Unit-2

Managing Insurance Need

 It is a form of contract or agreement which one party agrees in return
of a consideration to pay an agreed amount of money to another
party to make good for a loss, damage, injury to something of value
in which the insured has to pay as a result of some uncertain event.
Thus, insurance is a method of securing protection against future
calamities and uncertainties.
 Insurance is a financial arrangement that provides protection against
potential financial losses or risks. It involves an individual or entity
(the policyholder) paying regular premiums to an insurance company
in exchange for a promise of compensation or coverage in the event
of specified events or circumstances
Key concepts related to insurance
 Policy: A policy is a legal contract between the insurance company and the policyholder. It outlines the
insurance arrangement's terms, conditions, and coverage details.
 Premium: The premium is the amount of money the policyholder pays to the insurance company at
regular intervals (usually monthly or annually) to maintain the insurance coverage.
 Coverage refers to the specific risks or events for which the insurance policy provides protection.
Common types of insurance coverage include health, life, auto, home, and more.
 Deductible: A deductible is the amount of money the policyholder must pay out of pocket before the
insurance company starts covering the costs. Higher deductibles often result in lower premium costs.
 Claim: When a policyholder experiences a covered loss or event, they can file a claim with the
insurance company to receive compensation or coverage. The insurance company will investigate the
claim and, if approved, provide the agreed-upon benefits.
 Policy Limits: These are the maximum amounts the insurance company will pay out for a covered
loss. Policyholders can often choose different coverage limits based on their needs and budget.
 Rider: A rider is an additional provision or amendment to an insurance policy that can expand or
modify coverage. For example, adding a rider to a life insurance policy might provide coverage for
specific critical illnesses.
Advantages of Insurance:
 Provide certainty: Insurance helps the insured to convert his uncertainties into certainties by
entering into a contract with an insurer. The payment of premiums by the insured enables to reduce
the risk.
 Distribution of losses: It helps to distribute the losses as it enables to transfer of the risks and
spreads the financial loss of insured members over the whole insurers.
 Social security: It acts as an instrument to fight against the evils of poverty, unemployment,
disease, old age, accidents, fire, and other calamities.
 Credit facility: The policies issued by insurance companies can be used to raise policy loans from
insurance companies, as well traders are in the position to raise loans and get credit facilities from
various financial institutions.
 Increase efficiency: It reduces the risk and increases the efficiency of business. It provides security
for the business community which in turn paves the way for growth and diversification of the industry.
 Earns foreign exchange: It provides security to international traders, shippers, and banking
institutions, thus paving the way for the expansion of foreign trade. The increased foreign trade
activities lead to securing foreign exchange which makes the country to become economically strong.
LIFE INSURANCE

 Life insurance is a contract in which one party agrees to pay a given sum on the happening of a particular event
contingent upon the duration of the human life in consideration of the immediate payment of a smaller sum or certain
equivalent periodical payments by another.

Advantages of Life Insurance

 Financial Protection for Loved Ones: One of the primary purposes of life insurance is to provide a financial safety
net for your dependents, such as your spouse, children, or other family members. In the event of your death, the life
insurance policy pays out a death benefit to your beneficiaries. This money can help cover living expenses, pay off
debts, and maintain their quality of life.
 Debt Repayment: Life insurance can be used to pay off outstanding debts, such as mortgages, car loans, credit card
debt, and personal loans. This ensures that your loved ones won't be burdened with these financial obligations if you
pass away unexpectedly.
 Income Replacement: If you are the primary breadwinner in your family, your death could leave your family without
a source of income. Life insurance can replace your income, allowing your loved ones to maintain their standard of
living and meet their financial needs.
 Estate Planning: Life insurance can be a valuable tool for estate planning. It can help cover estate taxes, allowing
you to pass on your assets to your heirs without them having to sell valuable assets to cover the tax bill.
 Peace of Mind: Knowing that you have life insurance coverage can provide peace of mind, knowing that your loved
ones will be financially protected in the event of your passing.
 Tax saving:
Need for life insurance
 Create a corpus over time
 Payoff remanning debts
 Secure Retirement.
 Secure dependents
 Legacy for future generations.
Factors to be considered before buying a life insurance
 Life cover amount
 Policy tenure
 Additional benefits
 Policy customizations
 Claim settlement ratio
Term Insurance
 Term insurance plans provide life cover to protect your loved ones at
the most affordable rates. This is the simplest form of life insurance.
