UNIT-5.

BANKING & Insurance

1. The concept of life insurance:

Life insurance (or life assurance, especially in the Commonwealth of Nations) is a contract between an insurance
policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of
money (the benefit) in exchange for a premium, upon the death of an insured person (often the policy holder).
Depending on the contract, other events such as terminal illness or critical illness can also trigger payment. The
policy holder typically pays a premium, either regularly or as one lump sum. Other expenses, such as funeral
expenses, can also be included in the benefits.

Life policies are legal contracts and the terms of the contract describe the limitations of the insured events.
Specific exclusions are often written into the contract to limit the liability of the insurer; common examples are
claims relating to suicide, fraud, war, riot, and civil commotion.

Life-based contracts tend to fall into two major categories:

Protection policies – designed to provide a benefit, typically a lump sum payment, in the event of a specified
occurrence. A common form—more common in years past—of a protection policy design is term insurance.

Investment policies – the main objective of these policies is to facilitate the growth of capital by regular or
single premiums. Common forms (in the U.S.) are whole life, universal life, and variable life policies.

An early form of life insurance dates to Ancient Rome; "burial clubs" covered the cost of members' funeral
expenses and assisted survivors financially. The first company to offer life insurance in modern times was
the Amicable Society for a Perpetual Assurance Office, founded in London in 1706 by William Talbot and Sir
Thomas Allen.[1][2] Each member made an annual payment per share on one to three shares with consideration to
age of the members being twelve to fifty-five. At the end of the year a portion of the "amicable contribution" was
divided among the wives and children of deceased members, in proportion to the number of shares the heirs
owned. The Amicable Society started with 2000 members.[3][4]

The first life table was written by Edmund Halley in 1693, but it was only in the 1750s that the necessary
mathematical and statistical tools were in place for the development of modern life insurance. James Dodson,
a mathematician and actuary, tried to establish a new company aimed at correctly offsetting the risks of long term
life assurance policies, after being refused admission to the Amicable Life Assurance Society because of his
advanced age. He was unsuccessful in his attempts at procuring a charter from the government.

His disciple, Edward Rowe Mores, was able to establish the Society for Equitable Assurances on Lives and
Survivorship in 1762. It was the world's first mutual insurer and it pioneered age based premiums based
on mortality rate laying "the framework for scientific insurance practice and development" [5] and "the basis of
modern life assurance upon which all life assurance schemes were subsequently based". [6]
Mores also gave the name actuary to the chief official—the earliest known reference to the position as a business
concern. The first modern actuary was William Morgan, who served from 1775 to 1830. In 1776 the Society
carried out the first actuarial valuation of liabilities and subsequently distributed the first reversionary
bonus (1781) and interim bonus (1809) among its members.[5] It also used regular valuations to balance competing
interests.[5] The Society sought to treat its members equitably and the Directors tried to ensure that policyholders
received a fair return on their investments. Premiums were regulated according to age, and anybody could be
admitted regardless of their state of health and other circumstances. [7]

2. Types of life insurance contracts- An Overview :

Parties to contract.

The person responsible for making payments for a policy is the policy owner, while the insured is the person
whose death will trigger payment of the death benefit. The owner and insured may or may not be the same person.
For example, if Joe buys a policy on his own life, he is both the owner and the insured. But if Jane, his wife, buys
a policy on Joe's life, she is the owner and he is the insured. The policy owner is the guarantor and he will be the
person to pay for the policy. The insured is a participant in the contract, but not necessarily a party to it.

Chart of a life insurance

The beneficiary receives policy proceeds upon the insured person's death. The owner designates the beneficiary,
but the beneficiary is not a party to the policy. The owner can change the beneficiary unless the policy has an
irrevocable beneficiary designation. If a policy has an irrevocable beneficiary, any beneficiary changes, policy
assignments, or cash value borrowing would require the agreement of the original beneficiary.

In cases where the policy owner is not the insured (also referred to as the celui qui vit or CQV), insurance
companies have sought to limit policy purchases to those with an insurable interest in the CQV. For life insurance
policies, close family members and business partners will usually be found to have an insurable interest. The
insurable interest requirement usually demonstrates that the purchaser will actually suffer some kind of loss if the
CQV dies. Such a requirement prevents people from benefiting from the purchase of purely speculative policies
on people they expect to die. With no insurable interest requirement, the risk that a purchaser would murder the
CQV for insurance proceeds would be great. In at least one case, an insurance company which sold a policy to a
purchaser with no insurable interest (who later murdered the CQV for the proceeds), was found liable in court for
contributing to the wrongful death of the victim (Liberty National Life v. Weldon, 267 Ala.171 (1957)).

Contract terms:

Special exclusions may apply, such as suicide clauses, whereby the policy becomes null and void if the insured
commits suicide within a specified time (usually two years after the purchase date; some states provide a statutory
one-year suicide clause). Any misrepresentations by the insured on the application may also be grounds for
nullification. Most US states specify a maximum contestability period, often no more than two years. Only if the
insured dies within this period will the insurer have a legal right to contest the claim on the basis of
misrepresentation and request additional information before deciding whether to pay or deny the claim.

The face amount of the policy is the initial amount that the policy will pay at the death of the insured or when the
policy matures, although the actual death benefit can provide for greater or lesser than the face amount. The
policy matures when the insured dies or reaches a specified age (such as 100 years old).

Costs, insurability, and underwriting.

The insurance company calculates the policy prices (premiums) at a level sufficient to fund claims, cover
administrative costs, and provide a profit. The cost of insurance is determined using mortality tables calculated
by actuaries. Mortality tables are statistically based tables showing expected annual mortality rates of people at
different ages. Put simply, people are more likely to die as they get older and the mortality tables enable the
insurance companies to calculate the risk and increase premiums with age accordingly. Such estimates can be
important in taxation regulation.[8][9]

In the 1980s and 1990s, the SOA 1975–80 Basic Select & Ultimate tables were the typical reference points, while
the 2001 VBT and 2001 CSO tables were published more recently. As well as the basic parameters of age and
gender, the newer tables include separate mortality tables for smokers and non-smokers, and the CSO tables
include separate tables for preferred classes.[10]

The mortality tables provide a baseline for the cost of insurance, but the health and family history of the
individual applicant is also taken into account (except in the case of Group policies). This investigation and
resulting evaluation is termed underwriting. Health and lifestyle questions are asked, with certain responses
possibly meriting further investigation. Specific factors that may be considered by underwriters include:

 Personal medical history[11]

 Family medical history[12]
 Driving record[13]
 Height and weight matrix, otherwise known as BMI (Body Mass Index)

Based on the above and additional factors, applicants will be placed into one of several classes of health ratings
which will determine the premium paid in exchange for insurance at that particular carrier. [13]
Life insurance companies in the United States support the Medical Information Bureau (MIB), [15] which is a
clearing house of information on persons who have applied for life insurance with participating companies in the
last seven years. As part of the application, the insurer often requires the applicant's permission to obtain
information from their physicians.[16]

Automated Life Underwriting is a technology solution which is designed to perform all or some of the screening
functions traditionally completed by underwriters, and thus seeks to reduce the work effort, time and/or data
necessary to underwrite a life insurance application. These systems allow point of sale distribution and can
shorten the time frame for issuance from weeks or even months to hours or minutes, depending on the amount of
insurance being purchased.

