or ' Wealth Management (7. BMS Sey, 56 cE UNIT -]] Insurance Planning LEARNING OBJECTIVES Upon completion of this chapter the reader should be able to & Understand the concept of Insurance in Wealth Management. Define Characteristics and Functions. Planning and appreciate its need Insurance. and enumerates its @ List the principles of Insurance and appreciate its applicability Comment on the Rights and Responsibilities of the Insurer and Insured. & Enumerate the Types of Life Insurance Policies and General Insurance Policies & Compare and Contrast between Health Ins urance & Mediclaim ' & Calculate Human Life Valu le and Appreciate the Scholarly work of Pro Belth in Insurance ; Key Words : Insurance, Principles of Insurance, Belth, Mediclaim, Humar Life Value : ‘ SYNOPSIS 337 Meaning 3:2” Principles of Insurance -3.3” Functions and Characteristics of Insurance 3.4 Characteristics of Insurance ax Rights And Responsibilities of Insurer and Insured 3S Types of Life Insurance Policy ‘37 Types of General Insurance BF Health Insurance Mediclaim 3.9 Medical Insurance or Mediclaim 3.10 Health Insurance V/S Mediclaim 3.11 Human Life Value Questionssurance Planning wee .1 MEANING ” a ie Pe is the process of analysing what types of insurance is ec ion of a person's assets and ability to create assets. You - cape eieiairy anything these days from the usual life, health, home es ; é 'o the uncommon things like a person's hair, voice, or even smile. Insurance Planning and its importance in Wealth Management Insurance is a’ very important tool in wealth management. Insurance products are used to hedge investment risk and also as a wealth protection tool. Financial Planners and Wealth Manager actively recommend insurance products in all stages of the life cycle : 1. Young Adult - Wealth Protection or Financial Security 2. Mid careers —- Growth 3. Late Careers - Pension and retirement planning So it is relevant for learners to understand the various insurance concepts Meaning of Insurance Insurance occupies an important place in the complex modern world since risk, which can be insured, has increased enormously in every walk of life. This has led to growth in the insurance business and evolution of various types of insurance covers. The insurance sector acts as a mobiliser of savings and a financial intermediary and is also a promoter of investment activities. It can play role in the economic development of a country, while economic development itself can facilitate the growth of the insurance sector. According to D.S. Hamsell, ‘insurance is defined “as a social device providing financial compensation for the effects of misfortune, the payment being made from the accumulated contributions of all parties participating in the scheme” According to Economic Times In: , tool in which the insured transfers a 1 insurance company that mitigates it in ex known as the premium’. According to Investopedia, Policy, in which an individual teimbursement against losses from clients’ risks to make payments more According to Lawrence J. in Lucena V- by which one of the parti harges himsel parties charg! : = e accident to which something is exposed and obliges himself to indemnify the other from the loss in which those accidents may occasion in case of their ‘€ppenings in consideration of a sum of money which the other contracting party tives as a piece with which he is charged”. According to IRDA, “Insurance is a form of oe Primari i isk of a contingent, ly to hedge against the ris] A defined as the equitable transfer of the risk of loss, from 0 *Xchange for payment”. a significant surance is, “A financial risk management isk of potential financial loss to the change for monetary compensation “Insurance is 2 contract, represented by a or entity receives financial protection or an insurance company. The company pools affordable for the insured.” Craufurd, “Insurance is a contract if with the risk of the fortuitous x management which is used uncertain loss. Insurance is ne entity to another, in 5 "'Y.BMS, Wealth Management (Sem-- V)rr Wealth Management - (T.Y.BMS)-(Sem, 1 58 The insurance thus is a contract whereby: a) Certain sum, termed as premium, is charged in consideration, b) Against the said consideration, a large amount is guaranteed to be aig by the insurer who received the premium, : ; c) The compensation will be made in certain definite sum, i.e., the loss o, the policy amount which ever may be, and d) The payment is made only upon a contingency The Insurance Regulatory and Development Authority (IRDA), an agency of the Government of India, is the regulatory body for the insurance sector's supervision and development in India. Insurance policies are used to hedge against the risk of financial losses, both big and small, that may result from damage to the insured or her property, or from liability for damage or injury caused to a third party. Every risk involves the loss of one or other kind. In older time, the contribution by the person was made at the time of loss. Today, only one business, which offers all walks of life, is insurance business. Owing to growing complexity of life, trade and commerce, individual and business firms and turning to insurance to manage various risks. Every individual in this world is subject to unforeseen uncertainties which may make him and his family vulnerable. At this place, insurance helps, him not only to survive but also recover his loss and continue his life in a normal manner, Insurance is an important aid to commerce and industry. Every business enterprise involves large number of risks and uncertainties. It may involve risk to Premises, plant and machinery, raw material and other things. Goods may be damaged or may be destroyed due to fire or flood. Some risk can be pad by timely precautions and some are unavoidable and are be i ond business. These unavoidable risks can be protected by insurance the control of a 3.2 PRINCIPLES OF INSURANCE The basic iples apy ible to insurance law insurance contract as conceived, many years ago, by oe nature of over by the Common Law. The principles are common to all classes " eae vam both life and nontife and both marine and non-marine, By itg s0® of insurance, contract postulates that a sum of money will be paid on the Tatu": insurance insured event by the insurers; however, the event must be uncer PPeTINE of the The uncertainty related to whether the event will ever happen : . accident insurance or as in life insurance where death is a necessary on fre or human life, but the time of death is uncertain. In comparison with ono" t© all the law, there is no other law, which attracts the number of genera] 127088 of with deep-rooted effect as insurance. Principle s Insurance companies are established to provide financial Security ¢, Policy holders through the pooling of premiums, out of which those who eit unexpected losses are indemnified. It