Insurance Sector - Its Future in India

NAME: PIYUSH KHETAN
ROLL NO :368
REG NO: A01-1112-1255-12
9/18/16
Piyush Khetan, St. Xavier's College

LIFE INSURANCE
- A CASE STUDY
9/18/16
Contents
INTRODUCTION
OBJECTIVES
LITERATURE REVIEW
ABSTRACT
WHAT IS LIFE INSURANCE
HISTORY
WHY LIFE INSURANCE?
PRICING OF PREMIUM
COMPANY PROFILE:
LIC A CASE STUDY
TYPES OF LIFE INSURANCE
COMPARATIVE ANALYSIS OF LIC
AND PRIVATE SECTOR
9/18/16
4
5
6
7-9
10-12
13-17
18-19
20-23
24-36
37-46
3
INTRODUCTION
It is the uncertainty that is risk, which gives rise to
the necessity for some form of protection against
the financial loss arising from death. Insurance
substitutes this uncertainty by certainty. The
primary purpose of life insurance is the protection
of the family. Insurance in its various forms
protects against such misfortunes by having the
losses of the unfortunate few paid by the
contribution of the many that are exposed to the
same risk. This is the essence of insurance the
sharing of losses and substitution of certainty for
uncertainty.
9/18/16
4
Objectives
Primary Objectives:
1. Learn the purpose of life insurance.
2. Learn to who needs life insurance.
3. Analysis of Life Insurance Cooperation
Secondary Objectives:
1. Learn the calculation of Life Insurance
Premium
2. Learn About different Life Insurance
Policies
9/18/16
LITERATURE REVIEW
9/18/16
ABSTRACT
The field of insurance has taken a giant leap at the
threshold of twentieth century. Insurance have
become an integral part of life of man all over the
globe. The proverb Need is the mother of invention
is proving equally correct in case of insurance.
My area of research has been restricted to LIFE
INSURANCE only where I have tried to go through
the history of life Insurance, the growth of Life
Insurance product post liberalization, tax benefits of
life insurance, comparative analysis of LIC and
private sector etc.
The source of information has largely been from
articles of various authors, wikipedia, LIC website
9/18/16 etc.
7
What is Life Insurance?

Life
9/18/16
Insurance can be termed

as an agreement between the
policy owner and the insurer,
where the insurer for a
consideration of a sum of
money agrees to reimburse
upon the occurrence of the
insured individuals' death or
any other event, such as
terminal illness, critical
8
illness
or maturity of the
Legal contract between two parties
Pay the beneficiary a

sum of money upon the
occurrence of the
insured individuals
death.
Insurer
9/18/16
Insured
Beneficiary
Pay
a
stipulated
amount (at regular
intervals or in lump
sum).
INSURANCE SECTOR IN INDIA : EVOLUTION AND CURRENT STANDING
9/18/16
10
History of Life Insurance in

India
e
Li f a t
l
ta any
n
rie mp
O
:
Co ta
8
e
1 c
a
18 ran Kolk
u
Ins
h
s
i
t
ri ct
B
: eA
0
7 nc
18 ura
Ins
1912 : Indian Life Assurance

Companies Act
enacted as the first statute to
regulate the life insurance
business.
1938 : Insurance Act
comprehensive
provisions for effective
control over the
activities of insurers
1956 : Nationalization of Life Insurance sector

Formation of LIC : Merger of 245 Indian
and foreign insurers
LIC monopoly continued till the late 90s
9/18/16
11
1993: Malhotra Committee- Initiation

of reforms
Assessment of functionality of Indian
insurance sector
Private sector be permitted to

enter the Indian insurance
sector
Offer operational autonomy to the
insurance service providers
Form an independent regulatory body.
1999 : Insurance Regulatory and Development Authority

(IRDA) Act
Formulation of IRDA
crucial policy changes in the insurance sector of
India
Safeguard interests of insurance policyholders,
Initiate different policy measures to help sustain
growth in insurance sector.
9/18/16
12
INDIA VS WORLD
2013
9/18/16
Life
Premium
(b $)
Insurance
density
($)
Insurance
Penetratio
n (%)
World
2332
595
7.0
USA
492
3710
8.0
Japan
399
3979
10.0
UK
218
4579
13.0
France
194
4269
10.0
China
109
121
3.4
India
57
54
5.2
25
252
3.1
Brazil
13
Why Life
Insurance
9/18/16
Insurance guarantees a
specific sum of money
upon the death of
the insured.
if
insured
lives
beyond a certain
age.
Utility of Life insurance
derived
from
psychological security
and not from an actual
claim event.
Insured may not be the
Beneficiary
14
OTHER ADDITIONAL BENEFITS

