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COM II YEAR
PRINCIPLES AND PRACTICE OF
SECOND YEAR
INSURANCE AND MARKETING
Dear Students,
It
gives
us
immense
pleasure
in
Degree
Course
through
correspondence
to
by
devoted
band
of
lessons,
we
meet
you
in
list
of
lessons
and
the
IMPORTANT INSTRUCTION TO
STUDENTS
While,
attending
contact
Classes:
a.
yourself
seriously
handicapped, as it is generally
impossible for your teacher to
depart from the programme and
repeat a lesson and it would also
be an injustice to those who
attend
punctually.
The
late
b.
As
the
within
subject
a
Contact
instructed
is
elucidated
limited
number
Classes,
you
to
attend
of
are
them
1.
2.
3.
4.
Contents
Syllabus
Section A: Insurance
Unit 1
Preliminaries Definition of certain
terms Risk, Peril, hazard etc.
Method of treating risk Origin of
Insurance
Types
of
Insurance
Organisation.
Unit 2
Main forms of Insurance Essentials
of a sound Insurance Plan Contract
of
Insurance
Insurance
Property,
Classification
Contracts
liability
and
of
Personal,
Guarantee
and
importance
of
Insurance.
Unit 3
Life Assurance Fundamentals of Life
contract
Good
faith,
Insurable
assurance
policies
&
Annual
compared
Unit -4
Premium computation Assessment
plan
Natural
premium
plan
tables
for
annuities
of
various
surplus
types
of
and
its
Unit 5
Procedure for taking a Life Policy
Proposal.
Agents
Report
Medial
War
risks,
Women
Unit -6
Policy conditions Proof of Age
Payment
of
Premiums
Days
of
Unit 7
Practical knowledge about proposal
from,
personal
statement,
Agents
Unit 8
Role of L.I.C.of India Case for and
against
privatization
of
L.I.C.
Present scenario.
SECTION B : MARKETING
Unit 1
Nature and scope of Marketing
Definitions
Marketing
Marketing
evolution.
Importance
Marketing
management
concept
and
of
its
Unit 2
Market Segmentation The General
approach in Segmenting the Market
Bases for segmenting consumer
Markets
Bases
of
segmenting
Industrial Markets.
Unit 3
Product Planning and Development of
a new product product line Product
Mix Product life Cycle.
Unit -4
Pricing Pricing objectives and price
determination
pricing
under
Unit 5
Personal
selling
Importance
of
Salesman
Agencies. Management of sales
force
Size
Recruitment
Salesman
of
sales
and
Sales
for
the
selection
of
quota
Sales
territory Evaluation.
Unit 6
Advertisement
Importance
Meaning
and
Advantages
and
Advertising
Unit 7
Consumer Behaviour Theories
Legal
protection
Consumer
behaviour in Indid.
1.
Insurance
Principle
&
M.N.Mishra
Practices
2. Life Insurance
year book
3. Insurance law in India
4. Smith
Marine Insurance
Fire insurances
5. Godwin
Venkopa Rao
6.
Principles
Practice
of
Young
&
Life
and
Bacon
Assurance
Dr.R.M.Ray
8.
Sharma
Insurance
9.
in
India
Principles
Practice and
Law of
Insurance
10.
Marketing
11.
Principles
and
Practices of
Dr.C.B.Memorial
& Joshi
Marketing
12.
Marketing
Management
13.
Philip Kotler
R.S.Davar
Modern
Marketing
Mangement
LIST OF LESSONS
Lesson
No.
Topics
A INSURANCE
1.
2.
Insurance Contract
3.
4.
Computation of Premium
5.
6.
SECTION A
INSURANCE
LESSON 1
INTRODUCTION AND
DEFINITION OF INSURANCE
search
for
security.
The
effective
risks
and
uncertainties
has
authors
have
defined
Magee
D.H.,
defines
number
of
themselves
people
and
associate
transfer,
to
the
for
the
form
the
effects
payments
the
of
being
accumulated
of
money
contingency.
on
specified
Definition of Insurance
Hansell, D.S., defines insurance as
`a social device providing financial
compensation for the effects of
misfortune,
made
from
the
payments
the
being
accumulated
of
insurance.
The
earliest
of
marine
trade
looms
or
internet
marine
were
traders
were
forfeited.
ingenious
The
in
century.
Then,
the
marine
insurance,
fire
When
England
established
insurance
business
also
was
Life
insurance
established
business
in
sixteenth
was
first
in
the
England
century.
The
first
the
Eighteenth
Century
insurance
covering
insurance,
fidelity
were
consequence
of
established
the
as
industrial
nineteenth
century.
With
the
Life Insurance
2.
Fire Insurance
3.
4.
General Insurance
Types of Insurance
1.
Life Insurance
2.
Fire Insurance
3.
Marine Insurance
4.
General Insurance
Risk, Peril and Hazard
Risk
Risk means uncertainty concerning
loss and not the loss itself or the
cause of loss or the chance of loss.
