Life Insurance Products - Salient Features

The salient features of Life Assurance Products are as follows : -

Term Assurance Policy : It is a pure risk plan, covering the risk of death during the specified period. The premium is very low and maximum risk is covered. In majority of cases, there is no claim under Term Assurance Policy because of non happening of death during the term of the policy.

Pure Endowment Assurance Policy : It provides only survival benefit. If the insured dies within the specified period, no payment is made under a Pure Endowment Plan. The premiums paid may be returned in full or partly. If the specified contingency does not happen, the policyholder does not get anything from the insurer.

Whole Life Assurance Policy : Under this policy, the Sum Assured is payable only on death. Some insurers pay the sum assured, when the life assured completes age of 80 years. Premiums are paid till the happening of an unfortunate event.

Endowment Assurance Policy : This policy is combination of Term Assurance and Pure Endowment Assurance Policy. The sum assured is paid on maturity of the policy or on earlier death, as both element of death and survival is covered. This is the most popular plan, taken by the insured persons. Under this category of policy, Money Back Policy or Anticipated Endowment Policy has also been designed by the Insurers, suiting the needs of the insured person. Under Money Back Policy, certain percentage of Sum assured is paid on specified intervals. Full risk is covered under this Policy, irrespective of the periodical payments, received by the insured.

Annuity : This policy covers the hazards of old age, when one's income ceases on attaining certain age. Annuities are of two types i.e. Immediate or Deferred. Under Immediate annuity, lump sum payment is made at a time and in turn annuity payments starts immediately after the contract is concluded. On the other hand under Deferred Annuity, certain payment is made to the insurer for specified period, called deferment period. The purchase price can be paid as a single premium at the commencement or may be paid in installments during the deferment period. If the annuitant dies during the deferment period, the premiums paid are returned to the nominee or heirs. The annuity will commence at the end of the deferment period, which is called the vesting date.

Life Insurance Products

Life Insurance Products are the outcome of hazards of life, which are as under : -

1. Pre-mature Death

2. Disability

3. Old Age

Keeping in view of above hazards of life, Life Insurance Companies came out with such products, which covers risk in lieu of the premium amount, which is being given to the Insurer. Life insurance products are usually referred to as 'plans' of insurance। These plans have two basic elements. One is the 'Death cover' providing for the benefit being paid on the death of the insured person within a specified period. The other is the 'Survival Benefit', providing for the benefit being paid on survival of a specified period. The products are as under : -

(a) Term Assurance Policy

(b) Pure Endowment Policy

(c) Whole Life Assurance Policy

(d) Endowment Assurance Policy

(e) Annuity

The above products cover all the three hazards of life i.e. Pre-mature death, Disability and Old Age.

Income Tax Slabs for the Fiscal Year 2010-2011

Knowing one's taxable income is an easy job, yet there is a lack of knowledge among people on the subject. This write-up is to spread awareness about the calculation of one's taxable income and the taxes applicable on one's total earning. Here is to explain the same in most simple terms. Below is the table that tells us the exemptions that we are eligible for as per the provisions given in the Union Budget for the fiscal year 2010-2011 (AY 2011-2012) :

Slab for FY 2010-2011(Assessment Year 2011-12)
For Men below 65 years of age		For Women below 65 years of age		For Senior Citizens
Income Level (Rs.)	Tax Rate	Income Level (Rs.)	Tax Rate	Income Level (Rs.)		Tax Rate
Up to 1,60,000	Nil	Up to 1,90,000	Nil	Up to 2,40,000		Nil
1,60,001 - 5,00,000	10%	1,90,001 - 5,00,000	10%	2,40,001 - 5,00,000		10%
5,00,001 - 8,00,000	20%	5,00,001 - 8,00,000	20%	5,00,001 - 8,00,000		20%
Above 8,00,000	30%	Above 8,00,000	30%	Above 8,00,000		30%
Education Cess
Education Cess is applicable at the rate of 3 % on the income tax. (Inclusive of surcharge, if any.)
Section 80C
Section 80C provides for a deduction of up to Rs 1 lakh from taxable income in respect of investments made towards certain savings instruments. This includes all the bonds, NSC, PPF, Life Insurance Premiums, Fixed Deposits of more than 5 years and Super Annuation etc.

One may easily calculate one's taxable amount and hence the amount of income tax for the year on the basis of the above table and the description. Please note that the exemption of Rs. 1.0 lakh under section 80C, includes one's PF contribution and the additional or voluntary PF deducted, if any.

