principles of insurance management-unit 1
TRANSCRIPT
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PRINCIPLES OF INSURANCE MANAGEMENTPRINCIPLES OF INSURANCE MANAGEMENT
NATURE OF INSURANCE;NATURE OF INSURANCE;
sharing of risksharing of risk
cooperative devicecooperative device
value of riskvalue of risk
payment at contingencypayment at contingency--
amount of paymentamount of payment
BENEFITSBENEFITSReimbursement of lossesReimbursement of losses
Reduction of tension and fearReduction of tension and fear
Venue for investmentVenue for investment Life insurance policies offer attractive returnLife insurance policies offer attractive return
INSURANCE versus GAMBLINGINSURANCE versus GAMBLING--Gambling deals with speculative risksGambling deals with speculative risks
while Insurance deals with pure risks.while Insurance deals with pure risks.
INSURANCE versus WAGERINGINSURANCE versus WAGERING--Insurance contracts are legal whileInsurance contracts are legal while
wagering contracts are void contracts. Insurance contracts are contracts ofwagering contracts are void contracts. Insurance contracts are contracts of
Indemnity while wagers are win or lose contracts. Insurance contractsIndemnity while wagers are win or lose contracts. Insurance contracts
requires parties to disclose fully the material facts where as wager does notrequires parties to disclose fully the material facts where as wager does not
require such disclosure.require such disclosure.
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PRINCIPLES OF INSURANCE MANAGEMENTPRINCIPLES OF INSURANCE MANAGEMENTINDIA SCENE;INDIA SCENE;
InsuranceInsurance is a subject listed in the concurrent list in the Seventhis a subject listed in the concurrent list in the Seventh
Schedule to the Constitution of India where both centre and states canSchedule to the Constitution of India where both centre and states canlegislate. The insurance sector has gone through a number of phases andlegislate. The insurance sector has gone through a number of phases and
changes. Since 1999, when the government opened up the insurancechanges. Since 1999, when the government opened up the insurance
sector by allowing private companies to solicit insurance and also allowingsector by allowing private companies to solicit insurance and also allowing
foreign direct investmentforeign direct investment of up to 26%, the insurance sector has been aof up to 26%, the insurance sector has been a
booming market. However, the largest lifebooming market. However, the largest life--insurance company in India isinsurance company in India isstill owned by the government.still owned by the government.
The Government of India issued an Ordinance on 19th January, 1956The Government of India issued an Ordinance on 19th January, 1956
nationalizing the Life Insurance sector and Life Insurance Corporationnationalizing the Life Insurance sector and Life Insurance Corporation
came into existence in the same year. The Life Insurance Corporation (LIC)came into existence in the same year. The Life Insurance Corporation (LIC)
absorbed 154 Indian, 16 nonabsorbed 154 Indian, 16 non--Indian insurers as also 75 providentIndian insurers as also 75 provident
societiessocieties245 Indian and foreign insurers in all..245 Indian and foreign insurers in all..
The LIC had monopoly till the late 90s when the Insurance sector wasThe LIC had monopoly till the late 90s when the Insurance sector was
reopened to the private sector. Before that, the industry consisted of onlyreopened to the private sector. Before that, the industry consisted of only
state insurers: Life Insurers (state insurers: Life Insurers (Life Insurance Corporation of IndiaLife Insurance Corporation of India, LIC), LIC)
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PRINCIPLES OF INSURANCE MANAGEMENTPRINCIPLES OF INSURANCE MANAGEMENT
In 1972 with the General Insurance Business (Nationalization) Act wasIn 1972 with the General Insurance Business (Nationalization) Act was
passed by the Indian Parliament, and consequently, General Insurancepassed by the Indian Parliament, and consequently, General Insurancebusiness was nationalized with effect from 1st January, 1973. 107 insurersbusiness was nationalized with effect from 1st January, 1973. 107 insurerswere amalgamated underwere amalgamated underGeneral Insurance Corporation of IndiaGeneral Insurance Corporation of India, GIC)., GIC).GIC had four subsidiary companies and grouped into four companies,GIC had four subsidiary companies and grouped into four companies,namely National Insurance Company Ltd., the New India Assurancenamely National Insurance Company Ltd., the New India AssuranceCompany Ltd., the Oriental Insurance Company Ltd and the United IndiaCompany Ltd., the Oriental Insurance Company Ltd and the United IndiaInsurance Company Ltd. The General Insurance Corporation of India wasInsurance Company Ltd. The General Insurance Corporation of India wasincorporated as a company in 1971 and it commence business on Januaryincorporated as a company in 1971 and it commence business on January1st 1973.1st 1973.
. With effect from December2000, these subsidiaries have been de. With effect from December2000, these subsidiaries have been de--linkedlinkedfrom the parent company and were set up as independent insurancefrom the parent company and were set up as independent insurance
companies:.companies:.
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PRINCIPLES OF INSURANCE MANAGEMENTPRINCIPLES OF INSURANCE MANAGEMENT
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY(IRDA);INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY(IRDA);
The IRDA Act was passed in1999 to provide for the establishment ofThe IRDA Act was passed in1999 to provide for the establishment ofan Authority to protect the interests of policy holders , regulatean Authority to protect the interests of policy holders , regulate
promote and ensure orderly growth pf the Insurance Industry and topromote and ensure orderly growth pf the Insurance Industry and to
amend the Insurance Act 1938.the Life Insurance corporation Actamend the Insurance Act 1938.the Life Insurance corporation Act
1956 and the General Insurance Business Act 1972.1956 and the General Insurance Business Act 1972.
