You are on page 1of 23

Introduction

Life insurance is a contract between the policy owner and


the insurer, where the insurer agrees to pay a designated
beneficiary a sum of money upon the occurrence of the
insured individual's or individuals' death or other event,
such as terminal illness or critical illness. In return, the
policy owner agrees to pay a stipulated amount.
Life Insurance is insurance for you and your family's
peace of mind.
Life insurance is a policy that people buy from a life
insurance company, which can be the basis of protection
and financial stability after one's death. Its function is to
help beneficiaries financially after the owner of the policy
dies.
It can also be a form of savings in the long run if you
purchase a plan, which offers the option of contributing
regularly.

Benefits

provide security for your family

protect your home mortgage

take care of your estate planning needs

it reduces the tension and peaceful life to policy


holders.

look at other retirement savings/income vehicles

acts as a social security measure

serves as a provision for old age

useful for meeting certian expenses like marriage and


education of children

Features

1) General contract
Since life insurance contract is a sort of contract it is
governed by the Indian contract act. According to section
10 of Indian contract act, 1872 a valid contract must have
the following essentials
Offer and acceptance
Legal consideration
Competent to make contract
Free consent
Legal object

2) Insurable interest
The insured must have an insurable interest in the life to be
insured for a valid contract. Insurable interest arises out of
pecuniary relationship that exists between the policy holder
and the life insured
Insurable interest in life insurance may be divided into 2
categories:
-insurable interest in owns life
-insurable interest in others life

3) Utmost good faith

The life insurance requires that the principle of utmost


good faith should be preserved by both the parties. The
principle of utmost good faith says that both the parties
insured and the insurer must be of same mind at the time of
contract because only then the risk may be correctly
ascertained.

4) Warranties
Warranties are integral part of contract. They form the
bases of the contract between the proposer and the insurer
and if any statement whether material or non-material, is
untrue the contract shall be null and void and the premium
paid by him may be forfeited by the insurer.

5) Assignment and nomination


Life insurance policy can be assigned freely for a legal
consideration or love and affection. Notice of the
assignment must be given to the insurer who will
acknowledge the assignment.
Nomination can be cancelled before the maturity, but a
notice should be served to this effect.

6) Return of premium

In the ordinary course premium once paid cannot be


refunded. But in the following cases the premium paid are
refundable:
On account of misrepresentation or breach of warranty, the
insured in the absence of any express condition to the
contrary can claim the return of the premium paid.
But where the insured is guilty of fraud in obtaining a
policy, he will fail in his claim to the sum assured. He
cannot ask for a return of the premium because he will
have to allege his own fraud to succeed in his claim.

Types
Life insurance may be divided into two basic classes
temporary and permanent or following subclasses term,
universal, whole life and endowment life insurance.
Term Insurance
Term assurance provides life insurance coverage for a
specified term of years in exchange for a specified
premium. The policy does not accumulate cash value.
Term is generally considered "pure" insurance, where the
premium buys protection in the event of death and nothing
else.

There are three key factors to be considered in term


insurance:
1. Face amount (protection or death benefit),
2. Premium to be paid (cost to the insured), and
3. Length of coverage (term).

Permanent Life Insurance


Permanent life insurance is life insurance that remains in
force (in-line) until the policy matures (pays out), unless
the owner fails to pay the premium when due (the policy
expires OR policies lapse).
The policy cannot be canceled by the insurer for any
reason except fraud in the application, and that cancellation
must occur within a period of time defined by law (usually
two years)

PROCEDURE OF TAKING OUT LIFE INSURANCE


POLICY

1. Submission of proposal form


A person who desires to take life insurance policy has
to submit a completed proposal form for the consideration
of LIC. Information must be given correctly clearly and in
good faith in the proposal form. The proposal form acts as
the base of insurance contract

2. Submission of proof of age


The assured has to state his date of birth in proposal
form for this birth certificate, school leaving certificate is
adequate. It is better to submit this proof of age along with
the proposal form so as to avoid complication at the latest
age.

3. Medical examination
For life insurance the proposer has to get himself examined
medically from the approved doctor of the insurance
company.

