CHAPTER - 1

INTRODUCTION
 INTRODUCTION TO THE STUDY
Everyone is exposed to various risks. Future is very uncertain, but there is way to
protect one’s family and make one’s children’s future safe. Life Insurance companies
help us to ensure that our family’s future is not just secure but also prosperous.

Life Insurance is particularly important if you are the sole breadwinner for your family
The loss of you and your income could devastate your family. Life insurance will
ensure that if anything happens to you, your loved ones will be able to manage
financially.

This study titled “Study of Consumers Perception about Life Insurance Policies”
enables the Life Insurance Companies to understand how consumer’s perception
differs from person to person. How a consumer selects, organizes and interprets the
service quality and the product quality of different Life Insurance Policies, offered by
various Life Insurance Companies.

Insurance is a tool by which fatalities of a small number are compensated out of

funds (premium payment) collected from plenteous. Insurance companies pay back
for financial losses arising out of occurrence of insured events e.g. in personal
accident policy death due to accident, in fire policy the insured events are fire and
other allied perils like riot and strike, explosion etc. hence insurance safeguard
against uncertainties. It provides financial recompense for losses suffered due to
incident of unanticipated events, insured with in policy of insurance. Moreover,
through a number of acts of parliament, specific types of insurance are legally
enforced in our country e.g. third party insurance under motor vehicles Act, public
liability insurance for handlers of hazardous substances under environment Act. Etc.

WHAT IS INSURANCE

It is a commonly acknowledged phenomenon that there are countless risks in every

sphere of life. for property, there are fire risk; for shipment of goods. There are perils
of sea; for human life there are risk of death or disability; and so on the chances of
occurrences of the events causing losses are quite uncertain because these may or
may not take place. Therefore, with this view in mind, people facing common risks
come together and make their small contribution to the common fund. While it may
not be possible to tell in advance, which person will suffer the losses, it is possible to
work out how many persons on an average out of the group, may suffer losses.
When risk occurs, the loss is made good out of the common fund .in this way each
and every one shares the risk .in fact they share the loss by payment of premium,
which is calculated on the likelihood of loss .in olden time, the contribution make the
above-stated notion of insurance.

DEFINITION OF INSURANCE

Insurance has been defined to be that in, which a sum of money as a premium is
paid by the insured in consideration of the insurer’s bearings the risk of paying a
large sum upon a given contingency. The insurance thus is a contract whereby:
a. Certain sum, termed as premium, is charged in consideration,

b. Against the said consideration, a large amount is guaranteed to be paid by

the insurer who received the premium,

c. The compensation will be made in certain definite sum, i.e., the loss or the
policy amount which ever may be, and

d. The payment is made only upon a contingency

More specifically, insurance may be defined as a contact between two parties,

wherein one party (the insurer) agrees to pay to the other party (the insured) or the
beneficiary, a certain sum upon a given contingency (the risk) against which
insurance is required.

TYPES OF INSURANCE

Insurance occupies an important place in the modern world because of the risk,
which can be insured, in number and extent owing to the growing complexity of
present day economic system. The different type of insurance have come about by
practice within insurance companies, and by the influence of legislation controlling
the transacting of insurance business, broadly, insurance may be classified into the
following categories:

1. Classification from business point of view

a) Life insurance, and
b) General insurance

2. Classification on the basis of nature of insurance

a) Life insurance
b) Fire insurance
c) Marine insurance
d) Social insurance, and
e) Miscellaneous insurance

3. Classification from risk point of view

a) Personal
b) Property insurance
c) Liability insurance
d) Fidelity general insurance
 THE IMPORTANCE OF INSURANCE

Insurance benefits society by allowing individuals to share the risks faced by many
people. But it also serves many other important economic and societal function
Because, insurance is available and affordable, banks can make loans with the
assurance that the loan’s collateral (property that can be taken as payment if a loan
goes unpaid) is covered against damage. This increased availability of credit helps
people buy homes and cars. Insurance also provides the capital that communities
need to quickly rebuild and recover economically from natural disasters, such as
tornadoes or hurricanes.

