Insurance as an investment

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HYPOTHESIS
OBJECTIVE OF THE STUDY Objectives of a project tell us why project has been taken under study. It helps us to know more about the topic that is being undertaken and helps us to explore future prospects of the topic. The various research objectives of the study are: To study the Insurance facilities offered by the Insurance companies to its customers. To study as to how much Insurance has penetrated in the minds of the customers. To explore the future prospects of Insurance. To study the benefits that are provided to the individual under Insurance.

PURPOSE OF THE STUDY The main purpose of this study to get an overview of the Insurance sector in the Indian economy and study as to how it has helped as an investments in the minds of customers. The aim of this project is to develop a insurance as an investment to customers.

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Create a Insurance system that is easily accessible by customers from the comfort of their homes, offices etc. Reduce the flow of human traffic and long queues at Insurance offices. Promote efficient and effective Insurance for the companies by focusing on those services that still require physical presence to the public.

IMPORTANCE OF THE STUDY This will cover the benefits derived in using Insurance and its fundamental. INSURANCE HOW IS IT INVESTMENT? Many consumers today are turning to the ease and convenience of Insurance to take care of their financial needs and future events. To know the customer perception of the study.

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RESEARCH AND METHODOLOGY

DATA COLLECTION Primary data: Primary data are those which are collected fresh and for the first time and thus happen to be original in chapters. I have collected my data through phone calling and through direct communication with respondents in one form or another or through personal interviews. Through observation method I was able to record the natural behavior of the group. Sometimes I verify the truth of statements made by informants in the context of a questionnaire or a schedule.

Secondary data :Data are those data which are being already collected by someone else and which have already been passed through the statistical process. I have collected my published date form Internet and the books, magazines and newspapers.

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EXECUTIVE SUMMARY
This is an study to attempt the insurance sector in India has completed all the facets of competition from being an open competitive market to being nationalized and then getting back to the form of a liberalized market once again. India Life Insurance sector came into existence with the nationalization of Life Insurance Corporation (LIC) in 1956. At that time, all private companies were taken over by LIC. The IT in insurance sector is an important key factor. Through the online insurance it possible to insurance companies to compete in the competition world. It is the one of the requirement of modern business world. Anyone that uses a computer and has internet services will find that online insurance companies are packed with many benefits. There are hundreds of insurance companies that have online websites that allows their customers conduct all of the business they need to stay insured.

The Internet is a powerful tool for the savvy online consumer. We can review products, compare prices, research companies and purchase almost anything. It takes a lot of work and may take several years to become a successful online insurance agent.

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INTRODUCTION

In one form or another, we all own insurance. Whether it's auto, medical, liability, disability or life, insurance serves as an excellent risk-management and wealth-preservation tool. Having the right kind of insurance is a critical component of any good financial plan. While most of us own insurance, many of us don't understand what it is or how it works. In this tutorial, we'll review the basics of insurance and how it works, then take you through the main types of insurance out there. (To read more about insurance, see our Special Insurance Feature.)

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INSURANCE:
Insurance is a form of risk management in which the insured transfers the cost of potential loss to another entity in exchange for monetary compensation known as the premium. (For background reading, see The History Of Insurance In Investopedia.com the resource for investing and personal finance education.

INVESTMENT :
Investment is the commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in the form of interest, income, or appreciation of the value of the instrument. Investment is related to saving or deferring consumption. An investment involves the choice by an individual or an organization such as a pension fund, after some analysis or thought, to place or lend money in a vehicle, instrument or asset, such as property, commodity, stock, bond, financial derivatives (e.g. futures or options), or the foreign asset denominated in foreign currency, that has certain level of risk and provides the possibility of generating returns over a period of time. When an asset is bought or a given amount of money is invested in the bank, there is anticipation that some return will be received from the investment in the future. Investment is a term frequently used in the fields of economics, business management and finance. It can mean savings alone, or savings made through delayed consumption. Investment can be divided into different types according to various theories and principles.

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BRIEF HISTORY OF INSURANCE

The story of insurance is probably as old as the story of mankind. The same instinct that prompts modern businessmen today to secure themselves against loss and disaster existed in primitive men also. They too sought to avert the evil consequences of fire and flood and loss of life and were willing to make some sort of sacrifice in order to achieve security. Though the concept of insurance is largely a development of the recent past, particularly after the industrial era past few centuries yet its beginnings date back almost 6000 years.

With the establishment of Oriental Life Insurance Company in Kollata, Life Insurance in its modern form came to India from England in the year 1818.

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Important milestones in the Indian life insurance business 1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business. 1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical 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 are taken over by the central government and nationalised. 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.

Important milestones in the Indian general insurance business 1907: The Indian Mercantile 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 ensuring fair conduct and sound business practices.

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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 (Nationalisation) Act, 1972 nationalised the general insurance business in India with effect from 1st January 1973. 107 insurers amalgamated and grouped into four companies viz. the National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd. and the United India Insurance Company Ltd. GIC incorporated as a company.

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FUNDAMENTALS OF INSURANCE

How does insurance work? Insurance works by pooling risk.What does this mean? It simply means that a Investopedia.com the resource for investing and personal finance education. large group of people who want to insure against a particular loss pay their premiums into what we will call the insurance bucket, or pool. Because the number of insured individuals is so large, insurance companies can use statistical analysis to project what their actual losses will be within the given class. They know that not all insured individuals will suffer losses at the same time or at all. This allows the insurance companies to operate profitably and at the same time pay for claims that may arise. For instance, most people have auto insurance but only a few actually get into an accident. You pay for the probability of the loss and for the protection that you will be paid for losses in the event they occur.

