Pointers to Discuss

This is a summary of Important Concept / terminologies collected from every chapter .

INTRODUCTION TO INSURANCE
History of Insurance Babylon Traders had agreement to pay extra to the lenders to write of the loans , in
case a shipment has been lost . These were called BOTTOMRY LOAN . In India it
was practised in Surat & Baruch
Modern Days : world ORIGIN Can be traced to Llyod coffee House ( Marine insurance ); AMICABLE
SOCIETY FOR PERPETUAL ASSURANCE in 1706 London. Considered as First Life
Insurance company
In India The Oriental Life Insurance CO Ltd ( First Life Insurance company )
Triton Insurance Co Ltd ( First Non Life Insurance Company )
Bombay Mutual Assurance Society ( First Indian Life Insurance Co , 1870)
National Insurance Co (Oldest running insurance company in India 1906)
Life Insurance Act 1912 Also provident fund act was passed to regulate the Insurance Business in India .
Life insurance act made it mandatory that premium rate table and valuation is
made a must to be certified by Actuary
Insurance Act 1938 First legislation enacted to regulate the conduct of Insurance companies in India .
The controller of Insurance was appointed by Government , under this Act .
Nationalization of Life 1 sept 1956 , LIC was formed . Before this 170 Life insurance company and 75
Insurance provident fund societies were present.
Nationalization of Non Life General insurance business notification Act 1972 . GIC ( General Insurance
Insurance corporation of India ) and 4 subsidiaries were set up . Before this 106 Non life
insurance companies were present
Mahlothra Committee & Mahlothra Committee set up , 1993. INSURANCE REGULATORY AND
IRDA DEVELOPMENT AUTHORITY 1999 . Today 24 Insurance company
Risk Burden PRIMARY burden : losses actually suffered by households ( business units ) and are
measurable and can be settled easily
Secondary Burden : costs and strains that one has to bear mainly from the fact
that one is exposed to loss situation . Uncertainty over the event and loss that
could happen makes it easy to transfer the risk to Insurance companies .
Risk Management Risk Avoidance ( controlling risk by avoiding loss) , Risk retention ( one decides to
Techniques bear the risk and its effect) , Risk reduction and control ( measure to reduce
chances of occurrence is called loss prevention , and measure to reduce degree of
loss is loss reduction ) , Risk Financing ( provision of funds to meet the loss )
Insurance Vs Assurance Insurance refers to protection against an event that MIGHT happen , Assurance
refers to Protection against an event that WILL happen .
Insurance provides covers against Risk , Assurance provides protection against
EVENT that is definite . Assurance policies are associated with Life Insurance

Social Security Employee state Insurance corporation 1948 ( covers expenses due to sickness,
maternity , death for industrial employees ) : Crop Insurance Schemes ( RKBY) for
farmers , Rural Insurance Schemes ; Insurance industries also offer for social
security i.e Janta Personal , Jan Arogya .
Role Insurance Industry Economic development of the country
Why insurance Events are unpredictable and could cause economic loss or damage .
Events that could cause Risk is called perils .
What Life Insurance Involves
Human Life Value Prof HUBENER . It measures the Human life based on individuals net future earning
( less the amount He would spend )
 Thumb Rule Divide the annual Income a family would like to have, even if the
bread winner is no longer alive ,with the rate of interest that can
be earned .
Eg : Rajan earns 1.2 L /Year and spends 24K . NET income family
would lose is 96 K . Assume interst rate @ 8% = 96000/0.08=
120000 (HLV)

In general ,10-12 times income should be approx SA for

insurance

Risk Living too Long , Dying too Early , Living with disability
General Insurance Vs Life With exception of Personal accident Life insurance are contracts of
Insurance insurance , are usually contract of ASSURANCE .
INDEMNITY
Indemnity : Events where in Insurer can asses the exact amount of loss that has
occurred & pays compensation to the amount of Loss , nothing more .
Life Funds and Reserve Reserve : Premium collected in early years of the contract are held in trust by
insurer for the benefit of the policyholder .
Life Fund : This excess amount ( Reserve) creates a Fund , this is called life fund .
Insurer invests this fund and gets Interest .
Level Premium Term or protection Component: Cash value Component :
consists of portion of premium actually this forms the saving component for
needed to pay the cost of Risk the policyholder

Principles of Risk Pooling Life insurance companies classified as contractual financial institution
DIVERSIFICATION : MUTUALITY :
Funds are spread out amongst various Funds of various individuals are
assets . combined together .
Funds flow from one source to many Funds flow from various sources to
destination . One .

Mutuality / Pooling Principles Provides protection against economic loss

due to death .
Pooling and evening out of financial risk

Life Insurance Contract Insurance is vehicle of Financials Security .

Involves Risk and saving Component.
Opportunity Cost Cost that one has to bear in terms of opportunities one foregoes by not placing
ones money elsewhere .
Traditional products Advantages : Safe & Secure Disadvantages :corroding effect of
Loan , Tax benefits inflation , High marketing and initial
cost , Low yield

Legal principles of Life Insurance

Elements of Valid Contract Offer & Acceptance Offer made by the proposer and acceptance by insurer .
When proposal is accepted it becomes a Promise .
The acceptance needs to be Communicated to the
proposer which results in formation of contract .
If Any condition is put , it becomes Counter Offer .
The policy bond becomes the evidence of Contract
Consideration Premium is the consideration by the Insured & the promise
 to indemnify is consideration by Insurer
Agreement Consensus ad -idem
Free Consent Said to be free if NOT caused by : coercion , Undue
influence , fraud , misrepresentation ,mistake .
If caused then the contract becomes void
Capacities Both parties Should be Legally competent. Minors cant
enter contract .
Legality The object of insurance contract is a lawful object

