MES-Pillai Institute of Management Studies and

Research (PIMSR),
New Panvel

Master of Management Studies (MMS)

(Batch : 2022-2024)

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 MMS – Semester – III
Elective Subject – Finance

Subject : Banking, Financial Services and

Insurance (BFSI)

Chapter-10 : Insurance Products

and Services
Lecture date : 14.12.2023

by
Dr. K.G.S. MANI

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Lecture date : 14.12.2023
Chapter-10 : Insurance Products and Services

(1) Meaning – Insurance:

Insurance is pooling of risks. In a contract of insurance, Insurer
(insurance Co.) agrees in consideration of a sum of money
(premium) to make good the loss suffered by the Insured (person)
against a specified risk such as fire and any other similar
contingency or compensate the insured/beneficiaries on the
happening of a specified event such as accident or death.

There are two parties to an insurance contract namely,

(i) insurer (insurance company), (ii) insured person (beneficiary).

Types of insurance:
(i) Life Insurance, (ii) General Insurance (Fire, Motor, Marine),
(iii) Health Insurance.
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Examples :
(i) Life Insurance Companies : LIC, SBI Life, ICICI Prudential.
(ii)General Insurance Companies: United India Insurance, New India
Assurance, Oriental Fire Insurance, SBI General Insurance Co. and a
number of Private Sector Insurance Companies (ICICI Lombard).
(iii) Health Insurance Company: Star Health Insurance Co.

(2) Principles of Insurance :

Insurance business is based on ‘Contract of Indemnity’. The principle
of indemnity implies that on the happening of an event (death of the
person, or fire in the factor) insured against, the Insured person will
be placed by the Insurer (Insurance Company) in the same monetary
(pecuniary) position that he/she had occupied immediately before the
event (death). Indemnity means that the ‘Insured person’ is placed,
financially, in the same position, as he was before the loss. However,
Indemnity does not imply that the Insured person will be indemnified
to the full value of his loss (example: a person whose factory is
destroyed by fire cannot recover the loss of profit in business due to
destruction of machinery. Only the value of machinery or insured
amount whichever is lower would be paid by the Insurance Company.4
(3) Features of Life Insurance :
(i) It is contract of insurance,
(ii) Insurance Co. agrees to pay certain sum of money on the death of
the Insured, or on maturity of policy whichever is earlier.
(iii)Insurable interest must be present in the person insured (a serious
sick person cannot be called an insurable interest, hence medical
test is done before insurance).
(iv) Life insurance extends protection to those who are left no support
in the case of death of earning member (husband dies, wife gets
the amount from insurance co.)
(V) Insurance relieves the Insured from various risks and uncertainties
which may occur before and after the death of the Insured.
(Examples : SBI Life, ICICI Prudential).

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(4) Types of Life Insurance Policies/Plans: (only three are
explained below)
(i) Term Life Policy (TLP) :
A term life insurance policy is the simplest, purest form of life
insurance. The insured person pays a premium for a specified
period of time – typically between 10 and 30 years. On maturity a
notice will be sent by the Insurance Company that the policy
period has expired and is no longer in effect. Then the
policyholder stops paying the premiums, and there is no longer
any potential death benefit.
On the contrary, if the insured person dies during the term/period
of the policy, a cash benefit is paid to his family (or anyone else
named in the initial proposal by the deceased). As such, Term Life
Policy provides ‘financial security’ to dependents of the insured
person, in the event of his death.
In the case of ‘Term Life Policy’, there is no insurance cover after
the expiry of the ‘term’ for which life policy is taken. If death
occurs after the expiry of term life policy, there is no amount
payable by the Insurance Company.
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Examples : Term Insurance Policy: HDFC Term Life Plan :
(i) Minimum/Maximum entry age : 18 years to 65 years
(ii) Age of Maturity : 85 years
(iii) Minimum/Maximum sum assured:
Minimum Insurance Amount – Rs 10 lakhs
Maximum amount : No limit fixed (CEOs and Actors have
taken term life policy for Crores of Rupees)
(iv) Term (tenure) : 85 years (-) age of entry
(v) Premium : Payable monthly, half-yearly, yearly

Note : Higher the amount insured, higher the premium amount.

