LIFE INSURANCE

“SECURITY CAN BE THOUGHT OF AS PEACE OF MIND AND FREEDOM FROM UNCERTAINTY. INSECURITY IMPLIES FEELINGS OF DOUBT, FEAR & APPREHENSION. SECURITY IS MEASURED BY THE PROBABILITY THAT MAN’S NEEDS WILL BE SATISFIED.”

S.S. HUEBNER

Introduction• Man’s historical obsession with security

leading to concept of insurance• Need for insurance due to presence of risk &

uncertainty in life• Only certainty in life is uncertainty, taxes &

death• It can never repair/replace a loss since it is

impossible to put a price on grief, trauma and loss of a beloved one (LI)

Contd…..

• Monetary value offered by insurance helps in adjusting to new circumstances

• Hence insurance is a risk- management mechanism which seeks to compensate loss of economic value of assets.

• Insurance relevant only in case of loss• Protection required because assets face

accidental occurences called PERILS.

Contd…..

• Perils are earthquakes, accidents, theft, death, fire, floods.

• Perils cause loss.• Loss that perils cause is called RISK

NO UNCERTAINTY, NO RISK AND SO NO INSURANCE

Life Insurance

• Modern concepts of insurance started with marine insurance

• Joint family system was best form of life insurance since ancient times

• Uncertainty & lack of security coupled with break-up of joint family system created need for LI

• Risks faced are DEATH, DISEASE, DISABILITY

Contd…..

• Study of life insurance deals with risks of dying early and living too long

• First life insurance office in India opened by Bombay Mutual in 1870

• Insurance business nationalised in 1956 to form LIC, amalgamating 245 companies.

• LIC dominant market player till date• IRDA act passed in 1999, opening

insurance sector

Contd…..

• Global players tied up with Indian partners in 26:74 participation to form joint venture companies….MaxNewYork life, TataAig, BirlaSunlife etc

• Competition has benefited customer/pub• Strategies were tech-savvy orientation,

product innovation, expanded distribution channels, operational efficiency and improved service to drive retention

Contd…..

• Great potential for life insurance in India since premia is 4% of GDP.

• Increase in disposable income and increased purchasing power of people.

• Greater spread and awareness campaigns by companies with catchy slogans

• Availability of different distribution channels like bancassurance, alternate channels, agency,e-insurance, mallassurance

7 A’s of life insurance

Agent Actuary Administrator Asset-manager Accountant Auditor Adjuster

Economic Death

• Economic death of breadwinner.• Loss of chosen standard of living• Needs like a decent life, good

education for children, own house, marriage, healthcare, financial independence & stability in old age …….all fulfilled by breadwinner

• Greatest burden is empty purse. To rely on children difficult/impossible

Contd…

• Death, disability, old age lead to ECONOMIC DEATH of individual ,i.e stoppage of regular income

• Most important asset of breadwinner – INCOME –PRODUCING ABILITY• Protection through life insurance may

save an individual/his dependents from misery.LI gives certainty & cash flow.

Economic principles of life insurance

• Basic economic principle of life insurance is that RISK SUFFERED BY FEW IS SPREAD OVER A LARGE NUMBER OF PERSONS WHO FACE SAME RISK.

• Fund is created where those who face similar risk will each contribute small sum, out of which assistance is given to those suffering consequences of an economic death.

Mathematical principle

• SPREADING OF RISKS IS ECONOMIC PRINCIPLE OF LIFE INS.

• How much each person contributes, depending on several factors, is PREMIUM

• Process of fixing premium is done by Mathematical principles

Legal principles

• When several people contribute to the fund, it is necessary to establish relationship between each individual and the fund within provisions of law.

• Relevant laws of the land have to be abided to establish legally acceptable understanding, relationships & mutual responsibilities. Law of contract.

• This is done through legal principles

Risks to economic security

• Economic security relates to man’s needs or wants

• These are never static• Threat of not being fulfilled• Satisfaction of these wants depends

on financial position of person, his decision-making & economic scenario.

• Hence risk related to satisfaction of one’s needs.

Risks to stability & solutions

• For single individual - disease/disability• For family man- disease,death,disability• These threats can be solved by ….. Social security schemes of govt,

which is existent in India only for BPL people

Group insurance, available only in organised sector

Individual efforts.

HENCE……….

“NOTHING MORE UNCERTAIN THAN LIFE AND NOTHING MORE CERTAIN THAN LIFE INSURANCE.”

ECONOMIC USES OF LIFE INSURANCE

• Provides financial security to family• A potent instrument for savings• Makes dreams come true• Collateral security for housing/education

loan• Provides financial independence in old

age• Creditors can insure debtors for

recovery of loans after death of latter

Contd….

• Partners can insure each other’s lives to the extent of capital invested in firm.In case of death of partner, to meet danger of withdrawal of capital by legal heirs.

• Employers can buy group insurance as part of employee welfare program to boost productivity

• Key man insurance

Advantages of life insurance

• Life insurance creates an estate – amount paid to legal heirs is thrifges determined at beginning of policy

• LI encourages thrift • LI policies cannot be attached by court or income tax.• Can be assigned for personal loans• No stamp duty required in case of TP as a

result of assignment

Contd….

• Payments are tax-free• Premium paid gets IT exemption• Safe and profitable investment with

regulatory presence• Different types of duration to suit

different ages• Claim payments are generally hassle-free• LI companies are largest institutional

investors.

Contd….

• LI is a long-term contract. Lock-in period is long. Funds generated are used for housing, power, social security, water supply, transport ,i.e infrastructure development of country.

THANK YOU !