4) insurance final; presentation

Principles of Insurance and Risk Management

Md. Shamsul Alam, Senior Lecturer, ASAUB

Risk – Nature and Concepts

Chapter 1

Risk

Risk is the uncertainty concerning the occurrence of a loss.

Example: the risk of being killed in an auto accident is present because uncertainty is present.

- Objective risk

-Subjective risk

Objective risk is defined as the relative variation of actual loss from expected loss. Objective risk can be calculated by statistical techniques like standard deviation, coefficient of variation.

Risk

Subjective risk is defined as uncertainty based on a person’s mental condition or state of mind.

Chance of loss

Chance of loss is defined as the probability of occurring an event or loss.

Example: if an insurance company expects 3 houses out of 1000 houses in an insurance pool to be destroyed by fire, the expected chance of loss is 3/1000 = 0.003

It is the probability or chance of loss that creates the need for insurance.

Objective risk and Subjective risk

Pure and Speculative risk

Fundamental and Particular risk

Enterprise risk

Basic Categories of Risk

Pure risk is defined as situation in which there are only the possibilities of loss (adverse) or no loss (no change/neutral). Nothing gain can come from an exposure to pure risk. e.g. a factory’s exposure to loss by fire. A factory either burns or it does not burn.

Speculative risk is defined as a situation in which either profit or loss is possible. e.g. risk of price change of investment in stock market, betting on an issue etc.

Pure Risk and Speculative Risk

• Possible outcomes.

• Usually pure risks are insured. With certain exceptions, private insurers generally do not insure speculative risk.

• Law of large number can be applied more easily to pure risks than to speculative risks

• Pure risk may cause harm to the society on the other hand society may benefit from a speculative risk.

Pure Risk Vs. Speculative Risk

The risk that affects the entire economy or large number of persons or groups within the economy is called fundamental risk. Example: the risk of natural disaster, risk of high inflation, terrorist attack, war, foreign invasion etc.

Particular risk is a risk that affects only individuals and not the entire economy. Bank robberies, car accidents etc.

• Fundamental vs. Particular risk.

Fundamental Risk Vs. Particular Risk

Enterprise risk encompasses all major risks faced by a business firm; such as pure risk, speculative risk, strategic risk, operational risk and financial risk.

Strategic risk refers to uncertainty regarding the firm’s financial goals and objectives.

Operational risk results from firm’s business operations; e.g. hacking of a bank’s online service.

Financial risk refers to the uncertainty of loss because of adverse changes in interest rates, exchange rates or

commodity prices.

Enterprise Risk

Personal risk

Property risk

Liability risk

Personal risk directly affect an individual in the form either complete loss or reduction of income or extra expenses. Major risk are:

Risk of premature death

Risk of insufficient income

Risk of poor health

Risk of unemployment

TYPES OF PURE RISK

TYPES OF PURE RISK

Property risk refer to the risk of having one’s property damaged or lost from numerous causes. Example: any property can be damaged by or cause loss from fire, lightening, cyclone, theft and numerous causes. Major types of loss

- Direct loss

- Indirect loss

Liability risk refers to the risk of being legally liable for any bodily injury or property damage to someone else. Example: business firms can be held legally liable for defective products that harm or injure customers.

Peril and Hazard

Peril is defined as cause of loss.

Example: a man has died from cancer or a house is burnt with fire. Here cancer and fire are the perils.

Hazards are the conditions or situations that create or increases the frequency or severity of losses.

Example: storing 10 gallons of gasoline in a home. Four major type of hazards:

Physical hazard

Moral/ mental hazard

Morale hazard

Legal hazard

Types of Hazard

Physical hazard is a physical condition that increase the chance (make more active the cause) of loss; e.g. poor lighting in a crime-prone are, icy road, defective wiring system.

Moral hazard is dishonesty or character defects in an individual that increase the frequency or severity of loss; faking and accident to collect from an insurer, intentionally burning unsold merchandise that is insured etc.

