AN

ASSIGNMENT ON

LIFE INSURANCE

Submitted By: Submitted To:

Mayank Jain Mr. Lokesh Uke
Monika Sharma Astt. Professor
DHSGU, Sagar
Neha Verma
Riya Soni
Yashika Rawat
(MBA- 3 sem)

DEPARTMENT OF BUSINESS MANAGEMENT

DR. HARISINGH GOUR CENTRAL UNIVERSITY SAGAR (MP)
YEAR 2017
1
 Table of Contents

1 INTRODUCTION 3
2 PRINCIPLES OF LIFE INSURANCE 4
3 FINANCIAL PLANNING & INSURANCE 8
4 LIFE INSURANCE PRODUCTS 11
5 PENSIONS AND ANNUITIES 14
6 RISK ASSESSMENT & UNDERWRITING 18
7 PREMIUM SETTING 22
8 PRODUCT DEVELOPMENT, DESIGN AND EVALUATION 24
9 REINSURANCE 26
10 CLAIM MANAGEMENT 28
11 MARKETING AND SERVICING 32
12 IT APPLICATONS, TAX PLANNING AND LEGAL FRAMEWORK 35

2
INTRODUCTION

India, the principle of life insurance has been reflected in the institution of the joint-family system in India,
which was one of the best forms of life insurance down the ages. Sorrows and losses were shared by various
family members in the event of the unfortunate demise of a member, as a result of which each member of
the family continued to feel secure.

The break-up of the joint family system and emergence of the nuclear family in the modern era, coupled
with the stress of daily life has made it necessary to evolve alternative systems for security. This highlights
the importance of life insurance to an individual.

The Insurance Act 1938 was the first legislation enacted to regulate the conduct of insurance companies in
India. This Act, as amended from time to time continues to be in force. The Controller of Insurance was
appointed by the Government under the provisions of the Insurance Act.

Life insurance business was nationalised on 1st September 1956 and the Life Insurance Corporation of India
(LIC) was formed. From 1956 to 1999, the LIC held exclusive rights to do life insurance business in India.

The passing of the Insurance Regulatory& Development Act, 1999(IRDA) led to the formation of Insurance
Regulatory and Development Authority (IRDA) in April 2000 as a statutory regulatory body both for life
and non-life insurance industry.

Insurance activity is advantageous as it facilitates economic growth by investing the premium funds, by
protecting individuals, industry and commerce and the nation from the economic impact of losses, removing
anxiety of losses and promotes investment.

The life Insurance Industry in India

The sector of life insurance has witnessed immense growth in the past few years. Today, it is second only to
banks for mobilized savings and forms a formidable part of the capital market.

The life insurance sector controls:

3
* More than Rs. 35,424 crores of deployed capital
* Over Rs. 30,82,508 crores of managed assets
* Investments in infrastructure exceeding Rs 3,46,296 crores. Another indication of the sector's growth is its
infrastructural strength.

Today the life insurance sector comprises of:

* Over 10,947 branches

* More than 20.82 lakh agents
* 2.48 lakh direct employees and growing significantly
* 32.22 crores In-force policies.
The above figures are provisional as of 30th June, 2017 (Council)

What is Insurance?

Life Insurance is the key to good financial planning. On one hand, it safeguards your money and on the
other, ensures its growth, thus providing you with complete financial well being.

Life Insurance can be termed as an agreement between the policy owner and the insurer, where the insurer
for a consideration agrees to pay a sum of money upon the occurrence of the insured individual's or
individuals' death or other event, such as terminal illness, critical illness or maturity of the policy.

Life insurance plans, unlike mutual funds, are beneficial when you look at them as a long term avenue of
investment which also offers protection through life cover.

Life insurance policies are broadly categorized into 2 types; Traditional Plans and Unit Linked Insurance
Plans (ULIPs).

Traditional policies offer in-built guarantees and define maturity benefits through variety of products such as
guaranteed maturity value. The investment risk in traditional life insurance policies is borne by life
insurance companies. Additionally, the investment decisions are regulated to a large extent by IRDAI rules
and regulations, ensuring stable returns with minimal risk. Investment income is distributed amongst the
policy holders through annual bonus. These policies are ideal for policy holders who are not market savvy
and do not wish to take investment risks.

ULIPs, on the other hand provide a combination of risk cover and investment. More importantly they offer a
flexibility to decide your risk taking profile.

4
PRINCIPLES OF LIFE INSURANCE

These principles are:

(a) Insurable Interest: the legal right to insure;

(b) Utmost Good Faith: the requirement to reveal material information;
(c) Proximate Cause: determining the effective reason for a loss;
(d) Indemnity: providing an exact financial compensation;
(e) Contribution: insurers sharing an indemnity payment;
(f) Subrogation: the insurer taking over rights against third parties.

 Insurable Interest

In simple terms, insurable interest is that relationship with the subject matter (a person, in the case of
life insurance) which is recognized at law and gives rise to a legal right to insure that person. This is
a general law concept that has applied for centuries and is obviously based on common sense.

Some particular points to be noted with this principle are:

(a) Insurable interest in oneself: we all have an insurable interest in our own lives. From the law
concept that husband and wife are one person, it follows that there is also an insurable
interest in one's spouse.
(b) Insurable interest in others: to have an insurable interest in other people, the law requires some
financial involvement which could be at risk by the other person dying.

Some examples which may be reasonably common are:

(i) debtors: if a person owes you money, you may insure him for the amount of the loan, plus
reasonable interest;
(ii) business partners: especially where personal services are involved, such as musicians, lawyers,
medical practitioners etc;
(iii) contract relationships: if another person's services have been engaged under contract (booking a
singer for a concert, professional sportsperson etc.), that person's death may cause the
other contract party to suffer financially. That potential loss is insurable.
(c) A parent or guardian of a minor (person aged under 18) is given an insurable interest in that
young person. Apart from one’s spouse, only the relationships mentioned
5
 (parent/guardian of a minor) constitute insurable interest arising from blood or family
connection.
(d) When is the interest needed? : this is a key question, and very important consequences flow
from its answer. The answer is that insurable interest is only needed when the contract
begins, and becomes irrelevant thereafter. What could be the (quite legal) consequences of
this? Some examples are:
(i) Divorce: a spouse, who insures his/her spouse and then becomes divorced, can keep the policy in
force and be perfectly entitled to collect the benefit in due time.
(ii) Debts: it is legally possible to insure your debtor, have the debt repaid, keep the policy in force,
and be "paid again" in due time.
(iii) Assignment: it is quite legal to transfer a properly arranged life insurance to a third party,
provided this was not intended at the outset.

 Duty of Disclosure
This concerns another important insurance principle, that of utmost good faith. Simply expressed,
utmost good faith requires the disclosure of all material facts, whether they are requested by the
insurer or not.

A material fact is one that would influence the judgement of a prudent underwriter in deciding
whether to insure a particular risk, or the terms on which to insure it.

Some points to note:

(a) What to disclose: clearly, the insurer wishes to know all important facts, but you cannot be
expected to disclose what you reasonably cannot be expected to know. Some medical conditions,
for example, may be easily recognizable to qualified doctors, but the average layman cannot be
expected to self-diagnose and reveal such things.

(b) Non-medical application: if the insurance is arranged without a physical examination of the
applicant, the insurer will normally have great difficulty in alleging that anything not covered by
questions on the application or personal physician's form is material.

(c) Medical application: if the insurance is arranged with a physical examination of the applicant,
the insurer cannot hold against the applicant any omissions or mis-diagnosing by the medically
qualified person concerned.

6
 (d) Medical tests: the insurer is entitled to supplement information supplied verbally with reasonable
medical examinations or tests.

(e) Breach of the duty: technically, this constitutes a breach of utmost good faith, which normally
renders the contract voidable by the insurer.

