Winter Internship Project Title

“ANALYSIS OF RISK FACTORS IN INSURANCE & TAX PLANNING”

Submitted By:-

Varsha Hemnani

PGDM (2009-2011)

Under the Supervision of Company Guide:

Mr. Nilesh Nishant –Assistant Sales manager (metlife, Pune)

Indira School of Career Development

ISCD

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 ACKNOWLEGEMENT

It has been an honour to work with Metlife. The experience has been extremely pleasurable as
this organization has provided me with invaluable knowledge, ideas and a better understanding
of different sectors.

At first, I would like to thank Mr. Nilesh Nishant (Assistance Sales manager of the
company) for providing me constant guidance and support. The clarity that was lent to the
project was all due to him.

I also thank all the office employees at the Pune branch for making the environment at work
extremely conducive and for also being very approachable.

Family and friends deserve special thanks for rendering their support at each stage of my project.
Without their cooperation, this project would not have been successful.

And finally, I would like to thank Indira School of Career Development, for providing me all
the requisite knowledge and the opportunity to work for this Company.

Varsha Hemnani

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 DECLARATION

I varsha hemnani, hereby declare that this project is the record of

authentic work carried out by me during the academic year 2009- 11

and has not been submitted to any other University or Institute

towards the award of any degree

Varsha Hemnani

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TABLE OF CONTENTS

4
ACKNOWLEDGEMENT………………………………………………………….......
2

EXECUTIVE SUMMARY……………………………………………………………...
5

COMPANY PROFILE……………………………………………………………….....
7

SCOPE OF THE PROJECT…………………………………………………………...

16

OBJECTIVE OF THE PROJECT……………………………………………………. 18

METHODOLOGY…………………………………………………………………….....
18

PROJECTS IN DETAIL ……………………………………………………..............

19

Analysis of Risk Factors in Insurance.......................................

19

Tax
Planning.....................................................................................
33

LEARNINGS…………………………………………………………………………......
48

BIBLIOGRAPHY………………………………………………………………………..
49

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6
 EXECUTIVE SUMMARY

The objective of this project was to ascertain the dynamics of insurance industry with respect to
Tax Planning and Risk Factors. Under this project reports have been prepared for the company.
It covers the research report on the following.

TAX PLANNING

This project was being prepared for the company and it covers the following the aspects:

 Qualitative Tax Planning tips for the customers

 Different kinds of benefits of Tax Planning

 Making people aware of how they can save tax using different types of investments
instruments available in the market.

INSURANCE SELLING PROCESS

A comprehensive report on Insurance industry was prepared and it covered following aspects:

 Insurance and its working

 Regulatory Authorities

 Procedure for registering a Mutual Fund with SEBI

 Types of Insurance products and Schemes

 Investments in Insurance

 Companies operating in India

 Insurance Industry scenario 2008-09

ANALYSIS OF RISK FACTOR IN INSURANCE

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This research was done to find out the scenario the overall investment industry in respect to risk.
With a comprehensive market research and information from other sources a report was prepared
on how important does the risk factor play in investment products and what types of risk are
involved and covered in the investment of insurance product.

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 ABOUT THE Industry

1.2.1Background of insurance

Life Insurance in its modern form came to India from England in the year
1818. Oriental Life Insurance Company started by Europeans in Calcutta was
the first life insurance company on Indian Soil. All the insurance companies
established during that period were brought up with the purpose of looking
after the needs of European community and Indian natives were not being
insured by these companies. However, later with the efforts of eminent
people like Babu Muttylal Seal, the foreign life insurance companies started
insuring Indian lives. But Indian lives were being treated as sub-standard
lives and heavy extra premiums were being charged on them, Bombay
Mutual Life Assurance Society heralded the birth of first Indian life insurance
in the year 1870, and covered Indian lives at normal Com ran no rates.

Insurance is an Rs 450 billion industry in Indian. The value of the market is determined by gross
premium Incomes. The life insurance segment writes about 80% of the overall market value.
Indian Insurance market was at its all time high 1 n 2003 with a grow thing of about 17 .4% over
the pervious year. Since 2001 Insurance is growing at the rate of 15-20 % annually. The growth
in the 'Insurance industry is affected by volatility in real estate rates, GDP rates and long term
'Interest rates. Fluctuations in exchange rates also affect the growth in this sector, The gross
premium as a percentage of the GDP has gone up from 2.3 in the year 2000 to 4.8 in 2006.
Together with banking services, it adds about 7% to the country's GDP.

Some of the important milestones in the life insurance business in India are

9
British –India Period

1818 : Oriental Life Insurance Company, the first life insurance company on Indian soil started
functioning.

1870 : Bombay Mutual Life Assurance Society, the first Indian life 'Insurance
company started 'Its business,

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 to by the Insurance Act with the objective of
protecting the 'Interests of the insuring pubic.

1956 : 245 Indian and foreign insurance and provident societies are taken
over by the central government and nationalized. LIC formed by an Act of
Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 chores from
the Government of India.

Liberalization of Indian Insurance

1994: Insurance sector invited private participation to induce a spirit of

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competition amongst the various insurers and. to provide a choice to the
consumers.

1997: Insurance regulator IRDA was set up as there felt the Feed:

To set up an independent regulatory body, that provides greater autonomy

to insurance companies in order to improve their performance, In the first
year of insurance market liberalization (2001) as much as 16 private sector
companies including joint ventures with leading foreign insurance companies
have entered the Indian insurance sector. Of this, 10 were under the life
insurance category and six under general insurance. Thus in all there are 25
players (12-life insurance and l3-general insurance) in the Indian insurance
industry till date.

3Company Profile

MetLife Begins

The origins of Metropolitan Life Insurance Company (MetLife) go back to

1863, when a group of New York City businessmen raised $100,000 to found
the National Union Life and Limb Insurance Company.

