OBJECTIVES OF STUDY

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 LITERATURE REVIEW

The concept of review is to revisit the previous work done on a subject to enhance learning
and give a deeper insight to the researcher on the current study. The review of literature not
only presents the facts but also leads into various issues and future work which can be done
to enhance the subject of research. So in this direction this research tries to systematically
review important available literature on life insurance. Since life insurance is a vital risk tool
to mitigate the extreme events in life cycle of an individual in terms of economic value. This
study tries to highlight various elements of life insurance concept which will benefit to people
at large and can also contribute to the insurance sector in terms of growth.

Life insurance concept is very old & deep rooted in the history of India. In the ancient Vedic
times, a mention of insurance concept can be traced in the writings of Manu who has written
manusmrithi & also even in dharmashastra book which was a common man guide for day to
day value based living. Insurance concept in the past existed as a tool to re- distributes vital
recourses in times of natural calamities. But as time evolved insurance concept also
underwent evolution in terms of product, which was developed and modified by human race
from time to time as a tool to counter the various risk faced by human beings in their life
time. This research tries to collect and review few important research articles on life
insurance concept in India in terms of product innovation, market growth, costumer’s service
and other vital elements revolving around insurance concept. This study is based on the facts
and findings of various articles which were selected for review for the purpose of bring out
the important facts about life insurance concept, few of the statements are taken as it is to
maintain the originality of the research articles under review and few of the statement are
written by the author in own words to draw logical statements.

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 INTRODUCTION

Insurance is a means of protection from financial loss. It is a form of risk management

primarily used to hedge against the risk of a contingent, uncertain loss.An entity which
provides insurance is known as an insurer, insurance company, or insurance carrier. A person
or entity who buys insurance is known as an insured or policyholder. The insurance
transaction involves the insured assuming a guaranteed and known relatively small loss in the
form of payment to the insurer in exchange for the insurer's promise to compensate the
insured in the event of a covered loss. The loss may or may not be financial, but it must be
reducible to financial terms, and must involve something in which the insured has an
insurable interest established by ownership, possession, or preexisting relationship.

Insurance is a contract, represented by a policy, in which an individual or entity receives

financial protection or reimbursement against losses from an insurance company. The
company pools clients' risks to make payments more affordable for the insured.

Insurance policies are used to hedge against the risk of financial losses, both big and small,
that may result from damage to the insured or her property, or from liability for damage or
injury caused to a third party.

The insured receives a contract, called the insurance policy, which details the conditions and
circumstances under which the insured will be financially compensated. The amount of
money charged by the insurer to the insured for the coverage set forth in the insurance policy
is called the premium. If the insured experiences a loss which is potentially covered by the
insurance policy, the insured submits a claim to the insurer for processing by a claims
adjuster.

Methods for transferring or distributing risk were practiced by Chinese and Babylonian
traders as long ago as the 3rd and 2nd millennia BC, respectively. Chinese merchants
travelling treacherous river rapids would redistribute their wares across many vessels to limit
the loss due to any single vessel's capsizing. The Babylonians developed a system which was
recorded in the famous Code of Hammurabi, c. 1750 BC, and practiced by early
Mediterranean sailing merchants. If a merchant received a loan to fund his shipment, he
would pay the lender an additional sum in exchange for the lender's guarantee to cancel the
loan should the shipment be stolen, or lost at sea.

At some point in the 1st millennium BC, the inhabitants of Rhodes created the 'general
average'. This allowed groups of merchants to pay to insure their goods being shipped
together. The collected premiums would be used to reimburse any merchant whose goods
were jettisoned during transport, whether to storm or sinkage.

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Insurance became far more sophisticated in Enlightenment era Europe, and specialized
varieties developed.Property insurance as we know it today can be traced to the Great Fire of
London, which in 1666 devoured more than 13,000 houses. The devastating effects of the fire
converted the development of insurance "from a matter of convenience into one of urgency, a
change of opinion reflected in Sir Christopher Wren's inclusion of a site for 'the Insurance
Office' in his new plan for London in 1667". A number of attempted fire insurance schemes
came to nothing, but in 1681, economist Nicholas Barbon and eleven associates established
the first fire insurance company, the "Insurance Office for Houses", at the back of the Royal
Exchange to insure brick and frame homes. Initially, 5,000 homes were insured by his
Insurance Office.

At the same time, the first insurance schemes for the underwriting of business ventures
became available. By the end of the seventeenth century, London's growing importance as a
center for trade was increasing demand for marine insurance. In the late 1680s, Edward Lloyd
opened a coffee house, which became the meeting place for parties in the shipping industry
wishing to insure cargoes and ships, and those willing to underwrite such ventures. These
informal beginnings led to the establishment of the insurance market Lloyd's of London and
several related shipping and insurance businesses.

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 DEFINATIONS

In financial sense:

According to Reegel and Miller, “Insurance is a social device whereby the uncertain
risks of individuals may be combined in a group and thus made more certain, small periodical
contributions by the individuals providing a fund ,out of which ,those who suffer losses may
be reimbursed.”

In legal sense:

“Insurance is a contracted agreement whereby one party agrees in consideration of the price
paid to him (premium) to compensate another party for losses.”

