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Introduction

Why is insurance necessary? The question contains the answer within itself. After all, life is fraught with tensions and apprehensions regarding the future and what it holds for the individual. Despite all the planning and preparation one might make, no one can accurately guarantee or predict how or when death might result and the circumstances that might ensue in its aftermath. We are not saying that life and existence are constantly fraught with danger and uncertainty. But then it is essential that you plan for the future. The chances for a fatality or an injury to occur to the average individual may not be particularly high but then no one can really afford to completely disregard his or her future and what it holds. People generally regard insurance as a scheme when and where you have to lose a lot to gain a little. Nevertheless, insurance is still the most reliable tool an individual can use to plan for his future. Insurance today : In 1993, Malhotra Committee, headed by former Finance Secretary and RBI Governor R. N. Malhotra, was formed to evaluate the Indian insurance industry and recommend its future direction. The Malhotra committee was set up with the objective of complementing the reforms initiated in the financial sector. With the setup of Insurance Regulatory Development Authority (IRDA) the reforms started in the Insurance sector. It has became necessary as if we compare our Insurance penetration and per capita premium we are much behind then the rest of the world. The table above gives the statistics for the year 2000. With the expected increase in per capita income to 6% for the next 10 year and with the improvement in the awareness levels the demand for insurance is expected to grow. As per an independent consultancy company, Monitor Group has estimated a growth form Rs. 218 Billion to Rs. 1003 Billion by 2008. The estimations seems achievable as the performance of 13 life Insurance players in India for the year 2002-2003 (up to October, based on the first year premium) is Rs. 66.683 million being LIC the biggest contributor with Rs. 59,187 million. As of now LIC has 2050 branches in 7 zones with strong team of 5,60,000 agents. Changing perception : Some time back we generally save ourselves form an encounter with a insurance agent. No on can be set responsible for the state of affairs as there were only two players on the field one was the insurer and the other was to be insured. As if every one is playing the game Tom and Jerry, some times Tom runs fast and some times jerry.

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The future of the insurance industry
The insurance industry is today witness to a days. From a humble beginning made in industry and the birth of the Life Insurance deluge of multinational insurers all charging existent vast unexploited potential. massive transformation from its earlier 1956 since the nationalisation of the Corporation, the industry today sees a in to set up shop here considering the

Multinational partnerships: With major trade barriers gone, the Indian insurance industry is slowly opening itself from a protected environment to e-business, incorporating newer technologies in insurance, thanks to competition, that will hopefully bring forth a marked improvement in customer service, insurance marketing, risk management, claim settlement, underwriting etc in comparison to its earlier days. Faster decision making:Policy servicing, an area that has long remained neglected will now receive a major thrust with insurance companies redefining strategies to weed out sluggishness and provide the policyholder with prompt service. Online policy servicing too will soon become the norm thereby cutting down on the unnecessary delays. Information explosion:Computerising information can make a major difference to the general insurance industry wherein motor claim losses particularly have been hitting the roof. With an organised system of data collection and storage, data analysis and claim management system, keeping track of the claim applicants’ behavioural patterns becomes easy. Easier Claims settlement:Insurance companies are slowly realising the mass difference information technolgy can make to business. Consider policy information being made available online. Tracking policy details, the premiums to be paid, premiums paid so far, the bonus percentage, maturity date of the policy and several such details can be accessed at the mere click of a mouse soon. Bancassurance: Moreover, in addition to the single distribution channel of selling insurance policies through a large network of agents, Bancassurance is gradually gaining prominence. Utilising the extensive network of banks for selling insurance will over a period of time bring about an increase in insurance density besides improving insurance penetration in rural areas wherein a large unexploited potential exists. Improved customer service - the ultimate aim:The insurance industry, with competition hotting up is has woken up to ground realities and is in the process of implementing software solutions. Realising the unlimited power information technology holds, insurance companies have realised that strategic deployment of technology for integrating office operations, and gaining customer confidence through improved customer service is the need of the hour.

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Future Planning and Insurance
Every insurance plan revolves around the financial consequences of a premature death. Obviously, the consequences are too large to ignore and cannot be totally covered by an individual's personal resources. Throughout our living existence, we are faced by numerous risks - failing health, financial losses, accidents and even fatalities. Insurance addresses all these uncertainties on financial terms. Change is perhaps, the only static constant within the dynamics of life and risks always move in tandem within a changing environment. Life insurance is more of a hedging mechanism rather than a real investment avenue. It is essentially a mechanism that eliminates risks primarily by transferring the risk from the insured to the insurer. The insurance industry in particular has been subjected to numerous changes in the last few decades since the need for insurance is more evident now than earlier. People's spending patterns are changing and more & more resources are needed for immediate consumption. In fact, we recommend that you review your needs and insurance portfolio from time to time, say every 2-3 years. During the days of yore, the Joint family system had provided protection in case any unfortunate incident were to occur to any individual of the family. But after the advent of industrialisation, joint families have split into single nuclear families. The support of the extended family cannot be counted upon anymore. Doesn't this lack of a unified support system enhance the risks an individual is subjected to and intensify his or her need for insurance?

