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1.1 Concept of Insurance
Insurance is a contract between two parties whereby one party agrees to undertake the risk of another in exchange for consideration known as premium and promises to pay a fixed sum of money to the other party on happening of an uncertain event (death) or after the expiry of a certain period in case of life insurance or to indemnify the other party on happening of an uncertain event in case of general insurance. Insurance works on the basic principle of risksharing. A great advantage of insurance is that it spreads the risk of a few people over a large group of people exposed to risk of similar type. Insurance is a means of providing protection against financial loss in a great variety of situations. For example, life insurance helps replace income lost to a family if a wage-earning parent dies. Health insurance helps pay medical bills. Auto insurance helps cover the costs of damages resulting from automobile accidents. People also can buy insurance to cover unusual types of financial losses. For example, dancers have insured their legs against injury.

Insurance works on the principle of sharing risks. People who wish to be insured against particular types of losses agree to make regular payments, called premiums, to an insurance company. In return these people receive a contract, called a policy, from the company. The company promises to pay them a certain sum of money for the types of losses stated in the policy. The individuals paying the premiums are called policy holders. The insurance company uses the premiums to invest in stocks, bonds, mortgages, government securities, and other income-producing enterprises. The company pays benefits to the policy holder, from the premium it collects and from the investment income the premiums earn. Insurance works because policyholders are willing to trade a small, certain loss- the premiums-for the guarantee that they will be indemnified (paid) in case of a larger loss.

Insurance works well only when the possible losses to the insured person can be estimated. Insurance companies take advantage of the laws of probability. These laws enable an insurance mathematician called an actuary to determine the likelihood that an event will occur. Laws of probability are based on the law of large numbers. As the number of life insurance policyholders increases, for example, an insurance company can use this law to predict with ever greater accuracy the number of policyholders who will die.

Insurance generally covers only situations involving pure risk-that is, situations in which only losses can occur. Such situations include fire, flood, and accidents. Insurance does not cover gambling and other speculative risks, in which either losses or gains may result.

Although a policyholder may never receive benefits from an insurance company, the premiums have not been wasted. Insurance gives policyholders a feeling of security. Policyholders know they will be indemnified if a loss should occur.

1.2 Insurance Business In India
The insurance sector in India has come a full circle from being an open competitive market to nationalisation and back to a liberalised market again. Tracing the developments in the Indian insurance sector reveals the 360 degree turn witnessed over a period of almost two centuries. In India, insurance has a deep-rooted history. It finds mention in the writings of Manu ( Manusmrithi ), Yagnavalkya ( Dharmasastra ) and Kautilya ( Arthasastra ). The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers contracts. Insurance in India has evolved over time heavily drawing from other countries, England in particular.

1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era, however, was dominated by foreign insurance offices which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian offices were up for hard competition from the foreign companies. In 1914, the Government of India started publishing returns of Insurance Companies in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938, with a view to protecting the interest of the Insurance public, the earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers. The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large number of insurance companies and the level of competition was high. There were also allegations of unfair trade practices. The Government of India, therefore, decided to nationalize insurance business. An Ordinance was issued on 19th
January, 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies 245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector. The history of general

insurance dates back to the Industrial Revolution in the west and the consequent growth of sea-faring trade and commerce in the 17th century. It came to India as a legacy of British occupation. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first company to transact all classes of general insurance business. 1957 saw the formation of the General Insurance Council, a wing of the Insurance Associaton of India. The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices. In 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins. The Tariff Advisory Committee was also set up then. In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general insurance business was nationalized with effect from 1st January, 1973. 107

insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1sst 1973. This millennium has seen insurance come a full circle in a journey extending to nearly 200 years. The process of re-opening of the sector had begun in the early 1990s and the last decade and more has seen it been opened up substantially. In 1993, the Government set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector.The objective was to complement the reforms initiated in the financial sector. The committee submitted its report in 1994 wherein , among other things, it recommended that the private sector be permitted to enter the insurance industry. They stated that foreign companies be allowed to enter by floating Indian companies, preferably a joint venture with Indian partners. Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market. The IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed various regulations ranging from registration of companies for carrying on insurance business to protection of policyholders¶ interests.

The Insurance Regulatory and Development Authority Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies.

The other decisions taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies were the launch of the IRDA¶s online service for issue and renewal of licenses to agents.

The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products, which are expected to be introduced by early next year.

Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations. In the private sector 12 life insurance and 9 general insurance companies have been registered.

Protection of the interest of policy holders: IRDA has the responsibility of protecting the interest of insurance policyholders. Towards achieving this objective, the Authority has taken the following steps:  IRDA has notified Protection of Policyholders Interest Regulations 2001 to provide for: policy proposal documents in easily understandable language; claims procedure in both life and non-life; setting up of grievance redressal machinery; speedy settlement of claims; and policyholders' servicing. The Regulation also provides for payment of interest by insurers for the delay in settlement of claim.  The insurers are required to maintain solvency margins so that they are in a position to meet their obligations towards policyholders with regard to payment of claims.  It is obligatory on the part of the insurance companies to disclose clearly the benefits, terms and conditions under the policy. The advertisements issued by the insurers should not mislead the insuring public.

As in the past the motor and fire portfolios continue to hold pre- . All insurers are required to set up proper grievance redress machinery in their head office and at their other offices. Insurance business is divided into two groups: INSURANCE SECTOR LIFE INSURANCE GENERAL INSURANCE  1.3 General Insurance As is the case with the life insurance business. The Authority takes up with the insurers any complaint received from the policyholders in connection with services provided by them under the insurance contract. new general insurers also got registered towards the end of 2000 and were unable to commence full scale business before the end of March 2001.

covering . At the same time. Although the public sector companies still dominate the general insurance business. The personal lines of business. Presently there are 24 general insurance companies with 4 public sector companies and 9 private insurers. In July 2002. as it has done with the life insurers. have vast potential for growth and companies both in public and the private sector have devised strategies to penetrate this segment. Benefits of Life Insurance: Life Insurance has come a long way from the earlier days when it was originally conceived as a risk covering medium for short periods of time. clothing and shelter on the income brought by the family's breadwinner. the GIC subsidiaries were restructured as independent insurance companies. A family is dependent for its food.. In December 2000. The Authority has encouraged. on the happening of a certain event. which are outside the fold of tariff administration. like health care etc. are not neglected.4 Life Insurance Life Insurance is a contract providing for payment of a sum of money to the person assured or. The family is secure so long as this breadwinner is alive and is capable of earning. 1. Uncertainty of death is inherent in human life and this uncertainty makes it necessary to have some protection against the financial loss arising from untimely death. the private players are slowly gaining a foothold. Parliament passed a bill. to add riders to the existing general insurance policies so that certain areas where development is necessary. de-linking the four subsidiaries from GIC. GIC was converted into a national re-insurer. Life insurance offers this protection. A sudden death (or disability) may leave the family in a financially difficult situation. to the person entitled to receive the same.dominant share of the insurance market.

such as sea voyages. namely providing for replacement of income on death etc. the building up of savings while safeguarding it from the ravages of inflation. This has become more relevant in recent times as people seek financial independence for their family. investment products are traditionally lump sum investments.temporary risk situations. One can buy a suitable insurance policy. Unlike regular saving products. a disproportionately large chunk of LIC¶s new business comes in the last quarter of the financial year.000 per annum. After all. . c) Investment: Put simply. as a medium to long term exercise (through a series of regular payment of premiums). it was realized what a useful tool it was for a number of situations. especially in a changing cultural and social environment. where the individual makes a one off payment. d) Retirement: Provision for later years becomes increasingly necessary. including a) Temporary needs / threats: The original purpose of life insurance remains an important element. b) Regular Savings: Providing for one's family and oneself. Section 88 of the Income Tax Act provides a rebate up to 20% (depending on the level of gross total income) on the sum paid as life insurance premium up to a maximum investment of Rs 1.00. which will provide periodical payments in one's old age. As life insurance became more established. e) Escaping the Tax Net: One cannot undermine the importance of tax saving in promoting insurance.

