INSURANCE BUSINESS

• Insurance is a financial risk management tool in which the insured

transfers a risk of potential financial loss to the insurance company
that mitigates it in exchange for monetary compensation known as the
premium. An Insurance policy is a contract between the policy holder
and the insurance company. Insurance policies are of different types
depending on the risk they mitigate.

Broad categories include:

• Health Insurance
• Life Insurance
• Asset Insurance
• Banks undertake corporate agency of insurance companies departmentally.

• Banks need not obtain prior approval of the RBI to act as corporate agents on a fee basis, without
risk participation/undertake insurance broking activities departmentally, subject to IRDA
Regulations.

• Banks offer insurance policies to their customers based on their knowledge of their situation and
needs. When a bank becomes the corporate agent of an insurance company it is referred to as a
Bancassurance arrangement or partnership.

• Corporate Agents can represent three life insurer, three non-life insurer and three standalone
health insurer. In addition, they can represent the two specialised insurance companies, Export
Credit Guarantee Corporation and Agriculture Insurance Corporation of India.

• The concept of distribution of insurance policies through the branches of banks is termed as
"Bancassurance" in global parlance. Insurance companies use the network of bank branches and
reach their customers through the branches tor selling different insurance policies. By this the
insurance companies were able to derive good mileage through expanded reach and convert
more business through the above initiatves. It is an attractive proposition for the bank also as
banks will be able to derive more fee-based income without risk participation
SOME SOCIAL SECURITY INSURANCE SCHEMES
• The Central Government introduced PMJJBY and PMSBY under financial inclusion program.
Banks undertake agency business of these schemes:

Pradhan Mantri Jeevan Jyoti Bima Yojana – PMJJBY

• PMJJBY is an Insurance Scheme offering life insurance cover for death due to any reason. It
would be a one year cover, renewable from year to year. The scheme would be
offered/administered through LIC and other Life Insurance companies willing to offer the product
on similar terms with necessary approvals and tie-ups with banks for this purpose.

• Scope of coverage: All individual account holders of participating banks in the age group of 18 to
50 years will be entitled to join. In case of multiple bank accounts held by an individual in one or
different banks, the person would be eligible to join the scheme through one bank account only.
Aadhar would be the primary KYC for the bank account.
• Enrolment period: For the cover period 1st June to 31st May, subscribers are required to enrol
and give their auto-debit consent by 31st May of policy commencing year. Those joining
subsequently would be able to do so with payment of full annual premium for prospective cove.

• Benefits: 2 lakh is payable on member's death due to any cause.

• Premium: 436/- per annum per member.

• Termination of assurance: The assurance on the life of the member shall terminate on any of
the following events and no benefit will become payable there under:

a. On attaining age 55 years (age near birth day) subject to annual renewal up to that date (entry,
however, will not be possible beyond the age of 50 years).

b. Closure of account with the bank or insufficiency of balance to keep the insurance in force.

c. In case a member is covered under PMJJBY with LIC of India/other company through more than
one account and premium is received by LIC/other company inadvertently, insurance cover will be
restricted to 2 Lakh and the premium paid for duplicate insurance(s) shall be liable to be forfeited.
Pradhan Mantri Suraksha Bima Yojana (PMSBY)

• PMSBY will be an Accident Insurance Scheme offering accidental death and disability cover for death or
disability on account of an accident. It would be a one-year cover, renewable from year to year.

• Scope of coverage: All individual bank account holders in the age group of 18 to 70 years in participating
banks will be entitled to join. In case of multiple bank accounts held by an individual in one or different banks,
the person would be eligible to join the scheme through one bank account only. Aadhar would be the primary
KYC for the bank account.

• Enrolment Modality/Period: The cover shall be for the one year period stretching from 1st June to 31st May
for which option to join/pay by auto-debit from the designated bank account on the prescribed forms will be
required to be given by 31st May of every year. Joining subsequently on payment of full annual premium
would be possible.

• Benefits: As per the following table

• Premium: 20/- per annum per member. The premium will be deducted from the account
holder's bank account through 'auto debit' facility in one instalment on or before 1st June
of each annual coverage period under the scheme. However, in cases where auto debit
takes place after 1st June, the cover shall commence from the date of auto debit of
premium by bank.

