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INSURANCE IN INDIA

Indian Insurance Industry: - The business of insurance is related to the protection of the economic value of assets. Insurance may be described as a social device to reduce or eliminate risk of life and property. Under the plan of insurance, a large number of people associate themselves by sharing risk, attached to individual.

The risk, which can be insured against include, fire, the peril of sea, death, incident and burglary. Any risk contingent upon these may be insured against at a premium commensurate with the risk involved.

Insurance is actually al contract between 2 parties where by one party called insurer undertakes in exchange for a fixed sum called premium to pay the other party happening of al certain event. Insurance is a contact whereby in return for the payment of premium by insured, the insurers pay the financial losses suffered by the insured as a result of the occurrence of unforeseen events.

The aim of all insurance is to compensate the owner against loss arising from a variety of risks, which he anticipates, to his life, property and business. Insurance is mainly of two types: Life Insurance and General Insurance. General Insurance means Fire, marine, and Miscellaneous insurance which includes insurance against burglary or theft, fidelity guarantee, insurance for employers liability, and insurance of motor vehicles, livestock and crops. The Insurance Act, 1972 and the General Insurance Business (Nationalization) Act, 1972 govern Fire and Marine Insurance, while the Indian Marine Insurance At, 1963 governs marine insurance in our country. These laws contain provisions relating to the constitution, management and winding up of

insurance companies and the conduct of insurance business of all types. All insurance business in India has been nationalized.

A contract of insurance is a contract by one party undertakes to make good the loss of another, in consideration of a sum of money, on the happening of a specified event, e.g. Fire accident or death. Law recognizes insurance as a system of sharing risk too great to be borne by one individual.

The business of insurance started with marine business. Traders, who used to gather in the Lloyds coffee house in London, agreed to share the losses to their goods while being carried by ships. The losses used to occur because of pirates who robbed on the high seas or because of bad weather spoiling the goods or sinking the ship. The first insurance policy was issued in 1583 in England. In India, insurance began in 1870 with Life insurance being

transacted by an English company, the European and the Albert. The first Indian insurance. Company was the Bombay Mutual Assurance Society Ltd, formed in 1870. This was followed by the Oriental Life Assurance Co. in 1874, the Bharat in 1896 and the of India in 1897.

Later, the Hindustan Cooperative was formed in Calcutta, the United India in Madras, the Bombay life in Bombay, the National in Calcutta, the New India in Bombay, the Jupiter in Bombay and Lakshmi in New Delhi. These were all Indian Companies, started as a result of the swadeshi movement in the early 1900s. By the year 1956, when the life insurance business was nationalized and Life Insurance Corporation of India (LIC) was formed on 1 st Sep. 1956, there were 170 companies and transacting life insurance business in India. 75 Provident Fund societies After the amendments to the

relevant laws in 1999, the L.I.C. did not have the exclusive privilege of doing

life insurance business of India. By 31st March 2002, 11 new insurers had been registered and had begun to transact life insurance business in India.

HISTORY OF INSURANCE SECTOR The Insurance sector in India has come a full circle from being an open competitive market to nationalization and black to a Liberia zed again. Tracing the developments in the Indian insurance sector reveals the degree turn witnessed over a period of almost 190 years. The business of Life insurance in India in its existing from started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Some of the important milestones in the insurance business in India. 1912 The Indian Life Assurance Companies Act enacted as the statute regulate the life insurance business. 1928 The Indian Insurance Companies act enacted to enable the government to collect statically information about both life and non life insurance businesses. 1938 Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public. 1956 245 Indian and foreign insurers and provident societies taken over by the central government and nationalized. LIC formed by an Act of parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India. The General insurance business in India, on the other hand, can trace its roots to the Triton Insurance Company Ltd., the first general insurance company established in the year 1850 in Calcutta by the British. Some of the important milestones in the general insurance business in India are: 1907 The Indian (M) Insurance Ltd. Set. Up, the first company to transact all classes of general insurance business.

1957 General Insurance council, a wing of the insurance Association of India, frames a code of conduct for giving fair conduct and sound business practices. 1968 The Insurance Act amended to regulate investments and set minimum solvency margins and the Tariff Advisory Committee set up. 1972 The General Insurance Business (Nationalization) Act, 1972 nationalized the general insurance in India with effect from 1st Jan. 1973

FUCTION OF INSURANCE: The functions of insurance can be studies into two parts. 1. Primary Functions 2. Secondary Functions

PRIMARY FUNCTIONS: 1. 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. But, the insurance relieves the person from such difficult task. Moreover, if the subject matter is not, adequate, the self provision may prove costlier. Insurance remove all these uncertainty and the assured is given certainty of payment of loss. The insurer charges premium for providing the said certainty.

2.