Term plans offer financial security to your loved ones’ future even in
your absence.
Whole life insurance
 Whole life insurance is a type of permanent life insurance that provides lifelong coverage till
99 age as long as the premiums are paid. Unlike term life insurance, which provides
coverage for a specific term (e.g., 10, 20, or 30 years), whole life insurance is designed to
offer protection for the entire lifetime of the insured person till 99 age. Here are the key
features and components of a whole life insurance plan.
 Lifelong Coverage: As long as you continue to pay the premiums, a whole life insurance
policy will provide coverage for your entire life. This means that your beneficiaries will
receive a death benefit payout regardless of when you pass away.
 Premiums: Premiums for whole life insurance are typically higher than those for term life
insurance because they cover both the insurance component and a savings or investment
component. These premiums remain level for the life of the policy, meaning they do not
increase as you age.
 Death coverage
 Tax benefits
 Protection for life
What is Universal life insurance?
 It is a type of life insurance that lasts for the entire time that you are alive. It is also known as cash-value life
insurance because of the savings account built into the policy.
 A part of the premium you pay every month goes into this savings account. Once the cash value that you
have built up goes beyond a specific limit after a certain period, you can encash it.
How does Universal Life Insurance work?
 The premium that you pay for maintaining the Universal Life Insurance policy is split into two parts. In

essence, one goes towards your life insurance, and the other goes into your savings and
investment.
 A Universal Life insurance policy gives you flexibility as you can choose how much premium you pay. The
minimum amount is set at the cost of insurance. Any additional amount goes to the savings account. These
deposits grow at a rate that is set by the insurance company. At times this growth can be affected by the
market conditions.
 Experts suggest paying the maximum premiums possible in the early years so that you can accumulate a
significant cash value. You can then use this to pay your future premiums at a later stage in life.
 What are the benefits of a Universal life insurance policy
 You get the dual advantage of life insurance and savings.
 You are saved from the hassles of handling and paying premiums for too
many insurance and investment plans all at once
 Universal life insurance policy comes with flexible payment options. You
decide how much premium to pay above an amount that is fixed for life
cover.
 Most policies offer an adjustable death benefit, i.e. the amount can be
reduced or increased depending on the policyholder’s needs.
 Universal life insurance plans offer you a guaranteed rate of interest and
hence the cash value of your policy is guaranteed to keep growing.
 The plans offer adjustable coverage for changing needs. The premiums, as
well as payout, can be adjusted with time to account for inflation.
Variable Life Insurance
 Is a type of life insurance policy that offers both insurance coverage
and investment opportunities. It allows you to invest a portion of your
premium payments in a variety of investment funds, such as equity,
debt, or balanced funds. The investment returns depend on the
performance of the underlying funds, and the policy's cash value
grows based on the investment returns.
 The key feature of Variable Life Insurance is its flexibility. You can
choose the amount of premium you want to pay, the investment
funds you want to invest in, and the sum assured for your family's
protection. You can also switch between investment funds or alter
your premium payments based on your changing financial goals
Benefits of Variable Life Insurance in India
 Life insurance coverage
 Investment option
 Premium payment flexibility
 Higher return
 Tax benefits
 Types of Variable Life Insurance in India
 Unit-linked insurance plan (ULIP): Variable Life Insurance Policy that invests
the policyholder's premium payments in various market-linked funds. The
policyholder can choose the funds based on their investment goals and risk
appetite. ULIPs provide flexibility, higher returns, and tax benefits, making them a
popular investment option in India.
 Indexed ULIP: Indexed ULIP is a type of Variable Life Insurance Policy that invests
premium payments in index funds. The policyholder can choose the index based
on their investment goals and risk appetite. The returns depend on the index's
performance, making it a less risky investment option than other market-linked
funds.
 Variable annuity: Variable annuity is a type of Variable Life Insurance Policy that
provides regular income payments to the policyholder after retirement. The
policyholder can choose the investment funds based on their financial goals and
risk appetite. The returns depend on the performance of the underlying funds.
Drawbacks of Variable Life Insurance
 High fees
 Market risks
 Surrender charges
 Limited flexibility
 Complexity
What is a group life insurance policy?