If for example, the chance of loss
by fire to a particular type of house
is 1 in 1000 a single person who
owns a single house cannot profit the
loss. Either his house will burn or will
not burn. He is faced with compete
Meaning of Risk
Risk means uncertainty concerning
loss and not the loss itself or the
cause of loss or the chance of loss
Peril
When risk is known as uncertainty
of loss, peril is known as the source
of loss. It is an event that causes
a personal of property loss. People
are subject to loss or damage from
many perils, such as fire, explosion,
premature death, flood etc. These
Hazard
Hazard may be defined as a condition
that may create, decrease or increase
the change of loss from a given peril.
For
example,
only
rags
near
the
knowingly
setting
fire
to
the
estimation.
The
greatest
may
deliberately
but
the
the
insurance
companies
What is Hazard?
Hazard
condition
may
be
that
defined
may
as
create,
1.4.1
Sharing of Risk
insurance
fire
in
fire
of
the
risk
involved,
the
the
happening
of
the
persons.
Likewise
damage
of
our
Uncertainly
certainty,
insurance
is
converted
because
the
policy.
into
insurer
or
life
insured,
he
is
is
given
without
assured
consideration
only
called
against
the
the
premium.
What is charity?
Charity
is
given
without
consideration.
Features of Insurance
1.
Sharing of risk
2.
Co-operative Device
3.
Valuation of Risk
4.
Happening of Event
5.
Amount of payment
6.
Large
number
of
Insured
person
7.
8.
of Loss
Insurance
provides
certainty
of
charges
premium
for
Life
without
risks
and
since
civilization.
the
Minor
inception
risks
can
of
be
One
of
the
ways
or
loss
prevention
Insurance
removes
and
all
uncertainties
and
the
assured
is
insurance
cannot
check
the
insurance
can
surely
against
chances of loss.
the
probable
the
deliberately,
risk
is
provision
assumed
is
made
For
them,
the
suitable
Primary
functions
of
Insurance
1.
Certainty of compensation of
loss
2.
3.
Risk sharing
is
always
better
than
to
consequences.
building
with
avoid
By
unfortunate
constructing
fire
resistance
materials,
of
instructions,
serving
installing
safety
automatic
help
to
minimise
methods
Insurance
joins
institutions,
must
be
hands
which
adopted.
with
are
those
actively
planned
country,
development
there
is
mobilization
of
accumulated
funds
great
need
funds.
of
of
a
for
The
insurance
infrastructure
and
companies
improving
the
which
complex
is
social
help
in
environment,
due
economic,
social
and
problems.
Security
of
to
many
political
life
and
made
by
companies
in
schemes
electricity
development,
insurance
such
as
housing
based
industries
help
to
cover
The
needs
economically
of
socially
backward
and
classes,
to
financial
them;
provide
cover
against
reasonable
more
cost.
persons
importance
of
adequate
death
When
learn
at
more
and
about
the
insurance
and
join
the
rest.
But,
due
to
exposure
to
western
culture,
almost
forgotten.
Insurance
of
help
to
masses,
mobilize
by
the
creating
provide
efficient
service
with
pride
through
and
discharge
job
of
Secondary
Functions
of
Insurance
1.
Prevention of Loss
2.
Mobilization of Funds
3.
4.
5.
Mobilization of savings
6.
Effective service.
society
and
industry
Life
insurance
provided
etc.
the
such
General
necessary
risks
and
insurance
security
resultant
losses.
savings
are
combined.
The
Hence,
the
insured
is
types
of
life
insurance
individuals
converting
but
them
investments.
also
into
Policies,
help
in
profitable
when
they
annuities
help
the
to
Maslaw's
theory
of
Once
these
needs
are
worries.
When
motivated
needs
funds
needs,
as
such
children,
for
for
different
education
of
needs
of
marriage
for
medical
expenses,
earnings
due
to
retirement,
policies
such
way
conceivable
Money
back
need
are
to
of
policies
planned
satisfy
an
are
in
every
individual.
available
period
of
policy.
Hence,
insurance
policies
will
help
on
much
insured
difficulty.
can
obtain
Moreover,
loan
on
Importance of Individual
1.
Provision of security
2.
Encouragement of savings
3.
Lucrative Investment
4.
Provides motivation
5.
assets
of
businesses.
these
assets
are
different
types
of
accident,
burglary,
exposed
risks
floods,
like
to
fire
lighting
safety
businessmen,
by
and
security.
knowing
that
The
his
efforts
business.
towards
improving
his
is
an
important
factor
of
and
motivated,
their
accident
provision
and
against
sickness
untimely
The
premiums
for
such
taking
policies
covering
risks
towards
improving
his
policies,
welfare
of
since
the
Working
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of
the
country.
The
is
made
by
way
of
capital
production
cycle
will
and
accelerate
will
lead
to
of the society
Group
various
insurance
needs
of
schemes
satisfy
employees
and
protection
to
buildings,
can
with
be
the
witnessed
help
of
Model Questions:
1.
Define Insurance
2.
3.
What
are
Insurance?
the
functions
of
LESSON 2
may
contract
between
whereby
one
undertakes,
be
defined
two
party
in
as
parties,
called
insurer
consideration
of
on
principles.
common
certain
These
to
all
fundamental
principles
types
of
life,
are
fire
since
it
is
contingent
What is insurance?