The new company insured Civil War sailors and soldiers against disabilities
due to wartime wounds, accidents, and sickness. In 1868, after several
reorganizations and five difficult years, the company decided to focus on the
life insurance business. A new company was chartered to sell "ordinary"
insurance to the middle class. The founders chose the name because they
had been most successful in New York City, or the "Metropolitan" District.

11
This new venture also faced difficulties. A severe business depression that
began in the early 1870s rapidly put half of the 70 life insurance companies
operating in New York State out of business. Only very large, long-
established ordinary life insurance companies remained strong. Policy lapses
over successive years forced the company to contract until it reached its
lowest point in the late 1870s.

In 1879, MetLife President Joseph F. Knapp turned his attention to England,

where "industrial" or "workingmen's" insurance programs were widely
successful. American companies had not bothered to pursue industrial
insurance up to that time because of the expense involved in building and
sustaining an agency force to sell policies door to door and to make the
weekly collection of five- or ten-cent premiums.

By importing English agents to train an American agency force, MetLife

quickly transferred successful British methods for use in the United States.
By 1880, the company was signing up 700 new industrial policies a day.
Rapidly increasing volume quickly drove down distribution costs, and the
new program proved immediately successful.

The MetLife agent became an important person in the lives of these striving
families. Manuals instructed agents to call at a home at the same time each
week to ensure familiarity and contact. In the process of collecting
premiums, insurance agents listened to the problems, concerns, and hopes
of their clients. So successful was this approach that by 1909, MetLife
became the nation's largest life insurer in terms of insurance in force, a
leadership position we continue to hold today in North America.

Company profile

12
The "everyone" in MetLife’s vision took on added meaning in 2000 as the
company welcomed an important new constituency: shareholders. MetLife
transformed itself from mutual to stock ownership in April of that year
through a demutualization and initial public offering that was completed in
just 18 months after Board authorization.

The year 2001 was a true test of the qualities that define MetLife. The
company’s core values, brought to life in what MetLife does every day, were
no more evident than in MetLife’s response to the tragic events that shook
our nation on September 11. MetLife responded quickly. The company
served its customers, communities and employees during this difficult time.
At the same time, MetLife invested $1 billion in a broad array of publicly-
traded common stocks.

In 2001, MetLife was the first insurance company to establish a financial

holding company with a nationally chartered bank. Leveraging its
unparalleled distribution channels, MetLife entered the retail-banking arena
with the launch of MetLife Bank, making it an easy and convenient way for
MetLife’s customers to realize their financial goals.

MetLife announced in 2002 that it would be continuing its long-standing

relationship with Snoopy and the rest of the PEANUTS® characters. The
company signed a new contract that would allow the characters to appear in
MetLife’s domestic and international advertising for the next 10 years.

The sale of State Street Research & Management Company to BlackRock,

Inc. was announced in 2004. In line with MetLife’s strategy to focus on core
business growth, the sale benefited many of the company’s Individual and
Institutional Business clients who held investments through State Street
Research, as it became part of one of the largest publicly traded investment
management firms in the U.S.

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The company’s stated long-term goal is to become the recognized leader
throughout the world for relationship building, connectedness and caring in
financial services – in the "giant league" with over 100 million people as
MetLife customers by the year 2010.

MetLife took a major step toward realizing this goal in 2005, when it acquired
Travelers Life & Annuity and substantially all of Citigroup’s international
insurance businesses for $12 billion. Completed on July 1, 2005, the
Travelers acquisition made MetLife the largest individual life insurer in North
America based on sales, the second largest provider of retail annuities and
the largest provider of institutional annuities.

Working Mother magazine honored MetLife in 2005 by naming the company

one of the "100 Best Companies for Working Mothers," for the seventh
consecutive year. In 2005, the company was named to DiversityInc.’s list of
the Top 50 Companies for Diversity. In early 2006, MetLife was also named
to the National Association for Female Executives’ annual list of Top 30
Companies for Executive Women.

In 2006, MetLife appointed C. Robert (Rob) Henrikson chairman of the board

of directors, president and chief executive officer of MetLife, Inc. Henrikson
was appointed CEO on March 1, 2006 and chairman of the board on April 25,
2006.

Henrikson has been the architect of an aggressive growth strategy that

included double-digit organic growth, the divestiture of non-core businesses,
and an M&A strategy which resulted in market leadership in all of MetLife’s
core product lines. Before it was commonly talked about, Henrikson
recognized the opportunities presented by the changing demographics in a
global marketplace and set the company on a course for continued success
by developing innovative products and services and strengthening the
company’s distribution power in the U.S. and 16 markets in Asia Pacific, Latin
America and Europe.

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Today, a time when consumers are feeling a greater financial burden than
ever before, MetLife is helping millions of customers create their own
personal safety net. At no time in the company’s history has MetLife been as
well positioned to capitalize on its history, its reputation for security and
stability, and its innovative products and services as it is today.

In the future, MetLife will continue to grow its business with focus, innovation
and profitability. This will be accomplished by drawing on the reservoir of
history that has produced an enduring set of corporate values based on more
than 138 years of integrity, social responsibility, strong leadership and
financial strength.

Product Profile

1.Met Suraksha Plus

nsure your family stays secure...always!

Home loans, EMIs and other such liabilities are a regular feature in all of our
lives. Yet none of us want the burden of these payments to fall on our loved
ones. MetLife’s protection plans act as that all-important shelter,
guaranteeing you complete peace of mind. Learn More...

2. Met Health Care

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A smart health plan for you and your family.

