Insurance Products

Definition of Insurance
Insurance is the pooling of fortuitous
(causeless: having no cause or apparent
cause) losses by transfer of such risks to
insurers, who agree to indemnify insured
(s) for such losses, to provide other
pecuniary benefits on their occurrence,
or to render services connected with the
risk.
Ref : American Risk & Insurance
Association
Basic characteristics of
Insurance
Pooling of losses
Payment of fortuitous losses
Risk Transfer
Indemnification
Basic Characteristics of insurance
Pooling is the spreading of losses incurred by
the few over the entire group, so that in the
process, average loss is substituted for actual
loss.
A fortuitous loss is one that is unforeseen and
unexpected and occurs as a result of chance
Risk is transferred from the insured to the
insurer, who is in a stronger financial position to
bear the loss
Indemnification means that the insured is
restored to his / her approximate financial
position prior to the occurrence of loss
Requirement of an Insurable
Risk
There must be a large no. of exposure units
The loss must be accidental or unintentional
The loss must be determinable or measurable
The loss should not be catastrophic
The chance of loss must be calculable
The premium must be economically feasible

Benefits of Insurance
Indemnification of Loss ( Life Insurance)
Reduction of worry and fear (Health Insurance,
House hold Goods Insurance)
Source of Investment Funds ( ULIP)
Loss Prevention ( Marine / Transit Insurance)
Enhancement of Credit ( Home Loan
Insurance)
Tax Exemption ( Health insurance)
Fundamental Principles of
Insurance
The Principle of utmost good faith (Transparency)
The Principle of Insurable Interest ( Insured Must have an
interest in the property insured)
The Principle of Indemnity ( Make good loss suffered )
The Principle of Contribution ( In case of multiple
insurance, sum of all claims can not be more than loss
suffered)
The Principle of Subrogation( Insurance company after
settling the claim, can recover from the person who
caused the loss)
The principle of proximate cause ( How to settle the claim
if the loss has been caused by more than one factors
some of which are not insured)
Insurance Products
Life Insurance Products
Health or Medical Insurance Products
Property & Liability Insurance
Insurance of Household Goods
Marine or Transit Insurance
Vehicle Insurance
Life Insurance
Benefits of Life Insurance
Protection for family
Protection from Creditors
Vehicle for Savings
Tax Benefits
How Much Life Insurance One
Needs ?
Human Life Value Approach
Multiple Earnings Approach
Need Based Approach Assessing
Economic Needs, Family Income,
Existing Investments, Available
Resources, Resources Needed for
Maintaining a desired Life Style
Capital Retention Approach
How Much Life Insurance One Needs?
Human life value is defined as the present
value of the familys share of the deceased
breadwinners future earnings
Multiple Earning Approach is a method of
capitalization of annual earnings of the insured.
Multiple could be 5, 7, 8 or 10 based on the
interest and inflation rate scenario
Needs based Approach takes into account
various family needs including survival needs
that must be met if the family head ( policy
holder) should die less the existing value of
assets / investments
Capital Retention Approach takes into account
capital needed to provide income and later to
be distributed to heirs after death of insured
Some Thoughts
Insurance is a subject matter of
solicitation
Insurance involves theory of large
numbers
Insurance has to weed out the theory of
adverse selection
All life insurance policies include
incontestability clause