Indemnity: this means an exact financial compensation for the loss sustained and is very important in most
Non-life insurance policies. As far as life insurance is concerned, however it is immediately obvious that the
policy proceeds in no way pretend to (or can) represent an exact financial compensation. That is why life
insurances are called benefit policies, not indemnities;

 Indemnity corollaries: a corollary is a sub-principle and indemnity has two corollaries,

Contribution and Subrogation.

(i) Contribution: in most Non-life Insurance classes, if by some chance a person has more than one
policy covering the loss (called, helpfully, double insurance in marine insurance) he does not get
paid twice. Each policy contributes to (shares) the loss rateably. If he has more than one policy
not by chance, it could well be an indication of intended fraud!

In life insurance, the policies do not represent indemnities, so it is quite normal for a person to
have more than one life policy and each must pay in full upon the insured event happening.

(ii) Subrogation: this relates to the right of the insurer who provides an indemnity to take over any
remedies the insured possesses against third parties, to seek to recover his payment to the
insured. This does not apply to life insurances.

If, for example, a third party negligently smashes a person's car (which has comprehensive
cover), the person's motor insurer must pay but can attempt to recover his payment from the
third party. In that same accident if an innocent victim in the car is killed, his life insurer must
pay, but the life insurer has no right of recovery from the third party.

 Proximate cause: this principle is concerned with the discovery of the dominant effective cause
that produced the loss being claimed for under the insurance. The principle dose apply to every
class of business, but it is likely to have rather less significance with life insurance.

7
 The application of proximate cause is very much concerned with different kinds of perils (causes
of loss):

1. Insured Perils: are those which are covered by the policy. Non-life policies may specify the
perils which are covered, and one of those must be the proximate cause of the loss. In life
insurance, the cause of death is probably not critical.
2. Excepted (or Excluded) Perils: in non-life insurances all policies will carry some exclusions.
If one of these is involved with a claim, the insurer is not liable.

3. Uninsured Perils: these are causes of loss which are not included but are also not excluded,
for example water damage with a fire insurance. If property is damaged by water (e.g. by rain)
with no other cause involved, the damage is not covered. But if the water damage is
proximately caused by an insured peril (say fireman fighting a fire with water hoses), the
water damage is covered. Such complexities are unlikely to arise with life insurance claims.
(Insurance, 2016)

FINANCIAL PLANNING

Financial planning is a process of:

Identifying one’s life’s goals, translating these identified goals into financial goals and managing one’s
finances in ways that will help one to achieve those goals. Through this process, one can thus chart a
roadmap to meet expected and unforeseen needs in one’s life.

These needs and goals can be short term, medium term or long term. Individuals have a life cycle with seven
stages – namely that of Learner; Earner; Partner; Parent; Provider; Empty Nester and finally the twilight
years when one is retired. Each stage brings with it corresponding responsibilities and liabilities.

Based on the individual life cycle three types of financial products are needed. These help in:

Enabling future transactions,

Meeting contingencies and
Wealth accumulation

8
Corresponding to the above needs there are three types of products – transactional; contingency and wealth
accumulation products.

An individual’s financial plan may also be influenced by his or her risk profile and investment style.
The need for financial planning is further increased by the changing societal dynamics like disintegration of
the joint family, multiple investment choices that are available today and changing lifestyles etc.

The best time to start financial planning is right after one receives the first salary.

Financial planning advisory services include:

Cash planning: to manage income and expenditure flows and to create surplus cash for capital investment.
Investment planning: to accumulate capital in an optimal way to meet future goals insurance planning, to
provide insurance protection against various types of risks
Retirement planning: to meet the needs of income and make provision for various expenses after one’s
retirement
Estate planning: to ensure smooth devolution and transfer of one’s estate after one’s demise.
Tax planning: to determine how to gain maximum tax benefit from existing tax laws and for planning of
income, expenses and investments taking full advantage of the tax breaks.

WHY LIFE INSURANCE IS IMPORTANT IN FINANCIAL PLANNING

 Financial Planning through Insurance

In the wake of increasing inflation and changing lifestyles, it is imperative for every individual to focus on
financial planning at an early stage.

A financial plan of an individual should be customised to meet one's individual needs at different stages of
life and it is important to have a balanced mix of instruments to address the various needs of protection,
savings and wealth creation. It is observed that people tend to focus on the 'wealth creation' aspect of
financial planning and the 'protection' element often gets compromised or neglected.

 Why Life Insurance?

Life insurance is still a nascent idea and most people do not think about it until a major life change causes
them to consider what might happen to their loved ones in case of any unforeseen circumstances.
9
While the main objective of buying a life insurance policy is to protect oneself from unforeseen
circumstances, it can also help in wealth accumulation, preservation, and give access to liquidity at the right
time, if added as a
component of financial planning.

Most of us usually get confused on how much to invest and where to invest – stocks, bonds, real estate and
many others. Life insurance is a good investment tool, which is comparatively simpler, more affordable and
most importantly caters to the different stages of the individual’s lifecycle.

You can buy a pure protection plan (a term plan) at an early stage which is most affordable or a unit linked
plan
at a later stage which gives you the opportunity of earning higher returns, but involves market risk. There are
specific education plans which ensure that your child’s education is not compromised in case of an
unfortunate
situation and you can also plan your retirement through pension plans.

Too complicated or I still have time

Most people across the world avoid buying life insurance as either they find it complicated, or think it is too
early for them. The concerns are information and choice – a lack of the former and an over-abundance of the
latter. Both are perfectly capable of clouding the most purposeful mind to falter.

Disciplined saving

Apart from being a protection tool, life insurance also helps a consumer save in a disciplined manner which
leads to creation of a good corpus. While other financial instruments may give you exciting returns, there is
no
other instrument which does as much with so little of a consumer’s involvement, investment or expertise.

Addresses multiple needs

The key objective is to secure your family’s financial needs in your absence. These needs should be
scientifically assessed depending on the life stage at which the individual is along with current liabilities,
expectation of future liabilities, number of dependents, financial goals, life style etc. A need in mind makes
the
10
decision process simpler – be it child’s education or daughter’s marriage or planning for your retirement or
loan
repayment.

An added benefit

It also helps you avail of various tax benefits which makes it an even more attractive proposition.

How much do you need?

While there are many complex calculations that are available online, there are some simple thumb rules to
estimate the quantum of insurance needed for an individual. The most common way is to calculate life
insurance as about 20 times of the individual's annual income.

There are many product categories that can cater to the ‘Investment and Wealth creation’ needs of the
customers, but none can offer the advantage of protection along with the benefit of sustained and disciplined
savings as insurance products do. A financial plan would not be complete without the key element of life
insurance so chart out your goals and objectives and make an informed decision.

LIFE INSURANCE PRODUCTS

In popular terms a product is considered same as a commodity– a good brought and sold in the marketplace.
From a marketing standpoint, a product is a bundle of attributes.

Products may be tangible or intangible. Life insurance is a product that is intangible. A life insurance agent
has the responsibility to enable the customer to understand the features of a particular life insurance product,
what it can do and how it can serve the customer’s unique needs.

Life insurance products offer protection against the loss of economic value of an individual’s productive
abilities, which is available to his dependents or to the self. A life insurance policy, at its core, provides
peace of mind and protection to the near and dear ones of the individual in case something unfortunate
happens to him.

The other role of life insurance has been as a vehicle for saving and wealth accumulation. In this sense, it
offers safety and security of investment and also a certain rate of return.

11
Life insurance companies also offer a number of riders to enhance the value of their offerings. A rider is a
provision typically added through an endorsement, which then becomes part of the contract.

Term insurance provides valid insurance cover only during a certain time period that has been specified in
the contract. These plans are renewable at the same premiums that are fixed at the same annual rate for the
whole duration of their term. The other feature of the plan is convertibility, which allows a policyholder to
change or convert a term insurance policy into a permanent plan like “Whole Life” without providing fresh
evidence of insurability.

Term assurance plans are of different varieties – some of them are Decreasing Term Assurance, Increasing
Term Assurance and Term Assurance with return of premiums. The unique selling proposition (USP) of
term assurance is its low price, enabling one to buy relatively large amounts of life insurance on a limited
budget.