Types of Hazard

Morale hazard is carelessness or indifferent mental condition of an individual to a loss because of the existence of insurance. The attitude, “why should I care? I’m insured,” is an example of morale hazard. e.g. leaving car keys in an unlocked car.

Legal hazard refers to characteristics of the legal system or regulatory environment that increase the frequency or severity of loss. Example: adverse court verdicts, large damage awards in liability lawsuits.

Risk Management

Chapter 2

Risk Management

Risk management is a systematic process of identifying loss exposures faced by an organization and selecting the most appropriate techniques for treating such exposures.

Steps in the risk management process

Identify loss exposures

Analyze the loss exposures

Select appropriate techniques

Implement and monitor the program

Identification of loss exposures

Logically thinking about loss begins with identifying sources of possible exposure. Important loss exposures are related to the following issues:

Property loss exposures: building, plants, equipments and other contents

Liability loss exposure: defective products, environmental pollution, liability arising from company decision or equipments etc.

Business income loss exposures: continuing expense after a loss, extra expense etc.

Step - 1

Human resources loss exposures: death or disability or retirement of key employees, job related injuries or diseases experienced by workers.

Crime loss exposures: fraud and embezzlement, internet crime, theft of intellectual property etc.

Employee benefit loss exposures

Foreign loss exposure

Reputation and public image of the company

Step - 1


Loss exposure identification tools:

Risk analysis questionnaires

Physical inspection

Flowcharts

Financial statements

Historical loss data

Step - 1


Analyzing loss exposures

Analyzing loss exposure involves an estimation of the frequency and severity of loss so that

- Loss exposures could be ranked according to their relative importance.

- The risk manager can select the most appropriate technique, or combinations of techniques, for handling these exposures.

- The risk manager could estimate maximum possible loss and maximum probable loss.

Risk severity is more important than risk frequency because a single catastrophic loss could wipe out the firm.

Step - 2

Selecting appropriate techniques

Two broad categories of techniques are

Risk control

Risk financing

Risk control refers to techniques that reduce the frequency and severity of loss.

Risk financing refers to techniques that provide for the funding of losses.

Step - 3

Risk Control

Major risk control techniques are

Avoidance

Loss prevention

Loss reduction

Risk avoidance means a certain loss exposure is never acquired or an existing loss exposure is abandoned. That means the chance of loss has been eliminated. Example: not investing in a risky country, withdrawing a drug from market that has significant side effect etc.

Risk avoidance may reduce the chance of certain loss to zero but all loss exposure can not be avoided.

Step - 3

Risk Control

Loss prevention refers to measures that reduce the frequency of particular loss. Example: use of temper-resistant packaging, driver training and safety program etc.

Loss reduction refers to measures that reduce the severity of a loss after it occurs. Example: installation of an automatic fire sprinkler system, maintaining limited amount of cash in the premises.

Step - 3

Risk Financing

Major Risk financing techniques are

Retention / Assumption

Non-insurance transfer

insurance

Risk retention means that the firm retains/ assumes part or all of the losses that can result from a given loss. That is if loss is occurred the concerned person or firm will pay it out of what ever the funds are available at that time. It may be planned retention (active) or unplanned retention (passive).

Step - 3

Risk Financing

Risk retention can be used in the following circumstances:

- No other method of treatment is available

- The worst possible loss is not serious

- Losses are highly predictable and that can be budgeted out of the firm’s income

If retention is used, the risk manager must determine the firm’s retention level.

Step - 3

Risk Financing- Noninsurance Transfer

Non-insurance transfers are risk transfer other than insurance by which a pure risk and its potential financial consequences are transferred to another party.

Non-insurance transfers include hedging, hold-harmless agreements, contracts etc.

Advantages are: often costs less than insurance, some potential risk can be transferred that are not insurable, sometime loss exposures are transferred the parties who are in better position to exercise loss control.

However, if the party is unable to pay the loss, the firm is still responsible to pay the claim.

Step - 3

Risk Financing- Insurance

From the viewpoint of risk management, insurance represents a contractual transfer of risk.

