Life Insurance
What Is Life Insurance?
• Life insurance is a contract that pledges payment of an amount to the person
assured (or his nominee) on the happening of the event insured against.
The contract is valid for payment of the insured amount during:
» The date of maturity, or
» Specified dates at periodic intervals, or
» Unfortunate death, if it occurs earlier.
What Is Life Insurance?
• Among other things, the contract also provides for the payment of premium
periodically to the Corporation by the policyholder.
• Life insurance is universally acknowledged to be an institution, which
eliminates 'risk', substituting certainty for uncertainty and comes to the
timely aid of the family in the unfortunate event of death of the
breadwinner.
What Is Life Insurance?
• By and large, life insurance is civilization's partial solution to the problems
caused by death. Life insurance, in short, is concerned with two hazards that
stand across the life-path of every person:
[Link] of dying prematurely leaving a dependent family to fend for itself. [Link]
of living till old age without visible means of support.
Life Insurance Vs. Other Savings Contract
Insurance
• A contract of insurance is a contract of utmost good faith technically known as
uberrima fides. The doctrine of disclosing all material facts is embodied in this
important principle, which applies to all forms of insurance.
At the time of taking a policy, policyholder should ensure that all questions in the
proposal form are correctly answered. Any misrepresentation, non-disclosure or fraud
in any document leading to the acceptance of the risk would render the insurance
contract null and void.
Life Insurance Vs. Other Savings Contract
Protection
• Savings through life insurance guarantee full protection against risk of death
of the saver. Also, in case of demise, life insurance assures payment of the
entire amount assured (with bonuses wherever applicable) whereas in other
savings schemes, only the amount saved (with interest) is payable.
Life Insurance Vs. Other Savings Contract
Aid To Thrift:
• Life insurance encourages 'thrift'. It allows long-term savings since payments can be
made effortlessly because of the 'easy instalment' facility built into the scheme.
(Premium payment for insurance is either monthly, quarterly, half yearly or yearly).
• For example: The Salary Saving Scheme popularly known as SSS, provides a
convenient method of paying premium each month by deduction from one's salary.
• In this case the employer directly pays the deducted premium to an insurer. The
Salary Saving Scheme is ideal for any institution or establishment subject to
specified terms and conditions.
Life Insurance Vs. Other Savings Contract
Liquidity:
• In case of insurance, it is easy to acquire loans on the sole security of any policy that has acquired loan value. Besides, a life
insurance policy is also generally accepted as security, even for a commercial loan.
Tax Relief:
• Life Insurance is the best way to enjoy tax deductions on income tax and wealth tax. This is available for amounts paid by way of
premium for life insurance subject to income tax rates in force.
• Assesses can also avail of provisions in the law for tax relief. In such cases the assured in effect pays a lower premium for insurance
than otherwise.
Life Insurance Vs. Other Savings Contract
Money When You Need It:
• A policy that has a suitable insurance plan or a combination of different plans can be
effectively used to meet certain monetary needs that may arise from time-to-time.
• Children's education, start-in-life or marriage provision or even periodical needs for
cash over a stretch of time can be less stressful with the help of these policies.
• Alternatively, policy money can be made available at the time of one's retirement
from service and used for any specific purpose, such as, purchase of a house or for
other investments. Also, loans are granted to policyholders for house building or for
purchase of flats (subject to certain conditions).
Life Insurance
Who Can Buy A Policy?
• Any person who has attained majority and is eligible to enter into a valid contract
can insure himself/herself and those in whom he/she has insurable interest.
• Policies can also be taken, subject to certain conditions, on the life of one's spouse
or children. While underwriting proposals, certain factors such as the policyholder’s
state of health, the proponent's income and other relevant factors are considered
by an insurer
Life Insurance
Medical And Non-Medical Schemes
• Life insurance is normally offered after a medical examination of the life to be assured. However, to facilitate
greater spread of insurance and also to avoid inconvenience, LIC has been extending insurance cover without
any medical examination, subject to certain conditions.
With Profit And Without Profit Plans
• An insurance policy can be 'with' or 'without' profit. In the former, bonuses disclosed, if any, after periodical
valuations are allotted to the policy and are payable along with the contracted amount.
• In 'without' profit plan the contracted amount is paid without any addition. The premium rate charged for a
'with' profit policy is therefore higher than for a 'without' profit policy.
Life Insurance
Keyman Insurance
• Keyman insurance is taken by a business firm on the life of key employee(s)
to protect the firm against financial losses, which may occur due to the
premature demise of the Keyman.