The only thing certain about life is its uncertainty!! More so in today's day &
age. This uncertainly coupled wtih constant anxiety and pressure could
affect your

health. As such you can never be sure when a health condition may come
calling on you. To ensure you are well protected to face any health condition
that could befall you, MetLife presents- Met Health Care, a simple health
insurance policy with unique and smart advantage for you and your family.
Learn More...

3. Met Pension – Par

At the end of the day, it's not about the years in your life, but the life in your
years.

Retirement means new beginnings, new joys and the possibility to realize the
unfulfilled dreams of your youth. However, it’s also a time of anxiety, a time
when financial independence is of upmost importance.

MetLife’s comprehensive retirement plans ensure a financially secure

retirement and guarantee your peace of mind. So that you can make your
dreams a reality, anytime, anywhere. Learn More...

Met Growth Super.

4. Met Vishwas - Rural Met Suvidha – Rural

Dream big dreams. They have a funny way of coming true.

What is life without a dream? Be it that grand wedding for your children, a
house or a car. MetLife savings plans help you realize your dreams and

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protect you and your loved ones from life’s uncertainties. Keep your savings
growing and ensure complete peace of mind. Learn More...

Met Sukh

5. Met Bhavishya

Free the child’s potential, and you will transform him into the world”

- Maria Montessori (Italian physician and educator, 1870-1952)

Security for your child’s future, peace of mind for you.

With educational expenses rising by the day, future-proofing your child’s

tomorrow is now more critical than ever. MetLife’s children’s insurance plans
offer you that assurance, helping you ensure that there are no surprise
roadblocks down the road. Learn More...

6. Met Easy Plus

Get the best of both worlds. Protect your family and help your money do a
little more, all at once.

MetLife’s Unit-Linked Insurance Plans ensure systematic enhancement of

your wealth. Be it higher returns or the right blend of protection and wealth
optimization, they help you ensure the right choice and peace of mind.

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18
 SCOPE OF THE PROJECT

MetLife India Incorporation provides exclusive services to all our clients and financial
intermediaries. Its sales people, research analysts, and investment bankers provide unique
products and premier facilitation. It provides product innovation, research and advice, and
comprehensive access to the worlds’ capital markets.

MetLife India Incorporation does an in-depth research for its clients and provides them with the
analysis and solutions. In today’s scenario research reveals hidden facts which facilitate
forecasting the future.

As the Indian market expands, information relating to the companies, sector and other countries
has acquired greater significance than at anytime in the past. As the companies move from local
to national and to global, their managers need information much faster than at any time earlier.
With the disposable income of the buyers growing faster and the investment pattern is also
changing accordingly, so in today’s scenario research is tool with the help of which hidden facts
can be revealed and trends can be observed. Rate of growth in a particular sector can be
forecasted which will help in decision making.

Research played a key role in recognizing the opportunities and threats and continuously
monitoring changes in the environment and identifying and researching different aspects such as
demographics, household patterns etc. that have an impact on the market.

Analyzing business behavior, industries and different sectors helps in knowing the level of
growth that is expected so that investment can be made in that particular sector and the company.

In the recent day’s companies have started outsourcing it and getting the information easily.
MetLife also provides its clients with the detailed research reports along with the analysis.

This project involves detailed research on various sectors, industries, companies, and countries,
and consequently preparing the research reports for the customers of the company. This will help
the company to maintain its current business with the existing preferred partners as well as create
new opportunities through the new partners, thereby leading to better market penetration of its
products.

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 OBJECTIVE OF THE PROJECT

The objective of the project was to do detailed research on the requirements of the client of the
company and to give them the best solution to their problem.

RESEARCH METHODOLOGY

The first step of the project was to get a clear understanding of the products and services that
MetLife offers. This is a pre-requisite for this project, as would be for any, so as to get a better
understanding about the kind of products and services that MetLife offers to its customers. It
helped during the entire project because a clear idea was generated about the entire industry, how
it works, and what company’s offers and most importantly, how it helps the customers.

After understanding the company’s services and the level of research that had to be done,
following method was followed in order to get the most relevant information:-
• Understand the research topic and the field or the sector on which research was to be
done.
• Identify all the aspects on which information was to be found out.
• Collect all the information related to the topic and all the latest facts and figures relating
to it, through internet. Survey is also conducted wherein 200 people between all the age
group were contacted to gather information and opinion relating to the topic.
• At last compile all the information and prepare a proper research report.

PROJECTS IN DETAIL

ANALYSIS OF RISK FACTORS IN INSURANCE

The project dealt with an in-depth research on the risk factors in insurance industry. After doing
a detailed study on the industry various aspects were revealed.

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INTRODUCTION

People seek security. A sense of security may be the next basic goal after food, clothing, and
shelter. An individual with economic security is fairly certain that he can satisfy his needs (food,
shelter, medical care, and so on) in the present and in the future. Economic risk (which we will
refer to simply as risk) is the possibility of losing economic security. Most economic risk derives
from variation from the expected outcome.

What is Risk?

 Risk, in traditional terms, is viewed as a ‘negative’.

 Webster’s dictionary, for instance, defines risk as “exposing to danger or hazard”.
 The Chinese symbols for risk, reproduced below, give a much better description of risk.

One measure of risk, used in this study note, is the standard deviation of the possible outcomes.
As an example, consider the cost of a car accident for two different cars, a Porsche and a Toyota.
In the event of an accident the expected value of repairs for both cars is 2500. However, the
standard deviation for the Porsche is 1000 and the standard deviation for the Toyota is 400. If the
cost of repairs is normally distributed, then the probability that the repairs will cost more than
3000 is 31% for the Porsche but only 11% for the Toyota.

Modern society provides many examples of risk. A homeowner faces a large potential for
variation associated with the possibility of economic loss caused by a house fire. A driver faces a
potential economic loss if his car is damaged. A larger possible economic risk exists with respect
to potential damages a driver might have to pay if he injures a third party in a car accident for
which he is responsible.