UTMOST Good Faith Also called UBERRIIMA FIDIS. : Both parties should disclose all material facts
relating to subject matter of Insurance , accurately , whether requested or Not .
All Commercial contracts form CAVEAT EMPTOR ( Buyer's Beware )
Material Facts to be Life Insurance Own medical History , family history , illness , habits like
disclosed smoking , drinking , occupation etc
Fire Insurance Construction and usage-of building , age of building , goods
in premises
Marine Insurance Prescription of Goods / methods of packing
Motor Insurance Description of vehicle , date of purchase , deatils of driver

Breach of UTMOST good Non Disclosure of material May arise if insured is silent in general as the insurer
Faith facts has not asked specific things .
If intentionally suppressed then is termed as
concealment , with an intention to deceive
Misrepresentation of Innocent :relates to inaccurate statements made
Material facts without fraudulent intention
Fraudulent :false statement made deliberate with
intention to deceive the insurer

Insurable Interest Considered as legal pre requisite for insurance .

Gambling or wager Game of cards / betting on cricket match etc
agreement
Insurance Agreement Taken in order to prevent loss or damage due to
peril . Has pure risk attached

Subject matter of Subject matter of insurance Relates to property being insured against . Has
Insurance intrinsic value
Subject matter of Insurance Insured financial interest in that property .
contract

Time of Insurable interest Life Insurance : At inception ,

General insurance : at time of inception as well as claim except MARINE Insurance
Proximity Clause Relates to the cause of Loss or damage . If lose caused by Insured Peril , then
Insurer is liable .
Defination : active and efficient cause that sets in motion a chain of event which
brings about a result .
Contract of Adhesion Drafted by those parties having greater bargaining advantage . Usually Insurance
companies .
To neutralize this , FREE LOOK period of 15 days , from the date of revenging the
policy document by the insured , is given . The insurance company has to be
intimated in writing and premium is refunded less any charges / expenses
 Financial Planning
Types of Goals Short Term Buying TV , going for vacation
Medium Term Buying House , Vacation Abroad
Long Term Child education / marriage ; Retirement

Life stages & Priorities Leaner ( 20-25 Yrs) Funds needed to financing ones education
Earner ( >25 Years ) Has family responsibility , might have loans to
repay
Partner ( married 28-30) Has concerns on building family , has goals
like house , buying vehicle etc
Parents ( 30-35 Years ) Health , good education for children
Provider ( 35-55 Years ) Higher education of children . Marriages of
children
Empty Nestor’s ( 55-65 Years) Health care protection
Retirement ( Twilight years 60 ) Health care , uncertainty of income .

Saving Postponement of consumption Parting with liquidity

Saving may be considered as a composite decision of above
Types of Financial Enabling Future transaction Specific Transaction Need : making povision
Products eg FD , PPF etc for Higher education , purchase of house ,
consumer durables etc
General Transaction Need : amount set aside
for current consumption , without assigning
any specific needs
Meeting Contingency To meet contingencies like death , disability,
damage through Fire etc . Eg Insurance
Wealth Accumulation Saving and investment for accumulating
wealth eg shares , bonds , real estate

Risk Profile and Aggressive Accumulation

Investment styles
Progressive Consolidation
Secured Spending
Conservative Gifting

Elements of Financial Investing , Risk Management , Retirement Planning , tax and estate planning ,
Planning / advisory financing one's needs
service
Key terminology in Risk Tolerance Willingness to take risk while investing
Investment
Time Horizon Time available to attain the Investment Goal ,
Liquidity Need to convert the investment into cash due to un
certaininty or contingencies
Marketability Ease with which investment can be brought or sold
Tax consideration Tax benefits and Tax free returns
Diversification Spread the risk through different investment in assets
 LIFE INSURANCE PRODUCT Part I
Insurance Products Are Intangible . Creates immediate estate . Traditional / Linked products are types
of insurance plans
Traditional Plans Term Insurance Plan : Income replacement plan . Low premium products . gives
death benefit .
Convertible Term Plan : allows the policyholder to convert the term plan into
whole Life plan without providing fresh evidence of insurability . premium then
would be higher .
Types of Term Plans Decreasing Term Marketed as mortgage redemption & credit life
insurance .
Mortgage Redemption : corresponds to the decreasing
amount of outstanding in a Loan .in case of death .
Credit Life Insurance : To pay the balance due of the
loan in case the borrower dies before the loan is repaid .
Increasing Term Death benefit increases with the term pf the policy .
Sum may increase by specific amount or percentage at
stated intervals during the term of the plan .
Return of Premium Premiums are returned to the policyholders after the
end of the term in case no event has happened

Whole Life Insurance Premium can be paid through out the term or for specified period . Gives protection
cover till the policyholder is alive .
Premium are higher than Term Plans . Ideal for person who are lone income earner
at family and wants long term protection . Also to leave behind a legacy .
Cash Value Money left behind from the premium paid by the policyholder to cover the risk , is
invested by the Insurer . This is called cash value . One can withdraw the Cash value
in form of Loan in case of emergiencies during the term of the plan
Endowment Plans Combination of Term and Pure endowment Plan
gives both protection and saving element .
Promoted also as THRIFT SAVING . Allows to park surplus money .
Money Back Plans Endowment plan with provision for return a part of Sum assured at periodical
intervals during the term of the plan and balance at the end of the term .
In case of death , the full SA plus the bonus is paid to the nominee , irrespective of
all the benefits already paid during the term .
PAR & NON PAR Policies Par: Means participating policies in profit .
Non Par : Not a part of profit .
Under traditional plans , the pooled life funds are invested under stringent
regulatory requirement as per prescribed norms , the policyholders are either
guaranteed a part of growth or surplus is kept aside .
Profits are paid as Bonuses

Without Profit plans have a fixed benefit & guarantee at the contract stage itself
and are paid at the end of term , nothing More .
Dividend method of Profit Portfolio Method Investment returns held by companies are determined and
participation shares are equally divided to policyholders .
Uniform reversionary bonus
Current Money Depends on when the investment was made and the rate
Method that was secured at the time of investment .
Also called SEGMENTED or INVESTMENT Block method . As
 different investment gets different bonuses

IRDA New guidelines on Higher Death Cover : 125% on single premium < 45 Years & 110% on age > 45
Traditional Products Higher death cover : 10 times the annual premium for < 45 Years & 7 times for age >
45

Minimum Death Benefit : At least SA plus benefits if any .