Health Insurance
The purpose of health insurance is to help you overcome unforeseen emergencies without compromising on
any other financial goal. Health insurance helps you pay for all your medical expenses. A health insurance
policy also gives you the benefit of covering your loved ones under one plan to avoid any financial
constraints arising on account of a medical emergency.

The benefits:

 Cashless hospitalization in all major hospitals pan India.

 Coverage of pre and post hospitalization expense.
 Coverage of all major day care treatments.

Endowment Plans
Endowment Plans are an ideal choice for the risk-averse customer. Endowments are long-term, regular
savings plans with a built-in life cover.

Provided you have paid all your premiums, at the end of the term the policyholder receives the sum assured
plus accrued / guaranteed bonuses that have been declared over the years, as a lump sum. In case of the
unfortunate death during the term of your plan, the sum assured, will be paid out as a lump sum with the
bonuses that the policy is entitled to.

The benefits of Endowment Plans are as follows:

 Available as money back plans also.

 Option to avail a host of additional rider benefits.
12
  Cover your life for a longer period of time.
 Loan facility can be availed against most of the plans.

Whole Life Insurance

Whole Life Insurance plans provide cover throughout your lifetime. The premium could be paid for as long
as a lifetime or for a limited period Unlike endowment plans they do not carry a maturity value and pay the
sum assured to the family in case of the unfortunate death of the policyholder. A Whole Life Insurance plan
assures that your family is protected against financial loss that could occur your death.

Group Insurance
Group insurance covers a group of people, usually members of societies, employees of a common employer,
or professionals. All employees or members are included under one 'master policy' owned by the employer
/nodal agency. Group Insurance covers both life and savings products along with options like
Superannuation and Health.

Retirement Plans
Retirement Plans make sure that you have support in the twilight years of your life. The savings you set
aside today become your wealth and support in the years to come.

Retirement plans are of two types:

 a. Immediate Annuity Plan

These plans allow you to convert a sum of money into a guaranteed series of payments for a definite
period or for life.

 b. Deferred Annuity Plans

This plan allows you to save regular amounts of money for a peaceful retirement. This type of
annuity has two main phases, the accumulation phase which allows you to invest and save money
into your account, and the payout phase in which the plan is converted into regular annuity
instalments and payments are received.

Retirement Plans offer you benefits such as:

 An alternative to superannuation's and provident fund;

 Compulsory Saving
 Saving Tax
 Choice of Open Market Option, i.e., you have the option to purchase an immediate annuity from
your current insurer or from any other life insurer as recognized by IRDAI.
13
Children's Plans
Insurance today offers a very simple assurance in terms of monetary support to a child and family incase of
death or disability of parent and helps ensure that the shortage of fund never hampers dreams or aspirations
of your child. In short, Children's Plans ensure a secured financial future for your child.

As parents, make sure you keep the following factors in mind before choosing a child insurance plan:

 Should cover your child throughout even if something happens to the parent.
 The payout should be at a age when the child requires it the most, i.e. when he wants to enter his
dream college or needs to start his career.
 Should provide a regular source of income so that child doesn't have to compromise on his dreams
and aspirations.
 Flexibility to move from one investment fund to other by the way of switching of funds
 Your child should not be forced to pay the premiums of the policy.

Wealth Plans
Wealth plans invest the premium in to the equity, debt and cash markets by allocating units, which like any
other mutual fund have a NAV. You are free to switch between one fund to another depending on the risk
factor you wishes to bear. They offer better returns than traditional endowment plans and offer a great deal
of flexibility along with great returns making them the finest product offering.

The benefits:

 Availability in single premium and regular premiums options

 Investment funds ranging from index funds to mid-cap funds and debt market linked funds.
 Option to choose from a host of additional rider benefits
 Tax Benefits as per existing tax laws
 Flexibility to move from one investment fund to other by the way of switching of funds
 Option to infuse additional capital by the way of Top Ups to give your investments a boost.

PENSION AND ANNUITIES

Each refers to income or other financial provision (usually) for retirement or old age.

Pension: A monthly (or other periodic) income benefit payable to a person in retirement, until that person's
death.

The basic objective of any pension is to provide individuals, who have been working and earning an income
during the productive years of their life time, with an income during their old age when they are retired and
14
no longer at work. The need to protect and provide for people when they are old and no longer able to work
and earn, has been well recognised by the State and civil society.

Types of pension schemes

There are three types of pension schemes in existence today-
 Public pensions
 Occupational pensions
 Personal pensions

a) Public pensions are provided by the State. The basic purpose of these pensions is to
fulfil the State’s responsibility to ensure that all citizens receive a minimum level of
income in retirement.
b) Occupational pensions have been set up by employers for their employees, with
contributions from both employers and employees. They are normally sponsored by
employers and form part of the employees’ benefit package.
c) Personal pensions are typically offered and purchased in the form of an annuity
contract between the insurance company or other pension provider and an annuitant.

Annuity: A series of periodic payments to an annuitant, for life or other agreed term or conditions, in return
for a single payment (premium) or series of payments.

Individual annuity plans provided by various life insurance companies are a variant of personal pension
plans.
In the insurance industry, the term ‘annuity’ means a contract under which one party – the insurer –
promises to make a series of periodic payments in exchange for a premium or series of premiums.

The terms of an annuity contract govern the rights and duties of the contracting parties. The parties to an
annuity contract are
(1) the insurer that issued the contract and
(2) the person, known as the contract holder, who applied for and purchased the contract. The contract
holder can be either an individual or an organisation that purchases the annuity on behalf of a group of
individuals.

Annuities are classified according to various criteria:

(a) How the annuity was purchased
15
 Most annuities today are purchased as single-premium annuities. A single-premium annuity is an
annuity that is purchased by the payment of a single, lump sum premium. Benefit payments under a
single-premium annuity may begin shortly after the premium is paid or may begin many years after
the premium is paid.
An annuity also can be purchased by paying periodic premiums over a period of years.
(b) How often periodic annuity benefits are to be paid

The frequency of periodic annuity benefit payments depends on the length of the annuity period. An
annuity period is the time span between each of the payments in the series of periodic annuity benefit
payments. The annuity period is typically either one month (monthly annuity) or one year (annual
annuity), but other options, such as quarterly or semi-annual, are also available.
(c) When annuity benefit payments are scheduled to begin

The date on which the insurer begins to make the annuity benefit payments is known as the annuity’s
maturity date or the annuity date.

An annuity can be classified as either an immediate annuity or a deferred annuity, depending on

when the insurer is to begin making periodic annuity benefit payments.

An immediate annuity is an annuity which benefit payments are scheduled to begin one annuity
period after the annuity is purchased.

A deferred annuity is an annuity under which periodic benefits are scheduled to begin more than
one annuity period after the date on which the annuity was purchased. Although a deferred annuity
typically specifies the date of which benefit payments are scheduled to begin, the contract holder
usually can change this date at any time before those benefit payments begin. People often purchase
deferred annuities during their working years in anticipation of the need for retirement income later
in their lives.

(d) When benefit payments end

The length of the payout period depends on the payout option that the contract holder selects.

Under the three general types of payout options available, the annuity benefits will be paid as either
(1) a life annuity,
16
(2) an annuity certain, or
(3) a temporary life annuity.

A life annuity is an annuity that provides periodic benefit payments for at least the lifetime of a named
individual. Some life annuities also provide further payment guarantees.

An annuity certain can be purchased to provide periodic payments over a period of time that is unrelated to
the lifetime of an annuitant. The named individual whose lifetime is used as the measuring life in a life
annuity is called the annuitant. An annuity certain is an annuity that is payable for a stated period of time,
regardless of whether an individual lives or dies. The stated period over which the insurer will make benefit
payments is called the period certain. At the end of the period certain, annuity payments cease. The annuity
certain is useful when a person needs an income for a specified period of time. An annuity certain also might
be purchased to provide income during a specified period until some other source of income, such as a
pension, becomes payable.

