saravana project.doc

7/27/2019 saravana project.doc

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1.1. INDUSTRY PROFILE

DEFINITION OF INSURANCE

Promise of reimbursement in case of loss; paid to people or companies who are

concerned about hazards and for that they make prepayments to an insurance company

Policy: This may be as written contract or certificate of insurance. Indemnity: Protection

against future loss

ORIGIN OF INSURANCE

The idea of insurance was born out of a desire of the people that many should

share the losses suffered by an individual. Originally it was restricted to forms other than

life assurance. It started with marine insurance, where the losses on account of perils of

the sea like piracy, sinking or damage to cargo were shared by all who were engaged in

sea trade.

As regards life insurance, in early days mutual societies were formed to render

service to the member in the event of sickness, unemployment and premature death.

Decent funeral was considered as the immediate financial need. Gradually, the financial

loss following death of the breadwinner was extended to include the future earning

power.

In India, the word yogakshema is used in Rig Veda suggesting that some form

of community insurance was practiced by the Aryans over 3000 years ago. DuringBuddhist period, burial societies existed which were mutual in their character and used to

help a family by building house, protecting the widow and marrying the girls. Reference

to some forms of insurance is also found in the codes of Hammurabi, manu (Manav

Dharam Shastra).

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The first policy providing life assurance cover for a period of 12 months was

issued as 1583 A.D. in England. The Amicable society started granting fluctuating sum

on death since 1705 and a fixed sum since 1757. With the development of mortality table,

life assurance acquired a scientific character. The Equitable society founded in 1762 was

the first to be established on scientific basis. In India, Bombay Mutual Assurance society

Ltd. was the first insurance company to be formed in 1870. Oriental Life Assurance

Company Limited followed it in 1874.

INSURANCE HISTORY

The roots of insurance might be traced to Babylonia, where traders were

encouraged to assume the risks of the caravan trade through loans that were repaid (withinterest) only after the goods had arrived safely: a practice resembling bottomry and

given legal force in the Code of Hammurabi (c.2100 B.C.).

The Phoenicians and the Greeks applied a similar system to their seaborne

commerce. The Romans used burial clubs as a form of life insurance, providing funeral

expenses for members and later payments to the survivors.

With the growth of towns and trade in Europe, the medieval guilds undertook to

protect their members from loss by fire and shipwreck, to ransom them from captivity by

pirates, and to provide decent burial and support in sickness and poverty. By the middle

of the 14th cent., as evidenced by the earliest known insurance contract (Genoa, 1347),

marine insurance was practically universal among the maritime nations of Europe.

In London, Lloyd's Coffee House (1688) was a place where merchants, ship

owners, and underwriters met to transact business. By the end of the 18th cent. Lloyd's

had progressed into one of the first modern insurance companies. In 1693 the astronomer

Edmond Halley constructed the first mortality table, based on the statistical laws of

mortality and compound interest. The table, corrected (1756) by Joseph Dodson, made it

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possible to scale the premium rate to age; previously the rate had been the same for all

ages.

Insurance developed rapidly with the growth of British commerce in the 17th and

18th cent. Prior to the formation of corporations devoted solely to the business of writing

insurance, policies were signed by a number of individuals, each of whom wrote his

name and the amount of risk he was assuming underneath the insurance proposal, hence

the term underwriter.

The first stock companies to engage in insurance were chartered in England in

1720, and in 1735, the first insurance company in the American colonies was founded at

Charleston, S.C. Fire insurance corporations were formed in New York City (1787) and

in Philadelphia (1794). The Presbyterian Synod of Philadelphia sponsored (1759) the first

life insurance corporation in America, for the benefit of Presbyterian ministers and their

dependents.

After 1840, with the decline of religious prejudice against the practice, life

insurance entered a boom period. In the 1830s the practice of classifying risks was begun.

The New York fire of 1835 called attention to the need for adequate reserves to meet

unexpectedly large losses; Massachusetts was the first state to require companies by law

(1837) to maintain such reserves.

The great Chicago fire (1871) emphasized the costly nature of fires in structurally

dense modern cities. Reinsurance, whereby losses are distributed among many

companies, was devised to meet such situations and is now common in other lines of

insurance. The Workmen's Compensation Act of 1897 in Britain required employers to

insure their employees against industrial accidents. Public liability insurance, fostered by

legislation, made its appearance in the 1880s; it attained major importance with the

advent of the automobile.

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In the 19th cent. Many friendly or benefit societies were founded to insure the life

and health of their members, and many fraternal orders were created to provide low-cost,

members-only insurance. Fraternal orders continue to provide insurance coverage, as do

most labor organizations. Many employers sponsor group insurance policies for their

employees; such policies generally include not only life insurance, but sickness and

accident benefits and old-age pensions, and the employees usually contribute a certain

percentage of the premium.

Since the late 19th cent. There has been a growing tendency for the state to enter

the field of insurance, especially with respect to safeguarding workers against sickness

and disability, either temporary or permanent, destitute old age, and unemployment. The

U.S. government has also experimented with various types of crop insurance, a landmark

in this field being the Federal Crop Insurance Act of 1938. In World War II the

government provided life insurance for members of the armed forces; since then it has

provided other forms of insurance such as pensions for veterans and for government

employees.

After 1944 the supervision and regulation of insurance companies, previously an

exclusive responsibility of the states, became subject to regulation by Congress under the

interstate commerce clause of the U.S. Constitution. Until the 1950s, most insurance

companies in the United States were restricted to providing only one type of insurance,

but then legislation was passed to permit fire and casualty companies to underwrite

several classes of insurance. Many firms have since expanded, many mergers have

occurred, and multiple-line companies now dominate the field. In 1999, Congress

repealed banking laws that had prohibited commercial banks from being in the insurance

business; this measure was expected to result in expansion by major banks into the

insurance arena.

In recent years insurance premiums (particularly for liability policies) have

increased rapidly, leaving unprecedented numbers of Americans uninsured. Many blame

the insurance conglomerates, contending that U.S. citizens are paying for bad risks made

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by the companies. Insurance companies place the burden of guilt on law firms and their

clients, who they say have brought unreasonably large civil suits to court, a trend that has

become so common in the United States that legislation has been proposed to limit

lawsuit awards. Catastrophic earthquakes, hurricanes, and wildfires in late 1980s and the

90s have also strained many insurance company's reserves.

How to really buy insurance

When faced with prospects of figuring out how much insurance to buy ,most

people pluck a figure out of the air -something that just seems adequate .this is obviously

not the way to make this important decision . The only reasonable way of making this

decision is to unemotionally create a financial plan that your family should follow if you

die suddenly.

Families also have to consider the impact of the both parents passing away in the

accident .The impact of such a tragedy could be greater then just a sum of the two deaths

occurring separately heads to consider.

LOAN AND DEBTS

As far as possible, take debtors insurance so that your debts can be paid off

straight away, if you have you have a housing loan, the lender has probably made sure

that you already have such insurance for a loan. Other loans need to be considered, while

you can add these to your main term insurance, taking a policy where the insurance

company will directly pay off lenders has the advantage that your survivors will not be

temped to carry the loans.

Do not waste money in insuring unsecured personal debt like credit card debt .The

card issuer cannot make your family pay so theres no need to cover that, unlike say,

vehicle loans where u wouldnt want the family car repossessed by the lender.

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FUTURE EXPENSES

The hardest part of living for the future expenses is estimating and allowing for

the inflation. Take a reasonable (at least 7 percent) inflation rate in account.

EDUCATION

Insurance companies are making some attempts at designing policies that will

ensure that your childrens education is paid for. What you ideally need is a policy that is

conceptually term insurance, that is, which does not have any payout if your children get

educate during your life time.

LIVING EXPENSES

Estimate what living expenses are going to be end estimate the investment needed

to yield that much return. Your term insurance should be for this account. Make a

realistic financial plan and not an idealized one. Perhaps your spouse will need to start

working if she doesnt do so now. Take into account the investment needed if she would

start a small business.

