A PROJECT REPORT ON

GROWTH OF LIFE INSURANCE IN INDIA

SUBMITTED BY

ANUJ ANUP AGARWAL

T.Y.B.M.S. [SEMESTER V]
DIV.: B
ROLL NO.: 02

ACADEMIC YEAR

2016– 2017

UNDER THE GUIDANCE OF

Ms. PRIYANKA V. GALA

DATE OF SUBMISSION
20 September, 2016

SVKM’S NARSEE MONJEE COLLEGE OF COMMERCE AND ECONOMICS

VILE PARLE (W), MUMBAI - 400 056

SUBMITTED TO
UNIVERSITY OF MUMBAI

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 DECLARATION

I, ANUJ ANUP AGARWAL, of SVKM’s Narsee Monjee College of Commerce and

Economics of TYBMS [Semester V] hereby declare that I have completed my project,

titled ‘GROWTH OF LIFE INSURANCE IN INDIA’ in the Academic Year 2016

– 2017. The information submitted herein is true and original to the best of my
knowledge.

_____________________

ANUJ AGARWAL

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 CERTIFICATE

I, Ms. Priyanka V. Gala, hereby certify that ANUJ ANUP AGARWAL of SVKM’s
Narsee Monjee College of Commerce and Economics of TYBMS [Semester V] has

completed the project on ‘GROWTH OF LIFE INSURANCE IN INDIA’ in the

academic year 2016 – 2017 under my guidance. The information submitted herein is true
and original to the best of my knowledge.

____________________ ____________________

Ms. Priyanka V. Gala Dr. Parag Ajagaonkar

Project Guide I/C Principal

_________________________

External Examiner

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 ACKNOWLEDGEMENT

It has always been my sincere desire as a management student to get an opportunity to

express my views, skills, attitude and talent in which I am proficient. A project is one
such avenue through which a student who aspires to be a future manager does something
creative. This project has given me the chance to get in touch with the practical aspects of
management.

I am extremely grateful to the University of Mumbai for having prescribed this project
work as part of the academic requirement in the Bachelor of Management (BMS) course.

I wish to appreciate the SVKM management and Narsee Monjee College for providing
all the required facilities. I would like to thank the I/C Principal and Vice Principal, for
their dynamic leadership. I would also like to thank the BMS Coordinator, Mr. Conrad
Coelho for all his support and help.

I also wish to thank my Project Guide, Ms. Priyanka V. Gala, for guiding me throughout
the project and without whose support; the project may not have taken shape.

I sincerely wish to extend my special thanks to the following members for providing me
all the necessary information regarding the topics, related to their companies and guiding
me during my internship:

 Mr. Mohd. Yusuf Khan (Managing Partner- Birla Sun Life Insurance)

I also appreciate all the support provided by the library staff and the teaching and
supporting staff of N.M. College for providing all the necessary academic content and
resources to enable the completion of my project.

Finally, I thank all my friends and family members who have directly or indirectly helped
me towards the completion of this project.

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 EXECUTIVE SUMMARY

The past few decades has witnessed an era of growth of Life Insurance in India. In 2000,
Government reopened the Indian insurance industry to private companies which leads to
the remarkable growth (increasing trends) in life insurance business. The sector witnesses
a multi-fold growth in terms of insurance density (4 fold), amount of investment (5 fold),
total premium (4 fold), number of new policy issued (doubled), number of offices opened
(4 times) etc.

The topic chosen has a lot of relevance in present day as it is one of the fastest growing
sector in the country. Even though the industry been established for quite a long time its
awareness is now on a rise. I was particularly interested in the study of consumer
behavior resulting in the actual market scenario. I also wish to study and apply my
knowledge which I have received when interning with Birla Sun Life Insurance as one of
the leading insurance firms in India.

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 INDEX

NO. TOPIC PAGE NO.

1. Introduction 7

2. Advantages of Life Insurance 12

3. History of insurance in India 16

4. IRDAI 20

5. Rights and Duties of the Consumer 24

6. Categories of Insurance 28

7. Types of Life Insurance policies 31

8. Growth of Insurance Sector 45

9. Objectives of Survey 51

10. Primary Data Analysis 52

11. Conclusion 60

12 Bibliography 63

13. Annexure 64

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 1. INTRODUCTION

Life insurance is a contract between an insurance policy holder and an insurer or assurer,
where the insurer promises to pay a designated beneficiary a sum of money (the benefit)
in exchange for a premium, upon the death of an insured person (often the policy holder).
Depending on the contract, other events such as terminal illness or critical illness can also
trigger payment. The policy holder typically pays a premium, either regularly or as one
lump sum. Other expenses (such as funeral expenses) can also be included in the benefits.

Life policies are legal contracts and the terms of the contract describe the limitations of
the insured events. Specific exclusions are often written into the contract to limit the
liability of the insurer; common examples are claims relating to suicide, fraud, war, riot,
and civil commotion.

Life-based contracts tend to fall into two major categories:

 Protection policies – designed to provide a benefit, typically a lump sum payment, in

the event of specified event. A common form of a protection policy design is term
insurance.
 Investment policies – where the main objective is to facilitate the growth of capital by
regular or single premiums.

1.1. Parties to contract

The person responsible for making payments for a policy is the policy owner, while the
insured is the person whose death will trigger payment of the death benefit. The owner
and insured may or may not be the same person. For example, if Joe buys a policy on his
own life, he is both the owner and the insured. But if Jane, his wife, buys a policy on
Joe's life, she is the owner and he is the insured. The policy owner is the guarantor and he

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will be the person to pay for the policy. The insured is a participant in the contract, but
not necessarily a party to it.

The beneficiary receives policy proceeds upon the insured person's death. The owner
designates the beneficiary, but the beneficiary is not a party to the policy. The owner can
change the beneficiary unless the policy has an irrevocable beneficiary designation. If a
policy has an irrevocable beneficiary, any beneficiary changes, policy assignments, or
cash value borrowing would require the agreement of the original beneficiary.

In cases where the policy owner is not the insured (also referred to as the celui qui vit or
CQV), insurance companies have sought to limit policy purchases to those with
an insurable interest in the CQV. For life insurance policies, close family members and
business partners will usually be found to have an insurable interest. The insurable
interest requirement usually demonstrates that the purchaser will actually suffer some
kind of loss if the CQV dies. Such a requirement prevents people from benefiting from
the purchase of purely speculative policies on people they expect to die. With no
insurable interest requirement, the risk that a purchaser would murder the CQV for
insurance proceeds would be great. In at least one case, an insurance company which sold
a policy to a purchaser with no insurable interest (who later murdered the CQV for the
proceeds), was found liable in court for contributing to the wrongful death of the victim
(Liberty National Life v. Weldon, 267 Ala.171 (1957)).

1.2. Contract terms

Special exclusions may apply, such as suicide clauses, whereby the policy becomes null
and void if the insured commits suicide within a specified time (usually two years after
the purchase date; some states provide a statutory one-year suicide clause). Any
misrepresentations by the insured on the application may also be grounds for
nullification. Only if the insured dies within this period will the insurer have a legal right
to contest the claim on the basis of misrepresentation and request additional information
before deciding whether to pay or deny the claim.

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The face amount of the policy is the initial amount that the policy will pay at the death of
the insured or when the policy matures, although the actual death benefit can provide for
greater or lesser than the face amount. The policy matures when the insured dies or
reaches a specified age (such as 100 years old).

1.3. Costs, insurability, and underwriting

The insurance company calculates the policy prices (premiums) at a level sufficient to
fund claims, cover administrative costs, and provide a profit. The cost of insurance is
determined using mortality tables calculated by actuaries. Mortality tables are statistically
based tables showing expected annual mortality rates of people at different ages. Put
simply, people are more likely to die as they get older and the mortality tables enable the
insurance companies to calculate the risk and increase premiums with age accordingly.
Such estimates can be important in taxation regulation.