Protection against future loss
agreement
includes
offer
and
of
to
prospects
offer.
is
When
an
the
essential.
When
the
insurance
the
Insurance
Company
as,
benefit,
profit,
right,
contract
the
age
of
majority
when
it
is
contract
for
must
disqualified
not
have
been
disqualified
persons
are
What is contract?
A binding agreement between two
or more persons that is enforceable
by law.
may
undue
be
due
influence,
to
coercion,
fraud
or
act
of
threatening
person
refers
to
exercising
the
to
the
special
relationship
and
patient,
teacher
and
Free consent
When
person
enters
into
Misrepresentation
A misleading falsehood.
2.2.5. e) Certainty
An agreement must not be vague,
loose and uncertain. The terms and
conditions
must
be
clearly
issues
which
printed
contains
policy
all
the
2.2.6. f) Possibility of
Performance
and
the
insured
is
also
law
writing
requires
and
formalities
registration,
in
of
some
must
stamped
be
and
properly
signed,
registered.
In
original
policy
document,
must
considered.
be
Apart
thoroughly
from
all
these
Principles
contract
1.
Agreement
of
Insurance
2.
Legal Consideration
3.
4.
Free consent
5.
Certainty
6.
Possibility of performance
7.
Writing registration
8.
Lawful object
each
party
to
proposed
namely,
let
beware,
is
not
contract
of
insurance.
the
applicable
buyer
in
Under
a
the
no
obligation
information.
contract,
the
But,
in
buyer,
to
an
supply
insurance
namely,
the
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benefited
by
its
safety
or
will
expenses
on
have
its
to
incur
repairs,
if
huge
it
is
hire
of
alternative
modes
of
interest
in
the
subject
matter
of
insurance is essential
Insurable interest, to be valid, must
satisfy the following three conditions.
1.
2.
There
must
be
potential
he
benefits
from
continued
safety
and
suffers
principals,
administrators,
failees
also
have
insurable
between
below
on
the
the
parties
basis
of
given
special
a.
form
that
the
ancient
marriage
is
Relatives
For
others,
the
right
does
not
insure
automatically
arise
from
family
relationship. A father of
her
son,
unless
to
his
some
or
direct
the
relationship
between
grand
pecuniary
children
test
meet
of
c.
loose
if
the
debtor
dies
Partners
The Partners of a partnership
firm have an insurable interest in
the lives of their copartners, as
the death could cause financial
loss to the remaining partners.
e.
or
highly
trained
f.
surety
has
an
insurable
interest
must
exist.
interest
must
be
must
interest
in
have
the
insurable
things
insured
In
case
of
marine
Meaning
of
Insurable
Interest:
The insured must have an actual
interest
which
Insurable interest.
is
called
as
2.5. Indemnity
The principle of indemnity is the
regulating principle of insurance and
is
applicable
insurance,
accident
in
all
except
and
contracts
life,
sickness
of
personnel
insurance.
if
the
insured
shall
be
whereby
required
to
an
insurer
compensate
is
the
loss.
The
insured
will
be
profit.
Many
insured
may
loss.
The
insured
will
be
property
reap
intentionally
profit.
Many
in
order
insured
to
may
is
discouraged.
For
the
house
is
completely
Likewise,
operates
indemnity
against
principle
under
also
insurance.
Then, in case
of
setting
second
method
method.
Sometimes,
claims.
is
The
replacement
the
insurers
articles.
satisfaction
of
constitutes
an
common
etc.,
in
the
Repair
to
insured
indemnity
motorcar,
Reinstatement
is
the
also
and
is
motorcycle,
the
fourth
property
to
condition
is
normally
resorted
their
original
undertaken.
to
It
in
is
fire
What is indemnity?
A
sum of money
paid
in
all
steps,
to
mitigate
or
or
inactive.
He
is
not
the
loss
and
to
save
loss
person
as
would
rational
do
uninsured
in
similar
the
attributable
payment
to
the
of
loss
insurer's
efforts
to
save
the
or
could
not
fun,
the
arrived
at
the
port
of
policy
or
X,
without
of
the
subject
only
if
the
risk
is
one
in
to
claim
compensation.
Doctorate
of
proximate
runs
cause
order
as
cause
that
proximate
or
nearest
Proximate
does
not
but
the
direct
dominant
though
the
result
these
are
referred
to
the
theatre
furniture
hall
in
the
and
hall.
destroys
the
During
the
fire
insurance
policy
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precipitated,
his
right
of
example,
the
owner
of
cover,
has
got
two
from
company,
as
negligent
driver.
the
well
insurance
as,
If
from
the
the
insured
insurance
company,
then
his
to
the
principle
of
compensation
from
third
full
whole
indemnified
doctrine
of
and
the
indemnity
corollary
of
indemnity
of
the
and
is
Subrogation
is
the
substitution
The insurer, according to this
principle becomes entitled to all
the
rights
of
insured
in
the
loss
of
the
substituted
property.
in
the
He
place
is
of
of
the
properly
damaged
after
iv.