is, however, a contract with Peete’ characteristics in that all the material information and circumstances onaue subject matter of the contract are almost invariably, within the knowledge ae consumer. Generally these principles are therance Plannit be sed re . iS TS 1 2 3 4 5 6 Insurable Utmost Indemnity Contri- Subro- Minimal Proximate Princ inci : s : iple Principle & interest good faith bution gation loss. cause of Theory of Insurable interest cooperation Probability Utmost good faith Indemnity Contribution Subrogation Minimal loss 7 PRP ee Proximate cause. However certain authors argue that these seven principles follow the two most primary principles of insurance which are 1.) Principle of Co-operation and 2. Principle and Theory of Probability Let us now understand both the Primary and Legal principles of insurance 1/ Principles of Co-operation } _Insurance_is_a co-operation device. If one person is_providingfor_his_own losses, it cannot be strictly inst because in insurance, the loss is shared by agroup of persons who are willing to co-operate_In ancient period, the-persans. of agroup_were willingly sharing the loss to a member of the group. They used to share the loss to a member of the group. They used to share the loss at the time of damage. They collected enough funds from_the society_and paid to the dependents of the deceased or the person suffering property loss. j. example: When the ships went for voyage the entire colony used to collect share monies to protect the families of the sailor’s in case they did not return from the voyage. Now that share is organized in a term called ‘Insurance the principle of co-operation in an insurance contract has its Premium’. Hence Tots in its history itself. Principles and Theory of Probability -The probability tells what the chances_of losses arc amount of losses. The chances of loss are ¢€ in advance to affix the @mount of premium. Since the degree_of los: nds_upon_various factors, the _ affecting factors are analysed_ before determining. the amount of loss. The inertia ‘large_number_is_applis i ting_the probability. The larger the umber of exposed persons, the better and the more practical would be the Fadings of the probability,)rherefore, the law of large number is applied in the rinciple of probability. In each and every field of insurane® the law of large lumber is essential. These principles keep in account that the past events cur in the same inertia. The insurance, on the basis of past experience, present Onditions and future prospects, fixes the amount of premium. are_and_what will be_theves Wealth Management - (T.¥.BMS)Sem 60 -( ion is possible and the premium cannot on fa ee Ge probability, and consequently b ann is possible. So these two principles are the two main legs of insurance ins beanie: What is the Probability of a person in the age group of less than 4 dying in metro region. Legal Principle of Insurance 1, Principle of Insurable Interest One of the essential ingredients of an Insurance contract is that the insure, must have an insurable interest in the subject matter of the contract. Insuraby interest is said to exist when an individual to gain or benefit from the continue existence or well being of another individual or property, and at the same tim, the individual would suffer a financial loss or inconvenience if there is damage t, other individual or property. The subject matter of the Insurance contract may b @ persons own life, life of spouse, children or Property. e.g. Husband/Wife Creditor /Debtor, and Master/ Employee. one cannot take insurance cover for his neighbour’s property as there is no insurable interest By Common law Insurable interest is deemed circumstance © Own Life to exist in the following A person has unlimited insurable interest in his own life. © Spouse A husband has insurable interest in the life of his wife and similarly, a wife has insurable interest in the life of her husband. © Children ‘ 3 Parents can take out insurance for their children wh i a j dependent. Childr en the children en can also take out insurance in the their parents name when the parents are dependent on their child: P ren, © Assets A person can take insurance of th, . a ede ei asset as they would be adversely €.g: A person might take fire insuran i i ctory might adversely affect his business, oe ot Mafhex ta oo © Creditor A creditor has insurable interest in the lif have lent money to the debtor, © of the debtor to a Example: Viraj borrows INR 100,000 from interest to the extent of the loan ie, INR 100, © Surety A surety has insurable interest in the life of the pring; in the life of the co-surety to the extent of the debt. Fe eal debtor and aleo © Employer-Employee Employer has insurable interest in the well being of all their employees to the extent of the value of their services, for example if the employee falls sick and remains absent from duty for a long time then it can hamper the delivery of th¢ projects that they are working for. Aman, Aman will have insurable 000/-,a : basen tate woe 61 e Employee- Employer 4 An employee has insurable interest in the employer to the tune of monthly salary. e@ Keyman insurance A company has insurable interest in the lives of certain 2. Utmost good faith “Uberrima fides” When you go to buy a mobile phone the seller expects you to inspect the good, looks, at the demonstrations and understand the features. The common law principle “Caveat Emptor” or let the buyer beware is applicable to commercial contracts like in the case of buying a mobile phone and the buyer must satisfy himself that the contract is good because he has no legal redress later on if he has made a bad bargain. The seller cannot misrepresent the item he has sold or deceive the buyer by giving wrong or misleading information but he is under no obligation to disclose all the information to the buyer and only selective information in reply to the buyers queries is required to be given. But in Insurance contracts the principles of “Uberrima fides” i.e. of Utmost Good Faith is observed and simple good faith is not enough. Utmost Good Faith can be defined as “A positive duty to voluntarily disclose, accurately and fully all facts material to the risk being proposed whether requested for or not”. | In Insurance contracts Utmost Good Faith means that “each party to the proposed contract is legally obliged to disclose to the other all information which can influence the others decision to enter the contract”. The following can be inferred from the above two definitions: | 5 Bach party is required to tell the other, the truth, the whole truth and nothing but the truth. > Unlike normal contract such an obligation is not limited to any questions asked and > Failure to reveal information even if not asked for gives the aggrieved party the right to regard the contract as void. Example : in case of life insurance, the