Professional Documents
Culture Documents
Vikas Jindal
INDEX
INTRODUCTION
Introduction of Insurance
In law and economics, insurance is a form of risk management primarily
used to hedge against the risk of a contingent, uncertain loss. Insurance
is defined as the equitable transfer of the risk of a loss, from one entity to
another, in exchange for payment. An insurer is a company selling the
insurance; an insured, or policyholder, is the person or entity buying the
insurance policy. The insurance rate is a factor used to determine the
amount to be charged for a certain amount of insurance coverage, called
the premium. Risk management, the practice of appraising and
controlling risk, has evolved as a discrete field of study and practice.
The transaction involves the insured assuming a guaranteed and known
relatively small loss in the form of payment to the insurer in exchange for
the insurer's promise to compensate (indemnify) the insured in the case
of a financial (personal) loss. The insured receives a contract, called
the insurance policy, which details the conditions and circumstances
under which the insured will be financially compensated.
Background
Every day they wake up to the fact that more than 250 million lives are part of our
family called LIC. They are humbled by the magnitude of the responsibility we carry
and realise the lives that are associated with us are very valuable indeed. Though
the journey started over five decades ago, they are still conscious of the fact that,
while insurance may be a business for us, being part of millions of lives every day for
the past 52 years has been a process called TRUST, A True Saga of Trust.
OBJECTIVES OF LIC
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.
Maximize mobilization of people's savings by making insurance-linked savings
adequately attractive.
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.
Conduct business with utmost economy and with the full realization that the
moneys belong to the policyholders.
Act as trustees of the insured public in their individual and collective
capacities.
Meet the various life insurance needs of the community that would arise in the
changing social and economic environment.
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.
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.
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."
BOARD OF DIRECTORS
Members on The Board Of The Direction
HISTORY OF INSURANCE
In India, insurance has a deep-rooted history. It finds mention in the writings of
Manu ( Manusmrithi ), Yagnavalkya (Dharmasastra ) and Kautilya ( Arthasastra ).
The writings talk in terms of pooling of resources that could be re-distributed in
times of calamities such as fire, floods, epidemics and famine. This was probably a
pre-cursor to modern day insurance. Ancient Indian history has preserved the
earliest traces of insurance in the form of marine trade loans and carriers’
contracts. Insurance in India has evolved over time heavily drawing from other
countries, England in particular.
1818 saw the advent of life insurance business in India with the establishment
of the Oriental Life Insurance Company in Calcutta. This Company however failed
in 1834. In 1829, the Madras Equitable had begun transacting life insurance
business in the Madras Presidency. 1870 saw the enactment of the British
Insurance Act and in the last three decades of the nineteenth century, the Bombay
Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the
Bombay Residency. This era, however, was dominated by foreign insurance offices
which did good business in India, namely Albert Life Assurance, Royal Insurance,
Liverpool and London Globe Insurance and the Indian offices were up for hard
competition from the foreign companies.
In 1914, the Government of India started publishing returns of Insurance
Companies in India. The Indian Life Assurance Companies Act, 1912 was the first
statutory measure to regulate life business. In 1928, the Indian Insurance
Companies Act was enacted to enable the Government to collect statistical
information about both life and non-life business transacted in India by Indian and
foreign insurers including provident insurance societies. In 1938, with a view to
protecting the interest of the Insurance public, the earlier legislation was
consolidated and amended by the Insurance Act, 1938 with comprehensive
provisions for effective control over the activities of insurers.
The Insurance Amendment Act of 1950 abolished Principal Agencies. However,
there were a large number of insurance companies and the level of competition
was high. There were also allegations of unfair trade practices. The Government of
India, therefore, decided to nationalize insurance business.
An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance
sector and Life Insurance Corporation came into existence in the same year. The
LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—
245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when
the Insurance sector was reopened to the private sector.
The history of general insurance dates back to the Industrial Revolution in the
west and the consequent growth of sea-faring trade and commerce in the
17th century. It came to India as a legacy of British occupation. General Insurance
in India has its roots in the establishment of Triton Insurance Company Ltd., in the
year 1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd,
was set up. This was the first company to transact all classes of general insurance
business.
1957 saw the formation of the General Insurance Council, a wing of the Insurance
Association of India. The General Insurance Council framed a code of conduct for
ensuring fair conduct and sound business practices.
In 1968, the Insurance Act was amended to regulate investments and set
minimum solvency margins. The Tariff Advisory Committee was also set up then.
In 1972 with the passing of the General Insurance Business (Nationalisation)
Act, general insurance business was nationalized with effect from 1st January,
1973. 107 insurers were amalgamated and grouped into four companies, namely
National Insurance Company Ltd., the New India Assurance Company Ltd., the
Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The
General Insurance Corporation of India was incorporated as a company in 1971
and it commence business on January 1sst 1973.
