► Insurance

and Life Insurance in different perspectives ► Legal aspects of Life Insurance business in India ► Principles of insurance and their applications to Life Insurance ► Important types of Life Insurance

What Is Insurance ?

is a tool in the management of risks – a device through which the risks faced by the individuals are pooled together and thereby all the members of pool will share the losses suffered by a few individuals.


► Transferring

the risks from the individuals to the pool – reduction of the overall risk faced by the pool ► Social tool – as a social safeguard against the losses expected to be suffered due to unexpected events by a few members of the society ► Commercial or legal tool where a third party does this activity of pooling of risks and sharing of losses with a commercial interest

Kenneth Black (Jr.) and Harold Skipper (Jr.) have defined insurance under two different perspectives : Economic Perspective – Insurance is a financial intermediation function by which individuals exposed to a specified contingency each contribute to a pool from which covered events suffered by participating individuals are paid. Individuals purchase the right to collect from the pool if the insured contingency occurs. Insurance then is a contingent claim contract on the pool’s assets.

Legal Perspective
► Insurance

is an agreement (the insurance policy or insurance contracts), by which one party, called the policy owner, pays a stipulated consideration, called premium, to the other party called Insurer in return for which the insurer agrees to pay a defined amount of money or provide a defined service if a covered event occurs during the policy term.


What Is Life Insurance ?
► It

is a contract in which the Insurer, in consideration of a certain premium, either in a lump sum or in any other periodical payments, in return agrees to pay to the assured, or to the person for whose benefit the policy is taken, a stated sum of money on the happening of a particular event contingent on the duration of human life.


Essential Features :
► It

is a contract relating to human life ► The contract provides for payment of lump sum money ► The amount is paid at the expiration of a certain period or on death of a person.


In India, Life Insurance business is defined under Section 2 (11) of Insurance Act, 1938, which reads :

“Life Insurance business” means the business of effecting contracts of insurance upon human life, including any contract whereby the payment of money is assured on death (except death by accident only) or the happening of any contingency dependent upon human life and any contract which is subject to payment of premium for a term dependent on human life and shall be deemed to include the granting of :

► ►

Disability and double or triple indemnity accident benefits, if so provided in the contract of insurance; Annuities upon human life; and Superannuation allowances and annuities payable out of any fund applicable solely to the relief and maintenance of persons engaged or who have been engaged in any particular profession, trade or employment or of the dependents of such persons.

The insurance contracts, which deal with disability, accidental death alone, sickness etc. are excluded from the purview of life insurance. However, life insurance contracts can have benefits payable on the accidental death or disability of the persons insured as additional benefits on the basic life insurance contracts.


Essentials of a Valid Contract
► Offer

and acceptance ► Consensus ad idem (“meeting of the minds”) ► Parties competent to contract ► Consideration ► Legality of purpose

Principles of Life Insurance
Special Features of Life Insurance Contracts
► Insurable

Interest :

The object of insurance should be lawful. The person proposing for insurance must have interest in the continued life of the insured and would suffer pecuniary loss if the insured person dies. This is known as Insurable Interest.


 In Life Insurance the presence of insurable interest is essential at the time of effecting the Contract of Insurance.  If there is no insurable interest, the contract becomes wagering and hence illegal.  Every individual has unlimited insurable interest on his/her life.  Husband has insurable interest on the life of his wife and vice versa

 The creditors have insurable interest on the lives of debtors to the extent of indebtedness.  Business partners have insurable interest in the lives of other partners to the extent of their financial interest in the partnership  Employers have insurable interest in the lives of employees who are key to the profitability of the business.


► Doctrine

of utmost good faith

 In Life Insurance contracts, a very high degree of good faith is required to exist between the parties to the contract, viz., the insurer and the insured. This is called the principle of utmost good faith (Uberrima fides)  It is the duty of the proposer to disclose the material information for proper assessment of risk by the insurer

 All the required information for the assessment of risk is known only to the proposer and the insurer has no knowledge of the risk  The proposer may not be having technical knowledge about the insurance products, the benefits, pricing aspects etc. and hence will have to rely upon the insurer to ensure that the terms of the contract are fair and equitable.

Doctrine of Adhesion

terms of the contract are most of the times fixed by one party (the insurer) and with minor exceptions, must be accepted or rejected in total by the other party (the proposer).