A temporary life annuity provides periodic benefit payments until the end of a specified number of years
or until the death of the annuitant, whichever occurs first. Once the stated period expires or the annuitant
dies, the annuity benefits cease. For example, under the terms of a five-year temporary life annuity, five
years is the maximum length of time during which annuity benefits will be payable. If the annuitant dies
before the end of that five-year period, no further annuity benefits will be payable.

(e) The number of annuitants covered by the annuity policy

When a couple purchases a life annuity, they usually want the annuity to provide benefit payments
throughout both of their lives.

A joint and survivor annuity, which is also known as a joint and last survivorship annuity, provides a
series of payments to two or more individuals, and those payments continue until both or all of the
individuals die.

(f) Whether annuity values are guaranteed or variable.

People who purchase annuities have different purposes in mind for the funds they place in an annuity.
Annuity contract holders also have different capacities for assuming a financial risk when they place money
in their annuities.

Thus, many insurers offer 2 general options to annuity purchasers:

17
(1) the insurer will guarantee to pay at least a stated interest rate on the annuity funds it holds or
(2) the insurer will pay interest at a rate that is not guaranteed; instead, the interest rate will vary according
to the earnings of certain investments held by the insurer.

A fixed-benefit annuity is an annuity under which the insurer guarantees that at least a defined amount of
monthly annuity benefit will be provided for each dollar applied to purchasing the annuity. When an insurer
provides interest rate guarantees in an annuity policy, the insurer agrees to assume the investment risk of the
policy.

A variable annuity is an annuity under which the amount of the policy’s accumulated value and the amount
of the monthly annuity benefit payment will fluctuate in accordance with the performance of an investment
account. The individual who purchases a variable annuity assumes the investment risk of the policy.
(Insurance, Ic-33 Life Insurance, 2014)

RISK ASSESSMENT AND UNDERWRITING

A risk assessment is not about creating huge amounts of paperwork, but rather about identifying sensible
measures to control the risks in your workplace.

UNDERWRITING

Underwriting may be simply described as the assessment of risks for the purposes of insuring them or
deciding what insurance terms should apply. Another way of describing the term is to say that it is
determining the insurability of proposed risks. Since life insurance involves a long-term contract that cannot
be cancelled by the insurer, we may say that normally life insurance underwriting for an individual risk can
only be done once. It is therefore important to get it right first time.

Underwriting has two purposes

i. To prevent anti-selection or selection against the insurer

ii. To classify risks and ensure equity among risks

Anti-selection is the tendency of people, who suspect or know that their chance of experiencing a loss is
high, to seek out insurance eagerly and to gain in the process.

The term “Equity” means that applicants who are exposed to similar degrees of risk must be placed in the
same premium class.
18
To usher equity, the underwriter engages in a process known as risk classification i.e. individual lives are
categorised and assigned to different risk classes depending on the degree of risks they pose.

There are four such risk classes.

Declined lives
Substandard lives
Standard Lives
Preferred Lives.

A. Declined risks: as the name indicates, these are risks that are unacceptable. Insurers
generally try to give cover if they reasonably can, but obviously there are some applications where
health or other factors make it impossible to accept.
B. Sub-standard risks: because of the adverse sound of such a term, some insurers call these special
class risks. In either case, what is implied are risks that cannot be insured under normal terms. They
are insurable, but only subject to certain considerations
C. Standard risks: these present no abnormal features, and are perfectly acceptable at the appropriate
premium according to the age and sex of the applicant.
D. Preferred risks: not all insurers use this category, which implies an above average risk application
that merits a discount or other favourable terms. This may include confirmed non-smokers or
individuals who otherwise represent better prospects of long years before a claim is likely to arise

Underwriting or the selection process may be said to take place at two levels:
At field level
At underwriting department level

Field level or primary underwriting includes information gathering by an agent or company representative
to decide whether an applicant is suitable for granting insurance coverage.

Underwriting at the department or office level involves specialists and other underwriting executives who
carefully consider all the facts before taking a decision to select or not and on what terms.

There are two methods of underwriting

The first is called Judgment underwriting

Under this method subjective judgment is used, often relying on the expert opinion of a medical professional
known as the Medical referee, especially when deciding on a case that is complex.
19
The second method is called Numerical Rating.
Here underwriters assign positive rating or debit points for all negative or adverse factors and negative rating
or credit points for favourable characteristics of the life being selected.

Numerical method of underwriting is widely used for underwriting insurance proposals. Underwriting
decisions made by underwriters may be of different kinds. They include acceptance of standard risks at
standard rates or charging an extra for sub-standard risks.

Sometimes there is acceptance with lien on sum assured or acceptance is based on restrictive clauses. Where
the risk is large the proposal is declined or postponed.

A large number of life insurance proposals may typically get selected for insurance without conducting a
medical examination to check the insurability of a life being insured. Such cases are termed as non-medical
proposals.. Such cases are entertained subject to certain limits being imposed on age at entry, sum assured,
plan of insurance and class of lives.

Rating factors refer to various aspects related to financial situation, life style, habits, family history, personal
history of health and other personal circumstances in the prospective insured’s life that may pose a hazard
and increase the risk. Underwriting involves identifying these hazards and their likely impact and classifying
the risk accordingly.

Some of the rating factors for non-medical underwriting include

Age and gender
Large sum assured
Habits and life styles
Moral hazard etc.

Some of the factors considered in medical underwriting include

Family history including Heredity,
Personal history of disease
Personal Characteristics.

Medical Reports

20
Many life insurances are arranged on a non-medical basis. That is, the information supplied on the
application and other circumstances surrounding the proposal (age, apparent health, sum to be insured etc.)
allow the underwriter to proceed without further enquiry.

Sometimes, however, further information is required from qualified medical practitioners. The source of
such enquiry may be:

(a) an attending physician, by which is meant a doctor or other qualified medical person who usually
or has previously supplied medical care to the applicant;

(b) an examining physician, by which is meant a physician who conducts a medical examination (the
U.S. term commonly used is a physical) at the request of the insurer, who pays for this.

A number of factors need to be considered with this subject:

(a) A sensitive subject: it is human nature to become anxious at the thought of a medical examination.
This is quite illogical, as it must be for one's good to know the truth, but that is not how most of us think.
Insurers are quite aware of this and only request medical information if it is deemed really necessary.

(b) Attending Physician's Statement (APS): this is the most frequently required medical report and the
usual reasons for requesting it are:

(i) specific medical disclosures on the application need further enquiry;

(ii) the amount of insurance requested is high;

(iii) the applicant is at a certain age (say, over 50).

(c) Specialized medical questionnaire: the examining (or attending) physician may be supplied with a
separate questionnaire specifically designed to obtain information on a particular illness or condition that
needs to be considered with the applicant concerned. This may relate to any of a number of conditions,
ranging from blood pressure to cancer, being conditions that previously disclosed information suggests a
need for further enquiry.

(d) Confidentiality: obviously, medical information is very private and the information obtained must be
treated with the utmost confidence. However, if and when medical tests are suggested, the applicant has
the right to know what tests are to be done, what the information is needed for, and (if he wants to know)
the results of any tests.

Sub-Standard Life and Underwriting Measures

21
 Usually for medical, but sometimes for other reasons, a particular applicant may prove to be below
the required standard for acceptance at normal rates. There are a number of possible underwriting
reactions to this situation, including:

(a) Refuse to insure: sometimes called declinature. This is a drastic measure that insurers prefer to
avoid if at all possible. Most life applications can be accommodated, although sometimes the
terms of the insurance may have to be more severe.

(b) Load the premium: increasing the premium is a very standard way of dealing with sub-standard
risks. The extra premium, which may be quite modest or quite substantial according to
circumstances, can normalize the abnormal, for insurance purposes.