This millennium has seen insurance come a full circle in a journey extending to
nearly 200 years. The process of re-opening of the sector had begun in the early
1990s and the last decade and more has seen it been opened up substantially. In
1993, the Government set up a committee under the chairmanship of RN Malhotra,
former Governor of RBI, to propose recommendations for reforms in the insurance
sector. The objective was to complement the reforms initiated in the financial
sector. The committee submitted its report in 1994 wherein , among other things, it
recommended that the private sector be permitted to enter the insurance industry.
They stated that foreign companies are allowed to enter by floating Indian
companies, preferably a joint venture with Indian partners.
Following the recommendations of the Malhotra Committee report, in 1999, the
Insurance Regulatory and Development Authority (IRDA) was constituted as an
autonomous body to regulate and develop the insurance industry. The IRDA was
incorporated as a statutory body in April, 2000. The key objectives of the IRDA
include promotion of competition so as to enhance customer satisfaction through
increased consumer choice and lower premiums, while ensuring the financial
security of the insurance market.
The IRDA opened up the market in August 2000 with the invitation for
application for registrations. Foreign companies were allowed ownership of up to
26%. The Authority has the power to frame regulations under Section 114A of the
Insurance Act, 1938 and has from 2000 onwards framed various regulations
ranging from registration of companies for carrying on insurance business to
protection of policyholders’ interests.
In December, 2000, the subsidiaries of the General Insurance Corporation
of India were restructured as independent companies and at the same time GIC
was converted into a national re-insurer. Parliament passed a bill de-linking the four
subsidiaries from GIC in July, 2002.
Today there are 24 general insurance companies including the ECGC and
Agriculture Insurance Corporation of India and 23 life insurance companies
operating in the country.
The insurance sector is a colossal one and is growing at a speedy rate of 15-
20%. Together with banking services, insurance services add about 7% to the
country’s GDP. A well-developed and evolved insurance sector is a boon for
economic development as it provides long- term funds for infrastructure
development at the same time strengthening the risk taking ability of the country.
CHAPTER- 3
PRODUCTS OFFERED BY
LIC
Main Products offered to customer by LIC are:
I. ENDOWMENT PLAN
II. TERM PLAN
III. WHOLE LIFE PLAN
IV. PENSION PLAN
Endowment Plan
IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS
BORNE BY THE POLICYHOLDER
This is a unit linked Endowment plan which offers investment cum insurance cover
during the term of the policy. You can choose the level of insurance cover within the
limits, which will depend on the mode and level of premium you agree to pay.
You have a choice of investing your premiums in one of the four types of investment
funds available. Premiums paid after deduction of allocation charge will purchase
units of the Fund type chosen. The Unit Fund is subject to various charges and value
of units may increase or decrease, depending on the Net Asset Value (NAV).
Whole life, an endowment life insurance policy is designed primarily to provide a
living benefit. Thus, it is more of an investment than a whole life policy. Endowment
life insurance pays the face value of the policy either at the time of death of the
policyholder or at the time of maturity of the policy. The policy is a method of
accumulating capital for a specific purpose and protecting this savings program
against the saver's premature death. Many investors use endowment life insurance
to fund anticipated financial needs, such as college education or retirement.
Premium for an endowment life policy is much higher than that of a whole life policy.
Endowment policy covers risk for a specified period, at the end of which the sum
assured is paid back to the policyholder, along with the bonus accumulated during
the term of the policy. An endowment life insurance policy is designed primarily to
provide a living benefit and only secondarily to provide life insurance protection.
Therefore, it is more of an investment than a whole life policy. Endowment life
insurance pays the face value of the policy either at the insured's death or at a
certain age or after a number of years of premium payment. Endowment policy is an
instrument of accumulating capital for a specific purpose and protecting this savings
program against the saver's premature death. Premium on endowment policies is
payable for the full term of the endowment policy unless, the insurer dies earlier.
When compared to whole life policies, the premium rates for endowment policies are
higher and the bonus rates lower. But one of the major attractions of endowment
policies is that they provide a return on premium payments, when the policy comes
to an end. The endowment received at the maturity of the policy can be used for
buying an annuity policy to generate a monthly pension for the whole life.
Features:-
Moderate Premiums
High bonus
High liquidity
Savings oriented.
Endowment insurance are policies that cover the risk for a specified period and at
the end the sum assured is paid back to the policyholder along with all the bonus
accumulated during the term of the policy. The Endowment insurance policies work
in two ways, one they provide life insurance cover and on the other hand as a
vehicle for saving. They are more expensive than Term policies and Whole life
policies. Normally the bonus in calculated on the sum insured but the only drawback
is that the bonuses are not compounded. Endowment insurance plans are best for
people who do not have a saving and an investing habit on a regular basis.