The mortality tables provide a baseline for the cost of insurance, but the health and family
history of the individual applicant is also taken into account (except in the case of Group
policies). This investigation and resulting evaluation is termed underwriting. Health and
lifestyle questions are asked, with certain responses possibly meriting further
investigation. Specific factors that may be considered by underwriters include:

 Personal medical history

 Family medical history
 Driving record
 Height and weight matrix, otherwise known as BMI (Body Mass Index)

Based on the above and additional factors, applicants will be placed into one of several
classes of health ratings which will determine the premium paid in exchange for
insurance at that particular carrier.

Automated Life Underwriting is a technology solution which is designed to perform all

or some of the screening functions traditionally completed by underwriters, and thus

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seeks to reduce the work effort, time and/or data necessary to underwrite a life insurance
application. These systems allow point of sale distribution and can shorten the time frame
for issuance from weeks or even months to hours or minutes, depending on the amount of
insurance being purchased.

Most of the revenue received by insurance companies consists of premiums, but revenue
from investing the premiums forms an important source of profit for most life insurance
companies.

Insurance companies alone determine insurability, and some people are deemed
uninsurable. The policy can be declined or rated (increasing the premium amount to
compensate for the higher risk), and the amount of the premium will be proportional to
the face value of the policy.

Many companies separate applicants into four general categories. These categories
are preferred best, preferred, standard, and tobacco. Preferred best is reserved only for
the healthiest individuals in the general population. This may mean, that the proposed
insured has no adverse medical history, is not under medication, and has no family
history of early-onset cancer, diabetes, or other conditions. Preferred means that the
proposed insured is currently under medication and has a family history of particular
illnesses. Most people are in the standard category.

People in the tobacco category typically have to pay higher premiums due to the higher
mortality.

1.4. Death proceeds

Upon the insured's death, the insurer requires acceptable proof of death before it pays the
claim. The normal minimum proof required is a death certificate, and the insurer's claim
form completed, signed, and typically notarized. If the insured's death is suspicious and
the policy amount is large, the insurer may investigate the circumstances surrounding the
death before deciding whether it has an obligation to pay the claim.

Payment from the policy may be as a lump sum or as an annuity, which is paid in regular
installments for either a specified period or for the beneficiary's lifetime.

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 1.5. Insurance vs Assurance
The terms insurance and assurance are used frequently in the financial industry.
Insurance provides financial coverage for unforeseen circumstances surrounding an
event, such as fire, theft, or flooding. Assurance provides coverage for events that will
occur, such as death. A life insurance policy, for example, provides coverage to an
individual for a specified period of time. If the individual dies during that specific period,
the insurance carrier will pay the amount of money agreed upon in the contract. If the
insured individual lives past the specified time period, the insurance policy becomes void,
and the provider is not obligated to make any payment.
A life assurance policy will always result in a payment being made because the
investment is combined with the sum insured. The value of the policy also increases with
time because the investment bonus is added to the policy. Therefore, in the event of the
insured dying, the policy would pay out the agreed upon amount plus any bonuses that
have accumulated since the policy took effect. If the policy is cancelled before the end of
the specified period, the policy will retain some cash value, which relates to the
investment portion bonuses. Most companies will issue penalties for cashing out on the
policy before the specified time has ended.
Insurance companies usually offer both insurance and assurance policies, which tends
to confuse most. Many life insurance companies offer a wide range of insurance and
investment policies. These include investment funds, car insurance, pensions, investment
bonds, life assurance, home insurance, and loans.

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 2. ADVANTAGES OF INSURANCE

2.1. Certainty

Once a goal has been identified and a value for it has been crystallized, an insurance
policy is an excellent vehicle to fund the goal. This is because one can be rest assured that
even in the unfortunate event of death or even critical illness, the sum assured will fund a
future goal of the policyholder.

2.2. Tax efficient

Maturity benefits of most insurance policies are tax free under Section 10 (10D) and the
premium paid is eligible for deduction under Section 80C of the Income Tax Act, 1961.

2.3. Flexibility

Insurance products, especially Unit Linked Plans, provide flexibility in terms of asset
allocation to suit specific risk appetites, policy durations, premium payment terms and
fund switching options.

2.4. Wider options

Depending on the time horizon of the goal, the return required and the investor's risk
appetite, a broad spectrum of asset allocations between equity and debt is possible in a
Unit Linked Plan. An investor may tailor his policy to suit his requirement.

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2.5. Liquidity

Most Insurance products offer good liquidity after the lock-in period to take care of any
emergency requirement of funds. But they do have inherent deterrents in the form of
charges to discourage unnecessary encashment.

2.6. Earmarking

Very often an insurance policy is taken for a specific goal. This therefore can become a
deterrent against utilizing these funds for any other purpose and also encourages
continued contributions.
Insurance for Financial Security
Insurance helps you to provide for contingent liabilities like hospitalization, critical
illness, debt redemption, etc. in a cost efficient manner.

2.7. Term insurance

Term insurance is the simplest and cheapest form of life cover, which pays the sum
assured on death. This is useful to simply provide for a family's survival in the
unfortunate event of demise of the bread winner. This can also be used to cover
repayment of any debt of a policy holder by simply assigning the policy to the creditor.
Upon maturity or claim on the policy, the proceeds are paid to the creditor. Loan Cover
policies are a variant where the sum assured keeps reducing in line with the loan balance.

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2.8. Health insurance

These policies provide cover against major health care expenses like hospitalization,
surgery, critical illness, etc. The benefits could be in the form of fixed pay-outs on
hospitalization or a lump sum on diagnosis against some specified critical illnesses.

2.9. Accident benefit

This is usually an add-on cover over a basic policy and pays an additional sum assured to
the beneficiary in case of death due to accident. Since accidental death is sudden and
unforeseen, the family could be faced with issues like relocation, debt servicing and other
requirement for funds.

2.10. Retirement Planning

Indian life expectancy has improved dramatically over the years due to availability of
advanced medical facilities. However, a longer working life may not really be possible
due to occurrences of life-style induced illness and high burn-out rate. The evolving
demographic balance with plenty of young talent becoming continuously available may
also be a deterring factor to a longer working life unless one is self-employed.
Consequently, our retirement life span could well be as long as our active working life
span. This means that we have to build a solid corpus during our active life to maintain
our life style for the long post retirement life if we are to enjoy the true meaning of the
word "retirement". Pension Plans help us build up our savings during our earning years
and provide us a lump sum on retirement. This lump sum can then provide us a
retirement income by investing in an annuity.

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2.11. Provide Post Retirement Income
The worst situation that a retiree can face is to run out of funds late into retirement. Such
a situation may force him to seek help from friends / relatives or liquidate his fixed assets
which essentially are a compromise of self-respect. This is where insurance offers the
best solution in the form of an annuity. Annuities bought from the retirement corpus can
either be used to provide regular post retirement income for a fixed term or for the entire
life.

2.12. Insurance as Inflation Shield

Inflation lowers the purchasing power of money and makes a dramatic cumulative impact
over the long term. It reduces our real income year after year as our cost of living keeps
increasing. So, it must be taken into account while framing financial goals.
The following illustration depicts the impact of inflation on income and prices.

Insurance products such as Unit Linked Plans help us combat the impact of inflation on
our financial goals by providing the option to invest in equity, which is known to deliver
one of the best returns from all asset classes, over the long term. Ignoring inflation would
result in our savings falling short of the estimated value of future goals, especially over
the long term.

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 3. HISTORY OF LIFE INSURANCE IN INDIA

In India, insurance has a deep-rooted history. It finds mention in the writings of Manu
( Manusmrithi ), Yagnavalkya (Dharmasastra ) and Kautilya ( Arthasastra ). The
writings talk in terms of pooling of resources that could be re-distributed in times of
calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor to
modern day insurance. Ancient Indian history has preserved the earliest traces of
insurance in the form of marine trade loans and carriers’ contracts. Insurance in India has
evolved over time heavily drawing from other countries, England in particular.

1818 saw the advent of life insurance business in India with the establishment of the
Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In
1829, the Madras Equitable had begun transacting life insurance business in the Madras
Presidency. 1870 saw the enactment of the British Insurance Act and in the last three
decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and
Empire of India (1897) were started in the Bombay Residency. This era, however, was
dominated by foreign insurance offices which did good business in India, namely Albert
Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian
offices were up for hard competition from the foreign companies.

