Who is eligible to be Independent Director?

• Non executive director, not being a nominee director

• A director who is not a promoter or related to promoters or directors of the Company or its
holding / subsidiary / associate company

• A person who by himself or through his relatives is not having or had any material pecuniary
relationship with Company / its holding / subsidiary / associate company / their promoters /
directors during the 2 immediately preceding financial years or current year

A person who, in any of the 3 years immediately preceding the financial year in which he is proposed to
be appointed, has not, directly or through his relatives, had the following relationship with
Company/holding / subsidiary / associate company:-

• Employee / proprietor / partner of a firm of auditors / company secretaries in practice or cost

auditors

• Any legal or consulting firm that has / had transaction with the above amounting to 10% or
more of gross turnover of such firm

• A person who does not hold together with his relatives 2% or more of the total voting power of
the Company

• A person who is not a Chief Executive or director, by whatever name called, of any non profit
organization that receives 25% or more of its receipts from the Company, promoters, directors
or its holding, subsidiary or associate company or that holds 2% of the total voting power in that
company

• A person who is not a material supplier, service provider, or customer or a lessor or lessee of the
Company

• A person who is not less than 21 years of age

• To hold separate meetings without attendance of non independent directors to review

performance of non independent directors and Board as a whole, Chairman, quality, quantity
and timelines of flow of information, etc

• Board meeting can be held at shorter notice only with the presence of at least one independent
director

• In case no independent director attends such Board meetings, decisions taken thereat must be
ratified by at least one independent director

Powers of Independent Director

• To report concerns about any unethical behavior, actual or suspected fraud or violation of
Company’s code of conduct under the Whistle blower policy of the Company

• To report any such concerns to the Chairman of the Audit Committee – who shall be an
Independent Director, for further investigation
Shadow Directors

• Section 221 Companies Act

• “a person in accordance with whose directions or instructions the directors of a

company are accustomed to act”

• “shall be treated…as a director of the company”

• Other than advice given in a professional capacity

De Facto directors

• Section 222 Companies Act

• Person carrying out the role of a director even if not validly appointed (in effect)

• Shadow Directors/De facto directorsCompanies Acts apply

• Company Law offences and sanctions apply

• However

• Practical difficulty in using powers

• Difficult to defend actions

Insurance company

• Insurance is a legal contract that transfers risk from a policyholder to an insurance provider.

Fundamental Insurance Principles and Issues

• Risk Pooling is the source of all value in insurance

• Moral Hazard dealt with partially by deductions and co-insurance

• Selection bias dealt with by group policies, by testing and referrals, and by mandatory
government insurance

Failures of Insurance Industry

• Whole life used to be stressed over term life insurance (universal life alternative)

• Benefits not indexed to inflation

• Life annuities not indexed to inflation

• Human factors behind these failures

Life insurance

• Why Buy Life Insurance? Or When is Life Insurance necessary?

• What asset are you trying to “protect” with proceeds

• Future Income stream for loved ones (liquidity and long term)

• Estate taxes and debt retirement for loved ones (liquidity)

• Educational or medical costs covered for loved ones

• Cover burial, medical, or other expenses of deceased (liquidity)

• Retirement income (couple or surviving spouse)

• Create or sustain family wealth

• Who should own policy? Depends on the assets being protected

• Change in requirements for Life Insurance over the life of an individual (see Life Insurance
Matrix)

• Types of Life Insurance

• Term Life Insurance

• Policy is for specific time period – the term of the contract

• Policy pays a “death benefit” if and only if the insured dies prior to the end of
the term
 • Policy is usually paid for with annual, semi-annual, quarterly or monthly
payments to insurance company

• Policy payments stop at death of insured or if policy is cancelled

• From the Insurance Company’s Perspective

• Value of contract is determined by factors (interest, expected life of insured,

interest rates, and payout (strike price of contract)

• Option because strike price paid if and only if death occurs

• Types of Life Insurance -- continued

• Universal Life Insurance

• Two Parts – Term Insurance and Cash Accumulation Account

• Policy Premium is cost of term plus and investment election

• Total premium is paid to cash accumulation account and insurance company

“pays” annual premium from cash accumulation account

• Cash accumulation account is “invested” asset for policy and earns income (can
be set rate or variable)

• Individual can “withdraw” from cash accumulation account

• Policy is cancelled if cash accumulation account is insufficient to pay annual

premium

• Insurance Company provides two simultaneous services

• Risk coverage

• InvestmentTypes of Life Insurance -- continued

• Variable Universal Life Insurance

• Cash accumulation account is “invested” at the direction of the policy holder –

usually options provided by insurance company

• Rest of the characteristics are same as Universal Life Insurance

• Insurance Company provides two simultaneous services

• Risk coverage

• Investment

• Whole Life Insurance

• Two Parts – Permanent Insurance and Cash Accumulation

Account
 • Permanent insurance for life of insured (does not have a preset
end or term)

• Policy Premium is cost of permanent plus and investment

account

• Total premium is paid to cash savings account and insurance

company “pays” annual premium from cash accumulation
account

• Individual can “withdraw” from cash accumulation account

• Policy is cancelled if cash accumulation account is insufficient to

pay annual premium

• Insurance Company provides two simultaneous services

• Risk coverage with guaranteed payment whenever death occurs

• Investment

• A contract with an insurance company that provides either a lump sum or annuity at
death of insured

• Beneficiaries listed by policy

• If no living beneficiaries at death, part of estate of deceased, and distributed by

will or state rules

• Policies can carry riders or features

• Cash Surrender Value (Whole Life)

• Borrowing rights at “reduced” rates

• Ability to increase death benefit over time

• Parties to a Life Insurance Contract

• The Owner of the Policy --- the one who has title of the policy and can make future
decisions about the policy including

• Change beneficiaries of the policy

• Borrow from the policy (if borrowing feature part of policy)

• Pledge the policy against loan

• Change the premium payments (increase or decrease)

• Cancel policy

• The Insured of the Policy – Individual’s death that activates payment of death benefit
• The Beneficiary of the Policy – the individuals, charities, or institutions that receive some
or all of the death benefit