TO HAVE A LIFE INSURANCE
Protection (for present & future).
Liquidity
Tax Benefits
Money When in Need (to meet
expenses on outstanding debts)
9/18/16
15

TAX BENEFITS
9/18/16
16
Premiums paid for Health Related Riders:

Some of the critical illness, hospitalization cash
and other health related riders attached to a Life
Insurance policy may also be eligible for rebate
under section 80D of the Insurance Act.
This deduction is available to both Individuals &
HUF.
Rs.15,000 is the maximum amount deductible
during the year for an individual as well as a senior
citizen.
Condition for applicability of deduction is that the
9/18/16
premium must be
paid
cheque
Piyush
Khetan,by
St. Xavier's
Collegein the previous
year out of the income chargeable to tax.
17
Death Claims and Maturity Benefits:

Life Insurance Policiesare under anEEE (ExemptExempt-Exempt) regimei.e. that the Premiums Paid,
Income earned by the Investments, and payment of
Maturity proceeds or claim are all exempt E from
tax under section 10(10)(D) of the Income Tax Act.
The only policies that are not eligible for exemption
on payment on maturity or claim are Single Premium
Policies or Policies where the sum assured was less
than 5 times the Premium paid.
9/18/16
18
Pricing of Premium
Determinants
Mortality Group/Rate
Age based
For Individual Product India
treated as a single group
Base Year 2001-02
Expense Ratio
Overall Expenses
(Commission, Salary,
Administrative cost)
9/18/16
19
Example : Premium
Calculation
Age Group
Description
30 Years
Expected Capital
Required as Settlement
Amount
2000
Number of
insurees
1000
Mortality
Rate
2/1000
Expenses @ 6%
-120
1880
Insured
Amount
Rs 1000
Balance left for

Investment
Period of
Insurance
1 Year
If Premium Rs 2/1000,
Premium collected
Interest Earned in Inv @

10%
188
Total Balance
2068
Balance after Payment of

Insured Amount
2000
Surplus/Profit
9/18/16
2000
68
20
A Case Study
"yogakshemam
vahamyaham"
9/18/16
21
Introduction
Created on 1st Sept. 1956 by LIC Act (19th Jan.
1956).
Merger of 245 companies( 154 life insurance
companies, 16 foreign companies & 75 provident
companies).
Assets estimated- US $240 billion.
Headquarter- Mumbai
8 zonal offices, 118 divisional offices, 3500
servicing offices, 2048 Branch offices, 54 Customer
Offices, 25 Metro Area Service Hubs and a number
of Satellite Offices located in different parts of India.
9/18/16
22
Mission & vision

Mission
Explore and enhance the quality of life of
people through financial security by providing
products and services of aspired attributes
with competitive returns, and by rendering
resources for economic development.
Vision
A trans-nationally competitive financial
conglomerate of significance to societies and
Pride of India.
9/18/16
23
Objectives
Spread Life Insurance widely and in particular to the
rural areas and to the socially and economically
backward classes with a view to reaching all insurable
persons in the country and providing them adequate
financial cover against death at a reasonable cost.
Maximize mobilization of people's savings by making
insurance-linked savings adequately attractive.
Conduct business with utmost economy and with the
full realization that the money belongs to the
policyholders.
9/18/16
Act as trustees of the insured public in their individual

and collective capacities.
24
Types of Life
Insurance
rance
u
s
I
n
p o lic i e s
f
i
m
e
r
e
t
L
Term
reasing
y
c
e
D
/
g
in
ce Polic
s
s ur a nc e
s
Increa in
A
m
r
rtible Te
e
v
n
o
C
u ra nc e
s
n
I
e
f
i
erm L
ra n c e
u
s
n
I
e
Level T
f
i
l
e term
l
b
a
w
e
Ren
ance
r
u
s
n
I
ent
w
m
d
o
t p la n
n
En
e
m
w
la n
e endo
if e
e n t p la
m
w
Jo i nt l e
o
d
ba c k en
y
e
n
o
t p la n
n
e
M
m
w
g e e nd o
a
i
r
r
a
M
9/18/16
ance
r
u
s
n
I
L i fe
)
e
l
o
h
nt (W
e
n
a
Pe r m
life plan
e
l
o
h
w
e pla n
ry
if p
a
Ordin ry yment whole l e
d pa
Limite
lans
P
d
e
k
n
Unit Li
Piyush Khetan, St. Xavier's

