Project Report Unit Link Plans

OBJECTIVES This study has been undertaken to know about the UNIT LINKS PLANS OF HDFC SLIC .The major objectives are: 1. To know about company history and organization structure. 2. Provide an overview of unit linked plans of HDFC

standard life insurance company ltd. 3. To make a comparative performance of unit linked plans.

4. To find the improvement areas in unit linked plans.

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METHODOLOGY Information is collected through secondary data and some discussions were also held with employees of HDFC SLIC to know about the insurance plans. In order to have a detailed insight into the insurance schemes of HDFC SLIC. Literature on insurance plans and framework certain leading schemes were for study to develop a framework for study.

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INTRODUCTION Insurance is basically risk management device. The losses to assets resulting from natural calamities like fire; flood, earthquake, accident etc. are met out of the common pool contributed by large number of persons who are exposed to similar risks. This contribution of many is used to pay the looses suffered by unfortunate few. However the basic principle is that loss should occur as a result of natural calamities or unexpected events, which are beyond the human control. Secondly insured person should not make any gains out of insurance. It is natural to think of insurance of physical assets such as motor car insurance or fire insurance but often be forget that creator all these assets is the human being whose effort have gone along way in building up to assets. In that scene human life is a unique income generating assets. Unlike physical assets, which decrease with the passage of time, the individual become more experienced and mature as he advances in age. This raises his earning capacity and the purpose of life insurance is to protect the income to individual and provide financial security to his family, which is dependent on his income in the event of his pre-mature death. The individual also himself also needs financial security for the old age or on his becoming permanently disabled when his income will stop. Insurance also has an element of saving in certain cases. Insurance is rupees 400 billion business in India and yet its spread in the country is relatively thin. Insurance as a concept has not being able to make headway in India. Presently LIC enjoys a monopoly in Life Insurance business while GIC enjoys it in general insurance business. There has been

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very little option before the customer to decide the insurer. A successful passage of the IRA bill has clear the way of private sector operators in collaboration with their overseas partners. It is likely to bring in a more professional and focused approach. More over the foreign players would bring sophisticated actuarial techniques with them, which would facilitate the insurer to effectively price the product. It is very important that the trained marketing professionals who are able to communicate specific features of the policy should sell the policy. In the next millennium all these activities would play a crucial role in the overall development and maturity of the insurance industry.

DEFINITION GENERAL DEFINITION: In the words of John Magee, “Insurance is a plan by which large numbers of people associate themselves and transfers to the shoulders Of all risks that attach to individuals” FUNDAMENTAL DEFINITION: In the words of D S Hansell, “Insurance may be defined as a social device providing financial compensation for the effects of misfortune, the payments being made from the accumulated contributions of all participating in the scheme.”

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CONTRACTUAL DEFINITION: In the words of justice Tindall “Insurance is a contract in which a sum of money is paid to the assured as consideration of insurer’s incurring the risk of paying a large sum upon a given contingency.

CHARACTERISTICS OF INSURANCE • Sharing of risk • Co-operative device • Evaluation of risk • Payment on happening of special event • The amount of payment depends on the nature of losses incurred

NEED OF THE LIFE INSURANCE: The original, basic intention of life insurance is to provide for one’s family and perhaps others in the event of death. Originally, polices were to provide for short periods of time, covering temporary risk situations, such as sea voyages. As life insurance became more established. It was realized what a useful tool it was in a number of situations, including:

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1. Temporary needs/ threats:

The original purpose of Life Insurance remains an important element, namely providing for replacement of income on death etc.

2. Regular Saving: Providing one’s family and oneself, as a medium to long term exercise (through a series of regular payment of premiums). This has become more relevant in recent times as people seek financial independence from their family. 3. Investment: Put simply, the building up of saving while safeguarding it from ravages of inflation. Unlike regular saving products are traditionally lump sum investments, where the individual makes are one time payment. 4. Retirement: Provision for one’s on later years has become increasingly necessary, especially in changing culture and social environment. One can buy a suitable insurance policy, which will provide periodical payments in one’s old age.

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BENEFITS: 1. It is superior to traditional saving machine As well as providing a secure vehicle to build up saving etc. it provides piece of mind to the policy holder. In the event ultimately death, of say the main earner in the family, the policy will pay out guaranteed sum assured, which is likely to be significantly more then the total premiums paid. With more traditional saving vehicles, such as fixed deposits, the only return would be the amount invested plus any interested accrued. 2. It encourages saving and forces thrift: Once an insurance contract has been entered into, the insured has an obligation to continue paying premiums, until the end of the term of policy, otherwise the policy will lapse. In other words, it becomes compulsory for the insure to save regularly and spend wisely. In contrast savings held in a deposit account can be accessed or stop easily. 3. It provides easy settlement and protection against creditors Once a person appointed for receiving the benefits or a transfer of rights is made (assignment), a claim under the life insurance contract can be settled easily. In addition, creditors have no right to any mommies by the insurer, where the policy is written under trust. Under the married woman’s act the money available from the policy forms a kind of trust which creditors can not claim on.

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4. It can be encased and facilities borrowing: Sum contracts may allow the policy can be surrendered for a cash amount, if policy holder is not in a position to pay the premium. A loan, against certain policy, can be taken for a temporary period to tide over the difficulty. Presence of life insurance policy facilitates credit for personal or commercial loans as it can be offered as collateral security.

5. Tax relief : The policy holder obtains income tax rebates by paying the insurance premium. The specified form of saving which enjoys a tax rebate u/s 88 of the income tax act. Include Life Insurance premiums and contribution to a recognized PF etc.

GOVT. ROLE: ============ Govt. keen to reduce the dependency on the state via private pension provisions. They have a choice between using compulsion and incentives. Most of the govt. chooses the later method. Tax relief is guaranteed in the pension plants and is extremely generous, reflecting the value that the govt. and the society and large place on the provision of retirement benefits. Tax treatments of the benefit vary by country and by benefits. In India, the proceeds of gratuity and provident fund are tax free in the hand of the members. In UK, a certain amount of the proceeds can be taken as tax lump sum and reminder as taxable income. Benefits due on withdrawal

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from schemes are generally taxed unless they are transferred to another scheme or approved pension plan.

ROLE OF LIFE INSURANCE ========================

Role 1: Life Insurance as “investment” Insurance is an attractive option for investment. While most people recognize the tax hedging and tax saving potential of life insurance, many are not aware of its advantages as an investment option as well as. Insurance products yield more compared to regular investment option as this is besides the added incentives (read bonuses) offered by insurers. You can not compare an insurance product with other investment schemes for simple reason that it offers financial protection from risks, something that is the missing in non- insurance products. Infect, the premium you pay for a investment against risk. Thus, before comparing with other scheme, you must accept that a part of total amount invested in life insurance goes towards providing for the risk cover, while the rest is used for savings. In life insurance, unlike non-products, you get maturity benefits on survival at the end of the term. In other words, if you take a life insurance policy for 20 years and survive the term the amount investor as premium in the policy will come back to you with added returns. In the unfortunate event of

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death within the tenure of the policy, the family of the deceased will receive the sum assured. Now, let us compare insurance as an investment options. If you invest Rs. 10000/- in PPF, year money grows to Rs. 10950 at 9.5% interest over a year. But in this case, the access to your funds will be limited. One can withdraw 50% of the initial deposit only after four years. The sane amount of Rs. 10000/- can give you an insurance cover of up to approximately Rs. 5 to 12 lacks. (Depending upon the plan, age and medical condition of life insure etc.) And this amount can become immediately available to the nominee of the policy holder on death. Thus insurance is a unique investment avenue that delivers sound returns in addition to protection.