Subrogation
may
be
the
assure
compensation
party
gets
from
before
certain
the
being
third
fully
need
pay
only
the
Personal Insurance
The doctrine of subrogation does
not apply to personal insurance,
because
the
doctrine
of
What is subrogation?
Subrogation refers to the right of
the insurer to stand in the place of
insured, after settlement of claim.
Model Questions:
1.
2.
3.
Proximate cause
b.
Indemnity
c.
LESSON 3
LIFE INSURANCE
Life
insurance
is
contract
for
assured
or
to
the
person
of
the
Usually
for
the
event
insured
the
contract
payment
of
an
Among
contract
also
other
things
provides
for
the
the
insurance
corporation
by
the
solution
of
the
problems
caused by death.
Life insurance can be considered as
the best form of savings, because
it guarantees full protection against
risk of death of saver in the event
of death full amount of insurance is
paid, while in other savings. Loans
can also be taken on the security
of the policy. The benefits are also
offered. A suitable insurance plan can
be taken out meet specific needs,
paid
beneficiaries
to
named
when
the
be
charged
for
different
be
required
to
pay
more
What is risk?
Expose to a chance of loss or
damage.
to
be
considered.
With
Hence
takes
insurance
an
comparatively
when
young
policy
age,
person
at
say
a
25
is
discovered
with
3.2.2. Physique
Physique refers to the build of the
applicant
weight
and
and
it
includes
chest
height
expansion.
The
determinants
expectation.
of
mortality
Overweight
or
healthy
sign.
Hence,
insurance
applicant
heights
and
weight
from
insurance
height
companies
and
are
weight,
very
What is physique?
The particular type of human body
(size, weight, height, etc.)
in
insuring
his
life.
The
History
is
revealed
by
thoroughly
investigated,
like,
disease,
underwent
any
information
is
whether
surgery.
expected
he
This
to
be
of
parents,
brothers,
help
to
know
whether
any
chances
of
longevity
of
the
applicant.
3.2.6. Occupation
Occupation is an important factor to
be considered in assessing the risk
factor. The atmosphere at the work
place, which is called is occupational
hazard,
may
adversely
affect
the
obnoxious
gases
in
of
accident
work
is
prone,
accident-prone
hazarders
the
the
moral
morale
of
or
or
the
nature
of
work
and
the
must
deciding
be
about
considered
the
before
insurance
proposal.
income
applies
for
an
insurance
minds
of
Educational,
professional
the
insurers.
financial
consciousnesses
and
make
Factors of Risk:
1.
Age
2.
Physique
3.
Personal History
4.
Personal Health
5.
Family History
6.
Occupation
7.
Economic status
about
the
name
insured
person,
address,
amount,
data
birth,
of
of
policy
mode
of
proposer
medical
has
check
up
to
by
undergo
one
of
a
the
the
general
health
of
the
for
non
medical
general
benefits
of
the
non
medical
special
schemes
are
offices,
state
and
reputed
firms,
who
keep
suitable
He
for
further,
particular
inform
the
Keeping
in
view
the
of
payment
and
the
sum
occupation
period
of
is
supposed
to
give
correct
basis
of
this
report
and
the
acceptance
risk
on
the
basis
of
the
may
verify
the
agency,
knowledge
of
without
the
the
applicant.
and
physicians
relatives,
and
attending
neighbors
and
The
policy
contains
all
insurance
contract.
It
is
an
and
policyholder
the
should
insured.
The
preserve
the
to
be
submitted
to
the
should
be
immediately
quote
requirements
for
if
may,
however,
be
risk
under
the
corporation's
2.
Medical Examination
3.
Agents Report
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3.4.1.
The
offer
and
acceptance
of
life
public
are
invited
to
make
offer
and
the
dispatch
of
company,
or
the
needs
of
continue
the
carry
on
the
policy or not.
Persons of sound mind alone can
enter into a contract. A person is did
to be of sound mind for the purpose
of making a contract if at the time
when he makes it, he is capable of
understanding if and of forming a
rational judgment as to its effect
upon his interest. A person who is
usually
of
unsound
mind,
but
is
not
coercion,
undue
made
influence,
through
fraud,
essential
for
contract.
The
dividend
etc.
It
should
be
consideration
for
payment
of
oneself
or
one's
family
may
occur
in
old
age.
The
relationship
that
exists
always
has
on
insurable
in
practice,
insurance
of
others
also,
provided
the
in
their
lives.
When
will
survives.
continue
In
the
to
gain
same
is
way,
he
the
all
other
cases
of
insurance
in
insurable
interest
is
brother
grandparents
and
and
grant
sister
children
loss
to
the
remaining
2.
3.
4.
Lawful consideration
5.
Legal Objective
6.
Insurable interest
faith,
both
the
parties,
the
same
mind
at
the
time
of
also
responsible
the
insurer,
who
to
disclose
all
is
the
take
an
insurance
policy
or
not.
facts.
Full
and
true
no
concealment,
misrepresentation,
half
disclosure
international
non-disclosure
void
unintentional
initio.
non-disclosure
The
is
avoided
by
him
late
on.
For
facts
which
which
diminish
are
known
the
or
fact
which
the
insurer
3.5.1. Warranties
Warranties
are
those
If
the
proposer's
Informative
warranties
warranties
are
those
written
assurance
that
some
3.5.2.