Concept Of Risk

In the business of Insurance, its imperative to understannd risk in order to be able to attach financial values to it. Apprehending risk is the first step towards quantifying the hypothesis of Insurance.

Risk may be defined as the possibility of adverse consequences flowing from any occurrence that could be Natural or Otherwise. It arises out of uncertainty. Insurance is a process of transferring risk from individual to the insurer, who fixes a 'Premium' according to total likely loss in a certain period.

Insurance, hence may be defined as a co-operative device to spread the loss caused by a particular risk over a number of persons who are exposed to the same risk and who agree to insure themselves against that risk. Many contribute a certain sum of money called Premium. Few who suffer losses are compensated by the insurer.

Lets try to understand the same with the help of an example. Here we take the example of marine business.

Lets us assume that there is a loss of ships on voyage on a particular route and the same may be quantified as two ships per year, valued at two crores of Rupees. Total ships on voyage is 1,000. The premium for each ship may be fixed at 2,00,00,000 / 1000 = 20,000 + some money towards administrative expenses and profit, say Rs.2000/ making it a total of Rs.22,000/- towards premium.

Its aparent from the above example that Insured person gets protectection from the heavy loss likely to be caused by an uncertain event in exchange for paying a comparatively much smaller sum of money as premium. Insurance provide financial compensation and security for the effects of misfortune. Lets be clear where there is uncertainty, there is a risk and where there is no risk, there is a certainty.

Insurance has touched all the domains of life where there is any amount of risk involved. Just imagine, singers can now get their voice insured and dancers can get their legs insured so that when their singing or dancing skill declines due to an unforeseen risk, the insurance company pays them the policy amount. Therefore, conceptualisation of risk is of paramount importance in the business of Insurance.

Insurance Sector in India : Economic Reforms & Beyond

The economic reforms aligned the business scenario across various domains with the global trends and with the futuristic vision for the market in compliance with the transition that was touching us with the advancement of technology, change in social fabric, enhanced urban employment, expansion of rural economy, increasing number of young population and improved lifestyle/facilities for elderly and retired persons.

Insurance sector, undoubtedly was important part of this whole gamut of events. In 1990s the process of opening up of insurance sector began. Government of India set up a committee under the able guidance of Shri R N Malhotra in 1993 to suggest the reforms in insurance sector in line with the overall economic reform that was underway. Committee submitted its report in 1994 and among the many suggestions, was an important recommendation to open up the sector for private players. Committee also recommended allowing foreign companies into Indian insurance sector through joint venture route. Relevant laws were amended by the parliament in 1999 and LIC's monopoly to transact life insurance business in India came to end.

This led to the constitution of Insurance Regulatory & Development Authority (IRDA) in 1999 as an autonomous body which was incorporated as a statutory body in April 2000. The apex body has the power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards effected several regulations ranging from registration of companies to carry out insurance business to protection of policyholders’ interests. IRDA did a wonderful job and started the process of opening up of the market in August 2000. The regulatory body invited application for registrations and foreign companies were allowed stakes up to 26%.

The key responsibilities of IRDA were to create an environment of competition in insurance sector by ensuring the participation of more companies in order to offer customers a vide range of options to chose from and to improve customer satisfaction level. The Regulators had to strike a balance between the low premium for the customers and financial security of the insurance market. Till December 2009, 22 life insurers had been registered to transact life insurance business in India.

On the same line, changes were brought in General Insurance too. In December 2000, the subsidiaries of the General Insurance Corporation of India were restructured into independent companies. GIC was converted into a national re-insurer. In July 2002 Parliament passed a bill de-linking the four subsidiaries from GIC. Today there are 21 general insurance companies including the ECGC and Agriculture Insurance Corporation of India who are registered to transact business of general insurance.

Insurance is a gigantic sector now which is contributing around 7% to the country’s GDP and is growing steadily at around 18% growth rate. The economic reforms and economic growth need short term and long term objectives to be taken care of and a robust insurance sector may well support achieving these objectives.

History of Insurance in India

In 19th century India, insurance business started with Life Insurance. It was the time when British officials on their postings in India felt the need of life insurance cover. Year 1818, in India, witnessed Life Insurance being initiated and transacted by an English company, The Oriental Life Insurance Company Ltd. Then it was Madras Equitable which came into insurance business in 1829.

Thereafter British Insurance Act was enacted in 1870. The English Company 'The European and the Albert' pioneered and took care of the needs of British officials. The first Indian insurance company, Bombay Mutual Assurance Society Ltd., was formed in 1870 in Mumbai. This followed by the Bharat Insurance Company in 1896 in Delhi, Empire of India in 1897 in Mumbai, United India in Chennai, National Indian and Hindustan Co-operative in Kolkata.