This kind of unemotional, careful and realistic thinking is really the heart of

making a sudden-death financial plan. Dont shy away from it . The fact is that Indians

have a deep-set cultural antipathy against planning for their deaths. A minuscule number

of Indians make a will. Even the countrys most successful and richest entrepreneur, who

organized every thing else about his business so carefully (and whose death was not

sudden), died without making a will and left his two sons to fight public battles for the

inheritance.

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INSURANCE COMPANY

Over a ten-year policy, 7 percent of your money is given away to the agent. Given

what safe investment earns these days, commission alone received by the agents are a

scandal. The commissions are enormous, generally around 25 per cent of first year

premia and 5 per cent a year subsequently. For a financial product that is supposed to be

an investment, this is shocking level. At the end of the day, these commission are

probably the strongest against investing with an ensure that this investment is an

incredibly bad deal.Sure insurance is necessary but at these commission levels .it is a

necessary evil.

The only way to go about insuring oneself is to calculate how much cover you

need and then find a good, low cost, term insurance that covers you for that amount.

Investment and insurance just dont mix

NEED FOR INSURANCE

When we consider some form of general insurance contract like fire insurance

contract need for insurance protection becomes obvious, the insurable interest is easily

identified, and extent of loss can easily be determined by a fair degree of accuracy. In

general insurance, the principle of indemnity is applied to compensate for the financial

loss suffered by the insured.

But financial loss following loss of human life is not very easy to define. In life

insurance, the concept of indemnity is applied with some modifications. The concept of

Human Life Value (HLV) helps us in determining the sum for which a person needs life

insurance. We will study this concept in the later part of this chapter.

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SHARING PF RISK

Life is full of risks. For property, there are fire risks; for shipment of goods, there

are perils of seas; for human life, there are risks of death or disability; so on and so forth.

The risks are uncertain. They may or may not occur. People facing common risks come

together and make their small contributions to the common fund.

While it may not be possible to tell beforehand, which person will suffer, it is

possible to tell how many persons on an average out of the group, may suffer losses.

When risk occurs, the loss is made good out of the common fund. In this way, the risk id

shared by all.

The following example explains the above concept of insurance.

EXAMPLE

In a village, there are 400 houses, each valued at Rs20, 000/-. Every year four houses get

burnt, resulting into a total loss of Rs. 80,000/-. If all the 400 owners come together and

contribute Rs. 200/- each, the common fund would be Rs. 80,000/-. This is enough to pay

Rs.20, 000/- to each of the 4 owners whose houses got burnt. Thus the risk of 4owners is

spread over 400 house-owners of the village.

ADVANTAGES OF LIFE INSURANCE

It is superior to ordinary saving plan. The risk of death is covered under insurance

scheme but not under ordinary saving plans. In case of death, insurer pays full sum

assured, which would be several times larger than the total of the premiums paid. Under

ordinary saving plans, only accumulated amount is payable.

Insurance encourages compulsory saving and forces thrift. After taking insurance,

if the premium is not paid, the policy lapses. Therefore, the insured is forced to go on

paying premium.

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Easy settlement and protection against creditors. Once nomination or assignment

is made, a claim under life insurance can be settled in a simple way. Under M.W.P. Act,

the policy moneys become a kind of trust that cannot be taken away, even by the

creditors.

It helps to achieve the purpose of the Life Assured. If a lump sum amount is

received in the hands of anybody, it is quite likely that the amount might be spent in

speculative way. To overcome this risk, the life assured can provide that the claim

amount be given in installments.

Ready marketability and suitability for quick borrowing. If a policyholder is not

in a position to pay the premium, he can surrender the policy for a cash sum. He can also

take loan for a short period to tide over the difficulty. Sometimes, a life insurance policy

is acceptable as security for a commercial loan.

Tax relief. By paying the insurance premium, the life assured obtains significant

relies in income tax and wealth tax.

CLASSFICATION OF INSURANCE NEEDS

The nature of needs for life assurance would vary to a great extent according to

the circumstances of the person insuring his life. Classification of persons according to

their circumstances:

Young single : saving.

Young married : basic need will be protection.

If with children, education of children also Need will also vary according to the type of

income derived wage earner, salaried person, employer. Attitude towards life assurance

is determined by a persons character, level of intelligence and outlook.

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Old single : Pension for life.

Old married : Joint life pension for the annuitant and spouse for life.

Careful study of prospect is essential to identify his life assurance needs.

COMMON NEEDS THAT CAN BE PROVIDED BY THE APPLICARION OF

LIFE ASSURANCE

1. Cash Needs

Death may be by accident or after prolonged illness. In case of prolonged illness,

medical / grocers bills will have to be paid. Liquid cash is required to meet such

liabilities. (Clean up fund).

2. Family Income Needs

Incase of death of the bread-winner, a sudden and drastic cut in the standard of

living of the family would have devastating effect on the morale of the family. It will be

difficult for the young widow with children to work to replace loss of income, in which

case children would loose both the parents.

There would be a period of readjustment during which the family settles down to

a lower standard of living.

Family income policy under which readjustment income is provided, could meet

the needs of the situation.

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3. Income needs of a widow on the death of her husband.

Readjustment income.

Continuous income on a reduced scale

To supplement income she is earning.

To partly replace income that is lost.

In case she remarries, this need will cease completely.

Capital death benefit should be utilized to provide for immediate cash needs and

lifetime income for the widow.

4. Income needs of a husband on the death of his wife.

EARNED INCOME LOST

Earned income saved by wife who undertakes household duties.

Housekeeper to look after the house and children.

Additional expenses during readjustment period.

Incase of working ladies, there is loss of income, which has to provide for.

5. Retirement income needs.

In advanced countries, there is

Old age pension under social security scheme;

Pension scheme set up by the employer to supplement old age pension under

social security scheme.

Individual endowment plan with annuity option or retirement annuity policy.

Need for regular income in old age is very much present and it will be

increasingly recognized on account of improvement in longevity.

Joint family system has disintegrated.

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All the above-mentioned schemes for old age security are not there.

Liquid cash received at the time of retirement in respect of Gratuity, PF etc. often

gets consumed by unwise investment or conspicuous investment. Immediate annuity,

deferred annuity, immediate annuity certain, deferred annuity certain, immediate annuity

with return of purchase price, deferred annuity with return of notional cash option and

`Jeevan Suraksha` policy of LICI provide solution to various retirement income needs.

6. Educational Needs.

These days education is very costly and higher education requires lot of money. It

may not be possible for widow to finance cost of higher education after the death of the

bread-winner. Education Annuity and Marriage Endowment policy is suitable for such s

situation.

7. Business Needs

Circumstances under which a businessman may find it necessary to go for life

insurance cover for one or more of the following purposes:

To protect and of his own one-man concern.

To preserve continuity in a partnership in the event of death of a partner.

To safeguard against loss this would result from the death of key employees.

To provide life assurance benefits during service and pension after service for

employees and their dependents.

To provide annuity to highly placed executives under deferred compensation plan.

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IN INDIA

Insurance in India can be traced back to the Vedas. For instance, yogakshema, the

name of Life Insurance Corporation of Indias corporate headquarters, is derived from the

Rig Veda. The term suggests that a form of community insurance was prevalent around

1000 BC the Aryans.

Burial societies of the kind found in ancient Rome were formed in the Buddhist

period to help families build houses, protect widows and children.

Bombay Mutual Assurance Society, the first Indian life assurance society, was formed in

1870. Other companies like Oriental, Bharat and Empire of India were also set up in the

1870-90s.

It was during the swadeshi movement in the early 20 th century that insurance

witnessed a big boom in India with several more companies being set up.

