CHAPTER III

CONCEPTUAL FRAMEWORK

INSURANCE:

Insurance is a means of protection from financial loss in which, in exchange for a fee, a party
agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form
of risk management, primarily used to hedge against the risk of a contingent or uncertain loss.

PERCEPTION :

Perception is the process by which an individual selects, organizes, and interprets information
input to create meaningful picture of the world. For a marketer to influence a motivated buyer to
buy their products rather than competitors they must be careful to take the perception process
into account while designing their marketing campaigns.

Perception therefore influence what product consumer buys.

AWARENESS :

Awareness is a concept about knowing, perceiving and being cognizant of events. It can be
described as a state wherein a subject is aware of some information when that information is
directly available to bring to bear in the direction of a wide range of behavioral actions.

DEMAND :

Demand is a principle of economics that captures the consumer’s desire to buy the product or
service. The demand is calculated as the price the consumers are willing to pay for the product or
service.

INSURED :

Insured is a generic term that refers to any person or entity legally entitled to receive the benefits
of an insurance policy, typically claim payments.

POLICYHOLDER :

A Policyholder is the person who owns the insurance policy. Policyholder is the only person who
is responsible for making sure premium payments.

PREMIUM :

This is the actual cost of your insurance plan. The amount of insurance premium is influenced by
multiple factors and varies from one payee to another based on their type of policy.
TAX BENEFITS OF INSURANCE

Other than the protection benefits of insurance policies, you can also avail income tax benefits.

Section 80C

The premium paid to buy life insurance policies are eligible for deduction from the taxable
income, under Section 80C of the Income Tax Act. The upper limit for these deductions is Rs.
1.5 Lakhs.

Section 80D

Health Insurance Premium paid to buy policies for yourself and your family is also taxable under
Section 80D of Income Tax Act, 1961.

Section 10(10D)

The life insurance benefits that you or the insurance policy nominee will receive from the insurer
are tax – exempted under this section.

FEATURES OF INSURANCE

1. Sharing of Risk

Insurance is a device to share the financial losses which might befall an individual or his family
on the happening of a specified event. The event may be the death of a breadwinner to the family
in the case of life insurance, marine-perils in marine insurance, fire in fire insurance, fire in fire
insurance, and other certain events in general insurance, e.g., theft in burglary insurance,
accident in motor insurance, etc. The loss arising from these events, if insured, are shared by all
the insured in the form of a premium.

2. Co-operative Device

The most important feature of every insurance plan is the cooperation of a large number of
persons who, in effect, agree to share the financial loss arising due to a particular risk that is
insured. Such a group of persons may be brought together voluntarily or through publicity or
solicitation of the agents. Like all co-operative devices, there is no compulsion here on anybody
to purchase the insurance policy.

3. Value of Risk

The risk is evaluated before insuring to charge the share of an insured, herein called,
consideration or premium. There are several methods of evaluation of risks.
4. Payment at Contingency

The payment is made at a certain contingency insured. If the contingency occurs, payment is
made. Since the life insurance contract is a contract of certainty, because the contingency, the
death, or the expiry of the term will certainly occur, the payment is certain. The contingency is
the fire or the marine perils, etc., may or may not occur in other insurance contracts. So, if the
contingency occurs, payment is made. Otherwise, no amount is given to the policy-holder.
Similarly, in certain policies, payment is not certain due to the uncertainty of a particular
contingency within a particular period.

5. Payment of Fortuitous Losses

Another characteristic of insurance is the payment of fortuitous Losses. A fortuitous loss is

unforeseen and unexpected and occurs as a result of chance. In other words, the loss must be
accidental.

6. Amount of Payment

The amount of payment depends on the value of loss due to the particular insured risk provided
insurance is there up to that amount. In life insurance, the purpose is not to make good the
financial loss suffered. The insurer promises to pay a fixed sum on the happening of an event.

ADVANTAGES OF INSURANCE

These are some of the advantages of doing insurance.

1. Financial Protection

In life, there is no such thing as a guarantee. There may be a loss of life, as well as some business
accidents. The loss is difficult to bear in both of these cases. As a result, insurance provides
financial protection against such a sudden loss. In the event of death, he/she will get financial
support from insurance.

2. Distribution of Risk/Spreading of Risk

The underlying concept of insurance is to spread the risk across a large number of people. People
pay a certain amount to an insurance company up to a certain time or lifetime and receive a
refund if a loss occurs. Risk in life or business cannot be eliminated, but it can be reduced,
distributed, or shared. So, in this case, insurance companies bear risks in order to redistribute
business and individual risks among insurance companies.
 3. Stability of Living Standard

Insurance provides financial support to ensure that people can sustain and maintain stability in
living standards against an unforeseen risk of losses.

