NAME : AFREEN ABBAS MANDVIWALA

ROLL NO. : 14

COURSE : PGDM-BFSI

SUBJECT: INSURANCE

TOPIC FOR PROJECT ASSIGNMENT :  CLASSIFICATION OF

INSURANCE
 LIFE INSURANCE
Life insurance

What Is Insurance?

The Insurance Act 1938 was the first legislation governing not only life insurance but
also non-life insurance to provide strict state control over insurance business.

Insurance is a contract, represented by a policy, in which a policyholder receives financial

protection or reimbursement against losses from an insurance company. The company pool
client risk to make payments more affordable for the insured. Most people have some
insurance: for their car, their house, their healthcare, or their life.
Insurance policies hedge against financial losses resulting from accidents, injury, or property
damage. Insurance also helps cover costs associated with liability (legal responsibility) for
damage or injury caused to a third party.

How Insurance Works

Many insurance policy types are available, and virtually any individual or business can find
an insurance company willing to insure them—for a price. Common personal insurance
policy type are auto, health, homeowners, and life insurance. Most individuals in the United
States have at least one of these types of insurance, and car insurance is required by state
law.
 Classification of insurance

Part A - Life assurance classes

1. Assurance on death only, assurance on survival to a stipulated age only, or assurance on
survival to a stipulated age or on earlier death.
2. Marriage assurance or birth assurance.
3. Assurance linked to capitalisation contracts.
4. Assurance referred to in points 1 and 3 linked to an investment fund.
5. Retirement assurance.
6. Accident or sickness insurance, when representing supplementary insurance to some class
of assurance referred to in points 1 through 5.
Part B - Classes of non-life insurance
1. Accident insurance
a) with fixed pecuniary benefits,
b) with benefits in the nature of indemnity, c) with combinations of the two,
d) of passengers,
e) individual health insurance.
2. Sickness insurance
a) with fixed pecuniary benefits
b) with benefits in the nature of indemnity
c) with combinations of the two
d) contractual insurance and additional insurance, e) individual health insurance.
3. Land vehicles damage or loss insurance (other than railway rolling stock)
a) motor vehicles,
b) other than motor vehicles.
4. Railway rolling stock damage or loss insurance.
5. Aircraft damage or loss insurance.
6. Ships damage and loss insurance
a) river vessels,
b) lake vessels,
c) sea vessels.
7. Goods in transit insurance, including baggage and all other goods, irrespective of the form
of transport.
8. Property damage and loss insurance other than referred to in points 3 through 7 due to
a) fire,
b) explosion,
c) storm,
d) natural forces other than storm, e) nuclear energy,
f) land subsidence.
9. Other property insurance against damages and losses other than those referred to in points
3 through 7 due to hail or frost or any event (such as theft) other than those mentioned under
point 8.
10. Liability insurance
a) for damage and loss arising out of the use of motor vehicle,
b) carrier’s liability.
11. Liability insurance arising out of the use of aircraft, including carrier’s liability.
12. Liability insurance arising out of the use of ships, vessels or boats on the sea, lakes, rivers
or canals, including carrier’s liability.
13. General liability insurance other than referred to in points 10 through 12.
14. Credit insurance
a) general insolvency,
b) export credit,
c) instalment credit,
d) mortgage,
e) agricultural credit.
15. Suretyship insurance
a) direct suretyship,
b) indirect suretyship.
16. Miscellaneous financial losses due to
a) employment,
b) insufficiency of income,
c) bad weather,
d) loss of benefits,
e) continuing general expenses,
f) unforeseen trading expenses,
g) loss of market value,
h) loss of regular income source,
i) other indirect trading losses,
j) other forms of financial loss.
17. Legal expenses insurance.
18. Assistance insurance for persons in difficulties while travelling or while away from their
permanent residence.
Part C - Groups of non-life insurance classes
The supervisory authority within insurance business issues licences authorising to operate in
several insurance classes, designated as the following groups:
a) Accident and sickness insurance ́ including insurance classes referred to in point 1 and 2,
b) Motor vehicles insurance ́ including insurance classes referred to in points 3, 7 and 10,
c) Marine and transport insurance ́ including insurance classes referred to in points 6, 7 and
12,
d) Aviation insurance ́ including insurance classes referred to in points 5, 7 and 11,
e) Insurance against fire and other damage to property ́ including insurance classes referred to
in points 8 and 9,
f) Liability insurance ́ including insurance classes referred to in points 10 through 13,
g) Credit and suretyship insurance ́ including insurance classes referred to in points 14 and
15,
h) General non-life insurance ́ including insurance classes referred to in points 1 through 18.
The insurance company authorised to pursue one or more insurance classes may conclude
insurance contract covering also risks relating to other insurance class than those included in
the authorisation (supplementary insurance) providing that such risks represent
a) risks appearing in connection with the principal insured risk,
b) risks relating to the subject covered against the principal insured risk, and c) risks covered
by the insurance contract relating to the principal insured risk.
The risks involved in the insurance classes referred to in points 14, 15 and 17 cannot be
considered supplementary insurance.