4. Scrutiny of proposal
The proposal form and the medical report are examined by
the officers of the LIC. This is necessary before the final
approval of proposal.

5. Acceptance of proposal
If the medical report is favorable, the proposal is generally
accepted and the decision is communicated to concerned
party.

6. Payment of first premium and issue of policy


The insured will pay the first premium after the receipt of
communication from the LIC office. This policy contains
insurance contract and all details of the policy holder
including his name, age, address, occupation, the amount
of the policy and the terms and conditions of insurance
contract.

Settlement of claim
Settlement of claim is necessary in the case of each and
every life policy. The important steps in the procedure of
making claims are as follows:
a) Submission of claim form along with the proof of
death
When the policy becomes mature for payment, the claim
for payment must be made either by the assured himself or
by his family members in case of death. Death certificate is
not required in case of maturity of policy during life time
of policy holder.
b) Proof of title
The person claiming the amount has to furnish the proof of
his title to the amount of the policy holder
c) Proof of age
This proof of age is necessary if the age of the assured was
not admitted earlier ie at the time of taking out an
insurance policy. Such certificate can be obtained from the
municipal authorities easily.
d) Making payment
The LIC examines the claims well as the documents and
make the final payment to concerned party. If the policy

holder is alive, the claim is settled quickly as limited


formalities are required to be completed.

LICs pension plus


LICs pension plus is a unit linked deferred pension plan,
which provides you a minimum guarantee on the gross
premiums paid. The plan is without any life cover. There is
a choice of investing the premiums in one of the two 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)
1. PAYMENT OF PREMIUMS
The premiums have to be paid regularly at yearly, half
early or quarterly or monthly intervals over the term of the
policy. Alternatively a single premium can be paid.
A grace period of 30 days will be allowed for payment of
yearly or half-yearly or quarterly premiums and 15 days
for monthly premiums.
2. BENEFITS
i) Death benefits
The policy holders fund value shall be payable either in a
lump sum or as an annuity, as desired by the nominee. The
amount of annuity will depend on the payable lump sum

and the then prevailing immediate annuity rates under the


annuity option chosen.
ii) Benefit on vesting
On the date of vesting, the higher of policy holders fund
value and guaranteed maturity proceeds, will compulsorily
be utilized to provide an annuity based on the then
prevailing immediate annuity rates under the relevant
annuity option. However you may opt to commute up to
one-third of the benefit to be paid as a lump sum. Further,
you may choose to purchase annuity from LIC or other life
insurance company.
3) ELIGIBILITY CONDITIONS AND OTHER
RESTRICTIONS
a) Minimum entry age-18years
b) Maximum entry age-75 years
c) Minimum vesting age-40 years
d) Maximum vesting age-85 years
e) Maximum deferment term-10 years
f) Sum assured-NIL
g) Minimum premium:Regular premium (other than monthly):Rs.15000p.a.
Regular premium (for monthly mode):Rs.1500 p.m.
Single premium: Rs.30000
h) Maximum premium
Regular premium: Rs.1, 00,000p.a
Single premium: no limit
Annualized premiums shall be payable in multiples of
Rs.1, 000 for other than ECS monthly. For monthly ECS
the premium shall be in multiples of rs.250/.

4) INVESTMENT OF FUNDS
The plan offers following two funds detailed below:
The policyholder has the option to choose any ONE out of
the above 2 funds
FUND INVT.IN
SHORT INVT.
TYPE GOVT.SECURTIES TERM LISTED
INVT. IN
EQUITY
SHARES
Debt
Not less than 60%
Not
Nil
fund
more
than
40%
Mixed Not less than 45%
Not
Not less
fund
more
than 15%
than
&
40%
Not less
than 35%