Historically, economic risk was managed through informal agreements within a defined
community. If someone’s barn burned down and a herd of milking cows was destroyed, the
community would pitch in to rebuild the barn and to provide the farmer with enough cows to
replenish the milking stock. This cooperative (pooling) concept became formalized in the
insurance industry. Under a formal insurance arrangement, each insurance policy purchaser
(policyholder) still implicitly pools his risk with all other policyholders. However, it is no longer
necessary for any individual policyholder to know or have any direct connection with any other
policyholder.

What is Insurance?

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Insurance in its basic form is defined as “ A contract between two parties whereby one party
called insurer undertakes in exchange for a fixed sum called premiums, to pay the other party
called insured a fixed amount of money on the happening of a certain event."

In other words, Insurance is an agreement where, for a stipulated payment called the premium,
one party (the insurer) agrees to pay to the other (the policyholder or his designated beneficiary)
a defined amount (the claim payment or benefit) upon the occurrence of a specific loss.

In simple terms it is a contract between the person who buys Insurance and an Insurance
company who sold the Policy. By entering into contract the Insurance Company agrees to pay
the Policy holder or his family members a predetermined sum of money in case of any
unfortunate event for a predetermined fixed sum payable which is in normal term called
Insurance Premiums.

Insurance is basically a protection against a financial loss which can arise on the happening of an
unexpected event. Insurance companies collect premiums to provide for this protection. By
paying a very small sum of money a person can safeguard himself and his family financially
from an unfortunate event.

For Example if a person buys a Life Insurance Policy by paying a premium to the Insurance
company , the family members of insured person receive a fixed compensation in case of any
unfortunate event like death.

There are different kinds of Insurance Products available such as Life Insurance, Vehicle
Insurance, Home Insurance, Travel Insurance, Health or Mediclaim Insurance etc.

An overview of India’s insurance market

Insurance in India used to be tightly regulated and monopolized by state-run insurers. Following
the move towards economic reform in the early 1990s, various plans to revamp the sector finally
resulted in the passage of the Insurance Regulatory and Development Authority (IRDA) Act of
1999. Significantly, the insurance business was opened on two fronts. Firstly, domestic private-
sector companies were permitted to enter both life and non-life insurance business. Secondly,
foreign companies were allowed to participate, albeit with a cap on shareholding at 26%. With
the introduction of the 1999 IRDA Act, the insurance sector joined a set of other economic
sectors on the growth march.
During the 2003 financial year1, life insurance premiums increased by an estimated 12.3% in
real terms to INR 650 billion (USD 14 billion) while non-life insurance premiums rose 12.2% to
INR 178 billion (USD 3.8 billion). The strong growth in 2003 did not come in isolation. Growth
in insurance premiums has been averaging at 11.3% in real terms over the last decade.

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Insurance development and potential

Notwithstanding the rapid growth of the sector over the last decade, insurance in India remains
at an early stage of development. At the end of 2003, the Indian insurance market (in terms of
premium volume) was the 19th largest in the world, only slightly bigger than that of Denmark
and comparable to that of Ireland.2 This was despite India being the second most populous
country in the world as well as the 12th largest economy. Yet, there are strong arguments in
favour of sustained rapid insurance business growth in the coming years, including India’s robust
economic growth prospect and the nation’s high savings rates.3 The dynamic growth of
insurance buying is partly affected by the (changing) income elasticity of insurance demand. It
has been shown that insurance penetration and per capita income have a strong non-linear
relationship.4 Based on this relation and other considerations, it can be postulated that by 2014
the penetration of life insurance in India will increase to 4.4% and that of non-life insurance to
0.9% (Table 2.1).

India in the international context

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The Indian insurance market is the 19th largest globally and ranks 5th in Asia, after Japan, South
Korea, China and Taiwan.6 In 2003, total gross premiums collected amount to USD 17.3 billion,
representing just under 0.6% of world premiums. Similar to the pattern observed in other
regional markets, and reflecting the country’s high savings rate, life insurance business
accounted for 78.5% of total gross premiums collected in the year, against 21.5% for non-life
insurance business.

Insurance density

Another measure of insurance development is per capita spending on insurance, i.e. insurance
density. By this measure, India is among the lowest-spending nations in Asia in respect of
purchasing insurance (Figure 3.3). An average Indian spent USD 16.4 on insurance products in
2003, comprising USD 12.9 for life insurance and USD 3.5 for non-life insurance products. The
level
of spending is comparable to that of the Philippines (USD 14.6 in total), Indonesia (USD 14.5)
and Sri Lanka (USD 12.5). It lags behind China, which spent USD 36.3 per capita on insurance
products in 2003. One factor that has been slowing down the improvement of insurance density

24
is India’s relatively high population growth rate, which has averaged 1.7% over the past ten
years.

Demand elasticity and growth potential

India’s low level of insurance penetration and density has to be viewed in the context of the
country’s early stage of economic development. Per capita income in India is currently at around
USD 600 but is expected to increase rapidly, which could bring in an era of accelerated demand
for insurance. International experience tends to suggest that demand for insurance will take off
once per capita income has surpassed the USD 1000 mark (Figure 3.4). This income level is
deemed high enough for households to consider insurance protection, particularly as many
people begin to own their homes and cars. The empirical relationship between insurance demand
elasticity and per capita income can be characterized as a bell-shaped curve. Elasticity remains
relatively low at a low income level but increases at an accelerated rate once it has passed the
USD 1000 level. The following chart depicts the current position of different emerging markets
as well as their expected position by 2013.

