life insurance

1. Insurance Products

2. Definition of Insurance
 Insurance is the pooling of fortuitous
(causeless: having no cause or apparent
cause) losses by transfer of such risks to
insurers, who agree to indemnify insured
(s) for such losses, to provide other
pecuniary benefits on their occurrence,
or to render services connected with the
risk.
Ref : American Risk & Insurance
Association

3. Basic characteristics of
Insurance
 Pooling of losses
 Payment of fortuitous losses
 Risk Transfer
 Indemnification

4. Basic Characteristics of insurance
 Pooling is the spreading of losses incurred by
the few over the entire group, so that in the
process, average loss is substituted for actual
loss.
 A fortuitous loss is one that is unforeseen and
unexpected and occurs as a result of chance
 Risk is transferred from the insured to the
insurer, who is in a stronger financial position to
bear the loss
 Indemnification means that the insured is
restored to his / her approximate financial
position prior to the occurrence of loss

5. Requirement of an Insurable
Risk
 There must be a large no. of exposure units
 The loss must be accidental or unintentional
 The loss must be determinable or measurable
 The loss should not be catastrophic
 The chance of loss must be calculable
 The premium must be economically feasible

6. Benefits of Insurance
 Indemnification of Loss ( Life Insurance)
 Reduction of worry and fear (Health Insurance,
House hold Goods Insurance)
 Source of Investment Funds ( ULIP)
 Loss Prevention ( Marine / Transit Insurance)
 Enhancement of Credit ( Home Loan
Insurance)
 Tax Exemption ( Health insurance)

7. Fundamental Principles of
Insurance
 The Principle of utmost good faith (Transparency)
 The Principle of Insurable Interest ( Insured Must have an
interest in the property insured)
 The Principle of Indemnity ( Make good loss suffered )
 The Principle of Contribution ( In case of multiple
insurance, sum of all claims can not be more than loss
suffered)
 The Principle of Subrogation( Insurance company after
settling the claim, can recover from the person who
caused the loss)
 The principle of proximate cause ( How to settle the claim
if the loss has been caused by more than one factors
some of which are not insured)

8. Insurance Products
 Life Insurance Products
 Health or Medical Insurance Products
 Property & Liability Insurance
 Insurance of Household Goods
 Marine or Transit Insurance
 Vehicle Insurance

9. Life Insurance

10. Benefits of Life Insurance
 Protection for family
 Protection from Creditors
 Vehicle for Savings
 Tax Benefits

11. How Much Life Insurance One
Needs ?
 Human Life Value Approach
 Multiple Earnings Approach
 Need Based Approach – Assessing
Economic Needs, Family Income,
Existing Investments, Available
Resources, Resources Needed for
Maintaining a desired Life Style
 Capital Retention Approach

12. How Much Life Insurance One Needs?
 Human life value is defined as the present
value of the family’s share of the deceased
breadwinner’s future earnings
 Multiple Earning Approach is a method of
capitalization of annual earnings of the insured.
Multiple could be 5, 7, 8 or 10 based on the
interest and inflation rate scenario
 Needs based Approach takes into account
various family needs including survival needs
that must be met if the family head ( policy
holder) should die less the existing value of
assets / investments
 Capital Retention Approach takes into account
capital needed to provide income and later to
be distributed to heirs after death of insured

13. Some Thoughts
 Insurance is a subject matter of
solicitation
 Insurance involves theory of large
numbers
 Insurance has to weed out the theory of
adverse selection
 All life insurance policies include
incontestability clause

14. Insurance is a subject matter
of Solicitation
 'insurance is a subject matter of solicitation', which
essentially means that insurance has to be requested or
asked for, not sold.
 To fully understand the meaning of this cryptic phrase,
take a look at the wording of any insurance policy that
has been issued by an insurance company to a
customer. Every insurance policy says that the insurance
company is providing you insurance against a risk on
YOUR request/solicitation, i.e. the company agreed to
sell you its insurance policy after you solicited or asked
for such a sale. In legal terms, insurance is a product that
should not be pushed by a seller, but should be pulled by
a buyer. That doesn't happen in real life, though.

15. Incontestability Clause
 The incontestability clause states that
after the policy -- whether it be term or
whole life -- has been in force for a
certain length of time, the company can
no longer contest or void it except for
nonpayment of premiums.

16. Types of Life Insurance
Products
 Term Insurance
 Pure Endowment
 Whole Life Policy
 Endowment Assurance
 Universal Life Insurance
 Variable Life Insurance

17. Term Insurance
 The objective is the family to get a lump sum
assured amount in the event of untimely death
of the family head / bread earner. If the insured
survives till the end of the selected period,
nothing is payable. Term Insurance policy can
be issued for 5, 10, 15 or 20 years. It is a policy
with low cost (premium). These are required
when the coverage is required for a stipulated
period like tenure of a home loan. The cost
(premium) varies with the age of the insured
and the proposed tenure of policy coverage.

