Short Notes

Chapter 1

Importance & History of Insurance

Insurance is an instrument of risk transfer
Insurance means loss of few- those are unfortunate (exposed to similar loss) Losses of few,
shared by many.
Risk- Chance of loss
Peril – cause of Risk
Pooling – collecting of funds
Insurer- Insurance Company
Insured – Policy holder
Lloyds’ Coffee House London – (origin) first place where insurance idea was created

Amicable society for Perpetual Assurance (1706) First Life Insurance Company in the world

The Oriental Life Insurance Co. The first life insurance company to
Ltd 1818 be set up in India was an English
company
Triton Insurance Co. Ltd.1850 The first non-life insurer to be
established in India
Bombay Mutual Assurance Society The first Indian insurance company.
Ltd. It was formed in 1870 in Mumbai
National Insurance Company Ltd. The oldest insurance company in
India. It was founded in 1906 and it
is still in business.
Insurance Act 1938
Nationalisation of Life Insurance 1956
LIC Was formed on 1st sept 1956
Nationalisation of General Insurance 1972, GIBNA _ General Insurance Business
Nationalisation Act
IRDA established on 1999 and Applicable in April 2000
IRDA renamed as IRDAI in 2004
IRDA _ Insurance Regulatory & Development Authority of India
Insurance reduces burden
1. Primary Risk of Burden
2. Secondary risk of burden- setting aside reserves as a provision for meeting potential
losses in future
Risk Management techniques:
1. Risk Avoidance: Try to avoid Risk completely
2. Risk Retention: Taking Risk and taking responsibility of its effect
3. Risk Reduction and control – Taking steps to lower a risk
4. Risk Transfer/Financing by paying premium its possible to transfer a risk on an
insurer
Loss prevention- Measures to reduce chance of occurrence of risk
Schemes not sponsored by Govt and run by private insurers are
 1. Jan Arogya
2. Janta Personal accident

Chapter 2
Customer Service
Five indicators of service quality
1. Reliability
2. Assurance
3. Responsiveness
4. Empathy
5. Tangibles
1st point of service is the point of sale
In India motor insurance for third party liability is compulsory under the law
Important factors for effective performance are
 Soft skills
 Communication skill
 Listening skill
 Attraction
 Trust
 Ethical behaviour
 Not being judgemental

Forms of communication
1. Oral
2. Written
3. Non Verbal
4. Using body language
Body language confidence in our body, smile on face, eye contact, posture should be
confident
Listening skills, active listening & Empathetic listening

Customer life time value - sum of economic benefits that can be achieved by building long
term relationship with the customer
1. Historic value – Premiums collected in the past
2. Present value – Premiums that may be expected to be received
3. Future value/Potential value – asking customers to buy additional products
Characteristics of ethical behaviour
 Placing clients interest ahead of self interest
 Maintaining confidentiality of clients business and personal information
 Making adequate disclosure of all facts to enable clients make informed decisions.
 Chapter 3
Grievance Redressal Mechanisms
IGMS – Integrated Grievance Management System is a department of IRDA which
acts as a central repository of insurance grievance data
COPA - Consumer Protection Act 1986
Judicial channels
1. District Forum – can deal for Claim amount up to 20 Lakh
2. State Commission – 20 Lakh to 1 Crore
3. National Commission – above 1 Crore

Procedure for filing a complaint:

Complaint can be filled personally or by an authorised person
No fees, no advocate is needed
Insurance Ombudsman – works as a counsellor and mediator between insured
and insurer. Award should not be more than 20 Lakh. Award should be made
within a period of 3 months
12 offices in 12 territories works within these territorial limits.
Chapter 4
Regulatory Aspects of corporate Agents
1. Qualification for life advisor –
Rural Areas – 5000 less population – 10th pass (SSC)
Urban Areas – more than 5000 population- 12th Pass (HSC)
2. Training required
50 hours for Life Advisor
25 hours for General Advisor
50+ 25 hours for Composite Agent
3. Exam will be conducted by insurance institute of India (III)
4. Exam fee Rs.250/-
5. License validity up to 3 years
6. Renewal of license – fee 250 & need more 25 hours of training and no exam
7. No Rebates to be give
8. No scale of commission amount to be shared
9. Requirement of LA
*fire in belly
*positive self-image
*Being self -starter
* Ability to communicate
*Good Salesman
*NO ego
* Empathy