 In today’s day and age, group life insurance plans have become a
central constituent of the benefit packages offered by employers to their
employees. Essentially, a group life insurance policy refers to the life
insurance coverage provided to a group of people, usually employees
working in an organization. The primary purpose of the group life
insurance policies is to provide financial independence and support to
the concerned employee’s family in case of any emergencies. In case of
the concerned employee’s demise while employed with the organization,
the respective group insurance policy would provide the much-needed
monetary guarantee to the grieving family.
 Group Life is a type of Life Insurance policy that provides coverage to a
group of individuals under a single contract.
IMPORTANCE OF GROUP LIFE INSURANCE
 FINANCIAL SECURITY
 EMPLOYEE RETENTION
 COST-EFFECTIVE
 TAX BENEFITS
 CUSTOMISABLE COVERAGE
TYPES OF GROUP LIFE INSURANCE
 Employer-Employee Group Life Insurance: As an employer, you can offer this type of Group Life Insurance
policy to your employees as a part of the benefits package. In this case, you pay the premium, and your
employees are the insured members of the policy. The policy offers financial security to the employees'
families in case of their sudden demise (or permanent disability if that is covered under the policy).
 Contributory plans: Under these plans, the premium is shared by the employer and employees covered in
the scheme. The employer may pay all, or a certain portion of the premium to enjoy the benefits of the
policy.
 Non-Contributory plans: These are schemes in which the entire premium amount is paid by the employer.
The premium liability does not fall on the employee.
 Group Superannuation Insurance: This is a form of retirement benefit offered by employers. It provides a
pension or annuity to employees upon retirement, based on their years of service and salary levels.
 Group Gratuity Insurance: This is another kind of retirement benefit offered by an employer to its
employees. It is a type of defined benefit plan under which a lump sum amount is paid to the employee
upon retirement, resignation, or death, subject to certain conditions.
 Group Credit Life Insurance: If you run a banking or financial institution,
you can offer Group Credit Life Insurance to your borrowers. The policy
covers the outstanding loan amount in case of the borrower's demise.
This type of policy provides financial security to the borrower's family
and helps to reduce the lender's risk.
 Group Term Life Insurance: Group Term Life Insurance policies provide
coverage for a specified period. This is typically for the duration of the
employment. The policy offers financial security to the insured members'
beneficiaries.
 Group Whole Life Insurance: Group Whole Life Insurance policies provide
coverage through the lifetime of your employees. The policy offers
financial security to the beneficiaries of your employees in case of their
demise. This type of policy is typically more expensive than Group Term
Life Insurance due to the longer coverage period.
Tips to Help You Find the Best Life Insurance Plan for Yourself
 Why do you need life insurance?
 Calculate the optimal insurance cover that you need
 Determine the amount you have to pay as the premium and find the
policy offering the best deal
 Select the correct policy term
 Opt for a reputable life insurance provider
 Do not conceal facts from your life insurance provider
 Read the final policy document carefully
 Buy life insurance at an early age
 Choose a comprehensive plan
 Evaluate your life insurance needs regularly
Things to consider while choosing the right insurance company
 Charges: compare the prices and the various charges involved in the policy or
policies you are interested in
 History: How long they’ve been in business.
 In which states they sell their products.
 Their mission, vision, and values.
 Who their company leaders are.
 Community support and involvement.
 Types of products they sell.
 Financial strength.
 Complaints and reviews
 Comfort
 Available discounts.
 Service quality:
• Online bill pay.
• Online claim reporting.
• 24/7 customer service.
• Social media platforms.
• Policy changes.
• Billing questions
Things to consider while choosing the right insurance agent
 Convenience (hours/location/speed/communication)
 Responsiveness
 Experience
 Reputation/local presence
 Price
 Offerings:
 A wide array of products
Even the healthiest of individuals can fall sick without warning and require
expensive medical treatments. In such a scenario, being financially unprepared to
tackle the costs of the necessary medical procedures is not an option. This is where
comprehensive health insurance plans come into play to ensure your family's
financial comfort.
Health insurance plans
 Health Insurance is a type of insurance that covers the medical expenses of the
insured due to an illness or accident in exchange for a premium amount. It
enables the insurance company to provide medical coverage for hospitalization
expenses, daycare procedures, critical illnesses, etc.
