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Part 1

• Chapter 1- Fundamentals of Life Insurance

• Chapter 2- Legal Aspects of Life Insurance and Life Insurance Products

• Chapter 3- Life Insurance Marketing and Distribution

Chapter 1

Fundamentals of Life Insurance

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Insurance

• Provides financial protection against an unexpected loss

• It works on principle of risk sharing

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Life Insurance defined

Life insurance provides a ‘death benefit’ in return for small periodic payments called premiums

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Insurance history in IndiaFirst Insurance company in India set up in 1870

Insurance Act passed in 1912 and amended in 1938

More than 100 insurance companies in India in 1950

Insurance industry nationalized in 1956

IRDA set up and Insurance privatized in 2000

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Human Life Value- HLV

• Concept established by Prof. Solomon Huebner

• It is the capitalized value of an individual’s earning that supports family, dependants and business partners

Prof. S. HuebnerTaught Insurance in Wharton School

from 1904 to 1953

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Life Insurance Premium Components

• Mortality (claims to be paid out)

• Expenses

• Allowance for unexpected loss

• Earnings on premium collected

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Key Life Insurance Principles

• Insurable Interest

• Moral Hazard

• Law of Large numbers

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Underwriting

The method of evaluation and assessment of each life insurance application, to determine whether the applicant can be insured and, if so, at what premium rates

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Underwriting Evaluation Process

Financial Risks Medical Risks Accident Risks

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Underwriting Categories

All Applicants are categorized

by underwriters into following

Standard Substandard Rejected

Chapter 2

Legal Aspects of Life Insurance

and Life Insurance Products

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Essential aspects life insurance contract

• Offer and acceptance• Legal purpose• Competent parties• Consideration

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Special Legal Characteristics

• Unilateral nature• Personal Nature• Conditional Nature• Contract of Adhesion

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Life Insurance Products

• Pure Term

• Pure Endowment

Term Plans

EndowmentWhole LifeMoney back

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Pure Term

Year 1 2 3 4 5 6 7 8 9 10

Policy issued for 10 years

deathPayoutto family

Insured person survives till end of policy term =No payout

This is a plan to cover the risk of Early Death

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Pure Endowment

Year 1 2 3 4 5 6 7 8 9 10death

No Payoutto family

Pay out only if Insured person survives till end of policy term

This is a plan to cover the risk of Living too Long

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Traditional Products

Term Plan

Year 1 2 3 4 5 6 7 8

Policy issued for 10 yearsdeath

Year 1 2 3 4 5 6 7 8 9 10

Payoutto family

Insured person survives till end of policy term NO PAYOUT

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Endowment is a combination of pure term and pure endowment for the

entire policy duration

Year 1 2 3 4 5 6 7 8

Policy issued for 10 years death

Year 1 2 3 4 5 6 7 8 9 10

PayoutTo family

Insured person survives till end of policy term =Payout to policy holder

Endowment would cover the risk of Early Death also the risk of Living too Long

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Money Back is combination of pure term for the policy duration and pure endowment for short

periods within the policy term

Yr 0 2 4 6 8 12 14 16 18 20

Policy issued for 20 years with money back at 5th, 10th, 15th & 20th yr.

death

Payout to family in case of death and also Payout at regular intervals in case insured survives

payout

payout

payout

payout

Pure Term Plan from year 1 to year 20

Pure Endowment Plan from year 1 to year 5

Pure Endowment Plan from year

6 to year 10 Pure Endowment Plan

from year 11 to year 15

Pure Endowment Plan from year 16 to year 20

PLUS

Yr 0 5 10 15 20

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Unit Linked Insurance Plan

ULIP is life insurance solution that provides the benefits of protection and flexibility in investment.

The investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV).

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ULIP- A transparent productIn ULIP the premium components are clearly expressed under following categories

Expenses- The administration and management charges deducted from the premium

Investment- The amount available to invest in a fund of client’s choice

Mortality- The mortality charges deducted from the premium

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Working of a ULIP Plan

1st year Premium

Deduct

Mortality Charge Admin ChargePremium Related Charge

With balance amount

Units are purchased

As NAV moves up so as does the Fund Value

2nd year Premium

Mortality Charge Admin ChargePremium Related Charge

Less

More units are purchased

With balance amount

Chapter 3

Life Insurance Marketing and Distribution

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Growth of Life Insurance in India post Liberalization

Insurance penetration has increased significantly after Liberalization and is estimated to grow further

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

1999 2007 2012

Insurance penetration as percentage of GDP

Insurance penetrationas percentage of GDP

Data from India Brand Equity Foundation

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Channels

Distribution channels • Agent • Broker• Corporate Agent.

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Bancassurance- Indian Opportunity

Source: RBI Annual Report, Aug 02

All Data for Yr 2000-01

Currency6%

Government bonds/Small Savings

13%

Shares & Debentures1%

Mutual Funds2%

NBFC's3%Coop banks

2%

Insurance13%

PF/Retirement funds21%

Bank deposits39%

Banks command almost 40% of household investments

Extensive coverage of bank branches across rural and urban India