Life Insurance

Life Insurance

Plans of Insurance •

Objectives – Provision in case of death – Provision in case of old age

•

Term Assurance – Level Face Amount Policy • Increasing Premium • Level Premium

– Non Level face Amount Policy

• • • • • •

Pure Endowment Double Endowment New Jana Raksha Plan : for agriculturists, lower income groups Special Endowment plans: for film artists, professionals. Individual and Group policies With Profit and Without Profit Policies.

Different Types of Insurance Products • • • •

Whole Life Products Convertible Term Insurance Plan Interest Sensitive Products Combination Plans – Money Back Policy

• Annuities • Insurance Products for Females, Children etc. • Options, Guarantees and Riders

Computation of Premiums •

•

• • •

Step 1: Find out tabular premium i.e premium Sum Assured quoted in published premium rates for a given age nearer birthday for the relevant plan. This premium is per thousand sum assured. Step 2: Deduct adjustment for large sum assured and mode of payment. in monthly mode 5% extra will be increased in tabular rate except salary saving scheme (SSS) policies. Step 3: Find out balance premium Step 4: Multiply this balance by sum assured. Rs. 25,000 -49000 Step 5: Add (a) Accident extra if allowed a) Health Extra, if charged b) Occupation extra, if charged c) any other extras, such as premium waiver

• •

Rebate as reduction from T.P per thousand S.A Rs.1

Rs. 50,000-99999

Rs.1.5

Rs. 100, 000 plus

Rs.2

Step 6: Get Annual Premium Mode of Payment Step 7: Divide by 2 or 4 or 12 to get yearly, half-yearly or quarterly premium respectively.

Rebate

Yearly

3%

Half Yearly

1.5%

Paid-Up, Surrender & Loans • • • • • • • • • • • • • • •

Life Insurance is a contract. Purpose- Security against economic loss of death. Consideration- payment of premiums. Policy lapses- money is forfeited. Non-forfeiture clause applies, if three years premiums are paid. Policy acquires paid up value after three years Paid up formula = sum assured upon term X no. of premiums paid. Entitlement of bonus after 5 years on paid-up policy. Policy can be surrendered for cash value. Surrender value is discounted value. Surrender value goes on increasing. Loans granted on surrender value. Loans may be repaid or not. Interest is payable at stipulated rate becomes compounding after 6 months. Non payment of loans and interest attracts foreclosure.

Some relevant points • A policy acquires paid up value, surrender value and loan value after 3 years premiums have been paid. • If the policy is not run for three years, money paid is forfeited. • When the loan and/ or interest is not paid back, the accumulated liability exceeds surrender value. Hence foreclosure.

Formulae for Calculating Paid-up value/ S.V/ Loan Etc. •

Paid Up Value = S.A X no. of years premiums paid per’000 No. of years Premiums Payable • Surrender value = Paid- up value X S.V Factor 100 • Loan = S.V x 90 if policy is in force 100 = S.V x 85 100

if policy is not in force

Bonus + if any

Extra Premiums • Extra premium to get double coverage in case of death by accident. • Income benefit riders

Group Insurance and Pension Plans • Risks of individual lives are not assessed. • Safeguards by insurer – – – –

Minimum 25 persons Group should already be in existence. No choice of coverage among individual members. The amount of coverage per individual is determined by a formula or a schedule.

• Advantages – Low cost of insurance – Adjustments to be made on yearly basis. – Administration is easy.

Group Insurance- EDLI and NonEDLI • Employee’s Deposit Linked Insurance Scheme is applicable to all establishments contributing EPF. • Insurance cover to an employee linked to his balance in PF Account subject to maximum of a specified amount. • CPF Commissioner may exempt an employer from EDLI, if he opts group insurance scheme of LIC.

Group Gratuity Scheme/Group Superannuation Schemes • Payment of gratuity is compulsory. • Employer may decide to pay gratuity to its employees – Out of his revenues – By creating an internal reserve – By setting up a trust. – By setting up a trust and trustees may opt for an insurance with insurance company.

Group Savings Linked Insurance Scheme • Graded life insurance cover • Out of contribution received from employees, a portion is utilised for insurance cover and balance for savings. • The savings contribution is returned with interest at the time of retirement. • In case of death during service the insurance + savings+ interest is paid.

Marketing Life and Health Insurance Marketing Channels Marketing Intermediaries

Direct Response

Customers

Financial Institutions

Marketing Intermediaries

Marketing Intermediaries

Agency Building

Career Agency

Multiple Line Exclusive Agency

Branch Office System General Agency System

Non Agency Building

Home Service

Salaried

Brokerage

Independent Property and Causality Agents

Producer Groups

Marketing General Insurance Distribution Systems

Independent Agency System

Exclusive Agency System

Direct Writer

Direct Response System

Multiple Distribution Systems

Product Development • Conversion From Idea to Reality (from: Allen D Booth and Robert D Shapiro, “ The Product Development Programme for Insurance Companies” SOA Part 9L Study Note)

Check Points

Stages

Actions

1.

Strategic Fit

2.

Marketability Check

In Markets & Distribution Systems Existing & Potential

3

Design Clarification

Marketing, Financial , Administration Investment

4.

Design Refinement

Develop rates, values, forms, systems, reinsurance and other required items

5.

Product Implementation

Lock in forms, systems and procedures, print forms and sales material, file, do final pricing, begin selling

6.

Results Monitoring

Field/ public reception, sales results, assumption met?