10. Natural market, Referral market, Cold calling, Testimonial, Center of

influence
11. Disqualification to act as insurance agent: under Section 42(3) of insurance
act.
 Chapter 5
Legal Principles of Life insurance contract
Indian Contract Act -1872
Elements of Valid contract
1. Offer and acceptance –
Offer – customer
Accept – insurance company
2. Consideration – Premium
3. Agreement between two parties – consensus ad idem
4. Free consent
No coercion
No Fraud
No undue influence
No mistake
No Misrepresentation
5. Capacity of parties be major (above 18 years)
Should be of sound mind, should not have criminal background
6. Legality – object should be legal
Principles of Life Insurance Contract
1. Uberrima Fide – disclose all material fact in proposal form both by insurer and
insured
2. Insurable interest –No definition – Financial loss brings this concept of insurable
interest. Applicable for both Life & General. Insurable interest should exist at the
time of taking policy in case of Life & in case of general it should exist at the claim
stage
3. Proximate Cause – Finding a root cause or the closest clause
4. Indemnity – applicable only to general insurance. Claim amount cannot be more
than the SA or Loss whichever is lower
5. Subrogation (Transfer of all rights)– Subrogation follows the principle of
indemnity

Chapter 6
What Life insurance involves
Asset – any Physical or non -physical thing which has economic value i.e can be
measured in terms of money

HLV- Human Life Value. Concept of HLV introduced and Developed by Prof. Huebner

HLV Can be estimated by

1. Monthly income
2. Bank Deposit
3. Discount Rate
There are 3 types of risk
1. Dying too early – Mortality Risk
 2. Living with Disability – Morbidity Risk
3. Living too long – Longevity Risk
Principle of pooling
1. Mutuality – combining funds of various individuals
2. Diversification – dividing funds flow from one source to various destinations
Insurance is a contract between Insurer and Insured.
General Insurance contracts are indemnity contracts
Life Insurance contracts are contracts of Assurance

Chapter 7
Financial Planning

Composite of Savings
1. Postponement of consumption
2. Parting with liquidity
Types of goal
1. Short term goal
2. Mid term goal
3. Long Term goal – to be achieved by buying insurance
7 Stages of Lie
1. Learner – no planning
2. Earner – invests in ULIP
3. Partner – Life insurance for both
4. Parent – Child Plan
5. Provider – with Children education or marriage Plan
6. Empty nester – investment in health insurance & Pension Plan
7. Retired – Investment in Property and Pension Plan
Challenges facing our society
1. Disintegration of joint family’
2. Multiple investment choices
3. Changing Life style
4. Inflation
5. Other contingencies
Start your financial planning with your first salary
Parameters on investment decisions made:
1. Diversification
2. Tax consideration
3. Risk Tolerance
4. Time Horizon (greater the investment horizon, larger the returns
5. Liquidity
6. Marketability
Financial products are
 1. Transactional products – bank deposit
2. Contingency Product – life insurance
3. Wealth creation plan –shares, real estate
Risk Profile and investment style are
1. Aggressive – accumulation
2. Progressive – consolidation
3. Secured – spending
4. Conservative – gifting

Chapter 8
Life Insurance Product 1

Products are of two type

1. Tangible – Material
2. Intangible – Non – Material
Life insurance products are intangible
Basic Terminologies used:
MB – Maturity Benefit
SB – Survival Benefit
DB – Death Benefit
SA - Sum (money) Assured (promise)
PT – Policy Term
PPT – Premium Paying Term
Bonus – Additional money
Riders – Additional accessories

Traditional Product categories are:

1. Pure Term Plan – only death benefit during (Low cost)
2. Pure Endowment – Only survival benefit after the term
3. Endowment Assurance - Combination of Term and Endowment – Either death or
maturity whichever is earlier
4. Increasing Term Plan – Beating inflation rate
5. Decreasing Term Plan – Specifically designed for home loan borrowers – Also known
as MRI – Mortgage Redemption insurance or Credit Life Insurance CLI
6. Convertible Term Plan – According to needs one can convert from one category to
another category
7. TROP – Term Return of Premium – Premiums paid are returned in case of maturity
8. Whole life Super- Legacy creation plan
9. Money back plans – periodical Payouts (type of endowment assurance)
10. PAR – Participating with profit, with bonus
11. Riders – Additional benefits , effective only in PPT. Can be added or removed at any
time in PPT
Types of Riders:
1. Accidental death and Dismemberment (ADD)- double SA
 2. Waiver of Premium (WOP) - applicable when proposer and life to be insured is
different. In case of death of Proposer, further premiums will be waived off by
the company
3. Critical Illness Rider - CIR % of the Sum Assured will be released for treatment
purpose. Policy will continue.
4. Income Disability rider (IDR) helps not to disable the salary
New Traditional products will give a higher death cover

1. For single premium policies – 125% for below 45 years; 110% for above 45 years
2. For Regular Premium – 10 times for below 45 years; 7 times for above 45 years

Chapter 9
Life Insurance Products II

Limitations of traditional products:

1. Bundled
2. Saving or cash value component is not well defined
3. Rate of return to be ascertained
4. Surrender value to be ascertained
5. Yield is low
Advantages of non – traditional products
1. Unbundled ( saving and protection element separate)
2. Direct linkage with investment gain
3. Inflation beating returns
4. Flexibility
5. Surrender value is defined
Non Traditional products
1. Universal Life – 1979 USA
2. Variable Life Insurance – 1977 USA
3. ULIP- Unit Linked Insurance Plan – UK
 Ulip Premiums are transparent in nature.
 ULIP Investment, policy holders decides in which fund investments will be made
 Switching and Redirecting options are available in ULIP
 III benefit – Insurance Protection, Investment and Income Tax benefit
Component for ULIP Premiums
1. Mortality
2. Expenses
3. Investment
 Chapter 10
Application of Life insurance
Married Women’s property Act, Section 6 MWP ACT 1874, beneficiaries are:
1. Wife alone
2. Wife and child or children jointly
3. Child or children
Features of policy under MWP ACT
1. Trustee will be either wife or child (above 18 years)
2. Nomination is not allowed. Assignment is also not allowed
3. Policy cannot be surrendered
4. Policy will be beyond the control of court attachment
5. Claim money paid to the trustees
6. If Policy holder does not appoint a special trustee, then SA becomes payable to the
official trustee of the state
Key Man Insurance
 For Key man policy only Term insurance can be given
 SA is linked to the profitability of the company
 Premium paid by the company and benefit paid to the company (if key man dies)
 Death benefit is taxable for company
Key Man would be
 Director of the company
 Partner
 Key Sales Person
 Key Project Manager
 Someone with specific skills or knowledge
Mortgage redemption insurance
-Also known as decreasing term plan or credit life insurance
Provides for financial protection for home loan borrowers.

Chapter 11.
Pricing and valuation of Life insurance

Premium – Price paid by an insured for purchasing the policy

Rebate on premium by insurer:
1. Rebate for high SA
2. Rebate for mode of payment (low frequency mode – yearly)
Determinants of Premium
1. Mortality
2. Interest
3. Expenses of management
4. Reserves
5. Bonus of Loading
Higher the Mortality Higher the premium
Higher the interest rate assumed, lowed the premium
  Lapse – Policy holder Discontinuance payment of premium
 Surrender- policyholder surrenders the policy and receives acquired cash value
 Surplus – surplus is the excess value of asset over value of liabilities
 If surplus is negative then it is known as strain
 New business strain – Expenses and reserves are higher than the first year premium
 Bonus – addition to the basic benefit. Reversionary bonus is the most common
bonus company declares every year

Types of Bonus
1. Simple Reversionary bonus – basic cash benefit under a contract
2. Compound bonus – bonus on bonus
3. Terminal bonus – declared only for claims of the ensuing year