(c) Other options: the above two reactions are the most common, but there is wide range of
possibilities, which might include one or more of the following:

(i) a "debt" on the policy, reducing each year so that it disappears the nearer the insured
comes to living a normal life span;

(ii) specific exclusions, perhaps of death from a particularly dangerous pastime or leisure
pursuit (this would be very rare, since it tends to defeat the object of the cover);

(iii) offering a different plan: short term cover may be possible, whereas the medical
evidence indicates that very long-term insurance is doubtful;

(iv) decline to accept at present, i.e. to defer a decision, if the applicant is severely injured or
otherwise has a (hopefully) temporary adverse medical condition. red or otherwise has a
(hopefully) temporary adverse medical condition.

PREMIMUM SETTING
An insurance premium is the money charged by insurance companies for coverage. Insurance premiums for
services differ from company to company, so it is advisable that individuals shop around for insurance
premiums.

However, it is important to note that, sometimes, insurance premiums quoted are slightly different from the
premiums charged. The difference between the quote and the actual charge can be attributed to the way
the insurance premium is calculated.

The amount of insurance premiums charged by the insurance companies is determined by statistics and
mathematical calculations done by the underwriting department of the insurance company.
22
The level of insurance premium charged to a customer depends on statistical data that exists about life
history, age and health.

For example, an 18-year-old man who drives a red sports car is more likely to pay a higher insurance
premium than a 50-year-old man who drives a four-door sedan. Every customer that applies for insurance
goes through the underwriting process.

The final rate of premium will consist of the following components:

o Loss payments
o Loss expenses (e.g. survey fees)
o Agency commission
o Expenses of management
o Margin for reserves for unexpected heavy losses e.g. 7 total losses against 5 assumed
o Margin for profits

The underwriting process involves investigation into familial diseases, analysis of reports like medical
information bureau and motor vehicle reports. After the information is gathered and analyzed, they are
typically analyzed by a statistician, called actuaries, hired by the insurance companies.

After analyzing the data, the actuary tries to predict how likely the insurance applicant will make a claim on
their policy. The higher the probability of a claim, the higher the premiums usually are.

The actuaries are also responsible for studying mathematical data and compiling "mortality and sickness"
tables, which are used to predict prospective losses due to death and sicknesses. The mortality and sickness
tables are basically tables that assign probability to gender and ages about the likelihood to get sick or die.
The actuaries use these tables to develop models that determine how likely it is for a particular individual to
get sick or die at a particular time, based on the data gathered for that individual.

Based on the results of the analysis of data and the information generated from the mortality and sickness
tables, a premium is assigned or charges to the client.

Factors That Affect Your Life Insurance Premiums

1. Your age

All things being equal, the younger you are the lower your rate will be which is why insurance experts often
recommend buying a policy when you’re young. However, you’re never too old to buy life insurance as

23
there are many affordable options available that will ensure you and your family have the coverage you
need.

2. Your health history

If you have a history of health issues, it could result in higher rates.

3. Your current health

You will generally have to go through a medical exam to look for things like high blood pressure or other
health concerns that might be a sign of future problems. People who are currently in good health will
typically see lower rates

4 Your weight

If you are overweight or obese based on a height-to-weight ratio scale, you may pay more for your life
insurance coverage as there is a greater chance for future health problems.

5. Your occupation

If you happen to be a race car driver, insurance companies have good reason to see your job as a bit risky.
Certain dangerous occupations may result in an increase in rates or even denial of coverage because they
carry such a heavy risk of accidental death.

6. Smoking

Smokers pay more for life insurance simply because of the many health risks inherent in the habit. If you
quit smoking, you can qualify for lower rates within a year—just one of the good reasons to quit.

7. Drinking

Heavy alcohol consumption can also take a toll on your health. That is why insurance companies may ask
about your drinking habits. Those who frequently drink are likely to pay more for their insurance rates.

8. Your hobbies

High-risk recreational activities, like skydiving, hang gliding, rock climbing, and scuba diving may increase
your adrenaline, but it could also increase your life insurance rates. However, each insurer is different;
where one life insurer may consider your hobby high risk, another may not.

24
9. Your family history

Those with a family history of serious illnesses such as heart disease and cancer, may find they pay more for
life insurance.

10. Your gender

Women live longer than men as a general rule, which means they will pay generally lower rates for life
insurance.

11. The policy choices you make

The longer the term of the policy and the larger the amount of the death benefit the more you will pay for it.
Simply put, this is because the risk that you will die during the policy term is higher for a Term 30 policy (a
policy that covers you for 30 years) than a policy that covers you for 10 years (a Term 10 policy.) In
addition, the more the death benefit (i.e. the amount that will be paid out to your beneficiaries), the more you
will be charged for coverage. Long term policies are more expensive than short term policies, and whole, or
permanent life insurance is generally more expensive than term life insurance.

PRODUCT DEVELOPMENT, DESIGN AND EVALUATION

Insurers are focused on becoming faster and more agile in their ability to deliver Life and Annuity Products
into both new and established markets. While product development has traditionally been overlooked in
technology acquisition, to be successful business process management tools are necessary to increase the
speed necessary to improve this highly transactional, approval-based and information-heavy effort.

Stages in Product Development

 Goals of the product

* Meets the needs of the marketplace
* Complies with legal and regulatory requirements
* Supports the company's financial goals

 Cycle of activities
* Idea generation
* Idea screening
* Comprehensive business analysis
* Technical product design

25
 * New product implementation
* Product evaluation

 Comprehensive Business Analysis

- Preparatory research
- Product proposal
- Market analysis
- Product design objectives
- Feasibility studies
- Marketing plan
- Forecasts
 Market Analysis
- Needs that the product will meet
- Company's mission and objective
- Appeal to distributors
- Customer appeal
- Product mix
- Target market
- Competitiveness
- Economic outlook
- Tax features
- Compliance issues
 Product Design Objectives
- Specify product characteristics, benefits, limits, features and commissions
- Examples:
* U/W
* Risk Assumed
* Marketing
* Actuarial - life products
* Actuarial - premium s for life products
* Actuarial - annuity products
 Feasibility Study
- Operational and technical
- Competitive and profitable
- Operating and distribution systems are capable
26
  Marketing Plan
- Product, price, distribution and promotional strategies
- Marketing objectives, budgets, standards for evaluating progress
 Forecasts
- Projection of future values, events, or conditions
- Sales Volume, sales revenues, expenses and profits

 Product Evaluation

Evaluated based on:

o Company's financial performance

* Performance of agents and other distributors
* Reactions of customers and competitors
*Compare the actual values to actuarial assumptions
o Adverse deviation
* Identify causes and take corrective action
o product testing process
o Product modification and product elimination

Reinsurance

Reinsurance is a contract between two or more insurance companies by which a portion of risk of loss is
transferred to another insurance company called the reinsurer. Usually, an insurance company insures a
profitable venture that comes in its way, even if the risk involved is beyond the capacity.

But if at a particular stage it feels that the risk undertaken by it is beyond its capacity, then it may retain the
risk which it can bear and transfer the balance. By transferring the risk to any other insurance company, the
insurer reduces his liability. In case of loss, the first company gets compensation from the second company.
The insurer is concerned only with the first company from which it purchased the policy and is not a part of
the reinsurance contract.

Definition
Here are a few definitions of the term re-insurance:
(i) In the words of Reigel and Miller, “Reinsurance is the transfer by an insurance company a portion of its
risk to another company.”
27
(ii) According to the Federation of Insurance Institutes, Mumbai “Reinsurance is an arrangement whereby
an insurer who has accepted an insurance, transfers a part of the risk to another insurer so that his liability on
any one risk is limited to a figure proportionate to his financial capacity.”

(iii) In the words of R. S. Sharma, “When an insurer transfer a part of his risk on a particular policy by
insuring it with some other insurer, it is called re-insurance.”

Reinsurance does not affect the contract between the original insurer and the assured. Reinsurance can be
restored in all types of insurance contracts, which involves larger risks.