Addition of Bonuses and other benefits if not paid earlier , needs to be paid at
death of the policyholder
Terminology Revisionary Bonus : declared as a part of SA ( PER thousand of SA) AND are payable
as additional benefits ( either at maturity or death ) . usually non guaranteed
Terminology Terminal Bonus : paid usually towards the end of term of plan . Non guaranteed.
Life Insurance Products Part II
Allocations of resources INTER TEMPORAL Means allocation across time ,effective means sufficient
funds are available for meeting various needs of life
stages
EFFICIENT Allocation Faster rate of accumulation , more funds for future .

Limitations of Traditional Cash value component Not well defined . Depends on actuarial reserve set up .
Plans
Rate of return Exact costs are not defined .difficult to compare with
other instruments
Surrender value Depends on actuarial reserve and pro -rata assessment .
Very arbitrary
Yield Low yield due to prudent norms and stringent super
vision

Non Traditional plans Direct linkage to Superior returns as compared to traditional plans ,
or Linked plans Investment thereby getting higher returns on the long run
Inflation Higher rate of return in Linked plans allows to beat
Inflation
Flexibility Policyholder get higher control over linked plans as they
can choose their premium and the funds in which they
want to invest
Surrender Value Allows to withdraw between the term . Will give higher
surrender value to the policyholder as compared to
Traditional plans

Non Traditional Products Universal Life Was popular in USA . Called Variable policy in India .
USP : flexible premium after the first year. Allowed the
policy holder to skip premiums also . ( Minimum
requirement being to maintain the cost of policy )
Partial withdrawal options from cash value allowed
Variable Life Insurance First introduced in 1977 in USA . Its a kind of whole life
plan . No guarantee with respect to either interest rate or
minimum cash value .
Policyholders have to bear the risk on investment .
Market volatility have to be kept in mind
Unit Linked Insurance Plans introduced in UK .
Units are credited to the policyholders account at the
date on premium payment is due .
They are Unbundled contracts .
Premium Break Up in Ulip Expenses Mortality Investment
Once the charges are deducted from the premium , the balance of account and
income from it is invested in units .
Value of Units are fixed with reference to pre determined index of performance .
NAV Net Asset Value .
The values of the unit is given by NAV . Which reflects the market value of the assets
in which the funds are invested
Funds Equity Debt Balanced Money Market
Invested in Equity ,\ Invested in Govt Mix of Equity Invested in
equity related Bonds , FD , and Debt Treasury Bills ,etc
instruments Corporate Bonds

Terminology Growth Fund : Equity Balanced Fund Sectoral Funds

Pension & Annuities

Differences Life Insurance Pension
Provides Protection against financial Provides protection against living too
consequences . long Risk , mainly risk of income stop .
Basic contingency covered is mortality . Basic contingencies retirement income
Creates Sum assured . discontinuance .
Cash value paid to nominee in case of Corpus gets created which gets
death , else paid to the policy holder at liquidated in part or whole through its
maturity conversion into stream of regular
payouts , known as ANNUITIES

Types of Pension Public Pension PAYG Scheme ( Pay as you go ) .

first pillar of social security .
Deducted from current income of work force . Fulfils
the state responsibility , for minimum level of
retirement income ( safety net )
paid to people of low income .
Combination of flat rate , sufficient to ensure minimum
standard life .

Flat rate & means tested pension : financed by Tax &

contribution all pay regardless of benefit levels

Earning related supplementary portion : Individuals

own contribution, which is supplemented , by state
subsidiaries
Occupational Pension Second pillar . Contribution from employee and
employer .
Defined benefit .
Calculated with reference with last drawn salary and
number of years in pensionable service an using an
accrual method
eg Accrual Method : employee with 38 years service
has earned 40k/ month as last salary . if accrual rate
is 1/60 for each pensionable service , then 38 / 60 *
40k = 25,333 pension
 Uninsured Employer can manage the fund setting
pension up a trust . Trust can pay pension only
scheme through purchasing annuity by life
insurance companies
Insured Insurance companies manage the fund
Pension and pay pension
scheme

Personal Pension Individual buys pension from Life insurance Co

Commutation in Pension 1/3rd of accumulated value can be withdrawn at the time of retirement , Tax Free .
Types of Annuity Immediate Annuitant receives payouts after making the initial
investment . Usually the next month of paying the
investment .( In monthly ) similarly post 3 months in
qtrly , 6months in half and next year in case of yearly
annuity mode
Deferred Invested for a period of time . ( accumulation phase ) .
at the time he is ready to receive ( distribution phase ) ,
annuity payouts are made as per the mode choosen
Every pension is annuity But evry annuity is not Pension
Pension related Longevity Risk Living too long . pension provides life long income
contingency
Inflation Pension may have provisions for Indexing to save the
corrosion effect
Investment Risk Fixed guarantee pensions are the way to protect from
investment getting wiped out due to bad
performance .
Replacement Income risk Occupational pension , which calculates through
accrual method might be the solution to maintain the
Life style post retiring

Types of Annuity Annuity for Annuity for life Guaranteed Joint life Joint life
Life with return of certain Annuity with annuity
Corpus 5/10/15/20/25/30 return of without return
then for life corpus of corpus

Payment to annuitants Paid as long as they live . In case of joint annuity , the spouse gets 50% of the
annuity till life . If the spouse predecease the annuitant then the annuity ceases on
death of the annuitant
Penion vs annuity Pension is an insurance product . Annuity is the payout made .