A contract (policy) in which an individual or entity receives financial protection or

reimbursement against losses from an insurance company. The company pools clients' risks
to make payments more affordable for the insured

5
 PRINCIPLES OF INSURANCE

A contract of insurance may be defined as a contract between two parties whereby a

person undertakes in consideration of a fixed sum of money to pay to the other a fixed
amount of money on the happening of a certain event ( death or maturity of policy) or to pay
the amount of actual loss when it takes place through a risk insured ( in case of property).
Following are the important principles of insurance contract:

1. Principle of utmost good faith.

2. Principle of insurable interest.
3. Principle of indemnity.
4. Principle of subrogation.
5. Principle of contribution.
6. Principle of proximate cause.

Principle of utmost good faith.

The principle of utmost good faith also known as “Uberrimae Fedei”. The contract
of insurance is a contract based on utmost good faith. It is duty bound on the parties to
disclose all material facts and figures relating to the subject matter of the insurance contract.
A material fact is one which affects the judgement or decision of both the parties in entering
into the contract. If this principle is not observed by either party, the contract may be
avoided by the other. The duty of disclosure is absolute and positive.

Most of the coomercial contracts are subject to the doctrine of ‘Caveat empter’ ( let
the buyer beware ) which does not prevail in the insurance contract. In the above doctrine it
is the duty of the buyer to satisfy himself, the genuineness of the subject matter and the seller
is under no obligations to supply information about it.

But in the insurance contract both the parties should disclose in the form in which it
really exist and there should be no concealment, misrepresentation, mistake, or fraud about
the material facts. Even though, the principle is equally applicable to both the parties, the
onus of making a full disclosure of al material facts rests primarily on the insured. Examples
of material facts are:

a) In life insurance : Information relating to age, income, health, diseases, family

history, nature of business or profession.

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 b) In fire insurance, it is relating to activities of firm, condition of godown, the
detailsof the goods stored, whether such goods are of hazardous nature. In motor
insurance, details of the drivers, condition of vehicle etc.

The whole truth must be disclosed about the subject matter of insurance, so that
the underwriter may know the extent of his risk and the amount he must charge for the
insurance policy as a premium. It is the duty of the insurer to disclose all the relevant facts
about the policy conditions and benefits. The facts should be disclosed at the time of
entering into the contract and if there are some changes subsequently, then the same should
be intimated to the insurer by the insured.

Principle of insurable interest:

The contract is valid only when the insured possess an insurable interest in the
subject matter to be insured. The insurable interest is the pecuniary interest in the property to
be insured whereby the insured is benefited by the existence of the subject matter and will
suffer financial loss on the death or damage of the subject matter.

In the words of Reegel and Miller, “An insurable interest is an interest of such a
nature that the possessor would be financially injured by the occurrence of the event insured
against.

The essentials of a valid insurable interest are the following:

a) There should be subject matter to be insured.

b) The relationship between the subject matter and the policy holder must be recognised
by law.
c) The policy holder should have monetary relationship with the subject matter and the
insured risk must be capable of financial evaluations.
d) The relationship between the policy holder and the subject matter should be such that
the insured is economically benefited by the survival existence of the subject matter
or will suffer economic loss by the death or non- existence of the subject matter.
e) The insurable interest must exist both at the time of the proposal and at the time of
claims in the fire insurance but in the case of life insurance it may not be present at
the time of claim, if the policy is assigned. In case of marine insurance it must exist
at the time of claim.

Insurable interest is the basis of legality of insurance contracts. In the absence of the
insurable interest, the insurance contract becomesvoid and such void contracts are contracts
against public interests.

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Principle of indemnity:
The very foundation of every rule which has been applied to insurance law is that the
contract of insurance contained in a marine or fire policy is a contract of indemnity only. If
ever a preposition is brought forward which is in variance with it, that is to say, which either
will prevent the assured from obtaining a full indemnity or which gives the assured more
than a full indemnity, that proposition must certainly be wrong.

The principle of indemnity implies that on the happening of an event insured against,
the insurer undertakes to place the insured, in the same pecuniary (monetary) position that he
occupied immediately before the event. Indemnity means the exact financial compensation,
which is paid to the insured. According to this contract, the insured should be neither better
off nor worse off after receiving the insured amount in case of loss due to eventualities.

The main object of this principle is to ensure that the insured is not able to use this
contract for speculation or gambling. The indemnity prevents the insured from benefiting
under the contract and to reduce the impact of moral hazards. The principle is applicable to
all types of contract except life insurances, personal accident and sickness insurance. Under
the contract of insurance, the sum assured will be paid by the insurer when the person dies,
due to the fact that life cannot be indemnified. The principle of indemnity does not apply to
personal insurance because the amount of loss is not easily calculable there.

The measure of indemnity is decided, at the time of entering into the contract itself. In
the event of claim the insured must:

a) Prove that he / she has sustained a monetary loss.

b) Prove the extent and value of his / her loss.
c) Transfer any rights which he / she may have for recovery from another source to
the insurer, if he / she has been fully indemnified.