Role 2: Life Insurance as “Risk Cover” First and foremost, insurance is about risk cover and protection – financial protection, to be more precise-to help out last once unpredictable losses. Designed to safe guard against losses suffered on account of an unforeseen events. Insurance provide you with that uniqueness sense of security that no other form of investment provides. By buying life insurance, you buy peace of mind and are prepared to face any financial demand that would hit the family incase of an untimely demise. To provide such protection, insurance firms collect contributions for many people who face the same risk. A loss claim is paid out of the total premium collected by the insurance companies, who act as trustees to the monies. Insurance also provides a safeguard in the case of accident or a drop in income after retirement. An accident or disability can be devastating and an

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insurance policy can lend timely support to the family in such time. It also comes as a great help when you retire, in case untoward incident happens during the term in the policy. With the entry of private sector player in insurance, you have a wide range of products and services to choose from. Further, many of these can be further customized to fit individual/group specific needs considering the amount you have to pay now; it’s worth buying some extra sleep.

ROLE 3: Life Insurance as “Tax Planning” Insurance serves as an excellent tax saving mechanism too. The Govt. of India has offered tax incentives to life insurance products in order to facilitate the flow of funds into productive assets. U/S 88 of Income Tax Act 1961, an individual is entitled to rebate 20% on the annual premium payable on his/her life and life of his/her children or adult children. The rebate is reducible from tax payable by a individual or Hindu undivided family. This rebate is can be availed up to a maximum of Rs 12000/- on payment of yearly premium of Rs 60000/- a year, you can buy anything upward of Rs 100000/- in sum assured. This means that you get Rs 12000/- tax benefit. This rebate is deductible from the tax payable by an individual or a Hindu undivided family.

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THE EVALUATION OF INSURANCE INDUSTRY IN INDIA: Life Insurance in its modern form is a western concept. The Indian insurance industry is as old as it is in other part of the world. Although life insurance business has been taking shape for the last 300 years, it came to India with the arrival of Europeans. First Life Insurance Company was established in 1818 as Oriental Insurance Company, mainly to provide for widows of Europeans. The companies that follow mainly catered to Europeans and charged extra premium on Indian Lives. The first insurance company insuring Indian Lives at standard rates was BOMBAY MUTUAL LIFE INSURANCE COMPANY which was formed in 1870. This was also the year when 1st Insurance act was passed by the British Parliament. The years subsequent to the Swadeshi movement saw the emergence of several insurance companies. At the end of the year 1955 there were 245 insurance companies. All the insurance companies were nationalized in 1956 and brought under one umbrella- LIFE INSURANCE CORPORATION OF INDIA (LIC) which enjoyed a monopoly of the Life Insurance business until near the end of 2000. By enacting the IRDA act 1999, the Govt of India effectively ended LIC’s monopoly and opened the doors for private Insurance companies.

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COMPANY PROFILE INTRODUCTION Founded in 1977, HDFC is today the market leader in housing finance in India and has extended financial assistance to more than 15 lacks homes. HDFC has more than 110 offices in India presently. It has also one international office in Dubai and 3 more services associate in Kuwait, Qatar and sultanate of OMAN. HDFC’s assets base amount to over 15,000 crore. Its financial strength is reflected in highest safety rating of ‘FAAA’ and ‘MAAA’ awarded by CRISIL and ICRA – two of India’s leading credit rating agency respectively, for the last 6 year consecutively. It has a depositor base of over 11 lacks customer and a deposit agents force of over 46,000 of the total deposit, 73% are sourced from individual and trust depositors, which demonstrates the tremendous confidence that retail investors have in the company. HDFC- promoted companies have emerged to meet the investors and customers needs. HDFC bank for commercial banking, HDFC Mutual Fund for mutual fund products, to be followed very shortly by HDFC Standard Life Insurance Company for the life insurance and pension products. Being an institution that is strongly committed to the highest standards of quality and excellence, HDFC has won several accolades in the past few years. One such award is the “ Ramakrishnan Bajaj National Quality Award “ for the year 1999. this award was instituted to award recognition to Indian companies for business excellence and quality achievement. HDFC is the only company so far to receive this award in the service category. HDFC Standard Life Insurance Company Ltd. is one of India’s leading private life insurance companies, which offers a range of individual and group insurance solutions. It is a joint venture between Housing Development

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Finance Corporation Limited (HDFC Ltd.), India’s leading housing finance institution and one of the subsidiaries of Standard Life plc, leading providers of financial services in the United Kingdom. Both the promoters are well known for their ethical dealings and financial strength and are thus committed to being a long-term player in the life insurance industry – all-important factors to consider when choosing your insurer.

Our key strengths Financial Expertise

As a joint venture of leading financial services groups, HDFC Standard Life has the financial expertise required to manage your long-term investments safely and efficiently.

Range of Solutions We have a range of individual and group solutions, which can be easily customized to specific needs. Our group solutions have been designed to offer you complete flexibility combined with a low charging structure. Track Record so far our cumulative premium income, including the first year premiums and renewal premiums is Rs. 1532.21 Cores Apr-Mar 2005 - 06. We have covered over 1.6 million individuals out of which over 5,00,000 lives have been covered through our group business tie-ups.

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History The Standard Life Assurance Company ("Standard Life") was established in 1825 and the first Standard Life Assurance Company Act was passed by Parliament in 1832. Standard Life was reincorporated as a mutual assurance company in 1925. The Standard Life group originally operated only through branches or agencies of the mutual company in the United Kingdom and certain other countries. Its Canadian branch was founded in 1833 and its Irish operations in 1838. This largely remained the structure of the group until 1996, when it opened a branch in Frankfurt, Germany with the aim of exporting its UK life assurance and pensions operating model to capitalize on the opportunities presented by EC Directive 92/96/EEC (the “Third Life Directive”) and offer a product range in that market with features which local providers were unable to offer. In the 1990s, the group also sought to diversify its operations into areas, which complemented its core life assurance and pensions business, with the intention of positioning itself as a broad range financial services provider. Banking, Healthcare & Investments The group set up Standard Life Bank, its UK mortgage and retail savings banking subsidiary, in 1998 and Standard Life Investments, which had previously been the in-house investment management unit of the group’s life assurance and pensions business, was separated into a distinct legal entity in the same year, with the aim of establishing it as an independent investment management business providing services to both the group and third party retail and institutional clients. The group acquired Prime Health Limited (subsequently renamed Standard Life Healthcare) in the United Kingdom in 2000. Standard Life Healthcare expanded in March 2006 with the acquisition