In 1914, the Government of India started publishing returns of Insurance Companies

in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure
to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to
enable the Government to collect statistical information about both life and non-life
business transacted in India by Indian and foreign insurers including provident insurance
societies. In 1938, with a view to protecting the interest of the Insurance public, the
earlier legislation was consolidated and amended by the Insurance Act, 1938 with
comprehensive provisions for effective control over the activities of insurers.

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 The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there
were a large number of insurance companies and the level of competition was high.
There were also allegations of unfair trade practices. The Government of India, therefore,
decided to nationalize insurance business.

An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance
sector and Life Insurance Corporation came into existence in the same year. The LIC
absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies—245 Indian
and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance
sector was reopened to the private sector.

The history of general insurance dates back to the Industrial Revolution in the west
and the consequent growth of sea-faring trade and commerce in the 17th century. It came
to India as a legacy of British occupation. General Insurance in India has its roots in the
establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the
British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first
company to transact all classes of general insurance business.
1957 saw the formation of the General Insurance Council, a wing of the Insurance
Associaton of India. The General Insurance Council framed a code of conduct for
ensuring fair conduct and sound business practices.

In 1968, the Insurance Act was amended to regulate investments and set minimum
solvency margins. The Tariff Advisory Committee was also set up then.

In 1972 with the passing of the General Insurance Business (Nationalisation) Act,
general insurance business was nationalized with effect from 1st January, 1973. 107
insurers were amalgamated and grouped into four companies, namely National Insurance
Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company
Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of
India was incorporated as a company in 1971 and it commence business on January 1sst
1973.

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 This millennium has seen insurance come a full circle in a journey extending to nearly
200 years. The process of re-opening of the sector had begun in the early 1990s and the
last decade and more has seen it been opened up substantially. In 1993, the Government
set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to
propose recommendations for reforms in the insurance sector.The objective was to
complement the reforms initiated in the financial sector. The committee submitted its
report in 1994 wherein , among other things, it recommended that the private sector be
permitted to enter the insurance industry. They stated that foreign companies be allowed
to enter by floating Indian companies, preferably a joint venture with Indian partners.

Following the recommendations of the Malhotra Committee report, in 1999, the

Insurance Regulatory and Development Authority (IRDA) was constituted as an
autonomous body to regulate and develop the insurance industry. The IRDA was
incorporated as a statutory body in April, 2000. The key objectives of the IRDA include
promotion of competition so as to enhance customer satisfaction through increased
consumer choice and lower premiums, while ensuring the financial security of the
insurance market.

The IRDA opened up the market in August 2000 with the invitation for application for
registrations. Foreign companies were allowed ownership of up to 26%. The Authority
has the power to frame regulations under Section 114A of the Insurance Act, 1938 and
has from 2000 onwards framed various regulations ranging from registration of
companies for carrying on insurance business to protection of policyholders’ interests.

In December, 2000, the subsidiaries of the General Insurance Corporation of India

were restructured as independent companies and at the same time GIC was converted into
a national re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in
July, 2002.

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 Today there are 28 general insurance companies including the ECGC and Agriculture
Insurance Corporation of India and 24 life insurance companies operating in the country.

The insurance sector is a colossal one and is growing at a speedy rate of 15-20%.
Together with banking services, insurance services add about 7% to the country’s GDP.
A well-developed and evolved insurance sector is a boon for economic development as it
provides long- term funds for infrastructure development at the same time strengthening
the risk taking ability of the country.

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 4. INSURANCE REGULATORY AND DEVELOPMENT
AUTHORITY OF INDIA (IRDAI)

Insurance Regulatory and Development Authority of India (IRDAI) is

an autonomous apex statutory body which regulates and develops the insurance industry
in India. It was constituted by a Parliament of India act called Insurance Regulatory and
Development Authority Act, 1999 and duly passed by the Government of India.

The agency operates from its headquarters at Hyderabad, Telangana where it shifted
from Delhi in 2001.

IRDA batted for a hike in the foreign direct investment (FDI) limit to 49 per cent in the
insurance sector from the erstwhile 26 per cent. The FDI limit in insurance sector was
raised to 100% in June 2016.

4.1. Organisation Structure

As per the section 4 of IRDA Act' 1999, Insurance Regulatory and Development
Authority (IRDA, which was constituted by an act of parliament) specify the composition
of Authority.IRDAI is a ten-member body consisting of:

 A Chairman - T.S. Vijayan.

 Five whole-time members - R.K. Nair, M. Ram Prasad, S. Roy Chowdhary, D.D.
Singh
 Four part-time members - Anup Wadhawan, S.B. Mathur, Prof. V.K.Gupta, CA.
Subodh Kr. Agarwal

All members are appointed by the Government of India.

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4.2. Insurance Repository

Recently the Finance Minister of India announced the setting of insurance repository
system. An Insurance Repository is a facility to help policy holders buy and keep
insurance policies in electronic form, rather than as a paper document. Insurance
Repositories, like Share Depositories or mutual fund Transfer Agencies, will hold
electronic records of insurance policies issued to individuals and such policies are called
"electronic policies"e.g. CDSL Insurance Repository Limited (CDSL IR )

4.3. Guidelines:

Over the past couple of years Insurance Regulatory and Authority had been driving the
agenda of customer centricity in Indian life insurance industry. While the regulator has
brought about several regulatory changes, life insurers have taken several steps to
enhance customer focus. Regulations related to products have been undertaken not only
to change product design but to also bring a positive change in sales practices.

The new guidelines issued by The Insurance Regulatory and Development Authority
(IRDA) for life insurance products specially traditional products, is an attempt at making
life insurance true to its core value, more transparent and customer friendly. Most of the
new guidelines require noteworthy changes in processes, systems, as well as fundamental
changes to product design and offerings.

Keeping in view the quantum of work on designing a new product portfolio and training
of distribution intermediaries, the regulator has also decided to postpone the
implementation date of the guidelines by 3 months to January 2014.

 Transparency
In order to bring transparency, the regulator has ensured that all insurance products
provide the prospective policyholder a customised benefit illustration on guaranteed and
non-guaranteed benefits at gross investment returns of 4% and 8% respectively for all

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products. Currently, this is mandatory only for ULIPs. This benefit illustration should be
signed by the customer and the agent as a part of the policy contract. This will give
policyholders an indicative idea of the benefits they can expect not only at maturity, but
also every year of the policy term as well.

Another step to ensure transparency in the requirement to set up a "With Profit

Committee", at the board level of every insurance company. This committee will approve
asset mix and expense allocated for and investment income earned on the fund. This in
turn will lead to improved and more transparent corporate governance in the
administration of participating or 'with profit' policies.

 Protection Orientation
The regulator has directed that the minimum sum for all policies will now be 10 times of
the annual premium for people below 45 years and above 7 times for 45 years and above.
At any point the death benefit will have to be at least 105% of all premiums paid till date.
Through this the regulator aims to promote life insurance for its core value of protection.

 Customer Centricity
As per the new norms, traditional policies will now have better surrender value after the
completion of 5 years. If the policyholder has to exit their policy before completion of
policy tenure, he/she will be entitled to a higher surrender value especially in early part of
the policy tenure. Currently, there are no preset rules. In the new regime the minimum
guaranteed surrender value will be 30% of all premiums paid going up to 90% of the
premiums paid in the last two policy years. Through this step the regulator has acted in
the larger interests of the consumer by providing liquidity for sudden emergencies that
may occur. Thus with these new regulations customer retention and need based selling
becomes even more important by the day.

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  Long term focus
In order to re-emphasize the long term nature of the life insurance business the guidelines
have also correlated agents' Compensation to the policy terms. Short-term policies will
now have a lower commission than traditional products with a policy term of 12 years or
more. In case of regular premium insurance policies, a policy with a premium paying
term (PPT) of five years will limit commissions to 15% in the first year, 7.5% in the
second and third year and 5% subsequently. Products with PPT of 12 years or more will
have first year commissions up to 35% in case the company has completed 10 years of
existence and 40% for the company in business for less than 10 years. This will
incentivize intermediaries in selling long-term life insurance products espousing benefits
for disciplined savers.