Principle of subrogation:
This principle is also a corollary to the principle of indemnity. Subrogation may be
defined as the transfer of rights and remedies of the insured to the insurer who has
compensated the insured in respect of the loss.

a) It literally means, “to stand in place of”. It is the right of one person to stand at law in
the place of another and to avail all rights and remedies of that other person.
b) Often when a claim occurs there may be two avenues of recovery. Suppose “A”
drives negligently and causes an accident damaging B’s car. If B’s car is insured then
two options are open to “B” to recover his loss. “B” can sue “A” for damages or he
can claim from his insurer. If B pursues both avenues he will receive double
compensation. To prevent B from profiting from his loss subrogation is used in terms
of which once the insurer has paid B the insurer assumes all B’s rights to sue A. this
ensure that principle of indemnity is preserved

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Subrogation has a number of sub-principles namely:
a) The insurer cannot be subrogated to the insured’s right of action until it has paid the
insured and made good the loss.
b) The insurer can be subrogated only to actions, which the insured would have brought
him.
c) The insurer must not prejudice the insurer’s right of subrogation. Thus the insured
may not compromise or renounce any right of action he has against the 3 rd party, if
by doing so he could diminish his loss.
d) Subrogation against the insurer. Just as insured cannot profit from his loss the insurer
may not make a profit from the subrogation rights. The insurer is only entitled to
recover the exact amount they paid as indemnity nothing more. If they recover more
the balance should be given to the insured.
e) Subrogation gives the insurer the right of salvage.

Principle of Contribution:
The principle is applicable to all types of insurance contracts, except life insurance.
Where an insurer gets the subject matter insured with more than one insurer, in case of loss
or damage to the insured property, the insurers shall contribute towards the claim in
proportion to the sum assured with each.

Contribution condition is a corollary to the principle of indemnity. If an insured

obtains more than one policy covering the same risk, he cannot recover in total more than a
full indemnity. The essentials of this principle are:

a) The policies covers the same perils.

b) The policies cover the same subject matter.
c) The policies should be in force when loss occurs.
d) The policies cover a common interest

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Principle of proximate cause:
Proximate cause can be defined as “ The active efficient cause that sets in motion a
chain of events which brings about a result, without the intervention of any new force started
and working actively from a new independent source.”

a) In Insurance the rule is that for a loss to be paid or compensated under a policy
of insurance, it must have been caused by an insured peril. Unless the loss is
proximately caused by an insured peril the policy does not pay or respond.
b) The onus of proving that the loss was proximately caused by an insured peril
rests with the insured.
c) If the insured makes a prima-facie case that the loss was proximately caused by
an insured peril the insurer is obliged to indemnify unless they can prove that
an exception applies.

This principle keeps the scope of the insurance within the limits intended by the
insured and the insurer when the contract was made. It also helps in giving effect to the real
meaning and intention of insurance contract. In the absence of this rule, every loss could be
claimed by the insured and the insurer could reject every loss. Thus, the principle serves not
only to define the scope of coverage under the insurance contract but also to protect the
rightsof the parties to the contract. A proximate cause is the first event in a chain of events
that gives rise to a claim of the insurance.

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 FUNCTIONS OF INSURANCE

The functions of Insurance can be bifurcated into two parts:

(a) Primary Functions
(b) Secondary Functions

(a) Primary Functions

The primary functions of insurance include the following:

 Provide Protection
The primary function of insurance is to provide protection against future risk, accidents and
uncertainty. Insurance cannot check the happening of the risk, but can certainly provide for
losses of risk. Insurance is actually a protection against economic loss, by sharing the risk
with others.
 Assessment of risk
Insurance determines the probable volume of risk by evaluating various factors that give rise
to risk. Risk is the basis for determining the premium rate also.
 Collective bearing of risk
Insurance is a device to share the financial loss of few among many others. Insurance is a
mean by which few losses are shared among larger number of people. All the insured
contribute premiums towards a fund, out of which the persons exposed to a particular risk are
paid.
 Savings and investment
Insurance serves as a tool for savings and investment, insurance is a compulsory way of
savings and it restricts the unnecessary expenses by the insured. For the purpose of availing
income-tax exemptions, people invest in insurance also.

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 (b) Secondary Functions

The secondary functions of insurance include the following:

 Prevention of Losses
Insurance cautions individuals and businessmen to adopt suitable device to prevent
unfortunate consequences of risk by observing safety instructions; installation of automatic
sparkler or alarm systems, etc. Reduced rate of premiums stimulate more business and better
protection to the insured.
 Small capital to cover large risks
Insurance relieves the businessmen from security investments, by paying small amount of
premium against larger risks and uncertainty.
 Contributes towards the development of large industries
Insurance provides development opportunity to large industries having more risks. Even the
financial institutions may be prepared to give credit to sick industrial units which have
insured their assets including plant and machinery.
 Source of Earning Foreign Exchange
Insurance is an international business. The country can earn foreign exchange by way of issue
of insurance policies.
 Risk Free Trade
Insurance promotes exports insurance, which makes the foreign trade risk free with the help
of different types of policies under marine insurance cover.

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 INDUSTRY PROFILE

The insurance industry has faced many challenges over the last decade which
include following:

Globalization is pushing companies to operate in different continents forcing

them to enter into new partnerships in order to improve efficiencies

Competition between the various players has resulted in increased merger and
acquisition activities driving industry convergence and value chain
decomposition

The customer is more knowledgeable and demanding than ever before and this
is forcing companies to perform process integration, operational restructuring
and technology upgrades

Insurance companies are moving beyond their traditional business models and
are searching for the right combination of technology and processes to remain
profitable. Companies are investing more in information technology in order to
alter their business models and processes.
No matter how well-managed or financially sound a given insurer might be, none are
immune to the effects of a contracting or slow growing economy. The double-digit
inflation rate is an uncomfortable factor for the Indian economy. And the central bank
of India, RBI, has the huge task of balancing the two – controlling inflation without
dampening growth too much.