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of the PMI business of First Assist. Standard Life Asia Limited/Joint ventures The group’s Hong Kong subsidiary, Standard Life Asia Limited (“SL Asia”), was incorporated in 1999 as a joint venture and became a wholly-owned subsidiary of Standard Life in 2002. The group’s operations in Hong Kong were established to give the group a presence in the Far East from which it could expand into China. The group’s joint ventures in India with Housing Development Finance Corporation Limited (“HDFC”) were incorporated in 2000 (in relation to the life assurance and pensions joint venture) and 2003 (in relation to the investment management joint venture). The group’s joint venture in China with Tianjin Economic Development Area General Company (“TEDA”) became operational in 2003. Standard Life International Limited The group also incorporated Standard Life International Limited (“SLIL”) in 2005 for the purposes of providing the group with an offshore vehicle, based in Ireland, through which it could sell tax-efficient investment products into the United Kingdom. Sales of these products commenced in 2006. Service company Following the group’s strategic review in 2004, the group established a service company structure for the provision of central corporate services to the group’s business units. Standard Life Employee Services Limited (“SLESL”) supplies a wide range of central services to the rest of the group, including IT, facilities, legal and human resources services, and employs staff working in the group’s UK and Irish operations (other than SLI, SLB and SLH, which employ their staff directly). This service company structure was created

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to enable Standard Life to comply with regulatory restrictions on the provision of non-insurance services and to exploit group-wide synergies.

Demutualization of Standard Life On 31 May 2006, Standard Life's voting members voted in favor of the Special Resolution for the demutualization of The Standard Life Assurance Company and the flotation of Standard Life plc on the London Stock Exchange.

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STANDARD LIFE ASSURANCE COMPANY (SLAC): Founded in 1952, Standard Life has been at the for front of the UK Insurance industry for 176 years by combining sound financial judgment with integrity and reliability. The kingdom, Ireland, Spain, Germany and some more with representative office in Hong-Kong and China. One of the most recent successes was the launch of standard Life Bank on 1st January 1998. In less than 20 months, the bank collected Rs. 28,000 crore in deposit. The introduction of its innovative mortgage product in Jan. 1999 had an immediate impact on the UK market, accounting for 11% of all new lending within the first operational tear. The current loans outstanding amount to Rs. 43,300 crore. Standard Life has total assets of Rs. 55,000 crore and new premium income last year 33,000 crore. Its UK investment portfolio account for approximately 2% of all shares listed in the London Stock Exchange. Its one of the new Insurance companies in the world to receive AAA rating from two of the leading international credit rating agencies. Moody’s and Standard’s And Poor’s. The latter described Standard Life’s ability to meet its claim obligations as overwhelming under a variety of economic conditions. Not surprisingly, Standard Life is rated as one of the few strongest companies in the world, in financial terms. The quality and value standard Life brings to this venture are immense. The company’s reputation in UK market remains unrivalled. Besides being voted ‘Company of the ears for overall service, for the third consecutive year. Standard Life was recently voted ‘Company f the decade’ by independent brokers.

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THE PARTNERSHIPS: HDFC and Standard discussions about possible joint venture, to enter the life Insurance Life first commenced market, in Jan. 1995. it was clear from the outset that both companies shared similar values and beliefs and a strong relationship quickly formed. In oct. 1995 the companies signed a 3 year joint venture agreement. Around this time standard Life purchased a 5% stake in HDFC , further strengthening the relationship. A small project team was set up in UK and India and set about preparatory work. Among other things, the team conducted market research, looked at possible information technology, documented high level business process maps and set about preparing the first project plan. The next three years were filled uncertainty, due to change in Govt. and both ongoing delays in getting the insurance bill passed in parliament. Despite this both companies remained firmly committed to venture. In Oct. 1998, the joint venture agreement was renewed and additional resources made available. Around this time Standard Life purchased 2% of Infrastructure Development Finance Company Ltd. (IDFC) Standard Life also started to use the services of the HDFC Treasury department to advise them upon their investments in India. One of many success stories over the last few tears has been the actuarial student program. The program was designed to identify high

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caliber individuals who would be sponsored by Standard Life to study for their actuarial qualification in the UK. The new company has 1 Indian actuary and 5 actuarial students in the team, with a further 2 students undergoing training in the UK. Both parents companies strongly believe the program will benefit the new company in the years to come and are firmly committed to it. Towards the end of 1999, the opening of the market looked very promising and both companies agreed the time was right to move the operation to the next level. Therefore, in Jan. 2000 and expect team from the UK joined a hand picked team from HDFC to form the core project team, based in Mumbai. Around this time Standard Life purchased a further 5% stake in HDFC and a 5% stake in HDFC bank. In further development standard Life to participate in the Assets Management Company promoted by HDFC to enter the mutual fund market. The Mutual Fund market was launched on 20th July 2000 and one on the 10th Nov. 2000 assets under the management reached Rs. 1,063 crores. The company was incorporated on 14th Aug 2000 under the name of HDFC Standard Life Insurance Company Limited. The ambition of the company from as afr back as Oct. 1995 was to be first private company to reenter the Life Insurance market in India. On 23rd of Oct. 2000 , this ambition was realized when HDFC standard Life Insurance Company Limited were only Life company to be grated a certificate of registration.

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HDFC are main shareholders in HDFC standard Life Insurance Company Limited with 81.4% while standard Life own 18.6 given Standard Life’s existing investment in the HDFC Group, this is max. Investment allowed under current regulations.

FACTS AND FIGURES Standard Life Standard Life provides an extensive range of products and services which is aimed at meeting the financial requirements of our customers throughout their lives. Our product range is known for its breadth and design, as well as for the innovative features we have built into a number of those products. Standard Life is a leading pension’s provider in the UK, and we were voted the Best Pension Provider at the Money Marketing Awards in 2006. Standard Life is recognized for the high quality of its customer service, in particular for providing a service that is consistent, reliable and responsive. We received recognition for this in 2005 when we were voted a 5 star provider at the Financial Adviser Service Awards for the 10th year running. Standard Life has been looking after its customers for over 180 years. More on Standard Life's history. Standard Life has operations in the United Kingdom, Canada, Germany, the Republic of Ireland, Hong Kong, India and China. The Standard Life group of companies also includes: •

Standard Life Investments, an investment manager with a reputation for delivering strong investment performance, which had approximately £124.8 billion of funds under management*1

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•

Standard Life Bank, offering a range of mortgages and savings products, which managed approximately £10.6 billion of mortgages*2

•

Standard Life Healthcare, which offers private medical insurance and with the recent acquisition of First Assist is one of the largest such insurers in the UK.

*1 as at 31/03/2006 *2 as at 31/12/2005. Statements contained in this website regarding past trends, performance or activities should not be taken as a representation or indication that such trends, performance or activities will continue in the future.