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For through life insurance right from the birth of your little one to securing a bright future for your kids and even later you can rely on life insurance.the bane of the nuclear family culture. will be financed by your life insurance policy. And if its your daughter’s marriage expenses that’s giving you sleepless nights know that life insurance will take care of that too. And its you alone who have to bear it all . medical expenses. the best of college education. An insecurity that is not only because of the absence of the elderly around to take care of but mainly due to the limited income and the growing needs that you need to fulfil to keep your family happy. But it’s the inflation. today you have Life Insurance. After all. rising prices. they have brought in a deep sense of insecurity. And god forbid something happens to you. Life insurance means only a small amount as premium on a regular basis but in return it offers you an unmatched security cover that’s just incomparable. groceries. With the disintegration of the joint family nuclear families have become the norm and in addition to financial constraints. conveyance. Yes all this and a lot more. monthly expenditure that includes schooling expenses. So now you know why if you are living in a nuclear family insurance is a must When should you take insurance? 4 . Your childrens’ schooling. seem unimaginably light.Why insurance is important if you are living in a nuclear family? Gone are the days when you lived in a joint family sharing every joy or sorrow in addition to the family income making every financial burden if at all it existed. times-are-a-changing and if living in a joint family gave you all the security that you could easily rely on without giving a thought to your tomorrow. what are you earning for. shopping among others that take away most of your hard earned money leaving a pittance as savings. After all. who will take care of your family? But all’s not lost. Yes! life insurance gives you all that security that you need and a lot more especially if you are living in a nuclear family.

Basically. so insurance on that life is vital. it could be a strain. The death of either spouse would not be financially catastrophic. your children's future and many other interconnected expenses. starting with no need when you're young. independently. it would create financial hardship for no one. And if the non-earning spouse should die. which is when you should commence planning for your retirement.Your need for life insurance changes with the stages of your life. all of these people are dependent on one breadwinner for their total support. as you grow older you will be assuming new roles and taking on larger responsibilities too. Each of you should probably buy a substantial amount of life insurance to protect one other. the other would have to pay for foster care . progressing to greater and greater levels as you take on more and more responsibility and finally beginning to diminish as you grow older. 5 . especially if both spouses contribute equally to the household income. Costs of living will rise and you will have to plan for your marriage. You have a pension and considerable assets that can generate good income with suitable retirement planning that will provide for the remainder of your life. • Double income no kids Married couples with no children may need little or no life insurance. for single parents. Perhaps the survivor couldn't afford the rent payments on a single income. • The golden years The kids have grown and are making it on their own. the other could presumably survive on his or her own income. Any honest financial assessment of your situation would have to conclude that you have little or no need for life insurance. This same high-need situation exists for dual-income households with children. But then. So we recommend that you buy a policy now while you're young and rates are low. Still. • When you're single Sad though your death would be.a very expensive proposition that argues for insurance on both lives. And if someone like a parent depends on you for financial support. or maybe you have to repay debts. and for anyone caring for elderly parents who have limited resources of their own. then by all means consider life insurance. • Married with children A single-income family with young children is the classic high-need situation.

there is no survival benefit. as also for one’s own • 6 . The ideal age to consider a whole life policy for such a purpose is around your 50th year. therefore the pension coming to an end soon after retirement. In such a case a whole life policy serves as financial compensation to the family for the early loss of pension. the risk is covered for the entire life of the policyholder. i. a whole life policy can be very useful in covering the risk of death taking place . This represents a serious drawback in the case of whole life policies. education and marriage of one’s children. no longer truly needing the protection the whole life policy provides. The policyholder is not entitled to any money during his or her own lifetime. etc. whole life policies may be best considered after the age of 45 either for the purpose of leaving behind an estate for one’s heirs or for covering the possibility of premature stoppage of pension income in the case of relatively early death after retirement. very specific cases. Who Should buy this Plan? • This is particularly beneficial for those who are eligible for a sizable pension during their retired life. which is why they are know as whole life policies. for instance.Different policies What is Whole Life Policy? A typical whole life policy runs as long as the policyholder is alive. you buy a whole life policy at the age of thirty when your children are young and the family needs protection.e. In this sense whole life policies are fairly rigid and inflexible and are suitable only in a few. by the time you are 55 or 60 or so the children may be well settled.. Suppose. The policy monies and the bonus are payable only to the nominee of the beneficiary upon the death of the policyholder. The one exception is the Convertible Whole Life Policy.and. Your insurance portfolio is best built around endowment policy. In other words. On the whole. you would probably require the money for yourself and your wife in your retired life but this would not be possible since the sum assured is payable only when the policy holder dies. given the rigidity pointed out above we would advise you to be careful about buying a whole life policy when you are young. On the other hand. A whole life policy will also come in handy for those who wish to create an estate either for their heirs or for donating to charity after their death. Conceivable. However. By then one would have provided for the maintenance of one’s family.