Different Types of Life Insurance Policies in
India
• Term Plan – pure risk cover
• Unit linked insurance plan (ULIP) – Insurance + Investment opportunity
• Endowment Plan – Insurance +Savings
• Money Back – Periodic returns with insurance cover
• Whole Life Insurance – Life coverage to the life assured for whole life
• Child’s Plan – For fulfilling your child’s life goals like education, marriage, etc.
• Retirement Plan - Plan your retirement and retire gracefully
Different Types of Life Insurance Policies in
India
Term Life Insurance:
• Term insurance is the simplest form of life insurance plan. Easy to understand and affordable to buy.
• A term insurance provides death risk cover for a specified period. In case the life assured passes away during the policy
period, the life insurance company pays the death benefit to the nominee. It is a pure risk cover plan that offers high
coverage at low premiums.
• There’s an option to add riders to widen up the coverage.
• The death benefit is payable as lump sum, monthly payouts, or a combination of both. There’s no payout if the life assured
outlives the policy term. However, these days there are companies offering Term Plans with Return of Premiums (TROPS),
where insurance companies payback all the paid premium amount in case the life assured outlives the term period. But
such plans are costlier than the vanilla term insurance plan.
Different Types of Life Insurance Policies in
India
• Example: An individual non-smoker male who is looking for a term life plan of Rs.1 crore cover, will cost him approximately
Rs.6, 800 to Rs.10, 500 per year.
AGE TERM SUM ASSURED ANNUAL PREMIUM RANGE
25 years 40 years Rs.1 Crore Rs.6,800 – Rs.10,500
• Best known for: High sum assured (coverage) at a low premium.
• Benefit of Term Plan: In case of an untimely death of the breadwinner, family is supported with an enormous amount of
money – sum assured, which helps them to replace the loss of the income caused due to the breadwinner’s death.
Moreover, the money could be utilized to pay off loan, monthly household expenses, child’s education, child’s marriage, etc
Different Types of Life Insurance Policies in
India
Unit Linked Plans(ULIPs):
• A unit linked plan is a comprehensive combination of insurance and investment. The premium paid towards
ULIP is partly used as a risk cover (insurance) and partly is invested in funds.
• One can invest in different funds offered by the insurance company depending on his risk appetite. The
insurance company then invests the accumulated amount in the capital market i.e. in bonds, equities, debts,
market funds, or a hybrid funds.
• Example:
TERM SUM ASSURED ANNUAL PREMIUM FUND VALUE
Depending on the fund value at
20 years Rs.2 lakh Rs.20,000
the time of maturity.
Different Types of Life Insurance Policies in
India
• Best known for: Long-term investment option with much more flexibility to
invest.
• Benefit of ULIP: Invest money as per your risk appetite. You have the option
to invest either in equity, debt or in hybrid funds through the life insurance
company with complete transparency.
Different Types of Life Insurance Policies in
India
Endowment Plans:
• Endowment plan is another type of life insurance plan, which is a combination of insurance and
saving.
• A certain amount is kept for life cover – insurance, while the rest is invested by the life insurance
company. In an endowment plan, if the life assured outlives the policy term, the insurance
company offers him the maturity benefit.
• Moreover, Endowment Plans may offer bonuses periodically, which are paid either on maturity
or to the nominee under death claim. On death, the death benefit is payable to the nominee.
Different Types of Life Insurance Policies in
India
• Endowment plans are also commonly known as traditional life insurance, although, there
is an investment component but the risk is lower than the other investment products and
so are the returns.
• Example:
SUM ANNUAL PREMIUM
TERM BONUS
ASSURED RANGE
30 Depending on the Bonus
Rs.10 lakh Rs.20,000 – Rs.25,000
years at the time of maturity.
• Best known for: Long-term saving option for people with much lower risk appetite for
investment.
• Benefit of Endowment Plan: Long-term financial planning and an opportunity to earn
returns on maturity.
Different Types of Life Insurance Policies in
India
Money Back Life Insurance:
• Money back plan is a unique type of life insurance policy, wherein a
percentage of the sum assured is paid back to the insured on periodic
intervals as survival benefit.
• Money back plans are also eligible to receive the bonuses declared by the
company from time to time. This way, policyholder can meet short-term
financial goals.
Different Types of Life Insurance Policies in
India
• Example
ANNUAL
SUM PERIODIC MATURITY
TERM PREMIUM
ASSURED RETURNS BENEFIT
RANGE
Accrued
A percentage of Sum
20 Rs.20,000 – bonuses/Guaranteed
Rs.5 lakh Assured paid on
years Rs.25,000 Money Back +
regular intervals
Coverage
Different Types of Life Insurance Policies in
India
• Best known for: Short-term investment product to meet short-term
financial goals.