Customer statistics Customers

Statistics

Worldwide customers

Approximately 7 million

Customers in the UK

Over 5 million

With profits members worldwide

2.4 million

Standard Life people Full-time equivalent

15 November 2003

31 December 2003

31 December 2005

Worldwide

13,295

11,324

10,405

In the United Kingdom (UK)

10,174

8,223

7,454

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THE FOLLOWING COMPANIES HAS THE REST OF THE MARKET SHARE OF THE INSURANCE INDUSTRY.

NAME OF THE PLAYER

MARKET SHARE

(%) LIC

82.3

ICICI PRUDENTIAL BIRLA SUN LIFE BAJA ALLIANZ SBI LIFE HDFC STANDARD TATA AIG MAX NEW YORK AVIVA OM KOTAK MAHINDRA ING VYASA AMP SANMAR

5.63 2.56 2.03 1.80 1.36 1.29 0.90 0.79 0.51 0.37 0.26

METLIFE

0.21

25

90 82.3

LIC

80

ICICI PRUDENTIAL BIRLA SUN LIFE

70

BAJA ALLIANZ 60

SBI LIFE HDFC STANDARD

50

TATA AIG 40

MAX NEW YORK AVIVA

30

OM KOTAK MAHINDRA 20

10

0

ING VYASA 5.63 2.56 2.03

AMP SANMAR 1.8 1.36 1.29 0.79 0.51 0.37 0.21 0.9 0.26

METLIFE

MARKET SHARE

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There are many types of Life Insurance but they generally fall into two categories: 1. Term Insurance 2. Permanent Insurance 1. Term Insurance: It provides protection for a specific period of time. It pays a benefit only if

one

dies

during

the

term.

Some

term

insurance

policies can be renewed when you reach the end of the term, which can be from one to 30 years. The premium rates increase at each renewal date. Many policies require that you present evidence of insurability at renewal to qualify for the lowest rates. The following points can help you determine if term insurance best suits your needs. Advantages

Disadvantages

• Initial premiums generally are lower than

• Premiums increase as you grow older.

those for permanent insurance, allowing

• Coverage may terminate at the end of the

you to buy higher levels of coverage at a

term or become too expensive to continue.

younger age when the need for protection • The policy generally doesn’t offer cash value often is greatest.

or paid-up insurance.

• It’s good for covering needs that will disappear in time, such as mortgages or car loans.

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HDFC and Standard Life first came together for a possible joint venture, to enter the Life Insurance market, in January 1995. It was clear from the outset that both companies shared similar values and beliefs and a strong relationship quickly formed. In October 1995 the companies signed a 3 year joint venture agreement. Around this time Standard Life purchased a 5% stake in HDFC, further strengthening the relationship. The next three years were filled with uncertainty, due to changes in government and ongoing delays in getting the IRDA (Insurance Regulatory and Development authority) Act passed in parliament. Despite this both companies remained firmly committed to the venture. In October 1998, the joint venture agreement was renewed and additional resource made available. Around this time Standard Life purchased 2% of Infrastructure Development Finance Company Ltd. (IDFC). Standard Life also started to use the services of the HDFC Treasury department to advise them upon their investments in India. Towards the end of 1999, the opening of the market looked very promising and both companies agreed the time was right to move the operation to the next level. Therefore, in January 2000 an expert team from the UK joined a hand picked team from HDFC to form the core project team, based in Mumbai. Around this time Standard Life purchased a further 5% stake in HDFC and a 5% stake in HDFC Bank. In a further development Standard Life agreed to participate in the Asset Management Company promoted by HDFC to enter the mutual fund market. The Mutual Fund was launched on 20th July 2000.

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INCORPORATION OF HDFC STANDARD LIFE INSURANCE COMPANY LIMITED: The company was incorporated on 14th August 2000 under the name of HDFC Standard Life Insurance Company Limited. Our ambition from as far back as October 1995 was to be the first private company to re-enter the life insurance market in India. On the 23rd of October 2000, this ambition was realized when HDFC Standard Life was the only life company to be granted a certificate of registration. HDFC are the main shareholders in HDFC Standard Life, with 81.4%, while Standard Life owns 18.6%. Given Standard Life's existing investment in the HDFC Group, this is the maximum investment allowed under current regulations. HDFC and Standard Life have a long and close relationship built upon shared values and trust. The ambition of HDFC Standard Life is to mirror the success of the parent companies and be the yardstick by which all other insurance company's in India are measured. MISSION We aim to be the top new life insurance company in the market. This doe’s not just mean being the largest or the most productive company in the market; rather it is a combination of several things like•

Customer service of the highest order

•

Value for money for customers

•

Professionalism in carrying out business

•

Innovative products to cater to different needs of different customers

•

Use of technology to improve service standards

•

Increasing market share

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VALUES •

SECURITY: Providing long term financial security to our policy holders will be our constant endeavor. We will be do this by offering life insurance and pension products.

•

TRUST: We appreciate the trust placed by our policy holders in us. Hence, we will aim to manage their investments very carefully and live up to this trust.

•

INNOVATION: Recognizing the different needs of our customers, we will be offering a range of innovative products to meet these needs.

Our mission is to be the best new life insurance company in India and these are the values that will guide us in this.

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A REVISION OF THE CONCEPT OF UNIT LINKED Unit Linked Policies Are Unbundled Unbundling means the factors which affect the final benefits payable can be seen explicitly by the customer. This means that the customer can see how the expenses, the cost of risk benefits and investment growth are delivering their final benefit.

Unit-Linked Policies Make use of Unit Linked Funds •

The Unit-linked policies the customer’s money is managed in what we call as the unit linked funds.

•

The value of the policy is linked to the value of the net assets (assets less liabilities) of the fund.

•

Unlike some with profits policies the entire investment risk is borne by the customer.

•

At HDFC Standard Life, the client has a choice of funds in which to invest.

•

Our unit linked funds have different investment objectives and give the customer the opportunity to be exposed to different types of assets.

•

As a result, the customer can choose his fund according to his attitude to risk and desire of investment return.

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Unit-Linked Policies Have Explicit Charges: •

With all insurance products we allow for the expenses, the cost of benefits incurred and a profit margin to the company.

•

In HDFC standard life’s unit-linked policies the customer sees the charges being deducted explicitly from their policy in respect to these expenses.

•

Some of these charges are charges deducted from the premium and some are deducted from the fund.

The charges on a unit linked plan of HDFC Standard Life: The charges under this policy are deducted to provide for the benefits and the administration provided by HDFC standard life charges when taken together, are among the lowest in the industry and are structured to the give the better returns over the long term. Investment Content Charge: This is a premium based charge. After deducting this charge from the premiums, the remainder is invested to buy units. The following table shows how much is used to buy units. This percentage is called the investment content Rate.