The mortality of underwritten persons rises much more quickly than the general population. At the end of 10
years, the mortality of that 25-year-old, non-smoking male is 0.66/1000/year. Consequently, in a group of one
thousand 25-year-old males with a $100,000 policy, all of average health, a life insurance company would have to
collect approximately $50 a year from each participant to cover the relatively few expected claims. (0.35 to 0.66
expected deaths in each year × $100,000 payout per death = $35 per policy.) Other costs, such as administrative
and sales expenses, also need to be considered when setting the premiums. A 10-year policy for a 25-year-old
non-smoking male with preferred medical history may get offers as low as $90 per year for a $100,000 policy in
the competitive US life insurance market.

Most of the revenue received by insurance companies consists of premiums, but revenue from investing the
premiums forms an important source of profit for most life insurance companies. Group Insurance policies are an
exception to this.

In the United States, life insurance companies are never legally required to provide coverage to everyone, with the
exception of Civil Rights Act compliance requirements. Insurance companies alone determine insurability, and
some people are deemed uninsurable. The policy can be declined or rated (increasing the premium amount to
compensate for the higher risk), and the amount of the premium will be proportional to the face value of the
policy.

Many companies separate applicants into four general categories. These categories are preferred
best, preferred, standard, and tobacco. Preferred best is reserved only for the healthiest individuals in the general
population. This may mean, that the proposed insured has no adverse medical history, is not under medication,
and has no family history of early-onset cancer, diabetes, or other conditions.[19] Preferred means that the proposed
insured is currently under medication and has a family history of particular illnesses. Most people are in the
standard category.

People in the tobacco category typically have to pay higher premiums due to the higher mortality. Recent US
mortality tables predict that roughly 0.35 in 1,000 non-smoking males aged 25 will die during the first year of a
policy.[20] Mortality approximately doubles for every extra ten years of age, so the mortality rate in the first year
for non-smoking men is about 2.5 in 1,000 people at age 65. [20] Compare this with the US population male
mortality rates of 1.3 per 1,000 at age 25 and 19.3 at age 65 (without regard to health or smoking status). [21]
Death proceeds.

Upon the insured's death, the insurer requires acceptable proof of death before it pays the claim. The normal
minimum proof required is a death certificate, and the insurer's claim form completed, signed, and
typically notarized. If the insured's death is suspicious and the policy amount is large, the insurer may investigate
the circumstances surrounding the death before deciding whether it has an obligation to pay the claim.

Payment from the policy may be as a lump sum or as an annuity, which is paid in regular installments for either a
specified period or for the beneficiary's lifetime.

Insurance vs assurance.

The specific uses of the terms "insurance" and "assurance" are sometimes confused. In general, in jurisdictions
where both terms are used, "insurance" refers to providing coverage for an event that might happen (fire, theft,
flood, etc.), while "assurance" is the provision of coverage for an event that is certain to happen. In the United
States, both forms of coverage are called "insurance" for reasons of simplicity in companies selling both products.
[citation needed]
By some definitions, "insurance" is any coverage that determines benefits based on actual losses
whereas "assurance" is coverage with predetermined benefits irrespective of the losses incurred.

Life insurance may be divided into two basic classes: temporary and permanent; or the following subclasses:
term, universal, whole life, and endowment life insurance.

Term insurance.
Term assurance provides life insurance coverage for a specified term. The policy does not accumulate cash value.
Term insurance is significantly less expensive than an equivalent permanent policy but will become higher with
age. Policy holders can save to provide for increased term premiums or decrease insurance needs (by paying off
debts or saving to provide for survivor needs).[23]

Mortgage life insurance insures a loan secured by real property and usually features a level premium amount for a
declining policy face value because what is insured is the principal and interest outstanding on a mortgage that is
constantly being reduced by mortgage payments. The face amount of the policy is always the amount of the
principal and interest outstanding that are paid should the applicant die before the final installment is paid.

Group life insurance.

Group life insurance (also known as wholesale life insurance or institutional life insurance) is term insurance
covering a group of people, usually employees of a company, members of a union or association, or members of a
pension or superannuation fund. Individual proof of insurability is not normally a consideration in its
underwriting. Rather, the underwriter considers the size, turnover, and financial strength of the group. Contract
provisions will attempt to exclude the possibility of adverse selection. Group life insurance often allows members
exiting the group to maintain their coverage by buying individual coverage. The underwriting is carried out for
the whole group instead of individuals.
Permanent life insurance.

Permanent life insurance is life insurance that covers the remaining lifetime of the insured. A permanent
insurance policy accumulates a cash value up to its date of maturation. The owner can access the money in the
cash value by withdrawing money, borrowing the cash value, or surrendering the policy and receiving the
surrender value.

The three basic types of permanent insurance are whole life, universal life, and endowment.

Whole life:

Whole life insurance

Whole life insurance provides lifetime coverage for a set premium amount (see main article for a full explanation
of the many variations and options).

Universal life coverage:

Universal life insurance (ULl) is a relatively new insurance product, intended to combine permanent insurance
coverage with greater flexibility in premium payments, along with the potential for greater growth of cash values.
There are several types of universal life insurance policies, including interest-sensitive (also known as "traditional
fixed universal life insurance"), variable universal life (VUL), guaranteed death benefit, and has equity-indexed
universal life insurance.

Universal life insurance policies have cash values. Paid-in premiums increase their cash values; administrative
and other costs reduce their cash values.

Universal life insurance addresses the perceived disadvantages of whole life—namely that premiums and death
benefits are fixed. With universal life, both the premiums and death benefit are flexible. With the exception of
guaranteed-death-benefit universal life policies, universal life policies trade their greater flexibility off for fewer
guarantees.

"Flexible death benefit" means the policy owner can choose to decrease the death benefit. The death benefit can
also be increased by the policy owner, usually requiring new underwriting. Another feature of flexible death
benefit is the ability to choose option A or option B death benefits and to change those options over the course of
the life of the insured. Option A is often referred to as a "level death benefit"; death benefits remain level for the
life of the insured, and premiums are lower than policies with Option B death benefits, which pay the policy's
cash value—i.e., a face amount plus earnings/interest. If the cash value grows over time, the death benefits do too.
If the cash value declines, the death benefit also declines. Option B policies normally feature higher premiums
than option A policies.