India is a diverse country with various languages, food, culture, spending and saving
patterns. Historically, the majority of life insurance players have followed a national
strategy, with largely similar distribution and operating models across geographies.
Going forward, with increasing economic pressures, players will need to make very
conscious choices about ‘where’ and ‘how’ to compete. While advice based sales
through agency distribution remains the most suitable distribution channel, to expand
the reach there is a need to utilize the existing retail distribution networks available in
the country. This may require simplified product designs to promote OTC life
insurance solutions

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 INSURANCE REGULATORY AND
DEVELOPMENT AUTHORITY

The Insurance Regulatory and Development Authority of India (IRDAI) is an autonomous,

statutory agency tasked with regulating and promoting the insurance and re-insurance
industries in India. It was constituted by the Insurance Regulatory and Development
Authority Act, 1999, an Act of Parliament passed by the Government of India. The agency's
headquarters are in Hyderabad, Telangana, where it moved from Delhi in 2001.

IRDAI is a 10-member body including the chairman, five full-time and four part-time
members appointed by the government of India.

 Duties, Powers and Functions of IRDA :

Section 14 of IRDA Act, 1999 lays down the duties, powers and functions of IRDA:
(1) Subject to the provisions of this Act and any other law for the time being in force, the
Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance
business and re-insurance business.
(2) Without prejudice to the generality of the provisions contained in sub-section (1), the
powers and functions of the Authority shall include:
(a) Issue to the applicant a certificate of registration, renew, modify, withdraw, suspend
or cancel such registration;
(b) Protection of the interests of the policy holders in matters concerning assigning of
policy, nomination by policy holders, insurable interest, settlement of insurance claim,
surrender value of policy and other terms and conditions of contracts of insurance;
(c) Specifying requisite qualifications, code of conduct and practical training for
intermediary or insurance intermediaries and agents;
(d) Specifying the code of conduct for surveyors and loss assessors;
(e) Promoting efficiency in the conduct of insurance business;
(f) Promoting and regulating professional organizations connected with the insurance and
re-insurance business;
(g) Levying fees and other charges for carrying out the purposes of this Act;

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(h) Calling for information from, undertaking inspection of, conducting enquiries and
investigations including audit of the insurers, intermediaries, insurance intermediaries and
other organizations connected with the insurance business;
(i) Control and regulation of the rates, advantages, terms and conditions that may be
offered by insurers in respect of general insurance business not so controlled and
regulated by the Tariff Advisory Committee under section 64U of the Insurance Act,
1938 (4 of 1938);
(j) Specifying the form and manner in which books of account shall be maintained and
statement of accounts shall be rendered by insurers and other insurance intermediaries;
(k) Regulating investment of funds by insurance companies;
(l) Regulating maintenance of margin of solvency;
(m)Adjudication of disputes between insurers and intermediaries or insurance
intermediaries;
(n) Supervising the functioning of the Tariff Advisory Committee;
(o) Specifying the percentage of premium income of the insurer to finance schemes for
promoting and regulating professional organizations referred to in clause (f);
(p) Specifying the percentage of life insurance business and general insurance business to
be undertaken by the insurer in the rural or social sector; and
(q) Exercising such other powers as may be prescribed.

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 MALHOTRA COMMITTEE

In 1993, Malhotra Committee- headed by former Finance Secretary and RBI Governor R.N.
Malhotra- was formed to evaluate the Indian insurance industry and recommend its future
direction. The Malhotra committee was set up with the objective of complementing the
reforms initiated in the financial sector. The reforms were aimed at creating a more efficient
and competitive financial system suitable for the requirements of the economy keeping in
mind the structural changes currently underway and recognising that insurance is an
important part of the overall financial system where it was necessary to address the need for
similar reforms. In 1994, the committee submitted the report and some of the key
recommendations included:
(i) Structure
Government stake in the insurance Companies to be brought down to 50%. Government
should take over the holdings of GIC and its subsidiaries so that these subsidiaries can act as
independent corporations. All the insurance companies should be given greater freedom to
operate.
(ii) Competition
Private Companies with a minimum paid up capital of Rs.1bn should be allowed to enter the
sector. No Company should deal in both Life and General Insurance through a single entity.
Foreign companies may be allowed to enter the industry in collaboration with the domestic
companies. Postal Life Insurance should be allowed to operate in the rural market. Only one
State Level Life Insurance Company should be allowed to operate in each state.
(iii) Regulatory Body
The Insurance Act should be changed. An Insurance Regulatory body should be set up.
Controller of Insurance- a part of the Finance Ministry- should be made independent.
(iv) Investment
Mandatory Investments of LIC Life Fund in government securities to be reduced from 75%
to 50%. GIC and its subsidiaries are not to hold more than 5% in any company (their current
holdings to be brought down to this level over a period of time)
(v) Customer service
LIC of India should pay interest on delays in payments beyond 30 days. Insurance companies
must be encouraged to set up unit linked pension plans. Computerisation of operations and
updating of technology to be carried out in the insurance industry. The committee emphasised

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that in order to improve the customer services and increase the coverage of insurance
policies, industry should be opened up to competition. But at the same time, the committee
felt the need to exercise caution as any failure on the part of new players could ruin the public
confidence in the industry. Hence, it was decided to allow competition in a limited way by
stipulating the minimum capital requirement of Rs.100 crores. The committee felt the need to
provide greater autonomy to insurance companies in order to improve their performance and
enable them to act as independent companies with economic motives. For this purpose, it had
proposed setting up an independent regulatory body- The Insurance Regulatory and
Development Authority.