The members of IRDA are appointed by the central Govt .TheThe members of IRDA are appointed by the central Govt .Theauthority has numerous powers and functions which includeauthority has numerous powers and functions which include
1.1. prescribing regulations on the investment of funds by Insuranceprescribing regulations on the investment of funds by Insurance
companies,companies,
2.2. regulating maintenance of Margin of solvency,regulating maintenance of Margin of solvency,
3.3. adjudication of disputes between Insurer and intermediariesadjudication of disputes between Insurer and intermediaries4.4. supervising the functioning of the Tariff Advisory committe.supervising the functioning of the Tariff Advisory committe.
5.5. Specifying the percentage of premium incomeSpecifying the percentage of premium income
6.6. Specifying the percentage of Life Insurance and General InsuranceSpecifying the percentage of Life Insurance and General Insurance
business in the rural and social sector.business in the rural and social sector.
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PRINCIPLES OF INSURANCE MANAGEMENTPRINCIPLES OF INSURANCE MANAGEMENT
TARIFF ADVISORY COMMITTEE(TAC);TARIFF ADVISORY COMMITTEE(TAC);
TAC is a body corporate which controls and regulates rates ,terms andTAC is a body corporate which controls and regulates rates ,terms and
conditions offered by Insurers in the general insurance business. Everyconditions offered by Insurers in the general insurance business. Every
Insurer is required to make an annual payment of fees to the TAC oneInsurer is required to make an annual payment of fees to the TAC one
percent of the total gross premium underwritten by him directly in India.percent of the total gross premium underwritten by him directly in India.
REGISTRATION OF INSURANCE COMPANIES;REGISTRATION OF INSURANCE COMPANIES;
Every insurer seeking to carry out the business of insurance inEvery insurer seeking to carry out the business of insurance in
India is required to obtain a certificate of registration from theIndia is required to obtain a certificate of registration from the
IRDA prior to commencement of business. The preIRDA prior to commencement of business. The pre--conditions forconditions for
applying for such registration have been set out under t he Act ofapplying for such registration have been set out under t he Act of
1938, the IRD Act and the various regulations prescribed by t he Authority.1938, the IRD Act and the various regulations prescribed by t he Authority.
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PRINCIPLES OF INSURANCE MANAGEMENTPRINCIPLES OF INSURANCE MANAGEMENT
The following are some of the import ant general registration requirementsThe following are some of the import ant general registration requirementsthat an applicant would need to fulfil:that an applicant would need to fulfil:
(a)(a) The applicant would need to be a company registered under theThe applicant would need to be a company registered under theprovisions of the Indian Companies Act, 1956. Consequently, anyprovisions of the Indian Companies Act, 1956. Consequently, anyperson intending to carry on insurance business in India would need toperson intending to carry on insurance business in India would need toset up a separate entity in India.set up a separate entity in India.
(b) The aggregate equity participation of a foreign company (either by itself(b) The aggregate equity participation of a foreign company (either by itselfor through its subsidiary companies or its nominees) in the applicantor through its subsidiary companies or its nominees) in the applicantcompany cannot not exceed twenty six per cent of the paid up capital ofcompany cannot not exceed twenty six per cent of the paid up capital ofthe insurance company. However, the Insurance Act and the regulationsthe insurance company. However, the Insurance Act and the regulations
there under provide for t he manner of computation of such twentythere under provide for t he manner of computation of such twenty--sixsixper cent.per cent.
(c) The applicant can carry on any one of life insurance business, general(c) The applicant can carry on any one of life insurance business, generalinsurance business or reinsurance business. Separate companiesinsurance business or reinsurance business. Separate companieswould be needed if the intent were to conduct more thanwould be needed if the intent were to conduct more than
one business.one business.
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PRINCIPLES OF INSURANCE MANAGEMENTPRINCIPLES OF INSURANCE MANAGEMENT
(d) The name of the applicant needs to contain the words insurance(d) The name of the applicant needs to contain the words insurancecompany or assurance company.company or assurance company.
The applicant would need to meet with the following capital structureThe applicant would need to meet with the following capital structurerequirements:requirements:
(a)(a)A minimum paid up equity capital of rupees one billion in case of anA minimum paid up equity capital of rupees one billion in case of anapplicant which seeks to carry on the business of life insurance orapplicant which seeks to carry on the business of life insurance orgeneral insurance.general insurance.
(b) A minimum paid(b) A minimum paid--up equity capital of rupees two billion, in case of aup equity capital of rupees two billion, in case of aperson carrying on exclusively the business of reinsurance.person carrying on exclusively the business of reinsurance.
In determining the aforesaid capital requirement, the deposits to beIn determining the aforesaid capital requirement, the deposits to bemade and any preliminary expenses incurred in the formation andmade and any preliminary expenses incurred in the formation andregistration of the company would be included.registration of the company would be included.
A promoter of the company is not permitted to hold, at any time, moreA promoter of the company is not permitted to hold, at any time, morethan twentythan twenty--six per cent of the paidsix per cent of the paid--up capital in any Indian insuranceup capital in any Indian insurancecompany.company.