insured must revel the true age and details of the existing illness/diseases. If he does not disclose the true fact while getting his life insured, the insurance company can avoid the contract. * ; Example : Alpa while applying for a life insurance policy with ABC Company did not disclose that. she had undergone a surgery in childhood. She thought she was completely fit and fine however non disclosure is concealment of material fact. " Example : Yogesh Consum fe insurance he does not consume alcohol for a Pot be detected during medical examination an This is an example of fraudulent Jndisputability Clause : As specified in Section 45 of the In licy, if the insurance company comes @8 not been disclosed by the proposer, pest es alcohol regularly. However, before applying for month or two, think that it will d will get life insurance easily. uurance Act, in the first two years of the to know that some of the material fact it can declare the policy null andere Wealth Management - (T-Y.BMS}(Sem. yj 62 id. The insurance company can also keep the premiums paid. This right can a y be enforced during the first two years of the policy. After two years, fraud must be established by the insurance company if it wishes to make the Policy void. This clause is referred to as ‘ndisputability’ clause and applies to life insurance. 3. Indemnity Indemnity according to the Cambridge International Dictionary is “Protection against possible damage or loss” and the Collins Thesaurus Suggests = words “Guarantee”, “Protection”, ‘Security’, “Compensation”, Restitution” and ‘Reimbursement’ amongst others as suitable substitute for the word “Indemnity”, The words protection, security, compensation etc. are all suited to the subject of Insurance but the dictionary meaning or the alternate words suggested do not convey the exact meaning of Indemnity as applicable in Insurance Contracts. In Insurance the word indemnity is defined as ‘financial compensation sufficient to place the insured in the same financial position after a loss as he enjoyed immediately before the loss occurred.” Indemnity thus prevents the insured from recovering more than the amount of his pecuniary loss. It is undesirable that an insured should make a profit out of an event like a fire or a motor accident because if he was able to make a profit there might well be more fires and more vehicle accidents, Example — A house is insured against fire for found that the expenditure of € 30,000 insurer is liable to pay only % 30,000. 50,000. It is burnt down and‘ will restore it to its original condition. The Example : Milind has taken out an individual mediclaim Policy of INR 50,000/- he also has an health cover of INR 50,000/- from his employer. Milind as a minor fracture for which he was hospitalised for 02 days, resulting in a hospital bill of INR 30,000/- so in this case Milind cannot make a claim of INR 30,000/- from both insurers. Milind will get a total claim of INR 30,000/-. So the Principle of indemnity ensures that insurance cannot be used to make Profit. 4. Contribution Contribution is the second coroll more than one policy on the same PI were to claim from all the Insurers out of the loss which lary of Indemnity. An individual may have roperty and in case there was a loss and he then he would be obviously making a profit is against the Principle of Indemnity. To prevent such a Condition of Contribution will only arise if all the following conditions are met: i) Two or more policies of Indemnity should exist ii) The policies must cover a common interest iii) The policies must cover a common peril which is the cause of loss iv) The policies must cover a common subject matter v) The policies must be in operation at the time of losswortant is that there should clos be identical to one another. What is rer should be common end overlap between policies, ie. the subject Se ay both © peril causing loss should be common & covered by 7 Example : Aman gets his house insurer P and for % 20,000 with insurer pay for % 5,000 and Q is labile to pay pad by Q, then Q can getermined as under: insured against fire for % 10,000 with Q. a loss of T 15,000 occurs, P is liable to = % 10,000. If the whole amount Pf loss is ‘over % 5,000 from P, The liability of P & Q will be Sum insured with ra insurer (ie. Por Q) x Actual Lose = Total sum insured Liability of P = 30,000 x 15,000 = % 5,000 7 20,000 Liability of Q = 30,000 * 15,000 = & 10,000 5. Subrogation Since the principle of indemnity is at the root of the law of insurance and the rule is that the insured must not make a profit out of it, a problem arises ere the insured has a right to recover in tort against his insurer and the party who is responsible for the tort. If he claim against both, then he will indemnity in excess of his loss, but this is prohibited except in life urance cases. We must also remember that it is no defence to the third ty that the assured was insured and would recover under a policy. Hence, doctrine of subrogation, comes into operation. If, after, the satisfaction of the claim out of the insurance money, the assured obtains additional compensation from a third party, he must hold such money as a trust for his ers. Thus, in MEACOCK V BRYANT AND CO by a policy of insurance, underwriters agreed to pay the insured any loss sustained by them in the event of sums deposited in a back on behalf of the assured not being received by them within 16 months of the date of deposit. The sum was not received and the under ers paid in full. Subsequently, part of the money deposited was received by the assured and the under writers claimed to recover it under the doctrine of subrogation. . The doctrine of subrogation arises after the insurer has met its contract obligation with the insured, in other words, after insurer has been paid the loss icurred by insured. The doctrine thus places the insurer in the position of the insured and takes over all his rights and remedies against any person in respect he subject matter of insurance. Example : Furniture is insured fort 1 "¢ insurer pays the full value of = 1 Lacs to ‘ure is sold for % 10,000. The insurer 000. . Example : Mr. Chawla insured his car for INR 5,00,000/- there begs oa dent and the entire car was destroyed the insurance company BET = ‘he ingurer the entire value of the car ie. INR 5,00,000/. The damaged eat Sold in scrap for INR 20,000/ the insured is not ent itled to receive IN! , /- ause of the principle of subrogation. lacs against fire, it is burnt down and the insured, later on the damage is entitled to receive the sum of AM ot Be ace64 rrr 6. Principle of Minimal Loss The principle of loss minimization: Possible effort to minimize the damage to 7. Principle of Cause Proxima Proxmia non Remote spect should be taken into consideration. does efficient. Thus i chosen the motion a train of events which bi Example : A ho Under the fire