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 INSURANCE ACT,1938
The Insurance Act,1938 and its subsequent amendments in 1950 and 1999 are
serious attempts to address various issues relating to the business.Some of them are:

 Protection of policy holder interest.

 Limiting the expenses of insurance organizations.
 Establishment of tariff advisory committee.
 Solvency levels to be maintained
 Creation of insurance organization.
 Defining the roles and responsibilities of various functionaries associated with the
business.

Features of Insurance Act 1938:

1. The Act applies to all types of insurance business- life,marine etc done by companies
incorporated in India.
2. The insurer carrying on the business of life insurance,general insurance or re-insurance
shall be registered only if:
a) A paid up capital or rupees one hundred crores,in case of a person carrying on the
business of life insurance or general insurance;or
b) A paid up capital of rupees two hundred crores,in case of a person carrying on
exclusively the business as a reinsurer.
3. Regarding deposits,to prevent the growth of insurers of small financial resources or
speculative concerns,the Act provided for registration of all insurers and a substantial
deposit with the Reserve Bank.
4. No company can carry on the insurance business unless he has obtained from the
Authority a certificate of registration for the particular class of business
5. The audited accounts and balance sheet and actuarial report and abstract and four copies
thereof shall be furnished as returns to the Authority.

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 LIFE INSURANCE

Life insurance (or life assurance, especially in the Commonwealth of Nations) is a contract
between an insurance policy holder and an insurer or assurer, where the insurer promises to
pay a designated beneficiary a sum of money (the benefit) in exchange for a premium, upon
the death of an insured person (often the policy holder). Depending on the contract, other
events such as terminal illness or critical illness can also trigger payment. The policy holder
typically pays a premium, either regularly or as one lump sum. Other expenses, such as
funeral expenses, can also be included in the benefits.

Life policies are legal contracts and the terms of the contract describe the limitations of the
insured events. Specific exclusions are often written into the contract to limit the liability of
the insurer; common examples are claims relating to suicide, fraud, war, riot, and civil
commotion.

Life-based contracts tend to fall into two major categories:

 Protection policies – designed to provide a benefit, typically a lump sum payment, in

the event of a specified occurrence. A common form—more common in years past—
of a protection policy design is term insurance.
 Investment policies – the main objective of these policies is to facilitate the growth
of capital by regular or single premiums. Common forms (in the U.S.) are whole life,
universal life, and variable life policies.

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 Parties to contract
a) Proposer : The proposer, also known as the premium payer or the
policyholder, pays the premium. For determining whether future
premiums can be paid to keep the contract alive, ability of the proposer is
considered. All tax benefits as well as maturity proceeds are available to
the proposer.
b) Life Assured : The life assured, as known as the life insured, is the
person on whose life the policy is taken. Mortality or risk premium is
charged based on the age of the life assured. As stated above, an insurable
interest should exist between the proposer and life assured.
c) Nominee : Where the proposer and life assured are the same persons, it is
mandatory to nominate a person to receive the benefits of the insurance
policy in the event the proposer deceased before the policy matures. A
nominee has to be a real person, i.e. artificial bodies like company and
trust can’t become nominee.
d) Appointee : If the nominee is a minor, an appointee is required to act on
behalf of the nominee till he / she attains majority.
e) Assignee : An insurance policy can be assigned to another person (real
persons and artificial bodies are acceptable as assignees) who then
becomes the owner of the policy and is entitled to receive policy benefits.
As a result of an assignment, an assignee supersedes the policyholder
who has assigned the policy.

Chart of a life insurance parties

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 In cases where the policy owner is not the insured (also referred to as the celui qui vit or
CQV), insurance companies have sought to limit policy purchases to those with an insurable
interest in the CQV. For life insurance policies, close family members and business partners
will usually be found to have an insurable interest. The insurable interest requirement
usually demonstrates that the purchaser will actually suffer some kind of loss if the CQV
dies. Such a requirement prevents people from benefiting from the purchase of purely
speculative policies on people they expect to die. With no insurable interest requirement, the
risk that a purchaser would murder the CQV for insurance proceeds would be great. In at
least one case, an insurance company which sold a policy to a purchaser with no insurable
interest (who later murdered the CQV for the proceeds), was found liable in court for
contributing to the wrongful death of the victim (Liberty National Life v. Weldon, 267
Ala.171 (1957)).

 Contract terms

Special exclusions may apply, such as suicide clauses, whereby the policy becomes null and
void if the insured commits suicide within a specified time (usually two years after the
purchase date; some states provide a statutory one-year suicide clause). Any
misrepresentations by the insured on the application may also be grounds for nullification.
Most US states specify a maximum contestability period, often no more than two years.
Only if the insured dies within this period will the insurer have a legal right to contest the
claim on the basis of misrepresentation and request additional information before deciding
whether to pay or deny the claim.
The face amount of the policy is the initial amount that the policy will pay at the death of the
insured or when the policy matures, although the actual death benefit can provide for greater
or lesser than the face amount. The policy matures when the insured dies or reaches a
specified age (such as 100 years old).

 Costs, insurability, and underwriting

The insurance company calculates the policy prices (premiums) at a level sufficient to fund
claims, cover administrative costs, and provide a profit. The cost of insurance is determined
using mortality tables calculated by actuaries. Mortality tables are statistically based tables
showing expected annual mortality rates of people at different ages. Put simply, people are
more likely to die as they get older and the mortality tables enable the insurance companies
to calculate the risk and increase premiums with age accordingly. Such estimates can be
important in taxation regulation.

