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Financial Market Research

Life Insurance

Life Insurance
Life insurance is a contract between an insured (insurance policy holder) and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money (the "benefits") in exchange for a premium, upon the death of the insured person.

LIFE INSURANCE
History of life insurance:-History of insurance refers to the development of a modern business in insurance against risks, especially regarding ships, cargo, and buildings ("property" and "fire"), death ("life" insurance), automobile accidents ("auto"), and the cost of medical treatment (health insurance).

The first methods of transferring or distributing risk were practiced by Chinese and Babylonian traders as long ago as the 3rdand 2nd millennia BC, respectively A thousand years later, the inhabitants of Rhodes created the 'general average', which allowed groups of merchants to pay to insure their goods being shipped together. The collected premiums would be used to reimburse any merchant whose goods were jettisoned during transport, whether to storm or sinkage.

Achaemenian monarchs were the first to insure their people and made it official by registering the insuring process in governmental notary offices. The insurance tradition was performed each year in Nouruz (beginning of the Persian New Year); the heads of different ethnic groups as well as others willing to take part, presented gifts to the monarch. The most important gift was presented during a special ceremony. When a gift was worth more than 10,000 Derrik (Achaemenian gold coin) the issue was registered in a special office. This was advantageous to those who presented such special gifts. For others, the presents were fairly assessed by the confidants of the court. Then the assessment was registered in special offices.

The Greeks and Romans introduced the origins of health and life insurance c. 600 BC when they created guilds called "benevolent societies" which cared for the families of deceased members, as well as paying funeral expenses of members.

Separate insurance contracts (i.e., insurance policies not bundled with loans or other kinds of contracts) were invented in Genoa in the 14th century, as were insurance pools backed by pledges of landed estates. The first known insurance contract dates from Genoa in 1347, and in the next century maritime insurance developed widely and premiums were intuitively varied with risks.

Insurance as we know it today can be traced to the Great Fire of London, which in 1666 devoured 13,200 houses. In the aftermath of this disaster, Nicholas Barbon opened an office to insure buildings. In 1680, he established England's first fire insurance company, "The Fire Office," to insure brick and frame homes.

American History
Benjamin Franklin helped to popularize and make standard the practice of insurance, particularly Property insurance to spread the risk of loss from fire, in the form of perpetual insurance. In 1752, he founded the Philadelphia Contributionship for the Insurance of Houses from Loss by Fire. Franklin's company was the first to make contributions toward fire prevention. Not only did his company warn against certain fire hazards, it refused to insure certain buildings where the risk of fire was too great, such as all wooden houses.

Health Insurance in US
Accident insurance was first offered in the United States by the Franklin Health Assurance Company of Massachusetts. This firm, founded in 1850, offered insurance against injuries arising from railroad and steamboat accidents. Sixty organizations were offering accident insurance in the US by 1866, but the industry consolidated rapidly soon thereafter.

Regulations & Regulatory Body


Insurance Act, 1938 Insurance Ordinance, 2000 Department of Insurance, in April 1948 - Ministry of Commerce: Registration and regulation Examination of Annual accounts, Actuarial reports, Solvency margins to Re-insurance arrangements, Level of management expenses, Premium rates and terms Conditions of policies of insurance companies.

Continued
Investigation into the affairs of Insurance companies Issuance of directives under the Law Inspection of the record of the Companies Insurance intermediaries Approvals and permissions under the powers conferred under the Insurance Law Appointment of administrators to replace board of directors and to make applications to the Courts for winding up.

MAIN OBJECTIVES OF THE INSURANCE ORDINANCE, 2000


The new insurance law has the following objectives: To correct the existing defects and strengthen the regulatory system of insurance. To replace the existing Department of Insurance with a new regulatory authority . To improve the capitalization and administration of insurance industry To improve and strengthen the financial soundness of insurance companies To introduce market conduct provisions. To gradually liberalize and make reinsurance arrangements more effective. To establish the institution of Insurance Ombudsman.

MAIN FEATURES OF INSURANCE ORDINANCE, 2000


The Ordinance provides for regulation of Insurance Industry by an autonomous body i.e. the Commission replacing the institution of Controller, Department of Insurance. The insurance business has been bifurcated into two main divisions: Life Insurance Business. Non-Life Insurance Business. New Capital requirements for life insurance and non-life insurance companies have been raised from Rs. 100 million to Rs. 150 million Rs. 40 million to Rs. 80 million. The minimum solvency margin has been made into a floating rate. Enforcement of the insurance law has been made more effective. Detailed provisions have been made to prevent insurers from indulging in practices prejudicial to the interest of policyholders. Provision have been made for the institution of an Insurance Ombudsman

Continued
Provision has been made for the constitution of an Insurance Tribunal, which shall have, civil as well as criminal jurisdiction. Special provisions have been made for the establishment of a Small Disputes Resolution Committee for speedy settlement of minor claims. Penal provisions for contravention of the insurance law have been made stricter. Reinsurance arrangements have been strengthened and rules would be made for reinsurance arrangements even outside Pakistan. Life insurance business companies are required to maintain separate funds for separate classes of their business. Adequate disclosure requirements by insurance companies have been prescribed for purposes of reporting to the regulator.