As these companies grew, the government began to exercise control on them. The

Insurance Act was passed in 1912, followed by a detailed and amended insurance Act of

1938 that looked into investments, expenditure and management of these companies

funds.

By the mid-1950s, there were around 170 insurance companies and 80 provident

fund societies in the countrys life insurance scene. However, in the absence of regulatory

systems, scams and irregularities were almost a way of life at most of these companies.

As a result, the government decided nationalize the life assurance business in

India. The Life Insurance Corporation of India was set up in 1956 to take over around

250 life companies.

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For years, insurance remained a monopoly if the public sector. It was only after

seven years of deliberation and debate after the RN Malhotra Committee report of 1994

became the first serious document calling for the re- opening up of the insurance sector to

private players that the sector was finally opened up to private players in 2001.

The Insurance Regulatory & Development Authority, and autonomous insurance

regulator set up in 2000, has extensive powers to oversee the insurance business and

regulate in a manner that will safeguard the interest of the insured.

MARKET SHARE OF INSURANCE INDUSTRY

NAME OF THE PLAYER MARKET SHARE ( IN % )

LIC 82.3

ICICI PRUDENTIAL 5.63

BIRLA SUNLIFE 2.56

BAJAJ ALLIANZ 2.03

SBI LIFE 1.80

HDFC STANDARD 1.36

TATA AIG 1.29

MAX NEWYORK 0.90

AVIVA 0.79

OM KOTAK MAHINDRA 0.51

ING VYSYA 0.37

AMP SANMAR 0.26

MET LIFE 0.21

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Variety is the spice of life, unless youre in the insurance business. Traditionally,

the most successful insurance firs generally take on the least risk. However, factors such

as deregulation, globalization, the Internet, and the events of September 11 are shaking

up the industry.

The life insurance industry (about 60% f worldwide premiums) has changed the

most profoundly in the products it sells. Over the last quarter of a century, life insures

such as A XA, ING Group, Nippon Life, and Assicurazioni Generali, have seen their

business sift from life insurance coverage to annuity products. This fundamentally

changes the way life insurance firms do business, as they concentrate on managing

investment risk, rather than the mortality risk of an individual. As a result, insurance

firms now compete more directly with financial services firms.

The Gramm-Lleach-Biley Act in the US and Big Bang financial deregulation in

Japan opened the door for banks and insurance firms to combine their businesses. In

Europe, global financial service titans already exist, notably Ge5rman insurance company

Allianz (with stakes in deutshe Bank, HVB Griup, and Dresdner Bank), and Swiss bank

Credit Suisse (parent of insurance firm Winterhur). Foreign firms seeking inroads to the

US and Japan finds them freed from regulatory shackles, tll.

As regulatory barriers fall, consolidation among insurance groups, particularly

non-life insurers, is on the rise. The top 10-property/casualty companies (including State

Farm, Aviva, American International Group, and Zurich Financial Services) already

account for almost half of all premiums written. A dwindling number of local firms are

left to fight for the remaining scraps of market share.

The Internet has changed the way insurers are doing business. Companies are

continuing to offer more products via the virtual highway, thus increasing the competitive

marketplace. With the insurance markets in the US and Japan becoming saturated, growth

in other markets (Particularly South America) is imperative for a companys success, as

well.

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The attacks on the world trade center have changed the face of the insurance

industry; issues such as asbestos claims and liability suits have taken a backseat to the

mad scramble of how to cover terrorism. As a result of September 11, and to a lesser

degree the Enron scandal, premiums are rising and underwriting standards are tightening.

A slew of new ventures have started up (primarily in Bermuda), as insurers see the

possibility of lucrative business.

In 2004 the insurance industry came under scrutiny when New York Attorney

general Eliot Spitzer sued marsh & McLennan, the worlds largest insurance brokerage,

for price fixing and for accepting kickbacks. As a result, Jeffrey Greenberg was forced to

resign as CEO of Marsh & McLennan, along with five other executives who admitted to

rigging bids. The probes continue as Spitzer and other officials look to clean up the

industry.

KEYMAN INSURANCE

With the IRDA stipulating in end April that key man policy should be sold only

with a life cover element and without maturity benefits, premium collections from such

plans are likely to slacken.

Signs of an incipient slowdown are evident from the numbers for the first two

months of this fiscal, with group premiums down 23 percent on a single-premium

adjusted basis. Though premium collections may dip, this may not have a detrimental

impact on companies as such group plans score low on the profitability front.

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LIFE INSURANCE AT THE CROSSROADS CHALLENGES AND

OPPORTUNITIES

Life insurance, in its pristine form, evolved out of a sense of co-operation within

the community that was present even at the dawn of history. The Sanskrit term

yogakshema, which means "well-being, is present in the Rig Veda and it is used in the

context of some form of insurance in vogue during the Aryan times. There are references

in Kautilyas Arthashastra to some kind of social security system for the welfare of the

subjects. Later on, the Indian joint family system too fulfilled the need for security.

In the Western world, life insurance evolved mainly from the maritime industry.

Shakespeare speaks of putters out of five in some of his plays an oblique reference to

private financiers who used to gamble on the lives of sea-farers by offering five times the

money deposited with them in case of certain contingencies.

In its present form, life insurance had its origin in England and made its debut in

India in the year 1818. Initially, Indians were not considered on par with Europeans as far

as their insurability was concerned.

There were also many other failures. It was in the early part of the 20th century

that some kind of legislation was made to regulate the industry. From then on, life

insurance made great strides in the country.

At the time of Independence and thereafter, there were more than 200 companies

operating in India and not all of them on sound ethical principles. Many factors combined

together to prompt the then Government to nationalize the life insurance industry in 1956

to form the Life Insurance Corporation of India

The years from 1956 to 1999 saw the Life Insurance Corporation of India emerge

as a giant financial institution and the lone organization purveying life insurance, if we

ignore the minimal presence of postal life insurance.

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The institution succeeded in penetrating many areas and segments of the

population and in garnering public money for public welfare.

Winds of Change

It was in the 1990s that the winds of change started sweeping over India and

brought in their wake many changes in the economy. Liberalization ensured competition

in many fields and there was a clamour that the insurance industry too be opened up to

private Indian and foreign players to provide the customer with a choice.

The Malhotra Committee, appointed in 1993 was given the mandate to study the

industry and to suggest the changes that were necessary to make it modern and in tune

with peoples aspirations. The report submitted by the committee was the precursor of the

IRDA bill, which was recently passed by the Parliament.

Life insurance industry is poised for a big growth as many Indian and foreign

companies are waiting in the wings for the green signal to start their operations. The

Indian consumer will be presented with a bewildering array of products, different in

price, features, benefits and procedures.

How he is going to make his choice will determine the future of the industry.

With the market thrown open, the industry is at the crossroads again with reference to the

course of its future direction and the opportunities and the challenges it faces for itself,

the regulator, and the society as a whole.

Challenges

The biggest challenge faced by the Government today is that of a regulator with

the prospect of about 30 or 40 players, each represented by thousands of agents, brokers

and intermediaries. To evolve a free and fair method of assessing the companies, to

ensure fair play between the competitors and to safeguard the interests of the largely

uninformed customers are the main tasks ahead.

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The other and equally serious aspect is to ensure that the vast amounts collected

by the insurance and pension funds are utilized for the welfare of the people. Though the

Government itself would not be the guarantor of the policy monies, nevertheless, it is

accountable through its regulatory mechanism, to put in place prudential norms of

investment and accounting, revenue recognition, fair valuation of assets and liabilities,

determining necessary margins towards any contingencies and proper reserves for

shrinkage of investments will have to be made. Nevertheless, care has to be taken to see

that there is not too much of control and regulation.

A certain degree of autonomy in the functioning of insurance companies has to be

allowed so that they get necessary freedom and space to perform and excel. The IRDA,

along with the advisory committee constituted recently, is eminently qualified toundertake these tasks.