. etc. insurance is also sold as an investment product by insurance companies. So when you want insurance. insurance protects against untimely losses. hence. .Many investors. which has attracted people to insurance companies. In addition. Short term needs like sudden medical costs and long term needs like marriage expenses etc can be met with using life insurance. They are purely investment options. However. With the scientific calculation of one¶s need for insurance yet to start there are many loopholes like black money. however. a good amount of money is coming to the insurance sector. Hence. In simple words. the marketing costs of insurance are much higher than those of some other investment instruments like mutual funds. it is important that insurance is bought for the sake of insurance alone. etc. at least not under Section 88. especially those in higher tax brackets. poor performance of mutual funds and volatility in stock markets. It is not a good saving toll either. Insurance has been found useful in the lives of persons both in the short term and long term. true net worth etc. let that not be the deciding factor for purchasing insurance policy. the return from insurance can never be more than that one can gets from some of these other options. Another point. buy life insurance mainly to take advantage of these tax benefits. As far as tax benefits go. At the same time. NSC. buy an insurance policy but when you want to invest. Life Insurance as an Investment Instrument With the fall in bank deposits rates and government investment products like PPF. these other instruments do not offer insurance. look at pure investment instruments. is the realization that they are underinsured. when buying an insurance policy. fixed deposits. existing savings. one should remember that a part of the premium that you pay goes towards risk coverage. However. Additional tax benefits are also available under Section 80DD and Section 80CCC applicable to specific schemes.

It does not expire if you continue to pay the premiums regularly. It covers risk for a specified period. A portion of the premium goes for life insurance. such as college education for their children or retirement. Endowment: This plan is appropriate for people of all ages and social groups who wish to protect their families from a financial setback that may occur owing to their demise. You pay the same premium till the termination payment period. In an endowment policy. this policy gives you a return after a certain period of time. Whole Life: This is also called as permanent insurance.000.000 a year. Money Back: Unlike other policies. The risk cover on the life continues for the full sum assured even after payment of survival benefits and the bonus is also calculated on the full sum assured. The rest of the amount is paid at the end the term with a bonus. at the end of which the assured sum is paid back to the policyholder. This account can be either an interest bearing account or a variable (stocks and bonds) investment account. whereas in a whole life plan it costs around Rs 40. This is suitable to the Indian psyche of the life insurance policyholder who wants returns at frequent intervals. Many investors use endowment policy to fund anticipated financial needs. while the rest goes into an investment account. . It provides periodic payments of partial survival benefits during the term of the policy.5 Different Kinds of Policies Policies can essentially be categorized into a few types and others are just permutations and combinations of these basic types. a 20-year term for a 30year-old costs around Rs 50. but it also provides an investment vehicle. It provides coverage similar to term life insurance.1. along with the bonus accumulated during the term of the policy. Premium for an endowment life policy is much higher than that of a whole life policy.

the contract or policy expires. Another important aspect of this policy is that it also protects you after the period of policy termination. you have to shell out almost Rs 50. you don't receive any benefits after the policy expires.000 annually. But the biggest benefit of this is you have to pay a marginal premium as compared to other policies. If you are 30 years old and take a 20-year policy. You pay for the policy period and at the end of the term.000 every year for any other policy. Young people with large financial obligations are usually better off with term insurance policies. just like an auto or general insurance. The substantially lower premiums enable them to purchase sufficient coverage to protect against loss of income. But in case of a term policy you have to pay a meager Rs 10. If no claims are made against the policy during the term. .Whole life insurance policies are valuable because they provide permanent protection and accumulate cash values that can be used for emergencies or to meet specific objectives. Term Policies: It covers a person against death for a limited term. This is also called as a pure life insurance policy.

there¶s another ocean to be crossed. the insurance company would collect regular premiums and invest them in a common pool of funds. is in the maturity benefits. you will receive only the fund value. the person¶s age and the profile in terms of income. a unit-linked policy will give only the fund value unlike a minimum sum assured. But look at it from the upside point of view ± if the fund performs really will. As against this. a unit-linked policy offers much more transparency. as is the case with traditional policies. So in a way. If the fund performs badly. Compare this with a traditional policy. But if the fund performs well. once the person has jumped into one option. At the end of each year. the policyholder will get a higher fund value. On maturity. So if your fund value falls below premiums invested. At the end of the term. you are assured of a minimum sum assured. The policyholder will know how much of his premiums are deducted as expenses and how much is invested. the policyholder will receive the sum assured plus bonuses. the policyholder is assured of receiving at least the sum much of premium is invested and what are the expenses incurred by the insurance company on the management of the fund. his nominees will get the sum assured plus bonuses accrued till the date of death. The difference. The policyholder will also have an option to choose the type of fund-debt.1 Traditional Products In traditional policies. number of dependents and so on.2. This bonus is actually a share in the profits of the fund. If he dies during the term. the company would declare a bonus. the insurance company may or may not pass on the larger benefits. That¶s .0 Literature Review 2. however. equity or balanced. Nevertheless. What category a person selects really depends on the risk appetite. unlike the common pool that exists in a traditional policy.

The downside is that. you will get back. provide benefits only on death of the policyholder. All companies offer the four basic policies whole life. Pure risk term plans. minimum and maximum term etc. criteria like entry age. whatever premiums you have paid. your beneficiaries would receive the sum assured by the policy. minimum and maximum sum assured. It covers risk for a fixed period of time. you must not confuse this policy with an investment . the policy closes and you do not receive anything.because each of these two categories give the person several options within themselves. We take a quick look at these categories. all good things come for a price. money-back. The additional amount charges are the amount that will be invested by the insurance company so as to be able to repay the premiums at the end of 20 years while making a profit at the same time. As the name suggests. in full. However. Likewise. Further. that is. in case of this policy. in most cases. However. some people are still not comfortable with the idea of paying premiums for a specific term without receiving any benefits at the end of the term. But the cost of taking the policy as compared with the consequences of not taking it is so less that it becomes worthwhile to go for a risk cover even if it means shelling out a little cash. may vary from company to company. as the name suggests. In case of your unfortunate death during this term. In view of this. a few insurance companies have started to offer a variant of the plain vanilla tem insurance policy called premium-back term insurance policy. at the end of the term. the premiums you will pay in case of the latter will be much higher than that paid in case a simple term plans. you will buy a term policy for twenty years and pay premiums for that term. each company has a set of riders that can be incorporated into the basic policies to suit the customer¶s individual needs. there is no maturity benefit. term. It is usually taken to cover risks for a specific period of time. For example. However. if you want to cover risks for a period of twenty years. if you survive until the end of the term. and endowment. However.

On maturity or completion of the term. During this term. you will get the sum assured plus all accrued bonuses. you will get the balance sum assured along with bonuses. some part will go toward risk cover and the balance will be invested to earn returns. . the beneficiaries would get the sum assured plus bonuses accrued till date of death. Money-back policies are a slight variant of endowment policies. you will pay premiums. You pay premiums throughout your life and in case of any unfortunate event happening. You will choose a policy term and sum assured. There is no interest or bonus element nor is there any adjustment for inflation or the time value of money. These policies are designed to help you receive the proceeds over a period of time rather than a lump sum at the term. your beneficiaries will get the sum assured and accumulated bonuses. endowment and money-back policies belong to this category. you will get a certain percentage of the sum assured at specific intervals. In the case of endowment policies.policy. you pay premiums for a specific term. as there are not returns. Whole life policies give you protection for life. Of the premiums that you pay. The next category of policies comprises two elements ± protection as well as savings. So naturally these policies are a little more expensive than term policies. On maturity. On death during the term. if any. Accordingly. Whole life. On death during the term. the beneficiaries will get the sum assured plus bonuses. Accumulated bonuses are a part of these returns. The only thing you get back after the term is the premium.

You will also know how . if you opt for a unitlinked endowment policy. They met with good success. Accordingly. So as a policyholder. the game is altogether different. That means. the policyholder will not know how many returns the common pool has earned. as per IRDA.2. only a few insure offered unit-linked policies. mortality charges and the amounts invested. however. The type of und you choose would depend upon your risk profile and also the need for your investment. In case of unit-linked policies. The insurance company will share a part of the returns by way of bonuses. if a company offers unit-linked plans. most of the funds must be invested in the debt market with just a maximum leeway of 35% in approved equities. There is a common pool of funds and contributions of all policyholders are invested in this common pool. a major portion of your premiums will be invested in the equity market. Further. it must give an option to the investor to choose between three-fund options-debt. regulated by the insurance regulatory and development authority (IRDA). LIC. In traditional policies. Firstly. securities like gilts and bonds. The IRDA prescribes investment norms for participatory products. which has just one such policy today. balance and equity. there is transparently in terms of charges deducted to meet administration and fund management expenses as well as mortality charges. In comparison. is looking at beefing up this segment in the coming days.2 Unit Link Products Till some time ago. thus encouraging other to enter the race. Unit-linked policies are known to be much more transparent in their offerings than their traditional counterparts. Unlike in traditional policies. almost all insurance companies offer unit-linked products. you can choose a debt fund. you would know exactly how much of your premiums are being invested. no details are given about the charges deducted towards expenses. a majority of your premiums will get invested in a debt. The investments of this common pool are. At the end of the year. you have an opportunity to invest in equities here. unit-linked policies offer much more transparency and many more options. In case of an equity fund. Today. In fact.