What Is Endowment Policy? Endowment policies cover the risk for a specified period at the end of which the sum assured is paid back to the policyholder along with all the bonus accumulated during the term of the policy. or put it in any other suitable investment of your choice.old age. These type of plans are particularly suitable to those who other than having a risk cover are also interested in a savings component simultaneously.the original sum assured and the accumulated bonus . were the policy holder to die prematurely but the insurance amount is also repaid once this risk is over. It is this feature . No surrender.perhaps only oneself and one’s spouse after retirement. A Term plan is designed to meet the needs of people who are initially unable to pay the larger premium required for a whole life or an endowment assurance policy.the payment of the endowment to the policyholder upon the completion of the policy’s term . endowment policies are the most suitable of all insurance plans for covering the risks to a family breadwinner’s life. Typically. 7 . the risk cover comes to an end. it may be desirable to leave the final decision regarding the plan to a later date when a better choice could be made. Alternately. etc. This is where the endowment . The endowment amount can then be used for meeting major expenditures such as children’s education and marriage. The focus then shifts to managing a smaller family . Hence. You can either use the endowment amount for buying an annuity policy to generate a monthly pension for the whole life. If the premium is not paid with the days of grace. but they hope to be able to pay for such a policy in the near future. the endowment sum is available for a suitable investment geared to providing an income for the remainder of one’s own life. If the policyholder survives the term. one’s responsibility for the financial protection of the family reduces significantly once the children are grown up and independently settled. Not only do these policies provide financial risk cover for the family. the policy will lapse without acquiring a paid-up value. Who Should buy this Plan? Overall. What is Term Policy? Term policies. This is the major benefit of an endowment policy over a whole life one.which rightly accounts for the popularity of endowment policies.received back comes handy. cover only the risk during the selected term period. loan or paid-up values are granted under these policies because reserves are not accumulated. This is the time for one to consider leaving something behind for one’s heirs.

What is Money Back Policy? Unlike ordinary endowment insurance plans where the survival benefits are payable only at the end of the endowment period. Who should buy this plan? Such plans are particular popular with individuals for whom income at regular intervals is a necessity in addition to an insurance cover. of course so long as the policy holder is alive.However. the bonus is also calculated on the full sum assured. money back policies provide for periodic payments of partial survival benefits during the term of the policy. the death claim comprises full sum assured without deducting any of the survival benefit amounts. During the duration of the Term. But these are categorized separately as these cover two lives together thus offering a unique advantage in some cases. Who should buy this plan? A Term plan is particularly beneficial for people who are initially unable to pay the larger premium required for a whole life or an endowment assurance policy. the policy cannot avail of surrender or loan or paidup facilities. apart form covering the risks as all life insurance policies. The minimum age is 12 years to be eligible for a Money-Back Policy. Accident and / or Disability benefits are not granted on policies under the Term plan. What is Joint Life Policy? Joint life policies are similar to endowment policies in as much as these policies also offer maturity benefits to the policyholders. Who should buy this plan? 8 . Similarly. for a married couple or for partners in a business firm. notable. a lapsed policy may be revived during the lifetime of the life assured but before the expiry of the period of two years from the due date of the first unpaid premium on the usual terms. which may have already been paid as moneyback components. An important feature of this type of policies is that in the event of death at any time within the policy term.

The family’s insurance budget should primarily buy as much life insurance as possible on the lives of the breadwinner and should not be frittered away on the children’s lives as their insurance is useless in the event of any premature death of the breadwinner. Until the child attains majority. and will vest itself on the child upon his or her attaining majority on completion of age 21. can take children’s policies. Pension Plan And Annuities What is Annuity? 9 . who plan to provide their child with life insurance cover for a future date when he turns a major. the policy will stand cancelled and a sum of money equal to all the premiums paid without any deduction becomes payable to the proposer. The risk cover commences from the child attaining the age of 12 / 17 / 18 / 21 (known as the Date of Risk). those lives should be insured that have maximum economic emphasis. the child may not be in a position to continue paying the premiums. if the case demands so. A good plan for middle-aged married couples. bonuses continue to accrue on the basic Sum Assured till Maturity Date or till the death of the second life. After all. No loans are granted against this policy during the deferment period and no risk of death is covered until the child attains the prescribed age as per the policy document. In fact. If the child were to die during the deferment period. the parents are the owners of the policy and have to pay the premium periodically.Joint life policies provide dual-purpose income and risk protection for both belonging to every income group and class of society. one covering the period from the date of commencement of policy to the deferred date that is the commencement of the risk. Quite often. working couples or professionals offering financial security for both the lives.Particularly for couples . Under a joint life plan though the premium payment stops after the first life's death. these policies lapse if and when the premium paying breadwinner of the family die before the vesting age. Who should buy this plan? Those. What is a Children's Policy? Children's insurance includes policies through which parents or legal guardians can provide for life insurance for their child from birth. It is important that these policies are considered only after the insurance portfolios of the parents have been completed. The policy envisages two stages. if earlier.