Life Insurance in its modern form came to India from England in the year 1818. Oriental Life
Insurance Company started by Europeans in Calcutta was the first life insurance company on
Indian Soil. All the insurance companies established during that period were brought up with
the purpose of looking after the needs of European community and Indian natives were not
being insured by these companies. However, later with the efforts of eminent people like
Babu Muttylal Seal, the foreign life insurance companies started insuring Indian lives. But
Indian lives were being treated as sub-standard lives and heavy extra premiums were being
charged on them. Bombay Mutual Life Assurance Society heralded the birth of first Indian
life insurance company in the year 1870, and covered Indian lives at normal rates. Starting as
Indian enterprise with highly patriotic motives, insurance companies came into existence to
carry the message of insurance and social security through insurance to various sectors of
society. Bharat Insurance Company (1896) was also one of such companies inspired by
nationalism. The Swadeshi movement of 1905-1907 gave rise to more insurance companies.
The United India in Madras, National Indian and National Insurance in Calcutta and the Co-
operative Assurance at Lahore were established in 1906. In 1907, Hindustan Co-operative
Insurance Company took its birth in one of the rooms of the Jorasanko, house of the great
poet Rabindranath Tagore, in Calcutta. The Indian Mercantile, General Assurance and
Swadeshi Life (later Bombay Life) were some of the companies established during the same
period. Prior to 1912 India had no legislation to regulate insurance business. In the year 1912,
the Life Insurance Companies Act, and the Provident Fund Act were passed. The Life
Insurance Companies Act, 1912 made it necessary that the premium rate tables and periodical
valuations of companies should be certified by an actuary. But the Act discriminated between
foreign and Indian companies on many accounts, putting the Indian companies at a
disadvantage.

The first two decades of the twentieth century saw lot of growth in insurance business. From
44 companies with total business-in-force as Rs.22.44 crore, it rose to 176 companies with
total business-in-force as Rs.298 crore in 1938. During the mushrooming of insurance
companies many financially unsound concerns were also floated which failed miserably. The
Insurance Act 1938 was the first legislation governing not only life insurance but also non-
life insurance to provide strict state control over insurance business. The demand for
nationalization of life insurance industry was made repeatedly in the past but it gathered
momentum in 1944 when a bill to amend the Life Insurance Act 1938 was introduced in the
Legislative Assembly. However, it was much later on the 19th of January, 1956, that life
insurance in India was nationalized. About 154 Indian insurance companies, 16 non-Indian
companies and 75 provident were operating in India at the time of nationalization.
Nationalization was accomplished in two stages; initially the management of the companies
was taken over by means of an Ordinance, and later, the ownership too by means of a
comprehensive bill. The Parliament of India passed the Life Insurance Corporation Act on the
19th of June 1956, and the Life Insurance Corporation of India was created on 1st September,
1956, with the objective of spreading life insurance much more widely and in particular to the
rural areas with a view to reach all insurable persons in the country, providing them adequate
financial cover at a reasonable cost.
 Type of life insurance

