policy normally expires without any benefit becoming payable May be regarded as temporary insurance premium for term insurance is relatively low.
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Annuities
Series
of periodic payments
Annuity
provider (insurer) agrees to pay the purchaser of annuity (annuitant) a series of regular periodical payments for a fixed period or during someones life time.
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There are groups of people who share something in common and are connected by some underlying similarity like occupation, profession, employment, social purposes or even entertainment can have a similar need for life insurance which can be met by a single insurance contract.
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These
categories of products that cover the risk of a contingency dependent on the life of a group of persons, come under the group life insurance.
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Conventional Groups
Employer Creditor
Employee Groups
Debtor Groups
Associations
of Self-employed Professionals
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Non-conventional Groups
Co-operative Trade
Societies
Unions Welfare Associations Non-government Organisations Voluntary Associations Charitable Trusts, etc.
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Non-packaged
Products
products with certain basic features like Endowmnet or Money-back. the customer to choose as per his needs and then expand it by rider benefits accident cover, critical illness cover, disability benefits, hospitalisation cover etc. cater to niche market and have profit potential.
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Basic Elements : (a) Risk coverage to provide lump sum amount to the family in the event of untimely death of the breadwinner Term Insurance or Temporary Insurance. (b) Savings lump sum amount is payable only if the insured survives till the end of the selected period; if death occurs during the period of insurance, nothing is payable Pure Endowment.
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Term
Insurance :
a contract for limited number of years payment only if death occurs during the term low cost / high risk coverage stricter underwriting rules and restrictions renewable feature and convertible feature increasing or decreasing Term Insurance
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Whole
Life Insurance
Risk coverage for the death of the insured- whenever it may happen No fixed term Variations Pure Whole Life Premium payable throughout the life of the insured till death. Risk coverage for duration of life amount payable on death Limited Payment Whole life Premium payable for limited / shorter period or till death if earlier risk coverage throughout life Premium rate is low than Term Insurance Provide permanent protection at moderate cost Convertible Whole Life Plan
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Endowment
agrees
to
pay the insurance money in the event of death of the insured during endowment term to pay the insurance money in the event of the insured surviving till the end of the endowment term
Economic concept decreasing term assurance and increasing investment Reserve value supplemented by Term Insurance Premium rates usually higher than Whole Life Plan Sound plan for various types of customers.
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Insurance
Two-year temporary insurance Convertible term insurance for 5-7 years option to convert into limited payment whole life or endowment assurance Bima Sandesh Return of premium on survival Bima Kiran Term insurance; Return of premium on survival free insurance cover for 10 years to the extent of 30% - 60% of the face value of policy Mortgage Redemption Assurance to cover outstanding loan under house mortgage.
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Whole
Life Plans
Whole Life Policy premiums payable for 35 years or age 80 years, whichever is later; insurance money payable on death Limited Payment Whole Life Policy Convertible Whole Life Policy Premiums payable upto age 70 of the insured limited payment option to covert at the end of 5 years into Endowment Plan
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Endowment Plans
Endowment
profits) Bhavishya Jeevan Policy (with profits) first 5 years premium are quite high from 6th year scaled down to almost 1/3rd. Jeevan Mitra (Double Cover or Triple Cover) Jeevan Griha (Double Cover or Triple Cover) Low cost without profit endowment assurance face value paid on maturity New Jan Raksha (with profits) Jeevan Shree (without profits but with guaranteed addition) limited premium paying period keyman insurance
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Jeevan Pramukh Asha Deep II (with profits) Endowment Plan with riders to cover four serious illnesses viz. cancer, paralytic stroke leading to permanent disability, kidney failure (both kidneys), and cardiac bye-pass surgery except 1st year 50% of S.A. premium waiver annuity of 10% of S.A. till maturity Balance 50% of S.A. on death or maturity with bonus Marriage Endowment or Education Annuity (with profits) no immediate payment on death payment in lumpsum in case of marriage payment in half yearly instalments over 5 years in Education Annuity from date of maturity only. Money back plans
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Special Plans
For
Children
Children Deferred Assurance Plans New Children Deferred Assurance Plan Jeevan Balya Jeevan Kishore Childrens Money Back Plan Jeevan Anurag
For
Disabled Children
Jeevan
Asha II
Endowment Assurance with medical benefit rider 2% of face value paid every 2 year for medical checkup Reimbursement of expenses upto 20% to 50% of face value of policy for minor / major surgeries On death full S.A.