which can offer an income you cannot outlive and provide a solution to one of the biggest financial insecurities of old age. Presently the sole women's policy available in the market is Jeevan Sneha. An individual who after retiring from service has received a large sum from his Provident Funds. 10 . either in a single lump sum or through installments paid over a certain number of years. in return for which you receive back a specific sum every year. perhaps along with a small addition. Annuities are an investment. offers a guaranteed income either for life or a certain period. working or unemployed. but ceases on the death of the annuitant. should invest the proceeds in a pension plan or annuity fund available in the market since it is the most satisfactory method of providing a safe and secured income for the rest of his life. calculated at that time. Annuity premiums and payments are fixed with reference to the duration of human life.an annuity does not provide any life insurance cover but. Annuities differ from all the other forms of life insurance discussed so far in one fundamental way .An annuity is an investment that you make. of outliving one’s income Who should buy this plan? Annuity income is assured throughout life. or after the fixed annuity period expires for annuity payments. the invested annuity fund is refunded. marriage or sickness with Guaranteed And Loyalty Additions during the policy term period and after maturity. which is why they are also called pension plans. either for life or for a fixed number of years. Typically annuities are bought to generate income during one’s retired life. instead. They are required to fulfill their responsibilities at the workplace as well as manage their households too. After the death of the annuitant. What is Women's Policy? Womens policy provides funds in times of need like education. single or married are subject to just as many risks as their male counterparts. every half-year or every month. Who should buy this plan? Ladies. namely.

then it is imperative that he or she invests a part of his existing resources to provide for such contingencies.Since the lack of their presence cannot be easily compensated by their dependents. These special plans are designed to satisfy needs ranging from debt-clearance in event of the death of the insured to financial aid in the event of a medical mishap. What are Special Plans? Special plans. All major female lives until the age of 50 are eligible. especially the one specifically designed and aimed at women in general. 11 . Who should buy these plans? Special plans should be bought by people after carefully scrutinising their lifestyles and circumstances. If the individual insurance buyer feels that he and/or his family might be subject to financial and physical risks of any sort that cannot be met by the regular array of insurance plans. The policy is issued for a fixed term of 20 years. Special plans also provide financial assistance for handicapped dependants as well as emergency surgery required if and when a medical condition arises. This policy has been designed to encourage women to save for their safety and security. from every socio-economic environment invest a part of their resources in the women's policy available in the market. it is advisable that ladies. are insurance policy plans available from the national insurance providers to serve the needs of citizens that cannot be commonly classified or segregated.

you can maximise the returns on your insurance portfolio. are exempt from income tax. • With a view to promote savings and increase awareness regarding insurance. mainly • • Insurance creates financial provisions for the deceased's dependants. but the value of an insurance policy once set.to an employee in lieu of or in commutations of an annuity on his retirement or after a specified age. But it is wise to remember that Pensions received from Annuity plans are not exempted from Income Tax.Insurance & Tax People invest in life insurance owing to a few key reasons. • Section 80 CCC provides a deduction of up to Rs.by way of refund of contributions on the death of a beneficiary. After all.to an individual assessee for any amount paid or deposited to effect or keeping in force any annuity plan of LIC for receiving pension from the fund referred in sections 10 12 .000/. Insurance also provide a legally authorised way to reduce the incidence of Income Tax. . etc. never reduces.on the death of a beneficiary . any sum received under a Life Insurance policy (not being a Key Man policy) is also exempt from taxation. interest rates may fall and invested holdings may lose value and stop gaining dividends. If you plan for your future in a prudent manner. the government has provided certain benefits through the Income Tax Act for tax payers if they choose to opt for life insurance policies.10. Special Provisions The Income Tax Act and Life Insurance policies • Under Section 10(10A) (iii) of the Income Tax Act. any payment received by way of commutations of pension out of the Jeevan Suraksha annuity plans is exempt from tax Under Section 10(10D). Under Section 10(13). Insurance provides for the policyholder's old age after his earning power diminishes. the Superannuation Fund made payments received from an approved • • .

4.5. Remember. when you earn Rs. In one’s earlier years as the family is young and vulnerable. a greater proportion of savings should go towards life insurance. Presently LIC's Jeevan Suraksha plan is one such plan using such benefit.2. Once this level of insurance has been achieved.(23AAB). Once the desired level of insurance portfolio has been built. life insurance must be accorded top priority. Similarly. the proportion of your savings allocated to paying the life insurance premiums may come down along with your rising income. The amount of pension received will be taxable in the hands of the assessee or nominee. All of it until your insurance portfolio is sufficient to take care of your family’s financial needs in the case of your premature death. keep your expenses around Rs. A prudent person must live within an expenditure limited only to 75-80% of his income. think of your salary as Rs. How much of your savings should be allocated to insurance? The answer to this is simple.800 only. That is the only way of building a capital for looking after your future needs and those of your family.000 a month. 13 .500 per month.3. then the surrender value shall be taxable in the hands of the assessee or his nominee in the year of receipt. But you must always keep a few factors in mind when considering Section 80 (CCC) • Where the assessee or his nominee surrenders the Annuity before its maturity. you can then invest your savings in other avenues.000. If you earn Rs. insurance also represents your savings and one should aim to save at least 20-25% of one’s gross income at any stage of one’s career. and also because a larger portion of the working and earning life will be lost it death were to take place at that stage. Till then.