In addition, a proposal has also been mooted to constitute a federation of

insurance companies analogous to the Indian Banks Association. Such an institution will

provide guiding principles, lay down a code of insurance ethics and generally act as a

facilitator for both the life and non-life industry.

As for the existing player, the public sector giant, the Life Insurance Corporationof India, the challenge is one of sustaining the huge growths it has shown in the recent

times. It has to face competition for the first time in its history, particularly in the urban

centres.

It has to manage its huge operations more efficiently than at any other time in the

past. It has to think of equipping its personnel (staff and agents) to face competitors and it

may have to think of diversifying its activities to achieve economies in some areas.

As far as the prospective entrants are concerned, the greatest challenge is to

establish their presence in the minds of the public. Insurance, particularly life insurance,

it is said, is never bought but sold. To convince a large population, which is

comparatively not well informed about the intangible benefits of life insurance is indeed

an onerous task.

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On top of that, to establish the brand equity of a new name in a new field is quite

a challenge. The second most important challenge facing a new entrant is that of setting

up infrastructure and to reach out to as many areas as possible, since life insurance is

based on probability and the wider the spread, the greater are the chances of success in

maintaining the expense ratios at a reasonable level.

Modern life perhaps offers challenges that will be common to all the above.

Improvements in health and longevity, the recent breakthroughs in the mapping of the

human genome and the frequent changes in the economy may have far-reaching effects

on life and health insurance. Devising products that match the changing needs of the

people and managing the funds in a volatile scenario are two problems that will have to

be tackled by every player in the days to come.

Opportunities

Recent experience has shown that wherever an industry has been thrown open to

competition, the size of the market has grown and the existing players have retained

nearly 80% of the market share. The size of the insurable population in India is indeed

vast and the existing player has managed to cover about one-fourth of it. The

opportunities before the players are therefore aplenty in terms of target audience.

The falling interest rates, the collapse of many small-time financial institutions,

the scope for entering related areas like banking and pensions in a bid for synergy and

the promise of e-commerce are some of the other opportunities knocking at the doors of

the insurance majors.

There is a probability of a spurt in employment opportunities. A number of web-

sites are coming up on insurance, a few financial magazines exclusively devoted to

insurance and also a few training institutes being set up hurriedly. Many of the

universities and management institutes have already started or are contemplating new

courses in insurance.

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It also augurs well for greater development of professionalism of the trade and

expansion of opportunities for everyone concerned. The pension market, which perhaps

has not been very vibrant in the country, is also likely to witness a sea change with huge

expansion in terms of premium and number of policies. Health insurance, which is still

in its infancy, is also likely to get a major boost, ultimately leading to improvement in

the quality of medical treatment and facilities in the country.

The opening of the insurance sector will throw open a huge array of opportunities,

many of which will be in unrelated fields and may give a bigger push to the

development of the national economy as a whole.

Life insurance has today become a mainstay of any market economy since it

offers plenty of scope for garnering large sums of money for long periods of time. A

well-regulated life insurance industry which moves with the times by offering its

customers tailor-made products to satisfy their financial needs is, therefore, essential if

we desire to progress towards a worry-free future.

The journey of life is full of wonderful dreams. To make them come true, your

need for protection, investment, and financial liquidity keeps changing at different

stages of life. The birth of a child will require you to increase your insurance cover; amarriage in the family will require additional money.

Similarly on a promotion you may want to increase your investments, to create a

large kitty for future expenses. Usually you would require multiple financial products to

meet all your needs and would have to actively manage them. However with the Life

Maker Unit Linked Investment Plan you can meet all your financial needs, without

the tedium of managing multiple products

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1.2. COMPANY PROFILE

ABOUT MAX GROUP

Founded in 1985, Max India limited is a public limited company listed in the NSE

and BSE with over 37,000 shareholders. Prominent shareholders are Mr. Analjit Singh &

family and private equity firm Warburg Pincus, while the remaining shares are held by

institutional investors and the public.

Max India limited is a multi-business corporate, driven by the spirit of enterprise,

focused on knowledge, people and service-oriented businesses of healthcare and life

insurance.

Max also maintains interests in-

Clinical research (neeman medical international)

Specialty plastic products businesses (max specialty products)

Healthcare staffing (max health staff)

Telecom services (Hutchison max telecom ltd.)

Max New York life insurance, founded as a joint venture between Max India

limited and New York life, a fortune 100 company, is one of the leading private life

insurers in India.

Max healthcare, a subsidiary of Max India limited is India's first provider of

comprehensive, standardized, seamless, and integrated world-class healthcare services.

Max India limited is a multi-business corporate, driven by the spirit of enterprise,

focused on knowledge, people and service-oriented businesses of healthcare and life

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insurance. Max also maintains interests in clinical research, it and telecom services, and

specialty plastic products businesses.

Max is a young, modern Indian corporation, with a strong capability of

recognizing opportunities ahead of their time. Max has been able to form and strengthen

international alliances with global leaders across a wide spectrum of management

activity. Max India is led by a skilled team of professional managers and is recognized

for commercially successful manufacturing and service delivery businesses.

Max has created enviable history marked by tremendous growth in various fields

and has been ranked among the "top two hundred most valuable Indian companies" by

business India (October 2000).

Max's deep understanding of Indian consumer combined with a large pool of

professionals and an enterprising spirit have helped complement its relationship with

industry leaders of global stature like New York life International of USA. With a unique

experience of growing through the 'jv route' max is proud of the excellent relations it has

with each of its partners.

Max India already has successful and enduring partnerships with some of the

most respected specialist organizations in the world, some of which are gist brocades of

the Netherlands, Deutschland, Germany, and Hutchinson telecommunications ltd., Hong

Kong, Singapore general hospital, Harvard medical international inc., USA, Lockheed

martin global telecommunications.

Businesses

Healthcare

Primary care segments

Secondary care segments

Tertiary care segments

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Life insurance

Max New York life insurance co. Ltd.

It and telecom services

Comsat max

Max Health scribe limited

Max Mind Crossing

VISION

To be one of India's most admired Corporate for service excellence and a

successful multi-business enterprise for its stakeholders i.e. customers, shareholders,

employees, JV partners, etc.

MISSION

Establish niche service business in 2 areas of healthcare, and life insurance. Rank

in top 3 players in each niche. Partner with "best in class" world leaders. Maintain

traditional business.

PARTNERSHIPS

Max has grown through the 'joint venture route and has a tradition of very

enriching, enduring partnerships. We have extensive, in-depth experience in building

businesses from the ground-up. And have created successful businesses in areas, which

were either not traditionally considered as 'business' areas, or were new/emerging fields

of business.

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Max India's business success and tradition of excellence have been made possible

in very large measure by collaborating with international leaders. These partnerships are

manifest across our diverse businesses, and are represented as equity partnerships, and/or

technical collaborations.

Max is proud of excellent relations it has with each of its partners. Not only have

our partnerships stood the test of time, they have consistently grown, developed, and

attained optimum stature. This has been made possible by our practiced belief that

regardless of the ratio of collaboration and its attendant business mechanics, each

partnership must be worked in the spirit of a 50:50 relationship. We recognize and

respect the expertise our partners offer, and try to maximize it for mutual benefit

NEW YORK LIFE THROUGH HISTORY

New York life Insurance Company, has been ranked at fortune 68, in the 2005

fortune 500 listing of companies, is one of the largest providers of life insurance coverage

in America. Founded in 1845, the company has over us$215 billion in assets under

management.

New York Life insurance company has been among the highest rated companies

by leading independent rating agencies including - a.m. best company (a++), Fitch

(formerly duff & Phelps) (AAA), Moodys investors service (aa1) and standard & Poors

(AA+) the company has its headquarters in new York city and has operations in the

united states, Argentina, Hong Kong, soar, India, Indonesia, Mexico, the Philippines,

south Korea, Thailand and Taiwan. The company maintains representative offices in the

people's republic of china and Vietnam.