In the 1980s and 1990s, the SOA 1975–80 Basic Select & Ultimate tables were the typical
reference points, while the 2001 VBT and 2001 CSO tables were published more recently.
As well as the basic parameters of age and gender, the newer tables include separate

21
mortality tables for smokers and non-smokers, and the CSO tables include separate tables
for preferred classes.[10]

The mortality tables provide a baseline for the cost of insurance, but the health and family
history of the individual applicant is also taken into account (except in the case of Group
policies). This investigation and resulting evaluation is termed underwriting. Health and
lifestyle questions are asked, with certain responses possibly meriting further investigation.
Specific factors that may be considered by underwriters include:

 Personal medical history

 Family medical history
 Driving record
 Height and weight matrix, otherwise known as BMI (Body Mass Index)
Based on the above and additional factors, applicants will be placed into one of several
classes of health ratings which will determine the premium paid in exchange for insurance at
that particular carrier.
Life insurance companies in the United States support the Medical Information Bureau
(MIB),[15] which is a clearing house of information on persons who have applied for life
insurance with participating companies in the last seven years. As part of the application, the
insurer often requires the applicant's permission to obtain information from their physicians.

Automated Life Underwriting is a technology solution which is designed to perform all or

some of the screening functions traditionally completed by underwriters, and thus seeks to
reduce the work effort, time and/or data necessary to underwrite a life insurance application.
These systems allow point of sale distribution and can shorten the time frame for issuance
from weeks or even months to hours or minutes, depending on the amount of insurance
being purchased.

The mortality of underwritten persons rises much more quickly than the general population.
At the end of 10 years, the mortality of that 25-year-old, non-smoking male is
0.66/1000/year. Consequently, in a group of one thousand 25-year-old males with a
$100,000 policy, all of average health, a life insurance company would have to collect
approximately $50 a year from each participant to cover the relatively few expected claims.
(0.35 to 0.66 expected deaths in each year × $100,000 payout per death = $35 per policy.)
Other costs, such as administrative and sales expenses, also need to be considered when
setting the premiums. A 10-year policy for a 25-year-old non-smoking male with preferred
medical history may get offers as low as $90 per year for a $100,000 policy in the
competitive US life insurance market.

Most of the revenue received by insurance companies consists of premiums, but revenue
from investing the premiums forms an important source of profit for most life insurance
companies. Group Insurance policies are an exception to this.

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 In the United States, life insurance companies are never legally required to provide coverage
to everyone, with the exception of Civil Rights Act compliance requirements. Insurance
companies alone determine insurability, and some people are deemed uninsurable. The
policy can be declined or rated (increasing the premium amount to compensate for the
higher risk), and the amount of the premium will be proportional to the face value of the
policy.

Many companies separate applicants into four general categories. These categories are
preferred best, preferred, standard, and tobacco. Preferred best is reserved only for the
healthiest individuals in the general population. This may mean, that the proposed insured
has no adverse medical history, is not under medication, and has no family history of early-
onset cancer, diabetes, or other conditions. Preferred means that the proposed insured is
currently under medication and has a family history of particular illnesses. Most people are
in the standard category.

People in the tobacco category typically have to pay higher premiums due to the higher
mortality. Recent US mortality tables predict that roughly 0.35 in 1,000 non-smoking males
aged 25 will die during the first year of a policy. Mortality approximately doubles for every
extra ten years of age, so the mortality rate in the first year for non-smoking men is about 2.5
in 1,000 people at age 65. Compare this with the US population male mortality rates of 1.3
per 1,000 at age 25 and 19.3 at age 65 (without regard to health or smoking status).

 Death proceeds

Upon the insured's death, the insurer requires acceptable proof of death before it pays the
claim. The normal minimum proof required is a death certificate, and the insurer's claim
form completed, signed, and typically notarized.[citation needed] If the insured's death is
suspicious and the policy amount is large, the insurer may investigate the circumstances
surrounding the death before deciding whether it has an obligation to pay the claim.
Payment from the policy may be as a lump sum or as an annuity, which is paid in regular
installments for either a specified period or for the beneficiary's lifetime.

 Insurance vs assurance

The specific uses of the terms "insurance" and "assurance" are sometimes confused. In
general, in jurisdictions where both terms are used, "insurance" refers to providing coverage
for an event that might happen (fire, theft, flood, etc.), while "assurance" is the provision of
coverage for an event that is certain to happen. In the United States, both forms of coverage
are called "insurance" for reasons of simplicity in companies selling both products.[citation
needed] By some definitions, "insurance" is any coverage that determines benefits based on
actual losses whereas "assurance" is coverage with predetermined benefits irrespective of the
losses incurred.

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 Life insurance may be divided into two basic classes: temporary and permanent; or the
following subclasses: term, universal, whole life, and endowment life insurance.

1. Term insurance

Term assurance provides life insurance coverage for a specified term. The policy does not
accumulate cash value. Term insurance is significantly less expensive than an equivalent
permanent policy but will become higher with age. Policy holders can save to provide for
increased term premiums or decrease insurance needs (by paying off debts or saving to
provide for survivor needs).

Mortgage life insurance insures a loan secured by real property and usually features a level
premium amount for a declining policy face value because what is insured is the principal
and interest outstanding on a mortgage that is constantly being reduced by mortgage
payments. The face amount of the policy is always the amount of the principal and interest
outstanding that are paid should the applicant die before the final installment is paid.