Health Insurance
Expenses covered under Room cost , boarding expenses , Nursing expenses , doctors fees , diagnostic
Health insurance tests ,operation theatre charges expenses related to surgical appliances .

Some plans cover pre an post hospitalization expense and specified day care
procedure also
Terminology Day care centre : less than 24 hours treatment eg Cataract , lithotripsy
Third party Administrator Licensed under IRDA REGULATION 2001, is engage for a fee or remuneration by
 ( TPA ) insurance company , for the purpose of providing health service
Network Provider Cashless facility provided by listed hospitals
Portability Right for individual health policy holder ( including family floater ) to transfer credit
gained from pre existing conditions & time bound exclusion, from one insurer to
other or from one plan to other , provided previous policy is maintained without
break . Moving policy from same company itself is excluded
Waiting Period 48 Months for pre existing illness . One year to four years for some specified illness
like cataract and some procedure like hysterectomy
Domiciliary Refers to medical treatment for a period extending three days for illness / treatment
hospitalization which otherwise can be done at home . Limited to certian percentage of SA
This is possible if :
# if the condition of patient is such that he/she cant be removed from hospital .
# cant be removed due to lack of accommodation
Family Floater Covers family ( Husband , wife , up to two children ). common SA floats for entire
family . Premium would be less than if the policies are taken as individual across the
family
Health Insurance Varies from insurer . Usually 3 months age to 80 Years .
boundary Maximum SA will vary from insurer depending on age group
Hospital Under clinical regulation act ( registration and regulation ) 2010.
# has qualified nursing staff around the clock
# minimum 10 in patient beds in a town having population 10 Lacs & at least 15 in
patient beds in all other places
# has medical practitioner in charge round the clock
# fully equipped operation theatre of its own where surgical procedures are carried
out .
# maintains daily records of patient .
Claim Reimbursement Pre authorization : except in emergencies , cashless facility may require a pre
authorization to be issued by the insurer or an appointed TPA .
IRDA has prescribed a standard format . Usully cashless is provded in net work
hospital .
IRDA regulations All health insurance policies should have the following benefits given :
# The network to be provided
#free look period ( 15 days ) from the date of documents received by policyholder .
# 30 Days grace period after due date of premium payment
# life time coverage
# provision for nomination .
#one page summary containing benefits , terms and conditions .
Identity card and Smart Carries details of the policyholder and logo of the insurer.
card Validity period coincides with the Term of the plan

Application of Life Insurance

Married Women Sec 6 , MWPA act , provides security of benefits under life insurance to wife and
Property act 1874 children and also allows creation of Trust .
Beneficiary : wife alone / wife & one or more children jointly / one or more children
Life assured : Married / widower / divorcee MAN only
Features of MWPA #each policy will remain in separate trust . Either wife o children ( above 18 years )
can be trustee
# policy beyond control of court of law attachment, creditors or even life assured .
# maney paid to the trustee .
 #policy cannot be surrendered & neither nomination or assignment can be done
# if no special trustee appointed , then sum secured under the policy becomes
payable to official state trustee in which the insurance was effective situated
Key man Insurance Taken out by business to compensate that business for financial losses that would
arise due to death or extended incapacity of an important member of the business .
# Business protection insurance
# Key man insurance is a TERM PLAN .
# Premium paid by company is treated as business expenses . so tax benefit given
under Sec 37 ( 1)
# death benefit is taxable income .
MRI Mortgage redemption insurance . Taken to protect home loan

Pricing and valuation in Life Insurance

Premium Printed rate table called Office premium . They are level premium . ( same through
out the term of the plan )
Single Premium Paid only once at the start of the plan
Limited Premium Paid for a limited period of the term of the plan .

Regular Premium Paid every year till end of term

Rebates For SA Given to policyholders for taking higher Sum assured .

For mode of For yearly mode / half yearly mode given .
Premium pay Monthly mode insurer charge extra as the administration cost
of more to service the policy every month

Premium Components Mortality & Interest Mortality table depends on the age . Also called RISK
premium .
Interest is discount rate assumed for arriving at present value
of future claims .
Net premium = Risk Premium – Interest
Guiding principles Adequacy To cover operating expenses of insurer . Should provide
determining Loading margin of safety and contribute to the surplus or profit for
companies
Equity Each policy should pay its own cost , so that one class of
policy doesn’t subsidise the other
Competitiveness Higher loading can make the policy expensive , hence
companies should load keeping the competition in mind

Expenses New Business High expenses at start of policy .