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PRINCIPLES OF INSURANCE MANAGEMENTPRINCIPLES OF INSURANCE MANAGEMENT
KINDS OF INSURANCE FROM RISK POINT OF VIEW;KINDS OF INSURANCE FROM RISK POINT OF VIEW;
PERSONAL INSURANCEPERSONAL INSURANCE;;
LIFELIFEPERSONAL ACCIDENTPERSONAL ACCIDENT
HEALTH INSURANCEHEALTH INSURANCE
PROPERTY INSURANCEPROPERTY INSURANCE;;
MARINE INSURANCE CARGO AND HULLMARINE INSURANCE CARGO AND HULLFIRE INSURANCEFIRE INSURANCE--SRCC,FLOODS,TERRORISM,EARTHQUAKESRCC,FLOODS,TERRORISM,EARTHQUAKE
AUTOMOBILE INSURANCEAUTOMOBILE INSURANCE
CATTLE INSURANCECATTLE INSURANCE
CROP INSURANCECROP INSURANCE
MACHINERY INSURANCEMACHINERY INSURANCE
BURGLARY INSURANCEBURGLARY INSURANCE--COMBINED HOUSEHOLDCOMBINED HOUSEHOLDPLATE GLASSPLATE GLASS
SHOP KEEPERSSHOP KEEPERS
CONTRACORS ALL RISKSCONTRACORS ALL RISKS
LOSS OF PROFITSLOSS OF PROFITS
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PRINCIPLES OF INSURANCE MANAGEMENTPRINCIPLES OF INSURANCE MANAGEMENT
LIABILTY INSURANCELIABILTY INSURANCE;;
THIRD PARTYTHIRD PARTY
EMPLOYEESEMPLOYEES
MOTOR INSURANCEMOTOR INSURANCE
REISNURANCEREISNURANCE
PROFESSIONAL INDEMNITYPROFESSIONAL INDEMNITY
FIDELITY INSURANCE;FIDELITY INSURANCE;
FIDUCIARYFIDUCIARY
CREDIT INSURANCECREDIT INSURANCE
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PRINCIPLES OF INSURANCE MANAGEMENTPRINCIPLES OF INSURANCE MANAGEMENT
PRINCIPLES OF A VALID CONTRACT;PRINCIPLES OF A VALID CONTRACT;Insurance contract involves (a) elements of general contractInsurance contract involves (a) elements of general contract
and (b) elements of special contracts relating toand (b) elements of special contracts relating to
Insurance.Insurance.
(a)(a) Elements of general contractElements of general contract;;Agreement (offer and acceptance).Agreement (offer and acceptance).
Legal consideration.Legal consideration.
Competent to make contractCompetent to make contract
Free consentFree consentLegal object.Legal object.
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PRINCIPLES OF INSURANCE MANAGEMENTPRINCIPLES OF INSURANCE MANAGEMENT
Elements of special contracts relating to InsuranceElements of special contracts relating to Insurance;;
1.1. INSURABLE INTERESTINSURABLE INTEREST--
For an insurance contract to be valid ,the insured must possess anFor an insurance contract to be valid ,the insured must possess an
insurable interest in the subject matter of Insurance. It is a essentially ainsurable interest in the subject matter of Insurance. It is a essentially a
pecuniary interest ,ie, the loss caused by the happening of the insuredpecuniary interest ,ie, the loss caused by the happening of the insured
risk must be capable of financial valuation. The subject matter is LIFErisk must be capable of financial valuation. The subject matter is LIFE
in the case of Life Insurance, property and goods in the case ofin the case of Life Insurance, property and goods in the case ofProperty Insurance.Property Insurance.
The existence of Insurable interest at the time of happening ofThe existence of Insurable interest at the time of happening of
the event is another important consideration. In case of Life andthe event is another important consideration. In case of Life andpersonal accident insurance it is sufficient if the insurable interest ispersonal accident insurance it is sufficient if the insurable interest is
present at the time of taking the policy. However in the case pf fire andpresent at the time of taking the policy. However in the case pf fire and
motor accident insurance ,the insurable interest has to be present bothmotor accident insurance ,the insurable interest has to be present both
at the time of taking the policy and at the time of accident.at the time of taking the policy and at the time of accident.
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2 .UTMOST GOOD FAITH(UBERRIMEA FIDEI);2 .UTMOST GOOD FAITH(UBERRIMEA FIDEI);
An insurance contract is a contract of UTMOST GOOD FAITH. ThisAn insurance contract is a contract of UTMOST GOOD FAITH. Thisis a fundamental difference between normal contracts and Insuranceis a fundamental difference between normal contracts and Insurance
contracts.contracts.
Both parties must disclose material facts known to them. It says thatBoth parties must disclose material facts known to them. It says that
both parties viz proposer (insured) and the insurer must be of theboth parties viz proposer (insured) and the insurer must be of the
same state of mind (have consensus ad idem) at the time of thesame state of mind (have consensus ad idem) at the time of thecontract because only then the risk may be correctly ascertained.contract because only then the risk may be correctly ascertained.
They must make full and true disclosure of the facts material to theThey must make full and true disclosure of the facts material to the
risk.risk.
In the absence of good faith the Insurance contract will be voidable atIn the absence of good faith the Insurance contract will be voidable at
the option of the person who suffered the loss due to non disclosure.the option of the person who suffered the loss due to non disclosure.