18. Term Insurance
 It is similar to property or liability insurance.
This provides risk coverage only for the term
selected
 If there is no provision for automatic renewal,
the insured can take a fresh policy at a fresh
cost (applicable at that age level) subject to this
being permitted based on status of his/her
health
 There are two types of term policies-
Renewable and Convertible

19. Term Insurance
 Renewable Term Policy meets a valid need of
insured as it protects his/ her insurability.
 Convertible Term Policy offers an option to the
policy holder to convert a term policy into a
whole life or endowment policy without
producing evidence of continued insurability.
Such conversion is allowed during the period of
term insurance and effected for the then
“attained age” or “original age”. These policies
are useful for young persons getting started
with their career. They can pay a low premium
of a term policy during initial period and then
change over when their salary increases

20. Term Insurance
 There is possibility to have increasing and
decreasing term insurance. Decreasing Term
Insurance is used for home loan where the
balance declines with repayment
 In case of increasing Term policy the sum
assured increases by a certain percentage or
by a fixed amount periodically

21. Pure Endowment
 Under pure endowment, there is accumulation
of savings for a specific purpose (daughter’s
marriage, higher education of child) . Here the
lump sum amount is payable only if the insured
survives till the end of the selected period. If the
insured dies during the period, nothing is
payable.
 A pure endowment policy is seldom issued
 However, a combination of features of a term
policy and a pure endowment policy gives rise
to several life insurance products. These two
are the basic building blocks

22. Whole Life Insurance
 The whole life policy covers the risk up to the
death of the insured, whenever it occurs. It is
some times called “term insurance for the
longest term”
 There are two types of Whole life Policies –
Pure Whole life Policy and Limited Payment
Whole life Policy
 In Pure Whole Life Policy, the premium is
payable through out life, while in the second
case up to attaining an age of 60 or 70

23. Whole Life Policy
 Premium for pure whole life policy is lower than
limited payment whole life policy for obvious
reasons.
 The whole life policy can have a convertible
feature allowing it to be converted to an
endowment assurance policy. This is suitable
for young service entrants who can pay a low
premium during initial years and then move on
to an endowment assurance policy when their
salary increases without any prove of the
continued insurability.

24. Endowment Assurance Policy
 This is the most popular policy, in which the
insurer agrees to pay the insurance money in
the event of death of the insured during the
endowment term and to pay the insurance
money in the event the insured survives till the
end of the endowment term. This is a
combination of features of term policy and pure
endowment policy.
 This operates as a combination of gradually
decreasing term plan plus an gradually
increasing investment ( pure endowment).

25. Endowment Assurance
 Investments gradually accumulate as a
“reserve” on an accelerated fashion and this
reserve with the term insurance value add up to
the “face value” of the policy
 Premium rates are usually high compared to
whole life policy. However if the term of
endowment is very long, then the premium is
usually only marginally higher.

26. Universal & Variable Life
Insurance
 These have potential to accumulate cash value
 In case of Universal Life insurance, investment
is done by the insurer assuring a minimum
guaranteed return
 In case of Variable Life insurance, the insured
will have a choice of the way the cash value is
to be invested.
 When premium is paid, the insurer deducts a
charge and invests the net either as an
universal investment or as a variable
investment stated above.

27. Universal Life Insurance
 An attractive feature of this policy is that the
insured can vary his / her annual death benefit
and annual premium
 The insured can also partially surrender the
policy and take loans against the cash value of
the policy
 He / she can add up cash portion of the policy
by making increasing investment
 Normally there is a guaranteed return applied to
the policy

28. Variable life Insurance
 It is a form of whole life insurance, where a
portion of premium goes to the term life
insurance part, a part for the administrative
expenses of the insurer and the balance goes
towards the investment or cash value.
 The insured decides how and where to invest
the cash value of investment

29. Unit Linked insurance plans
 This is a capital market linked insurance plan
 The premium payable consists of two parts,
viz., 1. risk premium 2. Investment premium
 While risk premium takes care of providing
security to the family in case of premature
death of the policy holder, the investment
premium is invested to grow and provide a
reasonable return.
 Investment could be made in a secured fund, a
risk fund or in a balanced fund or in a suitable
combination of all of these three
 Switchover from one fund to other is also
allowed

30. Group Life Insurance
 It is a type of insurance that provides life
insurance on a group of people in a single
master contract. Physical examinations are not
required, and certificates of insurance are
issued as evidence of insurance
 Most group life insurance are in the form of low
cost term life insurance which provide
protection to employees during their working
career with an organization
 It is up to 1 to 5 times the annual salary of the
employee or a fixed amount decided by the
employer for a particular class of employees.

31. Other Features of Life
Insurance
 Beneficiary (nominee clause) : Insured has to select a
primary beneficiary and a contingent beneficiary
 Survival Clause : If primary beneficiary survives but dies
later to the insured in the same accident, he gets the sum
 Suicide Clause : Policy becomes void if the insured
commits suicide within a stipulated period, usually 1 year
 Surrender Value : Value payable if the premium payment
is discontinued midway. Usually surrender value is zero
up to first 3 years of payment period.

32. References
 For knowing specific insurance products
– see the websites of respective
Insurance Companies
 Also See
www.policybazar.com
www.ezinearticles.com,
www.apnaInsurance.com etc

33. Thank You