Insurance Perspectives & Practices in INDIA

DEFINING INSURANCE A Contract (Agreement as per LAW) between the INSURER (The Insurance Company) and the INSURED (Customer), wherein the Insurer Promises to pay a Lump sum on the happening of an Event. The consideration for payment is only of the insurer.

Types of Insurance
Insurance in India can be classified into two broad categories: LIFE INSURANCE NON-LIFE OR GENERAL INSURANCE

What is Life Insurance?

LIFE INSURANCE
Life Insurance is intended to mitigate the adverse financial consequences that may follow because a person does not live long enough or because he lives long enough.

Every possible adverse consequence which constitutes a life risk that requires to be taken care of, constitutes a need for Life Insurance.

Basis of Insurance Plans

LIFE INSURANCE plans can be broadly divided into 2 types :
PURE TERM INSURANCE PLAN- Only Death Benefit-No Survival Benefit If the Insured does not die within the plan period no benefit is paid to the insured. PURE ENDOWMENT PLAN- Only Survival Benefit- No death Benefit If the Insured dies within the specified period no benefit is paid.

All the insurance plans like Money Back or Children's Plans you might have heard of, fall in between these two, namely Pure Term Insurance & Pure Endowment.

General Insurance or Non Life Insurance

Health Insurance-Mediclaim, Cashless Hospitalization policy Vehicle Insurance-Against Accidental Damage, Theft, Third Part Injury Fire Insurance-Commercial Shop Insurance-Against Fire, Robbery, Vandalism, Floods, Act of Terrorism, Natural Perils, etc. Home /Property Insurance-Against Fire, Robbery, Vandalism, Floods, Act of Terrorism, Natural Perils, etc. Liability Insurance Marine Insurance Ornamental Insurance, etc Rural Insurance-Crop Insurance Social Insurance Projects and Engineering Insurance Cow or cattle insurance

Major Players in India Today

LIFE INSURANCE COMPANIES Life Insurance Corporation ICICI Prudential Life Insurance Bajaj Allianz Metlife Insurance Max New York Life Aviva OM Kotak Mahindra TATA AIG HDFC Standard Birla Sunlife Bharti-Axa Life Insurance GENERAL INSURANCE COMPANIES New India Assurance National Insurance Company Ltd Oriental Life Insurance United India Insurance Tata AIG IFFKO-Tokio Bajaj Allianz General Insurance ICICI Lombard General Insurance Cholamandalam

WHAT ARE THE ADVANTAGES OF LIFE INSURANCE?

FOR A SMALL PREMIUM,

A PERSON CAN PROVIDE FOR HIS FAMILYs daily needs CHILDRENS EDUCATION, CHILDRENS MARRIAGE, ETC

IN THE EVENT OF HIS UNTIMELY DEATH. Typically A PERSON CANNOT AMASS THE AMOUNT REQUIRED THRU HIS LIFES EARNINGS! IT TAKES CARE OF CRITICAL ILLNESSES DURING ONEs LIFETIME, DISMEMEBERMENT THRU AN ACCIDENT OR PERMANENT TOTAL DISABILITY BECAUSE OF AN ACCIDENT OR DISEASE. LI CAN HELP IN BUILDING A TIDY ANNUITY AFTER RETIREMENT.

LIFE Insurance Real Life EXAMPLE

Mr & Mrs. X live in in a 3 BHK apartment in BBSR with their 2 kids Master Y and Miss Z. Mr.Xs salary or monthly income is Rs.50K PM. Mrs.X is a home maker. Rent=Rs.10K PM School Expenses=Rs.15K PM HH Expenses=Rs.10K PM Other miscellaneous=Rs.5K PM Total=Rs.40K PM, Savings=Rs.10K PM or Rs.120K PA. MR.X BUYS A TERM PLAN PREMIUM: RS.10,000/- PA SUM ASSURED: RS.50 LAKHS MR.XS AGE: 30 YEARS TERM: 40 YEARS

For an annual premium of Rs.10K or monthly premium of Rs.833/- or Rs.27/- daily Mr.X would get an insurance of Rs.50Lakhs or Rs.0.5 crores. Not Bad! Huh! Then why doesnt everyone buy it?