Insurance is an especially appropriate risk management tool when the chance of loss is low and the severity of loss is very high.

Here five key areas must be decided: Selection of insurance coverage Selection of an insurer Negotiations of terms dissemination of information about insurance coverage Periodic review of the program

Step - 3

Risk Financing- Insurance

Advantages of insurance technique are:

Firm will be indemnified after a loss occurs

Firm’s uncertainty is reduced

Insurance premiums are tax deductible

Disadvantages are:

Premium payment is a major cost

Negotiating the insurance coverage take considerable time and effort.

Step - 3

Which method should be used?

Step - 3

Frequency of Loss

Low High

Loss Prevention And Retention Loss Retention

Risk Avoidance

Insurance

S

everi

ty o

f Loss

Low

Low

Hig

h

Implement and monitor the program

A risk management program must be properly implemented and administered. This effort involve

Preparation of a risk management policy

Close cooperation with other people and departments

Periodic review of the entire risk management program

Step - 4

Introduction to Insurance

Chapter 3

Insurance

Insurance is a contractual agreement where one party agrees to compensate another party in exchange of premium for any future loss.

Insurer: The party agreeing to pay for the losses.

Insured: The party whose risk is transferred to the insurer.

Premium: The payment that the insurer receives from insured.

Basic characteristics of Insurance

Basic characteristics of insurance are:

Pooling of Loss

Payment of fortuitous loss

Risk transfer

Indemnification


Pooling of loss is the spreading of losses incurred by the few over the entire group, so that in the process, average is substituted for actual loss. There should be large number of similar, but not necessarily identical, exposure units that are subject to the same perils. Pooling involves:

Sharing of losses by the entire group and

Prediction of future losses with some accuracy based on the law of large number.

A fortuitous loss is one that is unforeseen and unexpected and occurs as result of chance. That means the loss must be accidental. Intentional losses are not covered by insurance policy.

Risk transfer means that a pure risk is transferred from the insured to the insurer, who typically is in a stronger financial position to pay the loss than the insured.

Indemnification means that the insured is restored to his or her approximate financial position prior to the occurrence of the loss.


Requirements of an insurable risk

Six ideal requirements of an insurable risk:

There must be a large number of exposure units

The loss must be accidental and unintentional

The loss must be determinable and measurable

The loss should not be catastrophic

The chance of loss must be calculable

The premium must be economically feasible

Insurance Vs. Gambling

Gambling creates a new speculative risk, whereas insurance deals with an existing pure risk.

Gambling is socially unproductive, because the winner’s gain comes at the expense of the loser. On the other hand, insurance is always socially productive because both the insured and the insurer benefit if the loss does not occur.

Benefits of insurance to society

Major benefits of insurance to the society are:

Indemnification for loss

Reduction of worry and fear

Source of investment funds

Loss prevention

Enhancement of credit

Costs of insurance to society

Major costs of insurance to the society are:

Cost of doing business

Fraudulent claims

Inflated claims

Property and casualty insurance fraud in 2002 was $31 billion.

Total cost of insurance fraud is estimated in USA to be between $85 billion and $120 billion annually.

An average household pays additional $200 to $300 premium each year because of fraud.

Evolution of Insurance

The philosophy of insurance was developed in very ancient times. In 4th century, marine trade used -

Bottomry bonds

Respondentia bonds

In case of any distress in the mid way, the master of the vessel used to be in need of fund for completion of the journey. In these situation he could manage fund from any nearest port by signing a bond, called bottomry bond, in which the ship was pledged.


The term of the agreement was that the loan was required to be repaid only if the reached destination safely. In case of total loss of the ship, nothing was required to be repaid. However, the lender used to charge a premium in addition to interest.

In case of respondentia bonds, similar loans could be managed by pledging the cargo of the ship.

The practice of such bonds have been abandoned since 19th century because of tremendous advancement in communication system.


Another practice which is still in existence, general average, was introduced about one thousand years ago.

