What is Insurance?

Insurance is a legal agreement between two parties i.e. the insurance company (insurer) and the
individual (insured). In this, the insurance company promises to make good the losses of the insured
on happening of the insured contingency. The contingency is the event which causes a loss. It can be
the death of the policyholder or damage/destruction of the property. It’s called a contingency
because there’s an uncertainty regarding happening of the event. The insured pays a premium in
return for the promise made by the insurer.
The insurer and the insured get a legal contract for the insurance, which is called the insurance
policy. The insurance policy has details about the conditions and circumstances under which the
insurance company will pay out the insurance amount to either the insured person or the
nominees. Any individual or company can seek insurance from an insurance company, but the
decision to provide insurance is at the discretion of the insurance company. The insurance company
will evaluate the claim application to make a decision. Generally, insurance companies refuse to
provide insurance to high-risk applicants.

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 Functions of Insurance
Functions of insurance are to spread the loss caused by a particular risk over several persons, who
are exposed to it and who agree to insure themselves against the risk:
The functions of insurance can be studied into two parts:
• Primary Functions
 Insurance provides certainty: Insurance provides certainty of payment at the uncertainty of
loss. The uncertainty of loss can be reduced by better planning and administration. The insurer
charges the premium for providing the said certainty.
 Insurance provides protection: The main function of insurance is to protect the probable
chances of loss. The time and amount of loss are uncertain and at the happening of risk, the
person will suffer the loss in the absence of insurance. The insurance guarantees the payment
of loss and thus protects the assured from sufferings. The insurance cannot check the
happening of risk but can provide for losses at the happening of the risk.
 Risk Sharing: When risk takes place, the loss is shared by all the persons who are exposed to
the risk.
(Cont. on next slide)
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 Functions of Insurance
The functions of insurance can be studied into two parts:
• Secondary Functions: The secondary functions can include:
 Financial Assistance: When you have insurance, you have guaranteed money to pay for the
treatment as you receive proper financial assistance. This is one of the key secondary functions
of insurance through which the general public is protected from ailments or accidents
 Source of Capital: Insurance is a source of capital for society. The cash accumulated is put into
the productive channel. With the help of insurance investments, the death of the society's
capital is reduced to a greater extent. The insurance industry, businesses, and individuals all
profit from the insurers' investments and loans.
 Efficiency in Productivity: The function of insurance is to relieve the stress and anguish
associated with death and property destruction. A person can devote their body and soul to
better achievement in life.
 Promotes Economic Growth: The Insurance sector makes a significant impact on the overall
economy by mobilizing domestic savings. Insurance turn accumulated capital into productive
investments.

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 Different Types of Insurance Policies in India
Life Insurance
A life insurance policy is a contract between an individual, called the Life Assured, and an insurance
company. Here, the company promises to pay a certain sum of money to the individual’s family in
case he/she were to pass away during the agreed-upon policy period. The Life Assured, in turn, is
required to make regular premium payments to the company for a certain number of years. Some
life insurance policies also pay out a maturity amount at the end of the policy term in case of
survival of the Life Assured.
Some important terms:
• Life Assured: The insured person is referred to as the life assured. In the unfortunate event of
the life assured’s death, the nominee receives the insurance money.
• Policy tenure: This is the duration for which the insurance company provides coverage. Policy
tenure for a life insurance plan can range anywhere from 1 year to 99 years (whole life).
• Death Benefit: This is the money that the insurance company pays to the nominee in the
unfortunate event of the life assured’s death.
(Cont. on next slide)

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 Different Types of Insurance Policies in India
Life Insurance
Some important terms:
• Sum Assured and Maturity Value:

• Lapsed Policy: A life insurance plan can get lapsed if the policy holder does not pay the premium
on time. In such cases, the policy is referred to as a lapsed policy and the insurer reserves the
right to terminate the contract if the policy holder does not pay the premium even during the
grace period.
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 Different Types of Insurance Policies in India
Life Insurance
Some important terms:
• Grace period: If the policy holder does not pay the premium, the insurance company offers an
extension, also known as the grace period. This allows more time for the policy holder to make
the payment.
• Revival Period: If your life insurance policy gets lapsed due to non-payment of premium, you can
revive it later by paying the premium and any added charges. This is known as the revival
period.
• Riders: Riders are add-ons that can be added to a policy at an extra cost. They are completely
optional but can enhance the coverage of your plan.
• Claim Process: The claim process refers to the steps involved in raising a claim request to the
insurance company. It usually includes submitting the claim form, death certificate, FIR, identity
proof, KYC information, and other necessary documents to the insurance company
• Exclusions: These are the list of things that are not covered under a life insurance plan in India.
For instance, some insurers do not cover suicide within the first few years of the policy tenure.
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 Different Types of Insurance Policies in India
Life Insurance
Different types of Life Insurance Policies can be as follows:
• Term Life Insurance: This is the purest and most affordable among the types of insurance policy
in which, you can opt for a high life cover for a specific period. You can secure your family’s
financial future with a term life insurance plan by paying a low premium (term insurance plans
generally do not have any maturity value, and thus, offer lower rates of premium than other life
insurance products.) If anything happens to you within the policy period, your loved ones would
receive the agreed Sum Assured as per the payout option chosen. It does not pay anything if you
survive the policy term.
• Whole Life Insurance Plans: Whole life insurance plans, also known as ‘traditional’ life insurance
plans, provide coverage for the entire life of the insured individual, as opposed to any other life
insurance instrument that offers coverage for a specific number of years. The maturity age for
whole life insurance policy is 100 years. In case, the insured individual lives past the maturity
age, the whole life plan will become matured endowment.
(Cont. on next slide)

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 Different Types of Insurance Policies in India
Life Insurance
Different types of Life Insurance Policies can be as follows:
• Whole Life Insurance Plans (Cont.):

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 Different Types of Insurance Policies in India
Life Insurance
Different types of Life Insurance Policies can be as follows:
• Endowment Plans: The endowment plans are the life insurance policies that fulfil dual
objectives. An endowment policy could be used to create a risk-free savings corpus and provides
financial protection to the family in case of any unforeseen event. The lucidity of an endowment
plan makes it a lucrative savings plan for one and all. An endowment policy acts as the shield of
financial security for the policyholder and the family. Endowment plan helps the insured to save
regularly over a particular time period in order to avail a lump-sum amount at the maturity of
the policy. The maturity amount is paid in case the insured survives the entire tenure of the
policy.
However, in case of an unfortunate demise of the insured during the policy tenure, a sum
assured amount as death benefit along with bonus (if any) is paid to the beneficiary of the
policy. Besides this, endowment policy also helps to create financial cushion for future so that
one can meet the long-term and short-term financial objectives of life.

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 Different Types of Insurance Policies in India
Life Insurance
Different types of Life Insurance Policies can be as follows:
• Unit Linked Insurance Plans (ULIP): ULIP is the acronym for Unit Linked Insurance Plan. A ULIP is
the combination of investment and insurance. One part of the premium amount is used to
provide a life insurance cover and the remaining sum is invested. In these plans, the investments
are subjects to the risks associated with the capital market. The policyholder bears the
investment risk on his/her investment portfolio. Hence, it is recommended to make an
investment choice basis the needs along with the risk appetite. The charges including fund
management charges, allocation charges etc. are clearly stated upfront.
• ULIPs have a lock in period. ULIPs offer pay-outs in case of surrender, maturity, or the untimely
demise of the insured. Let us look at the two points associated with ULIPs which will help us
understand its benefits better.
 The sum assured associated with a ULIP plan gives an assurance that at least this sum of
money will be paid to the family of the insured in case of his demise during the policy term.
 Under ULIP, policyholder can choose from a set of funds to invest in, as per his risk appetite
and market conditions. The total monetary worth of the units owned by the policyholder is
termed as fund value. Secondary sources from the internet have been used to make the presentation
 Different Types of Insurance Policies in India
Life Insurance
Different types of Life Insurance Policies can be as follows:
• Unit Linked Insurance Plans (ULIP): There are three conditions under which pay-out can be
received from a ULIP plan. Below it is explained how each option is executed:
 Upon Policyholder’s demise: In case of demise of the policyholder during the policy term, the
sum assured or fund value, whichever is higher, is paid to his family. So, if the fund has been
under performing, and the fund value is lower than sum-assured, sum assured will be paid.
 Upon policy Surrender: In case the policy owner surrenders the policy during the lock-in
period, the insurer deducts the applicable charges from the fund value and pays the
surrender value after completion of the lock-in period. ULIPs have a lock-in period of 5 years.
If the policyholder surrenders the policy after completion of the lock-in period, the insurer
pays the fund value.
 Upon Maturity: When the policy period gets over, fund value is paid to the policyholder.