Endowment Insurance Plans can be bought for a shorter duration period.
No surrender, loan or paid-up values are granted under term life policies because
reserves are not accumulated. If the premium is not paid within the grace period, the
policy lapses without acquiring any paid-up value. A lapsed policy can be revived
during the lifetime of the life assured but before the expiry of the period of two years
from the due date of the first unpaid premium on the usual terms. Accident and / or
Disability benefits are not granted on policies under the Term plan.
Term life policies are the cheapest form of insurance. Premiums in a term policy pay
for the insurance and no part of the premium in a term life insurance policy is used
for investment purposes. Term life policies are the cheapest form of insurance.
Premiums in a term policy pay for the insurance and no part of the premium in a term
life insurance policy is used for investment purposes. The length of a term life
insurance policy varies from 5 to 30 years.
Many people prefer term insurance to provide their families with the security cover,
and then use the additional funds they would have paid into an endowment or other
life insurance policy to make investments of their own choosing. Term life policies
are suitable for those who need to provide financial security to their family but are
unable to pay the larger premium required for a Whole Life or Endowment policy.
A term life insurance policy is very different as compared to a regular life insurance
policy as it is for a specific period of time. After the term gets over such type of
insurance can either be cancelled or renewed. The cancellation and renewal
decision depends totally on the policyholder and he may do so depending on his
circumstances.
Features:-
This plan is mainly devised to create an estate for the heirs of the policyholder as the
plan basically provides for payment of sum assured plus bonuses on the death of the
policyholder. However, considering the increased longevity of the Indian population,
the Corporation has amended the above provision, thereby providing for payment of
sum assured plus bonuses in the form of maturity claim on completion of age 80
years or on expiry of term of 40 years from date of commencement of the policy
whichever is later. The premiums under the policy are payable up to age 80 years of
the policyholder or for a term of 35 years whichever is later. If the payment of
premium ceases after 3 years, a paid-up policy for such reduced sum assured will be
automatically secured provided the reduced sum assured exclusive of any attached
bonus is not less than Rs.250/-. Such reduced paid-up policy is not entitled to
participate in the bonus declared thereafter but the bonuses already declared on the
policy will remain attach, provided the policy is converted in to a paid-up policy after
the premiums are paid for 5 years.
A whole life policy for an investment?
The rate of return on a whole life insurance policy is very low compared to other
investments, even with the tax savings factored in. Most investment professionals
would agree that life insurance should not be used solely as an investment tool and
you should judge your policy choices on the protection and not the rate of return.
But, if you are in need of life insurance, the tax benefits and cash value is an added
bonus when purchasing protection for your loved ones.
Pension Plan
A pension plan or an annuity is an investment that is made either in a single lump
sum payment or through instalments paid over a certain number of years, in return
for a specific sum that is received every year, every half-year or every month, either
for life or for a fixed number of years. Annuities differ from all the other forms of life
insurance in that an annuity does not provide any life insurance cover but, instead,
offers a guaranteed income either for life or a certain period. Typically annuities are
bought to generate income during one's retired life, which is why they are also called
pension plans. By buying an annuity or a pension plan the annuitant receives
guaranteed income throughout his life. He also receives lump sum benefits for the
annuitant's estate in addition to the payments during the annuitant's lifetime. Pension
plans are perfect investment instrument for a person who after retiring from service
has received a large sum as superannuation benefit. He can invest the proceeds in a
pension plan as it is safest way of secured income for the rest of his life. One can
pay for a pension plan either through an annuity or through instalments that are
annual in most cases. Pension Plans are Individual Plans that gaze into your
future and foresee financial stability during your old age. These policies are
most suited for senior citizens and those planning a secure future, so that you
never give up on the best things in life.
Annuity Certain :-
Under this plan, the stipulated annuity is paid for a fixed number of years. The
annuity payments stop at the end of that period, irrespective of how much longer
you may live.
Deferred Annuities :-
The premiums paid into such plans may be deducted from one’s taxable income at
the time of payment. In addition, the interest earned on the annuities is not taxed
immediately. But the proceeds of the annuity will be taxable when they are paid to
you.
Endowment insurance are policies that cover the risk for a specified period and at
the end the sum assured is paid back to the policyholder along with all the bonus
accumulated during the term of the policy. The Endowment insurance policies work
in two ways, one they provide life insurance cover and on the other hand as a
vehicle for saving. They are more expensive than Term policies and Whole life
policies. Normally the bonus in calculated on the sum insured but the only draw back
is that the bonuses are not compounded. Endowment insurance plans are best for
people who do not have a saving and an investing habit on a regular basis.
Endowment Insurance Plans can be bought for a shorter duration period.