Proximate Cause
because
the
insurer
is
natural
or
unnatural.
But
in
paid
or
surrender
value
proximate
cause
assumes importance.
of
death
3.5.3 Assignment
The
life
insurance
policy
can
be
of
love
and
affection.
The
assigner
cannot
cancel
the
assignee
interest or not.
has
an
insurable
Meaning of Assignment
The instrument by which a claim,
right,
interest
transferred
or
from
property
one
person
is
to
another.
3.5.4. Nomination
The life insurance policyholder can
nominate any person to receive the
policy amount in the event of his
death, either at the time of affecting
the policy or at any subsequent time,
before the maturity of the policy.
Unlike assignment, nomination may
be
cancelled
before
maturity.
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In
annuity
contracts,
the
medical
science
is
science.
useful
to
The
medical
modify
the
is
treated
as
basis
for
Policy Loans
Policy loans are given to the policy
holders against the surrender value
of the policy. The amount of loan and
interest will not be more than the
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covered
protection
by
these
and
insurance
policies
are
investment.
Life
provides
against
his
dependants
will
get
the
payment
of
single
premium,
continuous
premium
premium.
The
or
single
limited
premium
premium
payment,
popular
form
of
whole
life
policy
payment
holder
of
to
premium
arrange
the
during
his
Policy
holder
an
option
to
get
it
is
exercised
the
policy
in
income
after
short
Temporary Insurance
occurring
within
commencement
of
two
years
policy.
loan
can
be
granted
on
the
of
term
for
an
additional
of
renewal.
This
policy
is
assurance
Without
having
medical
examination
during
the
to
policy.
undergo
specified
at
fresh
any
term,
time
except
unable
to
pay
the
larger
assureds
surviving
the
be
returned.
The
pure
it
the
survives
in
pure
reasons
unacceptable
standard
of
for
health,
life
premium.
It
would
be
insurance
on
is
sort
of
Policy
This
policy
combination
provides
of
both
an
the
ideal
family
endowment
policy
is
the
Policy
single
policy.
Under
this
of
the
lives
assured.
The
all
insured
lives.
Paid
up
and
the
business
can
be
Endowment Policy
of
the
policy
holder
occurs
will
remain
maturity
may
fully
date,
but
discount
the
paid
the
until
the
beneficiary
policy
before
for
marriage
of
female
dependant.
Policy
beneficial
to
those
who
are
early
death.
The
investment
profits
who,
resides
desiring
to
th
of
becomes
th
of the sum
payable
on
his
th
the
becomes
of
the
payable
sum
on
assured
the
life
becomes
th
of the sum
payable
on
his
th
the
becomes
of
the
payable
sum
on
assured
the
life
th
of the
parent
or
guardian
or
near
is
parent
can
taking
policy
good
help
at
attraction.
has
a
children
rate
which
A
by
is
attain
majority
another
The
cash
value,
if
the
policy
is
risk
immediately
does
on
not
the
commence
issue
of
the
premiums
will
obligatory
on
be
repaid.
the
life
It
is
assured
to
after
attaining
majority,
but
period
of
less
than
years.
policy
can
be
taken
by
the
the
proponent.
The
policy
will
the
child's
life.
Half
of
the
earlier.
The
policy
will
together
with
vested
assured.
Again,
basic
sum
nominee
in
the
event
of
will
accrue
till
the
final
settlement.
3.8. Annuities
An
annuity
is
periodical
level
period.
The
recipient
is
loss,
medical
necessary.
examination
However,
age
is
not
proof
is
upto
the
rate
life.
is
So,
the
determined
according to longevity.
Kinds of Annuities
the
expiry
of
one
year.
The
also.
the
The
annuity
annuity
is
difference
due
end
that
the
or
in
installments.
The
period.
This
type
of
to
provide
themselves
regular
and
their
income
for
dependants
annuitant
throughout
his
life
So,
if
the
annuitant
dies
Annuity
two
types,
annuity
and
with
namely,
immediate
guaranteed
deferred
payment
annuity
with
guaranteed payment.
a.
Immediate
annuity
with
guaranteed payment
Under this annuity payment is
made
for
period,
at
predetermined
times,
even
after
representatives
of
the
payment,
the
Deferred
annuity
with
guaranteed payments
During
the
deferment
period,
annuity
deferred
and
annuity.
ordinary
After
where
the
insurer
annuity
employees
at
is
useful
to
time
of
the
payable
shall
not
be
for
fixed
period,
Annuities
An annuity is a periodical level
payment made in exchange of the
purchase money for the remainder
of the life time of a person or for a
specified period.
whereas,
life
insurance
is
on
life
insurance
the
payment
is
made of death.
The
annuity
liquidates
the
contract
generally
accumulated
funds,
gradual
accumulation
of
funds.
Model Questions:
1.
2.
What
are
the
procedures
for
insurance?
3.
4.
LESSON 4
COMPUTATION OF
PREMIUM
of
of
a
mortality
generation,
table,
namely,
particular
age
are
considered
dying
and
therefore,
as
number
of
living
goes
on
The
insurer
can
get
the
insurers
to
prepare
the
of
selected
persons.