In the wake of the Swadeshi Movement in India in the early 1900s, quite a good number of Indian companies were formed in various parts of the country to transact insurance business as the perceived threat level gained height during this period. The Co-operative Assurance was established in Lahore, Bombay Life (originally called the Swadeshi Life), Indian Mercantile, New India and Jupitor in Mumbai and Lakshmi Insurance in New Delhi.

During the first half of the 20th century insurance business in India went through few acts and regulations that were aimed at streamlining the business to strike a balance between the interests of the insurers and the policy holders. But this could not bring much relief.

This made Government of India to nationalise life insurance business in the year 1956. Life Insurance Corporation of India (LIC) was formed on 1^st September, 1956 through an act passed by the parliament. At that time, there were 245 private companies (consisting of 170 companies and 75 provident fund societies) transacting life insurance business in India. LIC steered the business of insurance in a manner that proved to be a mutually-benefitting relationship between insurer and policy holder. LIC spread its network across the width and depth of the country and ventured overseas too. The contribution of LIC in the growth of the country is phenomenal.

On the other side, the General Insurance business also passed through various regulations before the enforcement of the act called General Insurance Business (Nationalisation) ACT 1972. Through this act acquisition and transfer of shares held by Indian insurance companies and undertakings took place which 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 commenced business on January 1st 1973.

This scenario prevailed till the economic reforms started taking place and the socio-economic transition touched India to face the challanges of the new era.

Evolution of Inurance

Understanding the risk and overpowering the same was the basic acumen that mankind gained since the time of Neanderthals probably. There is no reason to doubt that the concept of Insurance would not have been there since the time immemorial, when the civilizations evolved and shaped up in human history. The endeavour to neutralize risk by man is as old as man itself.

In Indian context we may find traces of description of Concept of Insurance in our ancient scriptures, defining it as pooling in of resources so as to re-align the same to face calamities like flood, famine, fire, epidemics, war and other natural disasters. Some noted doctrines are Arthshastra by Kautilya, Manusmriti by Manu and Dharmshastra by Yagyavalk. In simple terms we may understand our age old joint family system was in place as an unwritten protection to all the members in the family by head of the family.

All the civilizations and societies across the globe recognized the phenomenon of insurance in some form or the other and pursued it accordingly. Be it Greek, Mexican, Iranian, Persian, Egyptian, Cambodian or Assyrian, there are mention of Insurance in their writings. Some of the ancient dynasties like Achaemenian Monarch in Iran recognized insurance and supported that their people should be insured.

There are reasons to believe that primarily it was fire, calamities and international trade through oceans that crystallized the fundamentals of initial insurance practices as all such civilizations evolved near the waters and were involved in trade through sea.

In medieval times, Insurance business is traced back to the city of London. Marine business was instrumental to formulate and propagate Insurance business. It was a time when marine was the lifeline of the International trade and was exposed to severe risks. Rough weather resulting in the sinking of ships, damages of goods in the high seas, robbery by pirates and capturing of ships by enemies were the factors which were potential threats to the merchants.

Therefore, a concept gradually evolved where Marine traders started the practice of gathering together where they used to agree to share the losses of goods during transportation by ship on pre-defined terms and conditions. Lloyd's Coffee House in London has witnessed the evolution and progress of such meeting which undoubtedly were the foundation of modern insurance business.

The first insurance policy was issued in England in the year 1583 and modern insurance business took off from there.

Fundamentals of Insurance

Fundamentally, Insurance is a sharing device. It is a method of spreading and transferring the risk. The losses to assets resulting from natural calamities like fire, flood, earthquake, accidents, etc. are met out of the common pool contributed by large number of persons who are exposed to similar risks.

The pool is created by the contribution of money called Premium from many, and a few who suffer losses are compensated by the Insurer. Its imperative that insured person should not make any gains out of Insurance. The business of insurance is related to the protection of economic value of assets.

As an individual any person is an asset who offers emotional and financial support to his/her family by being there. But in a fateful circumstance of death, the person’s emotional support can not be re-obtained. However, Insurance can replace financial support which is key for the sustenance of the dependents, provided the person is insured.

Insurance, hence can be understood as a phenomenon that provides continuity in case of any loss and prevents life being seized at that particular point of time by offering monitory support to move forward.

In nutshell life insurance can be understood as the financial presence of the deceased person, whereas on the other hand General insurance is sharing of financial loss. Both, in nature are protection against any happening or damage.