For the last 47 years, New York life has had the highest number of agents who

qualify as members of the 'million-dollar round table'. The mdrt is the world's most

prestigious organization of insurance sales professionals.

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As a leader in the insurance industry, New York life continues to bring to its

operations new management concepts, advanced technologies, new distribution and

training systems and innovative insurance products.

ABOUT NEW YORK LIFE

New York Life has been one of the world's leading providers of Life Insurance

for over 160 years Trusted by millions across the globe, New York life is ranked at no. 68

in the 2005 fortune 500 lists of companies, with over us $215 billion in assets under

management.

New York life is a specialist in the business of life insurance since that's been

their only business since 1845 Among the proud family of new York life policyholders

have been many luminaries, including ten former us presidents. New York life is the

largest life insurance provider for the Indian community in the US. So it understands the

Indian consumer, their needs, their concerns and their aspirations.

New York life has never failed in its commitment to deliver to its policyholders

despite having gone through two world wars, famine, drought, the great depression, and

numerous such catastrophes as pioneers of the industry, New York life has also been in

the forefront of setting many path-breaking trends in the business of life insurance.

First to offer cash dividends to policy owners in 1845.

First to insure women at the same rate as men in 1894

First to introduce a disability benefit clause in 1920

First to offer unemployment insurance in 1992.

First to offer complete customer care on the web in 1998

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Max New York life Insurance Company limited

Max New York life insurance Company limited is a joint venture between max

India limited, a multi-business corporation focusing on life insurance, health care and

information technology, and New York life, a fortune 100 companies with over 150 years

of experience in the life insurance business.

In 2000, Max New York life became the first indo-American insurance joint

venture registered and granted a license to conduct business in India. Since that time,

Max New York life has acquired a national presence, establishing a wide distribution

network with 35 offices located across 27 cities in India, which are staffed by over 1,500

employees and over 7,700 highly competent life insurance agent advisors.

In 2003, Max New York life became the first life insurance company in India to

receive the ISO 9001:9002 certification for its commitment to quality. All of max new

York lifes offices are supported by state-of-the-art technology designed to enhance its

goal of providing excellent service to customers. It has also set up a centre for operational

excellence at its head office in Gurgaon, Haryana, just outside of new Delhi.

Max New York life is one of the leaders in private life insurance in India. With its

flexible products and benefit solutions, max new York life is driven by a strong set of

customer-focused values that form the core of its business and exemplify its slogan,

your partner for life. Max New York life insurance Company limited has been an imp

associate insurer since 2002.

KEY PRODUCTS

LIFE

Term life

Employee deposit linked insurance

Total and permanent disability (accidental) rider

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Accidental dismemberment rider

Accidental death benefit rider

Critical illness rider

PENSIONS

Retirement gratuity schemes

Superannuating

VISION

Become the most admired life insurance company in India.

MISSION

Become one of the top 3 new life insurance companies

Become a national player - dominant in north India

Be the brand of first choice among all stake holders

Become the employer of choice

Be the principal of choice for agents

VALUES

Together, max India limited and New York life aim to become Indias preferred

insurance brand. This vision will be realized through our unique set of values, which are

as follows:

Knowledge

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Together, Max India limited and New York life aim to become Indias preferred


as follows

Caring

Together, max India limited and new York life aim to become Indias preferred


as follows:

Honesty

Together, max India limited and New York life aim to become Indias preferred


as follows:

Excellence

Excellence at Max New York life implies the ability to perform at a consistently

high level. Focused on the value of continuous improvement in people, processes and the

organization, the company strives for the highest standards of quality in every aspect of

its business.

Achievements

Max New York life is the first life insurance companies in India to be awarded the

is0 9001:2000 certifications.

Max New York life was among the top 25 companies to work with in India,

according to 2003 business world magazine, "great workplaces in India", max

new York life was ranked at the 20th position. This survey is the local version of

the "great places to work" survey carried out every year in 22 countries.

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We were among top five most respected private life insurance companies in India

according to 2004' business world most respected survey. It makes it more

special as that year insurance as a category was included for the first time.

We have truly built an enviable sales force. With 126 agents becoming members

of the mdrt in 2005, Max New York life has moved up in the 'Top 50 mdrt Global

List.

The Way Max New York Life Works

Max New York life is a young vibrant company proud of the excellent track record it has

created for itself in a relatively short period of time. Mnyl has today become one of the

most aggressive players in the insurance services domain. A key factor in our success has

been our ability to attract some of the most talented people in any industry.

Max New York Life Insurance in many ways is a lens to India. We represent rich

diversity in our workforce and this is reflected in our open work environment. Within this

diversity we have successfully created a strong emotional bond, which threads everyone

together irrespective of his or her function, location, seniority or background.

This identification with one organization and one purpose draws its strength from our

simple and powerful vision statement, which is to become the "most admired life

insurance Company in India". By developing structure, systems and a workplace culture

that provides challenging jobs, rewards performance and delivers opportunities

continuously, mnyl is striving to get the best out of its most valuable asset its people.

Our "In House Culture Recipe" has some of the finest ingredients going into its making.

Some of the more prominent aspects of our culture are stated below:

Customer comes first

Do it right the first time

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Bias for result oriented action

Strength and discipline

Clarity of purpose Financial

International quality standards

Inclusive meritocracy

Learning opportunities

Fun at work

Commitment to published value system

At mnyl, we endeavor to create an environment where everyone can reach their

full potential and to do their jobs effectively for our customers. We encourage learning at

all levels and career stages which support personal and professional development. The

organization provides all the right elements that you need to get to the top with ample fun

and learning opportunities as added advantage.

We believe that work is fun, when you enjoy it the most. To make-work more fun,

we provide a dynamic, fast paced and flexible work environment to our people. We

nurture the relationships through celebrating our people's happiness, hobbies,

achievements, and festivals thoroughly fun club, which stands for life youth and fun.

Finally it would be appropriate to say that the cornerstones for all our interactions

and behaviors are the mnyl values and beliefs.

These are non-negotiable behaviors that breathe life and vigor into the

organization and its vision. Our values influence the way we work and interact with our

colleagues; as well as the way we serve our clients and engage with all our stakeholders.

Mnyl recognizes the need for appreciation for demonstrating our core values thru

behaviors.

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We provide a platform in the form of cultural ambassador to recognize employees

demonstrating our values of caring, honesty, excellence, knowledge, integrity, and

teamwork. Possibly then the best way to explain the mnyl culture would be to share our

mnyl values and beliefs.

Max New York Life, one of Indias leading life insurance companies, announced

signing up Rahul Dravid, Indian crickets most reliable batsman, as its brand ambassador.

Max New York Life Insurance Company Limited is a joint venture that brings

together two large forces - Max India Limited, a multi-business corporate, together with

New York Life International, a global expert in life insurance. The very nature of our

business makes us highly customer-sensitized at Max New York Life.

We believe in building relationships with the people we serve, so that our

customers enjoy the highest quality of service in life insurance.

This fact comes alive from our defining qualities, all of which are outlined below.

We are experts in life insurance: That's all we do. New York Life has over 160 years of

experience in the life insurance business. It is a Fortune 100 company that has been

trusted by millions worldwide, across generations.

Our existence is rooted in our commitment to financial strength, integrity and

responsibility. We have increased our capitalization requirement to Rs. 527 crore from

the initial Rs.100 crore that has been stipulated by the Insurance Regulatory and

Development Authority (IRDA). Our investments are confined only to debt instruments

and we meet both Indian and US reporting norms. Max New York Life also deposits one

per cent of the premium income with the RBI, towards Contingency Funds.

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So wish, within 15 days of receiving it We offer you multiple bonus options,

which includes options such as annual bonus, bonus accumulated and paid on maturity,

bonus used to offset premiums, bonus utilized to buy Paid up additions and bonus used to

buy one-year term insurance. So, you can decide how you want to use your bonus

payments.