Insurance itself has become a significant economic force in most industrialized

countries. Employers buy insurance to cover their employees against work-related
injuries and health problems.

Businesses also insure their property, including technology used in production,

against damage and theft. Because it makes business operations safer, insurance
encourages businesses to make economic transactions, which benefits the
economies of countries.

In addition, millions of people work for insurance companies and related businesses.
In 1996 more than 2.4 million people worked in the insurance industry in the United
States and Canada. Insurance as an investment that offers a lot more in terms of
returns, risk cover & as also that tax concessions & added bonuses.

Not all effects of insurance are positive ones. The possibility of earning insurance
payments motivates some people to attempt to cause damage or losses. Without the
possibility of collecting insurance benefits, for instance, no one would think of arson,
the willful destruction of property by fire, as a potential source of money.
 THE INSURANCE INDUSTRY TODAY

Since the 1970s, the insurance business has grown dramatically and undergone
tremendous changes. As a result of the deregulation of financial services businesses
including insurance, banking, and securities trading—the roles, products, and
services of these formerly distinct businesses have become blurred. For instance,
citizens in the U.S. state of California voted in 1988 to allow banks to sell insurance
in that state. In Canada banks may also soon be allowed to sell insurance.

Advances in communications technology have also allowed traditionally

distinct financial businesses to keep instantaneous track of developments in other
businesses and compete for some of the same customers. Some insurance
companies now offer deposit accounts and mortgages. In the United States, life
insurance companies now sell more pension plans and other asset management
services than they do conventional life insurance.

Developments in computer technology that have given insurance providers the ability
to quickly access and process information have allowed them to custom-design
policies to fit the needs of individual customers. But the increasing complexity of
policies has also made some aspects of buying and selling insurance more difficult.

In addition, improvements in geological and meteorological technology have the

potential to change the way property insurers calculate risks of damage. For
example, as scientists improve their abilities to predict severe weather patterns, such
as hurricanes, and geological disturbances, such as earthquakes, insurers may
change how they provide protection against losses from such events.
 EVOLUTION OF INSURANCE IN INDIA

The marine insurance is the oldest form of insurance. If we trace Indian history
there are evidence that marine insurance was practiced here about three thousand
years ago. The code of Manu indicates that there was the practice of marine
insurance carried out by the traders in India with those of Srilanka, Egypt and
Greece .it is wonderful to see that Indians had even anticipated the doctrine of
average and contribution. Fright was fixed according to season and was then very
much at the mercy of the wind and other elements. Travelers by sea and land were
very much exposed to the risk of losing their vessels and merchandise because of
piracy on open seas and highway robbery of caravans was very common. The
practice of insurance was very common during the rule of Akbar to Aurangzeb, but
the nature and coverage of the insurance in this period is not well known. It was the
British insurer who introduced general insurance in India in the modern form. The
Britisher’s opened general insurance in India around the year 1700. The first
company known as the sun insurance office was set up in Calcutta in the year 1710.
This was followed by several insurance companies like London assurance and royal
exchange assurance (1720), Phoenix Assurance Company (1782). Etc. General
insurance business in the country was nationalized with effect from 1st January 1973
by the General Insurance Business (Nationalization) Act, 1972. More than 100 non-
life insurance companies including branches of foreign companies operating within
the country were 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. with head
offices at Calcutta, Bombay, New Delhi and Madras, respectively.

Life insurance in the current form came in India from united kingdom
with the establishment of a British firm, oriental life assurance company in 1818
followed by Bombay life assurance company in 1823, the madras equitable life
insurance society in 1829 and oriental life assurance company in 1874.prior to 1871,
Indian lives were treated as sub standard and charged an extra premium of 15% to
20%. Bombay mutual life assurance society, an Indian insurer that came in to
existence in 1871, was the first to cover Indian lives at normal rates. The Indian
insurance company Act 1923 was enacted inter alia, to enable the government to
collect statistical information about life and nonlife insurance business transacted in
India by Indian and foreign insurer, including the provident insurance societies.