Insurance provides protection : The main function of the insurance is to provide protection against the

probable chances of loss. The time and amount of loss are uncertain and at the happening of risk, the person will suffer loss in absence of insurance. The insurance guarantees the payment of loss and thus protects the assured from suffering the insurance cannot check the happening of risk but can provide for losses at the happening of the risk.

3.

Risk Sharing: The risk is uncertain, and therefore the loss arising from the risk is also

uncertain. When risk takes place, the loss is shared by all the persons who are exposed to the risk. The risk sharing in ancient time was done only at time of damage of death; but today, on the basis of probability of risk, the shares is obtained from each and every insured in the shape premium without which protection is not guaranteed by the insurer.

SECONDARY FUNCTION : 1. Prevention of loss: The insurance joins hands with those institutions which are engaged I preventing the losses of the society because the reduction in loss causes lesser payment to the assured and so more saving is possible which will assist in reducing the premium. Lesser premium invites more business and business causes lesser share to the assured. 2. It Provides Capital: The insurance provides capital to the society. The accumulated funds are invested in productive channel. The dearth of capital of the society is minimized to a greeted extend with the help of investment of insurance. The industry, the business and the individual are benefited by the investment and loans of the insurers. 3. It Improves Efficiency: The insurance eliminates worries and miseries of losses at death and destruction of property. The carefree person can devotes his body and soul together for better achievement. It improves not only his efficiency, but the efficiencies of the masses are also advanced.

4.

It helps Economic progress:The insurance by protecting the society from huge losses of damage,

destruction and death, provides an initiative to work hard for the betterment of the masses. The next factor of economic progress, the capital, is also immensely provided by the masses.

INSURANCE INDUSTRIES IN INDIA H D F C Standard life insurance ICICI Prudential Life Insurance Co. Ltd. General Insurance Companies in India Birla Sun life Financial Service Birla Sun life Birla Sun Life insurance Companies in India Bajaj Allianz Insurance Companies in India Om Kotak Mahindra Life Insurance Companies in India Royal Sundaram Alliance Insurance Companies in India Ing Vysya Life Insurance Co. Ltd. Max Life Insurance Co. Ltd. Met Life Insurance Sahara India Life Insurance ANZ Insurance Amsure Insurance Cholamandalam MS General Insurance Employeee State Insruance Corporation. Export Credit Grarantee Corporation of India Ltd. ICICI Lombard Agriculture Insurance Co. India Ltd. Peerless Smart Financial Solution IFFCO TOKIO Tata AIG Insurance Reliance Life Insurance SBI Life Insurance

BASIC LIFE INSURANCE

WHAT IS INSURANCE? Insurance in its basic form is defined as A contract between two parties whereby one party called insurer undertakes in exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount of money on the happening of a certain event.

In simple terms it is a contract between the person who buys Insurance and an Insurance company who sold the policy. By entering into contract the Insurance Company agrees to pay the Policy holder or his family members a predetermined sum of money in case of any unfortunate event for a predetermined fixed sum payable which is in normal term called Insurance Premiums.

Insurance is basically a protection against a financial loss which can arise on the happening of an unexpected event. Insurance companies collect premiums to provide for this protection. By paying a very small sum of money a person can safeguard himself and his family financially from an unfortunate event.

For Example if a person buys a Life Insurance Policy by paying a premium to the Insurance company, the family members of insured person receive a fixed compensation in case of any unfortunate event like death.

There are different kinds of Insurance Products available such as Life Insurance, Vehicle Insurance, Home Insurance, Travel Insurance, Health or Med claim Insurance etc.

They following are his principles for the insurance as they under; 1) The contingency or the insured event should be fortuitous in nature, i.e. beyond human control. 2) The insured should not make any profit out of it. It requires a large number insured to make the principle of insurance work, based on law of probability.

KINDS OF INSURACNE : The Insurance can be divided from two angles : first, from the business point of view and the second, from the risk point of view. There are the two kinds of the Insurance. 1) 2) 1) Life Insurance Non Life Insurance

Life Insurance : Life Insurance is different from other insurance in the sense that, here the

subject matter of insurance is life of human being. The insurer will pay the fixed amount of insurance at the time of death or at the expiry of certain period. This insurance provides protection to the family at the premature death or gives adequate amount at the old age when earning capacities are reduced. The business of life insurance is wholly done by the Life Insurance Corporation of India. 2) Non Life Insurance :Non life Insurance is a general insurance. The general insurance includes property insurance, liablility insurance and other of insurance. Fire and marine insurances are strictly called property insurance. Motor, theft, fidelity and machine insurance include the extent of liability insurance to a certain extent. The strictest form of liability insurance is fidelity insurance, whereby the insurer compensates the loss to the insured when he is under the liability of payment to the third party.

BENEFITES FROM LIFE INSURANCE : 1) It provides protection to the family of the assured ( by way of

replacement of income) in the event of premature death, making it financially independent of the assured.

2)

It becomes an old age provision for the assured when the survives the

term of the policy, making him financially independent of the family.