RISKS :

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Life is full of risks - some are preventable or can at least be minimized, some are avoidable and some are completely unforeseeable. What's important to know about risk when thinking about insurance is the type of risk, the effect of that risk, the cost of the risk and what you can do to mitigate the risk. Let's take the example of driving a car. (For more insight on the concept of risk, see Determining Risk And The Risk Pyramid.) Type of risk: Bodily injury, total loss of vehicle, having to fix your car The effect: Spending time in the hospital, having to rent a car and having to make car payments for a car that no longer exists The costs: Can range from small to very large Mitigating risk: Not driving at all (risk avoidance), becoming a safe driver (you still have to contend with other drivers), or transferring the risk to someone else (insurance) Let's explore this concept of risk management (or mitigation) principles a little deeper and look at how you may apply them. The basic risk management tools indicate that risks that could bring financial losses and whose severity cannot be reduced should be transferred. You should also consider the relationship between the cost of risk transfer and the value of transferring that risk.

RISK CONTROL :
There are two ways that risks can be controlled. You can avoid the risk altogether, or you can choose to reduce your risk.

RISK FINANCING :
If you decide to retain your risk exposures, then you can either transfer that risk (ie. to an insurance company), or you retain that risk either voluntarily (ie. you identify and accept the risk) or involuntarily (you identify the risk, but no

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Investopedia.com the resource for investing and personal finance education insurance is available).

RISK SHARING :
Finally, you may also decide to share risk. For example, a business owner may decide that while he is willing to assume the risk of a new venture, he may want to share the risk with other owners by incorporating his business. So, back to our driving example. If you could get rid of the risk altogether, there would be no need for insurance. The only way this might happen in this case would be to avoid driving altogether. Also, if the cost of the loss or the effect of the loss is reasonable to you, then you may not need insurance. For risks that involve a high severity of loss and a low frequency of loss, then risk transference (ie. insurance) is probably the most appropriate protection technique. Insurance is appropriate if the loss will cause you or your loved ones a significant financial loss or inconvenience. Do keep in mind that in some instances, you are required to purchase insurance (i.e. if operating a motor vehicle). For risks that are of low loss severity but high loss frequency, the most suitable method is either retention or reduction because the cost to transfer (or insure) the risk might be costly. In other words, some damages are so inexpensive that it's worth taking the risk of having to pay for them yourself, rather than forking extra money over to the insurance company each month.

THE RISK MANAGEMENT PROCESS:

After you have determined that you would like to insure against a loss, the next step is to seek out insurance coverage. Here you have many options available to you but it's always best to shop around. You can go directly to the insurer

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through an agent, who can bind the policy. The process of binding a policy is simply a written acknowledgement identifying the main components of your insurance contract. It is intended to provide temporary insurance protection to the consumer pending a formal policy being issued by the insurance company. It should be noted that agents work exclusively for the insurance company. There are two types of agents: 1. Captive Agents: Captive agents represent a single insurance company and are required to only do business with that one company. 2. Independent Agent: Independent agents represent multiple companies and work on behalf of the client (not the insurance company) to find the most appropriate policy.

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WHAT IS INVESTMENT ?

Investment is the commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in the form of interest, income, or appreciation of the value of the instrument. Investment is related to saving or deferring consumption.

An investment involves the choice by an individual or an organization such as a pension fund, after some analysis or thought, to place or lend money in a vehicle, instrument or asset, such as property, commodity, stock, bond, financial derivatives (e.g. futures or options), or the foreign asset denominated in foreign currency, that has certain level of risk and provides the possibility of generating returns over a period of time. When an asset is bought or a given amount of money

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is invested in the bank, there is anticipation that some return will be received from the investment in the future. Investment is a term frequently used in the fields of economics, business management and finance. It can mean savings alone, or savings made through delayed consumption. Investment can be divided into different types according to various theories and principles. While dealing with the various options of investment, the defining terms of investment need to be kept in mind.

INVESTMENT IN TERMS OF ECONOMICS :

According to economic theories, investment is defined as the per-unit production of goods, which have not been consumed, but will however, be used for the purpose of future production. Examples of this type of investments are tangible goods like construction of a factory or bridge and intangible goods like 6 months of on-the-job training. In terms of national production and income, Gross Domestic Product (GDP) has an essential constituent, known as gross investment.

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INVESTMENT IN TERMS OF BUSINESS MANAGEMENT:

According to business management theories, investment refers to tangible assets like machinery and equipments and buildings and intangible assets like copyrights or patents and goodwill. The decision for investment is also known as capital budgeting decision, which is regarded as one of the key decisions.

INVESTMENT IN TERMS OF FINANCE:

In finance, investment refers to the purchasing of securities or other financial assets from the capital market. It also means buying money market or real properties with high market liquidity. Some examples are gold, silver, real properties, and precious items. Financial investments are in stocks, bonds, and other types of security investments. Indirect financial investments can also be done with the help of mediators or third parties, such as pension funds, mutual funds, commercial banks, and insurance companies.

PERSONAL FINANCE& REAL ESTATE:

According to personal finance theories, an investment is the implementation of money for buying shares, mutual funds or assets with capital risk . According to

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real estate theories, investment is referred to as money utilized for buying property for the purpose of ownership or leasing. This also involves capital risk.

COMMERCIAL REAL ESTATE:

Commercial real estate involves a real estate investment in properties for commercial purposes such as renting

RESIDENTIAL REAL ESTATE:

This is the most basic type of real estate investment, which involves buying houses as real estate properties.