Insurer needs to hold certain margins as reserve . Causes New
business strain .
Commissions to agents /incentives to managers / agents /
medical fees etc
Lapses & Loading provided to counter the lapse of policies
contingencies
Gross premium = net premium + loading of expenses +loading of contingencies
+bonus loading
Valuing ASSETS Book Value Value at which insurer has prurchased its asset
Market Value Worth of life insurer in the market
 Discounted present Estimating the future income stream from various assets
value and discounting them from Present

Surplus Arises as a result of actuarial experience being better . Should be passed on to the
policyholders of participating plans .
Some part to be retained for soundness of the company . ( solvency )
Bonus Paid as per thousand of SA
Most common is revisionary bonus .
Bonus may be payable at surrender with minimum 5 years of term completion .
Distribution of Bonus # may be paid in form of CASH dividend
# in form of adjustment to reduction in premium .
# non forfeiture paid up additions to policy can be allowed
# dividends may be allowed to accumulate with interest and can be taken in
between or at the end of the term .
PAC Policy allocation charges : comprised of agents commission ,policy set up cost ,
administrative cost & statutory levies

DOCUMENTATION : Proposal Stage

Prospectus Consists of :
# terms & conditions # scope of benefit ( guaranteed & non guaranteed )
# entitlements # exceptions # whether participating or Not .
Proposal Form # Insurance is a legal contract between the policyholder and insurer
# application form is called propoasal form
# IRDA regulation 2013 prescribes the standard format of proposal forms .
Agent Report #Agent is primary underwriter .
# ACR ( agent confidentiality report ) is must with all proposal forms in which the
agent mentions the material facts ( Habits , occupation , hobbies etc )
Medical examiner’s # Medical examination to be done by the doctors appointed by the insurer Only .
report # details pertaining to height , weight , cardiac condition etc is mentioned .
Moral Hazard Report Is likelihood that clients behaviour might change , resulting into loss .
Eg : smoking , drinking , paragliding etc
Age proof Standard School certificate / PAN card / Pass port / service register /
Baptism certificate / marriage certificate issued by Catholic
Roman church
Non Standard Horoscope / ration card /village panchayat certificate .

Anti Money Laundering Prevention of money laundering act ( PMLA ) 2002.

( AML) all insurer should have AML policy and file copy with IRDA .
AML program should include : Internal process and procedure / appointment of
principle compliance officer / recruitment and training of agents on AML / Internal
audit /control
KYC Photo / Age Proof / address Proof / Identity proof /Income proof

Chapter No 12 :DOCUMENTTION : Policy Stage

FPR ( First Premium Insurance contact commences as soon as FPR is issued
Receipt ) contains : Name & address of policyholder / Policy Number/ Premium amount paid /
method and frequency of premium payment / Next due date of premium / Date of
commencement of risk / final maturity date / SA/
RPR Renewal Premium Receipt : given the next premium, post the first, is paid
 Policy Document Its the evidence of contract . Should be signed by competent authority and stamped
accordingly Indian stamp act .
Policy schedule Name of Insurance company .
Specific details in policy documents :Policy owners Name ,
date of birth , plan and term of the policy ,SA, PREMIUM
amount , Nominee name ,DOC , Date of maturity , Policy
Number , Mode of premium payment

# This becomes the heart of the contract

# signature of the authorised person & stamped
# address of the local ombudsman
Standard Provision Defines the rights & privileges of the policyholders.
Carries days of grace , forfeiture options etc
Specific policy Printed either on the face of the document or inserted
provision separately in form of attachment .
Carries exclusion etc pertaining to the contract between the
individual and the company

Misc RPR acts as a proof for premiums paid as renewal

Policy document Lost Insurer will send duplicate policy without making any changes in the contract

DOCUMENTATION : Policy Condition

Grace Period This clause grants the policyholder an additional period to pay the pemium post the
due date is over .
Standard days of grace is one month or 31 days .
In case of death in the grace period , the insurer will cut the unpaid premium and pay
the death benefit to the nominee.
Lapse Post grace period , if premium not paid then policy gets lapsed
all the benefits of the policy gets lost in case of lapse
Reinstatement /Revival The policy that has been lapsed/ terminated, will be put back in force .
This cannot be unconditional .
# No increase of risk to be seen while reviving
# premium + interest to be paid
# should be revived within specific time frame from the date of lapse . Like 5 years
maximum .
# specific evidence of instability interest . ( proof of good health )

Insurer may require a medical examination or evidence of insecurity

# if the lapse period is over an year
# if the insurer suspects then he can trigger fresh medical

Revival is some time preferred as buying a new plan might have higher premium
rates .
Revival Measures Ordinary Revival By paying the premium and interest , with proof of good
health . Usually applicable to policy which has acquired
surrender value
Special Revival For policy that have lapsed under three years.
Its like new policy is written , whose date of commencement
is within two years of lapses, but the maturity date will not
change from previous.
 Loan cum Revival This stimulates the loan for consideration amount for
revival .
Instalment revival Depending on mode of payment ,the life insured may
require to pay one half yearly or two qtrly premium , and
balance arrears would be spread , to be paid along with
future premiums on the due date , during the period of two
years or more .

Non Forfeiture option Insurance act 113 . If 3 years premium paid then guaranteed Surrender value in the
policy . Hence policy holder has a claim to cash value accumulated under the policy .
Surrender Value Chart shows the surrender rate . Increases with each passing year of the term if
premium are paid . Surrender value arrived as a percentage of premium paid is called
guarantee surrender value .

Th feature allows the policyholder to withdraw the cash value in between the term ,
and will end the contract .
Policy Loan By using cash value s security , in a plan , policyholder can take a loan from the
insurance company.
Usually limited to 90% of the cash value .

Difference
Policy Loan No legal obligation to repay the loan taken . Can repay all or
in part to the insurer.
No Credit check is required .
Commercial Loan Legally obligated to repay the loan
credit check will be done before , to see if the borrower has
previous history of any default .
Policy will be assigned to the insurer , when loan taken .
Nomination # In event of death , the money would be paid to the person nominated by the
policyholder .
# One more persons can be nominated
#. entitled for valid discharge .
#. Nomination can be done at either inception of the plan or later date .
#. Nomination can be changed by Endorsement in the policy document .
#. Gives only the right to receive the money & he has no RIGHT to whole or part of
the claim .
I#.n case of minor , appointee has to be given . Appointee loses his status when the
nominee attains major .
#.If no nomination , then claim will be paid to LEGAL heirs .
#.No specific shares given , when multiple nominations are made .
#.Assignments will cancel nomination
#.MWPA cannot have nomination.