For
number
of
deaths
will
be
Age
No. of
No. of
persons
persons
Death
living
Dead
Rate
Survival
Rate
25
1,00,000
200
0.002
0.998
26
99,800
300
0.003
0.997
27
99,500
398
0.004
0.996
With
increase
in
age,
risk
will
Mortality Table
Expected No. of Deaths
Age
For 1 lakh lives of a given age
25
128
30
134
35
178
40
280
45
465
= Rs.2.80
for
the
sake
of
simplification.
What is mortality?
The ratio of deaths in an area to
the
population
of
that
area;
Interest Factor
The second factor after death rate
is the interest factor for calculation
Insurers
are
generally
return
since
the
premium
is
(1 + 1)
Classification of premium:
1.
Net premium
2.
Gross premium
What
is
mean
by
Net
premium?
The net premium is based on the
mortality and interest rates.
net
premium
mortality
and
is
based
on
interest
the
rates,
gross
premium
is
the
the
amount
of
claim
wherever
it
No. of
Year
No. of
Age
Deaths
Persons
(1)
(2)
Claims
Present
Amount
of
Value@Per
(3)
Claim
of
{4x5x6}
3% for
Death
(4)
Present
Value
(7)
Rs.1
( 1 + 10.03 )
(5)
(6)
40
1
2
3
41
42
4
5
43
2,65,083
96.463
273
1.000
0.971
96.190
302
1.000
0.943
95.888
336
1.000
0.915
95.552
375
1.000
0.888
95,177
418
1.000
0.863
2,84,786
3,07,440
3,33,000
44
3,60,734
15,51,043
Present
value
Rs.15,51,043.
of
all
Total
claims
number
is
of
= Rs 16.08
In
case
payment
of
is
endowment
based
on
policies
death
and
we
continue
with
the
above
Rs.862.68
calculated
for
likewise
premium
different
type
is
of
4.2.1. Premium
The main source of reserve is the
premium
since
different
insurance
this
premium
plan,
will
the
rate
increase
as
of
the
time
passes,
the
premium
of
premiums
in
the
which
makes
up
any
4.2.2. Interest
The
second
interest
source
because
of
the
reserve
is
accumulated
investment
made
accumulated
funds
out
is
the
of
the
second
source.
in
reduce
later
the
years
may
accumulated
Likewise
policies
premium
plan
do
under
not
actually
reserve.
natural
required
accumulation of reserves.
The reserve can be calculated by
applying either prospection method
or by retrospective method. Reserve
of
further
claims
and
the
retrospective
method,
the
experience.
represents
the
The
net
reserve
premiums
settled.
The
method
of
Assuring
the
rate
of
1Year
Rs.
1,00,000
10,000
1,10,000
Nil
Terminal Reserve
1,10,000
II Year
Add
year
terminal
reserve
1,00,000
1,10,000
2,10,000
21,000
2,31,000
Less:
Claims
example
settled
10
(for
deaths
1,00,000
@Rs.10,000)
Terminal Reserve
1,31,000
passed
away
in
the
second year.
Different
classification
premium plan
1.
2.
3.
receive
policyholders.
premium
The
funds
from
are
Principles of Investment
4.3.1. Safety
Safety and security of investment is
more
important
maximum
than
profit.
earning
Speculative
4.3.2. Profitability
The insurer must earn at least the
assumed
rate
investment
Insurers
earn
must
investment
of
interest.
lesser
plan
an
programme
Safer
income.
effective
in
which
be
invested
in
profitable
4.3.3. Liquidity
Liquidity refer to convertibility into
cash, investment must be such that
they
can
be
easily
and
quickly
maturities
adjusted
will
to
occur
meet
at
the
intervals
needs
of
required
funds
need
be
What is Liquidity?
Being in cash or easily convertible
to cash; debt paying ability
4.4.4. Diversification
Diversification
of
investment
is
increase
the
development of a country.
economic
Principles of investment
1.
Safety
2.
Profitability
3.
Liquidity
4.
Diversification
5.
Social objectives
securities
are
the
sense
substantial
values.
securities
that
there
fluctuations
The
returns
thought
not
are
in
on
no
their
these
higher
are
cumulative
preference
shares,
winding
repayment
up
of
of
the
company
preference
share
shares
are
not
desirable
source of investment.
Investment Types
1.
Government securities
2.
Industrial securities
Model Questions:
1.
Explain
the
computation
of
principles
of
premium
2.
Explain
insurance.
the
LESSON 5
POLICY TERMS AND
CONDITIONS
insurer
is
premium
was
paid
of
risk,
containing
the
insurance
terms
and
insurer.
However,
if
it
is
age,
the
assured
sum
is
than
difference
the
is
started
either
age,
refunded
the
or
premium
rate
is
calculated
assured, it
can
be
paid
half
are
not
annual
but
to
the
the
due
convenience
of
insurers
dates.
the
on
But
or
for
policyholder,
If
the
to pay the
insured
pays
quarterly
premiums
and
premium
must
be
paid
on
the
misstatement,
premium
disputed
at
the
any
policy
time
can
be
during
the
insurer
alterations
in
permits
the
certain
terms
and
assigning
any
reason.
change
in
the
mode
of
permit
alterations,
which
premium
rates
are
not
So,
war
clause
is
not
to
be
included,
it
will
be
the
insurer.