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INSURANCE WHICH ACT AS INVESTMENT

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Pension :

A pension is a fixed sum paid regularly to a person, typically, given following a retirement from service.[1] Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum. The terms retirement plan or superannuation refer to a pension granted upon retirement.[2] Retirement plans may be set up by employers, insurance companies, the government or other institutions such as employer associations or trade unions. Called retirement plans in the United States, they are commonly known as pension schemes in the United Kingdom and Ireland and superannuation plans or super[3] in Australia and New Zealand. Retirement pensions are typically in the form of a guaranteed life annuity, thus insuring against the risk of longevity. A pension created by an employer for the benefit of an employee is commonly referred to as an occupational or employer pension. Labor unions, the

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government, or other organizations may also fund pensions. Occupational pensions are a form of deferred compensation, usually advantageous to employee and employer for tax reasons. Many pensions also contain an additional insurance aspect, since they often will pay benefits to survivors or disabled beneficiaries. Other vehicles (certain lottery payouts, for example, or an annuity) may provide a similar stream of payments. The common use of the term pension is to describe the payments a person receives upon retirement, usually under pre-determined legal and/or contractual terms. A recipient of a retirement pension is known as a pensioner or retiree.

Types of pensions
EMPLOYMENT-BASED PENSIONS (RETIREMENT PLANS)
A retirement plan is an arrangement to provide people with an income during retirement when they are no longer earning a steady income from employment. Often retirement plans require both the employer and employee to contribute money to a fund during their employment in order to receive defined benefits upon retirement. It is a tax deferred savings vehicle that allows for the tax-free accumulation of a fund for later use as a retirement income. Funding can be provided in other ways, such as from labor unions, government agencies, or selffunded schemes. Pension plans are therefore a form of "deferred compensation". A SSAS is a type of employment-based Pension in the UK.

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SOCIAL AND STATE PENSIONS

Many countries have created funds for their citizens and residents to provide income when they retire (or in some cases become disabled). Typically this requires payments throughout the citizen's working life in order to qualify for benefits later on. A basic state pension is a "contribution based" benefit, and depends on an individual's contribution history. For examples, see National Insurance in the UK, or Social Security in the USA. Many countries have also put in place a "social pension". These are regular, tax-funded non-contributory cash transfers paid to older people. Over 80 countries have social pensions.[4] Examples are the Old Age Grant in South Africa and the Universal Superannuation scheme in New Zealand.

DISABILITY PENSIONS
Some pension plans will provide for members in the event they suffer a disability. This may take the form of early entry into a retirement plan for a disabled member below the normal retirement age.

BENEFITS
Retirement plans may be classified as defined benefit or defined contribution according to how the benefits are determined.[4] A defined benefit plan guarantees a certain payout at retirement, according to a fixed formula which usually depends on the member's salary and the number of years' membership in the plan. A defined contribution plan will provide a payout at retirement that is dependent

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upon the amount of money contributed and the performance of the investment vehicles utilized.

Some types of retirement plans, such as cash balance plans, combine features of both defined benefit and defined contribution plans. They are often referred to as hybrid plans. Such plan designs have become increasingly popular in the US since the 1990s. Examples include Cash Balance and Pension Equity plans.

DEFINED BENEFIT PLANS

Main article: Defined benefit pension plan A traditional defined benefit (DB) plan is a plan in which the benefit on retirement is determined by a set formula, rather than depending on investment returns. In the US, 26 U.S.C. 414(j) specifies a defined benefit plan to be any pension plan that is not a defined contribution plan (see below) where a defined contribution plan is any plan with individual accounts. A traditional pension plan that defines a benefit for an employee upon that employee's retirement is a defined benefit plan.

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Traditionally, retirement plans have been administered by institutions which exist specifically for that purpose, by large businesses, or, for government workers, by the government itself. A traditional form of defined benefit plan is the final salary plan, under which the pension paid is equal to the number of years worked, multiplied by the member's salary at retirement, multiplied by a factor known as the accrual rate. The final accrued amount is available as a monthly pension or a lump sum, but usually monthly. The benefit in a defined benefit pension plan is determined by a formula that can incorporate the employee's pay, years of employment, age at retirement, and other factors. A simple example is a Dollars Times Service plan design that provides a certain amount per month based on the time an employee works for a company. For example, a plan offering $100 a month per year of service would provide $3,000 per month to a retiree with 30 years of service. While this type of plan is popular among unionized workers, Final Average Pay (FAP) remains the most common type of defined benefit plan offered in the United States. In FAP plans, the average salary over the final years of an employee's career determines the benefit amount. Averaging salary over a number of years means that the calculation is averaging different dollars. For example, if salary is averaged over five years, and retirement is in 2009, then salary in 2004 dollars is averaged with salary in 2005 dollars, etc., with 2004 dollars being worth more than the dollars of succeeding years. The pension is then paid in first year of retirement dollars, in this example 2009 dollars, with the lowest value of any dollars in the calculation. Thus inflation in the salary

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averaging years has a considerable impact on purchasing power and cost, both being reduced equally by inflation This effect of inflation can be eliminated by converting salaries in the averaging years to first year of retirement dollars, and then averaging. In the United Kingdom, benefits are typically indexed for inflation (known as Retail Prices Index (RPI)) as required by law for registered pension plans.[5] Inflation during an employee's retirement affects the purchasing power of the pension; the higher the inflation rate, the lower the purchasing power of a fixed annual pension. This effect can be mitigated by providing annual increases to the pension at the rate of inflation (usually capped, for instance at 5% in any given year). This method is advantageous for the employee since it stabilizes the purchasing power of pensions to some extent. If the pension plan allows for early retirement, payments are often reduced to recognize that the retirees will receive the payouts for longer periods of time. In the United States, under the Employee Retirement Income Security Act of 1974, any reduction factor less than or equal to the actuarial early retirement reduction factor is acceptable.[6] Many DB plans include early retirement provisions to encourage employees to retire early, before the attainment of normal retirement age (usually age 65). Companies would rather hire younger employees at lower wages. Some of those provisions come in the form of additional temporary or supplemental benefits, which are payable to a certain age, usually before attaining normal retirement age.

