CAN YOU BE SURE AS TO

WHAT MAY HAPPEN TO “U”

IN THE NEXT FEW
MINUTES???????
 DO YOU LOVE YOUR
NEAR AND DEAR ONES
AS MUCH AS YOU LOVE
YOURSELF????
 DO YOU WANT TO BE
FINANCIALLY SECURE
IN THE EVENT OF ANY
UNFORSEEN
CALAMITY???
 PRESENTING
INSURANCE!!!
PROVIDING UNPARALLED RISK
COVER & PROTECTION
AGAINST FUTURE
EXIGENCIES!!!!!
 Invest the next 15
minutes of your time to
understand INSURANCE
in the right perspective...
 INSURANCE
STRATEGIST
Volume I - Basic
Module

BY
S.Krishnamoorthy
OBJECTIVE OF THE
PRESENTATION
► Highlighting the fundamentals of
insurance as a financial product
► Insight into the Indian Insurance
industry – players and products
available in the market
► The tax implications of insurance
FUNDAMENTALS OF
INSURANCE
 Basic Terminology…
► What is insurance?
 Insurance is a contract between two parties where
one party (the insurer) agrees to protect the other
party (the insured) in the event of any loss or
unforeseen event. Insurance can be broadly classified
into two categories – Life Insurance and Non Life
Insurance.
► What do you mean by premium payable on an
insurance policy?
 Premium is the periodical amount that the insured
needs to pay to the insurance company to enjoy the
benefits of the insurance policy.
 Basic Terminology…
► What do you mean by “sum assured”?
 Sum assured refers to the amount for which the insurance
cover is taken.
► What is meant by death benefit?
 The amount received from the insurance company on the
death of the insured is known as death benefit.
► What do you mean by “riders”?
 Riders are additional benefits that are added on to an
insurance policy to make it more compatible to the needs of
the policyholder. Riders are generally applicable only for life
insurance and not for general insurance.
► What is maturity benefit?
 The amount received on the maturity of the policy is known
as maturity benefit.
 Why insurance???
PRIMARY REASON
► Lifeis full of uncertainties
► Provides the much required RISK COVER
► Serves as a financial buffer in the wake of any
un-favorable and un-foreseen circumstances
► Ensures that near and dear ones are not left in
financial doldrums due to any exigency
► The risk cover that insurance provides has no
parallels in the financial world
 Why insurance ???
SECONDARY REASON
► Money back plans provides an element of
liquidity by returning a portion of the sum
assured at regular intervals. This is in
addition to the risk cover
► Unit linked plans invest a percentage of
the premiums in market securities and
provide returns. This combines market
linked returns along with risk cover
 Types of insurance policies…
► Term plan
 A traditional insurance plan
 Cheapest plan available in the market today
 The sum assured is returned on death, while
maturity benefits are nil.
 Suitable for person’s having dependants
 Term plan can be made more attractive by
taking up riders
 Types of insurance
policies…
► Endowment plan
 Advancement over the term plan
 This plan offers maturity benefits and death
benefits
 Endowment plans are generally participative
in nature and pay bonuses to the policyholder
at the end of the policy term. E.g. LIC
endowment plans offer bonuses @ Rs.50/-
per thousand sum assured
 Suitable for persons who believe in asset
creation
 Types of insurance
policies…
► Money back plans
 Such plans are comparatively more expensive
than other insurance plans
 Money back plans return a certain percentage
of the sum assured at regular intervals
 These plans will be appropriate in cases
where the client requires additional funds in
the near future along with a risk cover
 Such plans also offer bonus payments at the
of the policy period
 Types of insurance
policies…
► Unit linked insurance plans
 These plans combine market linked returns with
the valuable risk cover
 A portion of the premium is invested in market
instruments
 The returns that are generated are ploughed
back into a separate account known as
accumulation account.
 On maturity the policyholder gets the value in the
accumulation account or the sum assured
whichever is higher. However, in some policies
the benefit is sum assured plus the balance in the
accumulation account.
 ULIPs (Contd.)
► Similar to the concept of mutual funds such ULIPs
offer the following investment options to the investors:
 Equity centric schemes invest primarily in equity and
equity related instruments. This is relevant for aggressive
investors having an appetite for risk
 Balanced schemes invest in a combination of equity and
debt instruments. This is suitable for investors who are
prepared to take a moderate amount of risk
 Liquid schemes or money market schemes invest
primarily in money market instruments or debt
instruments. This is suitable for highly conservative
investors, who are not prepared to take risk and prefer
safe investment avenues
INSIGHT INTO THE
INSURANCE
INDUSTRY
This section of the module
highlights the various players in the
insurance industry, the schemes
which have emerged blockbusters
in the insurance industry and a
critical description of the same
 Players in the insurance
industry
► Public sector life insurance company:
 Life Insurance Corporation of India – a state
owned leviathan having a majority market
share in the country
► Private sector life insurance companies:
 ICICI Prudential Life Insurance Company
 Birla Sun Life Insurance Company
 OK Kotak Mahindra Life Insurance Company
 Max New York Life Insurance Company
 Other private insurance
players
► AMP Sanmar Life Insurance Company
► Tata AIG Life Insurance Company
► Alliance Bajaj Life Insurance Company
► Aviva Life Insurance Company
► Metlife Insurance Company