The
policyholder
If
the
policy
is
lost
or
insurer.
On
the
satisfactory
5.3.5. Loans
The
insurer
grants
loan
on
the
types
surrender
of
policies
where
are
not
values
policies
up
to
90
5.3.6. Nomination
The policy holder when effecting the
policy or at any time before the policy
matures for payment, nominate a
person or persons to whom the sum
assured shall be paid in the event of
his death. If the policy matures by
expiry of time, the policy amount is
payable to the insured himself and
not
to
the
nominee.
When
such
notice
nomination
is
is
given,
in
provided
order.
But
the
for
5.3.7. Assignment
The
policy
holder
can
make
an
The
assignment
may
be
has
to
give
written
will
assignee.
be
In
transferred
case
of
to
the
absolute
assignment,
all
rights,
title
and
In
assignment,
case
the
of
right
conditional
may
revert
payment
of
double
the
sum
occurred
mainly
due
to
disability
benefit,
if
the
disablement.
The
example
of
extended
disability
benefit
Lapse of policies
The insurer shall remain liable
for the payment of the claim so
far the assured continues to pay
the premiums. When they fall
due. If the policy holders fails
to pay any of the due premiums
within the days of grace, the
insurer's
liability
ordinarily
The
insurer,
however
provides
certain
policy
lapsed
by
non-
is
possible
within
six
unpaid
premium
without
interest
at
the
rate
of
7%
date
of
the
first
unpaid
production
of
in
personal
of
Family
History of occupation.
3.
Surrender value
When the assured is unable to
revive
his
policy,
he
can
cash
value
without
any
India,
guaranteed
the
corporation
surrender
has
value
if
The
minimum
premium
paid
Thus,
on
such
policies
term
depends
upon
the
amount.
But,
if
assured
paid
before
the
or
purchasing
term
automatic
premium
loan
evidence
If
the
whole
of
of
of
all
the
premiums
Settlement of claims
The
policy
amount
becomes
during
the
term
of
not
admitted
before
the
in
order
papers
that
the
may
be
be
doctor
certificate
who
from
attended
the
the
identifying
the
from
responsible
person
acquainted
with
the
nomination,
or
assured
title
is
required.
In
other
or
Administration
Settlement options
The claim amount may be paid
in
cash
or
installment.
The
the
insured
wishes
to
and
the
insured,
expenses
involved
value.
in
payment
Now,
surrender
of
value
the
can
losses
of
surrender
definition
be
are
as
of
that
time
of
surrendering
the
policy.
of
its
issue
because
huge
excess
of
receipts
over
of
the
total
number,
Accumulation Approach.
2.
Saving Approach.
1.
Accumulation Approach
Under this approach surrender
value is the accumulation of over
charges
in
the
net
premium,
the
amount
of
claims,
meeting
other
obligations
at
the
time
of
surrender.
The accumulation approach is very
scientific because it allows surrender
values
to
all
types
of
polices,
the
term
policies
and
pure
there
the
question
of
surrender
values
allowed
on
earnest
thereon
minus
expenses
of
the
insurer.
The
going
into
loss.
The
full
cannot
be
given
as
surrender
charges
are
those
account
of
surrender
or
Initial Expenses
In the beginning of the contract,
certain expenses are involved for
processing
payment
agents
the
of
and
proposals
commission
medical
to
officer,
high
that
the
first
year's
of
the
policy.
if
policy
is
lapsed
or
to
charge
the
unpaid
stage
because
initial
Adverse
Financial
Selection
During the period of business
depression, the surrendering of
policies
weaken
the
financial
cases
the
policyholders
The
liquidate
insurer
some
has
assets
no
at
values
liquid
necessitates
assets
with
the
unable
to
earn
sufficient
Adverse
Mortality
Selection
It is well-known fact that the
persons in extremely poor health
are not likely to surrender their
policies. They will beg, borrow or
steal to maintain the protection.
Those
who
do
surrender
are
do
not
Consequently
surrender.
at
every
the
assumed
mortality.
Contribution
to
contingency Reserve
While calculating gross premium
a small amount for contribution
to
contingency
reserve
is
meet
the
sudden
and
contribution
is
left
unrealized.
5.
Contribution to profits
The
policy
is
expected
to
should
as
surrender
permitting
also
be
charges
surrender
of
policy.
6.
Cost of Surrender
The insurer will incur a certain
amount
processing
of
the
expenses
surrender
in
of
is
left
unrealized
and
to
allow
maximum
and
losses
which
Thus,
relieved
of
where
the
insurers
responsibility
are
of
return
some
amounts
to
be
The
saving
scientific
reason
approach
because
of
if
payment
is
more
reveals
of
the
surrender
after
considering
various
date
of
surrender
up
to
the
surrendering
insurance
would
the
policy,
continued
have
received
the
the
insurer
the
level
would
have
occupied
certain
up
to
the
policy
life.
value
of
future
expenses + Future
Reversion
ally
if
participating
of
maturity
or
death,
the
provisional
sum,
called
minimum
of
maturity
surrender
value
adjusted
amount
surrender
or
is
value
death
the
adjusted.