1st Up to 200000 From 200000 to Regular Premiums

500000 From 500000 to

1000000 Above 1000000 Additional single premiums

INVESTMENT CONTENT RATE (ICR) & 2nd years 3rd year 73.00% 99.00% 80.00%

99.00%

85.00%

99.00%

90.00% 97.50%

99.00% 99.00%

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Other Charges 8Reduced ICR

•

Explanation A reduced percentage of the policy holder’s premium is added to the fund.

•

These charges are intended to cover the marketing

distribution

(including

commission) and some other administrative Fund Management •

costs relating to the policy. Deducted as a percentage of the customer’s

Charge (FMC)

fund on a daily basis. •

These are intended to cover the ongoing costs of managing the investments of the policy.

•

The daily unit price already includes a low fund management charge of 0.80% per annum of the fund’s value.

Administration

•

In the long term, the key to building great

•

maturity values is low FMC. A charge of Rs. 15 per month is charges to

Charges

cover regular administration costs. •

HDFC SL make the charge by canceling units in each of the funds customer have chosen, in

Policy Fee

•

the proportion customer have chosen. A fixed monetary deduction done from the customer’s fund on a monthly basis.

•

This charge is taken to cover the ongoing costs of administration of the policy and for

Risk Charges

•

any renewal commissions. Deducted from the customer’s fund on a monthly basis.

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•

To cover the cost of the lie cover, critical illness or accidental death depending on the options the customer has chosen.

•

Every month HDFC SL customers make a charge for providing customer with the death or critical illness cover they have selected.

•

The amount of the charge taken each month depends on customer age.

Miscellaneous However you may come across other charges, which are used by other companies elsewhere in the market. Here are few examples: Surrender Charges •

Are applied when a policy is surrendered.

•

They are used to recover costs and lost profits.

•

On cancellation or surrender of the policy before 3 years of regular premiums have been paid.

•

The company will make a charge of 25% of the outstanding premiums due for the remainder of this 3 year period.

Switch or Redirection Charges •

These cover the additional administration costs associated with switching investments between funds and redirecting premiums.

•

Companies also sometimes use them to discourage excessively frequent switches are premium redirections.

•

Premium alterations include stopping and restarting the regular premium after 3 years.

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•

The Co. HDFC SL does not charge for any of these options currently.

•

The HDFC SL reserves the right to introduce such charges after approval from the IRDA.

Additional points to note: •

Expense charges and insurance benefit charges may or ma not be guaranteed.

•

Sometimes a maximum guaranteed charge is stated, but actual charges are lower.

•

The client is not allowed has negative number of units in any fund of the plan.

EFFECT OF CHARGES What Is The True Cost Of Charges? This will depend on the level and type of charges that the company levies. Firstly customer must be aware of these, as all charges will affect the final value of the fund. However, they must also be aware of the effect of these charges. •

It is not meaningful to look at one single charge in isolation. All charges must be considered as a complete package. It is the combined effect of all of the charges, which will affect the final benefits payable.

The following example illustrates the relative effect of charges on an HDFC Standard Life Unit Linked Endowment and a similar plan available elsewhere in the market but with a different charging structure.

35

Take the case of a man aged 30 buying a unit linked endowment. The charge assumptions are as follows: HDFC

STANDARD

OTHER

LIFE Investment content

Fund

1st year

73%

85%

2nd year

73%

96%

99% 0.80%`

96% 1.00% pa

RS. 15

Rs. 60

3rd year Management

Charges Monthly Service Charges

HDFC Standard Life mortality has been used for both. The charges for risk benefits are insignificant in comparison to the other charges. Assuming IRDA projection rate of 10% pa, if this customer was to pay Rs. 10,000 premium annually for 10 years, his fund will have frowned but charges will have been deducted. A sum assured of Rs. 100000 has been used. At this term and for this size of premium, the effect of the lower initial ICR on the HDFC Standard Life is greater, as we would expect. However, the impact of the higher FMC and higher service charge means that the HDFC Standard Life plan does in fact give a better illustrative maturity value. What happens if we increase the premium? Take an annual premium of Rs. 100000 with a sum assured of Rs. 1000000.

36

What is immediately apparent is that the service charge is now relatively insignificant for both companies. The monetary amount deducted for the reduced ICR and the FMC will be much greater for bigger premium policies but the service charge is fixed regardless of the premium and therefore has little impact in this example. As a result, the illustrative maturity value for this size of premium over a 10 year term is broadly similar for both companies. This is just a 10 year plan. HDFC Standard Life products have been designed with the long term in mind – they are aimed at customers looking to make long-term savings. We will now extend this same policy to 30 years. It is apparent that over the long term, the fund management charge has the greatest impact on the customer’s fund. The reduced ICR is still visible but the effect is not as rest as the FMC. Although there was only a 0.2% difference in the FMC, this has been large enough to result in a better illustrative maturity value under the HDFC Standard Life plan. What does this example show us? It shows that each type of charge affects the growth of the fund in different ways. Mainly depending on the size of premiums and term. It also means that we can not look at each charge individually – we have to look at the complete package. ALLOCATION OF UNITS •

The day on which units are allocated will be governed by unit allocation rules.

37

•

These rules will specify which day’s unit prices are used for requested made on a specific day and time.

•

For the first premium, allocation rules will apply to the day and time on which the policy is issued.

•

For subsequent premiums and premium top-ups, the allocation rules will apply to the date and time at which we receive the intimation and the cheque.

WHY BUY A UNIT LINKED PLAN •

A unit – linked plan offers the benefits of market – linked returns.

•

It give flexibility in o Premium paying g

o Withdrawals o Protective elements. •

They enable to have ale are, transparent picture of their investments.

•

They allow adapting the level of investment risk according to the changing risk profile.

38

DESIGN OF AN UNIT LINKED PLAN The product specification would include (where relevant): CLASS OF PRODUCT •

The technical class of product – e.g. whole, endowment, pension.

•

Versions available – single life, joint life (first death, last survivor), and business.

•

Premium options – single, regular, flexible.

•

Allowable insurance benefit add-ons.

39

INVESTMENTS •

Fund links available and investment objectives of each fund.

•

Investment guarantees (or lack of investment guarantees)

•

Methods and frequency of unit pricing

•

The investment accounting and management system to be used.

MARKETING AND DISTRIBUTION •

The distribution channels through which the product is available.

•

Variations of product design by distribution channels, if any.

•

The initial and renewal commission payable rules

•

Capabilities of illustration system to be used.

•

Marketing material to be available.

•

Training and qualification standards of anti linked insurance intermediaries.

ADMINISTRATION •

Business processing rules – new and ongoing business.

•

Policy and endorsement wordings.

•

Cash processing rules – allocation of cast to policies, late processing rules.

•

Permitted policy changes (by the insurer and by the client)

•

Availability of loans and / or partial withdrawals and the rules for administering them

•

Non-forfeiture provisions.