 Conclusion
The Indian market offers significant top-line growth opportunities due to younger country
demographics and working population, an increasing customer base, and regulations that
maintain the development of a financially sound industry. As regulations extend further,
insurers need to acclimatize their products and business models accordingly. Since time
is running out, managing this large scale product portfolio transition while minimizing
disruption to business continuity requires the regulator and industry players to work in
tandem.

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 5. RIGHTS AND DUTIES OF THE CONSUMER

5.1. RIGHTS:

You have the right to

 Cancel a life insurance policy within 15 days from the date of receipt of the policy
document. If you disagree to any of the terms or conditions in the policy
 You can
o Return the policy stating the reasons for objection
o You will be entitled to a refund of the premium paid
o A proportionate risk premium for the period on cover and the expenses
incurred by the insurer on medical examination and stamp duty charges
will be deducted
o If it is a unit linked insurance policy (ULIP) in addition, the insurer can
repurchase the units at the price on the cancellation date

ULIPs

 You have the right to partial withdrawal

 You have the right to switch funds
 You can surrender the policy after the lock-in period from the date of
commencement of the policy
 The nominee/assignee under a life insurance policy has the right to the death
claim amount
 You can ask for alterations in the policy such as:
o Mode of payment of premium
o Term of the policy
o Increase in sum assured and
o Premium redirection

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5.2. DUTIES:

When you buy a policy:

 Fill the proposal form yourself correctly and truthfully, it is the basis of the
insurance contract
 Do not leave any column blank, do not sign a blank proposal form
 You will be responsible for any information in this document as it bears your
signature. Disclose “all material information” about the risk you want to cover
 Select the term of the policy as per your needs
 Select the amount of premium you can afford to pay
 Choose between Single Premium or Regular Premium
 Choose your premium paying frequency such as annual, half-yearly, quarterly or
monthly
 Opt for electronic payment of your premium (ECS) for your convenience, safety
and records
 Ensure to register nomination under your policy. Fill the nominee’s name
correctly

After you buy the policy:

 Once the proposal is submitted, you should hear from the insurance company in
15 days
 If not, take up the matter in writing
 If any additional documents are asked for, comply immediately
 Once the proposal is accepted by the insurance company, the policy bond should
reach you within a reasonable amount of time
 If not contact the insurance company about it
 When policy bond is received, check it and be sure that the policy is the one that
you wanted.

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  Go through all the policy conditions and be sure that these are the same that were
explained to you by the intermediary/ insurance company official at the time of
sale
 In case of doubts, contact the intermediary/ insurance company official
immediately for clarification.
 If necessary contact the insurance company directly

Maintaining the policy:

 Pay your premium regularly on the due dates/ within the grace period
 Do not wait for a premium notice. It is only a courtesy. It is your duty to pay the
premium to avoid lapsation or other penalties
 Do not wait for your intermediary or anyone to pick your cheque up. Make your
own arrangement for paying the premium on time
 If there is a change of address, please intimate the insurance company
immediately.

Nomination:

 After the policy is issued, you can change the nomination by:
 Filling a notice of change of nomination and
 Sending them to the insurance company for them to register it in their records
 If the nominee is a minor, appoint an appointee to receive any claim paid while
the nominee is still a minor
 Get the appointee to sign in the endorsement showing consent to act as an
appointee

If your policy lapses:

 If you fail to pay the premium in time, your policy may lapse. Contact the
insurance company for reviving it.

26
If you lose your policy:

 If you lose your policy bond, report it to the insurance company immediately
 Get a duplicate policy by complying with the formalities
 The duplicate policy confers the same rights as the original policy bond

At the time of a claim:

 Comply with all the requirements of the insurance company

 Whenever required, you should help the insurer in a prosecution or for recovery
of claims which the insurer has against third parties

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 6. MAJOR BROAD CATEGORIES OF INSURANCE

 Pure risk cover

 Pure savings
 Savings and risk cover
The purpose, nature and benefits of each of these categories are significantly
different.

6.1. Insurance Products Providing Pure Risk Cover

Products that provide pure risk cover would generally include term or health insurance.
For a specified premium, the policyholder can be covered for events such as death,
critical illness, accidents hospitalisation, disability etc.
Normally, with such products, there is no maturity benefit associated with the policy. The
policy will only make a payment to the policyholder when the specified event occurs.
While this might also mean that a lot of policyholders may not receive the payment, they
along with their families are provided valuable financial protection in the event of an
unfortunate occurring of a claim.
No investment product can provide the same level of benefit for a similar level of
premium.
These are insurance products in their purest form i.e. they are designed and priced so that
the policyholders, as a group, are effectively pooling their premiums in order to pay a
benefit for a relatively infrequent, but significant event that might occur. This means that
for each policyholder the cost of providing the cover is relatively modest in comparison
to the benefit that would be provided if that event arises.

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 6.2. Pure saving insurance products
Pure savings products are just the opposite of pure risk cover insurance products. These
policies are designed to help the individual accumulate a fund or corpus that can be used
at some later point. Various variants of these contracts exist; for some policies such
as unit-linked policies, the selection of the type of investment, which is made, is in the
hands of the policyholder, whereas for others (e.g. traditional policies), the investments
are decided by the insurer.
When considering a pure savings product, the ultimate return is an important
consideration, but this must be balanced against the level of risk associated with the
investments. Risk is the potential variability in the return ultimately achieved on the
investments — a high risk investment may have the potential to deliver a very high
return, but potentially it could also deliver a negative return. However, a fund investing in
short-term fixed interest securities may have a relatively low return, but much higher
levels of predictability over the level of return that will be achieved.
Other important factors to consider for an investment product are:
 The level of charges
 Performance and ability of the insurance company's fund managers
 Flexibility
 Level of guarantees

6.3. Products with a Combination of Savings and Risk Coverage

The third kind of insurance products act as both risk cover and well as saving elements.
The "return" to the policyholder is based on the investment returns earned on the
investment’s net of the cost of providing the risk coverage. For a given underlying
investment, these products will generate lower net returns than a pure investment product
because some of the premiums or funds have been utilized to pay for the risk coverage.
Ultimately, each policyholder should assess their requirements, needs and the amount of
income that they are willing to invest, before deciding on which type of insurance plan to
purchase. If the requirements are for a high level of risk protection at a relatively low
premium, then pure protection products are normally the most appropriate product. These

29
products are relatively straightforward and the price can be compared easily across
companies. Insurance companies have a full suite of products to cater to every need of a
customer.

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 7. TYPES OF LIFE INSURANCE IN INDIA

7.1. Term Life Insurance

Term life insurance or term assurance is life insurance that provides coverage at a fixed
rate of payments for a limited period of time, the relevant term. After that period expires,
coverage at the previous rate of premiums is no longer guaranteed and the client must
either forgo coverage or potentially obtain further coverage with different payments or
conditions. If the life insured dies during the term, the death benefit will be paid to
the beneficiary. Term insurance is the least expensive way to purchase a substantial death
benefit on a coverage amount per premium dollar basis over a specific period of time.

Term life insurance can be contrasted to permanent life insurance which guarantee
coverage at fixed premiums for the lifetime of the covered individual unless the policy
owner allows the policy to lapse. Term insurance is not generally used for estate planning
needs or charitable giving strategies but is used for pure income replacement needs for an
individual. Term insurance functions in a manner similar to most other types of insurance
in that it satisfies claims against what is insured if the premiums are up to date and the
contract has not expired and does not provide for a return of premium dollars if no claims
are filed. As an example, auto insurance will satisfy claims against the insured in the
event of an accident and a homeowner policy will satisfy claims against the home if it is
damaged or destroyed by, for example, a fire. Whether or not these events will occur is
uncertain. If the policyholder discontinues coverage because he has sold the insured car
or home, the insurance company will not refund the full premium. This is purely risk
protection.

 Usage
Because term life insurance is a pure death benefit, its primary use is to provide coverage
of financial responsibilities for the insured or his or her beneficiaries. Such

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responsibilities may include, but are not limited to, consumer debt, dependent
care, university education for dependents, funeral costs, and mortgages. Term life
insurance may be chosen in favor of permanent life insurance because term insurance is
usually much less expensive (depending on the length of the term), even if the applicant
is an everyday smoker. For example, an individual might choose to obtain a policy whose
term expires near his or her retirement age based on the premise that, by the time the
individual retires, he or she would have amassed sufficient funds in retirement savings to
provide financial security for the claims.