Life insurance has always been considered an essential financial tool. However, not
many people know that there are several types of life insurance products. Each of these
can be helpful in their own unique ways. While some provide protection to the chief
earning member’s family, others can be seen as an investment or retirement tool.
Here are the different types of life insurance plans and their features and benefits, so
you can pick the most suitable one:

1. Term Insurance Plans

Term insurance protects your family’s financial future if something were to happen to you.
Designed as a simple and affordable way to give financial cover, a term plan is a vital part of
financial planning for the primary wage earner in a family.
Term insurance is a pure protection plan and is not market-linked. Moreover, the premiums for
term insurance are lower as compared to any other life insurance product. The premiums are
also more affordable if you buy them early in life. Experts often suggest that term plan should
be a priority for you as soon as you start earning.
Term insurance can be used for various purposes. In the absence of an income, your family
can use the cover from the insurance to pay for their day to expenditure, education costs, or
wedding expenses. If you have any outstanding debts, such as home loan, car loan, etc., your
family can pay them off with the cover.
Some term plans also give you the option to add riders, like critical illness coverage (providing
a lump sum for the treatment of specified critical ailments) and accidental death benefit + (paid
over and above the sum assured in the unfortunate event of death due to an accident). These
riders can provide you and your family with an extra layer of protection at a nominal increase
in the premium.
Let’s understand with an example. A 25-year-old Fatima wants ₹ 1 crore term insurance till
she turns 60. She buys ICICI Pru iProtect Smart Term Plan with an annual premium of ₹
9225 for a premium paying term of 35 years and with the regular income pay-out option. She
also buys ₹ 50 lakhs accidental death cover (premium: ₹ 3540) and ₹ 50 lakhs critical illness
cover (premium: ₹ 7657). So, the total premium for this comprehensive package turns out to
be less than ₹ 63 a day or ₹ 20422 a year for Fatima, inclusive of all taxes.

2. ULIPs – Unit Linked Insurance Plans

A unit linked insurance plan (ULIP) is a combination of insurance and investment. A ULIP
provides life cover that offers financial protection for your loved ones. In addition to this, it
also gives you the potential to create wealth through market-linked returns from systematic
investments.
AULIP offers you the opportunity to invest your money in different fund options, depending
on your risk appetite. ULIPs come with a 5-year lock-in period, and the money can be
invested in bonds, equities, hybrid funds, etc. If you are looking for safer options, bonds can
be a good choice. On the other hand, if you are open to more risk, hybrid funds and equities
have the potential to offer better returns.
Since each individual is different, ULIPs allow great flexibility for investment. Your risk
appetite and investment preferences are likely to change with age. ULIPs permit you to take
these factors into consideration and alter your investment strategy accordingly.
ULIPs also provide flexibility in terms of partial withdrawals and fund-switching. They offer
interesting benefits like loyalty additions and wealth boosters to help you generate more
wealth over time. Additionally, the maturity amount from ULIPs is tax-free* subject to
Section 10(10D) of the Income Tax Act of 1961.
Let’s understand with an example. Ritesh is a 30-year-old male who purchased the ICICI Pru
Life Time Classic Plan with a policy term of 20 years. He decided to pay ₹ 5000 per month
as a premium for 20 years. The life cover for this plan was ₹ 3.6 lakhs. On maturity, Ritesh
will get returns according to the performance of the funds he had invested in. This implies
that the maturity benefit at a 4% return would be ₹ 9.05 lakhs and at an 8% return would be
₹ 13.9 lakhs. In the case of Ritesh's unfortunate demise, his nominee will receive the death
benefit as a lump sum pay-out.