As the contract of reinsurance is a contract of good faith, the re-insurer is not liable to the assured and the
contract is co-extensive with the original policy

Under the reinsurance method, if an insurance company receives an insurance proposal worth Rs. 10 crore,
where its risk bearing capacity is of Rs. 5 crore only, it has two options either to reject the proposal or to
accept it. After accepting the proposal, the insurer can limit his liability by getting re-insured for Rs. 5 crore
with another insurer. In case of complete loss the original insurer makes the payment of claim to the insured
for Rs. 10 crore and then claims Rs. 5 crore from the re-insurer(s).

(b) Features of Reinsurance

(i) It is an insurance contract between two insurance companies.

(ii) In re-insurance, the insurer transfers the risk beyond the limit of his capacity to another insurance
company.

(iii) The relationship of the assured remains with the original insurer only. The re-insurer is not liable
directly towards the assured.

(iv) Reinsurance is a contract of indemnity.

(v) Re-insurance does not affect the right of insured.

(vi) The fundamental principles of insurance are applicable in re-insurance also.

(vii) The original insurer cannot do re-insurance more than the insured sum.

(viii) Re-insurer is bound only by those liabilities for which the original insurer is legally liable.

(ix) Re-insurance can be possible in all types of insurance.

28
(x) Re-insurance is beneficial to the insurer and the insured, both.

Why reinsurance is important

• To protect an insure against very large claims.
• To reduce exposure to ‘peaks and troughs.
• To obtain an international spread of risk.
• To increase the capacity of the direct insurers

Challenges for reinsurance industry in Indian market

• Covers are not available for liability, professional indemnities, financial risks, oil and energy etc.
• International competitors don’t quote for small ticket deals
• Premium rates are costlier as foreign competitors quote more
• Reinsurance cover for terrorist attacks is still a debate .

CLAIM MANAGEMENT

Importance of settling claims

The most important function of an insurance company is to settle claims of policyholders on the happening
of a loss event. Insurer fulfils this promise by providing prompt, fair and equitable service in either paying
the policyholder or paying claims made against the insured by a third party.

Insurance is marketed as a financial mechanism to provide indemnity on losses due to insured perils. Were it
not for insurance and the claim settlement process, recovery to normal state after an unfortunate accident /
event might be slow, inefficient and difficult.

With Non-Life insurances, claims are not expected under most policies. There the cover is "in case" there is
need and generally speaking neither party wishes to experience a claim situation. The latter may be true in
some respects for Life insurance, but there a claim (except for term insurances) is inevitable if the policy is
kept in force. Indeed, with many contracts having a savings element, the policy owner often looks forward
to making the claim.

Claims may be considered under three headings, as follows:

Maturity Claims

29
Mostly concerning endowment insurances, these involve situations where the life insured is still living and
(if also beneficiary) able to collect the proceeds personally. With these, as with all procedures dealt with
under this Chapter, each insurer may have their own system, but typically the following considerations arise
with maturity claims:

(a) Near the date: a month or so in advance of the date the insurer writes to the policy owner, in order to:

(i) remind him of the maturity date;

(ii) State the amount payable;

(iii) List any requirements for payment;

(iv) Enclose a relevant form of discharge.

(b) Legal title the insurer can only deal with the person having legal title to the policy proceeds. Also, the
actual policy will be required. This is an important document of title and only assignments duly recorded
can be recognized.

(c) Adjustments: the payment may have to be subject to deductions for any outstanding items, such as
loans, unpaid premiums and interest owing. Of course, any beneficiary interest has to be respected and
processed.

(d) Proof of age: if the policy is marked "age not admitted" this means that formal proof of age was not
given at policy inception. Some insurers may not require confirmation of age if the policy has matured, but
it should be requested because misstatements of age could have an impact on the policy benefit.

(e) Unpaid maturities: a suitable monitoring and follow-up procedure must be in existence for any maturity
claims where the policy owner does not respond to (a) above.

Death Claims

Maturity claims, for obvious reasons, are normally processed in a "happy" atmosphere. Death claims on the
other hand inevitably have a serious and sometimes tragic background. Whilst this must not intrude unduly
into the professional way in which the claim is processed, insurers and intermediaries should be sensitive to
the situation. The specific points needing attention with such claims are:

(a) Date of death: this must be established, as it can affect the amount payable, e.g. with decreasing term
insurances, and with any dividend/bonus calculations. Indeed, with term insurances the policy could have
expired.

30
(b) Proof of death: normally, this is fairly easy to obtain, with the death certificate (the original document
must be produced). Problems may arise over death certificates, however, where death arises or is alleged to
have arisen overseas. This has on occasions been a particular area for fraud.

(c) Cause of death: this will be shown on the death certificate and it may be important for a number of
reasons, including:

(i) Suicide: if the policy is still within the exclusion period

(ii) Accident: the policy may be subject to an ADB rider

(iii) suspicious or surprising: death shortly after the policy was issued, or where the cause would
normally develop over a longer period than that for which the policy has been existence, will put the
insurer on enquiry. Fraud must always be a possibility in such circumstances. Even if fraud does not
apply, the policy may still be within a contestable period

(iv) murder: in most cases this will not affect the validity of the claim, but if the murderer is proved
to have been the beneficiary, the law "Criminal Code" or other specific law of same nature) will
not allow the murderer to benefit personally.

(d) Presumption of death: where no death certificate can be issued and it is assumed the life insured has
died, this may have to be resolved by the court.

(e) Proof of age: see comments in 5.6.1(d) above. Normally, proof of age is easily obtained by producing a
birth certificate, or the deceased's I.D. card or passport.

Surrenders

Many of the considerations arising with maturity claims have relevance here, as the claimant is still living.
Specifically, areas needing attention are:

(a) Proof of title: only the person legally entitled may receive the cash value;

(b) Adjustments: unpaid premiums, loans and interest must be taken into account;

(c) Discharge: an appropriate discharge and release form is obtained. Special care must be taken to
protect any assignee or beneficiary interest;

(d) Other enquiries: the insurer or intermediary should take special care with applications for
surrender of the policy. Obviously, the policy owner has every right to discontinue cover, but it
may be helpful and productive to make discreet and courteous enquiries.

31
Sometimes, the insurance meets a real need for the client, but he meets unexpected life situations and his
first thought is to cancel his insurance. That may not be in his best interests and other more suitable
alternatives may be available (policy loan, use of no forfeiture provisions, etc.).

Important aspects in an insurance claim

i. The first aspect to be decided is whether the loss is within the scope of the policy. The legal doctrine of
proximate cause provides guidelines to decide whether the loss is caused by an insured peril or an excluded
peril. The burden of proof that the loss is within the scope of the policy is upon the insured. However, if the
loss is caused by an excluded peril the onus of proof is on the insurer.

ii. The second aspect to be decided is whether the insured has complied with policy conditions, especially
conditions which are precedent to ‘liability’.

iii. The third aspect is in respect of compliance with warranties. The survey report would indicate whether or
not warranties have been complied with.

iv. The fourth aspect relates to the observance of utmost good faith by the proposer, during the currency of
the policy.

v. On the occurrence of a loss, the insured is expected to act as if he is uninsured. In other words, he has a
duty to take measures to minimise the loss.

vi. The sixth aspect concerns the determination of the amount payable. The amount of loss payable is subject
to the sum insured. However, the amount payable will also depend upon the following:

The extent of the insured’s insurable interest in the property affected

The value of salvage
Application of underinsurance
Application of contribution and subrogation conditions

What are IRDA guidelines pertaining to claim processing

• Insurance company is required to settle a claim within 30 days of receipt of all requirements
• If the claim warrants further verification, the company should complete its procedures within 6
month from receipt of written intimation of the claim

32
 • If the company settles the claim beyond 6 month period, then interest is payable by the company on
the claim amount.
MARKETING AND SERVICING APPLICATIONS

 MARKETING STRATEGY

LIC have been taken following steps to increase its market competitiveness and retains its dominant position
in the insurance market.