2. Universal life coverage

Universal life insurance (ULl) is a relatively new insurance product, intended to combine
permanent insurance coverage with greater flexibility in premium payments, along with the
potential for greater growth of cash values. There are several types of universal life
insurance policies, including interest-sensitive (also known as "traditional fixed universal
life insurance"), variable universal life (VUL), guaranteed death benefit, and has equity-
indexed universal life insurance. Universal life insurance policies have cash values. Paid-in
premiums increase their cash values; administrative and other costs reduce their cash values.

Universal life insurance addresses the perceived disadvantages of whole life—namely that
premiums and death benefits are fixed. With universal life, both the premiums and death
benefit are flexible. With the exception of guaranteed-death-benefit universal life policies,
universal life policies trade their greater flexibility off for fewer guarantees.
"Flexible death benefit" means the policy owner can choose to decrease the death benefit.
The death benefit can also be increased by the policy owner, usually requiring new
underwriting. Another feature of flexible death benefit is the ability to choose option A or
option B death benefits and to change those options over the course of the life of the insured.
Option A is often referred to as a "level death benefit"; death benefits remain level for the
life of the insured, and premiums are lower than policies with Option B death benefits,
which pay the policy's cash value—i.e., a face amount plus earnings/interest. If the cash
value grows over time, the death benefits do too. If the cash value declines, the death benefit
also declines. Option B policies normally feature higher premiums than option A policies.

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3. Whole life insurance
Whole life insurance, or whole of life assurance (in the Commonwealth of Nations),
sometimes called "straight life" or "ordinary life," is a life insurance policy which is
guaranteed to remain in force for the insured's entire lifetime, provided required premiums
are paid, or to the maturity date .As a life insurance policy it represents a contract between
the insured and insurer that as long as the contract terms are met, the insurer will pay the
death benefit of the policy to the policy's beneficiaries when the insured dies. Because whole
life policies are guaranteed to remain in force as long as the required premiums are paid, the
premiums are typically much higher than those of term life insurance where the premium is
fixed only for a limited term. Whole life premiums are fixed, based on the age of issue, and
usually do not increase with age. The insured party normally pays premiums until death,
except for limited pay policies which may be paid-up in 10 years, 20 years, or at age 65.
Whole life insurance belongs to the cash value category of life insurance, which also includes
universal life, variable life, and endowment policies.

4. Endowment policy
An endowment policy is a life insurance contract designed to pay a lump sum after a specific term (on
its 'maturity') or on death. Typical maturities are ten, fifteen or twenty years up to a certain age limit.
Some policies also pay out in the case of critical illness.

Policies are typically traditional with-profits or unit-linked (including those with unitised with-profits
funds).Endowments can be cashed in early (or surrendered) and the holder then receives the surrender
value which is determined by the insurance company depending on how long the policy has been
running and how much has been paid into it.

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Advantages Of Life Insurance
Life insurance has no competition from any other business. Many people think that life
insurance is an investment or a means of saving. This is not a correct view. When a person
saves, the amount of funds available at any time is equal to the amount of money set aside in
the past, plus interest. This is so in a fixed deposit in the bank, in national savings certificates,
in mutual funds and all other savings instruments. If the money is invested in buying shares
and stocks, there is the risk of the money being lost in the fluctuations of the stock market.
Even if there is no loss, the available money at any time is the amount invested plus
appreciation. In life insurance, however, the funs available is not the total of the savings
already made (premiums paid),but the amount one wished to have at the end of the savings
period (which is the next 20 or 30 years).

Even so, a comparison with other forms of savings will show that life insurance has the
following advantages:-
a) In the event of death, the settlement is easy. The heirs can collect the moneys quicker,
because of the facility of nomination and assignment. The facility of nomination is
now available for some bank accounts.
b) There is a certain amount of compulsion to go though the plans of savings. In other
forms, if one changes the original plan of savings, this is no loss. In insurance, there is
a loss.
c) Creditors cannot claim the life insurance moneys. They can be protected against
attachments by courts.
Marketability and liquidity are better. A life insurance policy is property and can be
transferred or mortgaged. Loans can be raised against the policy.

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 PROFILE OF LIFE INSURANCE
COMPANIES IN INDIA

All private life insurance companies and public sector company operating in India during
2000-01 to 2016-17 were taken for the study. Life Insurance Corporation which is the only
public sector life insurer and twenty two private sector life insurers, most of them joint
ventures between Indian groups and global insurance giants, were taken for the study.

PUBLIC SECTOR

Life Insurance Corporation of India

Life Insurance Corporation of India (LIC) is an autonomous body authorized to run
the life insurance business in India with its Head Office at Mumbai. About 154 Indian
insurance companies, 16 non-Indian companies and 75 provident fund societies were
operating in India at the time of nationalization. Nationalization was accomplished in
two stages; initially the management of the companies was taken over by means of an
Ordinance, and later, the ownership by means of a comprehensive bill. The Parliament
of India passed the Life Insurance Corporation Act on the 19th of June 1956, and the
Life Insurance Corporation of India was created on 1st September, 1956, with the
objective of spreading life insurance much more widely and in particular to the rural
areas with a view to reach all insurable persons in the country, providing them
adequate financial cover at a reasonable cost.

PRIVATE SECTOR

The Government having tried various models for the insurance industry such as privatization
with negligible regulation (pre 1956) and nationalization (1956-2000) and having observed
sub optimal performance of the sector, resorted to adopting a hybrid model of both these,
resulting in privatization of the sector with an efficient regulatory mechanism (post 2000).
This was initiated with the aim of making the industry competitive so that there are more
players offering a greater variety of products over a large section of the population. The
following companies are entitled to do insurance business in India.