Endowments:
Endowment policy

The endowment policy is a life insurance contract designed to pay a lump sum after a specific term (on its
'maturity') or on death. Typical maturities are ten, fifteen or twenty years up to a certain age limit. Some policies
also pay out in the case of critical illness.
Policies are typically traditional with-profits or unit-linked (including those with unitized with-profits funds).

Endowments can be cashed in early (or surrendered) and the holder then receives the surrender value which is
determined by the insurance company depending on how long the policy has been running and how much has
been paid into it.

Accidental death:

Accidental death insurance is a type of limited life insurance that is designed to cover the insured should they die
as the result of an accident. "Accidents" run the gamut from abrasions to catastrophes but normally do not include
deaths resulting from non-accident-related health problems or suicide. Because they only cover accidents, these
policies are much less expensive than other life insurance policies.

Such insurance can also be accidental death and dismemberment insurance or AD&D. In an AD&D policy,
benefits are available not only for accidental death but also for the loss of limbs or body functions such as sight
and hearing.

Accidental death and AD&D policies very rarely pay a benefit, either because the cause of death is not covered by
the policy or because death occurs well after the accident, by which time the premiums have gone unpaid. To
know what coverage they have, insureds should always review their policies. Risky activities such as parachuting,
flying, professional sports, or military service are often omitted from coverage.

Accidental death insurance can also supplement standard life insurance as a rider. If a rider is purchased, the
policy generally pays double the face amount if the insured dies from an accident. This was once called double
indemnity insurance. In some cases, triple indemnity coverage may be available.

Senior and pre-need products:

Insurance companies have in recent years developed products for niche markets, most notably targeting seniors in
an aging population. These are often low to moderate face value whole life insurance policies, allowing senior
citizens to purchase affordable insurance later in life. This may also be marketed as final expense insurance and
usually have death benefits between $2,000 and $40,000. One reason for their popularity is that they only require
answers to simple "yes" or "no" questions, while most policies require a medical exam to qualify. As with other
policy types, the range of premiums can vary widely and should be scrutinized prior to purchase, as should the
reliability of the companies.

Health questions can vary substantially between exam and no-exam policies. It may be possible for individuals
with certain conditions to qualify for one type of coverage and not another.Because seniors sometimes are not
fully aware of the policy provisions it is important to make sure that policies last for a lifetime and that premiums
do not increase every 5 years as is common in some circumstances.

Pre-need life insurance policies are limited premium payment, whole life policies that are usually purchased by
older applicants, though they are available to everyone. This type of insurance is designed to cover
specific funeral expenses that the applicant has designated in a contract with a funeral home. The policy's death
benefit is initially based on the funeral cost at the time of prearrangement, and it then typically grows as interest is
credited. In exchange for the policy owner's designation, the funeral home typically guarantees that the proceeds
will cover the cost of the funeral, no matter when death occurs. Excess proceeds may go either to the insured's
estate, a designated beneficiary, or the funeral home as set forth in the contract. Purchasers of these policies
usually make a single premium payment at the time of prearrangement, but some companies also allow premiums
to be paid over as much as ten years.

Riders are modifications to the insurance policy added at the same time the policy is issued. These riders change
the basic policy to provide some feature desired by the policy owner. A common rider is accidental death (see
above). Another common rider is a premium waiver, which waives future premiums if the insured becomes
disabled.

self-employed persons and employers. However where life insurance is held outside of the superannuation
environment, the premiums are generally not tax deductible. For insurance through a superannuation fund, the
annual deductible contributions to the superannuation funds are subject to age limits. These limits apply to
employers making deductible contributions. They also apply to self-employed persons and substantially self-
employed persons. Included in these overall limits are insurance premiums. This means that no additional
deductible contributions can be made for the funding of insurance premiums. Insurance premiums can, however,
be funded by undeducted contributions. For further information on deductible contributions see "under what
conditions can an employer claim a deduction for contributions made on behalf of their employees?" and "what is
the definition of substantially self-employed?". The insurance premium paid by the superannuation fund can be
claimed by the fund as a deduction to reduce the 15% tax on contributions and earnings. (Ref: ITAA 1936,
Section 279).[24]

3.Tax treatment of Life Insurance :

Transfers of property after June 30, 1969, in connection with the performance of services are governed by IRC
Section 83. For transfers before February 13, 2004, Treasury Regulation Section 1.83-3(e) provided that, “In the
case of a transfer of a life insurance contract, retirement income contract, endowment contract, or other contract
providing life insurance protection, only the cash surrender value of the contract is considered to be property.”

For transfers after February 12, 2004, however, new regulations recently have been issued under IRC Section 83.
These regulations change the definition of what constitutes property with respect to a life insurance contract. The
new definition generally treats the policy’s fair market value (specifically the policy cash value and all other rights
under the contract, including any supplemental agreements to the contract, whether or not they are guaranteed,
other than current life insurance protection) as property. For transfers of life insurance contracts that are part of
split dollar arrangements that are not subject to the split dollar regulations, however, only the cash surrender value
of the contract is considered property.

The IRS has provided a safe harbor on how to determine the fair market value of a life insurance contract. The
fair market value of a life insurance contract may be the greater of either: (1) the interpolated terminal reserve and
any unearned premiums, plus a pro rata portion of a reasonable estimate of dividends expected to be paid for that
policy year, or (2) the product of the “PERC amount” (PERC stands for premiums, earnings, and reasonable
charges) and the applicable “Average Surrender Factor.”

The PERC amount for a life insurance contract that is not a variable contract is the aggregate of:

(1) the premiums paid on the policy without a reduction for dividends that offset the premiums, plus

(2) dividends that are applied to purchase paid-up insurance, plus

(3) any other amounts credited or otherwise made available to the policyholder, including interest and similar
income items but not including dividends used to offset premiums and dividends used to purchase paid up
insurance, minus

(4) reasonable mortality charges and other reasonable charges, but only if those charges are actually charged and
those charges are not expected to be refunded, rebated, or otherwise reversed, minus

(5) any distributions (including dividends and dividends held on account), withdrawals, or partial surrenders taken
prior to the valuation date.

The PERC amount for a variable life contract is the aggregate of:

(1) the premiums paid on the policy without a reduction for dividends that offset the premiums, plus

(2) dividends that are applied to increase the value of the contract, including dividends used to purchase paid-up
insurance, plus or minus

(3) all adjustments that reflect the investment return and the market value of the contract’s segregated asset
accounts, minus

(4) reasonable mortality charges and other reasonable charges, but only if those charges are actually charged on or
before the valuation date and those charges are not expected to be refunded, rebated, or otherwise reversed, minus

(5) any distributions (including dividends and dividends held on account), withdrawals, or partial surrenders taken
prior to the valuation date.