Principle of Indemnity
► Insurance

contracts other than life insurance contract are contracts of indemnity in the sense that the amount payable by the insurer in case of the contingency stated in the policy occurring is limited to the loss that the insured will suffer. ► The insurance contract promises to keep the insured indemnified against the financial loss that he would suffer on account of the happening of the event.

Main Types Of Life Insurance

Life Insurance

 Intended to provide Life Insurance protection over one’s lifetime – provides for payment of the assured amount upon the insured’s death regardless of when it occurs.


► The

payment of assured sum is a certainty; only the time of the payment of the assured sum is an uncertainty
   Ordinary Whole Life Insurance Limited Payment Whole Life Insurance Convertible Whole Life Insurance


Endowment Insurance
► Benefits

under the policy paid on the death of the life insured during the selected term or on his survival to the end of the term.
 Normal durations ranging from 10 to 30 years or more; shorter term policies ranging from 3 to 10 years  Single premium endowment insurance policies  Money Back or Cash Back or Anticipated Endowment Insurance Policies

Term Insurance
► Insurance

protection for selected term only – in case the insured person dies during the term, the benefits are payable. ► In case of his survival till the end of selected term, the policy normally expires without any benefit becoming payable ► May be regarded as temporary insurance – premium for term insurance is relatively low.


► Series

of periodic payments

► Annuity

provider (insurer) agrees to pay the purchaser of annuity (annuitant) a series of regular periodical payments for a fixed period or during someone’s life time.


Group Life Insurance

There are groups of people who share something in common and are connected by some underlying similarity like occupation, profession, employment, social purposes or even entertainment can have a similar need for life insurance which can be met by a single insurance contract.


► These

categories of products that cover the risk of a contingency dependent on the life of a group of persons, come under the group life insurance.


Conventional Groups
►Employer ►Creditor

– Employee Groups

– Debtor Groups


of Self-employed Professionals

Non-conventional Groups
► Co-operative ► Trade


Unions ► Welfare Associations ► Non-government Organisations ► Voluntary Associations ► Charitable Trusts, etc.

Life Insurance Products
Two groups viz. ► Packaged Products –
 benefits under such products are pre-defined and customer has to choose the plan that is closest to this requirement  Ability of the agent to explain the different plans is important factor  Most of LIC’s products fall under this category


Products –

 products with certain basic features like Endowmnet or Money-back. the customer to choose as per his needs and then expand it by rider benefits – accident cover, critical illness cover, disability benefits, hospitalisation cover etc.  cater to niche market and have profit potential.

Basic Elements : (a) Risk coverage – to provide lump sum amount to the family in the event of untimely death of the breadwinner – ‘Term Insurance’ or ‘Temporary Insurance’. (b) Savings – lump sum amount is payable only if the insured survives till the end of the selected period; if death occurs during the period of insurance, nothing is payable – ‘Pure Endowment’.



Insurance :

 a contract for limited number of years  payment only if death occurs during the term  low cost / high risk coverage  stricter underwriting rules and restrictions  renewable feature and convertible feature  increasing or decreasing Term Insurance


► Whole

Life Insurance –

 Risk coverage for the death of the insured- whenever it may happen  No fixed term  Variations – Pure Whole Life – Premium payable throughout the life of the insured till death. Risk coverage for duration of life – amount payable on death  Limited Payment Whole life – Premium payable for limited / shorter period or till death if earlier risk coverage throughout life  Premium rate is low than Term Insurance  Provide permanent protection at moderate cost  Convertible Whole Life Plan

► Endowment


Assurance – The insurer

pay the insurance money in the event of death of the insured during endowment term ►to pay the insurance money in the event of the insured surviving till the end of the endowment term

 Economic concept – decreasing term assurance and increasing investment – Reserve value supplemented by Term Insurance  Premium rates usually higher than Whole Life Plan  Sound plan for various types of customers.


Life Insurance Products In India
► Term


Two-year temporary insurance Convertible term insurance for 5-7 years – option to convert into limited payment whole life or endowment assurance  Bima Sandesh – Return of premium on survival  Bima Kiran – Term insurance; Return of premium on survival – free insurance cover for 10 years to the extent of 30% - 60% of the face value of policy  Mortgage Redemption Assurance – to cover outstanding loan under house mortgage.  