However. one hears agents evangelizing about a 100% surrender value after three years. part or whole of the fund value after the expiry of three or four years. which is less than your investments on maturity. Agents of new private insurers are selling unit-linked insurance plans (ULIPs) by offering the incentive of liquidity. Most often. However. This is quite unlike unit-linked policies where only the fund value is paid on maturity. Earlier (before July 2010) IRDA allowed companies to pay a maximum commission of 40% of the first year¶s premium and most insures recover these commissions from the first year¶s premium itself. one of the highest among the list is that of Birla Sun Life Insurance. the company claims that . If one were to look at the charge structures.your fund is performing from the NAV (Net Asset Value). some basic calculations show that it is unviable for an insured person to make such early exits even for the initial five to seven years. Another peculiar option that unit-linked plans offer is that of liquidity. In case of Aviva. if your fund performs really well. its charges (including agency commission) are 65% of the first year¶s premium 7. The policy is sold as a more liquid form of insurance where a policyholder can exist early. one must tread carefully. without any surrender penalty. So if your fund performs badly and has a value. the company claims that the charges. when it comes to maturity benefits. you will get a lower fund value.5% for the second and third years. Other unit-linked plans like that of HDFC Standard Life and ICICI Prudential have marginally lesser charges. Industry sources say in some total charges throughout the life of the policy. In case of Aviva. The reason: cost structures of unit-linked plans are so heavily tweaked towards the initial years that mere break-even takes three-five years. and 5 % thereafter. you will get all the benefits with only some of the benefits. However. All funds declare their Naves on a daily basis. traditional policies at least guarantee you the sum assured. One the other hand. Most of these plans allow you to withdraw. high initial commission charges for unit-linked plans make an early exit a non-viable move for its policyholders as it takes three-five years to merely break even on the investments. For its 15-year endowment (Unitlinked) policy. While unit-linked policies certainly appear attractive. which is nothing but an exit option at NAV values without deduction of any other charges.

Against this backdrop. a 100% surrender value after the initial three-five years may not be what it appears. In a longer period. perhaps 10 years. Together.323 and that towards administrations charges is Rs. The break-even in this case is achieved in the first year itself. Further. Insurance agents often misguide prospective insurance buyers about the easy exit option at NAV values in case of unit-linked policies. In fact. the charge towards agent¶s commission is Rs. This means the charge towards agents¶ commission and administration is equal throughout the policy term and there is no frontloading. the time period of the policy plays a very crucial role in the effective charges.000 and a term of 10 years. assuming a 10% annual growth rate in the portfolio. However. One of the concerns that arise from higher front-loading is that with higher initial charges. But little do they know that it actually takes more years.7% of premiums each year. the initial charges get evened out because of which the effective expense ratios are lower.10. the fund will take longer to break even. since the charges are evened out over the period of the policy. For an annual premium of Rs.the charges are deferred over the little of the policy and there is no front-loading. the impact of compounded return is higher as result of which the charges are recovered over a longer period than a shorter period. they form 5. to earn a decent return on the overall portfolio. The company evens out its costs over the tenure of the policy. the penalty on surrender would be higher. it takes more than five years to break even on investments. So the idea is not to be tempted by the liquidity option but to understand that insurance is a long-term contract and the benefits will come in the longer run. . 247. Compare that to insurance giant LIC. A little number tweaking shows that in the case of the 15-year unit-linked plan of Birla Sun Life. Break-even is comparatively earlier at around three years for both HDFC Standard Life and ICICI Prudential Life. Aviva charges 5% of the first year¶s no subsequent deductions thereafter.

Thus if you are in a tax bracket of 30% then you can easily save Rs. The differences are usually in areas such as premium holiday. these expense ratios are likely to come down even further.3. money-back. the policyholder bears most of the investment risk. insurers can sell these policies with less capital of their own than what would be required if they sold traditional policies. All of them operate in exactly the same manner with a little operate in and there. If one considers the tax benefits. Why do insurers prefer ULIPs? Insurers love ULIPs for several reasons. the insurance company bears the investment risk to the extent of the assured amount. . Another important point is that these policies offer a host of tax benefit.What is found reiterated that it is better to make investments in these instruments for a longer period of time? Across all companies.000 is made each year in this type of policy. children¶s policies as well as pensions. whole-life. Unit-linked policies come in all categories-endowment. The difference is wider in cases where the initial charges are higher in the first few years. the expense ratios worked out much lesser for a 30-year term than for a 10-year term. surrender and maturities. say the first two o three years. In traditional µwith profits¶ policies.000 per annum in the form of tax. That brings down your expense ratios so drastically that in most cases. Most important of all. In ULIPs.10. the ratio is in the negative. Tax benefits in the form of deduction from taxable income under section 80CC can be availed of if an investment up to Rs.

Flexibility While ULIPs offer the opportunity to invest upto 100% in equity. While individuals have the choice to shift between equity and debt (explained later in this article). it is also true that ULIPs provide individuals the flexibility to shift to upto 100% debt. ULIPs are life insurance plans. 1. And given the fact that life insurance is a long-term contract. which has been traditionally dominated by mutual Benefits of our Unit . which have a mandate to invest upto 100% of their corpus in equities. 2. It is entirely upon the individual how he wishes to allocate his premiums between equity and debt. Such has been the popularity of ULIPs in the recent past that they have outpaced the growth of regular endowment plans.Since ULIPs are devised to mobilize savings. We take a look at the most important reasons why ULIPs score over endowment plans. several studies have shown that equities are best equipped to deliver better returns compared to their fixed-return counterparts like bonds and gsecs. .Linked Plan Look at any advertisement for a life insurance product and chances are that it will be for a unit linked insurance plan (ULIP). they give insurance companies an opportunity to get a large chunk of the asset management business. The power of equity Simply put. equity-oriented ULIPs augur well for the policyholder.

ULIPs introduced transparency into the manner in which life insurance products were being managed.This is not the case with endowment type plans. Individuals are free to decide where they want to invest their money. 3.individuals can't choose their investment avenues and have to be content with the insurance company's investment decisions which revolve largely around debt. ULIPs also provide individuals with the flexibility of terminating/resuming premiums. ULIPs are available in 3 broad variants: 'Aggressive' ULIPs. These options are not available in regular endowment plans. Traditional endowment plans have been opaque in more ways than one. 'Balanced' ULIPs which invest up to 60% of their corpus in equities and 'Conservative' ULIPs which invest upto 100% of their corpus in debt instruments and the money market instruments*. individuals with an appetite f equities while conservative individuals have the option to park their money in balanced or conservative ULIPs. To understand why we are saying this. Individuals do not have access to portfolios of endowment plans so they never find out how much money is in debt/equities. Transparency For the first time. For example. traditional endowment plans have invested a sizable portion of their corpus in debt instruments like G-secs and bonds. one has to first understand the structure of traditional endowment plans. increasing/decreasing premiums and paying top-ups (i. which invest up to 100% of their corpus in equities. a one-time sum over and above the regular premium) whenever possible. This is something that was missing in conventional savings-based insurance products (like endowment/ money-back/ pension plans). The quantum of money invested is not known. To begin with.e. That apart. .

e. He will not be levied with any surrender charges i. net of charges. so you know exactly where your money is being invested. Liquidity ULIPs offer liquidity to the individual. He can withdraw money anytime he wishes to once the initial years' premiums are paid.Add to this the fact that the expenses. Today. Also ULIPs disclose their portfolios at regular intervals. Simply put. 4. So does this mean that it is the end of the road for endowment plans? Not quite! Individuals need to understand the de-merits of investing in market-linked products like ULIPs. equity-oriented ULIPs are not the right investment option for you. part surrender is also allowed in ULIPs. are also not clear and you have a situation where the individual is 'investing' in life insurance purely on the basis of faith and little else! Unit linked plans brought transparency into the scheme of things. he knows upfront what percentage of the premium is being invested. The latter are susceptible to the vagaries of markets and can burn a hole in your portfolio over the short term. albeit with some adjustments. Besides. Insurance seekers would do well to take into consideration their risk appetite as well as their overall financial portfolio before taking a final call on ULIP . This is a welcome change for the policyholder. part surrender allows individuals to withdraw a part of their corpus and thus keep the policy alive. So if you can't withstand that kind of volatility. if an individual wants to invest in a ULIP. This is unlike conventional endowment plans where individuals tend to lose out on surrender charges on surrendering their policies. he stands to get the full market value of his investments. This helps individuals tide over a situation where they need cash but have few 'liquid' investments at their disposal. Another advantage ULIPs offer is that they enable insurance seekers to compare plans across companies and help him buy a plan that fits well into his portfolio. till date. which form a sizable percentage of the premium in the first few years. what are the charges being levied and where his monies are being invested.