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FUNDING
Defined benefit plans may be either funded or unfunded. In an unfunded defined benefit pension, no assets are set aside and the benefits are paid for by the employer or other pension sponsor as and when they are paid. Pension arrangements provided by the state in most countries in the world are unfunded, with benefits paid directly from current workers' contributions and taxes. This method of financing is known as Pay-as-you-go (PAYGO or PAYG).[8] The social security systems of many European countries are unfunded[citation needed], having benefits paid directly out of current taxes and social security contributions, although several countries have hybrid systems which are partially funded. Spain set up the Social Security Reserve Fund and France set up the Pensions Reserve Fund; in Canada the wage-based retirement plan (CPP) is funded, with assets managed by the CPP Investment Board while the U.S. Social Security system is funded by investment in special U.S. Treasury Bonds. In a funded plan, contributions from the employer, and sometimes also from plan members, are invested in a fund towards meeting the benefits. The future returns on the investments, and the future benefits to be paid, are not known in advance, so there is no guarantee that a given level of contributions will be enough to meet the benefits. Typically, the contributions to be paid are regularly reviewed in a valuation of the plan's assets and liabilities, carried out by an actuary to ensure that the pension fund will meet future payment obligations. This means that in a defined benefit pension, investment risk and investment rewards are typically assumed by the sponsor/employer and not by the individual. If a plan is not well-

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funded, the plan sponsor may not have the financial resources to continue funding the plan. In many countries, such as the USA, the UK and Australia, most private defined benefit plans are funded[citation needed], because governments there provide tax incentives to funded plans (in Australia they are mandatory). In the United States, non-church-based private employers must pay an insurance-type premium to the Pension Benefit Guaranty Corporation, a government agency whose role is to encourage the continuation and maintenance of voluntary private pension plans and provide timely and uninterrupted payment of pension benefits.

CRITICISMS
Traditional defined benefit plan designs (because of their typically flat accrual rate and the decreasing time for interest discounting as people get closer to retirement age) tend to exhibit a J-shaped accrual pattern of benefits, where the present value of benefits grows quite slowly early in an employee's career and accelerates significantly in mid-career: in other words it costs more to fund the pension for older employees than for younger ones (an "age bias"). Defined benefit pensions tend to be less portable than defined contribution plans, even if the plan allows a lump sum cash benefit at termination. Most plans, however, pay their benefits as an annuity, so retirees do not bear the risk of low investment returns on contributions or of outliving their retirement income. The open-ended nature of these risks to the employer is the reason given by many employers for switching from defined benefit to defined contribution plans over recent years. The risks to the employer can sometimes be mitigated by discretionary elements in the benefit structure, for instance in the rate of increase granted on accrued pensions, both before and after retirement.
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The age bias, reduced portability and open ended risk make defined benefit plans better suited to large employers with less mobile workforces, such as the public sector (which has open-ended support from taxpayers). This coupled with a lack of foresight on the employers part means a large proportion of the workforce are kept in the dark over future investment schemes.

Defined benefit plans are sometimes criticized as being paternalistic as they enable employers or plan trustees to make decisions about the type of benefits and family structures and lifestyles of their employees. However they are typically more valuable than defined contribution plans in most circumstances and for most employees (mainly because the employer tends to pay higher contributions than under defined contribution plans), so such criticism is rarely harsh.

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The "cost" of a defined benefit plan is not easily calculated, and requires an actuary or actuarial software. However, even with the best of tools, the cost of a defined benefit plan will always be an estimate based on economic and financial assumptions. These assumptions include the average retirement age and lifespan of the employees, the returns to be earned by the pension plan's investments and any additional taxes or levies, such as those required by the Pension Benefit Guaranty Corporation in the U.S. So, for this arrangement, the benefit is relatively secure but the contribution is uncertain even when estimated by a professional.

EXAMPLES
Many countries offer state-sponsored retirement benefits, beyond those provided by employers, which are funded by payroll or other taxes. The United States Social Security system is similar to a defined benefit pension arrangement, albeit one that is constructed differently than a pension offered by a private employer. Individuals that have worked in the UK and have paid certain levels of national insurance deductions can expect an income from the state pension scheme after their normal retirement. The state pension is currently divided into two parts: the basic state pension, State Second [tier] Pension scheme called S2P. Individuals will qualify for the basic state pension if they have completed sufficient years contribution to their national insurance record. The S2P pension scheme is earnings related and depends on earnings in each year as to how much an individual can expect to receive. It is possible for an individual to forgo the S2P payment from the state, in lieu of a payment made to an appropriate pension

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scheme of their choice, during their working life. For more details see UK pension provision.

DEFINED CONTRIBUTION PLANS

Main article: Defined contribution plan In a defined contribution plan, contributions are paid into an individual account for each member. The contributions are invested, for example in the stock market, and the returns on the investment (which may be positive or negative) are credited to the individual's account. On retirement, the member's account is used to provide retirement benefits, sometimes through the purchase of an annuity which then provides a regular income. Defined contribution plans have become widespread all over the world in recent years, and are now the dominant form of plan in the private sector in many countries. For example, the number of defined benefit plans in the US has been steadily declining, as more and more employers see pension contributions as a large expense avoidable by disbanding the defined benefit plan and instead offering a defined contribution plan. Money contributed can either be from employee salary deferral or from employer contributions. The portability of defined contribution pensions is legally no different from the portability of defined benefit plans. However, because of the cost of administration and ease of determining the plan sponsor's liability for defined contribution plans (you do not need to pay an actuary to calculate the lump sum equivalent that you do for defined benefit plans) in practice, defined contribution plans have become generally portable.