40

PRICING This means the level and type of charges that the insurer can take under the policy. The types of charge, which can be levied, are initial charges, surrender charges, renewal charges, fund management charges, and switch or redirection charges. In addition, charges are taken for add-on benefits if the premium for such benefits is not included in the total premium payable. INITIAL CHARGES Initial charges are intended to cover the marketing, distribution and other new business costs relating to the policy. There are many different variations of initial charges, but essentially, whatever method is used; the effect is that less money is actually allocated to the policy than is received from the client for a period of time. Some possible way of doing this are: •

Allocate no money to the policy for a period of months.

•

Allocate only a proportion of each premium to the policy for a period of months.

•

Allocate money received in the early months of a policy to units that have a higher fund management charge than these purchases by later premiums.

In the event of the policy being surrendered, the future excess fund management charges, in excess of the regular charges that would have been levied on these units, are levied at the point of surrender. As such, the excess fund management charges will be received regardless of whether the policy runs its full term or not, and only the amount of

41

money required to purchase the units net of the excess fund management charges needs to be allocated to the policy.

ADD-ON BENEFITS CHARGES These are usually calculated using a current cost method (unless the premium for add-on benefits is included in the total premium). This means that risk premium rate are applied each month the sum at risk under each benefit. Any charge over and above the pure risk premium charge will help offset expenses.

CHOOSING A CHARGING STRUCTURE The pattern of expenses incurred for a life insurance policy will always be high acquisition costs followed by much lower but steadily increasing renewal costs. There will also usually be a high initial commission followed by a much lower renewal commission. Ideally, therefore, the charging structure should match this incidence of expenses with a high initial charge followed by a much lower level of renewal charges. For marketing reasons, this may be unacceptable and the insurer may have to either recoup initial expenses over a period of time by taking charges that (Significantly) exceed there renewal expenses or disguise the high initial charges. It was this latter approach that gave rise to the concept of initial units (units that have a high fund management charge.

The alternative approach of taking higher renewal charges makes the insurer vulnerable to early lapses, particularly if no surrender penalty is applied. Taking charges more evenly can be accomplished in a variety of ways, but the main ones are:

42

•

A high bid/offer spread.

•

An allocation rate of (significantly) less than 100%. This may be increased after a period of years to 100% or more and can be marketed as a loyalty bonus.

•

An investment fee (often expressed as a percentage of the premium)

This is effectively an additional bid/offer spread. •

A high fund management fee on all units. This could be reduced after a period of years (for example by allocating bonus units) to bring the fund management charge into line with the market more.

These can be used either in isolation or in combination.

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DESIGN OF THE UNIT LINKED PLANS OF HDFC STANDARD LIFE HDFC Standard life has the following unit linked plans 1.

Unit Linked Endowment Plat

2.

Unit Linked Young Star Plan

3.

Unit Linked Pension Plan

FEATURES OF THESE PLANS ARE GIVEN BELOW: UNIT LINKED ENDOWMENT ASSURANCE INTRODUCTION The unit linked endowment plan is an insurance policy that is designed to pay a lump sum on maturity or on earlier death. The Unit Linked Endowment Plan also gives the option of additional protection against the six common critical illnesses, as well as additional protection if death is as the result of an accident. Your premiums are invested in units of the investment fund of your choice, based on the prevailing unit price. On maturity you receive the value of your units. On death (or critical illness, if chosen) you receive the greater of the value of your units and your selected basic sum assured. FLEXIBILITY IN PREMIUMS PAYMENT The You agree to pay a level premium regularly, either quarterly, halfyearly or annually, throughout the term of the policy. The minimum premium amount is Rs. 10,000 each year. To facilitate increased investment, we allow additional single premium top-ups at any time. The minimum single premium top-up is Rs. 5,000

44

Premiums can be paid by cash, cheque or demand draft. RISK COVER Depending on your age at entry, you may choose between 3 levels of cover – Low, Medium or High. For each level the Sum Assured is based on the amount of premium you pay each year. Age at Entry

Levels of Cover Low

Medium

18 to 40

5 x Premium

10 x Premium

41 to 50

5 x Premium

10 x Premium

Over 51

5 x Premium

High 20 x Premium

The Sum Assured can not be changed during the term of the contract. CHOICE OF INVESTMENT FUNDS The policy is fully unitised with a range of funds to match customers needs and approach to risk. (By risk it mean the likely volatility in the value of units in the fund.) Each investment fund is composed of units. All the units in a fund are identical. Customer can choose from the following funds: LIQUID FUND The Liquid fund invests 100% in bank deposits and high quality shortterm money market instruments. The fund is designed to be cash secure and has a very low level of risk; however unit prices may occasionally go down due to the use of short-term money market instruments.

45

SECURE MANAGED The Secure Managed fund invests 100% in Government Securities and Bonds issued by companies or other bodies with a high credit standing, however a small amount of working capital may be invested in cash to facilitate the day-to-day running of the fund. This fund has a low level of risk but unit prices may still go up or down. DEFENSIVE MANAGED 15% to 30% of the Defensive Managed fund will be invested in high quality Indian equities. The remainder will be invested in Government Securities and Bonds issued by companies or other bodies with a high credit standing. In addition, a small amount of working capital may be invested in cash to facilitate the day-to-day running of the fund. The fund has a moderate level of risk with the opportunity to earn higher returns in the long term from some equity investment. Unit prices may go up or down. BALANCED MANAGED 30% to 60% of the Balanced Managed fund will be invested in high quality Indian equities. The remainder will be invested in Government Securities and Bonds issued by companies or other bodies with a high credit standing. In addition a small amount of working capital may be invested in cash to facilitate the day-to-day running of the fund. The fund has a higher level of risk with the opportunity to earn higher returns in the long term from the higher proportion it invests in equities. Unit prices may go up or down.

46

EQUITY MANAGED FUND 0% to 40% of the equity managed fund will be invested in Govt. securities & bonds. The remainder will be invested high class Indian equities. Further increased exposure to equities to give a greater long term return. A smaller bond holding will aid diversification and provide a little stability.

GROWTH FUND The Growth fund invests 100% in high quality Indian equities. In addition a small amount of working capital may be invested in cash to facilitate the day-to-day running of the fund. The fund has a higher level of risk with the opportunity to earn higher returns in the long term from the investment in equities. Unit prices may go up or down. The past performance of any of the funds is not necessarily an indication of future performance. There are no investment guarantees on the returns of unit linked funds. None of the funds participate in the profits of HDFC Standard Life Insurance Company Limited or any of its policyholder funds. Customer can switch your existing investments from any endowment unit linked fund to another endowment unit linked fund. Person can also give us a premium redirection instruction to redirect future premiums to different endowment unit linked funds.