• Termination of cover: The accident cover for the member shall terminate on any of the
following events and no benefit will be payable there under:

a. On attaining age 70 years (age nearest birthday).

b. Closure of account with the bank or insufficiency of balance to keep the insurance in
force.

c. In case a member is covered through more than one account and premium is received
by the Insurance Company inadvertently, insurance cover will be restricted to one bank
account only and the premium paid for duplicate insurance(s) shall be liable to be forfeited.
Sovereign Gold Bonds (SGBs)

• Sovereign Gold Bonds (SGBs) are government securities denominated in grams

of gold. They are substitutes for holding physical gold. Investors have to pay the
issue price in cash and the bonds will be redeemed in cash on maturity. The Bond
is issued by Reserve Bank of India behalf of Government of India.

• The quantity of gold for which the investor pays is protected, since he receives
the ongoing market price at the time of redemption/premature redemption. The
SGB offers a superior alternative to holding gold in physical form. The risks and
costs of storage are eliminated. Investors are assured of the market value of gold
at the time of maturity and periodical interest.

• The Bonds shall bear interest at the rate of 2.50 per cent (fixed rate) per annum
on the amount of initial investment. Interest shall be paid in half-yearly rests and
the last interest shall be payable on maturity along with the principal.
• Eligible investors include individuals, HUFS, trusts, universities, charitable institutions

• A minor can also invest in SGB but the application is to be made by his/her guardian on behalf of the
minor.

• The Bonds are issued in denominations of one gram of gold and in multiples thereof.

• Minimum investment in the Bond shall be one gram with a maximum limit of subscription of 4 kg for
individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for trusts and similar entities notified by
the government from time to time per fiscal year (April - March).

• In case of joint holding, the limit applies to the first applicant. The annual ceiling will include bonds
subscribed under different tranches during initial issuance by Government and those purchased from
the secondary market.

• The Bonds shall be transferable in accordance with the provisions of the Government Securities Act
2006 and the Government Securities Regulations 2007 before maturity by execution of an instrument
of transfer which is available with the issuing agents.
• The nominal value of Gold Bonds shall be in Indian Rupees fixed on the basis of the simple average of
closing price of gold of 999 purity, published by the India Bullion and Jewellers Association Limited, for
the last 3 business days of the week preceding the subscription period.

• The price of gold for the relevant tranche will be published on RBI website two days before the issue
opens.

• The Bonds shall be repayable on the expiration of eight years from the date of issue of Gold bonds.

• Pre-mature redemption of the Bond is permitted from the fifth year of the date of issue on the interest
payment dates.

• On maturity, the Gold Bonds shall be redeemed in Indian Rupees and the redemption price shall be
based on simple average of closing price of gold of 999 purity of previous 3 business days from the date
of repayment, published by the India Bullion and Jewellers Association Limited.

• In case of premature redemption, investors can approach the concerned bank/SHCIL offices/Post
Office/agent thirty days before the coupon payment date. Request for premature redemption can only
be entertained if the investor approaches the concerned bank/post office at least one day before the
coupon payment date. The proceeds will be credited to the customer's bank account provided at the
time of applying for the bond. Part holdings can be redeemed in multiples of one gram.
• These securities are eligible to be used as collateral for loans from banks, financial Institutions and Non-
Banking Financial Companies (NBFC).

• Interest on the Bonds will be taxable as per the provisions of the Income-tax Act, 1961 (43 of 1961). The
capital gains tax arising on redemption of SGB to an individual has been exempted.

• Nomination facility is available as per the provisions of the Government Securities Act 2006 and Government
Securities Regulations, 2007. The sole holder or all the joint holders may nominate a maximum of two
persons as nominee. The nomination can be altered by registering a fresh nomination. The existing
nomination can be cancelled by a request to the Office of Issue,

• Bonds are sold through scheduled commercial banks (excluding RRBs), SHCIL, designated Post Offices,
National Stock Exchange of India Ltd. & Bombay Stock Exchange Ltd either directly or through their agents.

• Commission for distribution shall be paid at the rate of rupee one per hundred of the total subscription
received by the receiving offices (including banks) on the applications received and receiving offices shall
share at least 50% of the commission so received with the agents or sub-agents for the business procured
through them.

• The Govenment of India in consultation with the Reserve Bank of India decided to allow discount of Rs. 50
(Rupees Fifty only) per gram from the issue price to those investors who apply online and the payment is
made through digital mode