To avoid any disaster in mid ocean, the master of the vessel might take a bold decision such as jettisoning, for the safety of the vessel. As this action made the other cargo safe, it is natural that all parties contributed to this loss. This system is known as general average.

Development of insurance in Bangladesh

About 49 insurance companies including both general insurance and life insurance, were operating in Bangladesh before independence.

After liberation the insurance industry was nationalized except the foreign companies (other than Pakistani companies) and five insurance companies were established in 1972:

Jatiya Bima Corporation

Teesta Bima Corporation

Karnaphuli Bima Corporation

Rupsha Jiban Bima Corporation

Surma Jibon Bima Corporation

Development of insurance in Bangladesh

Jatiya Bima Corporation was not an underwriting insurance company. All the 49 companies were merged with these four companies.

Later in 1973, the five corporations were abolished and instead 2 corporations were established:

Sadaran Bima Corporation: For transacting general insurance business.

Jiban Bima Corporation: For transacting life insurance business.

Classification of Insurance

Insurance can be classified from two perspective.

Brach-wise classification and Interest or subject matter-wise classification.

Branch-wise classification

Marine: Hull, Cargo, Freight

Fire: Loss or damage by fire, consequential loss

Life: Ordinary, Industrial, Group, Annuity

Accident: Personal accident, Burglary, Motor etc.


Subject matter-wise classification

Insurance of Property: All types of property insurance that includes risk under marine, fire, motor, engineering etc.

Insurance of Liability: All types of liability insurance like employer’s liability, public liability, product liability, liability portion of motor and hull insurance and professional liability.


Subject matter-wise classification

Insurance of Person: Life insurance and personal accident insurance.

Insurance of Interest: Protection of financial interest such as fidelity guarantee, performance bond and credit insurance.

Insurance of Property

Chapter 4

Property Insurance – Marine Insurance

Marine insurance provide protection against loss to the subject matter caused by maritime perils such as:

Fire

Theft

Jettison

Collision

Heavy weather

Stranding/ Foundering

sinking


Subject Matter of Marine Insurance

Hull: Refers to the ship; the physical body and its machinery which are always at risk in the ocean and the owner can insure it.

Cargo: refers to the goods or merchandise that are being carried and are at risk of being damaged or lost.

Freight: refers to the consideration paid to the ship owner for carrying cargo. Freight may be pre-paid or post-paid and is at risk for the concerned parties.


Types of Marine Insurance policies

1. Time Policy2. Voyage Policy3. Mixed Policy4. Floating Policy5. Building risk Policy

Time policy covers the subject matter only for specific duration. Normally the policy is made for one year and whatever the number of voyage made within this time is covered under this policy. For a valid claim the loss must be happened within the specified period. Usually the ship/ hull is insured by this policy.


Voyage policy covers the subject matter only for specific voyage not for time duration. For a valid claim the loss must be happened during the specified voyage. Usually cargo is insured by this policy.

Mixed policy resolves the drawbacks of time and voyage policies by covering a voyage and an additional time after completion of the voyage.

Floating policy is issued for a number of estimated shipments of cargo to avoid formalities for each individual shipment. At the time each shipment, the insured just declares shipment and obtains a certificate of insurance.

Property Insurance – Fire Insurance

The subject matter of fire insurance are

BuildingFurniture and fittingsPlant and machineryGoods and merchandise etc.

Financial losses covered under fire insurance can be categorized as-

Material loss insurance

Consequential loss insurance

Property Insurance – Fire Insurance

Policies for material loss insurance

• Standard fire policy• Special perils insurance• Declaration policy• Blanket policy• Reinstatement policy• Building in course of erection• Households policy• Sprinkler leakage insurance

Types of Fire insurance

Standard fire policy

The basic fire policy that is standardized for covering certain common perils usually required by all, although any additional cover can be arranged by modification. The standard perils covered in this policy are:

1. Fire, resulting from explosion or otherwise, but not happened by -

(i) Its own spontaneous fermentation of heating or its undergoing any process involving the application of heat

(ii) Earthquake, riot, civil war, rebellion, revolution, military power etc.