47

BENEFITS OFFERED There are 4 different options available to choose from: 1. Life Option On death within the policy term, the greater of the Sum Assured and the value of the unit-linked fund will be paid to your nominee. On survival to the end of the policy term the value of the unit linked fund will be paid to you. 2. Life and Health Option On death or earlier diagnosis of any one of six common critical illnesses within the policy term, the greater of the Sum Assured and the value of the unit-linked fund will be paid to your nominee. On survival to the end of the policy term the value of the unitlinked fund will be paid to you. The illnesses covered under this option are cancer, coronary artery by pass graft surgery, heart attack, kidney failure, major organ transplant (as recipient) and stroke. 3. Extra Life Option This option pays the same benefits as the Life Option but, should death occur within the policy term as the result of an accident, an extra benefit equal to the Sum Assured will be paid. 4. Extra Life and Health Option This option pays the same benefits as the Life and Health Option but, should death occur within the policy term as the result of an accident, an extra benefit equal to the Sum Assured will be paid. 48

AGE AND TERM LIMITS The age and term limits for taking out a Unit Linked Endowment Plan are: (years)

Minimum Minimum Maximum Age at Term Term Entry

Maximum Age at Entry

Maximum Age at Expiry

Life

10

30

18

60

75

Life and Health

10

30

18

55

65

Extra Life

10

30

18

55

70

Extra Life and Health

10

30

18

55

65

Can customer alter the level of my premiums? Regular premiums can be increased at any time. If needed, the policyholder can reduce the regular premium levels (even to zero ie the policy is converted to pay up status) provided: •

3 years of regular premiums have been paid

•

The monetary value of the unit holding across all funds is at least Rs 15,000.

What happens if, policy surrendered? The policyholder can surrender the policy at any point of time during the contract term. The amount payable will be the unitised fund value after applying additional surrender charges mentioned below.

49

When person can access his money? You can make lump sum withdrawals from you funds provided the fund balance after withdrawal and charges does not fall below the Sum Assured. The minimum withdrawal amount is Rs. 10,000. What happens if, customer stop paying premiums? This product has a grace period of 15 days for the payment of each premium after the initial premium. If customer stops paying premiums, before you have paid 3 years of annual premiums, we will cancel you policy and return to you the value of your unitised fund, less cancellation charges. If, after three years, you are unable to pay the premiums, you have the option to make the policy paid-up, provided the policy has accumulated sufficient policy value. Currently, this amount will be Rs. 15,000. If you make your policy paid up you will continue to be protected according to the benefits you selected. To provide this cover, we will continue to collect our usual charges on each monthly charge date. It is important to note that if no further premiums are paid, this may reduce the value of your fund over time, or even exhaust it completely. A paid-up policy can be reinstated to premium paying status at any point of time in the future. If the fund value of a paid-up policy falls below Rs. 15,000 we will cancel the policy and return to you the fund value, less cancellation charges.

50

CHARGES We will deduct charges from the policy to cover our costs. A percentage of each premium is invested to buy units, this percentage is called the Investment Content Rate. The rates are as follows: Premium paid

Investment Content Rate (ICR)

Regular - Year 1

73%

Regular - Year 2

73%

Regular - Year 3+

99%

Regular Premium Increases

99%

Single Premium Top-Up

99%

The unit price each day will include a fund management charge. This charge is 0.80% of the fund value per annum taken on a daily basis. A flat fee of Rs 15 per month will be deducted by cancellation of units on each monthly charge date. This will be proportioned across funds according to the fund holdings at the time of cancellation of units. Risk benefits (for death sum assured, critical illness, and accidental death) will be charged for by cancelling units on each monthly charge date, based on the person’s age at that time. We charge neither for premium redirections nor for switches but we may do so in the future. We do not charge for altering the regular premium amount (including making a policy paid-up and reinstating a paid-up policy), but we may do so in the future.

51

On cancellation of the policy before 3 years of regular premiums have been paid, we will charge 25% of the outstanding premiums due during this 3-year period. ALTERATION TO CHARGES No changes can be made to our current charges without prior approval from the Insurance Regulatory and Development Authority. In any case, the fund management charge will not exceed 2% per annum. EXCLUSIONS No benefit will be paid if the death has occurred directly or indirectly as a result of suicide within one year from the date of first being covered under the policy. We will not pay health benefits if the critical illness has occurred within 6 months of the start of the contract. We may not pay health benefits if we do not receive a duly completed claim form within 26 weeks of the illness, disability, operation or other circumstances giving rise to the claim. We will not pay health benefits if the critical illness is caused directly or indirectly by any of the following: •

Intentionally self-inflicted injury or attempted suicide, irrespective of mental condition.

•

Alcohol or solvent abuse, or the taking of drugs except under the direction of a registered medical practitioner.

•

War, invasion, hostilities (whether war is declared or not), civil war, rebellion, revolution or taking part in a riot or civil commotion.

•

Taking part in any flying activity, other than as a passenger in a commercially licensed aircraft.

52

•

Taking part in any act of a criminal nature.

•

Pregnancy or childbirth or complications arising there from. We will not pay accidental death benefit if death occurs after 90 days from the date of the accident.

We will not pay accidental death benefit if death is caused directly or indirectly from any of the following: •

Suicide within one year of the Date of Commencement or the date of issue of the Policy, if later

•

Alcohol or solvent abuse, or the taking of drugs except under the direction of a registered medical practitioner.

•

Taking part or practicing for any hazardous hobby, pursuit or race unless previously agreed to by us in writing

•

War, invasion, hostilities (whether war is declared or not), civil war, rebellion, revolution or taking part in a riot or civil commotion.

•

Taking part in any flying activity, other than as a passenger in a commercially licensed aircraft.

•

Taking part in any act of a criminal nature.

GENERAL INFORMATION UNIT PRICES

53

We will set the unit price of a fund by dividing the value of the assets in the fund at the valuation time by the number of units in existence for the fund. The resulting price will be rounded to the nearest Rs. 0.0001. The value of the assets will be calculated as the Market or Fair Value of the fund’s Investments plus Current Assets (including accrued income) less Current Liabilities and Provisions (including accrued expenses). PROHIBITION OF REBATES Section 41 of the Insurance Act, 1938 states: 1. No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to take out or renew or continue an insurance in respect of any kind of risk relating to lives or property in India, any rebate of the whole or part of the commission payable or any rebate of the premium shown on the policy, nor shall any person taking out or renewing or continuing a policy accept any rebate, except such rebate as may be allowed in accordance with the published prospectuses or tables of the insurer. 2. Any person making default in complying with the provisions of this section shall be punishable with fine which may extend to five hundred rupees. TAX BENEFITS Premiums paid under this plan are eligible for tax benefits under Section 88 of the Income Tax Act, 1961.

54

UNIT LINKED YOUNG STAR PLAN INTRODUCTION HDFC Unit Linked Young Star Plan is designed to provide a lump sum to the child at maturity. It also provides financial security to the child in the future, even in case of the insured parent's unfortunate death during the policy term. The Unit Linked Young Star Plan also gives the option of additional protection against the six common critical illnesses. Your premiums are invested in units of the investment funds of your choice, based on the prevailing unit prices. On maturity the value of the units will be paid. On death (or critical illness, if chosen) the selected basic sum assured is paid, and the policy continues until maturity. Following a valid death or critical illness claim, we will pay the future premiums (at the level originally chosen at inception) into your policy, as and

when

they

would

have

fallen

due.

