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Introduction to Life Insurance

Life Insurance has come a long way from the earlier days when it was
originally conceived as a risk-covering medium for short periods of
time, covering temporary risk situations such as sea voyages. As life
insurance became more established, it was realized what a useful tool
it was for a number of situations, including –

Temporary needs/threats:
The original purpose of life insurance remains an important element,
namely providing for replacement of income on death, etc.

Regular Savings:
Providing for one’s family and oneself, as a medium to long- term
exercise (through a series of regular payment of premiums). This has
become more relevant in recent times as people seek financial independence for their
family.

Investment:
Put simply, the building up of savings while safeguarding it from the
ravages of inflation. Unlike regular saving products, investment
products are traditionally lump sum investments, where the individual
makes one off payment.

Retirement:
Provision for later years becomes increasingly necessary, especially in
a changing cultural and social environment. One can buy a suitable
insurance policy, which will provide periodical payments in one’s old
age.

In a Life Insurance contract the life assured undertakes to pay an


agreed sum as premium to the insurer at stipulated intervals called the
mode during the selected term. According to the nature of the contract
and the type of life insurance cover purchased by the assured the
insurer is required to pay the contracted sum to the legal heirs the
assured on the expiry of the selected term if the contract so provides.
Normally the premium remains uniform, but according to the nature of
the plan there could be variations.
Life Insurance – Immediate Estate
Life Insurance is also called an Immediate Estate because on the death
of the assured the life insurance proceeds are available to the legal
heirs though no estate was in existence up to the times of the death of
the assured. In other words the estate itself comes into being as a
result of the death of the insured, which otherwise would not have
existed to be passed on the progeny.

Definition
Objective:
This provides was conducted after taking into consideration the
changing facet of the Life Insurance Sector. The main objective for
conducting this project was:
 To understand the scenario of the Life Insurance Sector in India.
 To survey the upcoming private Life Insurance companies and
the Life Insurance Corporation.
 To find out the unique feature of the policies provided by the
private Life Insurance Companies to lure the customers.

Scope:
The project has been prepared with the intention to provide knowledge
about the existing policies and the uniqueness of the private life
insurance company and the Life Insurance Corporation (LIC).
Understanding every company’s value proposition would help in
choosing the best from the rest.

Limitations:

During the course of making the project I came across certain


unavoidable conditions due to which I had to restrict my study. Some
of the limitations faced were as follows:
 Time being the major constraint due to which I could cover only a
few private life insurance players.
 Due to restrictions on the page limit, certain portions of the
project have not been covered very much in detail.
Methods of Data Collection

The information required to make this project has been gathered


through primary data and secondary data.

Primary Data:
The primary data has been collected through personal interviews
carried out with certain officials of the private life insurance companies
like ICICI Prudential Life Insurance. The data has also been collected
from the agents of the private companies.

Secondary Data:
Another main source in making this project has been the secondary
data, obtained after having done a detailed study through various
books, insurance magazines and newspapers. This was later
thoroughly scrutinized by me before listing out the statistical figures
and the findings. Certain information pertaining to company profile,
rules and regulations were obtained through the Internet.
Need for insurance

Let us take an example to understand the need for insurance:


Mr. Atul is 45 and self – employed. His wife Nandini, who is a
housewife, looks after their two children aged 3 and 7 years. They stay
in rented accommodation, where the rent is Rs.15000/- per month. Mr.
Atul taken up a loan of Rs.2lakh. His monthly earnings on average are
Rs. 40,000/- . Mr. Atul passes away in an unfortunate road accident.
What are some of the financial implications of his death on his family?

There may be several financial implications on his family. Some of


these are:

 The monthly income, previously provided by Mr. Atul would stop.


 His wife and children may have to seek financial assistance from
other relatives.
 His wife may not have enough money to pay back the loan of
Rs.2 lakhs.
 His widow may have to take up work to earn money.
 The education of his children may suffer.

This simple example illustrates the impact premature death can have
on a family, where the main earner has no life cover.

Had Mr. Atul taken a life cover, his family would not have faced such
hardships in the event of his unfortunate death. A simple life insurance
policy could have provided Mr. Atul’s family with a lump sum that could
have been invested to provide an income equal to all or part of this
income.

In simple words, insurance protects against untimely losses. Insurance


has been found useful in the lives of person both in the short term and
long term. Short term needs like sudden medical costs and long – term
needs like marriage expenses etc. can be met with using life
insurance.
Benefits of Life Insurance

Depending upon its usage, life insurance provides the customer with
following benefits. They are as follows:

• Income to your family:


Life Insurance proceeds ensure a source of financial security
for your family to meet its household and the living expenses.

• Pay off Debts:


On the unfortunate death of the insured the proceeds from life
insurance policy can be used to meet outstanding debts such as
mortgages, car loans or charge account balances.

• Provide Educational Funding for your Children:


The cash value of a whole life insurance policy can be used
to help accumulate funds for the higher education of your children.

• Equalize Inheritances:
When an asset such as the family business passes on to
family members who are active in it, life insurance proceeds can be
used to provide equal assets to other family members.

• Life insurance gives protection and safety to policyholders,


raises the rate of capital formation and contributes for
development.

Benefits of Life Insurance Vs Other Investments

Life insurance enables you to enjoy savings that guarantee full


protection against the risk of death of the insured, these long – term
savings are made in an easy and hassle-free manner because of low
and convenient installments.

Life insurance also encourages “forced thrift”. This means that the
insured is made to pay his/her premiums by saving his/her money,
which he/she might not do in the regular course of life.
Some life insurance policies often allow you to take loans against your
policy and savings on taxes.
Together, all of these benefits ensure that a life insurance policy is
your ideal financial tool to gain protection and ensure savings.
Role of insurance
Insurance plays a very constructive role in the present world,
Which is full of risks and uncertainties of varied nature. The importance
of insurance and its role is made clear on the basis of following
advantages of insurance.

1) Protection of interest :
Insurance protects and safeguards the interest of individual and
businessmen in their business operations. It gives them safety and
creates confidence in their minds. Thos indirectly brings expansion
of business activities.

2) Diversification of risk:
It results in Diversification of risk among specialized
professional agencies called insurance companies.

3) Promotions of Savings and Investment:


It promotes the rate of savings and investment and leads to
capital formation in an economy.

4) Security and confidence:


Insurance creates a sense of security and confidence among
all sections of the society.

5) Better security for advances:


It provides better security for loans and advances offered by
banks. Risk in granting loans is limited if the property is properly
insured by the borrower.

6) Safety in storage and transportation:


It brings safety in storage and transportation and leads to
expansion of commercial activities.

7) Acting as underwriter and executor:


Insurance companies acts as underwriter, guarantor subscriber
and financer of individual concerns. They help and support their clients
in different ways and in different areas.

8) Investment advice:
It gives proper investment advice to businessmen and creates
proper investment climate in the country.

9) Helps industrialization:
By rendering various services it accelerates the process of
industrialization. It suggests the role of insurance in the society as well
as in the development of national economy.

10) Tax incentive:


Life insurance policies are tax deductible. Thus it helps in saving
taxes.