2. Lightning, whether or not there is any fire involved.


Standard fire policy (Cont.)

3. Explosion of boilers or of gas used for domestic purpose only even though there is no fire involved.

However, this policy does not cover

• consequential loss

• Goods held in trust or on commission, money, stamp, pictures, designs etc unless these are specially insured.

• Loss caused by radioactive contamination or irradiated nuclear fuel etc.


Special peril policy covers the perils that are excluded in a standard fire policy and an special policy may by used for these perils. Examples of such perils are:

Riot and strikes damage

Explosion damage

Earthquake

Strom, cyclone etc

Spontaneous combustion

Declaration policy indicates a declaration clause attached to a standard fire policy which is usually used for stocks that are subject to violent value fluctuation.


Reinstatement policy includes a standard fire policy with a reinstatement clause. Under this policy, loss is indemnified on the basis of replacement cost instead of the market value immediate before the loss.

In case of Blanket policies, only one amount is specified for all building together, one for all plants and machineries and one for all stocks instead of specifying individual amount for each subject matter.

Household policy is a comprehensive policy that may cover the building or content only or both. Perils covered fire, special perils, burglary and limited liability of the insured.


Fire Insurance policy for consequential loss

Loss of Profit insurance

This policy provides protection against consequential loss arising out of fire such as

- Loss of earning which is usually measured by net profit

- Standing charges e.g. rent, salaries to permanent employee etc.

- Extra expenditures incurred by the insured with the sole object of minimizing loss of earning during the interruption period.

This policy is issued in conjunction with the material fire policy.

Accident insurance involves those policies that are not in appropriately classified under marine and fire insurance. The policies are:

• Burglary insurance

• Motor insurance

• Contractors all risk

• Engineering insurance

• Aviation insurance

• Crop insurance

• Live-stock insurance

Property Insurance – Accident Insurance

Burglary insurance

Four types of policies are issued under this insurance

a) Burglary (business premises) insurance

b) Burglary (private dwelling) insurance

c) All risk policy

d) Cash in safe and transit


Motor insurance

Policies issued for various class of motor vehicles are

(i) Comprehensive policy: it covers

Own damage or loss of the vehicle

Third party liability

(ii) Third party only policy: covers only legal liability.



Contractors all risk policy covers the entire contract work including construction, materials, plants, equipments, machineries etc. at site during the contract period. The policy also may be extended to cover liability risk of the contractor.

Engineering insurance covers steam boilers, lifts, cranes, electrical plant engines etc. perils may be fire, accident, collapse, mechanical breakdown etc.

Aviation insurance covers the loss of aircraft, legal liability, accident risk for pilots, crews and ground staffs, loss of cargo etc

Property Insurance – Liability Insurance

Marine

Sources of liability of a ship owner are

• Cargo being carried

• Negligence of the ship staffs for damage to the cargo

• Damage done to another ship or its cargo

• Damage done to fixed objects by negligent navigation of the ship

• Causing loss of life or bodily injury

Usually insurance market does not cover such types of liabilities. Protection and Indemnity Clubs of London usually covers such liabilities.


Fire: No liability policy is issued for fire except the household policy which provides very limited coverage for third party liability.

Accident: Liability policies relating to accident are

Employer’s liability insurance

Public liability insurance

Product liability insurance

Professional indemnity insurance

Motor insurance

Aviation insurance


Employer’s liability insurance covers financial liability of an employer to his or her employees for death or bodily injury, occupational disease, temporary or permanently, totally or partially incapacitating an employee etc. In Bangladesh it is generally known as workmen’s compensation insurance.

Public liability insurance basically covers liability for accidental death or bodily injury to third party and accidental damage to the property of third party.


Product liability insurance covers legal liabilities of the manufacturers or suppliers regarding accidental death or bodily injury of third parties or damage to the property of third party arising out of using defect product.