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In a defined contribution plan, investment risk and investment rewards are assumed by each individual/employee/retiree and not by the sponsor/employer. In addition, participants do not necessarily purchase annuities with their savings upon retirement, and bear the risk of outliving their assets. (In the United Kingdom, for instance, it is a legal requirement to use the bulk of the fund to purchase an annuity.) The "cost" of a defined contribution plan is readily calculated, but the benefit from a defined contribution plan depends upon the account balance at the time an employee is looking to use the assets. So, for this arrangement, the contribution is known but the benefit is unknown (until calculated).

EXAMPLES :
In the United States, the legal definition of a defined contribution plan is a plan providing for an individual account for each participant, and for benefits based solely on the amount contributed to the account, plus or minus income, gains, expenses and losses allocated to the account (see 26 U.S.C. 414(i)). Examples of defined contribution plans in the United States include Individual Retirement Accounts (IRAs) and 401(k) plans. In such plans, the employee is responsible, to one degree or another, for selecting the types of investments toward which the funds in the retirement plan are allocated. This may range from choosing one of a small number of pre-determined mutual funds to selecting individual stocks or other securities. Most self-directed retirement plans are characterized by certain tax advantages, and some provide for a portion of the employee's contributions to be

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matched by the employer. In exchange, the funds in such plans may not be withdrawn by the investor prior to reaching a certain agetypically the year the employee reaches 59.5 years old-- (with a small number of exceptions) without incurring a substantial penalty. In the US, defined contribution plans are subject to IRS limits on how much can be contributed, known as the section 415 limit. In 2009, the total deferral amount, including employee contribution plus employer contribution, was limited to $49,000 or 100% of compensation, whichever is less. The employee-only limit in 2009 is $16,500 with a $5,500 catch-up. These numbers may increase each year and are indexed to compensate for the effects of inflation.

HYBRID AND CASH BALANCE PLAN

Hybrid plan designs combine the features of defined benefit and defined contribution plan designs. A cash balance plan is a defined benefit plan made by the employer, with the help of consulting actuaries (like Kwasha Lipton, who it is said created the cash balance plan) to appear as if they were defined contribution plans. They have notional balances in hypothetical accounts where, typically, each year the plan administrator will contribute an amount equal to a certain percentage of each participant's salary; a second contribution, called interest credit, is made as well. These are not actual contributions and further discussion is beyond the scope of this entry suffice it to say that there is currently much controversy. In general, they are usually treated as defined benefit plans for tax, accounting and regulatory purposes. As with defined benefit plans, investment risk in hybrid designs is

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largely borne by the plan sponsor. As with defined contribution designs, plan benefits are expressed in the terms of a notional account balance, and are usually paid as cash balances upon termination of employment. These features make them more portable than traditional defined benefit plans and perhaps more attractive to a more highly mobile workforce. Target benefit plans are defined contribution plans made to match (or resemble) defined benefit plans.

CONTRASTING TYPES OF RETIREMENT PLANS

Advocates of defined contribution plans point out that each employee has the ability to tailor the investment portfolio to his or her individual needs and financial situation, including the choice of how much to contribute, if anything at all. However, others state that these apparent advantages could also hinder some workers who might not possess the financial savvy to choose the correct investment vehicles or have the discipline to voluntarily contribute money to retirement accounts. This debate parallels the discussion currently going on in the U.S., where many Republican leaders favor transforming the Social Security system, at least in part, to a self-directed investment plan.

FINANCING
There are various ways in which a pension may be financed. This section requires expansion.

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Defined contribution pensions, by definition, are funded, as the "guarantee" made to employees is that specified (defined) contributions will be made during an individual's working life. There are many ways to finance your pension and save for retirement. Pension plans can be set up by your employer, matching your contribution each month, by the state or personally through a pension scheme with a financial institution, such as a bank or brokerage firm. Pension plans often come with a tax break depending on the country and plan type. For example Canadians have the option to open a Registered Retirement Savings Plan (RRSP), as well as a range of employee and state pension programs[9]. This plan allows contributions to this account to be marked as un-taxable income and remain un-taxed until withdrawal. Most countrys governments will provide advice on pension schemes.

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TYPES OF INSURANCE AS AN INVESTMENT

VEHICLE INSURANCE :

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Coverage: An auto insurance policy typically covers you and your spouse, relatives who live in your home and other licensed drivers to whom you give permission to drive your car. The policy is "package protection", which provides coverage for both bodily injury and property damage liability as well as physical damage to your vehicle. This damage can include both that caused by the collision and damage cause by things "other than collision", such as flood, fire, wind, hail, etc. (For more insight, read Shopping For Car Insurance.) Common Types of Coverage: Auto insurance typically covers personal injury (PIP), medical payments, uninsured motorist, underinsured motorist, auto rental, emergency road assistance and other damages to your car not caused by a collision such as flood, fire and vandalism. Other coverage is available, too. Deductible: The deductible is the amount that you will pay out of pocket when you file a claim. Typically, the higher the deductible, the lower your premiums. Insurance Rates: How much you pay will depends on many factors, including your driving record, the value of your vehicle, where you drive, how much you drive, your marital status, your desired coverage, your age, sex and even your credit history.

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HOME INSURANCE :

Our homes and their contents are our greatest assets. That is why it is so imperative that we protect their value. Homeowners insurance helps us achieve that goal. Let's break down the different concepts that encompass this area. (For background reading, see Beginners' Guide To Homeowners Insurance.) Coverage: Homeowners insurance typically covers the dwelling (the structure), personal property and contents, and some forms of personal liability. The policy may cover direct and consequential loss resulting from damage to the property itself, loss or damage to personal property, and liability for unintentional acts arising out of the non-business, nonautomobile activities of the insured and members of that insured's household.