concerns about the possibility of financial scams have resurfaced. Insurance is not even a normal investment for that matter. It’s not an estate tool nor is it a ‘wealth accumulator’. most insurance policies that do create wealth are poor performers compared to simplistic and straightforward investment options like mutual funds. Nevertheless. But since the insurance sector has been recently opened up to private players. For posterity’s sake. However most of these fears ought to prove needless since insurance is going to be a highly regulated sector.Insurance is anything but a scam. the chance of your insurance agent palming you with the wrong policy cannot be ruled out. In fact. Speaking of scams. The IRDA (Insurance Regulatory Development Authority) has decided to be extremely selective about the players who will be lucky enough to operate within the insurance industry. Scam and irregularities are part of the reason why the insurance sector was nationalised in the first place. Is Insurance a scam? No way. Certain types of insurance do appreciate in value over time. Only the most reputed institutions will be allowed after extensive and thorough checks and balances that are in place to safeguard the consumer interests. However the current scenario of the Indian insurance industry where all the companies are nationalised or non-existent leaves no scope for a scam that might affect the policy holding consumer negatively.Investments and Scams Is Insurance a good investment? No way. yet again . But the principal reason why one should buy insurance is to protect themselves against the financial costs involved if a loss occurs and not to create wealth. Leave alone being a good investment. let’s repeat this fact (without giving the homespun garage or clinical industry a bad name) that you are probably more likely to be cheated by your car mechanic or the nursing home than you are by the insurance providing company. Wouldn’t it be wise to learn a few choice pointers that will help reduce the chances of you being ripped off by your insurance agent and you ending up with the wrong product? 14 . you are probably more likely to be cheated by your car mechanic or the nursing home than you are by the insurance providing company.

Every economic event is eying on the returns that you would be getting on your investments and ready to take their share. In the age of reforms we have witnessed the falling interest rates of banks. How you can save your hard earned money? or shall I say. where you can invest? The answer to these questions is Banks. The idea is to derive two basic investments need from insurance. Insurance = Investment + Assurance 15 . post offices and also the prices are climbing by the lift and moreover the state is economy can not be considered as a stable economy. what will happen if we were not there. Generally so many times we have been asking our selves that. In view of these insights insurance emerges as the combination of both Investment and assurance. don't be surprise. if the economic circumstance is not favoring our investment we will loose our hard earned money. and Insurance Oh… I have written insurance and I have a reason to that. The other aspects of investment is assurance form the investment that this is the amount you will be getting. As the competition is intensifying more the number of "Mr. further more all these investment plans are for the short period on the other hand Insurance has a long term perspective. Time is precious. As investment it not only covers the risk of your life rather then it also secure the future of your loved ones. Yes. except insurance all the investment alternatives involves risk and the only rule that prevails is high risk high profit. Capital Goods. we can imagine how big the world might be if we see beyond a hollow pipe. our narrow vision restricts us to see only through a pipe. the uncertainty of money. one is the investment that means the returns on his money. Should I say. Mutual Funds. it never stops for any one and we are living in the world of uncertainty. Chintamanies" are roaming around the streets. Equity. the uncertainty of job.An Investment alternative – Insurance The world "Fear" has only four alphabets like love but both of them are having very different meaning. but we keep on asking rather then doing something for it. it is impossible to predict this uncertainty and expect Insurance no other mode promises you that after a certain period or maturity on long term basis. Whatever man (male or female) does for the love of their families always starts with the background of fear. the uncertainty of property and like this the story continuous for the whole life of a man.

insurance may not be the best place to invest your hard-earned money. Life insurance in its modern form came to Indian form England in the year 1818. This is particularly typical within the Indian sub-continent where one conveniently forgets the element of risk covered by life insurance. Ask yourself this question When you pay insurance premium for your car. There are a plethora of insurance policies to invest in. when a company Oriental Insurance was started by European in Calcutta. The one good thing that's come out of the presence of private insurance companies: innovation in insurance policies. Insurance as Investment Many times it has become difficult to sale the product with a long term orientation. Hence it proves very logical to evaluate the costs involved towards this feature. do you get anything if fortunately no mishap happens? This means that you spent the amount to secure a valuable property. At that time lives of Indians are not considered a valuable therefore Indians are not insured by this company but then eminent personalities like Babu Muttylal Seal started a foreign life insurance company and started insuring Indian on higher rates as they are considered a sub standard class. But there are sufficient reasons for one to believe that it can be a highly lucrative avenue to facilitate savings. Agreed. though the concept of insurance is largely a development of recent past. Then Bombay Mutual Life Assurance Society came in to being and hence laid the background for the birth of India's first life Insurance company In the year 1870. Compare them with the traditional endowment and money – back – plans that provide both risk cover and additionally a return in investment and it is clear just how far the insurance market has come. For instance. Bharat Insurance Company inspired by the swedeshi concept started its operation in 1896 it was only the beginning of a new and emerging sector of India. 16 . many private and government run. unit linked plans were introduced by private companies. It is extremely unfair to compare the performance of insurance against other investments without considering the core features of insurance. particularly after the Industrial ear – past few centuries.Insurance a phenomenon: The story of insurance is as old as mankind. yet its beginning date almost 6000 years ago. Insurances has been referred as a "Policy" in the past and both the parties consider it as a tax saving Instrument. With the change in the perception of customer and that of the insurance companies now the insurance is offered as an "Investment" in the market which not only covers the risk of life but also promises handsome return on the investment. Currently the various alternatives available being offered by the companies to the customers comprises many augmented features or we can say that the repackaging of the insurance has been going on. The very essence of insurance is to protect your family from the uncertainty of your life. People often talk about yield on investment and tend to compare their values with those available on various insurance schemes.