The Average Surrender Factor is 1.0 when valuing life insurance contracts for purposes of the rules regarding
group term life (Section 79), property transferred in connection with the performance of services (Section 83), and
certain transfers involving deferred compensation arrangements (Section 402(b)). This is because under these
rules no adjustment for potential surrender charges is allowed.

The IRS pointed out that the formulas in its safe harbor rules must be interpreted in a reasonable manner,
consistent with the purpose of determining the contract’s fair market value. Specifically the rules are not allowed
to be interpreted in such a way to understate a contract’s fair market value.
For transfers of property before July 1, 1969, the IRS ruled that the value of an unmatured policy is determined
for income tax purposes in the same manner as for gift tax purposes. In one case, the court accepted the value
stipulated by the parties in an arm’s length agreement.
under either of two circumstances: (1) Where the decedent/insured has directed in his or her will that the life
insurance beneficiary pay the share of death taxes attributable to the proceeds; and (2) where the state of the
decedent’s domicile has a statute that apportions the burden of death taxes among probate and nonprobate
beneficiaries in absence of any direction from the decedent regarding where the burden of death taxes should fall.

Most states have statutes that apportion death taxes (federal, state, or both) among the beneficiaries of an estate,
probate and no probate, under circumstances where the decedent has not directed otherwise. A few states place the
death tax burden on the probate estate (technically, the residuary estate).

A federal apportionment statute provides in pertinent part as follows: “Unless the decedent directs otherwise in his
will, if any part of the gross estate on which tax has been paid consists of proceeds of policies of insurance on the
life of the decedent receivable by a beneficiary other than the executor, the executor shall be entitled to recover
from such beneficiary such portion of the total tax paid as the proceeds of such policies bear to the taxable estate.”

In the decedent’s former wife was the beneficiary of insurance on the decedent’s life. The decedent, who died
domiciled in Alabama, did not direct in his will where the burden of death taxes should fall. The Alabama statute
said that unless the decedent directed otherwise, the executor was to pay death taxes out of estate property (i.e.,
from the residuary estate). The statute also said that the executor was under no duty to recover any pro rata
portion of such taxes from the beneficiary of any non probate property. In a suit by the executor to recover from
the life insurance beneficiary a pro rata share of the estate tax due (the insurance proceeds having been found
includable in the gross estate for federal estate tax purposes), the Eleventh Circuit held that the federal statute,
IRC Section 2206, prevailed over the state statute and allowed the executor to recover.

Regardless of what form an arrangement may take (whether, for example, the arrangement is a life insurance trust,
an agreement with the insurer for payment of proceeds under settlement options, or an outright payment to a
beneficiary), if an insured (or annuitant) transfers benefits to a “skip person,” generally, the insured has made a
generation-skipping transfer.

For purposes of the generation-skipping transfer tax, the term “trust” includes any arrangement (such as life
estates, estates for years, and insurance and annuity contracts) other than an estate that, although not a trust, has
substantially the same effect as a trust. In the case of an arrangement that is not a trust but that is treated as a trust,
the term “trustee” means the person in actual or constructive possession of the property subject to such
arrangement.

The IRS has been given authority to issue regulations that may modify the generation-skipping rules when applied
to trust equivalents, such as life estates and remainders, estates for years, and insurance and annuity contracts. The
committee report states that such authority, for example, might be used to provide that the beneficiary of an
annuity or insurance contract be required to pay any generation-skipping tax.

Regulations provide that the executor is responsible for filing and paying the GST tax if (1) a direct skip occurs at
death, (2) the property is held in a trust arrangement, which includes arrangements having the same effect as an
explicit trust, and (3) the total value of property subject to the direct skip is less than $250,000. The executor is
entitled to recover the GST tax attributable to the transfer from the trustee (if the property continues to be held in
trust) or from the recipient of the trust property (if transferred from the trust arrangement).

Regulations provide a number of examples that treat insurance proceeds as a trust arrangement. Where insurance
proceeds held by an insurance company are to be paid to skip persons in a direct skip at death (a direct skip can
occur whether proceeds are paid in a lump sum or over a period of time) and the aggregate value of such proceeds
held by the insurer is less than $250,000, the executor is responsible for filing and paying the GST tax.
Consequently, the insurance company can pay out the proceeds without regard to the GST tax (apparently, the
insurance company could not do so if the executor attempts to recover the GST tax while the company still holds
proceeds). Where the value of the proceeds in the aggregate equals or exceeds $250,000, however, the insurance
company is responsible for filing and paying the GST tax.
Leveraging of the GST tax exemption (see Appendix D) can be accomplished by allocating the exemption against
the discounted dollars that the premiums represent when compared with the ultimate value of the insurance
proceeds. However, in the case of inter vivos transfers in trust, allocation of the GST exemption is postponed until
the end of an estate tax inclusion period (“ETIP”). In general, an ETIP would not end until the termination of the
last interest held by either the transferor or the spouse of the transferor during the period in which the property
being transferred would have been included in either spouse’s estate if that spouse died.

Of course, the transferor should be given no interest that would cause the trust propertyto be included in the
transferor’s estate. Furthermore, the transferor’s spouse should be given no interest that would cause the trust
property to be included in the transferor spouse’s estate if the transferor spouse were to die.

The property is not considered as includable in the estate of the spouse of the transferor by reason of a withdrawal
power limited to the greater of $5,000 or five percent of the trust corpus if the withdrawal power terminates no
later than sixty days after the transfer to the trust. Also, the property is not considered as includable in the estate
of the transferor or the spouse of the transferor if the possibility of inclusion is so remote as to be negligible (i.e.,
less than a five percent actuarial probability). Furthermore, the ETIP rules do not apply if a reverse QTIP election
is made. Otherwise, if proceeds are received during the ETIP, the allocation of the GST exemption must be made
against proceeds rather than premiums and the advantage of leveraging is lost.

It is based upon the $1 million GST exemption prior to any inflation or other adjustment after 1998.] G creates a
trust for the benefit of his children and grandchildren. Each year he transfers to the trust $50,000 (to be used to
make premium payments on a $2 million insurance policy on his life) and allocates $50,000 of his GST
exemption to each transfer. Assuming G makes no other allocations of his GST exemption, the trust will have a
zero inclusion ratio (i.e., it is not subject to GST tax) during its first twenty years. At the end of twenty years, G
will have used up his GST exemption and the trust’s inclusion ratio will increase slowly with each additional
transfer of $50,000 to the trust. If G died during the twenty year period, the insurance proceeds of $2 million
would not be subject to GST tax. Part of the $2 million proceeds may be subject to GST tax if G died in a later
year. To insure that the trust has a zero inclusion ratio, use of a policy that becomes paid-up before the transfers to
trust exceed the GST exemption may be indicated.