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 Different Types of Insurance Policies in India
Life Insurance
Different types of Life Insurance Policies can be as follows:
• Child Plans: A child plan is a mix of investment and insurance that helps in the financial planning
for a kid's future needs. A child saving plan is a contract with insurance provider, with you as the
policyholder and your child as the nominee.
• The insurance aspect ensures that a child remains protected in the event of the unfortunate
demise of a parent. If an unwanted event occurs, insurance company pays the prearranged sum
assured to your child.
• Insurance companies provide a premium waiver rider if the policyholder passes away during the
policy term of the child plan. However, this does not mark an end to the plan, and the policy
does not lapse. In such cases, the child is entitled to a lump sum amount promised at the time
of purchasing the child policy without paying the balance premium. The rider enables the policy
to continue without any breaks or lapse wherein the responsibility of paying the balance
premium lies on the insurer. A child education plan can work as an Endowment Policy, a ULIP, or
money-back.
(Cont. on next slide)
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 Different Types of Insurance Policies in India
Life Insurance
Different types of Life Insurance Policies can be as follows:
• Child Plans:
 Money Back Child Plans: This scheme makes sure that your child will get survival benefit at
regular interval of time. These plans are highly useful for individuals who need a lump sum
money at regular intervals and help in life stage planning.
 ULIPs: ULIPs are non-traditional plans and the returns depend on the market condition. ULIPs
deliver a wide variety of funds ranging from aggressive too conservative. ULIP schemes give
you an option of switching funds from equity to debt and vice versa without paying tax on it.
 Endowment-based Child Plans: This policy is where you will receive the lump sum amount on
maturity along with bonuses.

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 Different Types of Insurance Policies in India
Life Insurance
Different types of Life Insurance Policies can be as follows:
• Pension Plans: Pension plan, also known as retirement plan, is a type of investment plan that
aids you in accumulating a portion of your savings over an extended period. Essentially, a
pension plan helps you deal with financial uncertainties post-retirement, by ensuring that you
continue to receive a steady flow of income even after your working years are over. In other
words, a pension plan can be a type of insurance in India that allows you to create a financial
cushion for your life post-retirement, in which you contribute a specific amount of money
regularly until your retirement. Subsequently, the accumulated amount is given back to you as
annuity or pension at regular intervals

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 Different Types of Insurance Policies in India
General Insurance: General insurance policies are one of the types of insurance that offer coverage
in the form of sum assured against the losses incurred other than the death of the policyholder.
Overall, general insurance comprises different types of insurance policy that offer financial
protection against losses incurred due to liabilities such as bike, car, home, health, and similar.
Different types of General Insurance Policies can be as follows:
• Health Insurance: Health insurances are types of insurance policy that covers the expenses
incurred due to medical care. Health insurance plans either pay or reimburse the amount paid
towards the treatment of any illness or injury. Different types of insurance policy cover varied
medical care expenses. It usually offers protection against:
 Hospitalization
 Treatment of critical illnesses
 Medical bills post hospitalization
 Daycare procedures

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 Different Types of Insurance Policies in India
General Insurance:
Different types of General Insurance Policies can be as follows:
• Health Insurance:
Different types of health insurance plans available in India include:
1) Individual Health Insurance: Offers coverage to only an individual
2) Family Floater Insurance: Allows your entire family to get coverage under a single plan, which
usually covers husband, wife, two children

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 Different Types of Insurance Policies in India
General Insurance:
Different types of General Insurance Policies can be as follows:
• Health Insurance:
Different types of health insurance plans available in India include:
3) Critical Illness Cover: Specialized types of health insurance that offers coverage against
various life-threatening illnesses like stroke, heart attack, kidney failure, cancer, and similar
others. Policyholders get a lump sum amount on diagnosis of a critical illness.
4) Senior Citizen Health Insurance: These types of insurance plans cater to all individuals above
60 years of age
5) Group Health Insurance: Offered by an employer to its employee
6) Maternity Health Insurance: Offers protection to both the mother and the newborn
7) Personal Accident Insurance: These types of insurance plans cover financial liabilities arising
due to accidental injuries, disability, or death