FLOOD INSURANCE :

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Flood insurance is becoming more and more popular as places that normally would not experience floods are suddenly finding themselves suffering losses as a result of extreme weather. To the surprise of many of these homeowners, their regular homeowners insurance policy did not cover against flood. This is a separate type of coverage that you will have to purchase if you consider flood to be a risk for your business or property. If you live in a flood-prone area and you have a mortgage, the lender will require you to purchase adequate coverage to insure the property. If you own the Investopedia.com the resource for investing and personal finance education. property, you can elect to self-insure and not buy insurance, but you have to remember that any damage caused as a result of flooding will be your financial responsibility. The cost of this kind of damage can run from the hundreds to thousands of dollars, so it's worth considering purchasing the insurance to transfer

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this risk, especially, if you live in a flood zone. If you don't live in a flood-prone area, you may qualify for a discounted rate, which means a lower premium for you.

WINDSTORM INSURANCE :
Like flood insurance, windstorm insurance is a separate type of coverage that protects your home or business against wind damage. Wind damage may result from items flying and destroying your property as a result of a hurricane, hail, snow, sand or dust.Coverage for windstorm may be limited in states prone to hurricane and tornadoes. If you live in a state like Florida, Louisiana, Texas or the Carolinas, which are frequently barraged by tropical storms or hurricanes, this should be an integral part of your asset protection planning. Consult with your agent or broker for more details on this type of coverage.old.

HEALTH INSURANCE :

Health insurance may be the most important type of insurance you can own. Without proper health insurance, an illness or accident can wipe you out
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financially and put you and your family in debt for years. So what is health insurance and how does it work? Health insurance is a type of insurance that pays for medical expenses in exchange for premiums. The way it works is that you pay your monthly or annual premium and the insurance policy contracts healthcare providers and hospitals to provide benefits to its members at a discounted rate. This is how hospitals and healthcare providers get listed in your insurance provider booklet. They have agreed to provide you with healthcare at the specified cost. These costs include medical exams, drugs and treatments referred to as "covered services" in your insurance policy. As with any type of insurance, there are exclusions and limitations. To know what these are, you have to read your policy to find out what is covered and what is not. If you elect to have a medical procedure done that is not covered by your insurance, you will have to pay for that service The range of coverage for expenses varies depending on the type of plan, as will the restrictions. You can purchase the insurance directly from the insurance company through an agent or through an independent broker but most people get their insurance coverage through employer-sponsored programs.

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LIFE INSURANCE:

In this policy, the insurance company pays in case of the demise of the policy holder or at the time of the maturity of the policy. Now a days a new policy has been launched by insurance companies in which you will be covered under the insurance policy even after the maturity of the policy. Read what are the different types of life insurance and which one is good for you. Read about health insurance plans.

PROPERTY INSURANCE:

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This insurance helps you to prevent the losses against theft, fire, burglary or any natural calamity like Earthquake, Floods etc. based on the points mentioned in the policy.

DISABILITY INSURANCE:
Aside from health insurance, disability is a very critical type of insurance individuals should consider having. When it comes to your personal finances, longterm disability can have a devastating effect if you are not prepared. Think about this: the probability of becoming at least temporarily disabled during your working years is higher than the probability of dying during your working years. (For related reading, see The Disability Insurance Policy: Now In English.) Disability insurance can replace a portion of the salary you were making before you became disabled and unable to work after a serious injury or illness. But before you seek coverage, you should first understand the different types of disability definitions used by insurers.

LONG-TERM CARE INSURANCE :

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As our lifespans are extended, our family structures change and medical care improves, the need for long-term care will continue to increase. A great number of people over 65 will spend some time in a nursing home, assisted living or extended care facility. The cost of such care can quickly erode the assets of even the most well-prepared savers. The risk of outliving your money in this situation can be great, and one of the best ways to transfer this risk is to purchase long term care. (For background reading, see A New Approach To Long-Term Care Insurance and Failing Health Could Drain Your Retirement Savings.) Long-term care (LTC) is defined as a need for assistance with some of the activities of daily living (often called ADLs). ADLs include functions that most of us perform each day, like eating, bathing, using the bathroom, dressing, transferring and maintaining continence.

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Unit Linked Insurance Plan (ULIP)

ULIP stands for Unit Linked Insurance Plans. As we know that insurance is for protecting our life from the any uncertain events like death or accident. The purpose of the normal insurance plan is just protecting the life but not ensuring any savings for the future. The example for the pure insurance plans are term insurance. Many people wanted plan which gives protection also gives the returns for their investment. So, insurance companies come up with the ULIP plan where the premium amount is invested in the stock market and returns better income on the maturity period.

What is the difference between ULIP and Mutual Funds?

In structure both ULIP and Mutual Funds looks similar. But, in objective they are different. Because of the high first-year charges, mutual funds are a better option if you have a five-year horizon. But if you have a horizon of 10 years or more, then ULIPs have an edge. To explain this further a ULIP has high first-year charges towards acquisition (including agents commissions). As a result, they find it difficult to outperform mutual funds in the first five years. But in the long-term, ULIP managers have several advantages over mutual fund managers. Since policyholder premiums come at regular intervals, investments can be planned out more evenly. Mutual fund managers cannot take a similar long-term view because they have bulk investors who can move money in and out of schemes at short notice.

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SECURITIES AND EXCHANGE BOARD OF INDIA

The Securities and Exchange Board of India (frequently abbreviated SEBI) is the regulator for the securities market in India.It was formed officially by the Government of India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. SEBI is headquartered in the business district of Bandra, Kurla Complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices in New Delhi, Kolkata, Chennai and Ahmedabad. Controller of Capital Issues was the regulatory authority before SEBI came into existence; it derived authority from the Capital Issues (Control) Act, 1947.