The trust is created for G’s spouse, S, during her lifetime, and then, to benefit children and grandchildren. If the
trust is intended to qualify for the marital deduction (apparently, other than if a reverse QTIP election is used), the
valuation of property for purpose of the ETIP rule is generally delayed until G or S dies because the property
would have been included in S’s estate if she died during the ETIP. Consequently, if the $2 million insurance
proceeds are received during the wife’s lifetime, the GST exemption is allocated against the $2 million proceeds,
and a substantial amount of GST tax may be due upon subsequent taxable distributions and taxable terminations
from the trust. Because allocation of the exemption must be made against the proceeds if they are received during
the ETIP, the advantage of leveraging enjoyed in Example 1 is lost.

The 2011 GST tax lifetime exemption is $5 million, and for 2012, it is $5.12 million. The 2010 Tax Relief Act
also unified the lifetime gift exemption with the estate tax exemption of $5 million for 2011 and $5.12 million for
2012. The exemption is expected to revert to $1 million in 2013.This temporarily increased exemption will
provide transferors with flexibility in funding life insurance premiums through irrevocable life insurance trusts as
it allows the transferor to front-pay premium payments in 2011 and 2012 with the unused portion of the $5
million exemption ($10 million for married couples). In addition, the Act provides portability of unused
exemptions among spouses; any unused exemption of a spouse who dies in 2011 may be used by the
survivinspouse.
The gifts of life insurance to charitable organizations subject to gift tax:

Generally, no. An individual may take a gift tax deduction for the full value of gifts to qualified charities of life
insurance and annuity contracts, and of premiums or consideration paid for such contracts owned by qualified
charities. Such a deduction is not allowed where an insured assigns (even irrevocably) to a charity the cash
surrender value of a life insurance policy (either paid-up or premium paying), including a right to death proceeds
equal to the cash surrender value immediately before death, if the donor retains the right to name or change the
beneficiary of proceeds in excess of the cash surrender value and to assign the balance of the policy subject to the
charity’s right to the cash surrender value. According to the IRS, such a gift is neither one of the donor’s entire
interest in the property nor one of an undivided portion of the donor’s entire interest in the property, and so the
deduction is disallowed under IRC Section 2522(c).
If the law in the state of the donor’s domicile does not recognize that a charity has an insurable interest in the life
of the donor, a charitable deduction may not be allowed for a gift of a newly issued insurance policy (or premiums
paid thereon) or for gifts of premium payments on a policy applied for and issued to the charity as owner and
beneficiary.
If the insured has any incident of ownership in the policy at the time of death, the proceeds are includable in the
insured’s gross estate, but a charitable deduction is allowable for their full value.

If, however, the law in the state of the donor’s domicile does not recognize that a charity has an insurable interest
in the life of the donor, complications may arise. In some states, a charity may not have an insurable interest with
respect to a newly issued insurance policy given to the charity or for a policy applied for and issued to the charity
as owner and beneficiary. If the charity does not have an insurable interest and the insurer or the insured’s estate
raises the question of lack of an insurable interest, the insured’s estate may be able to recover the proceeds (or the
premiums paid). The proceeds are includable in the insured’s estate to the extent that the proceeds could be
received by the insured’s estate. No charitable deduction may be allowed if the executor recovers the proceeds for
the estate or if the executor were to fail to recover the proceeds and the proceeds passed to charity.
The generally are tax exempt income to the trustee and to the beneficiary when distributed.

Where proceeds are retained by the trust, earnings on the proceeds are taxed in the same manner as other trust
income. The $1,000 annual interest exclusion, available where insurance proceeds are payable to a surviving
spouse of an insured who died before October 23, 1986, under a life income or installment option, is not available
if the proceeds are payable to a trust. Under some circumstances, proceeds of a policy transferred for value to a
trust may not be wholly tax exempt.

4.Life Insurance Products:

When it comes to life insurance options, there are many. Life insurance is a more flexible product than most
people think. On the market today, there is a variety of insurance policy designs which match up to very different
needs. All types of life insurance have the same basic setup you pay monthly premiums, and, if you die all
members of your family will loose their food , shelter and household aspects. They last, how much they cost, and
whether they provide other benefits on top of the death benefit.
Here is a complete comparison of the costs of the the costs of the main types of life insurance so you can choose
the best fit for your situation. your heirs receive a death benefit.However, they are quite different in terms of how
long span of sufferings. It is vital for you to understand all of the life insurance options you can choose from. In
this article, we are going to give a basic description of each kind of life insurance plan.

Term Life Insurance

Term life insurance is temporary, budget friendly life insurance coverage. When you buy a term policy, it will
have a set expiration date sometime in the future.
For example, it is common to see policies lasting 5, 10, or 20 years, or even longer. If you die during this time,
your heirs receive the policy death benefit. If you outlive your policy’s term, the contract expires and you lose
your insurance coverage.
One of the best features of a term life insurance plan is that your premiums will remain at the same rate during the
period of coverage. This will make your budget planning a lot more simple. Most term life insurance providers
will give you an opportunity to renew or upgrade your insurance plan toward the end of your current term of
coverage.
If your health is good, you may even want to have your term life insurance medically underwritten. This would
give you even more budget friendly premiums.
Term policies are typically the least expensive type of life insurance. Since most policies expire without paying a
death benefit, life insurance companies can sell these at a low price. Term insurance also only offers a death
benefit; these policies don’t come with any living benefits like cash value.
Since term coverage eventually expires, these policies are best for short-term needs which won’t last your entire
life. For example, a good use of term insurance would be to cover a mortgage. Eventually, you’ll pay off your
home so you wouldn’t need insurance anymore.
While you may not like the idea of only have life insurance for a certain length of time, these plans are a great
option for the majority of applicants. If you’re looking for the most affordable life insurance policy to meet your
needs, term life insurance plans are a great place to start your search.

Return of Premium Life Insurance

There is term life insurance which will return your premiums if you are still around to collect them at the end of
the specified term of coverage. This is known as Return of Premium Term Life Insurance.
This is one of the popular life insurance options for obvious reasons. Except for factors like fees, riders and the
like, you will receive a refund of your premium payments at the end of the policy term.
You were responsible enough to make sure that your financial obligations were covered in case of your death, yet
if you are still alive at the end of the term, you can take those funds and use them for a new or upgraded policy.
You may need to use some of those funds for another purpose and reinvest some of them in a new life insurance
policy.