College
25
Term Life Insurance
Sum assured is payable only in the event of death during the term.
In case of survival, the contract comes to an end at the end of

term.
Term Life Insurance can be for period as long as 40 years and as

short as 1 year.
No refund of premium
Non-participating policies
Low premium as only death risk is

covered.
9/18/16

College
26
Types of term life

insurance
1.Annual / Level Term Insurance
The face or death benefit amount remains

constant throughout the policy period.
Premiums may increase when contract is
renewed, but the face amount remains the
same.
2.Renewable Term Insurance
The insurance companygives an option to

renew the coverage after the term of the policy
is over.
Premiums are considerably higher at each
renewal.
9/18/16
27
3.
Increasing Term Insurance
Cover under this plan goes on increasing periodically

over the term in a predetermined rate.
Premium amount remains the same.
It takes into account the inflation or any other
changing circumstances.
4. Decreasing Term Insurance

Premiums remains constant throughout the term
period.
Coverage amount decreases.
Normally taken for mortgaged protection, under
which outstanding loan amount decreases as time
passes.
5. Convertible Term Insurance
A policy that can be exchanged for a cash-value

policy within a specific number of years (except the
last 2 years).
Usually converted into endowment insurance or a
whole life policy.
9/18/16
28
Products offered
Anmol
Jeevan
Amulya Jeevan
Two Year Temporary Assurance
Policy
The Convertible Term Assurance
Policy
9/18/16
29
2.Endowment
Insurance
In anendowment policy, periodic premiums are

received by the insured person (in 10, 15 or 20
years) and a lump sum is received either on the
death of the insured or once the policy period
expires.
Endowment insurance plan is a type of investment
oriented plan.
Gives the policy holder triple benefits of savings,
wealth creation, and insurance coverage.
Types:Joint Life Endowment Plan
Marriage Endowment Plan
Educational Endowment Plan
9/18/16
30
Products offered
The
Endowment Assurance Policy

The Endowment Assurance PolicyLimited Payment
Jeevan Mitra
(Double Cover Endowment Plan)
Jeevan Mitra
(Triple Cover Endowment Plan)
Jeevan Anand
New Janaraksha Plan
Jeevan Amrit
9/18/16
31
3.Permanent (whole) life

insurance
Remains active throughout the life of the
policy holder and premiums have to be paid
every year.
When the policy holder dies, the face value of
the policy, known as the death benefit, is
paid to the person or persons named in the life
insurance policy (the beneficiary or
beneficiaries).
The insured receives a fixed sum at periodic
intervals during survival and full sum assured
is paid on death of the policy holder without
any deduction (anticipated whole life
insurance).
9/18/16
32
Products offered
The Whole Life Policy
The Whole Life Policy- Limited P
ayment
The Whole Life Policy-Single Pr
emium
Jeevan Anand
Jeevan Tarang
9/18/16
33
4.Money back
policy
Ensures
periodic payments to the

policy holder.
In case of survival, the policy holder
gets the full sum assured.
In case of death, the beneficiary gets
the full sum assured.
Now-a-days new ULIP versions of
money back policies are offered by
insurance companies.
9/18/16
34
Products offered
Money Back with Profit

Jeevan Surabhi (15,20 or 25 years)
Jeevan Bharati
Jeevan Samriddhi
Bima Bachat
9/18/16
35
5.Unit linked plans
A combination of insurance as well as investment.

The premium amount is invested in the stock
market and returns better income on the maturity
period.
Better for long-term investment option.
ULIPs generally provide higher returns as large
portion of the funds are invested in equities.
There is also option of switching over from one
fund to another if it does not seem to be profitable.
It has emerged as one of the fastest growing
insurance products.
It comes under the purview of IRDA.
Piyush Khetan, St. Xavier's College 9/18/16
36
Products offered
Endowment
Flexi
Plus
Plus
9/18/16
37
Comparison of Premium amount of various

Insurance Cos.
Data as on 31st September, 2014
9/18/16
38
Following Chart in the next page show all the

online and offline term insurance plans
name, and their premiums
1.The premiums above are for 30 yrs old nonsmoking male, and 30 yrs policy tenure.
2.The premium quoted is for Rs 1 crore sum
assured and does not include service tax.
3.Most of the term plans also allow riders
along with their plans.
4.Riders are additional benefits which you can
take by paying some extra premium
9/18/16
39
9/18/16
40
9/18/16
41
9/18/16
42
PRESENT STATE
23 Public and Private Life