3. Endowment Insurance Plans

Endowment Plan are ideal for people who want guaranteed returns along with the protection of
life insurance. An endowment plan is a life insurance policy that provides life coverage along
with an opportunity to save regularly. This enables you to receive a lump sum amount on the
maturity of the policy. In case of death during the policy term, your nominee(s) also receives
a death benefit.
Just like ULIPs, endowment plans are quite flexible too. You can choose a suitable method
and time frame to pay the premium. Endowment plans also give you a chance to benefit from
bonuses, that are paid additionally over and above the sum assured of your policy.
Lastly, the returns generated on maturity from an endowment plan are tax-free * subject to
Section 10(10D) of the Income Tax Act of 1961. The premiums paid can also be claimed as a
deduction under Section 80C* of the same Act.
Let’s understand with an example. Mohit, aged 35, buys ICICI Pru Savings Suraksha Plan for
a policy term of 20 years and a premium paying term of 10 years. He pays an annual
premium of ₹ 30,000 and has a sum assured of ₹ 3 lakh. At an 8% return, the maturity
benefit would be ₹ 7.21 lakhs. At a 4% return, his estimated maturity benefit, including
guaranteed additions, and terminal bonus, will be ₹ 4.47 lakhs.

4. Money Back Insurance Plans

A money back plan is a Life Insurance policy where the insured person gets a percentage of
sum assured at steady intervals. Since you save regularly, the money back plan rewards you
regularly. In simple words, a money back plan is an endowment plan with the benefit of
increased liquidity with systematic pay outs. Money back plans are designed to help you meet
your short-term financial goals. The money back feature can add to your monthly or yearly
income.
The regular pay-outs, which are tax-free subject to Section 10(10D)* of the Income Tax Act
of 1961 makes the process of investing highly rewarding. This is because you can benefit
from the policy with immediate effect. For instance, with the ICICI Pru Cash Advantage
Plan, as soon as your premium payment term ends, you start receiving money at regular
intervals. These pay outs are called Guaranteed Cash Benefits (GCB).
Money Back Plans also have a maturity benefit. So, you get a lump sum pay-out at maturity that
can be used to secure your future or help you fulfil your family’s dreams.
In addition to the above features, the insurance component of a money back plan allows you
to lead a stress-free life. Such plans secure the financial future of your loved ones, even in
your absence. Hence, with a money back policy, you can get all-round protection for yourself
and your family. In case of an unfortunate event during the policy term, your family will also
receive a lump sum amount. Moreover, if you survive the term, you can get regular pay-outs
along with lump sum benefits. Returns generated from money back plans are also tax-
free* subject to Section 10 (10D) of the Income Tax Act of 1961.
Flexibility is another important component of money back plans and you can choose how to
pay the premium as per your suitability.
Let’s understand with an example. Anshul is a 35-year-old corporate employee who was
recently blessed with a baby boy. He understands his responsibilities towards his son’s
education and wants to protect his child’s future against all possible adversities. Keeping in
mind these requirements, he buys the ICICI Pru Cash Advantage Plan with a premium paying
term of 10 years and an annual premium of ₹ 50,000. His policy benefits include a
guaranteed cash benefit of ₹ 30,447 per annum, a guaranteed maturity benefit of ₹ 2.64
lakhs, and additional bonuses of ₹ 1.08 lakhs (at 4% return) that can be used for his son's
education expenses. Anshul can also benefit from a life cover of ₹ 5 lakhs for himself for the
next 20 years.