 Annual renewable term

The simplest form of term life insurance is for a term of one year. The death benefit
would be paid by the insurance company if the insured died during the one-year term,
while no benefit is paid if the insured dies one day after the last day of the one-year term.
The premium paid is then based on the expected probability of the insured dying in that
one year.

Because the likelihood of dying in the next year is low for anyone that the insurer would
accept for the coverage, purchase of only one year of coverage is rare.

One of the main challenges to renewal experienced with some of these policies is
requiring proof of insurability. For instance the insured could acquire a terminal
illness within the term, but not actually die until after the term expires. Because of the
terminal illness, the purchaser would likely be uninsurable after the expiration of the
initial term, and would be unable to renew the policy or purchase a new one.

Some policies offer a feature called guaranteed reinsurability that allows the insured to
renew without proof of insurability.

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  Level term life insurance

More common than annual renewable term insurance is guaranteed level premium term
life insurance, where the premium is guaranteed to be the same for a given period of
years. The most common terms are 10, 15, 20, and 30 years.

In this form, the premium paid each year remains the same for the duration of the
contract. This cost is based on the summed cost of each year's annual renewable term
rates, with a time value of money adjustment made by the insurer. Thus, the longer the
period of time during which the premium remains level, the higher the premium amount.
This relationship exists because the older, more expensive to insure years are averaged,
by the insurance company, into the premium amount computed at the time the policy is
issued.

Most level term programs include a renewal option, and allow the insured person to
renew the policy for a maximum guaranteed rate if the insured period needs to be
extended. The renewal may or may not be guaranteed, and the insured person should
review the contract to determine whether evidence of insurability is required to renew the
policy. Typically, this clause is invoked only if the health of the insured deteriorates
significantly during the term, and poor health would prevent the individual from being
able to provide proof of insurability.

 Return Premium Term life insurance

A form of term life insurance coverage that provides a return of some of the premiums
paid during the policy term if the insured person outlives the duration of the term life
insurance policy.

For example, if an individual owns a 10-year return of premium term life insurance plan
and the 10-year term has expired, the premiums paid by the owner will be returned, less
any fees and expenses which the life insurance company retains. Usually, a return
premium policy returns a majority of the paid premiums if the insured person outlives the
policy term.

33
The premiums for a return premium term life plan are usually much higher than for a
regular level term life insurance policy, since the insurer needs to make money by using
the premiums as an interest free loan, rather than as a non-returnable premium.

 Payout likelihood and cost difference

Both term insurance and permanent insurance use the same mortality tables for
calculating the cost of insurance, and provide a death benefit which is income tax free.
However, the premium costs for term insurance are substantially lower than those for
permanent insurance.

The reason the costs are substantially lower is that term programs may expire without
paying out, while permanent programs must always pay out eventually. To address this,
some permanent programs have built in cash accumulation vehicles to force the insured
to "self-insure", making the programs many times more expensive.

Other permanent life insurance policies do not have built in cash values. If the insured
person dies and the policy has a cash value, the cash value is often paid out tax free, in
addition to the policy face amount.

7.2. Whole Life Policy

Whole life insurance, or whole of life assurance (in the Commonwealth of Nations),
sometimes called "straight life" or "ordinary life," is a life insurance policy which is
guaranteed to remain in force for the insured's entire lifetime, provided required
premiums are paid, or to the maturity date. As a life insurance policy it represents
a contract between the insured and insurer that as long as the contract terms are met, the
insurer will pay the death benefit of the policy to the policy's beneficiaries when the
insured dies. Because whole life policies are guaranteed to remain in force as long as the
required premiums are paid, the premiums are typically much higher than those of term
life insurance where the premium is fixed only for a limited term. Whole life premiums

34
are fixed, based on the age of issue, and usually do not increase with age. The insured
party normally pays premiums until death, except for limited pay policies which may be
paid-up in 10 years, 20 years, or at age 65..

 Death benefit
The death benefit of a whole life policy is normally the stated face amount. However, if
the policy is "participating", the death benefit will be increased by any accumulated
dividend values and/or decreased by any outstanding policy loans.

 Maturity

A whole life policy is said to "mature" at death or the maturity age of 100, whichever
comes first. To be more exact the maturity date will be the "policy anniversary nearest
age 100". The policy becomes a "matured endowment" when the insured person lives
past the stated maturity age. In that event the policy owner receives the face amount in
cash. With many modern whole life policies, issued since approximately 2000, maturity
ages have been increased to 120. Increased maturity ages have the advantage of
preserving the tax-free nature of the death benefit. In contrast, a matured endowment may
have substantial tax obligations.

 Taxation

The entire death benefit of a whole life policy is free of income tax, except in unusual
cases. This includes any internal gains in cash values. The same is true of group life, term
life, and accidental death policies.

However, when a policy is cashed out before death, the treatment varies. With cash
surrenders, any gain over total premiums paid will be taxable as ordinary income. The
same is true in the case of a matured endowment. This is why most people choose to take

35
cash values out as a "loan" against the death benefit rather than a "surrender." Any money
taken as a loan is free from income tax as long as the policy remains in force. For
participating whole life policies, the interest charged by the insurance company for the
loan is often less than the dividend each year, especially after 10–15 years, so the policy
owner can pay off the loan using dividends. If the policy is surrendered or canceled
before death, any loans received above the cumulative value of premiums paid will be
subject to tax as growth on investment.

 Uses

i. Personal and family uses

Individuals may find whole life attractive because it offers coverage for an indeterminate
length of time. It is the dominant choice for insuring so-called "permanent" insurance
needs, including:

 Funeral expenses,
 Estate planning,
 Surviving spouse income, and
 Supplemental retirement income.

Individuals may find whole life less attractive, due to the relatively high premiums, for
insuring:

 Large debts,
 Temporary needs, such as children's dependency years,
 Young families with large needs and limited income.

36
 ii. Business uses

Businesses may also have legitimate and compelling needs, including funding of:

1. Buy-sell agreements
2. Death of key person
3. Supplemental executive retirement plans (S.E.R.P.)
4. Deferred compensation

 Pricing methods

i. Non-participating

All values related to the policy (death benefits, cash surrender values, premiums) are
usually determined at policy issue, for the life of the contract, and usually cannot be
altered after issue. This means that the insurance company assumes all risk of future
performance versus the actuaries' estimates. If future claims are underestimated, the
insurance company makes up the difference. On the other hand, if the actuaries' estimates
on future death claims are high, the insurance company will retain the difference.

Non-participating policies are typically issued by Stock companies, with stockholder

capital bearing the risk. Since whole life policies frequently cover a time span in excess
of 50 years, it can be seen that accurate pricing is a formidable challenge! Actuaries must
set a rate which will be sufficient to keep the company solvent through prosperity or
depression, while remaining competitive in the marketplace. The company will be faced
with future changes in Life expectancy, unforeseen economic conditions, and changes in
the political and regulatory landscape. All they have to guide them is past experience.

37
 ii. Participating

In a participating policy, the insurance company shares the excess profits with the
policyholder in the form of annual dividends. Typically these "refunds" are not taxable.
In general, the greater the overcharge by the company, the greater the refund/dividend
ratio; however, other factors will also have a bearing on the size of the dividend. For
a mutual life insurance company, participation also implies a degree of ownership of the
mutuality.

Participating policies are typically (although not exclusively) issued by Mutual life
insurance companies. However, Stock companies sometimes issue participating policies.
Premiums for a participating policy will be higher than for a comparable non-par policy,
with the difference (or, "overcharge") being considered as "paid-in surplus" to provide a
margin for error equivalent to stockholder capital. It should be emphasized that
illustrations of future dividends are never guaranteed.

In the case of mutual companies, unneeded surplus is distributed retrospectively to

policyholders in the form of dividends. Sources of surplus include conservative pricing,
mortality experience more favorable than anticipated, excess interest, and savings in
expenses of operation.