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 KOTAK LIFE INSURANCE

Kotak Mahindra Old Mutual Life Insurance Limited is a private Life Insurance company in
India. The company is jointly owned by Kotak Mahindra group of India and Old Mutual of
South Africa in 74:26 ratio respectively. The company was founded in 2001. The company
currently caters to 15 million customers. The company has presence of 232 branches in
around 167 cities and towns in India and has an agency strength of 99,275 agents.

Under the umbrella, the company offers various protection plans, savings and investment
plans, child plans and retirement plans.

HISTORY
In 1985 Uday Kotak established an Indian financial services conglomerate. In February 2003,
Kotak Mahindra Finance Ltd. (KMFL), the Group's flagship company, received a banking
licence from the Reserve Bank of India (RBI). With this, KMFL became the first non-
banking finance company in India to be converted into a bank – Kotak Mahindra Bank
Limited (Kmb) ltd.

In a study by Brand Finance Banking 500, published in February 2014 by the Banker
magazine (from The Financial Times Stable), KMBL was ranked 245th among the world's
top 500 banks with brand valuation of around half a billion dollars ($481 million) and brand
rating of AA+. and merged with ING Vysya bank in 2015.

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In 2014, Kotak Bank acquired ING Vysya Bank in a deal valued at ₹15,000 crore (US$2.4
billion). With the merger, total employment will jump to almost 40,000, and the count of
branches reached 1261.Post the merger, ING Group, which controlled ING Vysya Bank, will
own a 7% share in Kotak Mahindra Bank.

UDAY KOTAK (FOUNDER OF KOTAK BANK)

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A Lifeline of Value
Kotak Mahindra one of India's leading financial institutions was born in 1985 as Kotak
Capital Management Finance Limited. This company was promoted by Mr. Uday Kotak , Mr.
Sidney A. A. Pinto and Kotak & Company. Industrialists Mr. Harish Mahindra and Mr.
Anand Mahindra took a stake in 1986, and that's when the company changed its name to
Kotak Mahindra Finance Limited.

It's been a steady and confident journey to growth and success.

1986 Kotak Mahindra Finance Limited starts the activity of Bill Discounting
1987 Kotak Mahindra Finance Limited enters the Lease and Hire Purchase market
1990 The Auto Finance division is started
1991 The Investment Banking Division is started. Takes over FICOM, one of India’s
largest financial retail marketing networks
1992 Enters the Funds Syndication sector
1995 Brokerage and Distribution businesses incorporated into a separate company -
Kotak Securities. Investment Banking division incorporated into a separate
company - Kotak Mahindra Capital Company
1996 The Auto Finance Business is hived off into a separate company – Kotak Mahindra
Primus Limited. Kotak Mahindra takes a significant stake in Ford Credit Kotak
Mahindra Limited, for financing Ford vehicles. The launch of Matrix Information
Services Limited marks the Group’s entry into information distribution.
1998 Enters the mutual fund market with the launch of Kotak Mahindra Asset
Management Company.
2000 Kotak Securities launches kotakstreet.com - its on-line broking site. Formal
commencement of private equity activity through setting up of Kotak Mahindra
Venture Capital Fund.
2001 Matrix sold to Friday Corporation
Launches Insurance Services
2003 Kotak Mahindra Finance Ltd. converts to bank

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 HDFC STANDARD LIFE INSURANCE

HDFC Life (HDFC Standard Life Insurance Company) is a long-term life insurance provider
with its headquarters in Mumbai, offering individual and group insurance.

It is a joint venture between Housing Development Finance Corporation Ltd (HDFC), one of
India's leading housing finance institution and Standard Life plc, leading well known
provider of financial savings & investments services in the United Kingdom. HDFC Ltd.
holds 72.37% and Standard Life (Mauritius Holding) Ltd. holds 26.00% of equity in the joint
venture, while the rest is held by others.

CORPORATE HISTORY
The Insurance Regulatory and Development Authority (IRDA) was constituted in 1999 as an
autonomous body to regulate and develop the insurance industry. The IRDA opened up the
market in August 2000 with the invitation for application for registrations. HDFC Life was
established in 2000 becoming the first private sector life insurance company in India

By 2001, the company had its 100th customer, strengthened its employee force to 100 and
had settled its first claim. HDFC Life launched its first TV advertising campaign 'Sar Utha
Ke Jiyo' in 2005. In 2006, a study conducted by the Brand Equity – Economic Times had put
HDFC Life at 29th rank in the most trusted Indian Brands amongst the Top 50 Service
Brands of 2010

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The Insurance Regulatory and Development Authority (IRDA) gave accreditation to HDFC
Life for 149 training centres housed in its branches to cater to the mandatory training required
to be given as well as for other sales training requirements in 2009.

In 2012, it the first private life insurance company to bring back pension plans under the new
regulatory regime, with the launch of two pension plans - HDFC Life Pension Super Plus and
HDFC Life Single Premium Pension Super.

PRESENCE & DISTRIBUTION

HDFC Life has about 400+ branches and presence in 980+ cities and towns in India. The
company has also established a liaison office in Dubai.

HDFC Life distributes its products through a multi channel network consisting of Insurance
agents, Bancassurance partners (HDFC Bank, Saraswat Bank, Indian Bank), Direct channel,
Insurance Brokers & Online Insurance Platform.

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