5. Whole Life Insurance Plans

A whole life insurance plan is a life insurance policy that gives your life coverage for 99
years. Unlike other policies that have a relatively shorter term of 10-30 years, the long
coverage period of such plans ensures protection for your family for an extended period of
time.
With coverage of up to 99 years, Whole Life Insurance is ideal for those who have financial
dependents even in their old age. The biggest advantage of this product is that not only does it
provide lifelong protection to the insured but also provides a simple way to leave behind a
legacy for their children.
Whole insurance plans offer a lot of stability. After paying the premiums for 5 years, you get
a guaranteed income on maturity. Moreover, the income received from a whole life insurance
policy is tax-free* subject to Section 10(10D) of the Income Tax Act of 1961.
Whole life insurance policies are beneficial for those who want to leave a financial legacy for
their legal heirs. In the case of death of the policy holder during the term, the nominee
receives the policy benefits, including a bonus for the total premiums paid.
Let’s understand with an example. 35-year-old Badrinath invests ₹ 1,00,000 per year in the
ICICI Pru Lakshya Lifelong Plan for a period of 10 years and chooses a policy term of 64
years. Badrinath pays ₹ 10 lakhs as premium and qualifies to get ₹ 1,50,000 lakhs at the age
of 50. Post this, he will continue to receive income in the form of guaranteed income and
cash bonus every year until the policy matures. On the day of maturity, he will receive the
remaining income as a lump sum. However, an important thing to note is that the amounts
received each year will depend on the rate of return and the future performance of the insurer.
6. Child Insurance Plans

Children deserve the best, and a child insurance plan helps to build a corpus for your child’s
future. A Child Plan is one of the most vital financial planning tools for parents. These plans
can help you build a significant sum for your child’s education and marriage expenses.

A child plan provides maturity benefits either in the form of annual instalments or as a one-
time pay-out after the child turns 18. There is also in-built insurance coverage for the parent.
Protection is an important part of a child plan because the premium is paid by the parent. In
case of an unfortunate event where the insured parent passes away during the policy term,
child plans can give immediate payment to cover a child’s expenses.

One of the most important features of a child plan is that it allows you to choose how and
where your money is invested. The premium you pay is invested in your choice of equity,
debt, or balanced funds. ULIP child plans also ensure that, over time, your returns are
adequate to counter inflation. As compared to fixed return avenues that often fail to beat
inflation, child plans allow plenty of room for rising costs. You can also choose from a
collection of fund options to invest and switch between them without worrying about their
tax*implications. ULIP child plans offer dual tax savings. This includes benefits on premiums
paid under Section 80c and the maturity proceeds under Section 10(10D) of the Income Tax
Act of 1961 subject to conditions provided therein.

Child plans also offer loyalty additions and wealth boosters that add to your overall savings.
Moreover, you can either pay regular premiums or a single premium, based on your capacity.
You can also use these plans as an emergency fund and make withdrawals from your
investment on the completion of 5 policy years. Lastly, child plans allow you to get wider
coverage with critical illness and accidental death benefits.

Let’s understand with an example. Tina, a 30-year-old new parent, invests in the ICICI Pru
Smart Kid Plan for her daughter. She selects a premium of ₹ 5,000 every month and chooses
a policy term of 18 years. With an 8% expected return, she can get ₹ 24.16 lakhs after 18
years. Similarly, at a 4% expected return, she can get ₹ 15.83 lakhs after 18 years.

7. Retirement Insurance Plans

Retirement plans are designed to help you build a sizeable corpus for your post-retirement
days. They help you gain financial independence in your non-working years. A retirement
plan allows you to save and invest for the long-term, thereby offering the potential to
accumulate a significant amount of wealth. Since retirement plans offer insurance benefits,
you can also ensure financial security for your loved ones by investing in these plans.

Retirement plans give you the opportunity to get potentially better returns. This is done by
investing your money in a mix of equity and debt. Moreover, the money you get on maturity
is tax-free* subject to Section 10(10D) of the Income Tax Act of 1961. Retirement plans also
allow you to move your money between funds tax-free*.

Now That You Have Learnt About The Different Types Of Life Insurance Policies, You Can
Make A More Informed Decision On Which Plan Would Be The Most Suitable For You And
Your Family. You Can Check Out The Different Types Of Online Life Insurance Policies
Offered by Different Life Insurance Company.