While the "overcharge" terminology is technically correct for tax purposes, actual
dividends are often a much greater factor than the language would imply.

 Indeterminate premium

Similar to non-participating, except that the premium may vary year to year. However,
the premium will never exceed the maximum premium guaranteed in the policy. This
allows companies to set competitive rates based on current economic conditions.

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  Guarantees

The company generally will guarantee that the policy's cash values will increase every
year regardless of the performance of the company or its experience with death claims.
The dividends can be taken in one of three ways. The policy owner can be given a cheque
from the insurance company for the dividends, the dividends can be used to reduce the
premium payment, or the dividends can be reinvested back into the policy to increase the
death benefit and the cash value at a faster rate. When the dividends paid on a whole life
policy are chosen by the policy owner to be reinvested back into the policy, the cash
value can increase at a rather substantial rate depending on the performance of the
company.

7.3. Endowment Plans

An endowment policy is a life insurance contract designed to pay a lump sum after a
specific term (on its 'maturity') or on death. Typical maturities are ten, fifteen or twenty
years up to a certain age limit. Some policies also pay out in the case of critical illness.

Endowments can be cashed in early (or surrendered) and the holder then receives the
surrender value which is determined by the insurance company depending on how long
the policy has been running and how much has been paid into it.

 Traditional With Profits Endowments

There is an amount guaranteed to be paid out called the sum assured and this can be
increased on the basis of investment performance through the addition of periodic (for
example annual) bonuses. Regular bonuses are guaranteed at maturity and a further non-
guarantee bonus may be paid at the end known as a terminal bonus. During adverse
investment conditions, the encashment value or surrender value may be reduced by a
'Market Value Reduction' or MVR The idea of such a measure is to protect the investors

39
who remain in the fund from others withdrawing funds with notional values that are, or
risk being, in excess of the value of underlying assets at a time when stock markets are
low. If an MVA applies an early surrender would be reduced according to the policies
adopted by the funds managers at the time.

 Unit-linked endowment
Unit-linked endowments are investments where the premium is invested in units of a
unitised insurance fund. Units are encashed to cover the cost of the life assurance.
Policyholders can often choose which funds their premiums are invested in and in what
proportion. Unit prices are published on a regular basis and the encashment value of the
policy is the current value of the units.

 Full endowments

A full endowment is a with-profits endowment where the basic sum assured is equal to
the death benefit at start of policy and, assuming

growth, the final payout would be much higher than the sum assured.

 Low cost endowment (LCE)

A low cost endowment is a medley of: an endowment where an estimated future growth
rate will meet a target amount and a decreasing life insurance element to ensure that the
target amount will be paid out as a minimum if death occurs (or a critical illness is
diagnosed if included).

The main thing of a low cost endowment has been for endowment mortgages to pay off
interest only mortgage at maturity or earlier death in favour of full endowment with the
required premium would be much higher.

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  Traded endowments

Traded Endowment Policies (TEPs) or Second Hand Endowment Policies (SHEPs) are
conventional (sometimes referred to as traditional) with-profits endowments that have
been sold to a new owner part way through their term. The TEP market enables buyers
(investors) to buy unwanted endowment policies for more than the surrender value
offered by the insurance company. Investors will pay more than the surrender value
because the policy has greater value if it is kept in force than if it is terminated early.

When a policy is sold, all beneficial rights on the policy are transferred to the new owner.
The new owner takes on responsibility for future premium payments and collects the
maturity value when the policy matures or the death benefit when the original life assured
dies. Policyholders who sell their policies no longer benefit from the life cover and
should consider whether to take out alternative cover.

The TEP market deals almost exclusively with conventional With Profits policies. The
easiest way of determining whether an endowment policy is in this category is to check to
see whether your policy document mentions units, indicating it is a Unitised With Profits
or Unit Linked policy. If bonuses are in sterling and there is no mention of units then it is
probably a conventional With Profits endowment policy. The other types of policies -
“Unit Linked” and “Unitised With Profits” have a performance factor which is dependent
directly on current investment market conditions. These are not usually tradable as the
guarantees on the policy are often much lower, and the discount between the surrender
value and Asset Share (the true underlying value) is narrower.

41
 7.4. Unit Linked Insurance Plan

A Unit Linked Insurance Plan (ULIP) is a product offered by insurance companies that,
unlike a pure insurance policy, gives investors both insurance and investment under a
single integrated plan.

 Working Principle

A Unit Link Insurance Plan is basically a combination of insurance as well as investment.

A part of the premium paid is utilized to provide insurance cover to the policy holder
while the remaining portion is invested in various equity and debt schemes. The money
collected by the insurance provider is utilized to form a pool of fund that is used to invest
in various markets instruments (debt and equity) in varying proportions just the way it is
done for mutual funds. Policy holders have the option of selecting the type of funds (debt
or equity) or a mix of both based on their investment need and appetite. Just the way it is
for mutual funds, ULIP policy holders are also allotted units and each unit has a net asset
value (NAV) that is declared on a daily basis. The NAV is the value based on which the
net rate of returns on ULIPs are determined. The NAV varies from one ULIP to another
based on market conditions and the fund’s performance.

 Features

ULIP policy holders can make use of features such as top-up facilities, switching between
various funds during the tenure of the policy, reduce or increase the level of protection,
options to surrender, additional riders to enhance coverage and returns as well as tax
benefits.

42
  Types

There are a variety of ULIP plans to choose from based on the investment objectives of
the investor, his risk appetite as well as the investment horizon. Some ULIPs play it safe
by allocating a larger portion of the invested capital in debt instruments while others
purely invest in equity. Again,all this is totally based on the type of ULIP chosen for
investment and the investor preference and risk appetite.

 Charges

Unlike traditional insurance policies, ULIP schemes have a list of applicable charges that
are deducted from the payable premium. The notable ones include policy administration
charges, premium allocation charges, fund switching charges, mortality charges, and a
policy surrender or withdrawal charge. Some Insurer also charge "Guarantee Charge" as
a percentage of Fund Value for built in minimum guarantee under the policy.

 Risks

Since ULIP (United Linked Plan) returns are directly linked to market performance and
the investment risk in investment portfolio is borne entirely by the policy holder, one
needs to thoroughly understand the risks involved and one’s own risk absorption capacity
before deciding to invest in ULIPs.

43
 7.5. Money Back Policy

Money Back policies combine insurance with investment and savings. When you buy
money back policy, you get a percentage of the sum assured at regular intervals during
your lifetime. If the insured lives beyond the term of the policy then he/she will receive
the remaining portion of the corpus and the accrued bonus also at the end of the policy
term.

In case of the insured person’s death before the full term of the policy is over; the
beneficiaries are entitled to receive the entire sum assured regardless of the number of
installments paid out. Money back policies are the most expensive insurance options
offered by insurance companies as they offer returns to the insured during the policy
tenure. Even if the insured receives a large chunk as payouts during his life then also the
beneficiary receives full sum assured in the event of the death of the insured. Money back
plans cover the insured for a specific term; at the end of the term the insurance cover also
ceases.

If we take the example of LIC money back policy, then in the case of a 20 year money
back policy 20% of the sum assured is paid at 5/10/15 years respectively and the
remaining 40% at the end of 20th year.

 Policy Features:

 Bonus is paid to the insured on maturity or end of term

 Bonus is calculated on the full sum assured.
 Premiums have to be paid regularly so that you can avail survival benefits.
 Premiums cease in case of death of the insured or at the end of the policy term
 Death benefits are paid to survivor in full (the entire sum assured)
 Survival benefits are paid at intervals of 10/15/20/25 years.