Facts which need not be disclosedFacts which need not be disclosed--certain facts need to be disclosedcertain facts need to be disclosed
and will not amount to breach of uhtmost good faith .eg, facts inand will not amount to breach of uhtmost good faith .eg, facts in
public knowledge, facts waived by the insurer, facts which bepublic knowledge, facts waived by the insurer, facts which be
reasonably known to the insurer etc.reasonably known to the insurer etc.
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3. PROXIMATE CAUSE;3. PROXIMATE CAUSE;
This doctrine is expressed in the maxim CAUSA PROXIMA NONThis doctrine is expressed in the maxim CAUSA PROXIMA NONREMOTA SPECTATOR which means that the proximate and notREMOTA SPECTATOR which means that the proximate and not
the remote cause ,shall be taken as taken as the cause of loss (peril).the remote cause ,shall be taken as taken as the cause of loss (peril).
The insurer thus has to make good the loss of the insured thatThe insurer thus has to make good the loss of the insured that
clearly and proximately results, whether directly or indirectly, from theclearly and proximately results, whether directly or indirectly, from the
event insured against the policy. The burden of proof that the lossevent insured against the policy. The burden of proof that the loss
occurred on account of the proximate cause ,lies on the insured.occurred on account of the proximate cause ,lies on the insured.
In Life Insurance this doctrine is not applied because the insurer isIn Life Insurance this doctrine is not applied because the insurer is
bound to pay the amount of insurance whatever may be the reason ofbound to pay the amount of insurance whatever may be the reason of
death, whether natural death or unnatural death, excepting in thedeath, whether natural death or unnatural death, excepting in the
following where proximate cause is observed;following where proximate cause is observed;
1.1. War or Aviation riskWar or Aviation risk
2.2. SuicideSuicide
3.3. Accident benefit.Accident benefit.
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4, WARRANTIES;4, WARRANTIES;
Warranties are an integral part of the contract. These are collateral toWarranties are an integral part of the contract. These are collateral tothe main purpose of the contract ,ie they are secondary to the mainthe main purpose of the contract ,ie they are secondary to the main
covenants of the contract and form a condition cited by the insurer.covenants of the contract and form a condition cited by the insurer.
Thus if a person buying medical insurance policy cites regularThus if a person buying medical insurance policy cites regular
medical check ups and avails a lower premium based upon it,then hemedical check ups and avails a lower premium based upon it,then he
has to do the medical check ups regularly.In case he discontinues hishas to do the medical check ups regularly.In case he discontinues his
check ups, then it amounts to breach of contract and the insurer cancheck ups, then it amounts to breach of contract and the insurer can
take refuge under this and deny payment of claim.take refuge under this and deny payment of claim.
ExampleExample--A jewellery trade buys burglary insurance for his stock inA jewellery trade buys burglary insurance for his stock in
trade upon the condition that the jewellery will be locked in Vault.trade upon the condition that the jewellery will be locked in Vault.
some of the jewellery was not kept in the vault when burglars broke insome of the jewellery was not kept in the vault when burglars broke in
and they were taken away. Therefore the insurer was not liable toand they were taken away. Therefore the insurer was not liable toclaim insurance.claim insurance.
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5. PRINCIPLE OF INDEMNITY5. PRINCIPLE OF INDEMNITY--
The literal meaning of the term INDEMNITY is making good the loss.The literal meaning of the term INDEMNITY is making good the loss.
On the happening of the insured event for which the insurance policyOn the happening of the insured event for which the insurance policy
is taken up, the insured should be replenished the amount of loss.is taken up, the insured should be replenished the amount of loss.
The principle of indemnity ensures that the insurer is liable to pay upThe principle of indemnity ensures that the insurer is liable to pay up
he amount of loss and NOT more than that. In other words it implieshe amount of loss and NOT more than that. In other words it impliesthat the insured should not derive any unwarranted benefit from lossthat the insured should not derive any unwarranted benefit from loss
or he should not make A PROFIT FROM A LOSS.or he should not make A PROFIT FROM A LOSS.
Normally this principle applies to property and liability insuranceNormally this principle applies to property and liability insurance
contracts and it promises that the insured be restored to the samecontracts and it promises that the insured be restored to the same
financial position that existed prior to the occurrence of loss.financial position that existed prior to the occurrence of loss.
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6.PRINCIPLE OF SUBROGATION;6.PRINCIPLE OF SUBROGATION;
Subrogation means that the restitution of the rights of an assured inSubrogation means that the restitution of the rights of an assured infavour of the insurer, against 3favour of the insurer, against 3rdrd party damages caused by him inparty damages caused by him in
place of the assured after the insurer has indemnified him for theplace of the assured after the insurer has indemnified him for the
loss.loss.
Eg,Mr X was on his way to office in his car when it was hit fromEg,Mr X was on his way to office in his car when it was hit from
behind by a lorry and the lorry driver was drunk. Here X can claimbehind by a lorry and the lorry driver was drunk. Here X can claimcompensation from the insurance company .The insurer in turn cancompensation from the insurance company .The insurer in turn can
sue the lorry owner for the damages. Here X has no right of actionsue the lorry owner for the damages. Here X has no right of action
against Y since he has already been paid compensation for the loss.against Y since he has already been paid compensation for the loss.
The principle of subrogation is a corollary of the principle of indemnityThe principle of subrogation is a corollary of the principle of indemnity
and is applicable where the damage has been caused due to theand is applicable where the damage has been caused due to the
negligence or highhandedness of another party.negligence or highhandedness of another party.
It applies only to General Insurance.It applies only to General Insurance.
