RESERVE---PREMIUM COLLECTEDIN EARLY YEARS OF THE CONTRACT ARE HELD

IN TRUST BY INSURER FOR THE BENEFIT OF POLICYHOLDER.

LIFE FUND---THE AMOUNT ALSO CREATE A FUND KNOWN AS THE LIFE FUND. LIFE
INSURERS INVEST THIS FUND AND EARN AN INTEREST.

MUTUALITY AND DIVERSIFICATION

MUTUALITY----MUTUALITY IS ONE OF THE IMPORTANT WAY TO REDUCE RISK IN

FINANCIAL MARKET, OTHER BEING DIVERSIFICATION. MUTUALITY
AND DIVERSIFICATION ARE FUNDAMENTALLY DIFFERENT...

MUTUALITY DIVERSIFICATION

1.MUTUALITY OR POOLING ,THE 1..UNDER DIVERSIFICATION THE FUNDS ARE

FUNDS OF VARIOUS INDIVIDUAL SREADOUT AMONG THE VARIOUS ASSET..
ARE COMBINED..

2 UNDER MUTUALITY WE HAVE FUNDS 2.. UNDER DIVERSIFICATION WE HAVE

FLOW FROM MANY SOURCES TO ONE. FUNDS FLOWING FROM ONE SOURCE TO
MANY DESTINATION..

ADVANTAGES OF MUTUALITY---

1..IT PROVIDES PROTECTION AGAINST ECONOMIC LOSS ARISING

AS A RESULT OF ONES UNTIMELY DEATH.

2..IT CAN INVOLVE THE POOLING AND EVENING OUT OF FINANCIAL

FINANCIAL RISK AS WELL..IT GIVES UNIFORM RATE OF RETURN THROUGH BONUS
ACROSS THE TIME..
 COMPONENT OF LIFE INSURANCE—1..RISK COVER

2..SAVING ELEMENT

ADVANTAGES OF LIFE INSURANCE-

1... INVESTMENT IN LIFE INSURANCE IS SAVE & SECURE..

2..REGULARLY PREMIUM PAYMENT MAKE PLANNING ONE'S SAVINGS AND PROVIDES

the discipline that savers require .

3..Insurer takes care of investment management and frees the individual of this
responsibility .

4..It provides liquidity. The insured can take a loan on or surrender the policy and
thus convert it into cash

5..Both cash value type life insurance and annuities may enjoy some income tax
advantages.

6..It may be safe from creditors‘ claims, generally in the event of the insured ‟s
bankruptcy or death

DISADVANTAGES OF LIFE INSURANCE---

1..As an instrument with relatively stable returns it is subjected to the corroding
effect of inflation on all fixed income investments.

2..The high marketing and other initial costs of life insurance policies, reduces
the amount of money accumulated in earlier years.

3..The yield, while guaranteed, may be less than that on other financial market
instruments. Lower yield is the result of a trade-off, which also reduces the risk.

HLV is to divide the annual income a family would like to have, even if the bread earner was no
longer alive, with the rate of interest that can be earned.