Life Insurance Indian Scenario

LIFE INSURANCE

INDIAN SCENARIO

Life Insurance in its modern form came to India from England in the year 1818. Oriental Life Insurance Company started by Europeans in Calcutta was the first life insurance company on Indian Soil. All the insurance companies established during that period were brought up with the purpose of looking after the needs of European community and Indian natives were not being insured by these companies. However, later with the efforts of eminent people like Babu Muttylal Seal, the foreign life insurance companies started insuring Indian lives. But Indian lives were being treated as sub-standard lives and heavy extra premiums were being charged on them. Bombay Mutual Life Assurance Society heralded the birth of first Indian life insurance company in the year 1870, and covered Indian lives at normal rates. Starting as Indian enterprise with highly patriotic motives, insurance companies came into existence to carry the message of insurance and social security through insurance to various sectors of society. Bharat Insurance Company (1896) was also one of such companies inspired by nationalism. The Swadeshi movement of 1905-1907 gave rise to more insurance companies. Assurance The United India in Madras, National Indian and National Insurance in Calcutta and the Co-operative at Lahore were established in 1906. In 1907, Hindustan Cooperative Insurance Company took its birth in one of the rooms of the Jorasanko, house of the great poet Rabindranath Tag ore, in Calcutta. The Indian Mercantile, General Assurance and Swadeshi Life (later Bombay Life) were some of the companies established during the same period. Prior to 1912 India had no legislation to regulate insurance business. In the year 1912, the Life Insurance Companies Act, and the Provident Fund Act were passed. The Life Insurance Companies Act, 1912 made it necessary that the premium rate tables and periodical valuations of companies should be certified by an actuary. But the Act discriminated between foreign and Indian companies on many accounts, putting the Indian companies at a disadvantage. The first two decades of the twentieth century saw lot of growth in insurance business. From 44 companies with total business-in-force as Rs.22.44 crore, it rose to 176 companies with total business-in-force as Rs.298 crore in 1938. During the mushrooming of insurance companies many financially unsound concerns were also floated which failed miserably. The Insurance Act 1938 was the first legislation governing not only life insurance but also non-life insurance to provide strict state control over insurance business. The demand for nationalization of life insurance industry was made repeatedly in the past but it gathered momentum in 1944 when a bill to amend the Life Insurance Act 1938 was introduced in the Legislative Assembly. However, it was much later on the 19th of January, 1956, that life insurance in India was nationalized. About 154 Indian insurance companies, 16 non-Indian companies and 75 provident were operating in India at the time of nationalization. Nationalization was accomplished in two stages; initially the management of the companies was taken over by means of an Ordinance, and later, the ownership too by means of a comprehensive bill. The Parliament of India passed the Life Insurance Corporation Act on the 19th of June 1956, and the Life Insurance Corporation of India was created on 1st September, 1956, with the objective of spreading life insurance much more widely and in particular to the rural areas with a view to reach all insurable persons in the country, providing them adequate financial cover at a reasonable cost.

What is Life Insurance? Life insurance is a legal agreement between you and the Insurance Company to secure your Family’s future in case of your untimely demise. It provides with a predetermined amount to the beneficiary during the contract period. The primary purpose of Life Insurance is the protection of your entire family in case of your death. Now a day’s Life insurance also acts as a tool to plan effectively about your future Savings, your child’s education needs etc. So apart from covering your life, it is an effective tool to augment your wealth

Many people go about buying insurance without being aware of basic terminology being used and the product being offered. It is not possible to touch upon all products offered by different insurance companies worldwide as there is too much variety and as many local products tailored to specific needs. Here I, touch upon the basic insurance terms and what they mean, so that the person buying the insurance product is aware of what he is going in for and the implications there of. The person buying the policy is not necessarily the beneficiary. He is the policy holder and is insured. The insurance company selling the policy is the insurer. The person who will get the money when and if the policy holder dies is the Beneficiary. The beneficiary is nominated in the policy by the policy holder or insured person. So the beneficiary is the Nominee. The premium is the amount of money you pay to the insurer to buy a policy. It can be a Single Premium Policy (premium paid only once) or an Annual Premium Policy (premium is paid annually for a fixed tenure). The Term of the policy is the number of years you bought the policy for. It is the number of years that the policy will run.There are primarily two kinds of policies (with minor variations built in, depending upon a country's laws and product innovations): Term Insurance provides protection in case of death of the policy holder. It is normally the cheapest type of insurance available and provides money (the sum assured) to the beneficiary ( nominee) in case of death of the insured within a specified term ( period ) of the policy. If the insured dies beyond the term period specified in the policy, the beneficiary gets nothing. In Endowment Insurance, a saving element is added. It provides protection for life and also gives a basic sum assured to the insured if he outlives the policy tenure. The sum assured is paid to nominee in case of death, or if there is no death, within the term of the policy, the insured gets a payment at the end of the policy term. So it combines savings with protection. These policies are normally with a heavier premium and may have multiple variations with companies innovating to attract new customers with multiple variable products within the ambit of an endowment policy. Before we proceed further, we must understand that the Sum assured is the guaranteed amount of payment specified by the insurer (insurance company) in case of death or in case you outlive the policy ( in case of endowment policies). This may also be known as Coverage. Maturity Value is the amount of money the insurance company is bound to pay you and is an addition of the Sum Assured and any declared Bonuses. Bonus is the amount the insurer agrees to pay in addition to the sum assured. It may be a Reversionary bonus and is added to the policy throughout the term of the policy. It may not be payable immediately but will be given to beneficiary in case of death or the insured in case, maturity amount is payable. This bonus can either be a with-profit bonus or a guaranteed bonus. This means this bonus may be tied with the profits of the insurance company (discretionary in nature) or it may be a fixed guaranteed value. A Rider is an optional feature that can be added on to a basic policy. You may want to buy a rider for say critical illnesses or accidents etc. The insurer will normally charge an additional premium value for every rider you add on. An Annuity is regular payments and insurance company may guarantee at some future date. It is normally an instrument of retirement planning and may be a monthly / quarterly or annual return depending upon the terms of the policy. You may want to discontinue your policy after a specific time on account of various factors. The amount of money the insurance company pays you when you surrender this policy before its maturity value is the Surrender Value. Normally the insurance company will try to limit the payment under this process and the insured is likely to lose out on bonuses and other accrued additions.

The Paid up Value of the policy is a different concept to the surrender value. If you stop paying the premium after a number of years before the full payment term of the policy, the policy is adjusted downwards for the Paid Up Value. It will now run normally without additional payments till maturity but the value of the sum assured will have been adjusted downwards. Survival Benefit is the amount of money that will be paid if you survive (live for) specified terms under the policy. You could be paid money if you survive for say five years, ten years and so on, till the maturity of the policy. The sum assured is paid to the beneficiary incase of death, irrespective of any survival benefits paid. I hope the above will clarify the various terms used by insurance companies. I hope you will now find it easier to clearly understand what the insurance company if offering under its various policies before you goes ahead and purchase a policy. It is best to compare and study various policies before taking the important decision of which policy suits your requirements.

Edappon Ajikumar Phone +919446567426 Email : [email protected]