policy Example: In a made by the rats is a from the insurer Example : A ship was insured arising from collision, A collision took palce resulting in a few days delay. Becaus becomes unsuitable for which he was admitted to the h fever he was infected with the disea: ed property. tator”. The immediate cause and not the rem Therefore the proximate cause should be the immediate cause. Immediate not mean the nearest to the loss in 1 inant and efficient cause id ‘the cause which effectively caused the result. Proximate cause has been defin ring about a result without the intervention of use collapses dué to an earthquake, which results in fire. earthquake is not a covered Tisk, hence the claim will not be Payable. marine insurance policy, the goods were insured against damage by sea water, some rats on the board ra i remote cause. Therefore, Wealth Management - (T-Y.BMS),(Sem, y The Insured person should make al her property in event of a disaster, ote one ied as “The active efficient cause that sets in against loss ‘ospital. While taking treatment for cold sal se from the person in the next bed and dieinsurance Planning : rrr 65 In this example the proximate cause cause. Hence claim is not payable, $ FUNCTIONS AND CHARA 3.3 ¢ \CTERISTICS OF INSURANCE (Nov., 2016) Functions of Insurance Functions of insurance can be divided into parts; Primary functions. Secondary functions. Primary Functions: _ Certainty of compensation of loss f Insurance provides certainty of _pay ‘the uncertainty_of-loss. The elements of uncertainty are reduced by better planning and administration. The _ insurer charges premium for providing certainty. | |: i There are different types of uncertainty in a risk. The risk will occur_or not, __ en will occur, how much loss_will_ be there? In other words, there are uncertainty of happening of time and amount of loss. Insurance removes all these . uncertainty and the assured is, given certainty of payment of loss, The insurer charges premium for providing the said certainty. | , Example : The inspred is,certain that if his/her car is completely.damaged in i accident he will get ra beaced mentioned in the policy. : 4, Insurance provides protection The main function of insurance, is to provide protection against risk of lo The insurance policy covers_the risk of lass The insured person is indemnil for the actual loss suffered by him. Insurance thus provide financial protection to the insured—ti tel ity-for, The insurance guarantees the payment of loss and thus protects the assured [ sufferings. The insurance, cannot check the happefing.of_risk but can provide for losses at the happening of the risk. Example : In case of fire thé insured is paid as per the report of the assessor the extent of loss suffered. Fire cannot be prevented however, the insured gets mpensation to the extent of the loss suffered. , of death is infection, accident is remote hoe ss. / Risk sharing All. busi ‘oblem of risk. Risk and insurance are ice is f the terlinked with each other. Insurance, as @ device is the outcome of thi Liistence of various risks in our day to day life. It.does not eliminate risks but it educes the financial loss caused by riske-Insur Sf the shale Sada over ¢ large number of persons who are exposed by a particular ri Secondary Functions + Prevention of losses The insurance companies help in prevention of losses as they soi. a th ose institutions which are engaged in loss prevention ne ae losses means that the insurance companies would be Dacha ee ompensations to the assured and manage to accumulate mo! ; miums , will assist in reducing the pre!66 rrr 2. Providing funds for investment Insurance provides capital for society. Accumulated funds throu; the form of insurance premium are invested in economic develop: productivity projects. Example : The premium collected by various instruments for instance, LIC of financial Institution in the Indi: market mover. 3. Insurance increases efficiency The insurance eliminates the devote his time to other imp Businessman feel more motiv: Profit earning. This also help: Wealth Management - (7. ¥.BMS)(Sem, : H igh savin, ment plang ail y Insurance companies investeg ; India is one of the largest do; 7 é TERtig ian Capital Market and its col nsidered to be worries and miseries of losses. A Person ortant matters for better achievement of Boals, ated and encouraged to take tisks to enhance thei, s in improving their efficiencies. 4. Solution to social Problems Insurance take care of man industrial injuries, road accident, 5. y social problems. We have insurance againg, » old age, disability or death etc, Encouragement of savings Provides protection against risks but also a number qf! ich encourages People to insure. Since regularity, ang is a perquisite for keeping the policy in force, Example : Many investors use insurance to attain financial goals in the long in & invest in aggressive products like Unit linked h : Insured Plans (ULIP's) & f consecutive investors invest in traditional plans like endowment. 3.4 CHARACTERISTICS OF INSURANCE The following are the characteristics of Insurance 1, Transfer of Risk The transfer of risk’ distinguishes insurance from certain other financid by which an enterprise deals with or manages the posure. This risk often at taches to risks attached to the insured subject, ie., isa “personal” risk. 2. Pooling of risks Two aspects of risk Pooling can be distinguished a) Contract-owner view : Due to the inability of an individual /enterprise deal effectively with her/his own tisk as to the frequency, timing and/0 the severity of Pertinent contingent events, pooling of reasonably homogeneous risks is needed. In this way, the individual contract-own® is able to spread her/his risk by transferrin, 8 it a pool of similar risks. b Insurer view : The insurer has the ability ite! Set of circumstances to dat‘ srg D For both the contract-owner and the insurer, this pooling of risks™ i Insurance Planning rrr 67 beneficial and overall both obtain the benefi i i its contest ie Coatnued” enefits of this pooling when the Example : In case of theft in burglary insurance, accident in motor insurance, etc. The loss arising from these events if insured are shared by all the insured in the form of premium, 3. Co-operative Device The most important feature of every insurance plan is the co-operation of large number of persons who, in effect, agree to share the financial loss arising due to a particular risk which is insured. Such group of persons, may be brought together voluntarily or through publicity or through solicitation of the agents. An insurer would be unable to compensate’ all the losses from his own capital. So, by insuring or underwriting a large number of persons, he is able to pay the amount of loss. Like all co-operative devices, there is no compulsion here on anybody to purchase the insurance policy. 