► SBI Life Insurance Company
► ING Vyaysya Life Insurance Company
► HDFC Standard Life Insurance Company
 Market pulse in the
insurance industry
►A shift from traditional term, endowment and
money back plans to the new market related unit
linked plans.
► This is because in addition to the risk cover that
such plans invest a portion of their premiums in
market linked instruments which generate returns,
► All the plans in the product portfolio of Birla Sun
Life Insurance Company are unit linked in nature
which proves that such plans are the in thing in
today’s context.
 Blockbusters in the insurance
industry (a partial list)
► Premier life plan offered by ICICI Prudential
► Smart kid plan offered by ICICI Prulife
► Mahalife Gold offered by Tata AIG
► Bima Plus offered by Life Insurance
Company
► Life Guard Plan – a term plan with a new
perspective!
 Premier Life Plan offered by
ICICI Pru. Life Insurance Co.
► Unit linked insurance plan
► Minimum contribution is Rs.60,000 per
annum
► Death benefit is higher of the sum assured
or the value in the accumulation account
whichever is higher
► Partial withdrawals are possible after 3
years premiums are paid.
 Premier Life Plan
offered by ICICI Pru.
Life Insurance Co.
► Flexibility to choose the premium paying
term – 3 year, 5 year, 7 year or 10 year
► Minimum sum assured is Rs.1,00,000. The
multiple can be a minimum of 1 and a
maximum of 25
► This plan offers the following investment
options maximiser, protector, balancer and
preserver
► Minimum top up is Rs.5,000
 Life Guard plan of ICICI Prulife
► Comes with 3 variants:
 Level term assurance
 Level term assurance with return of premium
 Single premium plan
► Level term assurance is a pure risk plan and
offers no maturity benefits
► Level term assurance with return of
premium offers
 Maha Life Gold by Tata AIG Life
Insurance Company
► Limited premium paying term with a life long cover
► Premium paying term is 15 years
► A highly recommended product for retirement planning
purposes
► Guaranteed addition of 5% (on the sum assured) every
year from the 10th year of the policy
► Non guaranteed cash dividends after the 6th year of the
policy
► Sum assured along with the guaranteed and non
guaranteed additions will be returned on death or on
maturity which is on the 100th year, whichever is earlier.
 Bima Plus plan offered by
► A LIC by Life insurance
market linked plan offered
corporation of India
► This plan offers the following funds:
 Secured fund, balanced fund and risk fund
► In case of death the following benefits are payable:
 1st 6 months – 30% SA + cash value of the units
 Next 6 months – 60% SA + cash value of units
 1st year – Full sum assured + cash value of units
 During 10th year – 105% of SA + cash value of units
► In the case of death at any time amount equal to the
sum assured is payable (in addition to the death benefit)
► Maturity benefit is the total of the sum assured along
with the balance in the accumulation account
 Smart Kid Plan by ICICI Pru
► This plan comes in the following variants:
 Smart kid regular premium
 Smart kid unit linked regular premium
 Smart kid unit linked regular premium II
 Smart kid unit linked regular premium II
► Sum assured can be a multiple of the amount of
premium that is payable
► Death benefit is that the sum assured is paid
immediately and all the future contributions are
waived. Waiver of premium rider is available at a
very nominal cost.
► You can choose to make a minimum contribution
of Rs.18,000 under this plan
 Smart Kid Plan by ICICI Pru
Life
► This policy acquires a surrender value
after the first year’s premiums are paid
► The 4 kinds of schemes that are available
are maximiser, growth, protector and
preserver.
► It is possible to make 4 free switches
every year, but after that a switching
charge is levied.
TAX BENEFITS
OFFERED BY
INSURANCE
This section of the module
highlights the various tax sops that
are available with insurance
products
 Tax implications of insurance…
► Premiums towards any insurance policy is
eligible for a rebate under section 88 (subject to
the gross total income)
► Premiums towards pension plans is eligible for a
deduction under section 80CCC of the income
tax law (up to a maximum of Rs.10,000)
► Premiums towards any mediclaim policy is
eligible for a deduction under section 80D up to
Rs.10,000
► Any sum received from an insurance company
either as a death benefit or as a maturity benefit
will be exempt from tax under section 10(10D)
 Tax implication of
insurance…
► Keyman policy: (discussed in detail later)
 Premiums payable towards a keyman policy is
admissible as a business expenditure
 Maturity benefit in the case of a keyman policy
is taxable. Benefit of section 10(10D) is not
available to a keyman policy
 Death benefit is also taxable in the case of a
keyman policy
 Tax implication of insurance…
► Single premium plan
 Premium towards a single premium plan is
eligible for a rebate under section 88.
 However, this condition will be applicable only
when the premium does not exceed 20% of
the sum assured.
► Tax implication on surrender of an insurance
plan
 Amount received on surrender of an insurance
policy before the expiry of the term will be
taxable
 Tax implication of insurance…
► Tax treatment in the case of retirement plans
 Amount contributed towards any pension plans
will be eligible for a deduction under section
80CCC up to Rs.10,000
 The lump sum amount that is received at the
vesting age will be exempt from tax
 However, regular money received as annuity
from the insurance company will be taxable
under the head “Income from Salaries”.
 END OF
VOLUME I