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 Different Types of Insurance Policies in India
General Insurance:
Different types of General Insurance Policies can be as follows:
• Motor Insurance: Motor insurances are types of insurance that offer financial assistance in case
your bike or car get involved in an accident. Various types of Motor insurance policies in India
include Car Insurance, Bike Insurance, Commercial Vehicle Insurance. It’s main objective is to
give complete protection against physical damage or loss sustained by the insured vehicle from
natural and man made calamities. Apart from the own damage cover, this policy also provides
coverage for third party liabilities, arising out of any accidental damage, injury or death of a
third party. Some key terms:
 First Party: The first party in the car insurance policy is the owner of the car or the person in
whose name the policy is registered. This first party has to pay their car insurance premium to
their insurance provider and can claim the benefits under the insurance.
 Second Party: The second party refers to the car insurance company that protects your vehicle
and compensates for the losses or damages to your car. It is the insurance provider with whom
the first party has signed the insurance policy contract. Therefore, when an accident takes
place, the second party is entitled to settle the claims filed by the first party, provided that the
first party has ensured timely payments of premiums. (Cont. on next slide)
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 Different Types of Insurance Policies in India
General Insurance:
Different types of General Insurance Policies can be as follows:
• Motor Insurance:
 Third party: A third party is a person or a vehicle owner who has been affected by the actions
of the first party’s insured vehicle in any way. For example, if the first party’s vehicle has
caused damage or injuries to the third party’s vehicle or owner, then the insurance benefit is
paid by the second party to the third party.
• Home Insurance: As the name suggests, a home insurance policy offers comprehensive
protection to the contents and structure of your house against any physical destruction or
damage. In other words, this insurance type will provide coverage against any natural and
human-made calamity, such as fire, earthquake, tornado, burglaries, and robbery.
• Fire Insurance: Fire insurance policies are different types of insurance coverages that
compensate any losses incurred due to a fire breakout with a sum assured. These types of
insurance policy usually provide a significant amount of coverage to help both individuals and
companies to reopen their places after incurring extensive damage due to fire. These insurance
types cover war risk, turmoil, riots losses as well.
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 Different Types of Insurance Policies in India
General Insurance:
Different types of General Insurance Policies can be as follows:
• Travel Insurance: As the name suggests, travel insurance is a type of insurance policy, providing
financial protection while you are visiting any place in India or abroad. The travel insurance
policy coverage takes care of any issues that you may face during your trip such as loss of
baggage, flight cancellations, loss of passport, personal and medical emergencies. Different
types of travel insurance policies include:
 Domestic Travel Insurance: Within the country
 International Travel Insurance: For any trips or vacations outside of India
 Individual Travel Insurance: If you are travelling alone
 Student Travel Insurance: If you are going abroad for further studies
 Senior Citizen Travel Insurance: For senior citizens, ageing between 60 to 70 years
 Family Travel Insurance: For any family vacations

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 Different Types of Premiums
Insurance companies transfer the risk on to themselves in exchange for a fixed amount charged
from its clients called Premium. In order for an insurance company to be profitable, the premium
collected must be more than the claims it might be giving out. Hence the premium rate is calculated
based on extensive research and analysis.
• Written Premium: The amount an insurance company receives for insurance protection provided
through an issued policy. For example, if an insurance company over the course of its fiscal year
(FY) sells 1,000 new contracts that require each customer to pay $1,000 in premiums, its written
premiums for that period would be $1 million. Written premiums may be measured as a gross
or net number.
• Earned Premium: The earned premium is referred to the premium acquired by the insurance
company for a portion of the policy that has already expired. As policyholders pay their
premiums in advance, insurers don’t consider the paid premiums immediately as the Earnings.
While the policyholder meets the financial obligations and gets advantages, the obligation of an
insurer starts when the premium is received. When the policyholder pays the premium, it is
regarded as the unearned premium and not as a profit. insurance companies consider premiums
on an insurance contract unearned until the contract has expired. Once the contract has expired,
the insurance company is no longer assuming any financial risk, and the premium is considered
earned Secondary sources from the internet have been used to make the presentation
 Different Types of Premiums
• Unearned Premium: Unearned premiums represent the portion of insurance premiums written
that has not yet been earned and is attributable to unexpired coverage (the insurer’s remaining
contractual obligation). When the premium is written, the entire amount of the premium is
unearned. As policies age, the unearned premium amount decreases, and written premiums
become premiums earned.