25
Market concentration and foreign market share

It is not surprising that the Indian market is highly concentrated, given that de-monopolization of
the insurance business only started in earnest from 2000. Currently, the insurance market in India
is still heavily dominated by the Life Insurance Corporation of India (LIC) and the four state-
owned non-life insurers.7 They respectively held 87% of the life insurance market and 83% of
the non-life market in 20038. It can be seen from Table 3.1 that India is one of the Asian
insurance markets with the highest concentration of business, in part reflecting the still dominant
positions of these former monopolies. On a positive note, the high level of concentration will
offer larger companies the opportunity to reap benefits from economies of scale and scope,
although the lack of a profit maximization focus in public-sector companies could be a
counteracting force.

26
While the insurance business is highly concentrated in India, the share of foreign companies is
low (Table 3.2). Since there is a 26% cap on foreign shareholdings, none of the Indian insurers
can be considered as “majority foreign-owned”. Nevertheless, for the sake of comparison, the
share of private-sector companies which mostly have foreign partnerships has been used as a
proxy. In these terms, the share of foreign insurers in India is estimated at 13% and 14%
respectively in the life (new business) and non-life insurance sectors for the 2003 financial year.9
India differs from other Asian markets in the sense that its life insurance market is still heavily
dominated by indigenous players, partly reflecting the fact that de-monopolization only took
hold in 2000. In contrast, most Asian life insurance sectors are already heavily populated by
foreign insurers. Conversely, foreign non-life insurers have achieved penetration in India similar
to those in other Asian markets. It can be expected that foreign insurance companies will
continue to expand their market share in India in the coming years, notwithstanding the fact that
public sector insurers are also proactively strengthening their business strategies to fight rising
competition.

27
Risk Types

The risk (variance) on any individual investment can be broken down into two sources. Some of
the risk is specific to the firm, and is called firm-specific, whereas the rest of the risk is market
wide and affects all investments.
The risk faced by a firm can be fall into the following categories –
1) Project-specific; an individual project may have higher or lower cash flows than
expected.
2) Competitive Risk, which is that the earnings and cash flows on a project can be affected
by the actions of competitors.
3) Industry-specific Risk, which covers factors that primarily impact the earnings and cash
flows of a specific industry.
4) International Risk, arising from having some cash flows in currencies other than the one
in which the earnings are measured and stock is priced
5) Market risk, which reflects the effect on earnings and cash flows of macro economic
factors that essentially affect all companies

CHARACTERISTICS OF AN INSURABLE RISK

28
  The potential loss must be significant and important enough that substituting a known
insurance premium for an unknown economic outcome (given no insurance) is desirable.
 The loss and its economic value must be well-defined and out of the policyholder’s
control.
 The policyholder should not be allowed to cause or encourage a loss that will lead to a
benefit or claim payment.

EXAMPLES OF INSURANCE

In many places, to drive a car legally, you must have liability insurance, which will pay benefits
to a person that you might injure or for property damage from a car accident. You may purchase
collision insurance for your car, which will pay toward having your car repaired or replaced in
case of an accident. You can also buy coverage that will pay for damage to your car from causes
other than collision, for example, damage from hailstones or vandalism.

Insurance on your residence will pay toward repairing or replacing your home in case of damage
from a covered peril. The contents of your house will also be covered in case of damage or theft.
However, some perils may not be covered. For example, flood damage may not be covered if
your house is in a floodplain.

At some point, you will probably consider the purchase of life insurance to provide your family
with additional economic security should you die unexpectedly. Generally, life insurance
provides for a fixed benefit at death. However, the benefit may vary over time. In addition, the
length of the premium payment period and the period during which a death is eligible for a
benefit may each vary. Many combinations and variations exist.

When it is time to retire, you may wish to purchase an annuity that will provide regular income
to meet your expenses. A basic form of an annuity is called a life annuity, which pays a regular
amount for as long as you live. Annuities are the complement of life insurance. Since payments
are made until death, the peril is survival and the risk you have shifted to the insurer is the risk of
living longer than your savings would last. There are also annuities that combine the basic life
annuity with a benefit payable upon death. There are many different forms of death benefits that
can be combined with annuities.

Disability income insurance replaces all or a portion of your income should you become
disabled. Health insurance pays benefits to help offset the costs of medical care, hospitalization,
dental care, and so on.

Employers may provide many of the insurance coverage are listed above to their employees.

29
Categories of Risk

The thing you can or cannot change that affect your insurance.

Who Are You? (Things you cannot change)

 Age
 Medical History
 Gender

The Choices You Have Made (Traits you can control)

 Where you live, own property or drive (city/state)

 Property type and value
 Safety precautions/features on your property
 Profession
 Grades in school
 Driving record and habits
 Personal habits (smoking, drinking)
 Marital status
 Number of children or dependents
 Credit history

Faults of Another (Incidents you cannot change)

 Accident / Crash
 Damage to your property
 Loss of property, injury or death
 Theft of your property
 Credit history of spouse or dependents

CONCLUSION

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 India is among the most promising emerging insurance markets in the world. Its current premium
volume of USD 18 billion has the potential to increase to USD 90 billion within the next decade.
In particular, life insurance, which currently makes up 80% of premiums, is widely tipped to lead
the growth. The major drivers include sound economic fundamentals, a rising middle-income
class, an improving regulatory framework and rising risk awareness. The examples have been
restricted to insurance, though many of the concepts can be applied to any situation where
uncertain events create financial risks.

Important steps have thus been already taken, but there are still major hurdles to overcome if the
market is to realize its full potential. To begin with, India needs to further liberalize investment
regulations on insurers to strike a proper balance between insurance solvency and investment
flexibility. Furthermore, both the life and non-life insurance sectors would benefit from less
invasive regulations. In addition, price structures need to reflect product risk. Obsolete
regulations on insurance prices will have to be replaced by risk-differentiated pricing structures.