MR.X MEETS WITH AN ACCIDENT AND DIES ON THE SPOT..GULP!

Widow X get Rs.50Lakhs and puts it in a FD at the current rate of 8.5% PA. Family s income =Rs.35, 415 Rent for 3BHK=Rs.10K PM Kids SE=Rs.15K PM Total HHE=Rs.10K PM Expenses=Rs35K, Savings=Rs.415 /-PM or <6 K PA

DO YOU GET THE PICTURE NOW!!!

Why Life Insurance is so TOUGH to sell? Personal Opinion

People in India are ignorant. Its reasonable to expect ignorant people not to buy a life saver or
a family saver (at a nominal cost )and save their loved ones from utter ruin or destruction!!! Insurance sales persons do not know how to sell insurance. They go into begging mode rather than solemn advice while speaking to customers, so customers do not take them seriously and play around with them. Qualification for selling insurance in Metros is 12th Class Pass. Rural areas is 10th Pass. 95% People in India are superstitious fools-Justice Katju. Most insurance policies require medical check which is done free of costyet people are not inclined to the right thing. People in India are v.concerned that if they purchase insurance from an agent, the agent will get a commission (which incidentally is the agents income)!!! Indian customers are convinced that the agent selling LI is cheating by earning a commission!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! And Indians (the most virtuous race under sun will not stoop to buy insurance from cheats!!!!! Other Indians philosophize jab jaan hi na rahi, to is rupiyon ka kya faida. You selfish pig think about your widow and children!!! Do you expect your wife to become a whore and kids beggars on the mean streets!!! LIC screwed up the scene for 40 years by making widows and others run around for justifiable claims. LIC has secret reserves of Rs.25000 crores from unclaimed insurance.

How much Insurance do you have or need?

As per a thumb rule, if your age is between:

0-35 20 times annual income 36-50 15 times annual Income Above 50 years 10 times annual income

This question can also be answered with the help of the following 2 approaches
Human Life Value Concept Capital Needs Analysis

HUMAN LIFE VALUE CONCEPT

WHAT IS HUMAN LIFE WORTH? UNLIMITED. FOR PRACTICAL PURPOSES: THUMB RULE FOR LIFE INSURANCE: LIFE INSURANCE COVER: UPTO 35 YEARS 20 TIMES ANNUAL INCOME 36-50 YEARS - 15 TIMES ANNUAL INCOME ABOVE 50 YEARS - 10 TIMES AI EXAMPLE PRESENT ANNUAL INCOME = Rs. 120,000 PERSONAL ANNUAL EXPENSES =Rs. 36000 PI PE =Rs.84,000 BALANCE IS THE PERSONS CONTRIBUTION TO HIS FAMILY ASSUMING THE PERSONS AGE AS 40 YEARS; SERVICE LEFT 20 YEARS HLV = 84,000 X 20 years =Rs.16, 80,000-Amount of Insurance. Problem: Age = 25 Retirement age = 60 years PI = 100000 PE=25,000 WHAT IS THE PERSONS HLV AND WHAT AMT OF LIFE INSURANCE SHOULD HE TAKE? ANS = 26,25,000 THIS CONCEPT WAS NOT ACCEPTED AS DEATH, DISABILITY AND SERVICE ARE UNCERTAIN.

CAPITAL NEEDS ANALYSIS

INCOME FAMILY - DREAMS PROSPECTS BACKGROUND AGE=44 YEARS, WIFE=40, SON=10 YEARS, DAUGHTER=8 YEARS MONTHLY HOUSEHOLD EXPENSES Rs.5000 ANNUAL EXP =Rs.60,000 Sons education fund =4 LAKHS Daughters Marriage Expenses =4 lakhs Savings /Assets
FD in Bank-2 lakhs Jewelry-1 lakh One 2 wheeler One single storey house