3)

It is superior to traditional saving instrument, like fixed deposit, P.P.F.

etc. because a premature is such as saving plan. Insurance plans, particularly when they are unit linked can act as an

4)

effective investment tool to provide market related to the policyholder.

5)

A life insurance policy can facilitate raising a loan.

6)

As per the prevailing tax laws life insurance policies enjoy tax benefits

under Sec. 10 (10D), Sec. 88, Sec. 80 CCC and 80D. Life insurance, involving long term investment of funds, has potential

7)

of contributing to the economic and social infrastructure of the country, thus accelerating its economic development.

8)

It is also used as a tool of social security by progressive government.

LIFE INSURANCE PRODUCTS: Life insurance products are broadly placed under two categories: 1) Traditional Products, which includes: a) Term Plan : Provides death risk cover for a specified term only every policy does not result into a claim. b) Whole Life Insurance : Here the sum assured is paid on death whenever

it occurs. The premium in the case will be higher than in the case of the term plan. c) Endowment Plan: It provides for the payment of the sum assured at the end of a specified term or an earlier death. A money back plan. Where survival benefits become payable at definite intervals, is all a variant of endowment plan.

d)

Annuities : They are a series of periodic payment to the annuitant for life or for a

specified period. An annuity can be immediate ( Where the payment of annuity starts immediately) or deferred ( where the payment of annuity commences after a specified period, called deferment period.) 2) Non Traditional Products : Due to the inflexibilities of traditional life insurance products, which result into high causation, inconvenience in sticking to premium payment regimen, lack of transparency, etc. insurance companies have come out with non traditional products mainly in the form of unit linked products, which have borrowed several beneficial features of mutual funds. A detailed discussion on these products is available in a later chapter on the subject.

UNIT LINKED INSURANCE PLAN (ULIP) : Unit linked insurance plans, ULIPs, are distinct from the more familiar with profits policies sold for decades by the Life Insurance Corporation. With profits policies are called so because investment gains (profits) are distributed to policyholders in the form of a bonus announced every year. ULIPs also serve the same function of providing insurance protection against death and provision of long-term savings, but they are structured differently. In with profits policies, the insurance company credits the premium to a common pool called the life fund, after setting aside funds for the risk premium on life insurance and management expenses. Every year, the insurer calculates how much has to be paid to settle death and maturity claims. The surplus in the life fund left after meeting these liabilities is credited to policyholders accounts in the form of a bonus. In a ULIP too, the insurer deducts charges towards life insurance (mortality

charges), administration charges and fund management charges. The rest of the premium is used to invest in a fund that invests money in stocks or bonds. The policyholders share in the fund is represented by the number of units. The value of the unit is determined by the total value of all the investments made by the fund divided by the number of units. If the insurance company offers a range of funds, the insured can direct the company to invest in the fund of his choice. Insurers usually three choices an equity ( growth) fund, balanced fund and a fund which invests in bonds. Why do insurers prefer ULIPs? Insurers love ULIPs for several reasons. Most important of all, insurers can sell these policies with less capital of their own than what would be required if they sold traditional policies. In traditional with profits policies, the insurance company bears the investment risk to the extent of the amount. In ULIRs, the policyholder bears most of the investment risk.

FEATURES:Unit Linked Insurance Plans have gained high acceptance due to the attractive features they offer. Benefits include flexibility, Transparency, Liquidity, and Fund Options. 1) Flexibility: - A ULIP offers the customer an acute degree of flexibility: the flexibility to choose the Sum Assured, and to choose the desired premium amount. ULIPs give the customer the option of changing the level of premium/Sum Assured even after the plan has started, and the flexibility to change asset allocation by switching between funds with ease. 2) Transparency: - ULIPS offer a high degree of transparency, where all charges in the plan as well as the entire net amount invested is made known to the customer. ULIPs also offer the convenience of tracking your investment performance on a day to day basis, so you can decide instantly where you want your assets allocated. 3) Liquidity: - A ULIP offers you the option of withdrawing money a few years into the plan, allowing for the exigencies of life. Alternatively, a ULIP will also allow for partial/ systematic withdrawal should the need arise. 4) Fund Options: - A ULIP will offer you a wide choice of funds, ranging through equity, debt, cash, or a combination of the three. The Customer is also afforded the option of choosing your fund mix based on your desired asset allocation. 5) Traditional Plans: - These are the oldest types of insurance plans available. These plans cater to customers with a low appetite. Some of the common features of traditional plans are : 1. Steady Investment a) Major chunk of ingestible funds are in debt instruments. b) steady and almost assured returns over the long term.

2. Features c) d) e) Death benefit is Sum Assured + guaranteed & vested bonus Helps in asset creation as they are for a long tenure. Premium to Sum Assured ratios are fixed for each plan and age. f) Generally withdrawals are not allowed before maturity.