4, Value of Risk in Advance The risk is evaluated before insuring to charge the amount of share of an insured, herein called, consideration or premium: There are several methods of evaluation of risks. If there is expectation of more loss, higher premium may be charged. So, the probability ofiloss is calculated at the time of insurance. 5. Payment at Contingency : ‘The payment is made at a certain contingency insured. If the contingency occurs, payment is made. Since the life insurance contract is a contract of certainty, because the contingency, the death or the expiry of term, will certainly occur, the payment is certain. In other insurance contracts, the contingency is the fire or the marine perils etc., may or may not occur. So, if the contingency occurs, payment is made, otherwise no amount is given to the policy-holder. Similarly, in certain types of life policies, payment is not certain due to uncertainty of a particular contingency within a particular period. For example, in term-insurance then, payment is made only when death of the assured occurs within the specified term, may be one or two years. Similarly, in Pure Endowment payment is made only at the survival of the insured at the expiry of the period. . 6.’ Amount of Payment The amount of payment depends upon the value of loss occurred due to the Particular insured risk provided insurance is there up to that amount. In life ingurance, the purpose is not to make good the financial loss suffered. The insurer promises to pay a fixed sum on the happening of an event. | ithe event or the contingency takes place, the payment does fall due if the Policy is valid and in force at the time of the event, like property insurance, the ndents will not be required to prove the occurring of loss and the amount of the amount of loss at the time of It is immaterial in life insurance what was Contingency, But in the property and general insurances, the amount of loss as Well as the happening of loss, are required to be proved. a 4 Large Number of Insured Persons To spread the loss immediately, smc Persons should be insured. The co-operati smoothly and cheaply, large number of ion of a small number of persons mayWealth Management ~ (T.Y.BMS)(Sen, : 68 rrr f ins: also be insurance but it will be limited to smaller ote The cost of in: each member may be higher. So, it may be unmarketable. Therefore, to make the insurance cheaper, it anecieay to insure Ia, X t the lesser woul imber of persons or property because pf oe a the lower would be premium. In past years, tariff associations 2 aa fi insurance associations were found to share the loss at cheaper rate. rer function successfully, the insurance should be joined by a large number qf Persons. urance | be cost of insurance any| 8. Insurance is not a gambling The insurance serves indirectly to increase the Productivity of the Communi by eliminating worry and incre ing initiative. The uncertainty is Changed int certainty by insuring property and life because the insurer Promises to pay; definite sum at damage or death, Fre Whicn “Amily and business point of view all lives Possess an economic Value which may-at any time be snuffed owt by death, and it is as reasonable Of auuze against the loss of this value as it is 1 Protect oneself against the los: of property. In the absence of insurance, the property owners sould at best Practice only some form of self-insurance, which may not give him absolute certainty. a “ Similarly, in absence of life insurance, saving requires time; but death may occur at any time and the proj the family is Hee ty, and family may remain unprotected. Thus, t Protected against losses on death and damage with the help of insurance, amounts gambling because always looming. In fact, the insueame is just the ttainty of loss is Person exposes hhimseip insurance; the insured is al OPPosite of to Hoke oot gambling. In . SK of losing i, the ways opposed to ri i ‘in al : oP isk, and will Suffer loss if he ig not By getting insured his life and Property, he protects pi Pf loss. In fact, if he does not get hie Property or life ine ur mSelf against the risk his life on property, j ed he is gambling with 2. Insurance is not Charity Charity is given without consideration Premium. It provides but insurance j ji Ty Security and safety to an indiviqua** 4G esible without suncueh it is @ kind of business beoat in considera, © soci Suarantees the payment of loss. It is 0 Profession because itv, °f Premium serine at the time of disasters only to charging @ nomingi Vides adequat service. Premium for the 3.5 RIGHTS AND RESPONSIBILITIES OF INSURER AND INSURED As a smart consumer, you should be aware of your duties 5 Your policy coverage and claims, ond Tights aboutnti, Insurance Planning reo 69 Duties/Responsibilities of a insured ; When you buy a policy: e Fill the proposal form yourself correctly and truthfully, it is the basis of the insurance contract e Do not leave any column blank, do not sign a blank proposal form You will be responsible for any information in this document as it bears your signature. Disclose “all material information” about the risk you want to cover Select the term of the policy as per your needs Select the amount of premium you can afford to pay Choose between Single Premium or Regular Premium Choose your premium paying frequency such as annual, half-yearly, quarterly or monthly : © Opt for electronic payment of your premium (ECS) for your convenience, , safety and records 4 ‘ © Ensure to register nomination under your policy. Fill the nominee’s name correctly After you buy the policy © Once the proposal is submitted, you should hear from the insurance { companyin15days * @ Ifnot, take up the matter in writing ® Ifany additional documents are asked for, comply immediately © Once the proposal is accepted by the insurance company, the policy bond should reach you within a reasonable amount of time _ : Ifnot contact the insurance company about it ‘. © When policy bond is received, check it and be sure that the policy is the ¢ one that you wanted. ‘A “e Go through all the policy conditions and be sure that these are the same {that were explained to you by the intermediary/ insurance company ; official at the time of sale © In case of doubts, contact the intermediary/ insurance company official immediately for clarification. 