Life insurance is a financial resource for your loved ones in the event of your

death. You enter into a contract with an insurance company that promises to provide your

beneficiaries a certain amount of money upon your death. In return, you make periodic

payments, known as premiums. The size of the premiums is generally based on factors

such as your age, gender, medical history and the dollar amount of life insurance you

select. Some policies may require a medical exam before premiums are established.

Certain types of life insurance may also provide benefits for you and your family

while you're still living. Policies such as whole life or universal life accumulate cash

value on a tax-deferred basis, and that value can be used to supplement your retirement

income or help provide for a child's education. Life insurance is an important part of

anyone's financial portfolio.

Financial advisors often recommend developing a financial plan that includes an

appropriate amount of life insurance as part of a comprehensive strategy for financial

security.

Life Insurance. A Rs. 27,500 Crores industry today, expected to grow to an

astronomical Rs. 115,000 crores by 2010. An industry poised for exciting change, as new

companies will be allowed to offer insurance products to the Indian consumer.

A transformation that will radically change the way we think about insurance and

the way we buy insurance. Max New York Life is a dynamic partnership between New

York Life, a globally respected insurance major and Max India, a business conglomerate

driven by the spirit of enterprise.

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Max New York Life Insurance Company is one of the joint venture companies,

which have got in-principle approval from IRDA to sell Life Insurance products in India.

Max New York Life aspires to be the "life insurance brand of first choice"

amongst Indian consumers. To achieve this company will draw on New York Life's

demonstrated competence in developing and managing a superior personal sales network.

For the last 46 years consecutively, the largest number of agents qualifying for

membership to the Million Dollar Round Table (MDRT) have been from New York Life.

The MDRT is the industry's most prestigious organization comprising the world's most

successful insurance agents.

Max New York Life, a merit oriented and equal opportunities employer, is

looking for a few good men and women who will spearhead the effort to realize this

vision.

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PRODUCT PROFILE

UNIT LINKED INVESTMENT PLAN similarity towards mutual funds

In structure, yes; in objective, no. Because of the high first-year charges, mutual funds

are a better option if you have a five-year horizon.

But if you have a horizon of 10 years or more, then UNIT LINKED INVESTMENT

PLAN have an edge. To explain this further a UNIT LINKED INVESTMENT PLAN

has high first-year charges towards acquisition (including agents commissions).

As a result, they find it difficult to outperform mutual funds in the first five years. But in

the long-term, UNIT LINKED INVESTMENT PLAN managers have several

advantages over mutual fund managers.

Since policyholder premiums come at regular intervals, investments can be planned out

more evenly.

Mutual fund managers cannot take a similar long-term view because they have bulk

investors who can move money in and out of schemes at short notice.

Insurers preference of UNIT LINKED INVESTMENT PLAN

Insurers love UNIT LINKED INVESTMENT PLAN for several reasons. Most

important of all, insurers can sell these policies with less capital of their own than what

would be required if they sold traditional policies.

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In traditional with profits policies, the insurance company bears the investment

risk to the extent of the assured amount. In UNIT LINKED INVESTMENT PLAN, the

policyholder bears most of the investment risk.

Since UNIT LINKED INVESTMENT PLAN is devised to mobilize savings,

they give insurance companies an opportunity to get a large chunk of the asset

management business, which has been traditionally dominated by mutual funds.

Unit-linked insurance plans, UNIT LINKED INVESTMENT PLAN, are distinct

from the more familiar with profits policies sold for decades by the Life Insurance

Corporation.

With profits policies are called so because investment gains (profits) are

distributed to policyholders in the form of a bonus announced every year.

UNIT LINKED INVESTMENT PLAN also serve the same function of

providing insurance protection against death and provision of long-term savings, but

they are structured differently.

In with profits policies, the insurance company credits the premium to a

common pool called the life fund, after setting aside funds for the risk premium on life

insurance and management expenses.

Every year, the insurer calculates how much has to be paid to settle death and

maturity claims. The surplus in the life fund left after meeting these liabilities is

credited to policyholders accounts in the form of a bonus.

In a UNIT LINKED INVESTMENT PLAN too, the insurer deducts charges

towards life insurance (mortality charges), administration charges and fund

management charges.

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The rest of the premium is used to invest in a fund that invests money in stocks

or bonds.

The policyholders share in the fund is represented by the number of units. The

value of the unit is determined by the total value of all the investments made by the

fund divided by the number of units.

If the insurance company offers a range of funds, the insured can direct the

company to invest in the fund of his choice. Insurers usually offer three choices an

equity (growth) fund, balanced fund and a fund, which invests in bonds.

In both with profits policies as well as unit-linked policies, a large part of the

first year premium goes towards paying the agents commissions.

Arguments aboutunit-linked or with profits

The two strong arguments in favor of unit-linked plans are that the investor

knows exactly what is happening to his money and two; it allows the investor to choose

the assets into which he wants his funds invested.

A traditional with profits, on the other hand, is a black box and a policyholder

has little knowledge of what is happening. An investor in a UNIT LINKED

INVESTMENT PLAN knows how much he is paying towards mortality, management

and administration charges.

He also knows where the insurance company has invested the money. The

investor gets exactly the same returns that the fund earns, but he also bears the

investment risk.

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Life Maker Unit Linked Investment Plan

In the Life Maker unit linked plan; the premiums you pay are invested in

funds offered by us. The appropriate ratio of investments into these funds will be

determined by you in consultation with your Agent Advisor.

These funds are invested in assets such as equities, money market instruments,

investment grade corporate bonds, and government securities. These funds offer a wide

range of returns. You can choose to invest your premiums in one or more of thesefunds, basis your risk taking ability

In turn, we issue units, which represent the value of your policy i.e. you can

"see" the value of your policy on any day by multiplying the number of your units by

the value of units on that day. The value of these units is called the Net Asset Value (or

NAV) and is normally published in newspapers on a daily basis.

The NAV is based on the market value of the underlying investments in that fund

i.e. equities, company bonds, government securities, etc

Flexible Protection

Choice of two insurance covers

You have the flexibility to choose from two insurance covers - as per your

need

Level insurance cover: In the unfortunate event of death the nominee shall receive

higher of the insurance cover or value of units.

Increasing insurance cover: In the unfortunate event of death the nominee shall

receive the sum of insurance cover and the value of units in the plan. You can

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change your type of cover from increasing insurance cover to level insurance

cover during the plan tenor

Change your Sum Assured

The plan allows you to change the level of your insurance cover to vary the ratio of

protection and investment

FLEXIBLE INVESTMENT

Choice of four attractive fund options

You have the option of investing your money in any ratio in four attractive funds. The

choice of your funds is derived from your investor risk profile which looks at factors

such as age, ability to invest & risk appetite

TYPES OF FUNDS

Conservative Fund

Invests largely in high quality fixed income securities issued by the Government

of India or companies or other bodies corporate with a high credit rating. A small

portion of the fund, not exceeding 15%, may be invested in high quality Indian equity

stocks. This fund will have a low to moderate level of risk and return

Balanced Fund

Invests in both high quality fixed income securities issued by the Government of

India or companies or other bodies corporate with high credit rating, as well as in high

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Full surrender can be made anytime. However, in the first 2 policy years, there is

a surrender charge of one year's premium, and of half of one years premium if

surrendered in the 3rd policy year. There are no surrender charges after 3 policy years.

We understand your need to adjust your investment portfolio based on factors like

changing interest rates or the volatility in the equities market or a change in your life

stage. The Life Maker plan allows you to switch between funds in any ratio without

any tax liability.

The switch allows you to change your risk return profile of your existing

investments. In every policy year, the first two switches are free. The switch option we

offer is one of the most powerful and flexible ones in the market where money from one

fund can be switched to multiple funds in a single switch.

