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Part 1

Part 1. Chapter 1- Fundamentals of Life Insurance Chapter 2- Legal Aspects of Life Insurance and Life Insurance Products Chapter 3- Life Insurance Marketing and Distribution. Chapter 1. Fundamentals of Life Insurance. Insurance . Provides financial protection against an unexpected loss

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Part 1

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  1. Part 1 • Chapter 1- Fundamentals of Life Insurance • Chapter 2- Legal Aspects of Life Insurance and Life Insurance Products • Chapter 3- Life Insurance Marketing and Distribution

  2. Chapter 1 Fundamentals of Life Insurance

  3. Insurance • Provides financial protection against an unexpected loss • It works on principle of risk sharing

  4. Life Insurance defined Life insurance provides a ‘death benefit’ in return for small periodic payments called premiums

  5. Insurance history in India First Insurance company in India set up in 1870 Insurance Act passed in 1912 and amended in 1938 More than 100 insurance companies in India in 1950 Insurance industry nationalized in 1956 IRDA set up and Insurance privatized in 2000

  6. Human Life Value- HLV • Concept established by Prof. Solomon Huebner • It is the capitalized value of an individual’s earning that supports family, dependants and business partners Prof. S. Huebner Taught Insurance in Wharton School from 1904 to 1953

  7. Life Insurance Premium Components • Mortality (claims to be paid out) • Expenses • Allowance for unexpected loss • Earnings on premium collected

  8. Key Life Insurance Principles • Insurable Interest • Moral Hazard • Law of Large numbers

  9. Underwriting The method of evaluation and assessment of each life insurance application, to determine whether the applicant can be insured and, if so, at what premium rates

  10. Underwriting Evaluation Process Financial Risks Medical Risks Accident Risks

  11. Underwriting Categories

  12. Chapter 2 Legal Aspects of Life Insurance and Life Insurance Products

  13. Essential aspects life insurance contract • Offer and acceptance • Legal purpose • Competent parties • Consideration

  14. Special Legal Characteristics • Unilateral nature • Personal Nature • Conditional Nature • Contract of Adhesion

  15. Life Insurance Products Term Plans • Pure Term • Pure Endowment Endowment Whole Life Money back

  16. Pure Term Policy issued for 10 years death Payout to family Year 1 2 3 4 5 6 7 8 9 10 Insured person survives till end of policy term =No payout This is a plan to cover the risk of Early Death

  17. Pure Endowment No Payout to family death Year 1 2 3 4 5 6 7 8 9 10 Pay out only if Insured person survives till end of policy term This is a plan to cover the risk of Living too Long

  18. Traditional Products Term Plan death Payout to family Policy issued for 10 years Year 1 2 3 4 5 6 7 8 Year 1 2 3 4 5 6 7 8 9 10 Insured person survives till end of policy term NO PAYOUT

  19. Endowment is a combination of pure term and pure endowment for the entire policy duration death Payout To family Policy issued for 10 years Year 1 2 3 4 5 6 7 8 Endowment would cover the risk of Early Death also the risk of Living too Long Year 1 2 3 4 5 6 7 8 9 10 Insured person survives till end of policy term =Payout to policy holder

  20. Money Back is combination of pure term for the policy duration and pure endowment for short periods within the policy term Policy issued for 20 years with money back at 5th, 10th, 15th & 20th yr. Payout to family in case of death and also Payout at regular intervals in case insured survives death Yr 0 2 4 6 8 12 14 16 18 20 Pure Term Plan from year 1 to year 20 PLUS Pure Endowment Plan from year 6 to year 10 Pure Endowment Plan from year 1 to year 5 Pure Endowment Plan from year 11 to year 15 payout payout payout Pure Endowment Plan from year 16 to year 20 payout Yr 0 5 10 15 20

  21. Unit Linked Insurance Plan ULIP is life insurance solution that provides the benefits of protection and flexibility in investment. The investment is denoted as units and is represented by the value that it has attained called as Net Asset Value (NAV).

  22. ULIP- A transparent product In ULIP the premium components are clearly expressed under following categories Expenses- The administration and management charges deducted from the premium Investment- The amount available to invest in a fund of client’s choice Mortality- The mortality charges deducted from the premium

  23. Working of a ULIP Plan More units are purchased With balance amount Mortality Charge Premium Related Charge Admin Charge Less 2nd year Premium As NAV moves up so as does the Fund Value Units are purchased With balance amount Mortality Charge Premium Related Charge Admin Charge Deduct 1st year Premium

  24. Chapter 3 Life Insurance Marketing and Distribution

  25. Growth of Life Insurance in India post Liberalization Insurance penetration has increased significantly after Liberalization and is estimated to grow further Data from India Brand Equity Foundation

  26. Channels Distribution channels • Agent • Broker • Corporate Agent.

  27. Bancassurance- Indian Opportunity Banks command almost 40% of household investments Extensive coverage of bank branches across rural and urban India Source: RBI Annual Report, Aug 02 All Data for Yr 2000-01

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