Chapter 12
Documentation stage 1
1. Prospectus – Formal legal document
2. Proposal form – proposer application form
3. Agents Report – Agent is a Primary underwriter
4. Medical examiners report – current health status/height, weight, blood pressure
5. Moral hazard report –
6. Age proof – Standard age proof – school/college certificate, passport, PAN, Adhar
card, service register, certificate of Baptism, ID Card in case of defence personnel
Non Standard Age proof- Horoscope, Ration card, self-declaration affidavit and
certificate from village panchayat
7. AML – anti money laundering Act 2005 – Prevention of Money Laundering ACT –
PMLA
8. Know your customers – KYC – Photograph, age proof, & Address proof
Free look in period/cooling off period -15 days
Privilege to policy holder to discontinue policy but three expenses deducted from premium
if policy is returned
1. Medical charges(if done)
2. Proportionate risk
3. Stamp duty and registration charges

Chapter 13
Documentation – Policy condition 1

First Premium Receipt – FPR – evidence that policy contract has begun
Policy document – evidence of the contract between insurer and insured not a
contract itself
Policy document components:
1. Policy schedule – first part of the policy document
2. Standard provisions- right and privileges and other conditions which are
applicable under a contract.
3. Specific policy provisions – provisions that are specific to the individual policy
contract ., eg Pregnant lady

Chapter 14
Documentation – policy condition
Policy conditions and privileges:
1. Grace Period – additional period of time to pay premium – one month or 31
days
2. Lapse – Non - payment of Premium even in grace period
3. Reinstatement or Revival – start your lapse policy with payment of unpaid
premiums with interest – in India revival must be done within maximum of 5
years from the date of lapse
Types of Revival:

1. Ordinary Revival – lapse after 3 years – surrender value is acquired

2. Special Revival – lapse within 3 years- surrender value not acquired
3. Loan cum revival – granting of loan & Reviving the policy
4. Instalment Revival – cannot pay lump sum, then pay in instalments
For policy to acquire surrender value, premiums must be paid for at least
3 consecutive years

4 Policy loan: Usually limited to a % of the policy’s surrender value say 90%
5. Nomination (under sec 39) – right to receive policy money in the event of
death only. Does not have any right to the whole of the claim
If nominee is minor, then policy holder need to appoint an appointee
6. Assignment (under section 38) – Transfer of property by writing as
distinguished from transfer by delivery. On assignment, nomination is
cancelled. Except when made to an insurance company for a policy loan.
Person who transfers his rights is assignor and person to whom the property
is assigned is assignee

Types of assignment
1. Conditional assignment: Policy shall revert back to LA once the condition
is fulfilled.
2. Absolute Assignment: Assignor transfer all his rights to the assignee-
cannot revert back
3. Nomination and Assignment both are different

7. Alteration: allowed to change in name, address, mode of payment, changes

of date of commencement of policy and split into two policies
Not allowed: to increase Risk cover, Premium cannot be reduced, policy term
cannot be changed, no change from par policy to non -par policy
 Chapter 15
Underwriting
Underwriting process helps to prevent Anti selection or selection against
insurer.
Risk classification:
1. Standard lives: Normal lives, charged ordinary premium as per mortality
table
2. Preferred risk/lives – anticipated mortality is lower than standard lives,
changed lower premium
3. Substandard lives: anticipated mortality is higher than standard lives,
higher premium is charged
4. Declined lives – anticipated extra mortality so proposal gets rejected. Eg . HIV,
Cancer

Underwriter selection process

1. Field level – by agents- Agent is a Primary underwriter
2. Department level by specialist and persons who are proficient in work
Methods of selection
1. Judgement method: subjective judgement is used
2. Numerical method – assign positive rating points for all negative or adverse factors
Underwriting decisions:
1. Acceptance with ordinary rate
2. Acceptance with extra rate
3. Acceptance with Lien – when risk is decreasing, Lien is applicable on SA – Eg.having
TB in the past and death due to TB
4. Acceptance with clause – when risk is permanent till policy term ends then clause is
applicable ( e.g.) Pregnant lady, sugar patient, cardiac patient
Both are conditions they cut down the benefits of policy holder
Types of Underwriting:

1. Medical underwriting- eligibility criteria for medical underwriting – age above 40 or

45,
High SA
Who want to buy term plan
Working women

2. Non - medical underwriting

 Chapter 16
Payments under a life insurance policy
1. Claim is Demand from insured to insurer to fulfil the promise given in the policy
contract