They could choose to be more in equities. They can withdraw from these plans (after the initial lock in period) without any tax implication as withdrawals and death claim proceeds under ULIPs qualify for (capital gains) tax exemption under Section 10 (10D) of the Income Tax Act. they have become a subject of much discussion and debate. But such flexibility can be a big disadvantage if the investors are not `an expert'. The impact of such incorrect decisions could be significant. . The ideal option is to have a prudent mix of endowment and ULIPs depending on your preference for either long-term growth or stability. This and the flexibility that ULIPs offer became important points that made individuals consider adding them to their portfolios. As ULIPs made their presence felt. Ever since unit-linked insurance plans (ULIPs) made their Or vice versa. they were much-maligned because of the 'unusually high' costs. they were a trifle too complicated for individuals not yet exposed to the stock markets. On the one hand. 2. when the time is probably right to go into low risk debt. more individuals are open to using the ULIP-way to create wealth over the long term. y 5 steps to selecting the right ULIP Today. insurers were more open to discussing the costs and how they evened out over the long term. Here we outline exactly how ULIPs can help you fulfill that responsibility. Investors are in control of how they want to distribute their money across the broad asset classes and how and when they want to reallocate.3 Investing Tips to Maximize Returns A single cornerstone advantage ULIPs offer is that they leave the asset allocation decision in the hands of investors themselves. on the other hand.

At Personal front. . that is not to say that ULIPs do not have an insurance element. So how ULIPs can helps to save for child's education/marriage. in other words there is no savings element in it. planning for retirement and other investment-related objectives? ULIPs can do all this and more because they come with a lot of variety. which ensures the premiums are better product to provide for the investor¶s family in case of an eventuality and all individuals must consider taking a term plan.If the investor are between 25 and 35 years of age Investor are young. Term insurance of course takes a huge burden off. If term insurance is only going to take care of the 'risk' element. let alone provide for a medical or MBA degree. The return they earn on a child plan should not just counter inflation. it should be enough to cover the cost of education. The last responsibility is the most critical and ironically it is the easiest and cheapest one of the lot to fulfill. but it still leaves with a problem. probably married and even have kids. Of course. they do. then they have quite a few responsibilities to fulfill right from planning for their child's education/marriage to planning for their own retirement to providing for the family in their absence. but it is limited largely to the earlier years and after a point they don the mantle of an investment product. who is going to take care of the 'savings' part. This is where ULIPs come in. If investor are looking to set aside some money for child's education. Term insurance is also insurance in its 'purest' form. the 5%-6% return on an endowment plan may not even take care of inflation. If they are the sole breadwinner in the family. term insurance are the cheapest way to get a life cover.

This ensures that they are able to select an option that best suits investor¶s risk profile. Again. Building a corpus to face the rigours of retirement should be given the priority it deserves. we think it is more prudent to make a demarcation between the needs and take separate ULIPs dedicated to each objective. Although they can take a single endowment ULIP to achieve both objectives. Let us understand how ULIPs can be tailor-made to serve a person¶s financial planning needs. some of their existing ULIPs are probably nearing maturity. They most pressing financial objectives are providing for their child's future and their own retirement. Opt for a ULIP child plan to provide for child's higher education. a long-term investment objective like retirement planning could do with an equity 'push'.And the way cost of education is spiralling. If the investors are between 35 and 45 years of age By the time they reach the 35-45 age brackets. ULIPs are ideally placed to fulfill this role. Given their equity component. marriage and seed capital for business to name a few needs. ULIPs are flexible. When investors are in the 25-35 years age bracket. if they had taken a ULIP child plan . This way they get moneys at regular intervals to address multiple needs. As mentioned before. insurance plan must work very hard. ULIPs can help them achieve both. Likewise a ULIP endowment plan can help them meet investment objectives like buying property or setting up a business for instance. One way to handle this multifaceted objective is to take a ULIP money-back plan. The other important plan that individuals must consider taking earlier on their lives is a pension plan. For instance. Here is where a ULIP pension plan can add value to their retirement portfolio. there are various options within a ULIP with the equity component varying right from 0% to 100%.

If they haven't insured as yet. If the investors are over 45 years of age In this age bracket. They can then opt for an annuity. it is likely to mature in this age bracket to coincide with the need (higher education/marriage) they had in mind at the time of taking the ULIP. Beef up their insurance cover through a term plan.earlier on. However. it is likely that they are insured. Remember. y Notice they have recommended ULIP child plans/pension plans and even term insurance for most individuals. When they opt for these plans it is important to do this after taking insurance consultant into confidence. They can opt for some of the ULIPs mentioned for individuals in the 25-35 years age bracket depending on their needs. they can go for a term insurance plan. He is the one who is going to help you . 6 points to note Since ULIPs offer a lot of flexibility. their ULIP pension plan will have matured. needs and financial commitments. income. immediate or deferred. they still need to review their insurance cover taking into consideration the changes in their lifestyle. unlike endowment. depending on their requirements. now is the time. In terms of costs. they need to keep some points in mind to optimise the benefits associated with them. which gets really expensive at an advanced age. By this time. However. if they are married late or did not begin planning their finances at an early stage in your life. do not turn out that expensive. ULIPs because of the way they are structured. term plans remain their cheapest option no matter when they take one. The advantage of taking a term plan at a slightly advanced age is that they have a better idea of how their lifestyle is likely to pan out going forward.

Investors are likely to have investments in mutual funds. and their exposure to equities increases even further. ULIPs also have an investment element. they must gradually shift their assets to a conservative ULIP option as their age advances. Even if a person is a high-risk investor. it is prudent to diversify ULIP investments. When they have a lot of aggressive ULIPs in their portfolio it means that they are overweight on equities.As they create obligations for the insurance companies over a long period and involve savings of the . 2. this needs to reflect in all investments including ULIPs. To temper their equity exposure. it is important that investor have a clear idea of exactly how much of their insurance cover is worth after considering all their insurance plans. This number will prove useful when they wish to beef up their investments in a particular asset. Add to this their investments in stocks and equity funds.4 Pricing of the policies The pricing of insurance and pension products is a highly specialized function and is actually carried out by the actuaries of insurance companies . bonds and fixed deposits as well. stocks. They need to add up the market value of all these investments while calculating their investment worth. Financial prudence dictates that risk reduces as age increases. so you need to tell him exactly what you are looking for in an insurance plan.with the numbers. Varying level of expenses in ULIPs is another reason to opt for ULIPs across insurance companies to keep expenses on the lower side. y y Like with all investments. This is necessary due to several reasons with financial prudence being the most important reason. ULIPs derive their 'power to perform' from equities. Since it is also likely that they have other insurance plans like term and/or endowment. y Likewise. y Remember there is an insurance cover associated with ULIPs. Varying flexibility levels in ULIPs across insurance companies is another factor that should make an investor opts for a ULIP from more than one insurance company. y it is generally advisable to opt for conservative/balanced ULIPs (maximum 50% equity exposure). This number will prove helpful when they review their insurance cover at regular intervals.