ORGANIZATION STRUCTURE
Upendra Kumar Sinha was appointed chairman on 18 February 2011 replacing C. B. Bhave. The Board comprises Name Upendra Kumar Sinha Prashant Saran Rajeev Agarwal Dr. Thomas Mathew V. K. Jairath Anand Sinha Naved Masood Designation Chairman Whole Time Member Whole Time Member Joint Secretary, Ministry of Finance Member Appointed Deputy Governor, Reserve Bank of India Secretary,Ministry of Corporate Affairs

List of former Chairmen

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Name C. B. Bhave M. Damodaran G. N. Bajpai D. R. Mehta S. S. Nadkarni G. V. Ramakrishna Dr. S. A. Dave

From 18 February 2008 18 February 2005 20 February 2002 21 February 1995 17 January 1994 24 August 1990 12 April 1988

To 18 February 2011 18 February 2008 18 February 2005 20 February 2002 31 January 1995 17 January 1994 23 August 1990

FUNCTIONS AND RESPONSIBILITIES

SEBI has to be responsive to the needs of three groups, which constitute the market:

the issuers of securities the investors the market intermediaries.

SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial and quasi-executive. It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity. Though this makes it very powerful, there is an appeals process to create accountability. There is a Securities Appellate Tribunal which is a three-member tribunal and is presently headed by a former Chief Justice

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of a High court - Mr. Justice NK Sodhi. A second appeal lies directly to the Supreme Court. SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e.g. the quick movement towards making the markets electronic and paperless rolling settlement on T+2 basis). SEBI has been active in setting up the regulations as required under law. SEBI has also been instrumental in taking quick and effective steps in light of the global meltdown and the Satyam fiasco. It had increased the extent and quantity of disclosures to be made by Indian corporate promoters. More recently, in light of the global meltdown,it liberalised the takeover code to facilitate investments by removing regulatory structures. In one such move, SEBI has increased the application limit for retail investors to Rs 2 lakh, from Rs 1 lakh at present

POWERS
For the discharge of its functions efficiently, SEBI has been invested with the necessary powers which are: 1. to approve bylaws of stock exchanges. 2. to require the stock exchange to amend their bylaws. 3. inspect the books of accounts and call for periodical returns from recognised stock exchanges. 4. inspect the books of accounts of a financial intermediaries. 5. compel certain companies to list their shares in one or more stock exchanges.

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6. levy fees and other charges on the intermediaries for performing its functions. 7. grant licence to any person for the purpose of dealing in certain areas. 8. delegate powers exercisable by it. prosecute and judge directly the violation of certain provisions of the companies Act.

The SEBI passed a stunning order of banning 14 life insurance companies involved in serving ULIP products, on the ground that they were akin to mutual funds and may need to obtain registration from SEBI to proceed further with it.

The 14 insurers among the list of companies banned by the SEBI from selling ULIPs include as on 1. Aegon Religare Life Insurance Company Limited 2. Aviva Life Insurance Company India Limited 3. Bajaj Allianz Life Insurance Company Limited 4. Bharti AXA Life Insurance Company Limited

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5. Birla Sun Life Insurance Company Limited 6. HDFC Standard Life Insurance Company Limited 7. ICICI Prudential Life Insurance Company Limited 8. ING Vyasa Life Insurance Company Limited 9. Kotak Mahindra Old Mutual Life Insurance Limited 10.Max New York Life Insurance Co. Limited 11.Metlife India Insurance Company Limited 12.Reliance Life Insurance Company Limited 13.SBI Life Insurance Company Limited 14.TATA AIG Life Insurance Company Limited ULIP is saving-cum-investment product that offers the option of life cover along with market liked returns. These products are increasingly gaining popularity among the investors on account of its multi-purpose catering of life cover and equity market linked returns both. Additionally, they also provide Tax savings, so they could very called All-in-One Policies. However, SEBIs contention is that ULIPs are not pure insurance products and such products are coupled with investment products which fall under its purview of regulation. The investment component of the ULIPs, which ultimately finds its way into the equity markets, is in the nature of mutual funds which falls under the jurisdiction of SEBIs governance. However, the spat does not end over here. In a reaction to the SEBI order, IRDA retaliated on Saturday by invoking its power under section 34(1) of the Insurance Act, directing insurance companies to disregard the order from SEBI and proceed further with their business as usual.
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As pointed out at the start of this post, the parent should come ahead and resolve the issue if the fight is getting out of bounds among the two children. A drama involving as important an issue of conflict as this requires a prompt redressing from the highest quarters as the Finance Ministry or even the PMO, where stakes of gullible public are involved due to no fault of their own.

MY VIEW:
The spat between the top two regulators is invoking a comical sequence of events in front of the world regarding the misplacement and dichotomy aspect of the Indian law. The tragic drama initially involved a ruling passed by SEBI authorities under the SEBI Act. However, the same ruling has been subsequently quashed by the IRDA under Insurance Act. The spat between the SEBI and IRDA could adversely impact the interest of policyholders and insurers if the uncertainty prevails for a longer period of time. The coming week could pan out as a high voltage event if the regulators continue to take potshots against each other and in the process sandwich the sentiments of policyholders.