2. Claim types:
Survival claim – maturity benefit, periodical payout in money back, surrender of
policy, critical illness rider benefit, return of premium, market value in ulip

Death claim:
1. Early – death within 3 years
2. Non early – death after the first 3 years

3. Repudiation of death claim within two years company must prove breach of utmost
good faith

4. Presumption of death claim – court decree – seven years not heard not seen case

5. Claim settlement: Within 15 days documents be collected at one go. After submitting
within one month, claim should be paid. If not paid on time, interest upto 2% above
bank interest has to be paid. For any investigation they may take three to six months

Chapter 17 to 21 Health insurance

Word health is derived from Latin word hoeith, means soundness of out body.
Factors affecting Health
1. Lifestyle
2. Environmental
3. Genetic
Types of health care
1. Primary health care- first point of contact for people seeking health care eg., family
doctor, small clinics
2. Secondary health care – generally do not have first point of contact, eg, diagnostic
centres, hospital treatments for small disease
3. Tertiary health care- Specialised consultative health care, referred by primary and
secondary care providers et., surgeons, cardiologist, radiologist etc.
Health insurance products
1. Indemnity cover: Pay for actual medical expenses incurred due to hospitalisation
2. Fixed benefit cover pay for a fixed sum per day for period of hospitalisation also
known as hospital cash
 3. Critical illness cover – patient gets payout on occurrence of pre -defined critical
illness like a heart attack stroke etc.,
Some Terminologies used in health:
*Inpatient – Who gets admitted and undergoes treatment
*Outpatient – who gets treatment without getting admitted
*Day care center – less than 24 hour’s admission eg. Cataract surgery, dialysis,
chemotherapy, tonsillectomy, lithotripsy
*TPA – Third party administrator – Service vendors – since 2000 applicable needs license
from IRDA- Valid for 3 years- Applicant company share capital at least 1 crore
* Network providers- Provides network of list of hospitals
*PPN – Preferred Provider Network
*Pre - existing conditions – four years waiting period
*Senior citizens – some companies design the products for senior citizens
* Individual cover – Offered to customers and their family members
* Family floater policies – SA will float in family members. Husband, wife, their parents and
children eligible only. In Family floater, maternal/paternal relatives are not allowed
* Group health insurance policy –
1. Central administration point is required
2. Unrelated people cannot avail group health insurance
3. Offered to corporate clients covering employees and groups covering their members
* Mass policies – government schemes like RSBY covering very poor section of the
population.
*Co-payment – cost sharing while hospitalisation
*Deductible – Patient pays hospitalisation bill first then reimburse
*Combi product – Product jointly designed by 2 insurers
*Combination of life insurance – Cover from Life Insurance Company & health insurance
cover from non-life or standalone health insurance Company
*Portability - switching from one company to other company- only available in non- life
(general and health)
*Pre_Existing expenses: expenses incurred before admitting in hospital, duration is 30 days
*Post hospitalisation expenses – expenses incurred immediately after patient discharged
from hospital duration is 60 days
*Domicilary hospitalisation –patient cannot be moved to hospital or there is lack of
accommodation in hospital
*Cashless – Insurer directly pays to hospital. Insured will not pay a single penny
*Claim Reimbursement – policy holder pays first and subsequently gets reimbursement
from company
*Hospital :
1. Population less than 10 lakh – 10 bed hospital
2. Population more than 10 Lakh – 15 bed hospital

*PTD – Permanent Total Disability

*PPD – Permanent Partial Disability
*TTD – Temporary Total Disability
*CPT – Current Procedure Terminology
Some schemes run by private as well as Government:
 ESI - Employees State Insurance Scheme 1948
 CGHS - Central Government Health Scheme 1954
 CHI – Commercial Health insurance, Medi claim policies 1986
 PHC – Public Health center
 CDSS – Child Development Services scheme
 TBA – Trained Birth Attendants
 ASHA – Accredited Social health activist
 NRHM – National Rural health Mission
 CHC – Community health centre
 NPPA – National Pharmaceutical Pricing Authority.