 This is an agreement between the insurance company and the customer where
the former agrees to guarantee payment/compensation ~ for medical costs if the
latter is injured/ill in the future, leading to hospitalisation. In most cases,
insurance companies have tie-ups with a network of hospitals, thereby ensuring
cashless treatment for patients there.
Why we need Health insurance plans
 Health insurance covers future illnesses/medical treatments without
depleting your savings or negatively impacting your family’s financial future
 Medical costs are increasing rapidly and for those with insufficient savings,
affording medical care becomes a problem during emergencies
 Cashless treatment is possible within network hospitals, while
reimbursements are given by insurance companies in other cases
 Health insurance plans offer coverage against several types of ailments and
surgeries, along with other aspects of medical treatment
 Health insurance keeps you and your family worry-free; you only have to
pay an affordable premium for the same
 Tax benefit under section 80D
Different Types of Health Insurance in India
 Individual Health Insurance: An Individual Health Insurance plan is
meant for a single person. As the name suggests, it can be bought by
a single individual. The individual who gets himself insured with this
plan is compensated for the expenses incurred for illness and medical
expenses. The premium of the plan is decided on the basis of the
buyer’s age and medical history
 Family Health Insurance: Popularly known as the Family Floater
Plan, Family Health Insurance Policy secures your entire family under
a single cover. Health insurance plans for family cover all your family
members including your spouse, kids, and elders. Only one member
of the family has to pay the premium, and the entire family gets
insured with a single premium.
 Critical Illness Insurance: The Critical Illness Insurance plan insures the person by offering a
lump sum amount of money for life-threatening diseases. At the time of buying the insurance, the
chosen health problems are included, and if you get affected by any of the pre-selected
conditions, you can claim your insurance.
 Senior Citizen Health Insurance: As indicated by the name, such types of Health Insurance in
India provide coverage to people who are 65 years and above. So if you are planning to buy an
insurance policy for your parents or grandparents, then this is the best insurance policy for you.
 Hospital Daily Cash
• Another segment is the different types of health insurance policies providing an innovative
solution is the Hospital Daily Cash. If you feel insecure about buying an insurance policy, then you
should go further with this plan and learn about how these health insurance policies work. This
plan can help you to protect yourself from unexpected expenses during your hospitalisation.
• Once a person gets hospitalised, the routine hospital expenses are not fixed, and they tend to
change as per the condition. In such a situation, the Hospital Daily Cash works the best for an
individual. In this plan, the individual gets a daily cash benefit of Rs. 500 to 10,000, as per the
coverage amount selected at the time of insurance. Convalescence benefits are also offered in
some of the plans if the individual gets hospitalised for more than seven days. Other add-ons
include Parental accommodation and a wellness coach.
 Personal Accident Insurance: The number of road accident cases
have increased over the years, and that is why today, there are
dedicated types of health insurance in India to protect the citizens
 Mediclaim
• Illnesses and accidents do not come with a pre-notification. The same
goes for the expenses that one has to bear once the person gets
hospitalised for any of these. Therefore, one should go for buying a
Mediclaim Policy.
• The Mediclaim Policy ensures compensation for your hospitalisation
expenses in case of any illness and accident. It provides coverage for
the in-patient expenses that include surgery expenses, doctor’s fees,
nursing charges, oxygen, and anaesthesia. The Mediclaim Policy is
available in the market as group mediclaim, individual medical
insurance, overseas medical insurance, etc.
 Group Health Insurance
• Group Health is one of the up-and-coming types of health insurance
plans trending these days. Many medium and large-scale enterprises
are offering this insurance policy to their employees.
• This type of health insurance is bought by the employer of the
company for its employees. The premium of this policy is
comparatively lower than the Individual Health Insurance Policy. It is
offered to the group of employees to meet the financial crisis and
prudence in the company.
 Disease-Specific (M-Care, Corona Kavach, etc.)
 Indemnity & Fixed Benefit Plans
Indemnity: Indemnity plans are those types of health insurance plans
where the policyholder can claim the hospital expenses up to a fixed
limit. The policyholder can make multiple claims only till the maximum
limit is reached.
Fixed Benefits: Fixed Benefits offer you a definite amount of money for
specific health issues caused due to accidents or illness. It covers those
health conditions that are listed at the time of buying the policy.
Things to Consider While Buying Health Insurance
 Deductibles : Before buying any types of health insurance policy, it is essential
to look into the deductibles involved in that policy. A deductible is an amount
that is to be paid by the insured as a part of a claim whenever it arises, and the
rest of the amount is paid by the insurance company.