Finally, the largely underserved rural sector holds great promise for both life and non-life
insurers. To unleash this potential, insurance companies will need to show long-term
commitment to the sector, design products that are suitable for the rural population and utilize
appropriate distribution mechanisms. Insurers will have to pay special attention to the
characteristics of the rural labor force, like the prevalence of irregular income streams and
preference for simple products, before they can successfully penetrate this sector.

SELLING PROCESS AT TATA-AIG

Selling Process includes various types of steps which helps me to achieve desired results.

• Tax Planning.
• Understanding of Various Concepts Related to Insurance.
• Need Base Analysis Of Customers.
• Offering Appropriate Solutions.

TAX PLANNING

What is Income Tax?

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 Income Tax is all income other than agricultural income levied and collected by the central
government and shared with the states. According to Income Tax Act 1961, every person, who is
an assesses and whose total income exceeds the maximum exemption limit, shall be chargeable
to the income tax at the rate or rates prescribed in the finance act. Such income tax shall be paid
on the total income of the previous year in the relevant assessment year.

What is Tax Planning?

Tax Planning in India is a basic duty of every person paying income tax, which should be
followed diligently. Tax planning in India involves the selection of the right tax saving
instruments and making proper investments.

The amount of the tax to be paid is calculated on the nature of investments made, income earned,
and the quantum of other incomes like salary, rent from property, interest etc. There are many
deductions and exemptions applicable on the net taxable amount, depending upon the source of
income. To take advantage of these facilities tax planning is necessary. Moreover, the annual
budget of the government should be taken into consideration before planning as tax plans are
often changed.

Steps in Tax Planning:

There are three steps in Tax Planning India which would aid a person in making prudent tax plans
to reduce their income tax liability and ensure a better tomorrow by making compulsory savings by
investing in safe government schemes. These three steps in tax planning are:

1. Calculating taxable income.

2. Calculating tax payable on gross taxable income for the entire financial year.
3. To either pay the tax without tax planning or minimize tax through planning.

Tax Slabs in India:

In India, Individual income tax is a progressive tax with three slabs.

Tax Slabs are as follows:

• No income tax is applicable on all income up to Rs. 150,000 per year. (Rs. 180,000 for
women and Rs. 2,25,000 for senior citizens)
• From 150,001 to 300,000: 10% of amount greater than Rs. 150,000.
• From 300,001 to 500,000: 20% of amount greater than Rs. 300,000.

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 • Above 500,000: 30% of amount greater than Rs. 500,000.
• Education Cess on Tax Amount – 3%.
• A 10% surcharge (tax on tax) is applicable if the taxable income (taking into
consideration all the deductions) is above Rs. 10 lakh.

Deductions from Taxable Income:

Income Tax Act in India provides certain deductions from Taxable Income for various kinds of
investments under various sections. For example:

Section 80C Deductions

Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt.
The total limit under this section is Rs. 100,000 which can be any combination of the below:

• Contribution to Provident Fund or Public Provident Fund

• Payment of life insurance premium
• Investment in pension Plans
• Investment in Equity Linked Savings schemes (ELSS) of mutual funds
• Investment in specified government infrastructure bonds
• Investment in National Savings Certificates (interest of past NSCs is reinvested every
year and can be added to the Section 80 limit)
• Payments towards principal repayment of housing loans. Also any registration fee or
stamp duty paid.
• Payments towards tuition fees for children to any school or college or university or
similar institution. (Only for 2 children)

Section 80D: Medical Insurance Premiums

Medical insurance, popularly known as Mediclaim Policies, provide deduction up to Rs 30,000.

This deduction is additional to Rs.100,000 savings. For senior citizens, the deduction up to Rs.
20,000 is allowable. This deduction is available for premium paid on medical insurance for
oneself, spouse, parents and children. It is also applicable to the cheques paid by proprietor
firms.

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Interest on Housing Loans

For self occupied properties, interest paid on a housing loan up to Rs 150,000 per year is exempt
from tax. However, this is only applicable for a residence constructed within three financial years
after the loan is taken and also the loan if taken after April 1, 1999.

TAX PLANNING TIPS

1. Utilise the entire Section 80C deduction

Under Section 80C, the maximum deduction available is Rs 100,000 pa. Ideally, salaried
individuals whose gross total income is equal to or more than Rs 250,000 should utilise the entire
Rs 100,000 limit.

Consider the case of an individual whose taxable income is Rs 600,000 and who only utilises
half of the available Rs 100,000 limit. He would end up paying an additional tax of Rs 15,450 as
opposed to an individual with the same taxable income, but has utilised the entire limit.

Also, at times, individuals make investments of over Rs 100,000 in Section 80C designated
avenues, since they fail to understand that the benefits are capped. For example, despite making
investments of Rs 70,000 in Public Provident Fund and Rs 40,000 in ELSS, the amount eligible
is only Rs 100,000.

Following investments/contributions qualify for Section 80C deductions,

 Public Provident Fund

 National Saving Certificate
 Accrued interest on National Saving Certificate
 Life Insurance Premium
 Tuition fees paid for children's education (maximum 2 children)
 Principal component of home loan repayment
 Equity Linked Savings Schemes (ELSS)
 5-Year fixed deposits with banks and Post Office

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2. Think beyond Section 80C

For salaried individuals whose gross total income exceeds Rs 250,000 pa, deductions under
Section 80C may not be sufficient to reduce the overall tax liability. In such cases they can
consider the following:

Home loan: Individuals intending to buy a house should consider opting for a home loan.
Interest payments of upto Rs 150,000 pa are eligible for deduction under Section 24.

Medical insurance: An individual who pays medical insurance premium for self or
spouse/dependent children is allowed a deduction of upto Rs 15,000 pa under section 80D.