The first half of the 20th century marked by two world war, the adverse affects
of the World War I and World War II on the economy of India, and in between them
the period of world wide economic crises triggered by the Great depression. The first
half of the 20th century was also marked by struggles for India’s independence. The
aggregate effect of these events led to a high rate of bankruptcies and liquidation of
life insurance companies in India. This had adversely affected the faith of the general
public in the utility of obtaining life cover.
In this background, the Parliament of India passed the Life Insurance of India Act on
19th June 1956, and the Life Insurance Corporation of India was created on 1st
September, 1956, by consolidating the life insurance business of 245 private life
insurers and other entities offering life insurance services.

Since 1972, the insurance sector has been totally under the control of
government of India through LIC and GIC and its subsidiaries. As a result, revenue
of both of them increased in the last years .the amount of savings pooled by LIC
increased from Rs.2704 crores in 1974 to Rs .57670 in 1994 with an annual growth
rate of 16.53% .similarly premium underwritten by GIC rose from 280 crores in 193
to 7647 crores in1998 showing an annual growth rate of 25.18%.

Despite increase in premium collected by both LIC and GIC there were inefficiency
and red tapeisum creeped in to the insurance sector. Apart from that a major policy
shift by the Narasimha Rau government during 1990’s.the Indian economy opened
for foreign competition. In this background The government of India in 1993 had set-
up a high powered committee by R.N Malhothra former governor reserve bank of
India, to examine the structure of Indian insurance sector and recommended
changes to make it more efficient and competitive keeping in view structural changes
in other part of the financial system of the country.

Insurance sector has been opened up for competition from Indian private insurance
companies with the enactment of Insurance Regulatory and Development Authority
Act, 1999 (IRDA Act). As per the provisions of IRDA Act, 1999, Insurance Regulatory
and Development Authority (IRDA) was established on 19th April 2000 to protect the
interests of holder of insurance policy and to regulate, promote and ensure orderly
growth of the insurance industry. IRDA Act 1999 paved the way for the entry of
private players into the insurance market, which was hitherto the exclusive privilege
of public sector
insurance companies/ corporations.
 EVOLUTION OF INSURANCE ORGANIZATION

With a view to serve the society, the insurance organizations have been developed
in different forms with innovation of insurance practice for social welfare and
development; some of these forms are outlined here.

a) Self-insurance

The arrangement in which an individual or concern sets up a private fund to meet

the future risk. If some losses happened in the future the firm meets the loss out of
the fund. While it may be called ‘self insurance’ it is not a single matter of fact,
insurance at all because there is no hedge, no shifting, or distributing the burden of
risk among larger Persons. It is merely a provision to meeting the unforeseen event.
Here the insured become the insurer for the particular risk. But it can be effectively
worked only when there is wide distribution of risks subjected the same hazard

b) Partnership

A partnership firm may also carry on the insurance business for the sake of profit.
Since it is not an entity distinct from the persons comprising it, the personal liability of
partners in respect to the partnership debts is unlimited. In case of huge loss the
partners may have to pay from their own personal funds and it will not be profitable
to them to starts insurance business .in the early period before the advent of joint
stock companies many insurance undertakings were partnership firms or
unincorporated companies

c) Joint stock companies

The joint stock companies are those, which are organized by the shareholders who
subscribe the necessary capital to start the business. These are formed for earning
profits for the stockholders who are the real owners of the companies. The
management of a company is entrusted to a board of directors who is elected by the
shareholders from amongst themselves. The company can operate insurance
business and policyholders have nothing to do with the management of the concern.
But in life insurance it is the practice to share certain portion of profit among the
certain policyholders.

d) Mutual fund companies

The mutual fund companies are co- operative association formed for the
purpose of effecting insurance on the property of its members. The policyholders are
themselves the shareholders of the companies each member is insured as well as
insured. They have power to participate in management and in the profit sharing to
the full extent. Whenever the income is more than the expenses and claims, it is
accumulated I the form of saving and is entitled in reducing the rate of premium.
Since the insured are insurers also, they always try to reduce the management
expenses and to keep the business at
sound level.

e) Co-operative insurance organizations

Cooperative insurance organizations are those concerns, which are

incorporated and registered under Indian cooperative societies Act. The concerns
are also called co- operative insurance societies’ these societies like mutual fund
companies are non- profit organization. the aim is to provide insurance protection to
its members at the lowest reasonable net cost. the Indian Insurance Act. 1938, has
provided special provisions for the co-operative insurance societies, but after
nationalization the societies have ceased to exist.

f) Lloyd’s Association

Lloyd’s association is one of the greatest insurance institutions in the world.