RISK
INVOLVED

Low risk

Steady
income-lower
to medium
risk

5) METHOD OF CALCULATION OF UNIT PRICE


Units will be allotted based on the net asset value (NAV)
of the respective fund as on the date of allotment. The
NAV will be computed on daily basis and will be based on
investment performance, fund management charge and

whether fund is expanding or contracting under each fund


type and shall be calculated as under:
Appropriation Price Is Applied (When Fund Is
Expanding)
Market value of investments held by the fund plus the
expenses incurred in the purchase of the assets plus the
value of any current assets plus any accrued income net of
fund management charges less the value of any current
liabilities less provisions, if any, divided by the number of
units existing at the valuation date before any new units are
allocated.
Expropriation Price Is Appilied (When Fund Is
Contracting)
Market value of investments held by the fund less the
expenses incurred in the sale of assets plus the value of any
current assets plus any accrued income net of fund
management charges less the value of any current
liabilities less provisions, if any divided by the number of
units existing at the valuation date(before any units
redeemed)
6) CHARGES UNDER THE PLAN:
A) PREMIUM ALLOCATION CHARGE:
This is the percentage of the premium deducted towards
charges from the premium received. The balance

constitutes that part of the premium which is utilized to


purchase investment units for the policy. The allocation
charges are as follows:

FOR SINGLE PREMIUM POLICIES: 3.3%


FOR REGULAR PREMIUM POLICIES:
PREMIUM
ALLOCATION
CHARGE
First year
6.75%
2nd to 5th year
4.50%
Thereafter
2.50%
B) OTHER CHARGES:
The following charges shall be deducted during the term of
the policy:
1) POLICY ADMINSTRATION CHARGE:
Rs.30/- per month during the first policy year and
Rs.30/-per month escalating at 3%
2)Fund Management Charge It is a charge levied as a
percentage of the value of units at following rates:
0.70% p.a. of Unit Fund for Debt Fund
0.80% p.a. of Unit Fund for Mixed Fund

3) Switching Charge This is the charge levied on


switching of monies from one fund to another. Within a
given policy year 2 switches will be allowed free of
charge. Subsequent switches in that year shall be subject to
a switching charge of Rs. 100 per switch.
4) Bid/Offer Spread Nil.
5) Discontinuance Charge The discontinuance charge for
regular premium policies is as under:
Where the
policy is
discontinued
during the
policy year
1

Discontinuance
charges for the
policies having
annualized premium
up to Rs. 25,000/Lower of 10% * (AP or
FV) subject to a
maximum of Rs. 2500/-

Discontinuance
charges for the policies
having annualized
premium above Rs.
25,000/Lower of 6% * (AP or
FV) subject to
maximum of Rs. 6000/-

Lower of 7% * (AP or Lower of 4% * (AP or


FV) subject to a
FV) subject to
maximum of Rs. 1750/- maximum of Rs. 5000/-

Lower of 5% * (AP or Lower of 3% * (AP or


FV) subject to a
FV) subject to
maximum of Rs. 1250/- maximum of Rs. 4000/-

4
5 and onwards

Lower of 3% * (AP or Lower of 2% * (AP or


FV) subject to a
FV) subject to
maximum of Rs. 750/- maximum of Rs. 2000/NIL

NIL

AP Annualised Premium
FV Policyholders Fund Value excluding the fund
value in respect of Top-up premiums paid, if any, on the
date of discontinuance.
C) Right to revise charges: The Corporation reserves the
right to revise all or any of the above charges except the
premium allocation charge, with the prior approval of
IRDA.
Although the charges are reviewable, they will be subject
to the following maximum limit:
In case the policyholder does not agree with the revision of
charges the policyholder shall have the option to withdraw
the Policyholders fund value which shall be utilized to
provide an annuity.
7. Discontinuance of Premiums: If you fail to pay
premiums under the policy within the days of grace, a
notice shall be sent to you within a period of fifteen days
from the date of expiry of grace period to exercise one of
the following options within a period of thirty days of
receipt of such notice:
1. Revival of the policy, or
2. Complete withdrawal from the policy

During the notice period of 30 days, the policy shall be


treated as in force till the date of discontinuance of the
policy (i.e. till the date on which the intimation is received
from the policyholder for complete withdrawal of the
policy or till the expiry of the notice period) and the
charges shall be taken, as usual.
If you do not exercise any option within the stipulated
period of 30 days, you shall be deemed to have exercised
the option of complete withdrawal from the policy.
There shall be no change in payments of benefits
during the notice period.
The benefits payable when you exercise the option for
complete withdrawal or you do not exercise any option
during the notice period shall be as under:
If the policy is discontinued within 5 years from the date of
commencement of the policy: If you exercise the option for
complete withdrawal from the policy, or you do not
exercise the option within the period of 30 days of receipt
of notice, then the policy shall be compulsorily terminated.
If the policy is discontinued after 5 years from the date of
commencement of the policy: If you exercise the option for
complete withdrawal from the policy, or you do not
exercise the option within the period of 30 days of receipt
of notice, then the policy shall be compulsorily terminated
and Policyholders Fund value will compulsorily be
utilized to provide an annuity.