An additional deduction of up to Rs 15,000 pa is allowed for premium payment made for

parents. In case the parents are senior citizens, then the maximum deduction allowed is Rs
20,000 per year.

Donations: Subject to the stated limits, donations to specified funds/institutions are eligible for
tax benefits under Section 80G.

Salaried individuals who plan to pursue higher education should avail of an education loan as the
entire interest is eligible for deduction under Section 80E. The loan can be for self, spouse or
child from an approved charitable institution or a notified financial institution.

3. Restructure the salary

Restructuring the salary and including certain components can go a long way in reducing the tax
liability. Unlike eligible investments which lead to an additional cash outflow, restructuring the
salary is a more 'efficient' means of claiming tax benefits. The following can form a part of one's
salary structure:

 Food coupons like Sodexo and Ticket Restaurant; they are exempt from tax up to Rs
60,000 per year.
 Medical expenses which are reimbursed by the employer are exempt up to Rs 15,000 per
year.

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  Individuals living in a rented accommodation should have House Rent Allowance (HRA)
as part of their salary.
 Transport allowance is exempt upto Rs 800 per month.
 Leave Travel Allowance (LTA) can be claimed twice in a block of four years for
domestic travel.

4. Claim tax benefits on house rent paid

Salaried individuals can claim rent paid by them for residential accommodation, if HRA doesn't
form part of their salary. This deduction is available under Section 80GG and is least of the
following:

 25% of the total income or,

 Rs 2,000 per month or,
 Excess of rent paid over 10% of total income

Please note that the above deduction will be denied if the taxpayer or his spouse or minor child
owns a residential accommodation in the location where the taxpayer resides or performs his
office duties.

5. Opt for a joint home loan

As discussed earlier, the principal repayment on a home loan is eligible for a deduction of up to
Rs 100,000 pa and the interest paid is eligible for a deduction of up to Rs 150,000 per year.

In cases where the home loan is for a substantial sum, it is not uncommon for the interest and
principal repayment to exceed the stated limit. To ensure that the tax benefit is optimally utilized,
an individual can consider opting for a joint loan with his spouse or parent or sibling.

This will ensure that both the co-owners can claim tax deductions in the proportion of their
holding in the loan. The co-owner falling in the higher tax bracket should hold a higher
proportion of home loan to ensure that the tax benefits are maximized.

BENEFITS OF TAX PLANNING

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 As can be seen in the table above, making use of the available tax deductions can go a long way
in helping individuals accumulate wealth.

Various Concepts Related to Insurance:

Insurance:

Insurance is a policy from a large financial institution that offers a person, company, or other
entity reimbursement or financial protection against possible future losses or damages. It is a
contract between two parties whereby one party called insurer undertakes in exchange for a fixed
sum called premiums, to pay the other party called insured a fixed amount of money on the
happening of a certain event. Insurance is bought in order to hedge the possible risks of the
future which may or may not take place. This is a mode of financially insuring that if such a
incident happens then the loss does not affect the present well-being of the person or the property
insured. Thus, through insurance, a person buys security and protection.

For example a biker is always subjected to the risk of head injury. But it is not certain that the
accident causing him the head injury would definitely occur. Still, people riding bikes cover their
heads with helmets. This helmet in such cases acts as insurance by protecting him/her from any
possible danger. The price paid was the possible inconvenience or act of wearing the helmet; this
is equivalent to the insurance premiums paid.

Human Life Value:

Human Life Value (HLV) is a methodology to determine the appropriate amount of sum assured you
need to have at present in case of future loss of income. In simple words, it is that amount, which can
ensure that the standard of living of the family is not affected even if the earning member is not
there. HLV calculation is a tool that is used very effectively for financial planning around the world.
It is a systematic way of understanding the gaps in the financial planning.

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Human Life Value is determined by 3 main factors:
1. Age.
2. Current and future expenses.
3. Current and future income.

For example: HLV of Mr. Vivek Rao is based on the present needs and income.
Mr. Vivek Rao aged 41 years has an annual income of Rs.10 lacs, spends Rs.3
lacs on his personal expenses (including Taxes). He has Fixed Deposits of Rs.6
lacs. He also has a loan of Rs.10 lacs and plans to spend Rs.10 lacs each on his
son’s education and his daughter’s marriage. His human life value will be as
follows.

Annual Gross Income 10,00,000

Less Expense on Self including taxes 300,000

Contribution to Family Standard of Living 700,000

Multiplying factor 15

Gross Human Life Value 1,05,00,000

Less Liquid Assets 600,000

Add Liabilities 1,000,000

Add Amount to fulfil family needs like daughter’s marriage & son’s
2,000,000
education

Human Life Value 1,29,00,000

Inflation Rate

What Is Inflation?

Inflation is a rise in the general level of prices of goods and services in an economy over a period of
time. When the general price level rises, each unit of the functional currency buys fewer goods and
services; consequently, inflation is a decline in the real value of money—a loss of purchasing power

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in the internal medium of exchange which is also the monetary unit of account in an economy. A
chief measure of general price-level inflation is the general inflation rate, which is the percentage
change in a general price index over time.

Effect of Inflation on Investment:

Inflation plays an important role in deciding which kind of investment we should choose. It has
adverse effect on investment. If inflation rate goes on raising it affects return on investment
adversely. Investors should consider effect of inflation in their investment. Higher inflation rate
decreases the real value of money. For example: If a person invested rs.1000 for 1 year in Fixed
Deposit at the rate of 10%. It means he will receive rs.100 for its investment after one year. Now
suppose if inflation rate during that period is 5% than actual return on its investment is 50 not rs.100
as its purchasing power now equals to rs.50.