Whole Life Insurance

Whole life insurance is designed to last your entire life. These policies do not have a set expiration date. As long
as you pay your monthly insurance premium on time, you’ll keep your coverage.
These policies also commonly offer something called cash value. This is money that builds up in your policy that
you can withdraw and spend while you are alive. It’s kind of like combining an investment account with your life
insurance. Your monthly insurance payments build up a pool of money that the insurance company will invest and
pay interest on. Whole life insurance policies offer a guaranteed rate of return so they are a very safe investment.
There are a lot of applicants that don’t like the idea of losing coverage, and these whole life plans are an excellent
option for those applicants.
The downside of whole life insurance is that it is very expensive compared to term insurance. A whole life policy
costs ten times or more per month than a term policy.
Universal Life Insurance

Universal life insurance is a mix between term and whole life insurance.
With universal life, you get to choose how much money you want to pay per month for your coverage. Part of the
money will go towards paying for your life insurance, basically a term policy, and the rest of the money builds
cash value.
The insurance company pays monthly interest to grow the cash value.
Unlike whole life, universal policies pay a variable interest rate. This means that the interest rate can change over
time and isn’t guaranteed. Some years a universal policy will earn more than a whole life policy, and some years it
won’t
The idea behind universal life insurance is you overpay for your insurance when you are younger to build up a
cash reserve. When you get older and insurance for seniors becomes more expensive, the cash value will make up
the difference for the extra costs.

Guaranteed Universal Life Insurance

You can buy something called a guaranteed rider on universal life insurance. With guaranteed universal life
insurance, the insurance company guarantees your coverage, provided you make at least a minimum monthly
payment.
If insurance costs go up too quickly or your cash value doesn’t grow as much as expected, it won’t matter for you.
You can guarantee your policy to a certain age or for your entire life. The longer the guarantee you want though,
the more your policy will cost.

Variable Life Insurance

One last type of life insurance is variable life insurance. This is another type of permanent policy that builds up
cash value.
The unique feature of variable life is that these policies let you invest your cash value yourself like a regular
brokerage account. You’ll be able to choose between a variety of stocks, bonds, mutual funds, and money market
funds for your account savings.
If your investments do well, a variable life insurance policy can earn more cash value than other types of life
insurance.
However, if your investments don’t do well, your cash value won’t grow by much; you take on the investment
risk with these plans.

Deciding Which Option Is Best For You

Because there are so many different options, it can be confusing trying to decide which kind of plan is best. Every
plan has pros and cons.
We know that it can be confusing determining which one you should buy, but we can help you make those
decisions. Not only can we help you make that decision, but we can also connect you with the most affordable
policy on the market.
Because there are hundreds of companies on the market, you could spend days calling agents, or you can let our
agents do the work. Fill out our quote form, and we will bring personalized insurance quotes directly to you.
Go with a policy that will cover your needs, yet not empty your bank account. Make sure to explore your options
when it comes to life insurance coverage. Do not let yourself get short changed, but make sure to put the best
coverage for your life insurance concerns in your budget.

Getting The Perfect Life Insurance Policy

There are a handful of life insurance plans that you’ll need to choose from. Each of them have different
advantages and disadvantages that you’ll need to consider when looking to get life insurance protection for your
family. Everyone is different, which means there is no “one plan fits all” policy that you can purchase.
We know that it can be a long and confusing process to get the right plan, but our agents can help connect you
with the perfect plan to protect your family. Our agents can help you decide which plans is going to meet your
needs, and we also can help you compare dozens of companies all at once.
We are independent insurance agents, which means that we don’t only work with one single company. Instead, we
represent dozens of highly rated companies across the nation.
Every insurance has different ways of calculating insurance premiums, which means that you could get drastically
different quotes depending on which company that you choose. Instead of wasting your time on the phone with
dozens of companies, we can bring 50 quotes all at once.
We know it’s not easy to get the right plan, but our agents can help connect you with the perfect plan to protect
your family. Our agents can help you decide which plans is going to meet your needs, and we also can help you
compare dozens of companies all at once.
If you have any more questions or want to learn more about these different products, feel free to contact us. Our
staff representatives are experts in the different types of life insurance. Call now for a free consultation and to get
life insurance quotes.

5.Classification of Life Insurance.

Life insurance is a contract between the insurer and insured to provide death benefits to the beneficiary.

The insurer is the insurance company, and the insured is the person or entity for whom the policy is written.

Key Provisions to Life Insurance Policies

Let's now take a closer look at important provisions to life insurance policies. Some of these are for the advantage
of the insured and beneficiary, while others protect the insurance company.
Naming A Beneficiary

There are many reasons why people purchase life insurance, including to replace household income, pay off debt
or give a gift. Mrs. Smith shares several unique circumstances but says every policy must have a beneficiary.
A beneficiary is the recipient of the death benefit and is selected by the insured. More than one beneficiary may
be selected, and proceeds can be split by dollar amount or percentage.

Jared shared that he heard on the news that a rich person made her dog the beneficiary. Everyone in the crowd
laughed and looked at Mrs. Smith for validation. Mrs. Smith explained anyone or anything can be a beneficiary -
a dog, person, church, or organization. The selection of a beneficiary is solely up to the insured. Now, let's review
some important factors every insured must keep in mind when selecting a life insurance policy.

Grace Period

Mrs. Smith then explains that several options exist when paying for a life insurance policy, with the most common
being annually, quarterly or monthly. If the premiums aren't paid, the policy will lapse, meaning no coverage will
exist. If the insured dies during the lapsed period, the beneficiary will not receive the death benefits. However,
some insurance policies have a grace period in which the insured has 30 days past the due date to pay the
premium before the policy lapses.

Policy Reinstatement

If the policy lapses, the insurance company may also have a policy reinstatement period in which the insured can
pay past due premiums and resume the same policy without applying for a new one. The insured should pay close
attention to the reinstatement period as it can vary by insurance company. Jared asks Mrs. Smith what happens if
the insured doesn't pay during the reinstatement period. She responds that the policy remains terminated and the
insured must reapply. Reapplication could result in a higher premium or denial since the process is based on
several different factors, such as health, occupation and the age of the insured.

Misstatement of Age Provision

Mrs. Smith says that since she just mentioned age, it's a good time to discuss the misstatement of age provision. A
major factor in calculating life insurance premiums is age, and insurance companies utilize actuarial tables that
calculate the probability of death. Mrs. Smith explains the direct correlation between age and premiums.
Essentially, the older you are, the greater risk of death and the higher your premium. If you lie about your age,
the misstatement of age provision allows insurance companies to adjust the premium based on your true age or to
cancel the policy.

Policy Loan Provision

There are two main types of life insurance policies: term and whole. A term policy provides coverage for a
specific period of time, while a whole policy lasts until the death of the insured. An additional benefit to whole
policies is they build cash value (called reserves) when the insurance company invests the premiums.
Mrs. Smith provides an example of purchasing a whole life policy for $100,000, and after 10 years, the invested
premiums create a cash value of $10,000. The insured can borrow up to $10,000, hence the policy loan provision.
Typically, the insured must pay back the $10,000; if they do not, the beneficiary will simply receive the stated
amount of $100,000 (rather than $110,000) after the insured dies.