Insurance is a subject matter
of Solicitation
'insurance is a subject matter of solicitation', which
essentially means that insurance has to be requested or
asked for, not sold.
To fully understand the meaning of this cryptic phrase,
take a look at the wording of any insurance policy that
has been issued by an insurance company to a
customer. Every insurance policy says that the insurance
company is providing you insurance against a risk on
YOUR request/solicitation, i.e. the company agreed to
sell you its insurance policy after you solicited or asked
for such a sale. In legal terms, insurance is a product that
should not be pushed by a seller, but should be pulled by
a buyer. That doesn't happen in real life, though.
Incontestability Clause
The incontestability clause states that
after the policy -- whether it be term or
whole life -- has been in force for a
certain length of time, the company can
no longer contest or void it except for
nonpayment of premiums.
Types of Life Insurance
Products
Term Insurance
Pure Endowment
Whole Life Policy
Endowment Assurance
Universal Life Insurance
Variable Life Insurance
Term Insurance
The objective is the family to get a lump sum
assured amount in the event of untimely death
of the family head / bread earner. If the insured
survives till the end of the selected period,
nothing is payable. Term Insurance policy can
be issued for 5, 10, 15 or 20 years. It is a policy
with low cost (premium). These are required
when the coverage is required for a stipulated
period like tenure of a home loan. The cost
(premium) varies with the age of the insured
and the proposed tenure of policy coverage.
Term Insurance
It is similar to property or liability insurance.
This provides risk coverage only for the term
selected
If there is no provision for automatic renewal,
the insured can take a fresh policy at a fresh
cost (applicable at that age level) subject to this
being permitted based on status of his/her
health
There are two types of term policies-
Renewable and Convertible
Term Insurance
Renewable Term Policy meets a valid need of
insured as it protects his/ her insurability.
Convertible Term Policy offers an option to the
policy holder to convert a term policy into a
whole life or endowment policy without
producing evidence of continued insurability.
Such conversion is allowed during the period of
term insurance and effected for the then
attained age or original age. These policies
are useful for young persons getting started
with their career. They can pay a low premium
of a term policy during initial period and then
change over when their salary increases
Term Insurance
There is possibility to have increasing and
decreasing term insurance. Decreasing Term
Insurance is used for home loan where the
balance declines with repayment
In case of increasing Term policy the sum
assured increases by a certain percentage or
by a fixed amount periodically
Pure Endowment
Under pure endowment, there is accumulation
of savings for a specific purpose (daughters
marriage, higher education of child) . Here the
lump sum amount is payable only if the insured
survives till the end of the selected period. If the
insured dies during the period, nothing is
payable.
A pure endowment policy is seldom issued
However, a combination of features of a term
policy and a pure endowment policy gives rise
to several life insurance products. These two
are the basic building blocks
Whole Life Insurance
The whole life policy covers the risk up to the
death of the insured, whenever it occurs. It is
some times called term insurance for the
longest term
There are two types of Whole life Policies
Pure Whole life Policy and Limited Payment
Whole life Policy
In Pure Whole Life Policy, the premium is
payable through out life, while in the second
case up to attaining an age of 60 or 70
Whole Life Policy
Premium for pure whole life policy is lower than
limited payment whole life policy for obvious
reasons.
The whole life policy can have a convertible
feature allowing it to be converted to an
endowment assurance policy. This is suitable
for young service entrants who can pay a low
premium during initial years and then move on
to an endowment assurance policy when their
salary increases without any prove of the
continued insurability.
Endowment Assurance Policy
This is the most popular policy, in which the
insurer agrees to pay the insurance money in
the event of death of the insured during the
endowment term and to pay the insurance
money in the event the insured survives till the
end of the endowment term. This is a
combination of features of term policy and pure
endowment policy.
This operates as a combination of gradually
decreasing term plan plus an gradually
increasing investment ( pure endowment).
Endowment Assurance
Investments gradually accumulate as a
reserve on an accelerated fashion and this
reserve with the term insurance value add up to
the face value of the policy
Premium rates are usually high compared to
whole life policy. However if the term of
endowment is very long, then the premium is
usually only marginally higher.
Universal & Variable Life
Insurance
These have potential to accumulate cash value
In case of Universal Life insurance, investment
is done by the insurer assuring a minimum
guaranteed return
In case of Variable Life insurance, the insured
will have a choice of the way the cash value is
to be invested.
When premium is paid, the insurer deducts a
charge and invests the net either as an
universal investment or as a variable
investment stated above.
Universal Life Insurance
An attractive feature of this policy is that the
insured can vary his / her annual death benefit
and annual premium
The insured can also partially surrender the
policy and take loans against the cash value of
the policy
He / she can add up cash portion of the policy
by making increasing investment
Normally there is a guaranteed return applied to
the policy
Variable life Insurance
It is a form of whole life insurance, where a
portion of premium goes to the term life
insurance part, a part for the administrative
expenses of the insurer and the balance goes
towards the investment or cash value.
The insured decides how and where to invest
the cash value of investment
Unit Linked insurance plans
This is a capital market linked insurance plan
The premium payable consists of two parts,
viz., 1. risk premium 2. Investment premium
While risk premium takes care of providing
security to the family in case of premature
death of the policy holder, the investment
premium is invested to grow and provide a
reasonable return.
Investment could be made in a secured fund, a
risk fund or in a balanced fund or in a suitable
combination of all of these three
Switchover from one fund to other is also
allowed

Group Life Insurance
It is a type of insurance that provides life
insurance on a group of people in a single
master contract. Physical examinations are not
required, and certificates of insurance are
issued as evidence of insurance
Most group life insurance are in the form of low
cost term life insurance which provide
protection to employees during their working
career with an organization
It is up to 1 to 5 times the annual salary of the
employee or a fixed amount decided by the
employer for a particular class of employees.
Other Features of Life
Insurance
Beneficiary (nominee clause) : Insured has to select a
primary beneficiary and a contingent beneficiary
Survival Clause : If primary beneficiary survives but dies
later to the insured in the same accident, he gets the sum
Suicide Clause : Policy becomes void if the insured
commits suicide within a stipulated period, usually 1 year
Surrender Value : Value payable if the premium payment
is discontinued midway. Usually surrender value is zero
up to first 3 years of payment period.
References
For knowing specific insurance products
see the websites of respective
Insurance Companies
Also See
www.policybazar.com
www.ezinearticles.com,
www.apnaInsurance.com etc
Thank You