Re-direct future premium

Life Maker allows you to re-direct your future premiums. You can invest your

future premiums in a fund different from your earlier fund, or to multiple funds in a

ratio different from your earlier ratio (provided the amount paid into each fund meets

our minimum in-force requirement). Re-directing helps you change the risk - return

profile of your future investments. In every policy year, the first re-direction is free.

INVEST MORE THROUGH FUND TOP-UPS TO MATCH YOUR CASH

FLOWS

Planned top-ups

At inception, or from any premium due date, you can choose to invest extra

money in your plan through top-ups. You may also choose to discontinue paying the

top-ups anytime you want.

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Occasional top-ups: You can also invest extra money in your plan through

occasional top-ups of any amount, at any time (except in the first policy year).

Add-on Riders

Customize your policy benefits by adding Personal Accident Benefit or Dread

Disease riders to your policy at inception or on any policy anniversary.

Personal Accident Benefit (PAB) rider - if you opt for this rider, we will pay the rider

sum assured on accidental death or accidental disability.

Dread Disease (DD) rider - if you opt for this rider, we will pay the rider sum

assured on contracting any of the ten diseases covered under this rider. Please refer to

the Riders' brochure for details.

Guaranteed free units as loyalty bonus

In the last policy year, you can get free additional units, known as persistency

units. These are equal to 2.5% of your annual target premium multiplied by the

policy term, but not exceeding one annual target premium.

1. All premiums (including all top-ups) paid are eligible for a tax rebate

under Section 80C of the Income Tax Act of 1961.

2. All premiums on the Dread Disease rider are eligible for a tax rebate

under Section 80D of the Income Tax Act of 1961.

3. All maturity benefits are tax free under Section 10 (10D) of the Income

Tax Act of 1961.

4. All switches are tax-free.

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Handpicked, highly trained agent advisors, with a team of certified, and highly trained

agent advisors, supported by a team of specialists; we are fully equipped to help you

meet your unique financial goals.

GLOBAL LIFE INSURANCE EXPERIENCE

Benefit from our access to over 150 years of global life insurance experience. New

York Life Insurance Company, a Fortune 100 company founded in 1845, is the largest

mutual life insurance company in the United States and one of the largest life insurers in

the world.

Sample Illustration of Plan

If you are 30 years old, and buy Life Maker of tenor 30 years, and annual premium of

Rs. 20,000 for level insurance cover, you will pay Rs. 6 lacs to the company over the

plan tenor. The graph alongside illustrates the maturity values (in Rs lacs) you are likely

to receive, if the rate of return on investments of funds are 6% and 10%. If you choose

to add top-up premiums to your policy, the maturity values will significantly improve

Entry Age (age as at last birthday) 12 to 60 years

Tenor 10 to 58 years

Maximum Maturity Age 70 years

Minimum Sum Assured Rs. 100,000

Minimum Annual Premium Rs. 15, 000

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Premium Allocation

Entry Age (age as at last birthday) 12 to 60 years

Tenor 10 to 58 years

Maximum Maturity Age 70 years

Minimum Sum Assured Rs. 100,000

Minimum Annual Premium Rs. 15, 000

Premium Allocation

Policy Year Allocation % of Annual

Premium

1st year 75

2nd year 80

3rd year

onwards

100

Allocation percentage indicates the proportion of premiums, invested in the funds: All

Top-Up Premiums are allocated @ 101% of the Top-Up Premium you have paid. For

example, if you give a top-up Premium of Rs. 10,000/-, we will invest Rs. 10,100/- in

your chosen fund(s).

Expenses

Nominal fund management expense to professionally manage your investments. This

varies from 0.90% to 1.25% of net assets in the fund.

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A monthly administration fee of Rs. 50/-. This will be periodically reviewed to cover

inflation and administrative costs, but will never be more than 15% of the charge over

the previous year. Initial set up monthly expense (in the first year only). This will vary

from 0.15% to 0.25% of sum assured, depending on the plan tenor.

Mortality charge to provide insurance cover under the Life Maker plan and riders, if

any. Bid-Offer expense of 5%, with 1% for rounding of the premium on its allocation to

the funds

Standard exclusions & other exceptions

Not withstanding anything stated to the contrary in the Policy, if the Life Insured under

the Policy dies by suicide, whether sane or insane, within one year from the Effective

Date of this Policy, the Policy coverage shall come to an end simultaneously.

In such an event, we will only refund the value of your units. Additional exclusions are

as per rider chosen. Option to increase or decrease the sum assured is subject to our

prior approval, minimum stipulated limits and certain other conditions.

Please note that top-ups will not increase the sum assured. Top-up will be accepted only

after the annual target premium (i.e. the regular premium payable in a policy year) due

has been paid.

We reserve the right to add, close, combine or alter any Fund. All transactions in units

shall be on a forward pricing basis. We will determine the date of valuation of assets of

funds, the frequency of which shall not be less than once per week.

Life Maker is only the name of the policy and in no way indicates the quality of the

plan or its future returns or prospects.

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The investments in the units of any our funds are subject to market and other risks, and

the value of the units can increase or reduce depending on the factors affecting the debt

and equity markets from time to time.

CHAPTER 2: INTRODUCTION ABOUT STUDY

COST BENEFIT ANALYSIS

MEANING OF COST BENEFIT ANALYSIS

The cost benefit analysis helps in finding out the relationship of costs and revenues to

output. It enables the financial manager to study the general effect of the level of output

upon income and expenses and therefore upon profits.

COST BENEFIT ANALYSIS

Cost-Benefit Analysis (CBA) estimates and totals up the equivalent money value of the

benefits and costs to the community of projects to establish whether they are worthwhile.

These projects may be dams and highways or can be training programs and health care

systems.

The idea of this economic accounting originated with Jules Dupuit, a French engineer

whose 1848 article is still worth reading. The British economist, Alfred Marshall,

formulated some of the formal concepts that are at the foundation of CBA. But the

practical development of CBA came as a result of the impetus provided by the FederalNavigation Act of 1936.

This act required that the U.S. Corps of Engineers carry out projects for the improvement

of the waterway system when the total benefits of a project to whomsoever they accrue

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exceed the costs of that project. Thus, the Corps of Engineers had created systematic

methods for measuring such benefits and costs.

The engineers of the Corps did this with out much, if any, assistance from the economics

profession. It wasn't until about twenty years later in the 1950's that economists tried to

provide a rigorous, consistent set of methods for measuring benefits and costs and

deciding whether a project is worthwhile. Some technical issues of CBA have not been

wholly resolved even now but the fundamental presented in the following are well

established.

Principles of Cost Benefit Analysis

One of the problems of CBA is that the computation of many components of benefits and

costs is intuitively obvious but that there are others for which intuition fails to suggest

methods of measurement. Therefore some basic principles are needed as a guide.

There Must Be a Common Unit of Measurement

In order to reach a conclusion as to the desirability of a project all aspects of the project,

positive and negative, must be expressed in terms of a common unit; i.e., there must be a

"bottom line." The most convenient common unit is money. This means that all benefits

and costs of a project should be measured in terms of their equivalent money value.

A program may provide benefits which are not directly expressed in terms of dollars but

there is some amount of money the recipients of the benefits would consider just as good

as the project's benefits. For example, a project may provide for the elderly in an area a

free monthly visit to a doctor.

The value of that benefit to an elderly recipient is the minimum amount of money that

that recipient would take instead of the medical care. This could be less than the market

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value of the medical care provided. It is assumed that more esoteric benefits such as from

preserving open space or historic sites have a finite equivalent money value to the public.

Not only do the benefits and costs of a project have to be expressed in terms of equivalent

money value, but they have to be expressed in terms of dollars of a particular time. This

is not just due to the differences in the value of dollars at different times because of

inflation.

A dollar available five years from now is not as good as a dollar available now. This is

because a dollar available now can be invested and earn interest for five years and would

be worth more than a dollar in five years.