Life Plans

 Whole Life Policy – premiums payable for 35 years or age 80 years, whichever is later; insurance money payable on death  Limited Payment Whole Life Policy  Convertible Whole Life Policy – Premiums payable upto age 70 of the insured – limited payment – option to covert at the end of 5 years into Endowment Plan

Endowment Plans
► Endowment

profits) ► Bhavishya Jeevan Policy (with profits) – first 5 years premium are quite high from 6th year scaled down to almost 1/3rd. ► Jeevan Mitra (Double Cover or Triple Cover) ► Jeevan Griha (Double Cover or Triple Cover) – Low cost without profit endowment assurance – face value paid on maturity ► New Jan Raksha (with profits) ► Jeevan Shree (without profits but with guaranteed addition) – limited premium paying period – keyman insurance

Assurance (with or without


► ►

► ►

Jeevan Pramukh Asha Deep II (with profits) – Endowment Plan with riders to cover four serious illnesses viz. cancer, paralytic stroke leading to permanent disability, kidney failure (both kidneys), and cardiac bye-pass surgery – except 1st year – 50% of S.A. premium waiver – annuity of 10% of S.A. till maturity Balance 50% of S.A. on death or maturity with bonus Marriage Endowment or Education Annuity (with profits) – no immediate payment on death – payment in lumpsum in case of marriage – payment in half yearly instalments over 5 years in Education Annuity from date of maturity only. Money back plans

Special Plans
► For

Children –

        

Children Deferred Assurance Plans New Children Deferred Assurance Plan Jeevan Balya Jeevan Kishore Children’s Money Back Plan Jeevan Anurag

► For

Disabled Children

Jeevan Adhar Jeevan Vishwas IT exemption upto Rs. 20,000/- on premium

► Jeevan

Asha II

 Endowment Assurance with medical benefit rider  2% of face value paid every 2 year for medical checkup  Reimbursement of expenses upto 20% to 50% of face value of policy for minor / major surgeries  On death full S.A.
► Joint

Life Policies

 Jeevan Saathi  Jeevan Saritha – benefit of joint life and last survivorship annuity apart from lump sum payment on death or maturity


Unit Linked Insurance Plan
► Bima


Plus – Capital Market Linked Insurance

 Premium has two parts

premium ►Investment premium

 Investment at the choice of policyholder – from three combinations viz.

fund (complete security) ►Balanced fund (moderate risk) ►Risk fund (high risk investments)

► Investment

Equity Debt 80 % 80 % Liquid 20 % 20 %

Secured Balanced

Not less than 10% Not less than 30%


Not less than 50%

75 %

25 %



holder to select a fund ►Switch over twice during the term subject to minimum gap of 2 years ►Cost of switching over 2% of the current bid value of the fund

Life Insurance Products of Private Companies

Standard Life

Endowment Assurance Plan Money Back Plan – payment of cash lump sum at 5 yearly intervals  Group Insurance Policy – specified group for a term of one year  
► Endowment

Assurance Plans

 ICICI Pru Single Premium Bond – savings with life cover – fixed term plan of 5 or 10 years


Pru Save n’ Protect

 Fixed term policy  Policyholder can accumulate funds for future requirements on a regular basis i.e. Children’s education, marriage etc.  Extended Term Assurance cover for 5 years for 50% of S.A. without payment of premium
► Add-On’s

or Riders

 Option for additional benefits
► accident

and disability benefit ► critical illness benefit ► major surgical assistance ► level term assurance

 During tenure of extended life cover, no rider benefit available


ICICI Pru Forever Life

date ►Life cover during the deferment period ►Options
 life time annuity  life annuity certain for 5, 10, 15 years  life annuity with return of purchase price  joint life, last survivor annuity

income for life after prescribed


► Add-On’s

or Riders – one can be chosen

 Accident and Disability benefit  Major surgical assistance  Level Term Insurance

Pru Cash Bank

 Three-in-one combining savings, liquidity and protection  Term of 15 or 20 years  Survival benefit at regular intervals


 Add-on’s or Riders

and Disability benefit ►Critical illness benefit ►Major surgical assistance ►Level Term Insurance

► Protection


 The Pru Life Guard or Term Level Assurance

Risk Coverage ►No maturity benefits in case of single premium level term policy

 Add-on’s or Riders as in ICICI Pru Cash Bank


Birla Sun Life Insurance Company Ltd.
► Flexi

Save Plus Endowment Plan

 Premium for a fixed duration or in a single lump sum  Benefit of insurance cover as also investment to help savings grow – bonds / securities  Loan facility upto 90% of the total policy value on payment of interest at fixed rate  Facility of withdrawal from 3rd policy anniversary – can close the plan earlier – no surrender charges after 4th year.