• Benefit of Money Back Plan: Short-term financial planning and an
opportunity to earn returns on maturity.
Different Types of Life Insurance Policies in
India
Whole Life Insurance:
• A whole life insurance policy covers the life assured for whole life, or in some cases, up to
the age of 100 years. Unlike, term plans, which are for a specified term.
• The sum assured or the coverage is decided at the time of policy purchase and is paid to the
nominee at the time of death claim of the life assured along with bonuses if any.
• However, if the life assured outlives the age of 100 years, the insurance company pays the
matured endowment coverage to the life insured.
• The premiums are higher as compared to term plans. Whole life insurance plans also offer
partial withdrawals after completion of premium payment term.
Different Types of Life Insurance Policies in
India
• Example
SUM ASSURED (WITH
PREMIUM ANNUAL
GUARANTEED
PAYING PREMIUM MATURITY BENEFIT
MATURITY SUM
TERM RANGE
ASSURED)
Guaranteed Sum Assured +
Rs.10,000- non-guaranteed bonus (if
20 years Rs.3 lakh
Rs.15,000 any) + non-guaranteed
terminal bonus (if any)
Different Types of Life Insurance Policies in
India
• Best known for: Life coverage for whole life.
• Benefit of Whole Life Plan: Lifelong protection to the insured and an
opportunity to leave behind a legacy for heirs
Different Types of Life Insurance Policies in
India
Child Plan:
• Child plan helps to build corpus for child’s future growth. Child plans help to
build funds for child’s education and marriage. Most of the Child Plan
provides annual installments or one- time payout after the age of 18 years.
• In case of an unfortunate event, the insured parent passes away during the
policy term - immediate payment is payable by the insurance company.
Some child plans waive off the future premiums on death of the life insured
and the policy continues till maturity.
Different Types of Life Insurance Policies in
India
• Example
ANNUAL
SUM PERIODIC
TERM PREMIUM MATURITY BENEFIT
ASSURED RETURNS
RANGE
Maturity benefit +
Lump sum
20 guaranteed returns + non-
Rs.18 lakh Rs.1 lakh payouts on
years guaranteed accumulated
regular interval
bonus (if any)
Different Types of Life Insurance Policies in
India
• Best known for: Building funds for your child’s future.
• Benefit of Child Plan: Helps in fulfilling your child’s dream.
Different Types of Life Insurance Policies in
India
Retirement Plan:
Retirement plan helps to build corpus for your retirement. Helping you to live independently
financially and without worries. Most of the Retirement plans provide annual installments or one-
time payout after the age of 60 years.
• In case of an unfortunate event, life assured passes away during the policy term - immediate
payment is payable to the nominee by the insurance company. Death benefit will be higher of
coverage or fund value or 105% of premiums paid. Vesting Benefit will be payable if the life
assured survives the maturity age. In which case, payout will be fund value which has to be
utilized for buying an annuity. Best known for: Long-term savings and retirement planning.
• Benefit of Retirement Plan: Helps in building corpus for retirement.
Market Size
• Government's policy of insuring the uninsured has gradually pushed insurance
penetration in the country and proliferation of insurance schemes.
• Gross premium collected by life insurance companies in India increased from Rs
2.56 trillion (US$ 39.7 billion) in FY12 to Rs 7.31 trillion (US$ 94.7 billion) in FY20.
During FY12–FY20, premium from new business of life insurance companies in
India increased at a CAGR of 15 per cent to reach Rs 2.13 trillion (US$ 37 billion)
inFY20.
• Overall insurance penetration (premiums as per cent of GDP) in India reached 3.69
per cent in 2017 from 2.71 per cent in2001.
Market Size
• The market share of private sector companies in the non-life insurance market rose from 15
per cent in FY04 to 56 per cent in FY21 (till April 2020). In life insurance segment, private
players had a market share of 31.3 per cent in new business inFY20.
• Investments and Recent Developments
• The following are some of the major investments and developments in the Indian insurance
sector.
• Enrolments under the Pradhan Mantri Suraksha Bima Yojana (PMSBY) reached 154.7
million till December 2019 since its launch.
• Over 53.8 million famers were benefitted by the Pradhan Mantri Fasal Bima Yojana
(PMFBY) inFY20.
Market Size
• In April 2020, Axis Bank acquired an additional 29 per cent stake in Max Life Insurance.
• In November 2019, Airtel partnered with Bharti AXA Life to launch prepaid bundle with
insurance cover.
• In September 2019, Competition Commission of India (CCI) approved acquisition of shares in SBI
General Insurance by Napean Opportunities LLP and Honey Wheat.