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7.PRINCIPLE OF CONTRIBUTION7.PRINCIPLE OF CONTRIBUTION--
As per the doctrine of contribution the indemnity provided for the lossAs per the doctrine of contribution the indemnity provided for the lossoccurring on the asset which is insured with several insurers has tooccurring on the asset which is insured with several insurers has to
be proportionately shared among them according the rateablebe proportionately shared among them according the rateable
proportion of loss.proportion of loss.
The total amount of compensation should not exceed the amount ofThe total amount of compensation should not exceed the amount of
loss.loss.Applies only to General Insurance.Applies only to General Insurance.
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8.ASSIGNMENT AND NOMINATION8.ASSIGNMENT AND NOMINATION--
AssignmentAssignment--Assignment is a means whereby the beneficial interestAssignment is a means whereby the beneficial interestright, and title under a policy gets transferred from Assignor toright, and title under a policy gets transferred from Assignor to
Assignee. The Life policy ,once issued, can be assigned freely for aAssignee. The Life policy ,once issued, can be assigned freely for a
legal consideration or love and affection. It is complete and effectuallegal consideration or love and affection. It is complete and effectual
only on the execution of such endorsement either on the policy itselfonly on the execution of such endorsement either on the policy itself
or by a separate deed. The life policy are the only policies that can beor by a separate deed. The life policy are the only policies that can be
assigned whether the assignee has an insurable interest or not.assigned whether the assignee has an insurable interest or not.
Once the Assignment is complete it cannot be revoked.Once the Assignment is complete it cannot be revoked.
NominationNomination--The holder of a policy of Life Insurance on his own lifeThe holder of a policy of Life Insurance on his own life
may either at the time of affecting policy or at any subsequent timemay either at the time of affecting policy or at any subsequent time
before the policy matures ,nominate the person or persons shall bebefore the policy matures ,nominate the person or persons shall be
paid in the event of his death. A nomination can be cancelled beforepaid in the event of his death. A nomination can be cancelled beforematurity ,by giving proper and due notice to the insurance company.maturity ,by giving proper and due notice to the insurance company.
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LIFE INSURANCE POLICIES HAVE THE FOLLOWING ADDITIONAL FEATURES;LIFE INSURANCE POLICIES HAVE THE FOLLOWING ADDITIONAL FEATURES;
Indemnity contract is not appliedIndemnity contract is not applied--because the value of loss at death can bebecause the value of loss at death can beascertained .It is not possible to ascertain the time up to which the insuredascertained .It is not possible to ascertain the time up to which the insured
would have survived and it is also difficult to ascertain the amount of moneywould have survived and it is also difficult to ascertain the amount of money
to be earned by him during his lifeto be earned by him during his life--time. So the doctrine of subrogation istime. So the doctrine of subrogation is
also not applicable.also not applicable.
Unilateral contractUnilateral contract--because only the insurer makes an enforceable promise.because only the insurer makes an enforceable promise.The proposer has already performed his duty of payment of premiums andThe proposer has already performed his duty of payment of premiums and
once accepted the insurer has to perform his obligation unless there is aonce accepted the insurer has to perform his obligation unless there is a
fraud committed.fraud committed.
Conditional contractConditional contract--because the insurer shall pay the assured sum onlybecause the insurer shall pay the assured sum only
when the contract is continuing by payment of premium. In addition, thewhen the contract is continuing by payment of premium. In addition, theinsurers promise to pay the sum assured is also conditional upon theinsurers promise to pay the sum assured is also conditional upon the
furnishing of satisfactory proof of death and other conditions mentioned in thefurnishing of satisfactory proof of death and other conditions mentioned in the
policy.policy.
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PRINCIPLES OF INSURANCE MANAGEMENTPRINCIPLES OF INSURANCE MANAGEMENT
STRUCTURE OF A LIFE INSURANCE COMPANYSTRUCTURE OF A LIFE INSURANCE COMPANY--
As per EraAs per Era sezhiyan committee, LIC ha adopted reorganization of LIC atsezhiyan committee, LIC ha adopted reorganization of LIC atits various Divisions And Branches;its various Divisions And Branches;
Reorganized Divisions;Reorganized Divisions;
1.1. Marketing DeptMarketing Dept It controls the entire sales and service functions inIt controls the entire sales and service functions in
the DOthe DO
sales sectionsales section--responsible for carrying out supervisory functionsresponsible for carrying out supervisory functionsrelating sales and fieldrelating sales and field --force and customer satisfaction.force and customer satisfaction.
Policy holders service sectionPolicy holders service section--is responsible for supervising theis responsible for supervising the
policy holder servicing function including claims and operationpolicy holder servicing function including claims and operation
function of early settlement of claims. It handles matters referred tofunction of early settlement of claims. It handles matters referred to
by Branches in respect of all policy holders service functionsby Branches in respect of all policy holders service functionsincluding training etc.including training etc.
Sales Training sectionSales Training section--
Branch Support section.Branch Support section.--providing secretarial support to the variousproviding secretarial support to the various
sections in the marketing dept. This section is responsible forsections in the marketing dept. This section is responsible for
analysis of budgets proposals, and monthly reviews of data, branchanalysis of budgets proposals, and monthly reviews of data, branch
performance, routine and general followperformance, routine and general follow--up.up.