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SEBI V/S IRDA

There is merit in the argument that Unit Linked Insurance Plans (ULIPs) from insurance companies are more investments than insurance products. Therefore, the Securities and Exchange Board of India appears to be well within its rights in seeking jurisdiction over these products. However it must be said SEBI perhaps has pressed the trigger a little too soon instead of exploring the option of further discussions for resolving its differences with the insurance regulator. Insurance players often take the stance that ULIPs should be exempt from SEBI's purview because they are either contracts of insurance'' or bundled'' products where the life cover is a vital and inseparable part of the structure. However, this argument does not hold much water if one looks at how ULIPs are structured and marketed today. Only a fraction of annual subscription paid by the investor goes to secure his life cover; much of it goes into building a market-linked portfolio. Mortality charges' (premium deducted for life cover) of some recently launched ULIPs are as low as 2 per cent of the subscription. It follows that a good part of the risk associated with such ULIPs too is market-related and borne by the investor. Then, it is their promise of market returns and not insurance cover (which can be obtained at a far lower cost) that has made these plans a hit with retail investors. That SEBI should have some measure of oversight over players managing ULIPs is also desirable from a broader market perspective. At last count, insurance companies managed more equity money and invested more in stocks than even domestic mutual funds. If the insurance aspect of a ULIP cannot be separated from the investment part, products with a sizeable investment component (say, over 51

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per cent of subscription) can perhaps register both with SEBI and the insurance regulator. At stake, is not so much the issue of insurers offering investmentoriented products being registered with SEBI. Rather it is one of streamlining charges, disclosure of information relating to investment risks and commission parity with distributors of mutual funds, so as to create a level playing field among financial intermediaries. Despite this, SEBI banning insurers from collecting additional

subscriptions on ULIPs that are already in force seems unduly harsh on retail investors who run the risk of their policies facing a premature closure. SEBI has not also helped its cause by singling out a few private insurers while allowing others, especially those in the public sector, to continue to market these products. In the event, the Centre-brokered compromise of restoring the status quo is the only viable course of action although it is unfortunate that the Government has left the matter to be decided by the Courts thus effectively abdicating its policy setting role for these regulators. SEBI versus IRDA Battle Ensues over ULIPs No comments and 3,610 views Posted in Finance, Insurance, Investment, News, Stock Market. Posted in Finance, Insurance, Investment, News. The ULIPs controversy that started with the stock market regulator SEBI banning 14 Insurance companies from issuing fresh ULIPs has drawn from fresh blood. Within 24 hours of this ban,

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Insurance Regulatory Development Authority or the IRDA has responses to the SEBI notice by stating that insurers can continue issuing policies as usual.

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WHY THERE IS A FIGHT?

SEBI manages all stock market related activities. They have power to manage mutual funds and other investment schemes that invest in stock markets. ULIPs are similar to mutual funds (investment in stock market) and some part of insurance added to it. As ULIP are doing investment in share market, SEBI should have a control over it and thats why SEBI is saying that insurers should seek its approval for ULIP products. IRDA is regulatory authority for insurance companies in India. As ULIP has more to do with Stock market investment and less with insurance part. Ideally SEBI should also have say in regulation of ULIPs. The same was requested to

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IRDA by SEBI, but they refused to give them control, So Sebi has asked them to stop selling Ulips, but IRDA has asked companies to continue selling the ULIPs. SEBI has removed all entry loads on mutual fund investment, But insurance agents are making lot of money in first 3-5 years of ULIP charging high entry load on ULIP investment. Most of the ULIPs are mis-selled in India, saying that investment have to be done only for 3-5 years, which is incorrect as if policy holder does not continue this after that, he stands to loose. This regulatory issue is turning into a battle of supremacy an outcome wherein the consumer interest may be sidelined for the moment. IRDA seems particularly irritated as it may see this ban as an encroachment of its territory of rights perhaps ignoring the public good. It may be noted that Insurance Business in India has been lacking efficiency. The industry that was originally supposed to cover risks is selling investment instruments many a times dependent upon stock market which bring in inherent risk which is nearly opposite the whole philosophy of Insurance. Barring the term plans which provides pure risk cover, rest of the insurance policies have steep overheads and charges. Many policies including ULIP deduct as much as 40% or more of the first year premium as charges. India is a peculiar country which has a very poor ratio of premium to cover which means that even though a lot of premium is being collected the cover provided is very less. The primary reason for that is that a huge portion of the

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premium is diverted to investments and corresponding charges and load. Only a small fraction of the premium goes into covering the actual risk. These are major concerns that should ideally be addressed by IRDA, which has acted very little in consumer interest. Insurance still ranks to be the no. 1 product that is mis-sold making false claims and giving wrong product knowledge. In these circumstances, it is obvious for the market regulator SEBI to take a note. SEBI has made a great impact in the highly rigged mutual funds and stock markets, making it far more transparent over the years It is expected that with SEBI intervention, things would get better for the common man for whom Insurance is indispensable. It is high time that Insurance is being sold as Insurance and Investment is being sold as Investment and that too without leakage. The government may be compelled to step in to resolve the issue as some insurers are planning to approach the court.

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CONCLUSION

From the above project it is concluded that insurance which is popularly known as protecting the saving the life of policy holder has no longer remain the same today people like to take insurance which act as investment .Yes, there are insurance which act as investment such as ULIP, annuity plan, pension plan ect. Today the denand for such type of insurance is on a great height and like to invest in such type of insurance. Which would help them in old aged for them pension plan is suitable.Annuity plan is suitable for those people who want slow and steady income for them it is unsuitable to invest. Today people are investing in those insurance which act as an investment. Investment in real estate and investment in share and debentures have became an older concept, but instead insurance which act as investment are playing an important role in todays senerio.

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BIBLIOGRAPHY

1) INVESTMENT IN INSURANCE 2) GAIN OF INSURANCE 3) FACTS OF INSURANCE

- P.K Thomas - K.M Asif - Z.K Husain

WEBLIOGRAPHY

1) www. 2) www. 3) www. 4) www.

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