1. PRODUCT DEVELOPMENT
In a competitive market, there is a greater need to provide insurance products that meet the needs of our
customers. LIC therefore offers a wide variety of products, which fulfils the needs of different segments
of the society. As at the end of the financial year 2010-11, the Corporation had 52 products available for
sale. During the Year Corporation introduced 5 new plans viz. LIC’s Pension Plus, LIC’s Endowment
Plus, LIC’s Bima Account –I, LIC’s Bima Account –II and LIC’s Samridhi Plus. As a result of product
innovation by private players, LIC’s market share has gradually reduced in the post liberalisation period.
Despite that, the Life Insurance Corporation of India continues to remain the largest player in the Indian
Life Insurance market with a market share of 71.30% in FY 2011-12.

2. COMPETITION
Private and foreign entrants in the insurance industry have made others difficult to retain their market.
Higher customer aspirations lead to new expectations and forced him or her to move towards the insurer
who provides him the best service in time. It becomes less viable for them even to maintain the
functional networks or competitive standards and services. To survive in the industry they analyse the
emerging requirements of the policyholders /insurers and they are in the forefront in providing essential
services and introducing novel products. Thereby they become niche specialists, who provide the right
service to the right person in the right time. Today, a public giant LIC is facing direct competition with
the rest 23 private life insurers.

3. INFORMATION TECHNOLOGY
LIC has been a pioneer in using information technology for enhancing the quality of its service to
customers. Being the largest insurer in India, LIC has always explored all the avenues that technology
offers to provide the best of services to its valued customers and other stakeholders. Today, LIC
customers can pay their premium not only in any one of its offices, but also through LIC’s Premium
Payment Gateway on our website through partner Banks like Corporation Bank, Axis Bank or through
associate agencies like APOnline, MPOnline, etc. Customers can also use their Net Banking accounts,
Debit Cards and Credit Cards to pay premiums online. LIC reaches out to its customers through IVRS,

33
 Call Centres, Customer Zones, SMS, e-mail, website and now even the Social Networking sites. LIC has
also undertaken many other customer-centric initiatives like Enterprise Document Management System,
Portal for Customers, Agents, Development officers and Employees, etc. All LIC offices and Training
Centres have been connected to a Wide Area Network for more than 10 years now. Last year Central
Office, Zonal Offices, Zonal Training Centres and the 113 Divisional Offices are connected through
high definition Video-Conferencing. In order to safeguard its IT infrastructure from external threats, LIC
has also installed the latest IT Security products in its setup. To keep pace with changes in the business
environment and the technology platforms, LIC migrated our Core Insurance Application to web based
architecture. The project called e-FEAP helps LIC to deliver quality service to its Policyholders and
marketing force. In 2011-12, LIC also set up the infrastructure necessary for the on-line sale of policies.

4. CHIEF LIFE INSURANCE ADVISORS (CLIAs)

LIC introduced the above Scheme on 12.04.2008 with an objective of increasing its market presence
through more agents by utilizing capabilities of existing high performing agents for organizational
growth. In order to increase market presence, more number of agents should be in the field.
Understanding this well, the Corporation decided to utilize the capabilities of existing senior agents for
organizational growth by incentivizing them for identifying, training and mentoring new agents. Retired
employees and Financial Service Executives (FSE) are also allowed to become Chief Life Insurance
Advisors under certain conditions. More than 1,47,200 agents were being supervised by the CLIAs as on
31.03.2012.

5. MICRO INSURANCE (MI)

The huge untapped market for insurance is the rural and social sector. Micro insurance is defined as the
protection of low income households against specific perils in exchange for premium payments
proportionate to the likelihood and cost of the risk involved. It provides an opportunity to the insurance
companies to meet their social responsibility as well as secure a strong footing in the rural market. The
active distribution channels for micro insurance in India are NGOs, MFIs, and SHGs (self-help groups),
Micro agents, Cooperative Banks and RRBs (regional rural banks), and Post Offices. The MFIs/NGOs
have been identified as main delivery channels by most of the insurance companies. These have a large
network, catering to huge number of clients. The year 2011-12 has been another successful year for the
Micro Insurance vertical of LIC. The vertical exceeded the budget of 32 lacs Policies by a hefty margin
of more than 6 lacs policies with 119.59 % A2B.The total number of Policies stood at 38.27 lacs with a
growth rate of 29.67%. As many as 7 Zones crossed their budget with good margin. Similarly 80 MI
Units have achieved their budget. 7 MI Units have procured more than 1 lac policies during the year.
During this financial year MI vertical crossed magical figure of 1crore policies and completed 1.12 crore
policies as on 31.03.2012 since inception.
34
6. DIRECT MARKETING
In its 3 years of operations, Direct Marketing has successfully established itself as a Value Pioneer.
Through the years, it had striven to take a fresh view of the environment, capture changes, identify new
business opportunities and orchestrate appropriate response. Direct Marketing has achieved reasonable
success in creating a professional and disciplined work force comfortable with approaching and tapping
emerging segments in the market. The channel, through the effective use of LMS has been able to
ensure fast response to queries to successfully position the Corporation as a responsive organization
sensitive to changing customers’ expectations.

7. BANCASSURANCE AND ALTERNATIVE CHANNELS (B&AC)

Under Banc assurance, at present LIC have tie-ups with 8 PSU Banks, 4 Private Banks and 33 UCBs /
RRBs / CO-OP Banks under Corporate Agency agreement. These Banks procure New Business for LIC
through their Branch Outlets. At present, approximately 19,000 Outlets under these Banks. The share of
Banks in the total business of B&AC in the year 2011-12 was 91% in FPI and 77% in Policies while
Corporate Agents contributed 8% & 22% respectively. In the current year, there is substantial growth in
Bancassurance Premium.

8. HEALTH INSURANCE
During 2010-11, 67,668 Health Insurance Policies were sold for a Premium Income of Rs.58.02 crore.
LIC settled an amount of Rs. 8.38 crore towards health insurance claims under 5,096 lives. Incidence of
claims under Health Policies is 1.39%, of which 51% are settled. As at 31.03.2011 LIC covering
7,23,752 lives under Health Insurance Policies. LIC started Health Insurance Division in 2007-08, to tap
the vast potential for Health Insurance Business and to devise Health Products and Services. The first
product ‘Health Plus’ was launched in February, 2008 and the second product ‘Health Protection Plus’
in April, 2009. Both are Unit Linked Health Insurance policies providing for hospitalization and major
surgery cover for 49 specified surgeries. The plans also have a facility of withdrawal, linked to
domiciliary treatment. Following IRDA regulations on cap of charges, Health plus Plan was withdrawn
from 01.01.2010. After LIC of India introduced to Health product of Jeevan Arockya plan.

9. INDEPENDENT FINANCIAL ADVISORS (IFAs)

IFAs are authorised agents of insurance companies having tie-ups with more than one insurance
company. They are qualified persons or institution who can provide advice on financial products.
Independent financial advisors are commissioned agents whose primary business is the sale of property
and casualty insurance for several insurers. IFA assembles different financial products in accordance to

35
 customer needs and provide value added product by creating customized financial product. Today, IFA
show their significant presence as distribution channel in both life and non-life insurance business.

10. INTERNATIONAL OPERATIONS

Life Insurance Corporation of India operates in 13 countries abroad through its various branches and Joint
Venture Companies/ Wholly Owned Subsidiaries. Branch Offices in the U.K., Mauritius & Fiji and operate
through Joint Venture Companies in Bahrain, Qatar, Kuwait, U.A.E., Oman, Kenya, Saudi Arabia, Nepal &
Sri Lanka. A wholly owned subsidiary – Life Insurance Corporation (Singapore) Pte. Ltd. has been
incorporated in Singapore and we are in the process of applying for an operating license.

1. Our Foreign Units collectively procured a First Premium Income (FPI) of around Rs. 349 Crores in
the 12 months’ period of each unit ended during 2011-12, thereby registering a growth of 15.69%.