Professional indemnity insurance provides cover in respect of liability of the professional people arising out of unintentional mistake. Accountant, lawyers, doctors take this policy.

Fundamentals of Life Insurance

Chapter 5

Fundamentals of Life Insurance

The necessity of life insurance is derived from the risk of premature death. Although the loss of life can not be overcome, the financial consequences of premature death can be alleviated by life insurance.

Premature death can be defined as the death of a family head with outstanding unfulfilled financial obligations, such as dependants to support, children to educate, a mortgage to pay off.

Economic Justification of Life insurance

The purpose of life insurance can be economically justified if a person has an earning capacity and someone is dependent on those earnings for at least part of his or her financial support.

It is important to mention that, life insurance is not a contract of indemnity rather it is contract that pays a stated sum to a named beneficiary.

Most families need life insurance to prevent or reduce financial insecurity from premature death or serious illness for surviving dependents.

Economic Justification of Life insurance

However, the necessity of life insurance is not equal to all types of family. Importance varies from family to family depending on their formation.

Single People

Single-Parent families

Two-income earners

Traditional families

Blended families

Sandwiched families

Amount of Life insurance to own

Determination of sum insured accurately for life insurance is a tricky task. Various rules including some arbitrary rules, are available to determine the amount of life insurance to own.

• Human life value approach

• Needs approach

• Capital retention approach


Human life value approach

Human life value can be defined as the present value of the family’s share of the deceased breadwinner’s future earnings. Calculation process includes:

• Estimating individual’s average annual earnings over his or her productive lifetime.

• Determining the amount used to support the family by deducting self-maintenance costs and all other costs like tax, premiums etc. from earnings.

• Determining the working years of the job.

• Calculating the present value of the family’s share of earnings by using a reasonable discount rate.


Needs approach

The needs approach determines the amount of life insurance by subtracting total amount of financial assets and existing life insurance from total amount of family needs. The most important family needs are the following:

• Estate clearance fund

• Income during the readjustment period

• Income during the dependence period

• Life income to the surviving spouse

• Special needs; mortgage redemption fund, educational fund, emergence fund etc.

• Retirement needs


Capital retention approach

Types of Life Insurance

Chapter 6


Generally two types

Term insurance

Cash value life insurance or whole life insurance

Term insurance

Term insurance is made for temporary protection which is usually renewable. The policy provides that the sum-insured shall be paid only if the life-assured dies within the policy period. Most term insurance policies are renewable.

Term insurance policies have no cash value or savings element. Most term policies are also convertible.


Term insurance

Types of term insurance

• Yearly renewable term

• 5, 10, 15, 20 year term

• Term to age 65

• Decreasing term

• Reentry term

Yearly renewable term insurance is issued for a one-year period and the policy owner can renew for successive one-year periods to some stated age without evidence of insurability. Premium increases with age at each renewal date.

Application of term insurance

Term insurance can be effectively used

• If the amount of income that can be spent on life insurance is limited

• If the need for protection is temporary

• To guarantee future insurability

Limitations

• Premium increases with age at an increasing rate

• Not applicable for saving or investment mode insurance


Term insurance


Whole Life insurance

Whole life policy provides protection for lifetime and contains a cash-value component.

• Ordinary life insurance

• Limited payment life insurance

Ordinary life insurance is a whole life policy that provides lifetime protection to age 100. If the insured survives after age 100, the sum-insured is paid to the policy owner at that time. The premiums are level and are payable for life. The policy develops a saving element called a cash surrender value, which results from the overpayment of the premiums during the early years.



Ordinary life insurance is appropriate when life time protection is desired or additional savings are desired.

A limited payment policy is another form of whole life policy with life time protection where premiums are paid only for a limited period such as 10, 20, 30 years or until age 65. It may be a single-premium whole life insurance.

Paid up policy vs. matured policy.



Endowment life insurance

Endowment insurance is another form traditional life policy that pays the face amount of insurance if the insured dies within a specified period. If the insured survives to the end of the endowment period, the face amount of insurance is paid to the policy owner at that time.