Longer the tenure (period) of insurance, lesser the amount of
premium.

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(ii) Whole Life Policy (WLP):
Whole life insurance is a type of permanent life insurance, which
means the insured person is covered for the duration of their life as
long as premiums are paid on time. Whole life insurance is a
permanent life plan that provides coverage throughout the entire
life. The premiums tend to cost more than a term plan would, but
getting this insurance plan would be beneficial in the long run.

Example:
Mr Akash Menon, a CEO of a MNC has taken a ‘whole Life Policy from
ABC Insurance Company upto 100 years for Rs 50 crores.
Premiums are paid every year and the accumulated cash value
stand at Rs 30 crores. Upon Menon’s death during the tenure of
insurance, ABC Insurance will pay Rs 50 crores and incur a loss of
Rs 20 crores. This is the mechanism of ‘Whole Life Policy’.

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(iii) Endowment Policy (EP):
An endowment policy is an insurance policy that provides life
coverage of insurance, and also pays a sum of money if the
policyholder is still alive after an agreed period of time. An
endowment policy is designed to provide a lump sum on maturity.
It means that the Endowment insurance is a type of life insurance
that allows the policyholder to pay premiums and receive money
back at a specified date. This maturity amount can be used to
meet various financial needs such as funding one's retirement,
children's education and/or marriage or buying a house.
Endowment plans, thus, fulfill the dual need for (i) life insurance
cover and (ii) savings both under a one policy. They are one of
the traditional forms of life insurance plans available for insured
persons. These plans can be taken on regular payment of
premium on monthly, half-yearly and yearly basis. The insured
person can also taken a long against the accumulated cash value.
These are widely accepted insurance policy by employees.

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(iv) List of Life Insurance Companies :
(i) Life Insurance Corporation (LIC)
(ii) SBI Life Insurance Co. Ltd.
(iii) ICICI Prudential Life Insurance,
(iv) HDFC Life Insurance,
(v) Kotak Life Insurance,
(vi) PNB Met Life,
(vii) Canara HSBC OBC Life Insurance,
(viii)IDBI Federal Life Insurance
(ix) Max Life Insurance,
(x) Reliance Life Insurance,
(xi) Birla Sun Life Insurance,
(xii) Bajaj Alliance Life Insurance,
(xiii) Tata AIA Life Insurance
(xiv)Edelweisss Tokio Life Insurance,
(xv) Exide Life Insurance.

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(5) General Insurance :
General Insurance or non-life policies, including automobile, and
home-owners policies, gives ‘payments’ depending on the loss from a
particular financial event. General Insurance typically comprises any
insurance that is not covered under ‘life insurance’. It is known as
‘non-life insurance’. In India, ‘General Insurance’ is classified as Fire
Insurance, Marine insurance and Miscellaneous insurance (motor,
health, etc.). (examples: SBI General, ICICI Lombard). Some of the
‘general insurance’ (non-life insurance) policies are as below:
i) Fire : Fire Insurance,
ii) Travel : Overseas Corporate Travel Insurance.
iii) Engineering : Boiler and Pressure Plant, Plant & Machinery Risk,
Deterioration of Stocks, etc.
iv) Guarantee Insurance : Fidelity (trust)Guarantee Insurance
v) Motor : Commercial Vehicle Insurance (2-wheelers, 4-wheelers)
vi) Miscellaneous : Burglary Insurance, Jewellers’ Insurance, Shop
Keepers Policy,
vii) Marine : Marine Insurance Policy (for exporters),
viii) Generic : Personal Accident Policies, (road accidents),
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(ix) Health: Mediclaim Policy, Critical Illness Policy (example: Star
Health Insurance Company Ltd)
(x) Property : House Insurance Policy (fire destruction, earthquake)
(xi) Ammunition: Gun Insurance (self protection)
(Examples : SBI General, ICICI Lombard)

Note:
(i) Fire Insurance Coverage :
Fire, Lightning, Explosion, Aircraft Damage, Riot, Strike, Malicious and
Terrorism Damage, Storm, Cyclone, Impact Damage (missile
testing).