Cash Flow Money Back

 fixed term policy with periodic payback at fixed intervals  offers flexibility to choose between the investment option, automatic premium payment, duration of the plan etc.

benefits as in Flexi Save Plus Endowment Plan



Life Line-Whole Life Plan

 Higher return and security to family  Members to keep paying premium and enjoy the benefit of savings and life insurance  Offers the flexibility to choose the premium payment investment option, duration etc.

Bajaj Allianz Life Insurance Co. Ltd.
Group Credit Care Plan (Employer – Employee)  Group Term Insurance Scheme providing basic life insurance protection to employees who have taken loan from employer  Covering risk of outstanding loan in case of premature death  One policy document – to the employer  Accidental death benefit – additional amount equal to life cover granted – total accident cover limit 10 lacs ► Accidental Permanent Total Disability Benefit – Payment of an amount equal to life cover granted total accidental disability cover limit – 10 lacs



Risk Care Plan (Employer – Employee)
 Risk coverage  Life Insurance Benefit for all members  One policy document to the employer  Accidental Death Benefit  Accidental Permanent Total Disability Benefits

► Group

Credit Care Plan (Non Employer – Employee)
 Group Term Insurance Scheme to people having availed a loan from an institution or co-operative  Covers risk of outstanding loan  One policy document to the institution or co-operative  Facility of enhancement of cover by adding accidental death benefit / accidental permanent total disability benefit.


Risk Care Plan (Non Employer – Employee)
 Basic life insurance protection to group members  Covers risk of death – all members of the scheme  One policy document to the group policyholder  Facility of enhancement of cover – Accidental death benefit / accidental permanent – total disability benefit.


Care Plan –

 Term Insurance Plan – life cover with return of premium on maturity  Life insurance cover at low cost  Two premium payment options

premium payment throughout the selected term


► Option

to choose upto 5 additional benefits
  economy Protect – 3 in-built additional benefits

death benefit ►Accidental permanent total / partial disability benefit ►Waiver of premium benefit

 Health

illness benefit ►Hospital cash benefit

 Total – providing 5 in-built benefits of ‘Protect’ & ‘Health’.



Care Plan

 a pure term insurance plan – very economical  offers cover at the lowest possible cost  no survival benefit

time Care Plan

 a life time endowment plan with profits  4 different plan type – economy, protect health and total plan



Care Plan

 Endowment plan with profits for a specified period to meet planned expenditures like education / wedding of children  Comes in 4 types – Economy Single Premium Plan, Economy Plan, Protect Plan, Health Plan


Products In Overseas Market
► Term

Insurance - for different specified period
 Renewable and non-renewable  Convertible and non-convertible

► Two

other forms

 Level Term Insurance – provides specified amount of coverage for the entire period of policy  Decreasing Term Life Insurance

Universal Life Insurance
► Variation

of whole life, the pure insurance part (the Term portion) is separated from the investment (cash portion) ► Investment portion invested in money market funds ► Cash value portion is set up as an accumulation fund to which investment income is credited

► Death

benefit (Term Insurance) is paid out of accumulation fund ► The cash value of Universal Life Insurance grows at variable rate ► The insured can vary his annual death benefit and the annual premium ► Provision for making partial surrender and take policy loan against cash value ► When earnings are good, policy owner can put more money in the cash portion of the policy ► Normally there is guaranted minimum interest rate ► A few other options


► Variable

Life Insurance

 A form of whole life insurance – Term portion; premium towards administrative expenses; part towards investment or cash value portion  The insured may select to invest the funds in various investments : stocks, bonds, MF’s. He may only choose from investment vehicles from the insurance companies portfolio.  Option to switch investment vehicles a few times  It is expensive – commission and service fee is high.  Value of death benefit may fluctuate up or down depending on the performance of the investment portion. However, death benefit can never fall below a defined level.


► Whole

Life Insurance Products in Foreign Markets
 Part premium for insurance; small part towards admin. expenses; balance for investment  Insurance coverage for entire life  Premium throughout life or selected term (10, 20, 30 years)  Provision for single premium  Cash value portion belongs to insured; can take loan or cash; interest on accumulation fund is tax free  Premiums are fixed regardless of the age or health of the policy owner.  Investment vehicles are generally bonds and mortgages


► Progressive

Protection Policy

 Designed to adapt to changing circumstances  Lump sum in the event of death / terminal illness  No cash-in-value; purely for protection; No investment  Provision for increase / decrease in cover at any time other than the first year  Option to have the policy increase automatically every year  Option for mode of payment of premium



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