Key Benefits:--
Dream Life Pension enhances your retirement kitty by providing special
addition, starting from the end of 10th policy year
Change your planned retirement age any time during the policy term
Obtain tax benefits as per the prevailing tax laws on the premiums paid and
the benefits received under the policy.
CHAPTER- 4
ANALYSIS OF LIC
POLICIES
I. ANALYSIS OF VARIOUS POLICIES ON THE BASIS
OF THEIR TOTAL COMPOSITION.
Endowment
Term
Whole life
Pension
ANALYSIS:
.
45
40
35
30 Endowment
25 Term
20 Whole life
Pension
15
10
5
0
2005-06 2009-10
Females
40
35
30
25 Endowment
Term
20
Whole life
15 Pension
10
5
0
2005-06 2009-10
ANALYSIS:
It has been observed that the male person’s first priority is to take endowment than
to term, next is whole life and the last is pension.
But the females’ first priority is to take endowment and term and whole life are equal
to them and the pension is at the last.
III. ANALYSIS OF ENDOMENT POLICY HOLDERS ON
THE BASIS OF THEIR AGE GROUP.
2.5 2
Upto 25 Years
2
26-45 Years
1.5 1 1 46-60 Years
60 and above
1
#REF!
0.5
0
0
Respondents
ANALYSIS:
The maximum buyers of endowment life insurance products as per the survey shows
that the customers from the age group of 25-35 and 36-45.The people from age
group below 25 and above 60 are less buyers of life insurance.
35
35 30
30
25 Upto 25 Years
26-35 Years
20 15
36-45 years
15 12
46-60
8
10 60 and above
5
0
Respondents
ANALYSIS:
The maximum buyers of term life insurance products as per the survey shows that
the customers from the age group of 25-35 and 36-45.The people from age group
below 25 and above 60 are less buyers of this life insurance policy.
34
35 30
30
22
25 Upto 25 Years
26-35 Years
20
11 36-45 years
15
46-60
10 60 and above
3
5
0
Respondents
ANALYSIS:
The maximum buyer of whole life insurance products as per the survey shows that
the customers from the age group of 46-60 and 60 and above. The people from age
group below 25 and 26-35 are less buyers of this life insurance policy.
35
35 31
30 25
25 Upto 25 Years
26-35 Years
20
36-45 years
15
46-60
10 7
60 and above
5 2
0
Respondents
ANALYSIS:
The maximum buyer of pension life insurance products as per the survey shows
that the customers from the age group of 46-60 and 60 and above. The people from
age group below 25 and 26-35 are less buyers of this life insurance policy.
CHAPTER- 5
CONCLUSION
LIC is owned by the government and therefore it is the only company besides the
PPF that has the sovereign guarantee of the govt. of India. It is a different story that
today LIC has become so powerful that the govt. leans on LIC every time that the
Stock Market crashes. Imagine having an Asset base of over Rs 6 Lac Crore. .
That’s a 14 digit number! No company in India can boast of such figures. LIC has
the world’s largest sales force, yes over 10 lac agents and now universities in
western countries are trying to study how a company managed to appoint such a
large sales force. A sales force of over 1 million! Truly a remarkable achievement.
In our project we have seen basically the four types of plan which the people of India
mostly prefer and we have seen that though in the recent 4-5 years market has
changed drastically but the peoples preferences in terms of LIC plans has not
changed so far.
Endowment plan is the first choice of every person and the people
prefer Whole life and term plan.
Pension plan is taken mainly by old aged people.
The middle aged people are more concerned about taking a policy.
Expected return is also the major factor which determines which plan is
to be opted.
Many people argue that LIC has not been able to penetrate the market as it has
insured only 15% of the population. My point is, in a poor country like India where
there are so many people living below the poverty line, so many people who die of
starvation, so many people who don’t have access to basic medication, so many
people who don’t have basic necessities of life like food, shelter, education and
clothing. Will such a person first feed his children or buy Insurance? Let’s not forget
that a majority of the Indian population is poor and a substantial percentage is living
below the poverty line. At a personal level I feel that LIC has done a satisfactory job
of insuring people.
CHAPTER 6
REFERENCES
BOOKS
Yogkshem, LIC 3rd edition, 2007, Publishing House Pvt. Ltd, New Delhi
Raghunathan V, Stock Exchanges, Investments And Derivatives Rd Edition,
Tata McGraw Hills, New Delhi
Narula Avinash, Unhappy Customer, Merx Equity Printers, Mumbai
Web Sites
www.mckinsey.com/locations/india/mckinseyonindia/pdf/insurance_a_summa
ry.pdf
www.domain-b.com/finance/insurance/lic/index.html
www.evaluatelifeinsurance.org/
www.licindia.com
Questionnaire
Name: …………………………………………………………………………
Address: ………………………………………………………………………
Age Group:
Investment
Reducing Risk
Security