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 Different Types of Premiums
Methods for Calculating Earned Premium:
There are two main methods for calculating the earned premium:
Accounting method: The accounting method takes the number of days since the beginning of an
insurance contract and multiplies the figure by the premium earned each day. It is the most
common method for calculating earned premium and accurately reflects the amounts insurance
companies made on specific contracts.
Earned Premium = Total Premium / 365 * Number of Days Elapsed
For example if a 365 day policy with a full premium payment at the commencement of the
insurance has been in effect for 180 days, 180/365 of the premium can be considered as being
Earned. This will also mean that 185/365 of the premium would have to be considered unearned.
The same rules apply for policies with a term of more than one year
Instead of using days elapsed it’s also possible to use whole months to calculate Earned Premium.
So for instance, if 3 whole months of a two year (24 month) policy have elapsed, the calculation
would be as follows.
Earned Premium = Total Premium / Full Policy Term in Months * Number of Months Elapsed
i.e. Earned Premium = Total Premium / 24 * 3 Secondary sources from the internet have been used to make the presentation
 Different Types of Premiums
Methods for Calculating Earned Premium:
There are two main methods for calculating the earned premium:
Exposure method: The exposure method is much more complex and data-driven than the
accounting method. It uses historical data to estimate the value of insurance contracts. It looks at
the risk of payout and the estimated collection of premiums.
The method considers how premiums are exposed to losses over a set period of time. It is a
complex method and comprises inspecting the portion of the unearned premium exposed to loss
during the period of calculation. The exposure method will include the inspection of various risk
scenarios via historical data that might occur over a time frame, between high-risk and low-risk
scenarios.

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 Different Types of Premiums

• Direct Premium Written: The premium associated with a policy issued by the primary insurer to
the insured.
• Assumed Reinsurance Premium: The premium from policies an insurer accepts, in whole or in
part, from another insurance company.
• Gross Premium Written: The total direct premium written and reinsurance assumed as recorded
by the primary insurer. Formula: Direct Premium Written + Reinsurance Assumed = Gross
Premium Written
• Net Premium Written: Net premiums written is the sum of premiums written, minus the
premiums ceded to reinsurance companies, plus any reinsurance assumed. The net premium
calculation must take into consideration an estimate for future expenses and include that in the
premiums charged to customers.
• Ceded Reinsurance Premium: The premium from policies an insurer transfers, in whole or in
part, to another insurance company.

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 Insurance Sector in India
The insurance industry in India has 50 plus insurance companies, including 30 plus non-life insurers.
The Indian insurance sector has historically witnessed growth between 12 and 15 per cent over a
five-to-six-year time horizon. This growth has primarily been driven by the inherent under-
penetration of the sector (3.76 per cent in India against 9 per cent and above in developed countries
like Japan, the U.K. and the U.S.) as well as concerted efforts by the industry and the Insurance
Regulatory and Development Authority of India (IRDAI) to increase awareness and adoption.
Themes that will Drive the Sector can include:
 Consolidation: The market structure of the insurance sector indicates that the top four or five
players control a key portion of the market while there is a significantly longer tail. This trend is
expected to continue with market leaders keenly assessing players with niche capabilities or
market presence in geographies which would add value to their larger portfolio.
(Cont. on next slide)

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 Insurance Sector in India
Themes that will Drive the Sector can include:
 Customer centricity – Customer experience, journey simplification and product modularisation
will be key themes adopted by insurance companies. Insurers will look at providing a seamless
omnichannel experience to customers leveraging technology while ensuring simplification of
product constructs to drive penetration.
 Big data: A key enabler for insurance companies, going forward, would be increased adoption
of big data solutions, including cloud computing, artificial intelligence, etc. The improved
analytical capabilities driven by in-house development or through tie-ups with technology
companies will drive data usage, underwriting, claims management, acquisition, renewals as
well as fraud management.
 Digital Commerce: Digital commerce would witness increased adoption by insurers in both the
life and non-life segments. Usage of digital marketing channels to acquire as well as engage
with customers would be a key trend going forward.
 Payments: The disruptions in the payments space will also substantially affect the insurance
industry in terms of ease of premium payments or settlements.