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 List of General Insurance Company :
(i) Export Credit Guarantee Corporation of India (Marine Insurance)
(ii) SBI General Insurance Co.
(iii) HDFC ERGO General Insurance,
(iv) United India Insurance Company,
(v) National Insurance Company,
(vi) New India Assurance Company,
(vii) Oriental Insurance Company,
(viii) Cholamandalam MS General Insurance Company,
(ix) Royal Sundaram General Insurance Company,
(x) Apollo Munich Health Insurance Company,
(xi) L & T General Insurance Company,
(xii) IFFCO Tokio General Insurance Company.

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(6) Health Insurance :
Health insurance is an insurance product which covers medical and
surgical expenses that might arise due to an illness of an insured
individual. It reimburses the expenses incurred due to illness or
injury or pays the care provider of the insured individual directly.
These expenses could be related to hospitalisation costs, cost of
medicines or doctor consultation fees. The policyholder either has to
pay for such expenses out-of-pocket and is later reimbursed by the
insurer or the insurance company settles bills directly with the
hospital concerned.

Types of Health Insurance Plans are as under :

(i) Individual Health Insurance : Individual
(ii) Family Health Insurance: Entire Family- Self, Spouse, Children,
and Parents
(iii) Critical Illness Insurance : Used for funding expensive treatments
(iv) Senior Citizen Health Insurance : For Citizens of age 65 and
above
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(i) Top Up Health Insurance : This insurance plan is beneficial when
the sum insured of the existing policy gets exhausted.
(ii) Group Health Insurance : For a group of employees

(6b) Health Insurance :

There are two basic types of ‘Health Insurance’ policies as under:
(i) Mediclaim Plans:
Mediclaim or hospitalisation plans are the most basic type of health
insurance plans. They cover the cost of treatment when you are
admitted to the hospital. The payout is made on actual expenses
incurred in the hospital by submitting original bills. Most of these
plans cover the entire family up to a certain limit (based on the
insurance policy amount opted by the customer.

(ii) Critical Illness Insurance Plans :

Critical Illness Insurance Plans cover specific life-
threatening diseases. These diseases could require prolonged
treatment or even change in lifestyle. Unlike hospitalisation plans,
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 the payout is made on ’Critical illness’ policy cover chosen by the
customer and not on actual expenses incurred in the hospital. The
cover gives the flexibility to use the monies for changing lifestyle
and medicines. Also it's a substitute for income for the time you
could not resume work due to illness. Payout under these
plans are made on the diagnosis of the disease for which the
original medical bills are not required.

Examples: A Few of Health Insurance Companies are as below:

(i) Star Health Insurance Co.
(ii) SBI General Insurance Co.
(iii) Bajaj Alliance Insurance Co.
(iv) TATA AIG Insurance Co.
(v) United India General Insurance Co.

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(7) Insurance Regulatory and Development Authority (IRDA):
(a) Objectives of IRDA :
(i) Established under an Act to control and regulate the Insurance
Sector,
(ii) To protect the interest of policy holders,
(iii) To regulate and promote and ensure orderly growth of insurance
industry.

(b) Duties/ Powers/Functions of IRDA :

(i) To issue the applicant a certificate of registration;
(ii) To protect the interests of policy-holders;
(iii) To specify requisite qualifications and practical training for
insurance agents;
(iv) To specify the code of conduct for surveyors nd loss assessors,
(v) To promote efficiency in the conduct of insurance business,
(vi) To promote and regulate professional organisations connected with
the insurance business.
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(vii) To conduct inspection and investigation of insurance companies.
(viii)To control and regulate the premium and terms & conditions
offered by the insurance companies.
(ix) To specify the form and method of book keeping for insurance
companies.
(x) To regulate the investment of funds by insurance companies.
(xi) To adjudicate the disputes between insurers and intermediaries
(insurance agents).
(xii) To specify the percentage of premium income of insurer to finance
the schemes.
(xiii)To specify the percentage of life insurance and general insurance
business to be undertaken by the insurance companies in the rural
areas (villages).
(iv)Exercising such other powers as may be prescribed under IRDA Act
from time to time.

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(xv)To prescribe the duties of ‘insurance actuary’ (assessor of loss
under insurance policy).(He is professionally qualified and specialist
in the field of insurance business who would assess the actual loss
under the insurance policy payable by the insurance company to the
insured person/beneficiary).

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THANK YOU

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