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 8.GROWTH OF INSURANCE SECTOR

Insurance is not a recent origin. It has been enforce in India dated back to the Vedic
period. Establishment of Oriental Life Insurance Corporation by Anita Bhavsar in 1818
forms the basis of present life insurance industry in India. Insurance sector constitutes as
one of the important pillar of the financial market. In 2000, Government reopens the
Indian insurance industry to private companies which leads to the remarkable growth
(increasing trends) in life insurance business. The sector witnesses a multi-fold growth in
terms of insurance density (4 fold), amount of investment (5 fold), total premium (4 fold),
number of new policy issued (doubled), number of offices opened (4 times) etc. Even a
tremendous growth in life insurance industry, there are still a large portion of population
who are remain uninsured. It demonstrates the lot of opportunities. But in last few years,
the performance of life insurance industry has been shown a downfall (decreasing trends)
because of slow economic growth rate, higher inflation, global crises, low saving etc. So,
life insurers required to change their strategies and offered customized product so that the
untapped market can be served effectively

8.1. Insurance penetration and Insurance density

The potential and performance of insurance sector in any country can be measured with
the help of two parameters i.e., insurance penetration and insurance density. Insurance
penetration is the ratio between premium underwritten and Gross Domestic Product
(GDP) in any given year while the insurance density is the ratio between premium
underwritten and total population of the country in any given year. Table 1 and Chart 1 &
2 depict the density and penetration ratio of insurance industry. It reveals that the
penetration ratio of insurance industry shows an increasing trend up to 2009- 10, it raise
from 2.71% in 2001-02 to 5.20% in 2009-10. Due to the economic crises and slowdown,
the economy found it difficult to maintain the higher growth rate, it goes down on
decreasing track which result in decreasing insurance penetration ratio. The ratio
decreases to 3.96% in 2012-13 from 5.20% in 2009-10. The average penetration ratio is

45
3.97%. The situation is same for life insurance. The penetration ratio of life insurance had
continuously risen from 2.15% in 2001-02 to 4.60% in 2009-10. Afterward, it decreases
up to 3.17% in 2012-13 because of economy slowdown and low life insurance premium.
But for the non-life insurance, penetration ratio has been continuously increased from
0.56% in 2001-02 to 0.78% in 2012-13.

The density (in USD) of insurance industry has been continuously raised from 11.50
USD in 2001-02 to 64.40 USD in 2010-11 because of privatization of insurance sector in
2000 and good economy growth. New private insurer players came into the existence.
After 2010-11, due to the declining economy, higher inflation rate, poor industry growth
rate, worst global conditions and low saving, leads to the downfall in density up to 53.20
USD in 20112-13. The situation is similar to life insurance companies. The density of life
insurance increases from 9.10 USD in 2001-02 to 55.70 USD in 2010-11. Afterward it
falls up to 42.70 UDS in 2012-13 because of economic slowdown. But non-life insurance
density has been consistently raised from 2.40 USD in 2001-02 to 10.50 USD in 2012-13
which shows an increasing interest of people.

46
8.2. Growth in investment in insurance industry

The table depict the amount and growth of investment in life insurance industry. It
recorded a total investment of Rs. 1744894 crore in 2012-13 as against Rs. 352625 crore
in 2003-04 with the Compounded Annual Growth Rate (CAGR) of 17.33%. The LIC
recorded total investment of Rs. 347959 crore in 2003-04 which has been raised to Rs.
1402991 crore in 2012- 13 with CAGR of 14.96%. As regard to the investment of private
company it raises from Rs. 4666 crore in 2003-04 to Rs. 341903 crore in 2012-13 with
CAGR of 53.63%.The table also reveals one interesting point i.e., the Compounded
Annual Growth Rate (CAGR) of private life insurance company is 3.58 time of public
life insurance company which shows the success story of private companies. In spite of
this, there is a big difference between the proportion of investment of public and private
company. From the total investment in life insurance sector, public company (LIC) attract
on the average of Rs. 808019.70 crore (84.85%) while the private company attract Rs.
144327.20 crore (15.15%) of investment. But the higher CAGR of private company will
provide new opportunities to them which helped in bridging the various proportion gaps.

47
8.3. Changes in life insurance premium amount

The table depict the amount of life insurance premium. The amount of total life insurance
premium has been increased from Rs. 66653.76 crore in 2003-04 to Rs. 287202 crore in
2012-13 with the Compounded Annual Growth Rate (CAGR) of 15.72%. If we talk about
the trend value of total life insurance premium, it was 430.89 in 2012-13 for the base year
2003-04. From the segregation of total life insurance premium into public and private
company, the public company (LIC) has a major portion in premium as compared to
private company. Out of the total life insurance premium, LIC premium has grown up
from Rs. 63533.43 crore in 2003-04 to Rs. 208803.58 crore in 20012-13 while private
insurer premium amount grown up from Rs. 3120.33 crore in 2003-04 to Rs. 78398.91
crore in 2012-13. But again the CAGR of private company (38.04%) is much higher than
public company (12.63%) which reflects the increased interest of customer in these
companies. As the life insurance premium index is concerned, it is 2512.52 for private
company and 328.65 for public company in 2012-13 for the base year 2003-04. The
index value suggests that the businesses of private life insurance company are growing
tremendously since its entry. If we talk about the expenses of life insurance companies, it
is increases. The commission expenses was Rs. 14,790 crore and Rs. 4471 crore for
public & private insurer respectively in 2012-13 as against to Rs. 14063 crore and Rs.
4471 crore in 2011-12. The operating expenses increases from Rs. 29656 crore to Rs.
31562 crore in 2012-13 with an increasing rate of 6.42%. If we talk about the profit of
life insurance industry, it is Rs. 6948 crore in 2012-13 as against to Rs. 5974 crore in
2011-12. The profits are increases by 16.30%.

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8.4. Increase in the number of policies

The table portrays the status of new life insurance policies issued over the year. The data
reveals a high fluctuation in issuing a new policy. Some years it shows a positive growth
while in other shows negative trends. The total number of life insurance policy issued has
been increased from 286.26 lakh in 2003-04 to 441.87 lakh in 2012-13. Out of total
policy issued the share of LIC increases from 269.68 lakh in 2003-04 to 367.82 lakh in
2012-13 while the portion of private insurer has been raised from 16.58 lakh in 2003-04
to 74.05 lakh in 2012-13. During 2012-13, life insurer issued total 441.87 lakh new
policies, out of which, LIC issued 367.82 lakh policies (83.24%) while private life insurer
issued 74.05 lakh policies (16.76%). This reflects that LIC has a lot of life insurance
product/schemes over the other company. In last few years, the industry experiences
declining trends in new policies issued.

49
50
 9. OBJECTIVES OF THE SURVEY

The research on “Financial planning for Life” is done with the following objectives in
mind:

 The disposable income of a middle class individual every year.

 Major financial objectives in life.
 Percentage of annual income saved.
 Spending pattern of a middle class individual.
 Planning for big purchases.
 Variability in returns and risk from investment instruments.

 Major objective while buying a life insurance.

9.1. Sampling process

 Population: All the Indian middle class individuals.

 Sampling frame: Fifty (50) middle class individuals who could be easily
contacted.

 Method of sampling: The method of sampling being used here is convenient.

The method is a non-probability sampling techniques. People or sampling units
which were most conveniently available were surveyed.

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 10. PRIMARY DATA ANALYSIS

1. According to the survey, the average disposable income of a middle class Indian lies
in the range of Rs. 5 lakhs – Rs.15 Lakhs per annum.

Income
4.5
4
3.5
3
2.5
2 Income
1.5
1
0.5
0
Less than 5 5-10 lakhs 10-15 lakhs 15-20 lakhs More than 20
lakhs lakhs

52
2. From the survey conducted, it is observed that the major financial objective of a
middle class Indian individual is to protect income in case of disability/ death. Which
is closely followed by the ability to provide for child’s education cost. Then comes
the need for a comfortable retirement.

The objective to buy/own a house and the ability to provide for child’s marriage is of
significance to the middle class people in India.

10
9
8
7 1
6 2
5 3
4 4
3 5
2
1
0
Retirement Child's Buying a Child's Protect
education House marriage income

On the scale 1-5, 5 being the most important and 1 being the least important.

53
3. According to the survey conducted, 50% of middle class individual save less than
20% of his annual income and the other 50% save 20% -35% of his annual income.
Whereas no individual has a salary high enough to save more than 35% of his annual
salary.

Salary saved

Less than 20%

20-35 %
35-50 %
Above 50%

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4. The findings from the survey suggest that 40% of middle class individuals carefully
plan their big purchases, 30% of individuals have a fixed pattern for monthly
expenses and the rest 30% do not spend in a planned manner.