Assignment # refers to transfer of property by writing as distinguished from transfer by delivery .

# in life insurance policy assignment , it means transferring the rights , title of interest.
#Person who transfer is ASSINOR . To whom it gets transfred is called ASIGNEE .
# is governed by Sec 38 of Insurance act
Conditional States that the policy will revert back to the assignor either on
the date of maturity or death of the assignee .
Absolute All rights , title & interest gets transferred , without reversion
to the former , in any event .
 More common in commercial contract .

Conditions for valid # all persons executing it ( assignor ) must have absolute right & title or assignable
assignment interest to the policy being assigned .
# should be supported by valuable consideration , which may inclde love and
affection .
# Not opposed to any law in force .
# assignee cannot do nomination
# assignment should be in writing , signed & witnessed by at least 1 person. .
# has to be endorsed in the policy .
Difference Nomination Assignment
# Process of appointment of a person to Process of transferring the title of the
receive the death claim insurance policy to another person.
# can be done at inception or latter date . # can be done only post date of
# can be made only by the life insured of commencement of policy .
the policy of his own life . # can be done by the owner of the
# witness not required policy .
# Nominee has no right over the policy # witness required
# assignee gets full right over the policy .

Duplicate policy Satisfactory proof to be made before duplicate policy is issued

If payment is shortly due and amount is High , Insurance company may put an advt .
Duplicate policy issued if no objection from others .
Alteration Normally alteration is allowed in the first year of the policy . Eg change in name / age /
address
change in the mode of payment / removal of extra premium or restrictive clauses .
usually done with endorsement on the policy document .
Alteration usually doesn’t increase the risk .

UNDERWRITING
Underwriting Purpose # to prevent anti selection or selection against insurer
# classify risk & ensure equity among risk . ( similar risk profiles would be laced in
similar premium bracket )
Anti selection Tendency of people who suspect or know their chances of high loss , try to seek
insurance .

Risk Classification Standard Life Good health .anticipated mortality corresponds to standard
lives represented by mortality table
Preferred Risk Anticipated mortality is significantly lower and are charged
lower premium
Sub standard Lives Anticipated mortality is higher , but still considered as
insurable .may be excepted with higher premum than
standard
Declined Lives Very high risk . Cannot be insured

Selection process On Field level or Known as primary underwriting . Done by agents or company
primary Underwriting representative.
Moral Hazard report also might be sought by company
representative .
 Department Level Done at company office . Involves specialist.

Methods of Judgement Method Subjective judgement is used , like diabetic case etc
Underwriting might look at medical examinations .
Numerical Method Positive or negative ratings are assigned to take decision .
Total number of points determines the EMR ( EXTRA
MORTALITY Rating ) . Higher the EMR , indicates Sub
standard lives .

Underwriting decision Acceptance at OR Common decision . indicates risk is accepted at same rate of
( ordinary RATE ) premium or ordinary or standard rate
Acceptance with Extra Applicable for sub standard lives . Premium is more than
normal rate
Lien on SA Kind of hold ( clause ) which the life insurance company can
exercise in part or whole on the benefit it has to pay in event
of claim .
e.g : if the policyholder has recovered from certain disease
like TB etc , lien implies that if the policy holder dies of a
specific cause , then decreased SA Is paid .
Restrictive Clause Means there will be a clause on death claim benefits under
certain circumstances .
Eg pregnancy clause that restricts the claim benefit in case
death happens within 3 months of delivery
Decline / postpone Underwriter cab decline wherein the risk is very High

Non medical Proposals selected without undergoing any medical examination. Caries just 1/10th of
risk . Other information is taken from proposal form .
Conditions for non medical :
Female Only certain category . Eg working women
SA upper limit Insurer might have a upper limit say 5 lacs .
Age Younger age say 45 may not need medical .
Plans Certain plans like term plan might need medical
Class of life Some times reputed companies emplyee might be excluded

Female Insurance : Have longer life , but risk due to social norms , leading to
early age death . Hence insurer will be careful .

Minors Minors have no contracting power , hence the insurance is usually proosed by parents
or guardians:
Underwriters will notice the following before accepting any minor insurance proposal
Whether physical development is is proper . Poor growth can arise as malnutrition
Proper family history and personal history
Whether family has adequate Insurance on their own life .

Occupation Hazard Accident Hazard Jobs like circus artist , demolition expert cause risk to life
Health Hazard Person working In Mine , deep sea diver, rickshaw puller , can
have health related risk due to their occupation
 Moral Hazard People working in bar , or body guard of criminals etc have high
risk

Life style and habits Generally ACR or moral hazard report would cover this .
Eg smoking and drinking liquor habits , substance abuse
they all increase the risk on life .
Medical Underwriting Usually called medical examiner report .
Medical Factors that influence underwriting :
Family History #Certain disease are heredity
#Average longevity of family . Eg if parents died due to heart
problem etc , means offspring might not live long
# Family living environment . Some times living conditions cause
risk of infection etc
Personal History Refers to past impairments of various systems of human body
which life assured has suffred from e.g Cardiovascular , cancer ,
TB , Nervous system etc
Personal Build : height , weight , chest & girth of abdomen indicate the
characteristic health . For given age , there are certain height weight ration
indicating good health .
Chest should expand 4 cm in normal person and abdominal girth
should not be more than expanded chest

Blood pressure Thumb rule :

Systolic : 115 (+- 2/5) of age
Diastolic : 75 ( +- 1/5 ) of age
Pulse rate can vary between 50-90 beats / minute with avg of 72