8. Method of calculation of monetary amount and


Proceeds of the Discontinued Policy:
The conversion to monetary amount shall be as under:
The NAV on the date of application for surrender or as on
the date of discontinuance of the policy, as the case may
be, multiplied by the number of units in the Policyholders
Fund Value as on that date will be the monetary amount.
The Proceeds of the Discontinued Policy shall be
calculated as under:
The monetary amount calculated as above shall be
transferred to the Discontinued Policy Fund. In case of
death of the life assured, the interest shall accrue from the
date of discontinuance of the policy to the date of booking
of liability. The Proceeds of the discontinued policy shall
be the monetary amount plus the interest accrued on the
Discontinued Policy Fund.
9. Reinstatement: A policy once surrendered cannot be
reinstated.
10. Loan:No loan will be available under this plan.
11. Cooling off period:

If you are not satisfied with the Terms and Conditions of


the policy, you may return the policy to us within 15 days.
12. Assignment:
Assignment shall not be allowed under this plan.
13. Other Features:
i) Guaranteed Maturity Proceeds: If all due premiums
are paid till maturity, a guaranteed interest shall accrue on
the gross premium, including Top-up premiums if any, at
the end of each financial year. The guaranteed interest rate
shall be 50 basis points above the average of the reverse
repo rate prevailing as on the last working day of June,
September, December and March of the preceding year.
ii) Guarantee of interest rate on Discontinued Policy
Fund: A guaranteed minimum interest rate of 3.5% p.a.
shall be credited to the Discontinued Policy Fund
constituted by the fund value of all discontinued policies.
iii) Top-up (Additional Premium): You can pay
additional premium in multiples of Rs.1, 000 without any
limit at anytime during the term of policy. Top-up shall not
be allowed during the last 5 years of the contract.
iv) Switching: You can switch between the two fund types
during the policy term subject to switching charges, if any.
v) Partial Withdrawal: No partial withdrawal of units
will be allowed under this plan.

vi) Revival: If due premium is not paid within the days of grace,
a notice shall be sent to you within a period of fifteen days from
the date of expiry of grace period to exercise the option for revival
within a period of thirty days of receipt of such notice.

14. Risks borne by the Policyholder:


1. LICs Pension Plus is a Unit Linked Life Insurance
product which is different from the traditional
insurance products and is subject to the risk factors.
2. The premium paid in Unit Linked Life Insurance
policies are subject to investment risks associated
with capital markets and the NAVs of the units may
go up or down based on the performance of fund and
factors influencing the capital market and the insured
is responsible for his/her decisions.
3. Life Insurance Corporation of India is only the name
of the Insurance Company and LICs Pension Plus is
only the name of the unit linked life insurance
contract and does not in any way indicate the quality
of the contract, its future prospects or returns.
4. Please know the associated risks and the applicable
charges, from your Insurance agent or the
Intermediary or policy document of the insurer.
5. The various funds offered under this contract are the
names of the funds and do not in any way indicate the
quality of these plans, their future prospects and
returns.
6. All benefits under the policy are also subject to the
Tax Laws and other financial enactments as they exist
from time to time.

N.G.ACHARYA &
D.K.MARATHE COLLEGE
Subject: Innovation In Banking And
Insurance
Topic:

Life Insurance

Class:

S.Y.Banking & Insurance

Submitted ToProf. Prachi Raut

Group members
Name
Roll no
Mridula
33
Babeeta Rawat
34
Ashwini Sable
35
Abhishek Sakpal
36

Kiran Sawant
37