Interest rate on FD 6% for 2 lakhs=12000 pa Annual expenses=60,000 12,000 =Rs.48,000 Capital Needs= Annual Expenses times service left+ Sons Edun+ Daughters Marriage=Rs.48,000 X 16 years=8 lakhs+ 4 lakhs+4 Lakhs = 16 Lakhs Insurance required = 16 Lakhs

TYPES OF L. INSURANCE POLICIES

TERM LI WHOLE LIFE LI MONEY BACK LI

PENSION PLANS
CHILDREN PLANS ENDOWMENT PLANS

2 MODES OF LIFE INSURANCE AVAILABLE IN INDIA TRADITIONAL Sold more in rural areas SUM ASSURED + BONUS MODEL BONUS IS DECLARED BY A COMPANY DIFFERS FROM COMPANY TO COMPANY SOLD THRU AGENTS

UNIT LINKED LIFE INSURANCE PLANS Sold more in Urban areas DIRECT AGENT/ADVISOR/CONSULTANT SALES/BROKERAGE BANCASSSURANCE INTERNET

3 MUST BUY INSURANCE PLANS for every intelligent & productive individuals in Indiain the world!!!

TERM LIFE PLAN PROVIDING SAFETY N SECURITY TO A

FAMILY IN THE EVENT OF DEATH OF THE SOLE EARNING MEMBER

PENSION PLAN
PROVIDING INCOME FOR LIVING TOO LONG. A STEADY INCOME WHEN A PERSON RETIRES. TAKES CARE OF INFLATION

WHOLE LIFE PLAN WITH ALL RIDER BENEFITS AND

SAVINGS

Whole Life Plan-ULIP

This is an endowment Life Insurance plan which comes with Rider Benefits which are optional. Riders
are additional benefits which any individual can opt for, at a marginal extra cost. These riders can be chosen at the time of submitting the proposal or at the beginning.

The Riders in a whole life plan are:

Accidental Death & Dismemberment(AD&D) Critical Illness and Permanent Total Disability(CI&PTD) Hospital Cash Benefit

Accidental Death & Dismemberment (ADD)

ADD is coverage from risk of death or dismemberment due to an ACCIDENT Amount payable is Twice the Sum assured in case death results from an accident. The complete Sum Assured shall be paid in case of DISMEMEBERMENT Dismemberment means partial disability resulting from an accident, i.e. losing one hand, losing both hands, losing legs, losing eyesight, etc. Maximum Payable Under this Rider is Rs.50 Lakhs

Critical Illness and Permanent Total Disability (CIPTD)

Coverage against contracting a critical illness or becoming totally or permanently disabled due to a disease or accident. Can be claimed at the time of diagnosis of any of the categorized critical illnesses as mentioned in the brochure by the insurance company. Advantage is that a person does not need to be hospitalized in order to claim the SA, rather a diagnosis by a professional medical examiner certifying the existence of an illness is required. SA shall also be paid if the persons capability to work is impaired i.e. when he becomes Permanently unable to carry out his normal duties. Maximum amount payable under this RIDER is 20 Lakhs

Hospital Cash Benefit

The company will make fixed cash payments for each day of hospitalization. Cash of Rs.1000 for General Ward and Rs.3000 for ICU per day. Claim paid on production of bills of number of days stay in the hospital. Maximum claim entertained is Rs.540,000/-.

TERM Insurance Plan

Only death benefit, No survival benefit. For a relatively small amount you can take a large insurance coverage. You can take a term of 40 years or upto age of 70 whichever is earlier

Pension Insurance Plan

Only survival benefit, no death benefit. The earlier you take a pension plan the less shall be the amount of premium you pay. AP: Rs.10,000 Term 40 Years Total premium paid=Rs.4lakhs Fund Value:Rs.1.2 crores

ASSIGNMENT-2
1 Page write-up on History of Insurance in India 1 page write-up on All types of Life Insurance Plans 1 page write-up on All types of General Insurance Plans 1 page write-up on IRDA, vision, responsibilities, actions

Assignment-2 Output
Every student shall submit the write-ups to the PGP coordinator by 31st of January 2013 by 5.15PM. No assignments shall be accepted after the deadline.

Danke..
More will be revealedin Feb 2013