However, due to lack of tax benefit this insurance is less popular today.


Variations of Whole Life insurance

Variable life insurance

Universal life insurance

Variable universal life insurance

Current assumption whole life insurance

Intermediate-premium whole life insurance



Variable life insurance

Variable life insurance is a fixed-premium policy is which the death benefit and cash surrender value vary according to the investment experience of a separate account maintained by the insurer.

- Variable life insurance is a permanent whole life policy with fixed premium.

- The entire reserve is held in a separate account and is invested in stock or other investments.

- Cash surrender values are not guaranteed.



Universal life insurance

universal life insurance is a flexible-premium policy that provides life-time protection under a contract that separates the protection and saving components. Except for the first premium, the policy owner determines the amount and frequency of premium. Its features are

Unbundling of component parts

Two forms of universal life insurance

Considerable flexibility

Cash withdrawal permitted

Favorable income-tax treatment



Variable Universal life insurance

Variable universal life insurance is similar to universal life insurance with two major exceptions

- The policy owner determines how the premiums are invested

- The policy does not guarantee a minimum interest rate or minimum cash value. That means the investment risk falls entirely on the policy owner.



Current assumption whole life insurance

Current assumption whole life insurance is a type of whole life insurance where the cash values are based on insurer’s current mortality, investment and expenses experience. In this policy premium payments are flexible and are linked with current interest rates. Premium adjustments are usually made on specific policy anniversary dates. Premium adjustments come from higher or lower mortality, expenses or investment returns of the insurer.



Indeterminate premium whole life insurance

Indeterminate-premium whole life policy is a nonparticipating policy that permits the insurer to adjust premiums based on anticipated future experience. The initial payments are considerably lower and are guaranteed for some initial period. The maximum level is also stated in the policy.


Other types of Life insurance

Modified life insurance

A whole life policy where premiums are lower in early years, first three to five years, and increase thereafter. The initial premium is slightly higher than for term insurance but considerably lower than for an ordinary life insurance.

Modified life insurance is particularly attractive for persons who expect that their incomes will increase in the future.



Preferred risk insurance

Insurance policies which are sold at lower rate due to lower mortality experience than average mortality rate of that age.

A discount for non-smoker is a current example of a preferred risk policy.

Second to die life policy

A form of life insurance that insures two or more lives and pays the death benefit upon the death of the second or last insured. It may be whole life or term policy.



Juvenile insurance

Industrial life policy

Group life insurance

Personal Accident and Sickness insurance

Accident only policy

Accident only policy is a basic type of policy that provides coverage in respect of accidental death or bodily injury to the insured person as well as partial or total disablement either for temporary or for permanent.

Accident and specified diseases policy

This policy provides benefit for temporary total disablement arising out of specified diseases, in addition to all benefits of accident only policy.

Personal Accident and Sickness insurance

Accident only policy

This policy provides benefit for temporary total disablement arising out of all or any kind of diseases, in addition to all benefits of accident only policy.

Coupon schemes

Permanent contracts

Annuities

Annuity is one kind of insurance contract that provides the annuitant a periodic payment that continues for a fixed period or for the duration of a designated life or lives.

Types of annuity

Annuity for life

Annuity certain

Guaranteed annuity

Reversionary annuity

Joint and survivor annuity

Annuities

Annuity for life is the basic form of annuity where periodic payments start from a particular date and continues until the remainder period of the annuitant’s life.

In case of annuity certain, annuity is given for a certain predetermined period irrespective of the annuitant’s death and payments stop at the expiration of the period.

Guaranteed annuity provides periodic payments (annuity) until the annuitant’s death but with a guarantee of a certain minimum period.

Annuities

Reversionary annuity provides benefits that start from the time of death of another person mentioned in the contract and continues for the rest of the annuitant’s life.

In case of joint and survivor annuity the annuity starts from a particular time and continues through out the duration of the joint lives. On the death of the first life, the payment still continues until the death of the second life at the same rate or at a smaller rate.

4) insurance final; presentation

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