4. Encouragement to Savings

In insurance, people a certain amount of money for a fixed time or lifetime based on an
agreement and this helps to develop a habit of saving money. Knowing the importance of saving,
people start saving money. Knowing the importance of saving, People start saving in various
fields.

5. Job Opportunities

Insurance, like any other business, is a successful business model. It targets many entrepreneurs
and business owners. As a result, there is a lot of cash flow in the business. They need employees
to handle and maintain cash flow and run the business, so they open vacancies in various
positions based on qualifications and provide job opportunities. Insurance companies and
agencies make lots of money by selling and providing service insurance.

6. Promotes International Trade

Many years age, people were afraid to engage in international trade because of the possibility of
accidents while transporting goods via ships, roads, or other modes of transportation. However,
in today’s competitive global economy, insurance companies bear all of those risks and
compensate for losses. They also protect an exporter of goods and services from non-payment by
a foreign buyer.

7. Loan Facilities

If a company has purchased insurance, banks are more likely to lend to that company. No, the
problem for large businesses is getting a loan from a bank, but if you have a small business for a
start-up and have done business insurance, your chances of getting a loan from a bank increase.
Furthermore, banks will almost always require new companies that rely on the main founders to
obtain insurance against the deaths of one or more of the founders in order to reduce risk. In
addition, the fine print directs that the payment on death be made to the bank first, in order to pay
off the loan.

8. Stability of Business

Even if your company suffers unexpected losses, insurance can help you manage your losses.
Taking out an insurance policy for your employees will encourage them to come into the office.
As a result, insurance aids in the smooth operation of the office. And business will become more
stable.
 9. Specialization

Insurance, like other financial products, is designated for specific purposes. This allows you to
use the funds for the initial purpose you selected.

10. Increase in investment

Insurance promotes individuals and businesses to invest in new things.

11. Competitiveness

If you have insurance, then there will not by any tension related to business, and life, and health.
So, you can focus on your task and compete with others.

12. Society and Country Welfare

The insurance company collects a large amount of money from an insured and they invest in the
development of trade and industry, which finally leads the society and country toward
development.

13. Preserves Confidentiality

If there is some death in the family then the death benefit or to whom the death benefits are
payable will not be recorded publicly. This helps to preserve confidentiality for the beneficiary
of the policy.

14. Tax-free money

Another advantage of insurance is that the funds are often tax-delayed. The benefits and all other
earnings you may earn under the policy are tax-free, except in the case of employer insurance
schemes where benefits are regarded as normal taxable income. For example, life insurance
reduces the risk that your family will be unable, if you have saved enough to pay off your
remaining debt, to pay the normal bills in the event of sudden death. If you die during your
lifetime insurance, your beneficiary’s payment is tax-free.

15. Short Term Coverage

The insurance coverage period can be changed. If you have short-term needs then you can
choose shorter-length insurance.
 16. Long Term Coverage

Long-term insurance is an option if you have long-term needs. It may be more cost-effective in
some situations in the long run compared to short-term coverage. You can use life insurance to
pay for other policies such as pensions or long-term care without paying taxes on the difference.
Furthermore, by utilizing features such as this, you can improve your cash accumulation by
increasing your life insurance death benefit.

17. Easy to Apply

There are many genuine sources where you can get insurance information and compare
insurance of one company with another and can apply online form as well.

18. Peace of Mind

Peace of mind from knowing that your family is financially secure if something happens to you
and you are the only source of income.

DISADVANTAGES OF INSURANCE

Insurance also has some defects in it. Some of them are as follows:

1. Term and Conditions

Insurance does not cover every type of loss that can happen to an individual or a business. They
have terms and conditions, and they only provide financial assistance based on those terms.
Please read the terms and conditions of any insurance before purchasing it. Also, seek assistance
from the appropriate person in order to obtain accurate information about insurance policy.

2. Long Legal formalities

It may take a long legal procedure for receiving your claims.

3. Fraud Agency

There are lots of fraud agencies available in the market so, before taking andy type of insurance
do exercise yourself or take the help of an expert.

4. Not for all People

Some insurance, such as life and health insurance, do not cover sick or elderly people in most
cases. Their insurance may be costly. Do your homework before enrolling in insurance.
 5. Potential crime incidents

It could lead to social crimes as the users of the policy are tempted to commit crimes to get the
insured money.