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2.2. New Business and Actuarial DepartmentNew Business and Actuarial Department--This department is responsible for the supervision of branch functionsThis department is responsible for the supervision of branch functions
from under writing to issue of policy ,appointment and control offrom under writing to issue of policy ,appointment and control of
medical examinersmedical examiners
They have the responsibility to train new business incumbents inThey have the responsibility to train new business incumbents in
branches according to their judgment of their capabilities and needs.branches according to their judgment of their capabilities and needs.Is responsible as specialists to decide on the proposal referred toIs responsible as specialists to decide on the proposal referred to
the DO in respect of various specialized proposals ,inspection tasksthe DO in respect of various specialized proposals ,inspection tasks
vis a vis branches.vis a vis branches.
It underwrites proposals of higher sums assured wehich are beyondIt underwrites proposals of higher sums assured wehich are beyond
the powers of the branches.the powers of the branches.Conducts actuarial valuation and research relating to that.Conducts actuarial valuation and research relating to that.
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3.3. ACCOUNTS DEPARTMENTACCOUNTS DEPARTMENT--Responsible for the finance andResponsible for the finance andaccounts of the entire DO.accounts of the entire DO.
4.4. LEGAL andMORTGAGEDEPARTMENTLEGAL andMORTGAGEDEPARTMENT--
5.5. OFFICEMANAGEMENT DIVISIONOFFICEMANAGEMENT DIVISION--Consisting of purchase section,Consisting of purchase section,
and services section.and services section.
6.6. MACHINEDEPARTEMNTMACHINEDEPARTEMNT--Data processing for all the branches.Data processing for all the branches.7.7. PERSONNEL DEPARTMENTPERSONNEL DEPARTMENT--Management development ,IndustrialManagement development ,Industrial
Relations and Training.Relations and Training.
8.8. PLANNING AND REVIEWDEPARTMENTPLANNING AND REVIEWDEPARTMENT--
In order to provide individual attention to the policy holders andIn order to provide individual attention to the policy holders and
monitor the quality of service all Life Insurance companies have anmonitor the quality of service all Life Insurance companies have aneffective CRM also.effective CRM also.
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LIFE INSURANCE INTERMEDIARIESLIFE INSURANCE INTERMEDIARIES
Insurance intermediaries are also known as agents, brokers.Insurance intermediaries are also known as agents, brokers. They connect the insurance company offering policies withThey connect the insurance company offering policies with
individuals, families and businesses in need of the products beingindividuals, families and businesses in need of the products being
offered. They can be affiliated with single insurance companies,offered. They can be affiliated with single insurance companies,
represent a brokerage firm for many companies or be independentrepresent a brokerage firm for many companies or be independent
contractors.contractors. The intermediary's job is to collect information about potentialThe intermediary's job is to collect information about potential
customers for review by an insurance company and to advise thecustomers for review by an insurance company and to advise the
customer as to what the company is willing to offer for the quotedcustomer as to what the company is willing to offer for the quoted
premiumpremium ..
By researching and comparing various insurance products available,By researching and comparing various insurance products available,the intermediary can find the best match for both the customerthe intermediary can find the best match for both the customer
(buyer) and the company (seller).(buyer) and the company (seller).
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IRDA has classified the Intermediaries as Follows;IRDA has classified the Intermediaries as Follows;
AGENTSAGENTS CORPORATEAGENTSCORPORATEAGENTS
BROKERSBROKERS
SURVEYORSSURVEYORS
TPA HEALTH SERVICESTPA HEALTH SERVICES..
1.1. AGENTSAGENTS--Agents are the core of Life Insurance distribution system inAgents are the core of Life Insurance distribution system in
India and are essential for soliciting business because of theIndia and are essential for soliciting business because of the
following reasons;following reasons;
(a) Clarification of an idea to the proposer.(a) Clarification of an idea to the proposer.
b)b) Assignment of needs of the potential insured.Assignment of needs of the potential insured.
c)c) Personalized guidance to the potential insured.Personalized guidance to the potential insured.
d)d) Assessment of risk for the insurer.Assessment of risk for the insurer.
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Agents in Life Insurance context means the person holding a valid licenseAgents in Life Insurance context means the person holding a valid license
from IRDA issued in accordance with the IRDA regulation.from IRDA issued in accordance with the IRDA regulation.
They should have a minimum qualification of 12They should have a minimum qualification of 12thth standard or equivalentstandard or equivalent
examination,, should complete 100 hours of practical training from anexamination,, should complete 100 hours of practical training from an
IRDA approved institution, shall have passes the preIRDA approved institution, shall have passes the pre--recruitmentrecruitment
examination in Life or General insurance or both conducted by theexamination in Life or General insurance or both conducted by the
Insurance Institute of India, and adhere to the code of conduct prescribedInsurance Institute of India, and adhere to the code of conduct prescribed
by IRDA.by IRDA.The agents can be remunerated either on rolls (salary basis) or onThe agents can be remunerated either on rolls (salary basis) or on
commission basis or may be combination of both .It varies from companycommission basis or may be combination of both .It varies from company
to company and also from policy to policy..to company and also from policy to policy..
Agents in India are required to bring business for a minimum stipulatedAgents in India are required to bring business for a minimum stipulated
premium and minimum COVERS to entitle them to commission payment.premium and minimum COVERS to entitle them to commission payment.The Agency can be terminated if the agent gets disqualified as per IRDAThe Agency can be terminated if the agent gets disqualified as per IRDA
rules or becomes incompetent under Indian Contract Act or fails to fulfillrules or becomes incompetent under Indian Contract Act or fails to fulfill
the minimum business requirements as per the Agency agreement orthe minimum business requirements as per the Agency agreement or
offers rebate of the whole or part of the commissionoffers rebate of the whole or part of the commission
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Who are Insurance Brokers?Who are Insurance Brokers?