 Your Age: The buyer needs to understand the importance of the age factor
while buying the Health Insurance plans for oneself or for family members. There
are various plans that depend upon the age of a buyer, and their premiums,
waiting periods and renewability also play a role.
 Medical History of Family Members: At the time of buying a Health
Insurance Policy, one must consider and discuss the medical history of the family
members as it can impact the premium of the policy. If any of the family
members is already suffering from a health problem, then the possibility of
claiming the insurance rises.
 Exclusions An exclusion in terms of policy is a provision that eliminates coverage for
some type of risk. A few common exclusions in most of Health Insurance Policies
include pre-existing diseases, pregnancy, cosmetic treatment, medical expenses to
treat injuries, alternative treatments, lifestyle-related diseases, limitations on hospital
costs, and diagnostic tests. Therefore, the buyer has to discuss these exclusions with
the insurance provider while buying any Health insurance.
 Sum Assured/Insured The sum assured is referred to as the amount of money that
the insured individual will receive at the end of the Insurance term. The sum insured is
the amount that is provided to the insured in an unforeseen event such as a medical
emergency, theft, vehicle damage, etc.
 Waiting Period In the case of a Health Insurance Policy, the waiting period refers to
the amount of time you have to wait to benefit your insurance policy’s benefits. The
waiting period varies from plan to plan.
 Network Hospitals While buying any Insurance Policy, a buyer must choose the
insurance company that covers the widest network of hospitals in their list.
 Claim Settlement Ratio The individual should pick up an insurance company that
provides a fast claim settlement ratio.
Property insurance/ Home Insurance
Insurance that provides protection coverage for property owners. Property
insurance can help the owner avoid financial losses, which might occur due to
damage caused to the property by natural calamities, theft, fire, etc.
Benefits of property insurance
 A property insurance plan will help secure your valuable asset from any mishap.
 If any damage occurs to your insured property, the cost of repair will be covered
by property insurance.
 Property insurance provides coverage for even vacant houses. Even if you are
away from your home, the cost of repair/reconstruction will be covered.
 Property insurance is beneficial for people who live in a rented apartment as it
provides coverage for the content (belongings) and thereby avoids financial
stress.
Factors Impacting Premium for Property Insurance
 Location: If your property is located in a flood-prone locality or a location where
earthquake happens way too frequently then your premium may slightly be on the higher
side.
 Age and Structure of Your Building: If your property is a bit old and has structural
challenges then your premium may be a bit high.
 Home Security: If your property has all the security systems in place then there could
be low chances of theft hence your premium may go low in such a scenario.
 Amount of Belongings It Contain: If your property has quite some valuable content
which you choose to insure then in that case your premium may depend on the value of
the content you choose to insure.
 Sum Insured or Total Value of Your Property: Your property’s total value matters at
the time of deciding the premium. If your property’s structure value is high your premium
is likely to rise and vice versa. It can also be termed as the market value of your home,
because if the market value of your property is high then the sum insured shall also be
high.
What is indemnity
 In a legal sense, indemnification refers to the transfer of liability for damages. A
legally enforceable contract between two parties, termed an indemnity agreement,
specifies the conditions related to this transfer. Here, one party promises to pay for
the losses or damages of the other party.
 An insurance contract is a common example, in which the insurer agrees to
reimburse the other (the insured) for any damages or losses, in return for
premiums paid to the insurer by the insured. This means the insurer indemnifies
the policyholder or insured, promising to compensate him for any insured loss or
damage.
What is the Principle of Indemnity?
 When it comes to insurance, the principle of indemnity says that insurance
contracts provide compensation for damage, loss, or injury only to the extent of
the loss incurred. Insurance contracts must ensure the insured does not make a
profit in the event of a loss incurred.
Objectives of the Principle of Indemnity
 Insurance companies aim to restore your financial situation to what it
was before the loss occurred.
 As soon as the insurer has fully examined and calculated the loss, the
claim you receive is equal to the amount of the loss.
 The purpose of this principle is to prevent you from making a profit
from your insurance claims.
What are the challenges in applying the principle of indemnity?
 Insured parties need to prove their entitlement to indemnity. To
receive indemnity, insured parties must first prove that they have
suffered a covered loss.