100/. Secondly.11. the total premium you pay minus the amount evaluated as the cost of insurance must be considered as the amount invested to get the maturity amount.can give you an insurance cover up to an approximate sum of Rs. But what if your death occurs in the first year itself? The Rs. for instance PPF.12 lakhs (depending upon the plan. In other words. we tend to think very unrealistically about our life.11100/. age. 17 .accruing a return of 11 percent.that PPF shall pay. etc) and this amount shall become available to the nominee of the policyholder as against the mere paltry Rs.10. If you calculate the yield from returns. a certain amount is used for providing the risk cover and only the balance can be utilised as savings.in PPF after 1 year your money will grow to Rs. And then we try to convince ourselves that PPF is providing a better yield than an insurance policy. you will be in for a surprise.000/.Hence you must accept that out of the total amount paid by you for your life insurance.000/.10. For instance. if you invest Rs. We often compare the results after say 10 years from an investment scheme.

But hold on a minute! Our approach to buying junk food cannot possibly be the same as our approach to buying security for our family! Talk to any financial expert and the first thing he will tell you is you should never buy insurance for investments or to save tax. And why not? It's great value for money. total expenditure. Buy insurance only to insure yourself and to give your dependents financial freedom and security. Statistics reveal that on an average 30% of annual premiums of life insurance companies come in the month of March. the number of dependents and debts outstanding but definitely not the tax to be saved. Amount of life insurance that a person requires should depend on his income level. We could follow this mantra for other purchases as well. Tax should probably be the last consideration while buying life insurance. Don't mix insurance and tax The tax-saving spiel is particularly over done because under section 80C of the Income Tax Act the premium on your policy is deductible.Combination Insurance + investment + tax = bad combo WE live in a world of combinations (or combos)! Inspired by the McDonald's way of life where we buy fantastic combo meals of burger + Pepsi + fries. Marketers have made us believe that we are buying great value for money when we buy life insurance as a device for protection + investment + tax. we seem to want everything in the combo format. 18 . Life insurance for instance. This is a clear indication of the fact that people buy insurance to save tax.

insurance policy is investment for most Indians Only 2% of the total life insurance premium estimated at Rs 75. Make the So what should Shailesh have done instead? right move It's simple: Only a pure risk cover term policy can offer him such a large cover at a low rate of premium. He could have paid just Rs 10. The penetration of life insurance in India is about 3.getting insurance cover and tax saving together! For that kind of premium. In fact. But his prime motive has been amply served. “In most developed economies.000 per annum and got himself a cover worth Rs 33 lakh.3 million). 19 .5%% at present.. Meanwhile. though most customers in the urban areas. Analysts feel India. the Maharaja Mac Combo Meal at Mac Donald's is a particularly good deal and tasty as hell. significantly lower compared to other developed countries in 2007-08. this doesn't mean that all combo's are bad. most of them are directed towards investment. Despite promotion of insurance products for risk cover. According to analysts. Lured by the buzz that insurance marketers have created about insurance and tax saving.000 towards premium of an endowment policy. has a taxable salary income of Rs 5 lakh (Rs 500. the maximum sum insured that he gets is Rs 5 lakh. He congratulates himself for his smart move -. insurance products are sold based on the risk factor. 35. rough calculations estimate that he would need an insurance of at least Rs 33 lakh (Rs 3.Is that enough to support his dependents in the unfortunate case of his death? Shaliesh has a monthly expenditure of Rs 10. His tax saving instruments till date included investments in provident fund. Of course. he now wants to invest up to Rs 25.000) per annum. a host of new players is set to enter the Indian market in the next few months.000 on his home loan. have multiple insurance products.000 and an EMI of Rs 7.000) . It is learnt that the Insurance Regulatory and Development Authority (IRDA) has shown its concerns over the issue. most customers still prefer purchasing insurance products for investment purpose.. Since this is not an investment product. but in India the main selling point of insurance products is based on investments and returns. postal savings and pension policy of up to Rs 75.000 crore was directed towards covering risks.. the premium will be expensed and he will not get any returns on it.Shailesh.” an industry expert said. Current value of his other investments is Rs 8 lakh (800. But that's where the combo mania should stop! Not cover. The million-dollar question is -. Now at an assumed inflation rate of 6%.000.