it collects a surplus in the initial years where death claims are lesser and utilises this to set off higher claims in later years due to the greater number of deaths. These records. However. The premiums on the policies would have to consider both the rise and fall in interest incomes. and hence the earnings are strongly influenced by the interest rates. The mortality table establishes the probability of the number of deaths in the given age group.population. . any change in the interest rates substantially affects the valuation of the debt portfolio. Interest rates The likely future earnings of the insurance company influence the premium rates. would be future interest rates. higher is the risk of death and hence higher is the cost of insurance. Additionally. the normal business issues. Mortality rates The life insurance companies maintain the death and birth records of the population. Apart from market dynamics. The investment profile of the insurance or pension fund is tightly controlled by regulations with strong bias in favour of debt instruments as against equity or other investments. which also consist of the cause of the death. the pricing has to not only factor in the normal business issues but also has to maintain the confidence of the saving community. but instead charges a uniform premium during the entire duration of the policy. The statistical data arrived at is subjected to mathematical and scientific analysis which enables the actuaries to predict the mortality rates of the population in the future and this forms the basis of pricing the insurance or pension policies. which influence the premium calculation. The higher the age of the person seeking insurance cover. as investments have to be valued at market rates. expected mortality rates and the company¶s cost structure. as the insurer does not revise the premium on the existing policies on a year to year basis. compiled over along time and enable the actuaries to understand mortality rates of people in different age groups.

mortality assumes importance because the longer the annuitant lives. In the event that interest rates move downwards with greater global influence. which commence immediately on the payment of premium. as companies may be compelled to offer different pricing structures to annuitants . In the case of differed annuities too. But as the competitive pressures build up in the market. The role of regulator in approving new products and their pricing will. This is especially true of annuity policies. Changes in pricing could become more frequent in future. Pricing issues In the initial phases.Pension products are also long term in nature. there has been no appreciable change in the mortality levels of the set of lives insured and hence the impact of mortality on premiums has remained constant. It being a new product in India the annuitant may not understand the dynamics that go into it¶s pricing. then the ratio of employee cost to premium income would reduce. In this case. Operating expenses The main expenditure apart from claims would be the commissions paid to acquire the business and employee costs. If an insurance company is able to achieve a high level of operation with a lower growth in their employee base by increasing their productivity. mortality analysis assumes importance as the policy operates as an insurance policy during the period of deferment and as a pension product once he annuity commences. though at times they operate conversely when compared to insurance policies. the more the insurance company has to pay. prices of the new products could be benchmarked against the existing products in the market. then the actuaries¶ task would become extremely onerous and market competition would compound the problem. as obligations in most annuity contracts cease on death. New business expenses are usually higher than the renewal expenses and any increase in the new business leads to an increase in the overall expense. mortality rates improve further with economic development and expenditure increases due to inflation. more price differentiation could be seen. Although the mortality of the general population has improved. become extremely critical. therefore.

The savings after the deduction of the required charges are invested in a fund similar to a mutual fund and the returns would depend on the performance of the fund.  Bonus: Insurers usually distribute profits among the policy holders every year in the form of a bonus. any bonus declared is allotted to the policy and is paid at the time of maturity/death (with the contracted amount) in a ³without´ profit plan.  Unit linked insurance policy: It is an insurance policy that is designed like a mutual fund scheme. Guaranteed additions will be payable at the end of the term of the policy or early death of the policyholders. the contracted amount is paid without any profit share. Bonuses are credited to the account of the policy holder and paid at the time of maturity. The premium rate charged for a ³with´ profit policy is therefore. Common terms used in insurance parlance  µWith profit¶ and µwithout profit¶ plans: The insurers distribute their profits among the policy holders every year in the form of a bonus/profit share. insurers guarantee the bonus/profit declared as a certain amount per thousand of sum assured. The term bonus is used interchangeably with ³with profit´. This assured bonus will be credited to the policy holder irrespective of the performance of the insurer and is known as guaranteed addition. . An insurance policy can be ³with´ or ³without´ profit.depending upon the time to tide over interest volatility. This would enable the company to create differing portfolios for different annuitants depending upon time at which they enter the scheme. higher than that for a ³without´ profit policy.  Guaranteed additions: In some policies. as a certain amount is thousand of sum assured. In the former. Bonus is declared.

. the survival benefits will be deducted from maturity value. This additional amount is known as loyalty addition. it is fifteen days. If the policy holder survives till the end of the term. the policy lapses. but within the period of five years from the due date of the first unpaid premium and before the date of maturity. insurers. Revival of a lapsed policy is considered either on the non medical or medical basis depending upon the age of the life assured at the time of revival and the sum to be revived. half-yearly and quarterly models of payment is one month and in case of the monthly mode of payment. declare and offer to the policyholder. only the late fee for one month has to be paid. If the revival of the policy is completed by payment of overdue premium within 14 days from the expiry of the grace period. depending on its performance. especially LIC.  Survival benefits: In some policies a part of the sum assured is paid to the policyholder in the form of survival benefits at fixed intervals before the maturity date. The risk cover for life continues for the full sum assured even after the payment of survival benefits and bonus is also calculated on the full sum assured. A lapsed policy may be revived during the lifetime of the assured.  Lapsed policies: When the premium is not paid within the days of grace provided after the due date. an additional amount per thousand of the sum assured every five years. The grace period in case of yearly. Loyalty additions: In some policies over and above the guaranteed additions.

3 SCOPE OF THE STUDY Risk management in Insurance sector (with Special reference to HDFC std life)is to know the returns available between different Unit Link Product Plans. in the years gone by.  Proper understanding and analysis the ULIP plans of HDFC std life.3.0 Research Design 3. return and stability of different ulip product. which could actually give them better returns than a traditional plan? This report explores the returns from life insurance products. TITLE OF THE STUDY Risk management in Insurance sector (with Special reference to HDFC std life) 3. and how it is beneficial to customer. has mostly been sold by way of harping on the tax benefits.2 OBJECTIVES OF THE STUDY  TO provide risk return and stability details of all ulip products which may helps the customer to reduce their risk in insurance.  To know the qualitative and quantitative benefits of different ULIP plans. 3.1 STATEMENT OF PROBLEM Life insurance in India. AND to help customers in order to maximize their profit. And traditional plans have been the eternal favorites of life insurance agents. .  TO provide knowledge for risk. But have individuals ever spared a thought on unit link products.

 The numbers of ULIP Plans providing by all the companies is more So the study does not give details about all the plans.  It is difficult to compare one ULIP plan with another ULIP plan. newspapers. 3. government publication. For the current study it was collected from the respective company brochures and company website. Such data are already collected by some other agencies in the past for some other purpose but used for the investigation of current problem. SOURCES OF DATA: DATA: data available from certain publications or reports are called secondary data. Internet etc.  The data collected for the study is inadequate.4 RESEARCH METHODOLOGY TYPE OF RESEARCH This research adopts a descriptive research design.5 LIMITATIONS OF THE STUDY  Collecting the information regarding ULIP plans is difficult.3. research papers.  The given time for doing project is limited. . The sources of secondary data are magazines.

The year 1999 saw a revolution in the Indian insurance sector. Till date. According to government sources. only 20% of the total insurable population of India is covered under various life insurance schemes. 450 billion (US$10 billion).0 Sector Profile 4. the penetration rates of health and other non-life insurances in India is also well below the international level. An annual growth rate of 15-20% and the largest number of life insurance policies in force. The funds available with the state-owned Life Insurance Corporation (LIC) for investments are 8% of GDP. the insurance and banking services¶ contribution to the country's gross domestic product (GDP) is 7% out of which the gross premium collection forms a significant part.1 Size of the Industry With largest number of life insurance policies in force in the world. the potential of the Indian insurance industry is huge. Insurance happens to be a mega opportunity in India. These facts indicate the of immense growth potential of the insurance sector.4. Gross premium collection is nearly 2 per cent of GDP and funds available with LIC for investments are 8 per cent of GDP. as major structural changes took place with the ending of government monopoly and the passage of the Insurance Regulatory and Development Authority (IRDA) Bill. Total value of the Indian insurance market (2004-05) is estimated at Rs. . it adds about 7 per cent to the country¶s GDP. lifting all entry restrictions for private players and allowing foreign players to enter the market with some limits on direct foreign ownership. It¶s a business growing at the rate of 15-20 per cent annually and presently is of the order of Rs 450 billion. Together with banking services.