6. Temporary and Terminaiton

Insurance is temporary and will be terminated when the individual no longer belongs to the
group.

7. Can be Expensive

Often, the cost can vary depending on the policy and other factors. However, if you buy at the
right time, for the right reasons, and with the right coverage, you may be able to get the best
price.

8. Rise in Subsequent Premium

You should keep an eye out for the different premium prices offered by various insurance
companies. Determine at the beginning whether or not your premium will be fixed or if the rate
of inflation will change from time to time. The premium depends on your medical profile,
medical history, and age. If these factors are identified to increase your rate of death, life
insurance may charge you more for coverage.

9. Lack of efficient awareness

Because of lack of efficient awareness, everyone is not able to get knowledge of insurance, so
may needs agents and have to pay an extra amount for him. Some insurance will not pay back if
the policyholder never suffers from the loss. Often, if the program is surrendered, a political
holder cannot recover premium.

10. Add expenses for some project

In some construction projects where compensation for the workers for injuries is common, then
insurance for these companies can be expensive. They are expensive as compared to other IT and
accounting offices.

11. Annoying and Frustration

It takes time and energy to review all the insurance claims, Which irritates people and may lead
to frustration. So, it’s a good idea to make sure you’ve done your insurance correctly. In general,
in all types of insurance, Cash surrender values are typically lower than premiums paid in the
first few years of the policy, and a policy owner may not be able to recover all of the premiums
paid if the policy is surrendered.
 12. Over insurance

Purchasing excessive insurance coverage can be wasteful and result in higher-than-necessary

rates. There are many exclusions in life insurance policies, so you should understand everything
about the policy you intend to purchase before signing on the dotted line. For example, your
policy may not cover death caused by a drug overdose or involvement in criminal or illegal
activities.

13. Moral Hazards

Moral hazard occurs when people take more risks because they feel insured. Losses and
insurance costs may rise.

14. False Sense of Security

Insurance can give people a false sense of security, causing them to take unnecessary risks or
not take measures.

TYPES OF INSURANCE

Insurance policies provide protection against the various types of uncertainties that can occur in
the life of an individual. Having health insurance can help you cover up for the expenses paid for
any diseases, while an accident insurance can help you in getting cover for any kind of accidents
that may occur.

The following are the most common types of insurance :

I. Life Insurance :

Life insurance is a type of insurance policy in which the insurance company undertake the
task of insuring the life of the policy holder for a premium that is paid on a
daily/monthly/quarterly/yearly basis. Life Insurance policy is regarded as a protection against
the uncertainties of life. It may be defined as a contract between the insurer and insured in
which the insurer agrees to pay the insured a sum of money in the case of cessation of life of
the individual (insured) or after the end of the policy term.

For availing life insurance policy the person needs to provide some details like age, medical
history and any type of smoking or drinking habits. As there are many requirements of
persons for availing a life insurance, the requirements can be needs of family, education,
investment for old age, etc.

Some of the types of life insurance policies that are prevalent in the market are:
 a. Whole life policy: As the name suggests, in this kind of policy the amount that is
insured will only be paid out to the person who is nominated and it is only payable
on the death of the insured. Some insurance policies have the requirement that
premium should be paid for the whole life while others may be restricted to
payment for 20 or 30 years.
b. Endowment life insurance policy: In this type of policy the insurer undertakes to
pay a fixed sum to the insured once the required number of years are completed or
there is death of the insured.
c. Joint life policy: It is that type of policy where the life insurance is availed by two
persons. The premium for such policy is paid either jointly or by each individual in
the form of installments or a lump sum amount.
d. Annuity policy : Under this policy, the sum assured or the policy money is paid to
the insured a monthly/Quarterly/half-yearly or annual payments. The payments are
made only after the insured attains a particular age as dictated by the policy
document.
e. Children’s Endowment policy : Children’s endowment policy is taken by any
individual who wants to make sure to meet the expenses necessary for children’s
education or for their marriage. Under this policy, the insurer will be paying a
certain sum of money to the children who have attained a certain age as mentioned
in the policy agreement.