The
will
full
be
minus
the
Model Questions:
1.
Describe
conditions
the
various
covered
policy
under
life
value
is
insurance.
2.
How
surrender
a.
Endowment policies,
b.
Lapse of policies
c.
Settlement of claims.
LESSON 6
ROLE OF L.I.C. OF INDIA
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from
the
public
sector
companies
sector
is
perhaps
the
of
opening
up
of
the
fourths
of
India's
insurable
The
scope
for
expansion
therefore
immense.
estimated
number
that
that
productive
It
out
of
has
class.
has
been
the
vast
joined
the
L.I.C.
covers
potential
to
grow
to
Insurance
Executive
has
company
so
apply
chief
out
it
country
bought.
but
has
only
been
most
credit
cards
offer
According
to
conservative
nd
in volume of General
is
US
$303.
This
disparity
average
insurance
premium
in
premia
recorded
by
GIC
10
year
period
beginning
1988-89.
India ranks 23
of
rd
total
insurance
business
insurance
nationalization,
oriented.
India
remains,
skewed
has
an
despite
and
urban
insurance
st
Korean
insurance business
and
was
Taiwanese
liberalized
In
the
general
comprising
insurance
mainly
of
sector
three
lines
cargo
and
fire
the
claims
Reinsurance
substantial
part
of
forms
the
general
outward
operations
reflecting
are
and
not
perhaps
their
inward
significant
cautions
general
insurance
from
the
show
Increased
substantial
economic
increases.
activity
as
on
rapid
infrastructure
new
assets
demand
cover.
for
It
demand
is
for
thereby
creating
additional
insurance
estimated
that
additional
insurance
the
as
one
of
the
major
of
the
private
sector
and
demand.
International
of
financial
institutions
and
could
facilitate
transfer
of
technology
competitive
structures
of
smooth
create
service
of
companies
which
can
fund
gestation
period
flow
into
projects
long
as
he
employment
opportunities
funds
for
long
gestation
with
the
new
global
reduction
of
the
to
private
entry
is
misplaced.
The apprehension that there would
be massive retrenchment and job
losses due to modernization and that
private firms would skin the urban
cream market and ignore the rural
areas are totally misplaced, since
there is vast potential for life and
other forms of insurance. As a matter
Korea
resulted
and
in
Regulation
Philippines
more
could
job
take
has
creation.
care
that
and
Apparently,
private
the
entry
rural
coverage.
unions
fear
would
demolish
that
the
for
evaluating
the
of
employees
government
in
companies
order
that
insurance
the
public
companies
sector
remain
companies
in
to
smaller
could
be
perceived
as
monopolized
banking
sector
industry.
and
the
As
the
capital
or
reforms,
it
has
become
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the
parliamentary
standing
certain
modifications.
These
equity
private
to
be
sector
allowed
for
participation
(NRIs
capital
period
planning
of
in
10
to
phases
years.
enter
the
within
Companies
insurance
business-
life,
General
or
re-
The
Banking
Act
is
the
industry
and
consumers
Authority
has
stated
engineering
(IRDA)
that
Mr.N.Rangachari
no
would
financial
be
re-
allowed
to
in
actual
practice,
such
on
account
of
stringent
of
Rs.100
crores
Life
strict
What is IRDA?
Insurance Regulatory Development
Authority.
insurance
Reforms
Committee
Report.
(Malhotra)
The
IRDA
Act
the
standing
Finance,
as
committee
well
as
on
other
recommendations/suggestions
from
various
have
quarters.
Provisions
Insurance
Act,
1938,
Act,
1956
Insurance
and
the
Business
of
policies,
insurance
interest,
nomination,
settlement
of
powers
and
functions
are
the
watchdog
role
and
of
an
regulator
effective
for
the
assigned
responsibilities
and
(IRDA)
Development
to
effectively
growth
of
the
insurance
of
foreign
equity
capital
company,
to
investment
or
intermediaries
and
insurance
to
make
regulations.
has
been
rather
placid
two
monopolies
the
Life
the
General
Insurance
second
year
of
operations.
By
percent
of
the
all
India
ICICI
prudential
is
the
Insurance,
HDFC
club
Insurance,
IFFCO
Tokya
and
Tata
More
to
report,
by
sector
companies
40-50
2007,
percent
AIG
may
join
FICCIthese
will
market
General
soon.
Mckinsey
private
capture
share.
The
by
competition,
increased
Today,
while
boundaries
getting
increasingly
blurred,
looking
people
not
just
are
at
in
providing
solutions,
not
insurance products.
In
an
increasingly
competitive
Service
would
focus
on
and
maximizing
customer
convenience.
Insurers will see a real opportunity
for sales in semi-urban and rural
areas
and
products
will
for
design
these
suitable
markets.
The
Model Questions
1.
2.
Trace
out
the
history
of
Life
Insurance in India.
3.
Explain
the
impact
of