According to an analysis. life insurance majors would require an additional capital of about Rs 10. However. Let us take each one of them one by one... give its final observation on the issue. I see many people give a very silly reasons like it makes them more systematic to investing on a regular basis and some have good genuine reason like they want a good solid lumpsum amount after an elongated time frame for some cause like marriage or child’s higher education… No matter what your investment objective is. is becoming a cause for concern for the insurance industry.. the ambiguity in issues relating to policies and regulation. FDI level is still capped at 26%. Until the cap is raised to 49%. is yet to. it should not cost you much and returns should be inline with other investment options available at your disposal. Finance minister P Chidambaram had earlier announced that there would be a comprehensive amendment to the Insurance Act. though the bill seeking to raise it to 49% is still pending in Parliament.000 crore in the next two years to sustain their growth while carrying on with expansion plans in the country. The answer lies in any combination of the following options: 1. Tax Benefit 3. Insurance Benefit I am sure your step towards insurance is guided by permutation and combination of above three options. the government has failed to bring the amendments.offers an enormous scope for insurance companies. Let us begin with a very simple question which is why a need for insurance. due to the stiff opposition from the Left parties. 20 .. I am sure there will very few who would disagree on this and those who disagree are likely to be the insurance agents. Investment 2. The Group of Ministers headed by minister of external affairs Pranab Mukherjee.. Investment People make a mistake of investing in insurance for variety of reasons. However. there could be a serious crunch of capital.

The answer to second question is they list me few funds. If he is one among those brokers who suggest products based on what commission he will get. Insurance Benefits So what if you need insurance? Go for Term Insurance.000. So next time someone asks you about insurance as a way to save tax don’t forget to ask him the two questions and then tell him bye-bye. I have couple of questions for them: 1. Let us say that you go with term insurance coupled with some other investment. Many fall into the trap of Insurance as an option to save tax. For majority of policies it is close to 20% of the premium amount. Which funds your policy invests into to get returns they quote? The answer to first question is always close to 80%. Why? Because insurance as a whole has a cost of being insured as well as many other administrative charges which a normal investor is unaware-of. You will see that most of the time it will be non-insurance product that wins. I can invest in similar to those funds directly or choose even better than those funds. If you have an insurance policy which invests in few selected category of funds why don’t you select those funds on your own and save 20k Rs. Consider all your expenses and see which one gives you maximum benefits with least possible expense. This means out of one lakh of your investment you only invested 80. He will even tell you that you will be paying the premium without any return but the reality is here you are paying the money knowingly and in other policies you will still be paying the same amount but unknowingly. If you know the charges you will feel like killing yourself for it (Pun Intended). Nothing more nothing less. If you want me to suggest few good funds for 20. How much of your initial investment is actually invested? 2. Tax Benefit The next category of people who invest in insurance is tax payers. Again going blindly for term insurance is not what I advise but go for an all possible combination and calculation. Ask your broker to get you a term insurance.Now ask for yourself. Does your insurance investment satisfy the above criteria?I don’t think so.000 I will give you 50% discount as well. 21 . then you can be rest assured he will not get you the Term Insurance. He will suggest you lot of products and even compare them how bad is term insurance for you and may go ahead to add few misinformation.

the average life insurance cover is less than Rs. We all understand insurance as Tax Saving Instrument. knew the time when they would leave this world. LIC has taught Indians everything other than insurance. short term goals. Money Back Policy etc. You must be surprised by our sentence. 22 . This is where insurance can help you. long term goals. over the last 50 years or so. known goals – unknown goals. Does any one of us know when something will go wrong with us and whether that time our responsibilities to fulfill. We all understand insurance as an investment and land up buying EXPENSIVE Product. But it becomes fatal to financial life and costly once you end purchasing a wrong insurance solution. We are all born with some responsibilities to fulfill…. What Happens in Real Life? The answer to this lies in 2 questions “why did I buy this insurance” and “what product I bought”. Endowment Policy. Who will fulfill all the dreams that you would have thought for. We all buy Endowment Money Back. Does any one of us know when we something will go wrong with us and whether that time our responsibilities would be over or not? We all know that in life unexpected is always expected. you will actually be the loser and the manufacturer and the middlemen will be the winner. That is why we say that Indians have actually not understood insurance in the right sense. but that is the hard core fact of life. when we ask any investor about his investment portfolio.Insurance – Investment or Expense? What is Insurance & why we need Insurance is normally misunderstood by Indians. ULIPs etc. who will provide financial security to the family.but we do not know how much time we will get to fulfill those responsibilities. In fact. Krishna. he/she invariably lands up saying that we have investments in some sort of insurance policy in LIC. Our life is full of uncertainties with lot of goals. To put simply. Is it not? All one need is to have a simple Term Insurance Policy/ Term Life Insurance Plan. ULIPs. Investment Tool but do we understand Insurance as Insurance. Most of the time. each of them come to live with their disciples with a mission or set of responsibility to fulfill. 90000/-. What if anything goes wrong to us. Now when you buy an expensive product. Why Insurance? It is said that Rama. Typically you buy insurance product as investment and not insurance. Bhishma and Buddha. First of all less than 5% of the Indian have insurance policy and add to this. Insurance is one of the greatest inventions in the field of personal financial products. out of those who are insured..