29 billion in 2003-04. as private players grew by 129% to mop up Rs 55.86 billion by selling 2. smart marketing.87% growth in business at Rs. the existing rule says that a foreign partner can hold 26% equity in an insurance company. Innovative products. are now suddenly turning to the private sector and snapping up the new innovative products on offer. The Life Insurance market in India is an underdeveloped market that was only tapped by the state owned LIC till the entry of private insurers.197. and aggressive distribution have enabled fledgling private insurance companies to sign up Indian customers faster than anyone expected. with premium income from new business at Rs. The 14 private insurers increased their market share from about 13% to about 22% in a year's time. not as a product giving protection.4 billion new policies in 2004-05. foreign investments of Rs. 24. ³Indian Insurance Industry: New Avenues for Growth 2012´. a proposal to increase this limit to 49% is pending with the government. 253. Though the total volume of LIC's business increased in the last fiscal year (2004-2005) compared to the previous one.07%.43 billion during the fiscal year 2004-2005. But this was still not enough to arrest the fall in its market share. RNCOS¶s report. while the private players have grabbed over 24 percent. its market share came down from 87.04 to 78. Indians. braving stiff competition from private insurers. who had always seen life insurance as a tax saving device. The share of LIC for this period has further come down to 75 percent. The state owned LIC sold insurance as a tax instrument.57 billion in 2004-05 from Rs. finds that the market share of the state behemoth. LIC. Most . has clocked 21.7 billion have poured into the Indian market and 21 private companies have been granted licenses. The penetration of life insurance products was 19 percent of the total 400 million of the insurable population. The figures for the first two months of the fiscal year 2005-06 also speak of the growing share of the private insurers. 8.Though. Since opening up of the insurance sector in 1999. The life insurance industry in India grew by an impressive 36%.

With the entry of the private insurers the rules of the game have changed. .customers were under.insured with no flexibility or transparency in the products.

In October 1995 the companies signed a 3 year joint venture agreement. Around this time Standard Life purchased a further 5% stake in HDFC and a 5% stake in HDFC Bank. Despite this both companies remained firmly committed to the venture. due to changes in government and ongoing delays in getting the IRDA (Insurance Regulatory and Development authority) Act passed in parliament. Therefore. . in January 1995.2 COMPANY PROFILE HDFC STANDARD LIFE INSURANCE THE PARTNERSHIP HDFC and Standard Life first came together for a possible joint venture. The Mutual Fund was launched on 20th July 2000. Around this time Standard Life purchased a 5% stake in HDFC. In October 1998. to enter the Life Insurance market. The next three years were filled with uncertainty. It was clear from the outset that both companies shared similar values and beliefs and a strong relationship quickly formed. Around this time Standard Life purchased 2% of Infrastructure Development Finance Company Ltd. further strengthening the relationship. the opening of the market looked very promising and both companies agreed the time was right to move the operation to the next level. the joint venture agreement was renewed and additional resource made available. Towards the end of 1999. (IDFC). based in Mumbai. In a further development Standard Life agreed to participate in the Asset Management Company promoted by HDFC to enter the mutual fund market. Standard Life also started to use the services of the HDFC Treasury department to advise them upon their investments in India. in January 2000 an expert team from the UK joined a hand picked team from HDFC to form the core project team.4.

HDFC are the main shareholders in HDFC Standard Life. rather it is a combination of several things likey y y y y y Customer service of the highest order Value for money for customers Professionalism in carrying out business Innovative products to cater to different needs of different customers Use of technology to improve service standards Increasing market share . This does not just mean being the largest or the most productive company in the market.4%. with 81. this is the maximum investment allowed under current regulations. was to be the first private company to reenter the life insurance market in India. this ambition was realised when HDFC Standard Life was the only life company to be granted a certificate of registration. HDFC and Standard Life have a long and close relationship built upon shared values and trust. MISSION: We aim to be the top new life insurance company in the market. Given Standard Life's existing investment in the HDFC Group. On the 23rd of October 2000.INCORPORATION OF HDFC STANDARD LIFE INSURANCE COMPANY LIMITED: The company was incorporated on 14th August 2000 under the name of HDFC Standard Life Insurance Company Limited. while Standard Life owns 18.6%. The ambition of HDFC Standard Life is to mirror the success of the parent companies and be the yardstick by which all other insurance company's in India are measured. Our ambition from as far back as October 1995.

SNAPSHOT y y y Founded in 1875. The company expanded in the 19th century from kits original Edinburgh premises. Currently over 5 m. company supporting generation for last 179 years. Policy holders benefiting from the services offered. opening offices in other towns and acquitting other similar businesses. Europe¶s largest mutual life insurer. which has been in the life insurance business for the past 175 years is a modern company surviving quite a few changes since selling its first policy in 1825. Standard Life. Standard Life Currently has assets exceeding over £ 70 billion under its management and has the distinction of being accorded ³AAA´ rating consequently for the six years by Standard and Poor. .STANDARD LIFE Standard Life is Europe¶s largest mutual life assurance company.

Standard Life is rated µAAA¶ both by Moody¶s and Standard and Poor¶s.HDFC Standard Life Insurance Company Limited was one of the first companies to be granted license by the IRDA to operate in life insurance sector. Both the promoters are will known for their ethical dealings and financial strength and are thus committed to being a long-term player in the life insurance industry.. Respectively.all important factors to consider when choosing your insurer. Similarly.6% Mr. Reach of the JV player is highly rated and been conferred with many awards. HDFC is rated µAAA ¶ by both CRISIL and ICRA. HDFC is the majority stakeholder in the insurance JV with 81. These reflect the efficiency with which HDFC and Standard Life manage their asset base of Rs. HDFC Standard Life Insurance Company Ltd. 600.000 Cr and Rs. Is one of India¶s leading Private Life Insurance Companies.) India¶s leading housing finance institution and the Standard Life Assurance Company. Deepak Satwalekar is the MD and CEO of the venture. which offers a range of individual and group insurance solutions. a leading provider of financial services from the United Kingdom. It is a joint venture between Housing Development Finance Corporation Limited (HDFC Ltd.4 %stale and Standard :of as a staple pf 18. 15. HDFC Standard Life Insurance Company Ltd was incorporated on 14th August 2000. .000 Cr.

False selling or false commitment with the customers is not allowed. Our group solutions have been designed to offer you complete flexibility combined with a low charging structure. Range of Solutions We have a range of individual and group solutions. which can be easily customized to specific needs. HDFC standard Life has the financial expertise required to manage your long-term investments safely and efficiently. Most respected Private Insurance Company : HDFC was awarded No-1 Private Insurance Company In 2004 by the World Class Magazine Business World. HDFC Standard Life Insurance Company Ltd Following are the Life insurance plans offered by HDFC Standard Life Insurance Company Ltd.KEY STRENGTH Financial Expertise: As a joint venture of leading financial services groups. . Innovation and Customer Care. Integrity. Strong Ethical Values: HDFC is an ethical and Cultural Organization.

. Along with that the plan also provides Bumper Addition to the funds at the time of maturity. The unit linked plan also gives you an outstanding investment opportunity to maximize your savings by providing you a choice of thoroughly researched & selected investments. It provides you with financial security in life & you don¶t need to comprise with your life. then a sum of money is available towards repaying your housing loan.1.The plan provides a valuable protection to your child in case you are not there to support them. You can choose the premium. Children Plan :The children plan helps you to fulfill your child¶s dreams.The plan provides a valuable protection to your child in case you are not there to support them. flexibility to choose the sum assured. b. The plan secures your child¶s future financially even though you are not around them. a lump sum amount is provided which is a decreasing percentage of the initial Sum Assured. d. HDFC Unit Linked Young Star II.The plan ensures that you can start building your savings today to give a bright future to your child. sum assured and your retirement date too. A the time of maturity a guaranteed lump sum is given to the beneficiary or in case of your unfortunate demise. Protection Plan : Protection Plans ensures your family¶s financial independence in the event of your unfortunate demise or critical illness. 2. HDFC Loan Cover Term Assurance Plan : It protects your family form your loan liabilities in case of your demise within the policy term. The unit linked plan also gives you an outstanding investment opportunity to maximize your savings by providing you a choice of thoroughly researched & selected investments. Retirement Plans. 3. The unit linked plan also gives you an outstanding investment opportunity to maximize your savings by providing you a choice of thoroughly researched & selected investments. It provides you high cover at nominal cost. c. HDFC Personal Pension Plan. HDFC Unit Linked Young Star Plus II. HDFC Term Assurance Plan : The Plan is designed to secure your family from any kind of financial uncertainties.The Retirement Plans of HDFC Standard Life Insurance ensure you to provide a secure life after your retirement. Along with that a regular Loyalty Units are also provided to improve your fund value every year. a. an additional benefit options can be availed at marginal cost and gives you the option of paying single premium or regular premium b. early into the policy term. The plan gives you a lump sum on retirement. HDFC Children's Plan. which helps you to get a regular income through an annuity plan. In case if you are not there to repay the monthly installment on your housing loan. c. HDFC Unit Linked Young Star Champion.The plan provides a valuable protection to your child in case you are not there to support them. a. Following are the Protection Plans offered by HDFC Standard Life Insurance a. HDFC Home Loan Protection Plan : The plan protects your family from your loan liabilities in case of your unfortunate demise within the policy term.A plan that gives you a post retirement income for life.