• Government Initiatives
• The Government of India has taken number of initiatives to boost the insurance industry. Some
of them are as follows:
• As per Union Budget 2019-20, 100 per cent foreign direct investment (FDI) was permitted for
insurance intermediaries.
Market Size
• In September 2018, National Health Protection Scheme was launched under Ayushman
Bharat to provide coverage of up to Rs 500,000 (US$ 7,723) to more than 100 million
vulnerable families. The scheme is expected to increase penetration of health insurance in
India from 34 per cent to 50 percent.
• The Insurance Regulatory and Development Authority of India (IRDAI) plans to issue
redesigned initial public offering (IPO) guidelines for insurance companies in India, which
are to looking to divest equity through the IPO route.
• IRDAI has allowed insurers to invest up to 10 per cent in additional tier 1 (AT1) bonds that
are issued by banks to augment their tier 1 capital, in order to expand the pool of eligible
investors for the banks.
Road Ahead
• The future looks promising for the life insurance industry with several changes in regulatory
framework which will lead to further change in the way the industry conducts its business and
engages with its customers.
• The overall insurance industry is expected to reach US$ 280 billion by 2020. Life insurance
industry in the country is expected to increase by 14-15 per cent annually for the next three to
five years.
• Demographic factors such as growing middle class, young insurable population and growing
awareness of the need for protection and retirement planning will support the growth of Indian
life insurance.
Differences between Life and Non Life
Insurance Products
• Objective of Insurance
• Premium amount and policy period
• Role of Agents
Group Products in life insurances
• Group Term Insurance
• Group gratuity plan
• Group insurance in lieu of EDLI (Employee’s Deposit Linked Insurance Scheme)
• Postal Life Insurance
• Rural Postal Life Insurance
New Product Development and
Branding of Life Insurance Products
New Product Development
• Idea generation (Internal Sources, External Sources)
• Idea screening
• Concept development and testing
• Business analysis
• Marketing mix development
• Test marketing
• Commercial launch
Branding of Life Insurance Products
• Brand communications
• Branding decisions (Customer expectations and Brand positioning)
Importance of branding Insurance products
• Diversification
• Corporate Image
Pricing of Life Insurance Products
• Importance of Pricing
• Pricing Approaches
• Survival approach
• Sales maximisation approach
• Profit maximisation approach
Underwriting
• Types of Risk Classification
Risk Category Risk level Premium charged
Preferred Lower than average Premium charged will be as
risk preferred by the individual or at the
lowest end
Standard Average risk Standard rate as decided by the
insurer will be charged to the
individual
Rated Above average risk A higher premium will be charged
Declined Uninsurable Insurance cover may be denied
Rating Methods
• Class Rating
• Merit Rating
• Judgemental Rating
Promotional Mix in Life
Insurance Marketing
• Advertising
• Sales Promotion
• Public Relations (PR)
• Personal Selling -
Advertising
• Benefits of Advertising
• Wider reach
• New product information
• Improved brand image
Sales Promotion
Riders
• Critical illness benefit
• Level term cover
• Waiver of premium benefit
• Accident disability benefit
Public Relations (PR)
• Issue Press release
• Conducting Seminars
• Roadshows
• Consumer awareness workshops
• Social initiatives
Personal Selling
• For projecting various products and highlight key benefits
• Through sales force and agents
• Helps in personnel rapport
• Helps in recommending suitable product to customers as per his financial
position.
Distribution Channels for Life
Insurance Products
• Direct Sales Force
• Network of Agents and Brokers
• Branch Network
Role of agents
As per IRDA regulations, the agents have certain roles and responsibilities.
• They have to provide full information to the prospect at the point of sale to enable him / her to
decide on the best cover or plan.
• They should be well versed in all the plans and selling points, and should also be equipped to
assess the needs of the customer.
• The agents need to adhere to the prescribe code of conduct .They must therefore familiarize
themselves with the provisions of the code of conduct.
• They must provide the insurance company with accurate information about the prospect for a
fair assessment of the risk involved.
Role of agents
• Agents must also possess adequate knowledge of policy servicing and claim
settlement procedures so that the policyholders can be guided correctly.
• They must submit proposal forms and proposal deposits to the branch office
immediately to avoided lays and to enable the office to take timely
decisions
• The agents should have available with them a leaflet or brochure containing
relevant feature of the plan that is being sold.
Cross-selling Life Insurance Products
Bancassurance
If the bancassurance model of the insurer satisfies all the four of following basic
criteria, then its inclusion in the distribution channel would be appropriate
i. Cost effectiveness
ii. Extent of dependency
iii. Penetration
iv. Quality of service