2. The Total Net Premium Income (TPI) of our units was around Rs. 1,247 Crores during the same
period in 2011-12 registering a growth of 28.2%. LIC (International) B.S.C. (c), Bahrain and LIC Fiji
are market leaders in their respective geographies.

Servicing

 Transfer of policy
 Issue of policy bond
 Payment of claims
 Correction in bonds
 Duplicate policy issue
 Change of address
 Alteration
 Assignment
 Nomination
 Foreclosure
 Surrender of policy etc.

TAX PLANNING

Understanding the importance of life insurance is one thing. Understanding the tax rules is quite another. As
insurance products have evolved and become more sophisticated, the line separating insurance vehicles from
investment vehicles has grown blurry. To differentiate between the two, a mix of complex rules and
exceptions now governs the taxation of insurance products. If you have neither the time nor the inclination

36
to decipher the IRS regulations, here are some life insurance tax tips and background information to help
you make sense of it all.

Life insurance contracts must meet IRS requirements

For federal income tax purposes, an insurance contract cannot be considered a life insurance contract--and
qualify for favourable tax treatment--unless it meets state law requirements and satisfies the IRS's statutory
definitions of what is or is not a life insurance policy. The IRS considers the type of policy, date of issue,
amount of the death benefit, and premiums paid. The IRS definitions are essentially tests to ensure that an
insurance policy isn't really an investment vehicle. The insurance company must comply with these rules
and enforce the provisions.

Keep in mind that you can't deduct your premiums on your federal income tax return

Because life insurance is considered a personal expense, you can't deduct the premiums you pay for life
insurance coverage.

Employer-paid life insurance may have a tax cost

The premium cost for the first $50,000 of life insurance coverage provided under an employer-provided
group term life insurance plan does not have to be reported as income and is not taxed to you. However,
amounts in excess of $50,000 paid for by your employer will trigger a taxable income for the "economic
value" of the coverage provided to you.

You should determine whether your premiums were paid with pre- or after-tax dollars

The taxation of life insurance proceeds depends on several factors, including whether you paid your
insurance premiums with pre- or after-tax dollars. If you buy a life insurance policy on your own or through
your employer, your premiums are probably paid with after-tax dollars.

Different rules may apply if your company offers the option to purchase life insurance through a qualified
retirement plan and you make pre-tax contributions. Although pre-tax contributions offer certain income tax
advantages, one tradeoffs is that you'll be required to pay a small tax on the economic value of the "pure life
insurance" in the policy (i.e., the difference between the cash value and the death benefit) each year. Also, at
death, the amount of the policy cash value that is paid as part of the death benefit is taxable income. These
days, however, not many companies offer their employees the option to purchase life insurance through their
qualified retirement plan.

Your life insurance beneficiary probably won't have to pay income tax on death benefit received

37
Whoever receives the death benefit from your insurance policy usually does not have to pay federal or state
income tax on those proceeds. So, if you die owning a life insurance policy with a $500,000 death benefit,
your beneficiary under the policy will generally not have to pay income tax on the receipt of the $500,000.
This is generally true regardless of whether you paid all of the premiums yourself, or whether your employer
subsidized part or all of the premiums under a group term insurance plan.

Different income tax rules may apply if the death benefit is paid in instalments instead of as a lump sum.
The interest portion (if any) of each instalment is generally treated as taxable to the beneficiary at ordinary
income rates, while the principal portion is tax free.

In some cases, insurance proceeds may be included in your taxable estate

If you hold any incidents of ownership in an insurance policy at the time of your death, the proceeds from
that insurance policy will be included in your taxable estate. Incidents of ownership include the right to
change the beneficiary, the right to take out policy loans, and the right to surrender the policy for cash.
Furthermore, if you gift away an insurance policy within three years of your death, then the proceeds from
that policy will be pulled back into your taxable estate. To avoid having the policy included in your taxable
estate, someone other than you (e.g., a beneficiary or a trust) should be the owner.

If your policy has a cash value component, that part will accumulate tax deferred

Unlike term life insurance policies, some life insurance policies (e.g., permanent life) have a cash value
component. As the cash value grows, you may ultimately have more money in cash value than you paid in
premiums. Generally, you are allowed to defer income taxes on those gains as long as you don't sell,
withdraw from, or surrender the policy. If you do sell, surrender, or withdraw from the policy, the difference
between what you get back and what you paid in is taxed as ordinary income.

You usually aren't taxed on dividends paid

Some policies, known as participating policies, pay dividends. An insurance dividend is the amount of your
premium that is paid back to you if your insurance company achieves lower mortality and expense costs
than it expected. Dividends are paid out of the insurer's surplus earnings for the year. Regardless of whether
you take them in cash, keep them on deposit with the insurer, or buy additional life insurance within the
policy, they are considered a return of premiums. As long as you don't get back more than you paid in, you
are merely recouping your costs, and no tax is due. However, if you leave these dividends on deposit with
your insurance company and they earn interest, the interest you receive should be included as taxable
interest income.

Watch out for cash withdrawals in excess of basis--they're taxable

38
If you withdraw cash from a cash value life insurance policy, the amount of withdrawals up to your basis in
the policy will be tax free. Generally, your basis is the amount of premiums you have paid into the policy
less any dividends or withdrawals you have previously taken. Any withdrawals in excess of your basis
(gain) will be taxed as ordinary income. However, if the policy is classified as a modified endowment
contract (MEC) (a situation that occurs when you put in more premiums than the threshold allows), then the
gain must be withdrawn first and taxed.

Keep in mind that if you withdraw part of your cash value, the death benefit available to your survivors will
be reduced.

You probably won't have to pay taxes on loans taken against your policy

If you take out a loan against the cash value of your insurance policy, the amount of the loan is not taxable
(except in the case of an MEC). This result is the case even if the loan is larger than the amount of the
premiums you have paid in. Such a loan is not taxed as long as the policy is in force.

If you take out a loan against your policy, the death benefit and cash value of the policy will be reduced.

You can't deduct interest you've paid on policy loans

The interest you pay on any loans taken out against the cash value of your life insurance is not tax
deductible. Certain loans on business-owned policies are an exception to this rule.

The surrender of your policy may result in taxable gain

If you surrender your cash value life insurance policy, any gain on the policy will be subject to federal (and
possibly state) income tax. The gain on the surrender of a cash value policy is the difference between the
gross cash value paid out (plus any loans outstanding) and your basis in the policy. Your basis is the total
premiums that you paid in cash, minus any policy dividends and tax-free withdrawals that you made.

You may be able to exchange one policy for another without triggering tax liability

The tax code allows you to exchange one life insurance policy for another (or a life insurance policy for an
annuity) without triggering current tax liability. This is known as a Section 1035 exchange. However, you
must follow the IRS's rules when making the exchange.

Legal Framework

The primary legislations which deal with various aspects relating to accounts and audits of an insurance
business areas under:

39
  The Insurance Act, 1938 (Including Insurance Rules, 1939);

 The Insurance Regulatory and Development Authority Act, 1999;

 The Insurance Regulatory and Development Authority Regulations;

 The Companies Act, 1956; and

 The General Insurance Business (Nationalisation) Act, 1972 (including Rules framed there-under)

On account of amendment in the Section 3(11) of the Income Tax Act, 1961 providing for uniform
accounting year, all Insurance Companies also close their annual accounts on 31st March each year w.e.f.
accounting year ending 31st March, 1989. It has also been made mandatory according to the provisions of
IRDA Act, 2000.

References
 www.insuranceinstitutionofindia.com
 Council, L. I. (n.d.). Life Insurance of Council. Retrieved 10 1, 2017, from Life Insurance of
Council: https://www.lifeinscouncil.org/About/Overview.aspx

 Insurance. (2014). Ic-33 Life Insurance. In I. I. India, Ic 33 Life insurance.

 Insurance. (2016). IC-38 Corporate Agents. In Insurance Institute of India. mumbai: Insurance
Institution of India.

40