A single premium investment plan which provides long-term real growth of your money.The plan gives you the choice of thoroughly researched & select the investments. d. even when you are not around. 4. It also gives you Bumper Addition. a.The plans comes with additional benefits like Life option. . life & health option & extra life & health option d. Saving & Investment Plans : The saving & investment plan gives you dual benefit of protection & long term savings.A long term saving plan that will secure the life of your family too. designed to provide a post retirement income with maximum investment returns. The plan gives you Loyalty Units to boost your fund value.The plan gives you proportion of the basis Sum Assured as cash lump sums after every 5 years. HDFC Immediate Annuity. HDFC Unit Linked Endowment II. i. HDFC Unit Linked Pension Maximiser II. which gives you Loyalty Units to enhance your fund value every year.It¶s a unique single premium investment cum protection plan. HDFC Unit Linked Endowment Plus II.It¶s a unique single premium unit linked plan. The income is guaranteed & is unaffected by rise or fall of interest rates. HDFC Unit Linked Pension II. Along with that an assured sum for your future need.With this plan you start saving today so that your family remains financially independent. The plan also gives Bumper Addition of 10% of initial single premium at vesting & on death. b. c. f.The plan will give your family a guaranteed lump sum on maturity or in case of your unfortunate demise. HDFC Money Back Plan. HDFC Assurance Plan. HDFC Unit Linked Enhanced Life Protection II. HDFC Unit Linked Endowment Winner.The HDFC SimpliLife Plan gives you the opportunity to maximize your savings & secure your family¶s future.It is a contract that uses your capital to provide you with a guaranteed gross income through out your life. c. h.Under this plan the sum assured chosen by you will automatically increased by 5% each year. HDFC Endowment Assurance Plan. HDFC Single Premium Whole of Life Insurance Plan. HDFC SimpliLife. g. HDFC Unit Linked Wealth Maximiser Plus .A unit linked insurance plan that gives you an outstanding investment opportunity to maximize your saving. e. It comes with Bumper Addition to the fund value at maturity. extra life option.b. j.

HDFC Savings Assurance Plan.A plan which comes µWith Profits¶ savings plan which helps you easily build your long-term savings and ensure that your family is protected even if you are not around. . k.

(Beneficiary is now nominee as per Sec 39 A 0f IT Act)  STO available Options: Only Life option.5.0 Analysis and Interpretation HDFC STD LIFE. Bumper Addition*: 50% of average annualized premium for policy term of 10yrs. 100% of average annualized premium for policy term of 11+yrs (* Bumper addition is available for Lapsed & Revived policies but not given for Paid up policies) Death Benefit Double benefit Sum Assured is immediately paid to NOMINEE Waiver of premium 100% annualized premium invested by HDFCSL into the policy Fund value on Maturity Triple benefit Sum Assured is immediately paid to NOMINEE Waiver of premium 50% annualized premium invested by HDFCSL into the policy 50% of the annualized premium paid to nominee every year . Maturity Benefit: Fund value + Bumper addition*. th  Extra Allocation rate of 5% from 6 year onwards  Nominee concept. ULIP CHILDREN PLANS HDFC Young Star Supreme Key Features:  Bumper additions .100%.  100% allocation rate from 4th year onwards.

24 switches free in one policy year. FMC: 1.Fund Value Partial Withdrawal:  Allowed after 5yrs.4. 6 partial withdrawals free.3.2000 Max No Limit Sum assured: 5 ± 40 times of annualized regular premium. Mode Annual Halfyrly Monthly Min Rs 15.19 99L 20 L + Year 1 70 00% 75 00% 80 00% 87 50% 5 Year 6 + 100 00% 105 00% Choice of 7 funds.000 Rs 8.25 p a across all funds.4% on the regular premium installment on monthly basis. Available for Indian residents & NRIs. Policy admin chrgs: 0. .5 6+ 65 00% 70 00% same as yearly & Half yrly 75 00% 82 50% Premium and 15 -1 99 L 2L-4 99L 5L. Surrender charges not applicable after 5+ yrs. Term: 10yrs-25yrs.000 Rs. Min 10K. Age @ entry: 18yrs-65yrs Age @ maturity: 75yrs Premium allocation rate: Year Year 2 85 00% 90 00% Half Yearly Year 3 Year 4 90 00% 92 50% Monthly Year 1 Yr 2.  Max: 300% of original annualized premium for the term of the policy.

) one of the lowest amongst 100% equity 24 free switches* in a policy year. Provided all premiums paid & No partial withdrawals.10.25% p. Æ Min. 7 funds to choose from funds. Term of 11+yrs 100% of original annualized regular premium) Partial Withdrawal: Æ Allowed after 5yrs. 12 free premium redirections in a policy year. lapsed. Two Benefit Options Available: Life: Death Benefit Benefit on Death / CI: Option 1: Double Benefit SA immediately + 100% of Future premiums paid by HDFCSLIC + Fund Value on Maturity.HDFC Young Star Super Key Features: High allocation rates & Bumper additions. . Withdrawal Amt. Benefit on Maturity: Fund Value + Bumper additions (settlement option available). Option 2: Triple Benefit SA immediately + 50% Future premiums paid by HDFCSLIC + 50% of original annual premium paid to beneficiary on annual basis(every year) + Fund Value on Maturity. Rs. year. Æ After withdrawal Fund Value should be higher of more than sum of all top-ups made in last 3yrs or 150% of the Annual Regular Premium. (Term of 10 yrs -50% of original annualized regular premium. 000. Life and Health: Death / Critical Illness Benefit Bumper addition: Additional % of Original annualized regular premium available on maturity. FMC (1.a. paid-up or revived. 6 Free Partial Withdrawals in a policy Smart Transfer Option no need to monitor market.

M-85% Y-95%. H-95%. M-89% Y-96%.& Monthly Rs.8. 000/-.Min Premium: Annual Rs. H-87. H-94%. M-87% Y-94%. M-95% Y-97%. M-85% Y-95%. M-95% 5L to <20L Y-90%. M97% Y-97%. H-90%. H-90%. M-85% Y-90%. M97% Y-97%.2. H-97%. Premium Allocation Rates: Yr 4+ Yr 1 Yr 2 Yr 3 Age at Entry: 18-65yrs (Life option).15. M-95% 20L + Y-92. H-97%. H-85%. 18-55yrs (Life & Health 15000 to <2L Y-85%. M-80% Y-90%. H-95%. Term: 10-25yrs. H-95%. 000/- Sum Assured: Min: 5*Annualized Premium. H-90%. M-85% Y-95%. H-97%. M-96% Allowed only after 5yrs Unpaid premiums 2 1 0 Charges 30% of Annual Regular Premium 15% of the Annual regular Premium NIL Surrender Charges: Surrender Charges as per No: of unpaid premiums 4 unpaid premiums 3 unpaid premiums 95% of the FV 50% of the FV . option).5%.5% Y-90%. M97% Y-97%. H-97%. 000/. H-96%. H-90%.5%. Max: 40*Annualized Premium. Hyrly Rs. H-92. M-82. M97% 2L to <5L Y-87.