Spending pattern

4
3.5
3
2.5
2 Spending pattern
1.5
1
0.5
0
Definite spending Carefully plan big Unplanned manner
pattern purchases

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5. According to the survey conducted, 90% of the middle class individuals tend to save
their money before making any big purchases whereas only 10% rely on various kind
of loans for their purchase.

Big purchases tendency

Save the money

Rely on loans

56
6. Findings from the survey suggest that 70% of middle class individuals have no risk
appetite and like to invest in instruments which offer fixed returns. About 30% of the
middle class individuals have a low risk appetite and like to invest in instruments which
offer slightly higher returns and largely protect capital. Whereas no middle class
individual likes to invest in instrument which provide substantially high returns while

there is a risk of capital erosion.

Investment in instruments
8

4
Investment in instruments
3

0
Fixed guaranteed Slightly higher Substantially high
returns returns returns

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7. A middle class individual buys a Life Insurance majorly to fulfil his long term needs.

About 40% of individuals buy Life Insurance in order to cover the risk for life and protect
their income.

Whereas there is no middle class individual whose major objective while buying a Life
Insurance is to save income tax.

I take Life Insurance for the following reason

7

4
I take life insurance for the
3
following reason
2

0
Save tax Invest in long Cover risk for I don’t have LIC
term goals life

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8. While taking Life Insurance policy,70% of middle class individuals’ objective is to get
some return on the premium if they survive the period. 20% of people’s objective to get
atleast the premium amount back. Whereas only 10% on middle class individuals buy a
policy to purely cover risk of life without any consideration of return.

Objective to take LIC

Get premium amount back

Get some return on the

premium
Cover pure risk

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 11. CONCLUSION

The Insurance industry in India has grown considerably in the 21st Century, reasons for
the growth are:

1. The average disposable income of a middle class Indian lies in the range of
Rs. 5 lakhs – Rs.15 Lakhs per annum.

With an increase in the average disposable income, people are more capable of buying
policies which help them hedge the risk for life and also yield returns.

2. The major financial objective of a middle class Indian individual is to

protect income in case of disability/ death. Which is closely followed by the
ability to provide for child’s education cost. Then comes the need for a
comfortable retirement.

The number of educated people has increased considerably in the last decade which has
helped them realise the importance of planning for long and short term risks. Insurance
serves as a great instrument to pool their money and also earn some returns while
hedging the risk for life.

People have realised the importance of money and the dependence of their family on their
income, which makes the objective to protect income in case of disability/death their top
priority. Which is closely followed by the need to provide for child’s education cost as
education is necessary in today’s world. Post these comes the want to ensure a
comfortable retirement.

3. According to the survey conducted, 50% of middle class individual save less
than 20% of his annual income and the other 50% save 20% -35% of his
annual income.

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People are becoming more and more aware about the need to save money for any future
purpose. This has lead to increased savings over the years and Insurance has been one of
the best insttrument to invest it while taking the least risk of capital erosion and also
covering the risk for life.

4. 40% of middle class individuals carefully plan their big purchases, 30% of
individuals have a fixed pattern for monthly expenses and the rest 30% do
not spend in a planned manner.

Maximum number of people carefully plan their big purchases (short/long term goal),
Insurance provides a great platform where one can pool his money over time with
minimum risk and earn some returns on his money. This not only yields returns but also
protect the capital until enough money has been realised to secure the big purchase.

5. 90% of the middle class individuals tend to save their money before making
any big purchases whereas only 10% rely on various kind of loans for their
purchase.

Even though the loan industry has been growing considerably over the years, the Indians
still think that it is best to save their money before making any big purchases rather than
relying on a loan and pay interest on the same. Hence, people invest their money in
Insurance in order to provide safety to the capital.

6. Findings from the survey suggest that 70% of middle class individuals have
no risk appetite and like to invest in instruments which offer fixed returns.
About 30% of the middle class individuals have a low risk appetite and like
to invest in instruments which offer slightly higher returns and largely
protect capital

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Indians have a risk averse attitude which means that they don’t like taking risks which
may lead to capital erosion and invest in instruments which offer lesser risk even if it
means lower returns. Insurance is the instrument which largely protects the
capital(generating lower yields) and has a very low risk profile which has lead to
increased number of investors in this instrument.

7. A middle class individual buys a Life Insurance majorly to fulfil his long
term needs.

Long term planning for the achievement of goals is necessary in today’s world. Investing
in Insurance helps to realise these goals as they not only help generate returns on the
capital but also offer low risk which protects the money in the long run.

8. While taking Life Insurance policy,70% of middle class individuals’

objective is to get some return on the premium if they survive the period.
20% of people’s objective to get atleast the premium amount back. Whereas
only 10% on middle class individuals buy a policy to purely cover risk of life
without any consideration of return.

A number of Insurance policies have been introduced over the years in India to serve the
varying needs of the people. It is stated that the maximum number of people expect some
kind of returns on their money if they survive the time period of the policy. This is
fulfilled by the Money back policy type of insurance. The number of options available
has attracted the customers of varying needs which has lead to the growth if the industry.

62
 12. BIBLIOGRAPHY

Websites referred are:

www.investopedia.com

www.insurance.birlasunlife.com

www.wikipedia.org

www.licindia.in

www.irdai.gov.in

www.policyholder.gov.in

www.economictimes.com

www.towerswatson.com

www.euacademic.org

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 13. ANNEXURE

1.Household’s information:

Name: __________________

DOB.: ______________

Gender:

 Male
 Female
 Other

Maritial status:

 Single
 Married

City: _________________

2.Employment details:

 Government sector
 Private sector
 Self employed
 Homemaker
 Other
Please specify ______________

3.Dependent details:

Number of dependents: ___________

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4. Income details

 Below Rs.5 lakhs

 Between Rs.5 lakhs and Rs.10 lakhs
 Between Rs.10 lakhs and Rs.15 lakhs
 Between Rs.15 lakhs and Rs.20 lakhs
 Above Rs.20 lakh

5. Assets owned(financial):.

Investment portfolio Amount committed

 Fixed deposits ________________

 Bonds ________________
 Mutual funds ________________
 Stocks ________________
 Pension fund ________________
 Provident fund ________________
 Others ________________
Please specify ____________

6. Liabilities:

Category Loan amount Tenure of loan EMI

Housing loan
Vehicle loan
Education loan
Other loans

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7.Major financial objectives:

(Please indicate priority from 1-5, 1 being lowest and 5 being highest)

<<Low High>>

Ensure comfortable retirement 1 2 3 4 5

Provide for child’s/children’s educational cost 1 2 3 4 5
Buy a house 1 2 3 4 5
Provide for child’s/children’s marriage 1 2 3 4 5
Protect income in the event of death/disability 1 2 3 4 5

8. Please choose the options that best describe your position.

8.1. What percentage of your salary do you save?

 Less than 20%

 Between 20%-35%
 Between 35%-50%
 Above 50%

8.2. How do you spend?

 Definite spending pattern for monthly expenses

 I carefully plan my big purchases
 I do not spend in a planned manner

8.3. For big purchases, my tendency is:

 Save the money before buying

 Rely on loans/ credit

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8.4. I like to invest in instruments which:

 Offer fixed guaranteed return

 Offer slightly higher returns and largely protect capital
 Offer substantially higher return while there is a risk of capital erosion

8.5. I take Life insurance policies primarily towards:

 Saving my income tax

 Investing in long term goals
 Covering risk for life
 I do not have a life insurance policy

8.6. While taking Life Insurance policy, my objective is to:

 Get atleast the premium amount back if I survive the period

 Get some return on the premium if I survive the period
 Cover pure risk without any consideration of return

8.7. Upto what age would you like to work?

 Upto 45
 Upto 50
 Upto 55
 Upto 60
 Upto 65

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8.8.Which of the following would you depend on for your retirement corpus?

 Provident/pension fund from my organisation

 Sale of assets like gold, additional house, etc.
 Reverse mortgage of my self occupied house
 My children to fund my expenses
 With the fund accumulated

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CERTIFICATE

69