Taking its name from the coffee house Lloyd where underwriters assembled to
transact business and pick-up news. The organization traces its origins to the latter
part of the seventeenth century .so it is the oldest insurance organization in existing
form in the world. In 1871,Lloyds Act was passed incorporating the members of the
association into a single corporate body with perpetual succession and a corporate
seal .the powers of Lloyds corporation were extended from the business of marine
insurance to the other insurance and guarantee business. The Lloyds Association
also publishes, Lloyds list and register of shipping for the information of insuring
public and the insurers.

g) State Insurance

The government of a nation, some times owns the insurance and runs the business
for the benefit of the public. The sate insurance is defined as that insurance which is
under public sector. In Brazil, Japan and Mexico, the insurance are largely
nationalized. Previously, the state undertook only those insurances, which were
regarded as vital for the national interest.
 Few Life Insurance policies are:

1] Whole life policies

Cover the insured for life. The insured does not receive money
while he is alive; the nominee receives the sum assured plus bonus upon death of
the insured.

2] Endowment policies

Cover the insured for a specific period. The insured receives

money on survival of the term and is not covered thereafter.

3] Money back policies

The nominee receives money immediately on death of the

insured. On survival the insured receives money at regular intervals during the term.
These policies cost more than endowment with profit policies.

4] Annuities / Children's policies

The nominee receives a guaranteed amount of money at a pre-determined time and

not immediately on death of the insured. On survival the insured receives money at
the same pre-determined time. These policies are best suited for planning children's
future education and marriage costs.

5] Pension schemes

Pension scheme are policies that provide benefits to the insured only upon
retirement. If the insured dies during the term of the policy, his nominee would
receive the benefits either as a lump sum or as a pension every month. Since a
single policy cannot meet all the insurance objectives, one should have a portfolio of
policies covering all the needs
 BACKGROUND OF THE STUDY

“Life Insurance is a contract for payment of a sum of money to the person assured
on the happening of the event insured against”. Usually the insurance contract
provides for the payment of an amount on the date of maturity or at specified dates
at periodic intervals or at unfortunate death if it occurs earlier. Obviously, there is a
price to be paid for this benefit. Among other things the contracts also provides for
the payment of premiums, by the assured.

Life Insurance is universally acknowledged as a tool to eliminate risk, substitute

certainty for uncertainty and ensure timely aid for the family in the unfortunate event
of the death of the breadwinner. In other words, it is the civilized world’s partial
solution to the problems caused by death. Life insurance helps in two ways dealing
with premature death, which leaves dependent families to fend for themselves and
old age without visible means of support.

The most common types of life insurance are whole life insurance and term life
insurance. Whole life insurance provides a lifetime of protection as long as you pay
the premiums to keep the policy active. They also accrue a cash value and thus offer
a savings component. Term life insurance provides protection only during the term of
the policy and the policies are usually renewable at the end of the term
 THERE ARE MANY LIFE INSURANCE COMPANIES LIKE:

1] LIFE INSURANCE CORPORATION OF INDIA

2] BAJAJ ALLIANZ LIFE INSURANCE COMPANY

3] ICICI PRUDENTIAL LIFE INSURANCE COMPANY

4] HDFC STANDARD LIFE INSURANCE COMPANY

5] BIRLA SUN-LIFE INSURANCE COMPANY

6] ING VYSYA LIFE INSURANCE COMPANY

7] METLIFE INSURANCE COMPANY

8] TATA AIG LIFE INSURANCE COMPANY

9] MAX NEW YORK LIFE INSURANCE COMPANY

10] OM KOTAK MAHINDRA LIFE INSURANCE COMPANY