An insurance broker would provide the following:An insurance broker would provide the following:Pre sales and after sales service to the customers.Pre sales and after sales service to the customers.
Provisions of relevant information to the underwriters toProvisions of relevant information to the underwriters to
assess the risk and decide the premium.assess the risk and decide the premium.
Design covers that meet the client requirements.Design covers that meet the client requirements.
Recommend risk improvement and loss minimisationRecommend risk improvement and loss minimisationmeasures.measures.
Provide risk management and insurance education. CollectionProvide risk management and insurance education. Collectionof premiumsof premiums
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TYPES OF POLICIES;
The 2 basic elements in a Life Insurance are
1. DEATH COVER
2. RISK COVER
Plan under which benefits are paid on the death of the insured
person are called as TERM ASSURANCE PLANS.
Plans under which the benefits paid on the survival of the insured
within a specified period are called as PURE ENDOWMENT PLANS.
All insurance covers are a mix of these basic elementary plans.
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TYPES OF POLICIES UNDER LIFE INSURANCETYPES OF POLICIES UNDER LIFE INSURANCE--
Classification based on TimeClassification based on Time--
1.1. Whole lifeWhole life--whole term, Limited term, convertiblewhole term, Limited term, convertible
2.2. Term PlansTerm Plans--Limited, convertible, RenewableLimited, convertible, Renewable
Classification based on Investment objectivesClassification based on Investment objectives--
1.1. Endowment PlansEndowment Plans--Pure, Joint, Double, Anticipated.Pure, Joint, Double, Anticipated.
2.2. Participating PlansParticipating Plans--Money back policies.Money back policies.
Classification based on Premium PaymentClassification based on Premium Payment--1.1. Single Premium Policies.Single Premium Policies.
2.2. Level premium Policies.Level premium Policies.
Classification based on claim payment.Classification based on claim payment.--
1.1. Fixed sum policies.Fixed sum policies.
2.2. Annuity policiesAnnuity policies
Classification based on number of persons assuredClassification based on number of persons assured--
1.1. Single lifeSingle life
2.2. Multiple lifeMultiple life
3.3. Last survivorshipLast survivorship
In addition there may be policies depending upon the riders attached to theIn addition there may be policies depending upon the riders attached to the
policies, viz children education policy, marriage policies etc.policies, viz children education policy, marriage policies etc.
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1)Whole life policies1)Whole life policies--
Extends to the whole life of the assured and settlement done to theExtends to the whole life of the assured and settlement done to thelegal heirs. LIC now a days settles payment for those who completelegal heirs. LIC now a days settles payment for those who complete
80 years. Even though premiums are low, this is not a popular policy.80 years. Even though premiums are low, this is not a popular policy.
Alternatively Limited payment plans are considered better. Here theAlternatively Limited payment plans are considered better. Here the
insured pays a little higher premium till a certain age and afterwardsinsured pays a little higher premium till a certain age and afterwards
the cover continues till death along with accrued bonuses.the cover continues till death along with accrued bonuses.
In a convertible plan under whole life policy, if the convertibility optionIn a convertible plan under whole life policy, if the convertibility option
is not exercised within the stipulated period, it automatically getsis not exercised within the stipulated period, it automatically gets
converted into a whole life policy.converted into a whole life policy.
Term Insurance policies are for a short period ranging from 3 monthsTerm Insurance policies are for a short period ranging from 3 months
to 7 years. Sum assured is payable in the event of death of theto 7 years. Sum assured is payable in the event of death of the
insured during the period.; but the assurance comes to an end shouldinsured during the period.; but the assurance comes to an end should
the life assured survive. They are cheapest policies. They are usefulthe life assured survive. They are cheapest policies. They are useful
to those who seek short term protection for a short duration, like ato those who seek short term protection for a short duration, like a
Bank which housing loan, Key man insurance policies, father taking aBank which housing loan, Key man insurance policies, father taking a
policy during the period of education of his children etc.policy during the period of education of his children etc.
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2)Endowment policies2)Endowment policies--
Unlike whole life, an Endowment policy is designated primarily toUnlike whole life, an Endowment policy is designated primarily toprovide a living benefit and only secondarily to provide life insurance.provide a living benefit and only secondarily to provide life insurance.It is more like an investment .It pays the face value of the policy eitherIt is more like an investment .It pays the face value of the policy eitherat a certain age or after a number of years of premium payment.at a certain age or after a number of years of premium payment.
It is a method of accumulating capital for a specific purpose andIt is a method of accumulating capital for a specific purpose andprotecting the savings program. Many investors use endowment lifeprotecting the savings program. Many investors use endowment life
insurance to fund anticipated financial needs such as collegeinsurance to fund anticipated financial needs such as collegeeducation or retirement.education or retirement.
Premium is higher compared to whole life policy.Premium is higher compared to whole life policy.
TYPES;TYPES;
1.1. Pure EndowmentPure Endowment--where the sum assured is payable to policyholderswhere the sum assured is payable to policyholderseither on survival or death within the endowment period.either on survival or death within the endowment period.