The Different Types of Insurance


Life Insurance
The risks that are covered by life insurance are:
Premature Death Income during retirement Illness

The main products of life insurance Include:


Whole life Endowment Term Investment linked Life annuity plan Medical and health General Insurance

Continued
General Insurance The risks that are covered by general insurance are: Property Loss Liability arising from damage caused by yourself to a third party Accidental death or injury The main products of General Insurance Includes: Motor Insurance Fire / house owners / Householders insurance Personal accident insurance Medical and Health insurance Travel insurance

Insurance Companies in Pakistan


Public sector
National Insurance Corporation Pakistan Reinsurance Company Ltd. Postal Life Insurance State Life Insurance Corporation Ltd.

Private sector
Incorporated in Pakistan
Adamjee Insurance Company Ltd. Agro General Insurance Company Ltd. Allianz EFU Health Insurance Company Ltd. Alpha Insurance Company Ltd. American Life Insurance Company Ltd.

Continued
Incorporated abroad
ACE Insurance Aid Pacific Ltd. CGU Assurance Company Ltd. New Hampshire Insurance Company Ltd. New Zealand Insurance Company Ltd. Royal & Sun Alliance Assurance plc.

Sources of funds

The sources of funds in life insurance is premium .

Premium
An insurance premium is the amount of money charged by a company for active coverage. Premium paid in advance .

Premium (cont.)
The sum a person pays in premiums, also referred to as the rate, is determined by several factors, including age, health, and the area a person lives in. People pay these rates annually or in smaller payments over the course of the year.

Premium(cont.)
And the amount can change over time. If insurance premiums are not paid, the policy is typically considered void. Companies will not honor claims against it.

Premium (cont.)
Premium is paid in all type of insurance. For example: Life insurance. Health insurance. Car insurance. Home owners' insurance.

How the premium rate calculated


The rate is calculated or sets by the company on the basis of
Age Gender Health Area living in

Uses of Funds
Equities and unit trusts
Investors purchase a share in the trust in the form of a unit The trustee pools the funds received from investors and invests them

Long-term securities
Those investments which are more than a year

Invested overseas
Can be invested outside the country

Benefits of Life Insurance


Risk Cover
Life today is full of uncertainties; in this scenario Life Insurance ensures that your loved ones continue to enjoy a good quality of life against any unforeseen event.

Planning for life stage needs


Life Insurance not only provides for financial support in the event of untimely death but also acts as a long term investment. You can meet your goals, be it your children's education, their marriage, building your dream home or planning a relaxed retired life, according to your life stage and risk appetite. Traditional life insurance policies i.e. traditional endowment plans, offer in-built guarantees and defined maturity benefits through variety of product options such as Money Back, Guaranteed Cash Values, Guaranteed Maturity Values.

Protection against rising health expenses


Life Insurers through riders or stand alone health insurance plans offer the benefits of protection against critical diseases and hospitalization expenses. This benefit has assumed critical importance given the increasing incidence of lifestyle diseases and escalating medical costs.

Builds the habit of thrift


Life Insurance is a long-term contract where as policyholder, you have to pay a fixed amount at a defined periodicity. This builds the habit of longterm savings. Regular savings over a long period ensures that a decent corpus is built to meet financial needs at various stage

Assured income through annuities


Life Insurance is one of the best instruments for retirement planning. The money saved during the earning life span is utilized to provide a steady source of income during the retired phase of life.

Protection plus savings over a long term


Since traditional policies are viewed both by the distributors as well as the customers as a long term commitment; these policies help the policyholders meet the dual need of protection and long term wealth creation efficiently.

Growth through dividends


Traditional policies offer an opportunity to participate in the economic growth without taking the investment risk. The investment income is distributed among the policyholders through annual announcement of dividends/bonus.

Facility of loans without affecting the policy benefits


Policyholders have the option of taking loan against the policy. This helps you meet your unplanned life stage needs without adversely affecting the benefits of the policy they have bought.

Tax Benefits
Insurance plans provide attractive tax-benefits for both at the time of entry and exit under most of the plans.

Requirements of Life Insurance

REQUIRMENTS FOR LIFE INSURANCE


For a Life Insurance Policy First you have to decide a nomination, God Forbid In case of Death of the Policy Holder, the money will be given to the nominee. A person should mention the diseases from which he is suffering from. Not in case of all the diseases the policy is allowed to be issued. According to the companys policies, the maximum age of the policy holder is decided. Till what age he can buy the policy.

REQUIRMENTS FOR LIFE INSURANCE


NIC Copies of both the Policy holder and nominee is needed at the time of buying the policy. Family Info is required at the time of the policy purchase. Age of Father, Mother, Brother and Sister If they are alive. If Dead then the age of the death is required. Weight and waist of the policy buyer is required to check he is n0t over weight.