The first year premium allocation is relatively high at 85-92% (for premiums ranging from Rs 15. . and 100% of this amount for staying invested in longer tenure policies. who has chosen the double benefit plan with an annual premium of Rs 25.83 lakh or Rs 3.2 unpaid premiums 1 unpaid premium 30% of the FV 15% of the FV Cashing in on parents desire of providing for their children s education. HDFC Standard Life launched its new child ULIP Youngstar Super. Post IRDA guidelines on cap charges.000. if he has not made partial withdrawals. life insurer shave been dynamically promoting child ULIPs. While it doesn¶t seem to have any important weakness compared to other child ULIPs. Recently. The minimum premium for this policy is Rs 15. Those with time and inclination could also look at structuring a long-term plan through MF investments.00. The policyholder can choose the sum assured (5-40 times of the annual premium) and seven fund options. He will also get Rs 12. You can also avail of the critical illness benefit rider in this policy. In case of the latter.500 as buffer addition. You can also choose between double benefit and triple benefit options.5 lakh. buffer addition is being presented as one of the key features of the policy a reward for completing the policy term. if the insured (parent) dies. Under the double benefit option. remember that child plan is not automatically the best tool for achieving the goal. can expect the fund value to grow to Rs 2. the sum assured is paid to the nominee while the company directs 100(%) percent of the premiums payable to the policy.53 lakh at the end of the 10-year term (rate of return of 6% and 10%. Those with 10-year term policies will get 50% of the first-year premium at maturity.00020. Currently. 50% of the future premiums is paid to the nominee every year to ensure the regular flow of income while the balance goes into the policyholder s account. A 30-year-old male. other child plans too could reduce their charges to a comparable level before January 1. respectively).000+). most ULIPs levy charges as high as 30-40% (premium allocation of 6070%) in the first year.000 and a sum assured of Rs 2.

You can choose to pay your premium as either Half Yearly or Yearly. In case of your unfortunate demise. With HDFC YoungStar Supreme Suvidha you can fulfill your child¶s immediate and future needs. Your fund value will be augmented by addition of Bumper Addition. as per your need o . Just filling a Short Medical Questionnaire will do This plan gives you Bumper Addition to the fund value at Maturity. You also have a range of convenient auto premium payment options.25% per annum (of the fund¶s value). This Plan provides valuable protection to your child in case you are not around and gives you an outstanding investment opportunity to maximise your savings by providing you a choice of thoroughly researched and selected investments. We have a low FMC of only 1. your beneficiary would receive the fund value. the key to building great maturity values is a low Fund Management Charge (FMC). we will pay the Sum Assured to your child (Beneficiary). which is a percentage of your original annualised premium and depends on the policy term chosen. So tomorrow when you child needs your support you don¶t have to depend on anyone else. At end of the term. Features Please roll over your mouse over circles for explanation. Advantages y y No need to go for medicals. In the long term. Your family need not pay any further premiums.HDFC YoungStar Supreme Suvidha There is no bigger joy than being able to fulfill your child's dream. You can change your investment fund choices in two ways: o y y y y Switching: You can move your accumulated funds from one fund to another anytime Premium Redirection: You can pay your future premiums into a different selection of funds. This plan also gives Bumper Addition to the fund value at Maturity.

2 0 _ w=z-z w2 0.0016 0.04 0.0081 0 0.6 (Z) 9.16 -0. HDFC std life ( Ulip children plans) Young star Young Suvidha star Young Star Supreme _ u=x-x _ v=y-y u2 v2 -0.y Tax benefits are offered under section 80C and 10(10D) of the Income Tax Act.07 10.0736 supreme super Months Dec Jan Feb.08 0.04 0.6 -0. taken monthly average Nat Asset Value of respective product.16 -0.02 0. Return and Stability helps the investors to know which product is giving what return and how much risk is involved and what is the stability of that product . For the calculation of Risk.04 0.18 10.35 40.0016 0.58 (Y) 9.07 10. Return and Stability.21 40.0016 0.19 10.0064 0.05 10.07 0.0256 0. Return and Stability Risk.0736 -0.99 10.0146 . Calculation of Risk.08 0.19 10.14 10. 1961.0049 0.35 40.0256 0.02 0 0.0064 0. March Total (X) 10.04 0.04 0.09 0 0.99 10.

(STANDARD DEVIATION) = ˜v2/n-(v/n)2 ______________ S.Dy = ˜0.CALCULATION OF RETURNS: _ X = §X/n = 40.D.135 .60/4 = 10.x = ˜0.58/4 = 10.0736/4-(0/4) 2 = 0.15 _ Z = §Z/n = 40.02/4) 2 = 0.15 CALCULATION OF RISK _______________ S.06 _______________ S.14 _ Y =§Y/n = 40.60/4 = 10.0146/4-(0.D.D.(STANDARD DEVIATION) = ˜u2/n-(u/n)2 ________________ S.

(STANDARD DEVIATION) = ˜w2/n-(w/n)2 ________________ S.135 CALCULATION OF STABILITY: C.D.x = = 0.D.135/10.135/10.V.y =` = 0.14*100 0.06/10.V./ Mean* 100 C.(Coefficient of Variation) = S.59% C.z = ˜0.15*100 1.0736/4-(0/4)2 = 0.D.V.z =` = 0.33% .V.33% C._______________ S.15*100 1.

Interpretation: The returns of all the 3 plans are more are less same i. 10. . When we compare risks. Where as in young star super & young star supreme suvidha risk is more because.14. The stability is good in young star supreme when compare to young star super & young star supreme suvidha. y The maximum age of entry is 60 years in RP of all the plans and 65 years in case of FSLR and ULPS. 10.15 respectively. in these 2 plans they are investing 70% in Debt and 30% in equity market. y The Sum Assured is Rs. in young star supreme it is less. ANALYSIS y The minimum age of entry in all the above three plans is 18 years respectively. y Minimum term is 10 years in all the tree plans and maximum term is 30 years in ISP.50000 in FSLR and unitized fund value will be available to secure the pension benefit in case of ULPS.15& 10. because in this plan they are investing wholly in Debt instruments. in FSLR it 30 years and in case of ULPS it is 40 year.e.1Lakh in case of ISP where as Rs.

25000 for SP.5000 & Rs.y For the Survival Benefit higher of the value of unit fund or the guaranteed value of the unit fund will be used to purchase the annuity in ISP. y Flexible contribution be available only in case of ISP and ULPS. but in case of FSLR and ULPS only unit value is used to purchase the case of ULPS. y Automatic premium payment facility is available only in Isp. y Top ²up facility is available in all the three plans. y The minimum contribution is Rs. y 1/3 of the unit value can be commuted and the rest can be used to purchase the annuity in all the three plans.20000 for SP and in case of ULPS for RP it is Rs.5000 for RP & Rs. y The facility of additional credit is available only in ISP. y Riders are providing by all the companies. y ISP is providing more annuity options compare to other competitors plan. BENEFITS Administration charges Fund management charges . y Investment options are more in case of FSLR and ULPS.10000 in ISP where as in FSLR Rs.

y Findings y Suggestions y Conclusion FINDINGS  Automatic premium payment facility is not available in Invest Shield Gold.  It was found that the liquidity benefit providing by Life Time-II is more compare to other competitors. .  There are no much changes in the plans. in Invest Shield Pension they have only one option of regular premium payment.  It was found that ICICI Prudential is giving more Rider facilities over its competitors.  It was found that.  It was found that all plans are providing Tax Benefits. but there is very variation in the premium payables comparatively with other companies. but competitors have two options of premium paymentRegular and Single.

administration charges and others charges. which helps the investors for easy payment and attracts others to invest in the plans.  Make aggressive advertisements of ULIP plans and Capital Guarantee products. Life and Gold.SUGGESTIONS  Try to reduce the annual premium.  Try to reduce the minimum Lock-in period of Invest Shield Cash. securities and Banks. .  Try to give more option for paying the premiums like regular premium. single premium. which gives more liquidity facility to the investors. which change the perception of the people and they may invest more in company·s plans which helps to increase the growth rate. which helps to invest more fund in the security market and earn good returns.  If possible reduce the fixed charges.  Try to give the loan facility in Invest Shield Cash.  If it is possible try to give more options for investment in capital guarantee products.  Try to invest more in Govt.

financial planning for children·s future and retirement planning. It is good for people who were investing in ULIP policies of insurance companies as their investments as it may earn them a better return than the other policies. financial needs. In insurance a policyholder have the choice to the max..CONCLUSION ULIP policies are actually being publicized more and more as the traditional endowment policies are becoming unattractive because of the lower interest rate.amount you can choose and which will cover both your life as well high returns ULIP gives multiple benefits such as covering the life / disability / critical illness etc. Finally in today·s times ULIP provides solutions for all the needs of a client like insurance planning. .

com www.Reference: WEBSITES BOOKS &MAGAZINES y y y Financial Management by ICMR Text Book Insurance watch Insurance world .