Non-Forfeiture Clause

Now, let's say the insured has the same cash value of $10,000. The non-forfeiture clause allows for the:

 Reserves to pay the policy premiums up to the amount of the reserves in the event the insured ceases to
pay the premium
 Insured to surrender the policy and receive the cash value

Jared asked Mrs. Smith why the insured can only receive the cash value and not more. Mrs. Smith reminds Jared
that the purpose of life insurance is to provide a beneficiary with death proceeds after the insured dies; therefore,
the insured is only entitled to the profit received from the investment. Next, let's review another advantage for the
insured, incontestability.

6. The Actuarial Science- Provisions of Life Insurance contracts:

Basic actuarial concepts The work of an actuary can be extremely complex and challenging. However, reduced to
its basics, it often involves the application of probabilities and the time value of money through models that are
designed to reasonably represent reality and assist in analyzing a particular situation. A brief introduction to these
concepts can provide the context for better understanding the particular areas of work in which actuaries are
involved in the insurance sector. Probabilities Insurance is a business that is built on probabilities. Most insurance
policies protect the policyholder from the financial consequences of undesirable contingent events, such as death,
fire, or accidents. However, life annuities protect against the adverse financial consequences of a desirable
situation, which is the possibility that a person will run out of money because of living longer than expected. In
either case, it is impossible to predict exactly what will happen with respect to a particular policyholder. However,
as the number of policyholders with similar risk characteristics increases, the outcome for them as a group can be
predicted with an increasing level of confidence. This predictability enables insurers to take on risks that are
individually highly unpredictable, and spread the financial consequences across many policyholders through the
premiums charged. Actuaries measure the risks that are insured against to determine their probabilities of
occurrence, sometimes referred to as frequency, and use these probabilities in a wide range of calculations. For
example, the probabilities of persons dying at particular ages can be detailed.
Key Provisions to Life Insurance Policies

Let's now take a closer look at important provisions to life insurance policies. Some of these are for the advantage
of the insured and beneficiary, while others protect the insurance company.

Naming A Beneficiary

There are many reasons why people purchase life insurance, including to replace household income, pay off debt
or give a gift. Mrs. Smith shares several unique circumstances but says every policy must have a beneficiary.
A beneficiary is the recipient of the death benefit and is selected by the insured. More than one beneficiary may
be selected, and proceeds can be split by dollar amount or percentage.

Jared shared that he heard on the news that a rich person made her dog the beneficiary. Everyone in the crowd
laughed and looked at Mrs. Smith for validation. Mrs. Smith explained anyone or anything can be a beneficiary -
a dog, person, church, or organization. The selection of a beneficiary is solely up to the insured. Now, let's review
some important factors every insured must keep in mind when selecting a life insurance policy.

Grace Period

Mrs. Smith then explains that several options exist when paying for a life insurance policy, with the most common
being annually, quarterly or monthly. If the premiums aren't paid, the policy will lapse, meaning no coverage will
exist. If the insured dies during the lapsed period, the beneficiary will not receive the death benefits. However,
some insurance policies have a grace period in which the insured has 30 days past the due date to pay the
premium before the policy lapses.

Policy Reinstatement

If the policy lapses, the insurance company may also have a policy reinstatement period in which the insured can
pay past due premiums and resume the same policy without applying for a new one. The insured should pay close
attention to the reinstatement period as it can vary by insurance company. Jared asks Mrs. Smith what happens if
the insured doesn't pay during the reinstatement period. She responds that the policy remains terminated and the
insured must reapply. Reapplication could result in a higher premium or denial since the process is based on
several different factors, such as health, occupation and the age of the insured.

Misstatement of Age Provision

Mrs. Smith says that since she just mentioned age, it's a good time to discuss the misstatement of age provision. A
major factor in calculating life insurance premiums is age, and insurance companies utilize actuarial tables that
calculate the probability of death. Mrs. Smith explains the direct correlation between age and premiums.
Essentially, the older you are, the greater risk of death and the higher your premium. If you lie about your age,
the misstatement of age provision allows insurance companies to adjust the premium based on your true age or to
cancel the policy.
Policy Loan Provision

There are two main types of life insurance policies: term and whole. A term policy provides coverage for a
specific period of time, while a whole policy lasts until the death of the insured. An additional benefit to whole
policies is they build cash value (called reserves) when the insurance company invests the premiums.

Mrs. Smith provides an example of purchasing a whole life policy for $100,000, and after 10 years, the invested
premiums create a cash value of $10,000. The insured can borrow up to $10,000, hence the policy loan provision.
Typically, the insured must pay back the $10,000; if they do not, the beneficiary will simply receive the stated
amount of $100,000 (rather than $110,000) after the insured dies.

Non-Forfeiture Clause

Now, let's say the insured has the same cash value of $10,000. The non-forfeiture clause allows for the:

 Reserves to pay the policy premiums up to the amount of the reserves in the event the insured ceases to
pay the premium
 Insured to surrender the policy and receive the cash value

7.special Life Insurance forms:

Are you looking for ways to get more out of your life insurance policy. you might want to consider adding a rider
or purchasing special forms of life insurance that provide you with the extra coverage you are looking for. Here is
a look at some of the special types of life insurance you might want to consider pursuing in order to make certain
your loved ones are properly cared for when you are gone.

Adding a Rider

One thing you might want to consider doing is to simply add a rider to your current life insurance policy. With a
rider, changes are made to your insurance policy in order to meet specific needs. One rider that is commonly
added to life insurance policies is an accidental death policy, which is also referred to as a double indemnity rider.

With an accidental death rider, your beneficiary will receive twice the payout if your death is due to accidental
causes. In short, adding this clause to your policy essentially provides you with a full coverage policy as well as
an accidental death policy.

Another rider you might want to consider adding to your policy is a premium waiver. With this rider, the cost of
your premiums is waived if you become disabled. In this way, if you are seriously injured or become ill, you will
still be able to keep your life insurance policy in place.
Joint Life Insurance

Another type of insurance you might want to consider obtaining is joint life insurance. With this type of
insurance, you insure two or more people with the same policy. A joint life insurance policy can be either term or
whole life. Either way, the beneficiary receives payment after either the first or second death.

Survivorship Life Insurance

Like joint life insurance, a survivorship policy covers the lives of two people. With this type of policy, however,
the beneficiary only receives payment after both people have passed away. In addition, this type of policy is only
available as a whole life insurance policy rather than a term life insurance policy.

Single Premium Whole Life Insurance

With a single premium whole life insurance policy, you only pay one premium rather than making premium
payments every month, quarter or year. This payment, which is obviously going to be much larger than the
premium payments you would make with the traditional payment setup, is due at the time the policy is issued.

Modified Whole Life Insurance

With a modified whole life insurance policy, you pay smaller premiums payments for a specified period time.
After this period is over, your premium payment amounts increase for the life of the policy.

Group Life Insurance

With group life insurance, the policy covers a group of people who are connected in some way. Generally, this
type of policy is provided to people who are employed by the same company or to members of an association or
union. The size of the group as well as its turnover rate are both taken into consideration when determining
premium rates.