If the interest rate is r then a dollar invested for t years will grow to be (1+r) t. Therefore

the amount of money that would have to be deposited now so that it would grow to be

one dollar t years in the future is (1+r)-t. This called the discounted value or present value

of a dollar available t years in the future.

When the dollar value of benefits at some time in the future is multiplied by the

discounted value of one dollar at that time in the future the result is discounted present

value of that benefit of the project. The same thing applies to costs. The net benefit of the

projects is just the sum of the present value of the benefits less the present value of the

costs.

The choice of the appropriate interest rate to use for the discounting is a separate issue

that will be treated later in this paper.

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Valuations Should Represent Consumers or Producers Valuations As

Revealed by Their Actual Behavior

The valuation of benefits and costs should reflect preferences revealed by choices which

have been made. For example, improvements in transportation frequently involve saving

time. The question is how to measure the money value of that time saved. The value

should not be merely what transportation planners think time should be worth or even

what people say their time is worth.

The value of time should be that which the public reveals their time is worth through

choices involving tradeoffs between time and money. If people have a choice of parking

close to their destination for a fee of 50 cents or parking farther away and spending 5

minutes more walking and they always choose to spend the money and save the time and

effort then they have revealed that their time is more valuable to them than 10 cents per

minute. If they were indifferent between the two choices they would have revealed that

the value of their time to them was exactly 10 cents per minute.

The most challenging part of CBA is finding past choices which reveal the tradeoffs andequivalencies in preferences. For example, the valuation of the benefit of cleaner air

could be established by finding how much less people paid for housing in more polluted

areas which otherwise was identical in characteristics and location to housing in less

polluted areas. Generally the value of cleaner air to people as revealed by the hard market

choices seems to be less than their rhetorical valuation of clean air.

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Benefits Are Usually Measured by Market Choices

When consumers make purchases at market prices they reveal that the things they buy areat least as beneficial to them as the money they relinquish. Consumers will increase their

consumption of any commodity up to the point where the benefit of an additional unit

(marginal benefit) is equal to the marginal cost to them of that unit, the market price.

Therefore for any consumer buying some of a commodity, the marginal benefit is equal

to the market price. The marginal benefit will decline with the amount consumed just as

the market price has to decline to get consumers to consume a greater quantity of the

commodity.

The relationship between the market price and the quantity consumed is called the

demand schedule. Thus the demand schedule provides the information about marginal

benefit that is needed to place a money value on an increase in consumption.

The cost benefit analysis is used to answer many of the questions faced by management.

As profits are affected by the interplay of costs, volume and selling prices, managementmust have at its disposal analyses that can allow reasonably accurate presentation of the

effect a change in any one of these factors would have on the profit performance.

When plans are formulated for a given period certain questions of the following type

have to be answered should emphasis be placed on increasing sales volume? If so, to

which of the many products marketed should it be applied? Would an increase in selling

price even though accompanied by a decrease volume, result in more profitable

operations? Should efforts be made to reduce costs instead of increasing g volume or

selling price as a step toward increased profits?

If cost reduction is the answer should pressure be exerted to reduce variable or fixed

costs? Not all of these questions would be asked by management in every industrial

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enterprise since the elastic ting of demand and the extent of and nature of competition

would have a varying impact in different industries. Cost benefits analysis furnishes

complete picture of the profit structure, which enables management to distinguish

between the effect of sales volume flections and the results of price or cost changes upon

profits.

ADVANTAGES OF COST BENEFITS ANALYSIS

Cost benefits analysis is an important tool of profit planning it provide information about

the following matters.

1. The behavior of cost in relation to volume

2. Volume of production or sales, where the businesses will break even.

3. Sensitivity of profits due to variation in output.

4. Amount of profit for a projected sales volume.

5. Quantity of production and sales for a target profit level.

Cost benefit analysis may therefore be defined as a managerial tool showing the

relationship between various ingredients of profit planning cost (both fixed and variables)

selling price and volume of activity etc.

Such and analysis is useful to the finance manager in the following respects .

1. It helps him in forecasting the profit fairly accurately.

2. It is helpful in setting up flexible budget, since on the basis of the

relationship, it can ascertain the cost, sales and profits at different levels of

activity.

3. It also assists him in performance evolution for purposes of management

control.

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4. It helps in formulating price policy projecting the effect which different

price structures will have n cost and profits.

5. It helps determining the amount of overhead cost to be charged at various

levels of operations, since overhead rates are generally pre-determined n the

basis of a selected volume of production.

Thus, cost-benefit analysis is an important media through which the management can

have an insight into effects on profit on account of variations in costs and sales and take

appropriate decisions.

Risk and uncertainty

In common parlance the terms risk and Uncertainty have synonymous meaning.

However they differ from each other as given below.

Risk

Risk maybe defined as the chance of future loss that can be fore seen. In other words

in case of risk an estimate can be made about the degree of happening of the loss. This is

usually done by assigning probabilities to the risk on the basis of past data and the

probable trends.

Uncertainty

Uncertainty may defined as the unforeseen chance for future loss or damages. In case

of uncertainty since the firm cannot anticipate the future loss and hence it cannot directly

deal with it in its planning process, as is possible in the case of risk.

For example, a firm investing money in a foreign country cannot possibly foresee a coup

and taking over of the government by on unfriendly group similarly, a firm cannot

foresee the loss which may be due to destruction of its plant on account of earth quake of

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course, in those cases where occurrence of such earthquakes is quite frequent the firm can

possibly estimate the likelihood of the loss and such loss can be taken care of by the firm

in its planning process.

Such loss will not therefore fall in the purview of uncertainty, but will fall in the purview

of risk. Thus, there is a very thin line of distinction between the terms uncertainty and

Risk.

In this project, I have studied costs and benefits enjoyed by the customer of unit linked

investment plan (UNIT LINKED INVESTMENT PLAN) in Max New York Life

Insurance Company Limited. I have also studied the risk and returns they are deriving

under the unit linked investment plan by taking in to consideration of the portfolio of

companies investment in different periods of time.

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2.1. OBJECTIVES

The main aim of the present study is to accomplishing the following objectives.

1. To identify the Max New York Lifes investment allocation for UNIT

LINKED INVESTMENT PLAN Plan.

2. To know about how much percent of returns promised by Max New York

Life and also analyze what they are giving as returns to the investors.

3. To find out the disparities between the actual and promised rate of returns.

4. To analyses the range of customers invested in UNIT LINKED

INVESTMENT PLAN Plan.

5. To analyses the risk and return pattern of Max New York Life.

2.2. NEED FOR THE STUDY

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In the present world, each and every thing is marked by competition. Entry into the

financial market or the management of portfolio dealings is very risky and challengeable.

As a precaution the researcher aims at studying the nature of different financial assets in

the money and capital markets. By the proper study of cost benefit analysis, the company

as well as different investors can assess about different investments

2.3. LIMITATIONS

Limitations make the work dissatisfied every work has its own limitations.

Likely, my project is also having its own limitations

Three months time is insufficient to have a detailed study and analysis about the

various aspects of cost benefit analysis.

A detailed assistance tools to know and undertake analysis about the benefit was

lacked.

Any study cannot be 100% accurate at the times. This is because of the inherent

limitations that could be present in such a study. One of the limitations is since

its a Private insurance company the financial data are not supposed to be

disclosed.

Due to resource and time constraints, only percentage of different costcomponents has been considered and it is difficult to express in numerical values

because it varies based on the age of the individual.

2.4. RESEARCH METHODOLOGY

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PRIMARY DATA

Primary sources enables the researcher to get as close as possible to what actually

happened during an historical event or time. A primary source reflects the individuals

viewpoint of a participant or observer. Data collected from the company guide.

SECONDARY DATA

Companies existing investment portfolios quarterly review report, available

statistics, journals and magazines and Internet etc

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