Specific gravity of Urine can indicate the balance among salts in urine . Can indicate any
malfunction of the system
AGE Degenerative diseases increase with age . Underwriters carefuly consider the risk based
on age of the person

Payment under Life Insurance Policy

Claim Its a demand that insurer should make good the promise specified in the contract .
Types of Claim Survival Benefit Periodic payments are made during the term of the policy , by
the insurer ( eg money back plan ) . policy bond is returned to
policyholder bearing the endorsement on each survival benefit
paid
Surrender Premature closure or voluntary termination of the contract by
the policyholder during the Term .
Rider Benefits On occurrence of specified event , as mentioned in the policy
document . Eg critical illness rider , hospital care rider
Maturity Benefit Insurer pays the benefit at the end of the term to the life
assured on surviving the entire term
Under maturity Participating Plan SA + accumulated Bonuses(if any ) less
claim any outstanding premium / policy loan
& interest theron
 Return of premium Certain term plans allows the life
Plan (ROP) assured to get back all the premium
paid during the term after maturity
ULIP Fund value is paid
Money Back Maturity claim minus the survival
benefits already paid

Death Claim Paid to the nominee/ legal hier or assignee as may be the case on event of death of the
Policyholder .
Claim may be early death ( less than 3 years from policy inception ) or Non early ( after
3 years period of policy inception )
Documentation in #Claim form by nominee
death claim #certificate of burial or cremation
# Treating physician report
# hospital certificate
# employers certificate
# death certification issued by municipality office
# FIR / Post mortem report / Inquest report
Repudiation of death In case of wrong information or fraudulent intention found , claim will be repudiated .
claim
Sec 45 , Insurance act Indisputable clause :no policy can be called back by insurer post 2 years , on reason of
1938 asking for more information from the insured , unless the insurer shows statement
was of inaccurate or suppressed facts .

Insurer has to prove . Only after obtaining the proof , can an Insurer repudate the policy
after two years period .
Presumption of Death Missing person case , waiting period is 7 years for settling death claim from the date of
FIR and court decree . Premiums need to be paid for these 7 years
Claim Procedure Regulation 8 of IRDA , 2002
# Policy should state the primary documents which are normally reqired at the time of
claim
# 15 days period for insurer to ask for any other information from date of receipt of
claim . No piece meal basis asking of documents .
# claim to be paid or disputed within 30 days from the date of receipt of all required
documents & clarification .
# In case of any investigation required , then insurance company to complete the same
within 6 months of receipt of claim .
# subject to provision in sec 47 , where claim is ready to be paid , but is not paid due to
any reason of proper identification of payee , the insurer will have to pay interest as per
the rate applicable of scheduled bank ,( effective from 30 days from the date of receipt
of claim document )
# In case of delay from insurer in settling the claim , insurer has to pay 2% intrest rate
above the bank rate prevalent at beginning of the financial year .
Riders A provision added through endorsement . Provides supplementary benefits or to
increase the amount of death benefit provided by the policy .
Critical Illness Covers critical illness . In case of diagnosis during the tem of the
riders plan , Rider benefits are paid to the life assured and the rider
benefit comes to an end .
Accident death In case of death happening due to accident , the n rider amount is
benefit paid to the nominee along with the base plan benefits
Waiver of In case of disability during the trem of the plan , future premium is
 premium waived off and the policy will continue with all benefits as per the
initial contract
Disability rider In case of permanent disability, the insurer will either pay rider
amount in full or in part to the life assured

REGULATORY ASPECTS
Insurance act 1938 Created to protect the interest of insured pubic .
# registration of insurance companies and renewal of registration ( sec 3&70)
# requirement to have sufficient solvency for insurance company
# requirements to maintain audit & submit returns to the regulator
# obligation of insurer towards social & rural sector.
# limitation on expenses management
# licensing of agents and remuneration
# prohibition on rebates
IRDA 1999 Authority to protect the interest of the holders of insurance policies, to regulate ,
promote & ensure orderly growth of industry and matter connected therewith .

IRDA regulation prescribe insurer obligations:

# at the time of sale
# towards policy servicing
#claim servicing
#control of expenses and expenditure
#financial strength to maintain future obligation .
Regulations for agents # Licensed under Sec 42 of Insurance act 1938 .
# corporate agent is other than an individual, sourcing Insurance policies
Health Stand alone health insurance agent to undergo 25 hrs internal training
Rules governing th
Agents Urban ( 5 lac and above population ) : should be minimum 12 passed
th
Rural : minimum 10 pass

# Should be of sound Mind

# No criminal records
# should be major
#Undergone 50 hours of training , for composite agent : 75 hours training
# for person possessing associate / fellowship / MBA /CA ETC 25 HOURS TRAINING
# PRE Recruitment examination conducted by III should be passed .
Fees 250 Rs for agent / composite agent for issue or renewal of license .
# Insurer will sponsor the agent
# designated person in the insurer office will issue license valid for 3 years
# 25 Hours training during renewal of license

# APPLICATION to designated person should be IRDA FORM -VA

# for firm/ company :IRDA FORM - VC

# Rs 50 to be paid for duplicate license in case of lost

Code of Conduct for # should identify himself and the insurance company whom he represents
agent # disclose his license on demand
# carefully explain the requisite product as per the need of the customer and give
 proper recommendation
# disclose the commission when asked by the prospect
# indicate the charge and premium .
# bring to the notice of the insurer any adverse habits / hobbies of the client .
#advise prospect / client on procedure of nomination / assignment , policy conditions
Rebate Sec 41 OF INSURANCE ACT , prohibits agents to allow either directly or indirectly to pass
on the commission to the prospect .