Preneed Insurance

Also referred to as final expense insurance, funeral insurance and burial insurance, preneed insurance is designed
to provide the policyholder with the funds necessary to pay for final burial expenses. Since these policies have a
lower face value, it is much easier for seniors to obtain a policy as well as for those with pre-existing medical
conditions
Mortgage Life Insurance

Mortgage life insurance is designed to pay off the policyholder's mortgage loan after he or she passes away.
Although the premium amount stay the same throughout the life of the policy, the total value of the policy
decreases as the amount owed on the mortgage loan decreases. Once the mortgage loan is paid off, the policy
expires.

Are you a student or a teacher?

8.Health & general Insurance-An Overview:
Evolution of Health Insurance The concept of Health Insurance was proposed in the year 1694 by Hugh the elder
Chamberlen from Peter Chamberlen family. In 19th Century “Accident Assurance” began to be available which
operated much like modern disability insurance. This payment model continued until the start of 20th century.
During the middle to late 20th century traditional disability insurance evolved in to modern health insurance
programmes. Today, most comprehensive health insurance programmes cover the cost of routine, preventive and
emergency health care procedures and also most prescription drugs. But this is not always the case. Healthcare in
India is in a state of enormous transition: increased income and health consciousness among the majority of the
classes, price liberalization, reduction in bureaucracy, and the introduction of private healthcare financing drive
the change. Over the last 50 years, India has achieved a lot in terms of health insurance. Before independence, the
health structure was in dismal condition i.e. high morbidity and high mortality and prevalence of infectious
diseases. Since independence, emphasis has been put on primary health care and we made considerable progress
in improving the health status of the country. But still, India is way behind many fast developing countries such as
China, Vietnam and Sri Lanka in health indicators. Health insurance, which remains highly underdeveloped and
less significant segment of the product portfolios, is now emerging as a tool to manage financial needs of people
to seek health services.

This paper attempts to discuss the following areas:

Review of health insurance scenario in India
Various Health Insurance products available in India
 Comparison of health insurance offered by a Life and General Insurer
Health Insurance for senior citizens
Need for Long term care plans
Models of Long term care in other countries
Health Ratios
Implications of privatization on health insurance
Role of IRDA
HEALTH INSURANCE SCENARIO IN INDIA
Health is a human right. It’s accessibility and affordability has to be ensured. The escalating cost of medical
treatment is beyond the reach of common man. While well to do segment of the population both in Rural and
Urban areas have accessibility and affordability towards medical care, the same cannot be said about the people
who belong to the poor segment of the society.
Health care has always been a problem area for India, a nation with a large population and larger percentage of
this population living in urban slums and in rural area, below the poverty line. The government and people have
started exploring various health financing options to manage problem arising out of increasing cost of care and
changing epidemiological pattern of diseases.
The control of government expenditure to manage fiscal deficits in early 1990s has let to severe resource
constraints in the health sector. Under this situation, one of the ways for the government to reduce under funding
and augment the resources in the health sector was to encourage the development of health insurance.
In the light of escalating health care costs, coupled with demand for health care services, lack of easy access of
people from low income group to quality health care, health insurance is emerging as an alternative mechanism
for financing health care.
Indian health financing scene raises number of challenges, which are:
Increase in health care costs, high financial burden on poor eroding their incomes need for long term and nursing
care for senior citizens because of increasing nuclear family system increasing burden of new diseases and health
risks Due to under funding of government health care, preventive and primary care and public health functions
have been neglected.

In the above scenario, exploring health financing options became critical. Naturally, health insurance has emerged
as one of the financing options to overcome some of the problems of our system.
In simple terms, health insurance can be defined as a contract where an individual or group purchases in advance
health coverage by paying a fee called “premium”. Health insurance refers to a wide variety of policies. These
range from policies that cover the cost of doctors and hospitals to those that meet a specific need, such as paying
for long term care. Even disability insurance, which replaces lost income if you cannot work because of illness or
accident, is considered health insurance, even though it is not specifically for medical expenses.
Health insurance is very well established in many countries, but in India it still remains an untapped market. Less
than 15% of India’s 1.1 billion people are covered through health insurance. And most of it covers only
government employees. At any given point of time, 40 to 50 million people are on medication for major sickness
and share of public financing in total health care is just about 1% of GDP. Over 80% of health financing is private
financing, much of which is out of pocket payments and not by any pre-payment schemes. Given the health
financing and demand scenario, health insurance has a wider scope in present day situation in India. However, it
requires careful and significant efforts to tap Indian health insurance market with proper understanding and
training.

9.MICRO INSURANCE IN INDIA:

Micro insurance products offer coverage to low-income households or to individuals who have little savings and
is tailored specifically for lower valued assets and compensation for illness, injury or death.

Micro insurance'
As a division of microfinance, micro insurance looks to aid poor families by offering insurance plans tailored to
their needs. Micro insurance is often found in developing countries, where the current insurance markets are
inefficient or non-existent. Because the coverage value is lower than a usual insurance plan, the insured people
pay considerably smaller premiums.

Micro insurance, like regular insurance, is available for a wide variety of risks. These include both health
risks and property risks. Some of these risks include crop insurance, livestock/cattle insurance, insurance for theft
or fire, health insurance, term life insurance, death insurance, disability insurance and insurance for natural
disasters, etc.

Like traditional insurance, micro insurance functions based on the concept of risk pooling, regardless of its small
unit size and its activities at the level of single communities. Micro insurance combines multiple small units into
larger structures, creating networks of risk pools that enhance both insurance functions and support structures.

Micro insurance Delivery Methods

Delivery of micro insurance is a challenge. Several methods and models exist, which can differ according to the
organization, institution and provider involved. In general, there are four main methods for delivering micro
insurance to a client base: the partner-agent model, the provider-driven model, the full-service model and the
community-based model:

 Partner-agent model: This model is based on a partnership between the micro insurance scheme and an
agent, and in some cases a third-party healthcare provider. The micro insurance scheme is responsible for
the delivery and marketing of products to the clients, while the agent retains all responsibility for design
and development. In this model, micro insurance schemes benefit from limited risk, but are also limited in
their control.
 Full-service model: In this model, the micro insurance scheme is in charge of everything; both the design
and delivery of products to the clients, working in conjunction with external healthcare providers. While
benefiting from full control, the disadvantage of the full-service model is the higher risks.
 Provider-driven model: In this model, the healthcare provider is the micro insurance scheme, and similar
to the full-service model, is responsible for all operations, delivery, design, and service. This disadvantage
of this method is the limitations of products and services that can be offered.
 Community-based/mutualmodel:Inthis method, policyholders or clients are run everything, working with
external healthcare providers to offer services. This model is advantageous for its ability to design and
market products more easily and effectively, but the small size and scope of operations limits
effectiveness.