4® Ifnecessary contact the insurance company directly Maintaining the policy y@ Pay your premium regularly on the due dates/ within the grace period © Do not wait for a premium notice. It is only a courtesy. It is your duty to pay the premium to avoid lapsation or other penalties © Do not wait for your intermediary or anyone to pick your cheque up. Make your own arrangement for paying the premium on time © If there is a change of address, please intimate the insurance company immediately. Nomination : | ® After the policy is issued, you can change the nomination by: * Filling a notice of change of nomination and Sar * Sending them to the insurance company for them to register it in their records ecee70 rer Wealth Management ~ (T. ¥.BMS} {Sep e If the nominee is a minor, appoint an appointee to receive any while the nominee is still a minor © Get the appointee to sign in the endorsement showing consent an appointee If your policy lapses © Ifyou fail to pay the premium in time, your policy may lapse. Contact the insurance company for reviving it. If you lose your policy © If you lose immediately © Get a duplicate policy by complying with the formalities © The duplicate Policy confers the same rights as the original policy bond At the time of a claim © Comply with all the requirements of the Claim pa to act al your policy bond, report it to the insurance compan; insurance company © Whenever required, you should help the insurer in a Prosecution or for Tecovery of claims which the insurer has against third parties 3.5.1 Rights & responsibilities of the Insured 1. Right to Information about Your policy, your cover, how the product meets your needs and claims settlement process How your insurance policy works How your premium is invested How your savings are growing Your policy details at any point of time 2. Right to Privacy As you have to disclose all information required by us in ord i the most suitable insurance, the responsibility of wenn OTS? to provide you confidential lies with them. ‘eeping your information 3. Right to Guidance i You have the right to be guided to choose a Product which sui after evaluating your risk based on assessment of the gap Bebra your needs and responsibilities. en your assets 4. Grace Period The Insurance Company offers a ‘grace period’ unable to pay your premium on time. As per IRDA offer a grace period of minimum 15 days 5. Free-look Period If you are not satisfied with the policy terms and conditions, your policy during the Free-look period’ i.e. within 15 days policy. 6. Right to Timely Claims Settlement The company is required to settle the claim within 30 days of Submigsj, all the necessary documents. ion of 7. Right to receive Professional Service : i d has a right to deal with life insurance professionals wh, - Ro enieie aa oe honesty, integrity, fairness and compre pebtt knowledge of the products. of Ale days in case you are an Insurance company has to You can cancel of receipt of thea, Insurance Planning rere 71 8. Right to Complaint Resolution If the insured has a complaint about the services you have received, you have the right to approach the insurer in case the insurer is unable t g F ‘0 resolve the compliant the insured has the right to approach ombudsman. 9, Right to Portability in Health Insurance When you change your health insurance policy from one insurance company to another, you don’t have to lose the benefits you have accumulated.. In the past in health insurance policies, such a move resulted in your losing benefits like the waiting period for covering "Pre-existing Diseases". Now IRDA protects you by giving you the right to port your policy to any other insurer of your choice. It has laid down that your new insurer “shall allow for al gained by the insured for pre-existing condition(s) in terms of waiting period”. This applies not only when you move from one insurer to another but also from one plan to another with the same insurer. 3.5.2 Rights & responsibilities of Insurer 1, Right to collect premium from the insured Insurer has the right to collect in advance a specified sum as premium or his taking obligation of reimbursing the loss to the insured as and when it occurs. 2. Rights to specify the rules and the conditions that govern the promise made under the policy Insurer explicitly state as to what risks the policy covers and the terms & conductions, subject to which losses will be reimbursed. 3. Responsibility to pay for the losses occurred and claimed by the insured Once the insured suffers losses and lodges claims, the insurer is obliged to honour payments, provided, they are within the contractual terms. You can port your policy from and to any general insurance company or specialised health insurance company You can port any individual/ family policies Your new insurer has to give you the credit relating to waiting period for pre-existing conditions that you have gained with the old insurer Your new insurer has to insure you at least up to the sum insured under the old policy : 7 © The two insurers should complete the porting as per the timelines prescribed in the IRDA (Protection of Polityholders’ Interests) Regulations } and guidelines Conditions * You can port the poli insurance period will be with the : part i i f the new policy : iting period credit, all other terms 0 ; eetsag we cece oe at the discretion of the new insurance company — * Atleast 45 days before your renewal is due you have to * Write to your old insurance company requesting & ® cy only at the juncture of renewal. That is, the new new insurance company. oe's’ Wealth Management -:Y.ay,6 | Specify company to which you want to shift i policy @ Renew your policy without a break (there is a 30 day grace Pig porting is under process) Following are the responsibilities of the Insured 1, Understand the product features Plan Type : Market Linked or Traditional Premium Mode : Single Premium or Regular Premium Premium Amount, Premium Paying Term and Tenure of the plan Plan Benefits - Before and at Maturity ; Lock-in period and Surrender Charges Check the Benefit Illustration 2. Fill in the proposal form yourself and provide true information about you] health, financial status and occupation. Read the policy document carefully and understand the terms anf conditions, 4. Pay your premiums regularly to keep your policy in-force so that yoy continue to avail its benefits. It is advisable to opt for any of the automat: debit modes for renewal premium payment as they reduce chances 4 missing payment by due date. f 5. Review your insurance needs regularly for adequate cover. Intimate change in address, contact number, e-mail id and nominee to tht! company on priority. If your policy is assigned for a loan, ensure that the reassignment notice is sent to the company and is noted after the loan is repaid. Also make sur that the reassigned policy is received back from the lender. 8. Obligations to comply with the terms and conditions Prescribed by the insurer : Insured has to comply with the terms and conditions laid down in the policy and also agreed by him at the time of creating the policy. 