Insurers
World's fifth largest life
insurance market
Growing at 36% YoY (2010)

Premium : 7% to the
countrys GDP
89% of total Insurance
business
2012-13
2013-14
RegularPremium
LIC
48
39
PrivateSector
52
61
SinglePremium
LIC
87
90
PrivateSector
13
10
FirstYearPremium
LIC
64
61
PrivateSector
36
39
RenewalPremium
LIC
83
77
PrivateSector
17
23
TotalPremium
LIC
74
71

College
9/18/16
PrivateSector
26
29
43
Ratings Of Insurance
Companies In India - Top 5
Companies
Market Share
(2013)
Market Share
(2012)
LIC
64%
74%
ICICI Prudential Life

Insurance Co Ltd
11.8%
8.93%
SBI Life Insurance Co

Ltd
15%
6.99%
Bajaj Allianz Life

Insurance Co Ltd
13.1%
7.36%
Reliance Life Insurance

Co Ltd
9.8%
2.96%
9/18/16
44
Comparison of Public & Private Sector

2009
LIC
PrivateSector
Life Insurance offices
3030
8785
Metro cities
3x
New Policies issues
3.6 Cr (-4.5% YoY)
1.5 Cr (13.2% YoY)
Paid up capital
5 Cr
18248 Cr
Premium underwritten
157288 Cr
64503 Cr
Market Share
71%
29%
Commission Expense Ratio
6.40%
8.50%
Operating Expense Ratio
5.80%
25.80%
9/18/16
45
Present State
23 Public and Private Life
Insurers
World's fifth largest life
insurance market
Growing at 36% YoY (2010)

7% to the countrys GDP
89% of total Insurance
80%ofIndiansdo
nothaveLife
Insurance
business
LIMITATIONS
BIBLIOGRAPHY
9/18/16
48
SUGGESTIONS
9/18/16
49
FINDINGS
9/18/16
50

Insurance Sector - Its Future in India

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NAME: PIYUSH KHETAN

Piyush Khetan, St. Xavier's College

Piyush Khetan, St. Xavier's College

Piyush Khetan, St. Xavier's College

Piyush Khetan, St. Xavier's College

Piyush Khetan, St. Xavier's College

What is Life Insurance?

Insurance can be termed

Legal contract between two parties

Pay the beneficiary a

INSURANCE SECTOR IN INDIA : EVOLUTION AND CURRENT STANDING

Piyush Khetan, St. Xavier's College

History of Life Insurance in

1912 : Indian Life Assurance

1956 : Nationalization of Life Insurance sector

Piyush Khetan, St. Xavier's College

1993: Malhotra Committee- Initiation

Private sector be permitted to

1999 : Insurance Regulatory and Development Authority

Piyush Khetan, St. Xavier's College

Piyush Khetan, St. Xavier's College

Piyush Khetan, St. Xavier's College

OTHER ADDITIONAL BENEFITS

Protection (for present & future).

Piyush Khetan, St. Xavier's College

Piyush Khetan, St. Xavier's College

Premiums paid for Health Related Riders:

Death Claims and Maturity Benefits:

Piyush Khetan, St. Xavier's College

Piyush Khetan, St. Xavier's College

Balance left for

Interest Earned in Inv @

Balance after Payment of

Piyush Khetan, St. Xavier's College

Piyush Khetan, St. Xavier's College

Piyush Khetan, St. Xavier's College

Mission & vision

Piyush Khetan, St. Xavier's College

Act as trustees of the insured public in their individual

Piyush Khetan, St. Xavier's College

Piyush Khetan, St. Xavier's

Term Life Insurance

In case of survival, the contract comes to an end at the end of

Term Life Insurance can be for period as long as 40 years and as

Low premium as only death risk is

Piyush Khetan, St. Xavier's

Types of term life

The face or death benefit amount remains

2.Renewable Term Insurance

The insurance companygives an option to

Piyush Khetan, St. Xavier's College

Increasing Term Insurance

Cover under this plan goes on increasing periodically

4. Decreasing Term Insurance

5. Convertible Term Insurance

A policy that can be exchanged for a cash-value

Piyush Khetan, St. Xavier's College

In anendowment policy, periodic premiums are

Piyush Khetan, St. Xavier's College

Endowment Assurance Policy

3.Permanent (whole) life

Piyush Khetan, St. Xavier's College

Piyush Khetan, St. Xavier's College

periodic payments to the