Life Insurance Agncy as Career

Insurance Channels Corporate agency Corporate entity with principle officer and trained manpower
can solicit insurance
Brokers Represents the Insured & generally doesn’t have any
contractual agreement with any one insurance company.
Bancassurance Bank is the corporate agent which solicits the insurance from its
existing client base
Direct Marketing Insurance company directly interacts with the clients

Approach could be via :

telemarketing , Mail marketing , work site marketing , internet /
web based marketing
Individual agent An individual procuring license from insurance company .

Unethical behaviour Misrepresentation Advertisement unfair if it fails to identify the product .

in insurance Regulations mentions the scope of insurance benefits should e
clearly mentioned in the prospectus .
Illustration Should show optimistic and conservative scenario. Should be
signed by the policyholder .
Replacement Surrender etc more than 25% withdrawal from existing plan to
source new plan is unethical .

MDRT Million dollar round table internationally recognised forum for insurance professional
Persistency Portion of policies remaining in force at the end of the period out of the total policies in
force at the beginning of the period.
Policy retained without surrender or lapse .
Persistency score could be computed premium or cases wise .
This represents the health of company . Higher persistency is good

Chapter No 18 : Life Insurance Selling Process

Prospecting Process of gathering names of people whom one can approach to secure sales interview .
Markets for Immediate group Family and friends . They at-least will give immediate sale
Prospecting interview .
Natural Market Members of same caste / community
members of church congregation , satsang etc
PTA / Trade union etc
Centre of Influence (COI) people who are in influential positions and whose words
are valued . These will recommend prospects .
Eg social / community leaders , Top CA ETC
 Others References : taking new names from satisfied customers or
other prospects .
Newsletter, emails , web , testimonies etc are other ways of
gathering names

Qualified Prospects # The ones who can pay premiums

# who can pass any underwriting
# who has one or more needs of insurance
# who can be approached on favourable basis
Need analysis # present and future needs of the family are analized
Method # monitory vales are calculated
# the difference between the funds so needed to meet these needs .
Needs of family # Clean up Funds : money for medical expenses , outstanding loans , inheritance
expenses .
# Readjustment Income : Money required to help in changing life styles
# Income for family : till children are self supporting
# Life income for spouse : after children are self supporting
# special Need :mortgage redemption , emergency medical needs , higher education of
children .
Closing Technique # Implied consent : start filling the form asking simple question like how to spell the
name .
# Offering alternative : giving alternative on minor decision . Eg by asking which mode of
premium payment they would like between yearly or half yearly

CUSTOMER Service
SERVQUAL Known as SERVICE QUALITY
Reliability : ability to perform promised services dependably and accurately . To build
trust .
Responsiveness : ability & willingness of service to customers , accurately and fast .
Assurance :refers to knowledge , competence , & courtesy of service providers the ability
to convey trust and confidence .
Empathy :Caring attitude and personalized touch
Tangibles : Physical ambience .
Customer Lifetime Historical Value Premiums and other revenues that have been received in past
Value from the customer
Present Value of Premium that may be expected to be received if business is
future retained
Potential Value The value of premiums that could be derived by persuading the
customer to buy new plans

Grievance Redress al Complaint is a crucial moment of truth .maximum ownership of clients service lies with
agents .good service gets rewarded by 5 people getting informed and bad service passes
on to people .
Trust Attraction , communication and being there builds trust

GRIEVANCE REDESSAL MECHANISM

IGMS Integrated grievance management system .acts as central repository of insurance
grievance data and as a tool to for monitoring grievance in insurance industry.
Policyholders can lodge their complaints and gets passed to the concerned insurer .
Grievance redressal //policyholder.gov.in/Intergated_Grievance_Management.aspx
 mechanism
COPA 1986 Consumer protection Act
District Forum Upto 20 Lac .
Empowered to send its order /decree or execution to appropriate
civil court
Sate Commission Has original, appellate & supervisory jurisdiction .
Entertains appeals from district forum
claims exceeding 20 Lac till 100 Cr can be looked
National Final Authority .
Commission Has original, appellate & supervisory jurisdiction .
Claims above 100 Lacs would be heard
has supervisory authority above state commission .

Procedure for filing # No fees to file the complaint

complaint # can be filed by self or authorised agents
# No advocate required to file complaint
Consumer forum The forum can recommend the following :
orders # to return to the complainant the premiums , the charges paid by him
# to award compensation to consumes in case of any loss or damage
# to remove defects or deficiency in service
Nature of # delay in settlement of claims
complaints # non settlement of claims
#repudiation of claim
# quantum of loss
# policy terms and conditions
Insurance Can act as a mediator or councillor within the terms of reference .
Ombudsman Redressal of public grievance rules 1998.
# The decision of ombudsman, whether to accept or reject is Final
#complaint should be in writing , signed by insured or his legal heirs , addressed to an
Ombudsman within their jurisdiction insurer has .
# Complaints to the ombudsman can be made if complaint has been made earlier to the
insurer , and the insurance company has
@ rejected the complaint @@ No reply has no replied within one month after receipt of
the complaint .
@@@not satisfied with the reply by the insurance company

# The complaint with the ombudsman should be given within one year after the date of
rejection by the insurance company

# The complaint should not be pending in front of any court or consumer forum .
Recommendation # should be made within 1 month by the ombudsman , on receiving the complaint .
and award by # copies of recommendation to be sent to both , insurer and insured
Ombudsman # recommendation has to be accepted by the complainant within 15 days of receiving it .
#copy of acceptance to be sent to the insurer and he has to send written conformation
within 15 days .

# maximum award would be upto 20 Lac

#award should be made within 3 months period from the date of receipt of the
complaint .
# insurer shall comply within 15 days of receipt of the award .
# if insured does not give written accpeatnce , the insurance company may not implement
the award .