2.2. Joint EndowmentJoint Endowment--where the policy covers two lives jointly in onewhere the policy covers two lives jointly in onepolicy.policy.
3.3. Marriage EndowmentMarriage Endowment--where the policy is designed to meet thewhere the policy is designed to meet themarriage financing needs of daughter. similarly we have covers likemarriage financing needs of daughter. similarly we have covers likeeducation, double cover, triple cover, anticipated endowment etc.education, double cover, triple cover, anticipated endowment etc.
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3.PARTICIPATING POLICIES3.PARTICIPATING POLICIES--
Participating policies may be (a) without profit policies or non participatingParticipating policies may be (a) without profit policies or non participatingpolicies .(b) with profit policies or participating policies.policies .(b) with profit policies or participating policies.
(a)(a) The holders of non participating policies are not entitled to share theThe holders of non participating policies are not entitled to share the
profits of the insurer. They get the sum assured and no bonus also.profits of the insurer. They get the sum assured and no bonus also.
(b)(b) The holders of the participating policies are entitled to share the profitThe holders of the participating policies are entitled to share the profit
of the insurer. They share only the profit and not the loss andof the insurer. They share only the profit and not the loss andtherefore cannot be treated as co owners. If there is loss ,the policytherefore cannot be treated as co owners. If there is loss ,the policy
holders cannot get bonus. They are entitled to participate only whenholders cannot get bonus. They are entitled to participate only when
there is profit. There is no guarantee that there will be profit sharingthere is profit. There is no guarantee that there will be profit sharing
every year. Obviously the premium is higher in the case ofevery year. Obviously the premium is higher in the case of
Participating policies.Participating policies.
(c)(c) LIC issues both types of policies. The amount of insurance whileLIC issues both types of policies. The amount of insurance while
settlement is made is not certain in participating policies due tosettlement is made is not certain in participating policies due to
accrual of bonus, the rate of which is not constant.accrual of bonus, the rate of which is not constant.
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4.SINGLE PREMIUM POLICIES;4.SINGLE PREMIUM POLICIES;
In this policy the whole premium is paid at the beginning of the policy.In this policy the whole premium is paid at the beginning of the policy.As compared to the annual premium policy it is costlier, but asAs compared to the annual premium policy it is costlier, but as
compared to aggregate of all annual premiums payable, it is muchcompared to aggregate of all annual premiums payable, it is much
smaller because all the premiums are received in advance and thesmaller because all the premiums are received in advance and the
Insurance company gets an advantage.Insurance company gets an advantage.
It is useful for Tax savings and investments as any windfall incomeIt is useful for Tax savings and investments as any windfall income
can be used to pay such premium.can be used to pay such premium.
5.LEVELPREMIUM POLICY;5.LEVELPREMIUM POLICY;
Under this policy regular and equal premiums are paid at a definiteUnder this policy regular and equal premiums are paid at a definite
interval. It can be paid on a monthly, quarterly half yearly or yearly.interval. It can be paid on a monthly, quarterly half yearly or yearly. It suits the requirements of different types of policy holders .SalariedIt suits the requirements of different types of policy holders .Salaried
classes use this form.classes use this form.
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6.POLICIES ACCORDING TO THE NUMBER OF PERSONS INSURED;6.POLICIES ACCORDING TO THE NUMBER OF PERSONS INSURED;
Single life Policies; Under single life policies, only one individual is insured. It is not
necessary that the policy should be issued in ones own life; it may be
on others life.
Multiple Life policies; In this policy more than one life is insured.It may be ajoint life policy
orLast survivorship policy.
Joint Life policycovers 2 or more lives and the policy amount is
payable on the first death. This is beneficial to the partners of a firm
and to a couple. Last survivorship policies;The policy amount is payable at the last
death. So long as one of the insured is alive no payment is made.
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MANAGEMENTMANAGEMENT--unit 1unit 17.PENSION POLICIES;7.PENSION POLICIES;
Pension policies provide benefits to the insured only upon retirement.Pension policies provide benefits to the insured only upon retirement.If the insured dies during the terms of the policy ,his nominee wouldIf the insured dies during the terms of the policy ,his nominee wouldreceive the benefits either as a lump sum or as a pension everyreceive the benefits either as a lump sum or as a pension everymonth.month.
The premiums are paid over a specified period of time .The premiums are paid over a specified period of time .
In general most of the pension plans pay 25% of the cash value ofIn general most of the pension plans pay 25% of the cash value of
the policy as an immediate income and the remaining value is vestedthe policy as an immediate income and the remaining value is vestedin an investment fund that pays out sums at stipulated intervals.in an investment fund that pays out sums at stipulated intervals.
8 .ANNUITY POLICIES;8 .ANNUITY POLICIES;
Annuity is a contract that provides an income for a specified period ofAnnuity is a contract that provides an income for a specified period oftime.time.
Annuity schemes are those wherein policyholders regularAnnuity schemes are those wherein policyholders regularcontributions over a period of time (or a one time contribution)contributions over a period of time (or a one time contribution)accumulate to form a corpus with the insurer. The corpus is used toaccumulate to form a corpus with the insurer. The corpus is used toyield a regular income that is paid to policy holders until deathyield a regular income that is paid to policy holders until deathstarting from the desired retirement age. The recipient isstarting from the desired retirement age. The recipient is called ancalled anAnnuitant. Immediate Annuity, Deferred Annuity are classifications.Annuitant. Immediate Annuity, Deferred Annuity are classifications.
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