Joint
Life Policies
Jeevan Saathi Jeevan Saritha benefit of joint life and last survivorship annuity apart from lump sum payment on death or maturity
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Plan
fund (complete security) Balanced fund (moderate risk) Risk fund (high risk investments)
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Investment
Pattern
Equity Debt 80 % 80 % Liquid 20 % 20 %
Secured Balanced
Risk
75 %
25 %
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Policy
holder to select a fund Switch over twice during the term subject to minimum gap of 2 years Cost of switching over 2% of the current bid value of the fund
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Standard Life
Endowment Assurance Plan Money Back Plan payment of cash lump sum at 5 yearly intervals Group Insurance Policy specified group for a term of one year
Endowment
Assurance Plans
ICICI Pru Single Premium Bond savings with life cover fixed term plan of 5 or 10 years
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ICICI
Fixed term policy Policyholder can accumulate funds for future requirements on a regular basis i.e. Childrens education, marriage etc. Extended Term Assurance cover for 5 years for 50% of S.A. without payment of premium
Add-Ons
or Riders
and disability benefit critical illness benefit major surgical assistance level term assurance
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Add-Ons
Accident and Disability benefit Major surgical assistance Level Term Insurance
ICICI
Three-in-one combining savings, liquidity and protection Term of 15 or 20 years Survival benefit at regular intervals
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Add-ons or Riders
Accident
and Disability benefit Critical illness benefit Major surgical assistance Level Term Insurance
Protection
Plans
Risk Coverage No maturity benefits in case of single premium level term policy
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Premium for a fixed duration or in a single lump sum Benefit of insurance cover as also investment to help savings grow bonds / securities Loan facility upto 90% of the total policy value on payment of interest at fixed rate Facility of withdrawal from 3rd policy anniversary can close the plan earlier no surrender charges after 4th year.
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Flexi
Plan
fixed term policy with periodic payback at fixed intervals offers flexibility to choose between the investment option, automatic premium payment, duration of the plan etc.
Other
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Flexi
Higher return and security to family Members to keep paying premium and enjoy the benefit of savings and life insurance Offers the flexibility to choose the premium payment investment option, duration etc.
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Group
Group
Group
Term
Care Plan
Term Insurance Plan life cover with return of premium on maturity Life insurance cover at low cost Two premium payment options
regular
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Option
death benefit Accidental permanent total / partial disability benefit Waiver of premium benefit
Health
Critical
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Risk
Care Plan
a pure term insurance plan very economical offers cover at the lowest possible cost no survival benefit
Life
a life time endowment plan with profits 4 different plan type economy, protect health and total plan
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Save
Care Plan
Endowment plan with profits for a specified period to meet planned expenditures like education / wedding of children Comes in 4 types Economy Single Premium Plan, Economy Plan, Protect Plan, Health Plan
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Two
other forms
Level Term Insurance provides specified amount of coverage for the entire period of policy Decreasing Term Life Insurance
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of whole life, the pure insurance part (the Term portion) is separated from the investment (cash portion) Investment portion invested in money market funds Cash value portion is set up as an accumulation fund to which investment income is credited
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Death
benefit (Term Insurance) is paid out of accumulation fund The cash value of Universal Life Insurance grows at variable rate The insured can vary his annual death benefit and the annual premium Provision for making partial surrender and take policy loan against cash value When earnings are good, policy owner can put more money in the cash portion of the policy Normally there is guaranted minimum interest rate A few other options
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Variable
Life Insurance
A form of whole life insurance Term portion; premium towards administrative expenses; part towards investment or cash value portion The insured may select to invest the funds in various investments : stocks, bonds, MFs. He may only choose from investment vehicles from the insurance companies portfolio. Option to switch investment vehicles a few times It is expensive commission and service fee is high. Value of death benefit may fluctuate up or down depending on the performance of the investment portion. However, death benefit can never fall below a defined level.
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Whole
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Progressive
Protection Policy
Designed to adapt to changing circumstances Lump sum in the event of death / terminal illness No cash-in-value; purely for protection; No investment Provision for increase / decrease in cover at any time other than the first year Option to have the policy increase automatically every year Option for mode of payment of premium
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THANK YOU
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