II. General Insurance

General Insurance is related to all other aspects of human life apart from the life aspect and it
includes health insurance, motor insurance, fire insurance, marine insurance and other types
of insurance such as cattle insurance, sport insurance, crop insurance, etc.

a. Fire Insurance : Fire insurance is a type of general insurance policy where the
insurer helps in paying off for any damage that is caused to the insured by an
accidental fire till the specified period of time, as mentioned in the insurance
policy. Generally, fire insurance policy is valid for a period of one year and it can
be renewed each year by paying a premium, which can be a lump sum or in
instalments. The claim for a fire loss must satisfy the following conditions :

i) It should be an actual loss

ii) The fire must be accidental and not done intentionally

b. Marine Insurance : Marine insurance is a contract between the insured and

insurer. In marine insurance, the protection is provided against the perils of the
sea.
 The instances of dangers in sea can be collision of ship with rocks present in sea.
Attacking of the ship by pirates, fire in ship. Marine insurance covers three
different types of insurance which are ship hull, cargo and freight insurance.
c. Ship or hull insurance : As the ship is exposed to many dangers at the sea, the
insurance covers for losses caused by damage to the ship.
d. Cargo Insurance : The ship carrying cargo is subjected to many risks which can
be theft of cargo, lost goods at port or during the voyage. Therefore, insuring the
cargo is essential to cover for such losses.
e. Freight Insurance : In the event of cargo not reaching the destination due to any
kind of loss or damage during transit, the shipping company does not get paid for
the freight charges. Freight insurance helps in reimbursing the loss of freight
caused due to such events.
f. Health Insurance : Health insurance is an effective safeguard for protection
against rising healthcare costs. Health insurance is a contract that is made between
an insurer and an individual or a group where the insurer agrees to provide health
insurance against certain types of illnesses to the insured individual or individuals.
The premium can be paid in instalments or as a lump sum amount and health
insurance policy is renewed every year by paying the premium.
g. Motor vehicle insurance : Motor vehicle insurance is a popular option for the
owners of motor vehicles. Here the owners’ liability to compensate individuals
killed by negligence of motorists is borne by the insurance company.
h. Cattle insurance : In case of cattle insurance, the owner of the cattle receives an
amount in the event of death of the cattle due to accident, disease or during
pregnancy.
i. Crop insurance : Crop insurance is a contract for providing financial support to
the farmers in the event of crop failure due to drought or flood.
j. Burglary Insurance : Burglary insurance comes under the insurance of property.
Here the insured is compensated in the event of burglary for the loss of goods,
damage occurred to household goods and personal effects due to burglary, larceny
or theft.

ROLE OF IRDA IN INSURANCE SECTOR

Insurance in India started without any regulations in the nineteenth century. It was typical
story of c colonial era: a few British insurance companies dominating the market serving
mostly large urban centres. After the independence, the Life Insurance Company was
nationalized in 1956, and then the general insurance business was nationalized in 1972. Only
in 1000 private insurance companies were allowed back into the business of insurance with a
maximum of 26 percent of foreign holding (World Bank Economic Review 2000).
The entry of the State Bank of India with its proposal of bank assurance brings a new
dynamics in the game. On July 14, 2000 Insurance Regulatory and Development Authority
bill was passed to protect the interest of the policy holders from private and foreign players.
IRDA plays an important role in insurance sector giving important guide lines to various
companies in the area of insurance. The IRDA’s green signal to insurance companies for
investments in venture capital funds would provide a boost in growth pertaining to the
infrastructure segment. The insurance companies would be allowed to invest about 5% of the
total investment in the venture capital funds pertaining to infrastructure based projects. The
proposed alterations in the regulations pertaining to investments of the insurance companies
were settled by the Insurance Regulatory and Development Authority of India (IRDA), at the
board meeting on the 25th of March 2008.

The proposal would be submitted to the Insurance Regulatory and Development Authority of
India (IRDA) board for approval. The final draft was published in the Gazette of the Central
Government at the end of March 2008. The alterations would help in developing the
instruments in certificates of deposit issued by the banks and term deposits. At present the
insurance Regulatory and Development Authority of India (IRDA) constituted a working
group in the year 2006 to probe the existing investment regulations and provide review on
the present statutory advices and the trends of investments for insurance companies.
According to the Insurance Regulatory and Development Authority (IRDA), the private
insurers had collected premium income from new business of about Rs.18,980 crores, in
2007.

FACTORS INFLUENCING CONSUMER BEHAVIOUR

a. Social factor : Social factor divides the society into a hierarchy of distinct classes.
The members of each class have relatively the same status and members of other
classes have either more or less status. It includes family, group, celebrity etc.
Cultural factor: It has potent influences that are brought up to follow the beliefs,
values and customs of their society and to avoid behaviour that is judged acceptable.
b. Personal factor : It is a very important factor. Personal factors also influence buyer’s
behaviour. They include age, income, occupation, life style. They simply direct our
outer personality.
c. Psychology factor : The buying behaviour of consumer is influenced by a number of
psychological factors which includes motivation, perception, learning, beliefs and
attitude and personality.