3.6 TYPES OF LIFE INSURANCE POLICY (Nov., 2016 LIFE TISURANCE POLICIES Duration of the Policy Participation|| Method of in Profit |} Payment of Claim amount Method of Premium Payment Number of | Lifes Covered Modern/Not)| Conventional Policies 1. Duration of the Policy 1. Endowment Policy In an endowment policy, periodic premiums are received by person and a lump sum is received either on the death of the insy policy period expires. This type of plan is also called traditional p} the insured red or once the an/Policy, ofie Insurance Planning : a, Money Back Life Insurance Policy This Policy offers the payment of partial survival benefits (money back), as is determine e eyes contract, while the insured is still alive. In case the insured dies during the period of the policy, the benefici: i e : iary gets the full sum insured without the deduction of the money back amount given so far. Example : This type of policy can be used to plan a child’s education in a way when the child reaches 10 std. there is a Cash flow, graduation degree there is a Cash Flow & then when the child reaches master there is a Cash Flow. 3, Group Life Insurance : This is when a group of people have been named under a single life insurance policy. It is popular for an employer or a company to add employees under the same policy. Each member of the group has a certificate as legal evidence of insurance. Example : Corporates take group life Insurance policy for their employees. 4, Unit Linked Insurance Plan ULIPs (Unit Linked Insurance Plan) offer the insured the double benefit of protection from risk and investment opportunities. ULIPs are linked to the market where the insured’s money is invested to help earn additional monetary benefits. : 5. Whole life policy - A whole life insurance policy covers a policyholder over his life. The main feature’of a whole life policy is that the validity of the policy is not defined so the individual enjoys the life cover throughout his life. The policyholder pays regular premiums until his death, upon which the corpus is paid out to the family. The policy expires only in case of an eventuality as there is no pre-defined policy tenure. 6. Pension Plans t Pension plans are investment options that let you set up an income stream in your post retirement years by giving away your savings to an insurance company who invests it on your behalf for a fee. The returns you get depends on a host of factors like how much you contributed and when is it that you started, the number of years when you want the money to come to you and at what age that starts, When you buy the pension plan contract, if the payment (called annuity) starts immediately it is called an immediate annuity contract. However, if the Payout start after some years of deferment, it is called a deferred annuity. ) Example : This type of policy is used to cover the risk of living to long. 7.) Term Plan Term insurance is a life insurance product offered by an insurance company Which offers financial coverage to the policy holder for a specific time period. In Case of death of the insured individual during the policy term, the death benefit is Paid by the company to the beneficiary. Term insurance is the purest form of insurance risk cover. If the policy holder survives the term period nothing is Payable, however if he dies during the term of the policy the nominee gets the Sum assured. ; Example : A male of 30 years of age if he wants to take a term insurance Fi & leading private ie insurance, Smite 00/- This shows term ;PProximate premium for the same wou) R , iSsurance is the cheapest way to cover risk and use it as a protection tool. "YBMS, Wealth Management (Sem.- V)Wealth Management ~ (T, Y.BMS)., 74 vor Il. Participation in Profits 1. Non-participating without profit policies eer ane , In this type of policy the policy holders are ein to the policy holder, holders get only sum assured and no bonus is gt . icipation with profit policies 2 In thi eae the policy holders are entitled to share br profit ¢ 7 ap insu; eee ee The a wwonee — enacts profit with i iness. The insu: caleshclsen Hess Gt are usually distrinuted in the form of bonus. Bet performance of the insurance company results in higher bonus. III. Method of payment of claim amount 1. Lum sum policies In this type of policy the policy holder is paid the sum assured lum sum ; the events insured against. 2. Money Back Policy This policy offers the payment of partial survival benefits (money back), as i determined in the insurance contract, while the insured is still alive. In case th insured dies during the period of the Policy, the beneficiary gets the full sun insured without the deduction of the money bax ick amount given so far. 3. Immediate Annuities Annuities are policies where the type of annuity, the periodic payment designate period. It is purchased with 4. Deferred Annuity It is funded either by a single payment or by series of annuity commences at some future specified time IV. Methods of premium payment 1. Single Premium Policy IN this kind of plan the whole Premium is paid at the beginning of the policy term period. Usually investors who get windfall gain Prefer to bur sin mium Policy or else the most prefeerd premium payment term is anil ay 2. Level Premium Under this policy, regular and equal premium are Paid at definite intervals. This premium is much lesser than single premium and is convenient to make premium at regular period. V. Number of lives covered ‘1. Single life policy Only one individual is insured should be issued in ones own life, 2. Multiple Life Policy In this policy more than one life is insured. Again this type of policy may be of the following two types: amounts are paid in instalments. In this it begins immediately on the expiry of tht a single premium. regular payments, Tht or age of the annuitant. in a policy, It is not necessary that the policy it may be other life, a) Joint Life Policy : This type of policy covers two or more lives and Oa Policy amount is payable on the first death. This ie beneficial to the partners of the firm and to a couple. Ne.in, Insurance Planning ree 75 p) Last Survivor : i ) ee rey + The policy amount is payable at the last death. So gz € of the insured is alive, no Payment is made. : vI. Modern/Non-Conventional Policy ‘ 1, Unit Linked Insurance Plan it Linke ici ici / ee i on eae Policies are policies that combine risk covereage with i a eee . t market, The premium in excess of risk coverage is aaa ae enti ae se the policy holder. The investment return may vary ep et movements i isk i sete policyholder. and the investment risk is completely borne Example : Investors invest with dual objectives of risk covering & growth. 3.7 TYPES OF GENERAL INSURANCE 1. Home Insurance Houses, lands and other real estate properties and hard assets are subject to accidental risks like theft, damage, destruction due to natural disasters or fire accidents etc. with such large investments gone into buying a real estate property like your home or office, the problem or risk involved is a loss of large amount of money. Home and property insurance protects you in managing and protecting against these risks. The cost of a real estate property and its monetary insurance is mostly based on the value of the already insured hard assets and also the place or location in which the assets are situated. 