agents don’t sell pure insurance. When your insurance agent chase you. Now we don’t have to explain that the commission that they make is actually deducted out of your investment and it could be as high as 70% of your premium. The insurance agents are driven by the first year commission that they get and they are hardly bothered whether or not it is really right for you or not.saving schemes? In 99 of the 100 cases. say that they don’t see their agents after first premium.Mixing Insurance & Investment Mixing insurance and investment is something we should totally avoid. In fact. does he sell you insurance products? Or does he offer you investment opportunities and tax. why most of the investors we meet. 23 . They make heavy commission by selling the product. that is the reason.

24 .Insurance is an Expense Let’s try to answer the question through a analogy. This means that to see a masterpiece you need to invest in its foundation. is worth spending. And we all know foundation has no visibility but it is a major part of cost. We all must buy a simple insurance even before we start thinking of investing for future. Do you know that the world’s tallest building Burj Khalifa at Dubai. So any expense which gives a foothold and act as a security towards unforeseen circumstances. Similarly is life insurance. Understanding insurance as an investment or mixing insurance & investment is not a wise decision. which is 828 meters high and has a foundation of 320 meters below the earth level made out of concrete and stainless steel.

ULIPs: Insurance with an investment component Unit-linked insurance plans (ULIPs) are among the most transparent flexible longterm goal-based retail investment products. They provide protection as well as createwealth. ULIPs provide a convenient solution to individuals to fulfil their longterm financial goals. A part of the premium is used to provide life cover. ULIPs diversify investments and diffuse risk over the long-term. while the rest is invested in funds selected by the policyholder. from a range of options with different debt and equity exposure. by offering funds with different asset allocations. 25 . on the basis of the investment objectives and risk appetite.

asset allocation. rating and maturity profile are stated clearly. 26 . A policyholder is allowed partial withdrawals and can avail loans against the ULIP. fund NAVs. As the capital market is inherently volatile. assets under management. premium payment term of five years and no partial withdrawals allowed during this period. portfolio. ULIPs offer a very high degree of transparency as all the charges. They can select their own asset allocation by choosing fund options.With a minimum lock-in. ULIPs encourage long-term investments. performance. redirect future premiums to different funds and switch between funds in the light of changing risk appetite and investment objectives. a long-term investment horizon reduces the volatility and leads to consistent wealth maximisation. ULIPs provide policyholders some flexibility to meet their changing needs.

ULIPs offer a minimum insurance cover of 10 times the annual premium for policyholders below 45 years and seven times for those aged 45 years and above. has also been capped. ULIPs with new guidelines incorporated into them have been available since September 1. 2010. The charges are evenly distributed in the initial five years. 27 . which need to be paid by policyholders on premature exit. Investments in ULIP are covered under Section 80C of the Income Tax Act. the difference between the gross and net yields and the discontinuance charges. Notable recent changes are the increase of lock-in period and cut in the commission given to the agent. Further. The increase in lock-in period from 3-5 years is applicable to each and every ULIP.

the annual health cover should not be less than 105 per cent of the premiums paid.5 per cent per year or as mentioned by IRDA periodically on the date of maturation. Residuary payments for policies that are lapsed. except in case of pension and annuity products. If any additional payments are made. and it should not be more than 50 per cent of the net asset 28 . At any given time. surrendered or discontinued during this period will receive no residuary payments. It is mandatory for all ULIPs to provide at least mortality or health cover. surrendered or discontinued while they are still under the lock-in period would be paid only upon completion of the lock-in period. if the equity of that particular product amounts to greater than 60 per cent of the entire share. they will be considered as single premium for the insurance cover. Every ULIP pension or annuity product must present a minimum guaranteed return of 4.Policies that have lapsed. The maximum loan on any ULIP should never be more than 40 per cent of the net asset value.

So. The next time you are tempted to use insurance as an investment or saving tool. Not to mention the cheapest too. consider the following: In your insurance proposal.. Now..which option do you think is the smart one? And what are your feelings about using your insurance as an investment instrument after looking at the above picture… 29 .. But not an investment option. remove the portion of the premium allotted to the term policy. taking the remaining part of the payable premium.value of that particular product if debt instruments add up to more than 60 per cent of the value. we are of the opinion that term insurance is the purest and best form of life insurance.get the term insurance and invest the balance of the proposed premium into the investment product. compare the promised yield in the insurance plan to any pure investment instrument. your answer is clear . Final thoughts Insurance is something where you can live poorly so you can die rich and investment is something where you can build your wealth. If the investment instrument yields better returns. Both cannot go hand in hand and so invest wisely. While everyone is entitled to their own personal views.

com * www.com * www.indiainfoline.irdaonline.sify.themanagementor.com * www.com * www.com * www.iiifindia.com/finance 30 .com * www.Reference * www.licindia.estrategicmarketing.encyclopedia.org * www.