MAN Concept:

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This concept means that before selling, the seller should make sure that the suspect should have the
Money, Authority and Power to buy the product, and then only the prospect will become a Suspect.
Before deciding suspect a person should identify that they should have enough money to buy that
service, prospect should have authority and power of taking decision, he should also have need of
buying the product. If a person have all these things than only he can become suspect of the product.

SPANCO Concept:

Some Products of Tata AIG:

Mahalife Gold:

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This unique policy is an ideal planning vehicle to fund your retirement. It provides a steady
income and insurance coverage for life. Premiums are payable only for the first 15 years, and can
be used to cover the future expenses of your children.

Key Features of the Policy:

• A guaranteed annual coupon of 5% of the sum assured every year for the rest of the
insured’s term from the 10th policy anniversary.
• Yearly cash dividends are available from the 6th policy anniversary onwards (depending
on Company performance).
• The entire sum assured is paid tax-free as per current Income Tax Laws.
• Disability, Accident, Term and Critical Illness riders are available for added protection at
a nominal extra cost. (For juveniles, only Payer Benefit Rider is available).
• Policy available for persons between 0 years and 60 years of age.

Invest Assure Optima:

Tata AIG Life Invest Assure Optima, a unit-linked insurance solution which helps to optimize
your investment returns, with a combination of high allocation and Guaranteed Addition, while
providing you with a comprehensive financial protection.

Key Features of the Policy:

• Option to save under Systematic Money Allocation & Regular Transfer Investment
(SMART).
• Premium Paying Term: Same as Policy Term.
• Minimum Sum Assured: 5 times the Annualized Premium.
• Maximum Sum Assured: “Policy Term” times the Annualized Premium.
• Guaranteed Addition.
• Choose between seven Investment Fund Options i.e. Whole Life Mid-Cap Equity Fund,
Whole Life Income Fund, Whole Life Short Term Fixed Income Fund, Whole Life
Aggressive Growth Fund, Whole Life Stable Growth Fund, Large-Cap Equity Fund and
Select Equity Fund
• Choose from 5 available riders. These riders are not mandatory and are available at a
nominal additional cost.

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 • Premiums paid under this plan are eligible for tax benefits under 4 Section 80C of the
Income Tax Act, 1961.

Eligibility:

• Minimum issue age of 0 (30 days) and maximum issue age of 55 years with maximum
maturity age of 70 years.
• Policy Term: 10/15/20/25/30 years·
• Minimum Premium: Rs. 15,000 p.a.

Invest Assure Swarna Jeevan:

Tata AIG Life Invest Assure Swarna Jeevan, a unit linked non participating pension plan. This
plan helps in the investing money, build and multiplies capital and a person can look forward to a
regular income after retirement.

Key Features of the Policy:

• Policy terms: Regular/Limited Premium: 10 to 40 years

• Flexibility to choose option of increasing premium every year - Tool to fight inflation
• Flexibility to choose from amongst five Fund Options & Automatic Asset Allocation
option to adjust your corpus risk profile to your age
• Option to save under Systematic Money Allocation & Regular Transfer Investment
(SMART)
• Additional Allocation by the company to your fund from second year onwards for the
entire term
• Easy to purchase option with Swarna Jeevan Certificate
• Regular income post retirement
• Premiums paid under this plan are eligible for tax benefits.

Death Benefit:

• In case of unfortunate demise of the policyholder, while the policy is in force & before
the vesting date his/her nominee will receive the Total Fund Value which is equal to the
value of the Regular Premium Account Value plus the value of the Top-Up Premium
Account value at applicable unit price. The amount of death benefit either partially or

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 entirely may be used by the nominee to purchase an annuity from the company or from
any other institution in the market.

Vesting Benefits:

• On survival to the end of the policy term, you will receive the Total Fund Value which is
equal to the value of the Regular Premium Account Value plus the value of the Top-Up
Premium Account valued at applicable unit price.

Analysis

Need Base Analysis of Customers Requirements:

In this I was trying to find out what is customers need regarding their investments? What are
the factors which they consider for taking investment decisions? This includes some steps
which are as follows:

a. Preparation of Questionnaire:

This includes preparation of Questionnaire to identify the customers need, purpose, income
etc. This includes finding the purpose of the investment. This also includes to find out which
investment tool they prefer most and why? All these help me in identify their need and their
purpose pf investment. (Please see annexure for Questionnaire)

b. Questionnaire filling by customers:

This includes filing of Questionnaire by various prospects Especially People who are
working in IT companies.

c. Analysis of questionnaires to determine need of the customers:

This help me in analysis of needs of various people due to which I am able to understand
their requirements and purpose of investment.

d. Offer appropriate solution as per their needs.

After analysis of needs the final step is offering appropriate solutions to customers. This
includes identify appropriate insurance policy according to customers requirement and
providing them best alternative for their investment needs.

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 LEARNINGS

The Summer Internship Project provided me with absolute experiential learning and it has been a
holistic understanding process at JRG Securities Limited, Pune. Some of the most positive
outcomes during the course of this project are mentioned below:

• This project helped me in understanding the importance of research

• It gave me the opportunity to visit various sites and get acquainted with the changes that
have taken place in the past few years.

• It also gave me the opportunity to interact with different kind of people from different
sectors, different age-groups and different gender.

• Preparation of the Research Reports was a great experience as the objective was to collect
the maximum relevant information.
• The biggest learning was presenting all the collected information in an organised manner
in a short and simple form.
• Contacting 200 people for a survey through direct meetings, telephonic conversations and
mails was a great learning experience.

• Quantification of information was one of the biggest challenge and thereby, a great
learning process during the project

To sum it up, the learning from this project is more than what can be noted, as each stage
was different and hence exciting. I thank JRG Securities Limited for providing me with this
opportunity.

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