2. Travel Insurance This is intended to shoulder or cover any of the financial or any other losses which were basically incurred by the insured while on his journey or traveling, be it nationally or internationally, such as mountain trekkers, cruise travelers or simply as a tourist. : Example : Many countries make it mandatory to have travel Insurance of a certain amount before they clear immigration at the airport. 3. Auto Insurance Any vehicle on the road, no to meet with an accident or two, crash it up totally. Most countries matter how safe it is driver is, some times bound which may leave it with just a few scratches, or today require or obliged you to have an auto insurance while on road in your vehicles. If you hhave an accidental auto crash, a rtune. On the other hand, a little scratch total repair could cost you a lot or a fo: O h on your Land Cruiser may also soar up your bills to a high level. Whether or not you want or need auto insurance mostly depends on the type of automobile you tle repair could worry you out own. If you have an expensive car and a little 0 " financially, you should therefore decide in buying an all-inclusive and crash insurance which will protect you against any and every harm done to your vehicle, : } Fire insurance d our valuables, properties faa 7 t may endanger : Fire is one truly big problem that may tnt. and those of or loved ones. reaten 01 . 0 face such calamity with less we are ready t me more secured and ready to face fire and even businesses. Worse it may Well this would not be very hard unl insurance. This will help us beco ses7 ras Wealth Management - (:Y.BMS}-(Sem. y 5. Personal Accident insurance Personal Accident insurance or PA insurance is an annual policy which provides compensation in the event of injuries, disability or death caused solely by violent, accidental, external and visible events. It is different from life insurance and medical & health insurance. You can either take a PA policy for yourself or a group policy for your family, protecting you and them anywhere in the world, anytime of the day. PA insurance provides 24-hour worldwide insurance protection. 6. Medical and health insurance : Medical and Health Insurance (MHI), is an insurance policy which is designed to cover the cost of private medical treatment, which can be very expensive, especially with hospitalisation and surgery. MHI also ensures that you won't have to worry about the cost of seeking treatment during emergencies, In addition, MHI also provides you with an income stream while you undergo treatment. 7. Corporate Insurance Employees are the biggest assets of any organization. Show them that you care with a Corporate Insurance that protects them against illnesses, personal accidents and other eventualities. We help you choose a plan that gives you the best coverage at minimal rates. 8. Burglary or Theft Insurance Burglary or theft insurance is policy that provides indemnity for loss or lamage to the insured property resulting from theft or attempted theit, following Pe 3 ‘4.0’ } forcible or violent entry into/from the insured premises. Dammge to the property . #. “as result of break in is also covered. 9. Marine Insurance 4 2 Marine Insurance is a conrtact between the insure and the insured wherein the former agrees to pay compensation to the later on agreed value in case of loss suffered due to insured peril of marine loss due to marine adventure. Marine Insurance is dividend in to two parts 1, Marine Cargo It deals with the insurance accepts of cargo carried in ocean going vessels or waterborne vessels, road, vehicle or railways. 2. Marine Hull Insurance = : It deals with the transportation aspects of goods through any mode of shipment. 3.8 HEALTH INSURANCE MEDICLAIM 3.8.1 Meaning of Health Insurance? Health insurance is an insurance product which covers medical and surgical expenses of an insured individual. It reimburses the expenses incurred due to illness or injury or pays the care provider of the insured individu! directly. The term Health Insurance’ relates to a type of insurance that essentially covers your medical expenses. A health insurance policy like other policies is @ contract between an insurer and an individual / group in which the ins'urance Planning , ‘ ; re ” recs to provide specified health gore! to terms and conditions spe i Need for Health Insurance Medicare or medical costs are Tish fiation in medicare is higher than act year on year, As a matter of fact, fjation in food and clothing is in single digi ; l uble digits. gle digits, medicare costs usually escalate in Take heart surgery, th ji i : es ena ‘gery, the cost of ae today could vary in the region of 71.5 Estimates reveal that a heart surgery performed today @ ¥ 2 lakhs will cost er % 3.22 lakhs after 5 years, After 10 years it will be € 5.19 and % 8.35 lakhs er 15 years. For an individual who hasn't saved that much money, arranging for funds at e eleventh hour can be a task. This is particularly daunting for seniors, given at most ailments strike at an advanced age. One way to provide for health-related / medical emergencies is by taking jealth insurance. Health insurance offers considerable flexibility in terms of sease / ailment coverage. For instance, certain health insurance plans cover as any as 30 critical illnesses and over 80 surgical procedures. The insurance plan isburses the payment towards surgery/illness regardless of actual medical penses. The policy continues even after the benefit payment on selected Inesses. ; With health insurance, you are assured of a more secure future both health- se and money-wise. This makes health insurance critical for individuals, pecially if they are responsible for the financial well-being of the family. .8.3 What a Health Insurance policy would normally cover A Health Insurance Policy would normally cover expenses reasonably and following heads in respect of each insured person bject to overall ceiling of sum insured (for all claims during one policy period). insurance cover ata i « sam” : particular “premium’ cified in the policy. a) Room, Boarding expenses b) Nursing expenses ¢) Fees of surgeon, anesthetist, physician, consultants, specialists 4) Anesthesia, blood, oxygen, operation theatre charges, surgical appliances, medicines, drugs, diagnostic materials, X-ray, Dialysis, chemotherapy, Radio therapy, cost of pace maker, Artificial limbs, cost or organs and similar expenses. um Insured The Sum Insured offered may bi family as a whole: Cumulative Bonus (CB) ¢ on an individual basis or on floater basis for offer Cumulative Bonus wherein for every a i certain percentage at the time ein fi ‘ured is increased by & : of reread catia a sain ally 50%). In case of a claim, Will be reduced by 10% at the