PREMIUMS You agree to pay a level premium regularly, either quarterly, half-yearly or annually, throughout the term of the policy. The minimum premium amount is Rs. 10,000 each year. To facilitate increased investment, we allow additional single premium top-ups at any time. The minimum single premium top-up is Rs. 5,000 Premiums can be paid by cash, cheque or demand draft.

55

FUNDS AND INVESTMENT The policy is fully unitised with a range of funds to match your needs and approach to risk. (By risk we mean the likely volatility in the value of units in the fund.) Each investment fund is composed of units. All the units in a fund are identical. You can choose from the following funds:

Liquid fund The Liquid fund invests 100% in bank deposits and high quality shortterm money market instruments. The fund is designed to be cash secure and has a very low level of risk; however unit prices may occasionally go down due to the use of short-term money market instruments. At inception, investments up to 20% can be allocated to this fund. Secure Managed The Secure Managed fund invests 100% in Government Securities and Bonds issued by companies or other bodies with a high credit standing, however a small amount of working capital may be invested in cash to facilitate the day-to-day running of the fund. This fund has a low level of risk but unit prices may still go up or down. Defensive Managed 15% to 30% of the Defensive Managed fund will be invested in high quality Indian equities. The remainder will be invested in Government Securities and Bonds issued by companies or other bodies with a high credit standing. In addition, a small amount of working capital may be invested in cash to facilitate the day-to-day running of the fund. The

56

fund has a moderate level of risk with the opportunity to earn higher returns in the long term from some equity investment. Unit prices may go up or down. Balanced Managed 30% to 60% of the Balanced Managed fund will be invested in high quality Indian equities. The remainder will be invested in Government Securities and Bonds issued by companies or other bodies with a high credit standing. In addition a small amount of working capital may be invested in cash to facilitate the day-to-day running of the fund. The fund has a higher level of risk with the opportunity to earn higher returns in the long term from the higher proportion it invests in equities. Unit prices may go up or down. EQUITY MANAGED FUND 0% to 40% of the equity managed fund will be invested in Govt. Securities & bonds. The remainder will be invested high class Indian equities. Further increased exposure to equities to give a Greater long term return. A smaller bond holding will aid Diversification and provide a little stability.

Growth fund The Growth fund invests 100% in high quality Indian equities. In addition a small amount of working capital may be invested in cash to facilitate the day-to-day running of the fund. The fund has a higher level of risk with the opportunity to earn higher returns in the long term from the investment in equities. Unit prices may go up or down.

57

The past performance of any of the funds is not necessarily an indication of future performance. There are no investment guarantees on the returns of unit linked funds. None of the funds participate in the profits of HDFC Standard Life Insurance Company Limited or any of its policyholder funds.

RISK COVER You can switch your existing investments from your any of your unit linked funds, to any other available unit linked fund. You can also give us a premium redirection instruction to redirect future premiums to different unit linked funds. Benefits There are 2 different options available: 1. Life Option This option consists of a Maturity Benefit and a Death Benefit. •

The Maturity Benefit will pay the value of the unit-linked fund at the end

•

of the policy term.

The Death Benefit will pay the basic Sum Assured on death of the life assured during the policy term. Following payment of this benefit, no further premiums are due from the policyholder.

•

Following a valid death claim, we will pay future premiums on your behalf, as and when they become due. The level of premium will be that chosen by you at inception of the policy.

58

2. Life and Health Option This option consists of a Maturity Benefit, a Death Benefit and an Extra Health Benefit. •

The Maturity Benefit will pay the value of the unit-linked fund at the end of the policy term.

•

The Death Benefit will pay the basic Sum Assured on death of the life assured during the policy term. Following payment of this benefit, no further premiums are due from the policyholder and the Extra Health Benefit will lapse without value.

•

The Extra Health Benefit will pay the basic sum assured on diagnosis of any one of six critical illnesses during the policy term. Following payment of this benefit, no further premiums are due from the policyholder and the Death Benefit will lapse without value. The illnesses covered under this benefit are cancer, coronary artery by pass graft surgery, heart attack, kidney failure, major organ transplant (as recipient) and stroke.

•

Following a valid death or critical illness claim, we will pay future premiums on your behalf, as and when they become due. The level of premium will be that chosen by you at inception of the policy.

PREMIUMS Depending on your age at entry, you may choose between 3 levels cover – Low, Medium or High. For each level the Sum Assured is based on the annual amount of premium you choose at inception.

59

Age at Entry

Levels of Cover Low

Medium

High

18 to 40

5 x Premium

10 x Premium

20 x Premium

41 to 50

5 x Premium

10 x Premium

Over 51

5 x Premium

The level of sum assured can be reduced during the life of the contract but restricted to the available multiples of annual premium chosen at the inception of the policy and using the age of the life assured at entry.

The child is the beneficiary under the policy. In case the child is a minor, the proceeds should go to the appointee. Once the child attains 18 years of age, he will be the sole person entitled to the policy proceeds. The benefits will be paid by cheque.

60

TERMS AND LIMITS The age and term limits for taking out a Unit Linked Young Star Plan are: (years)

Minimum Maximum Maximum Minimum Maximum Age at Age at Age at Term Term Entry Entry Expiry Life 10 Option

25

18

60

75

Life and 10 Health Option

25

18

55

65

Can a Customer alter premiums Regular premiums can be increased at any time. If needed, the policyholder can reduce the regular premium levels (even to zero ie the policy is converted to paid up status) provided: •

3 years of regular premiums have been paid

•

The monetary value of the unit holding across all funds is at least Rs 15,000.

You can pay additional single premium top-up(s) at any point of time. SURRENDER OF POLICY The policyholder can surrender the policy at any point of time during the contract term. The amount payable will be the unitised fund value after applying additional surrender charges mentioned below.

61

What happens if a customer stops paying premiums? This product has a grace period of 15 days for the payment of each premium after the initial premium. If you stop paying premiums, before you have paid 3 years of annual premiums, we will cancel your policy and return to you the value of your unitised fund, less cancellation charges. If, after three years, you are unable to pay the premiums, you have the option to make the policy paid-up, provided the policy has accumulated sufficient policy value. Currently, this amount will be Rs. 15,000. If you make your policy paid up you will continue to be protected according to the benefits you selected. To provide this cover, we will continue to collect our usual charges on each monthly charge date. It is important to note that if no further premiums are paid, this may reduce the value of your fund over time, or even exhaust it completely. A paid-up policy can be reinstated to premium paying status at any point of time in the future. If the fund value of a paid-up policy falls below Rs. 15,000 we will cancel the policy and return to you the fund value, less cancellation charges.

62

Tax Benefits Tax benefits under Section 88 and Section 10 (10D) of the Income Tax Act, 1961 are applicable.

Charges We will deduct charges from the policy to cover our costs. A percentage of each premium is invested to buy units, this percentage is called the Investment Content Rate. The rates are as follows:

Premium paid

Investment Content Rate (ICR)

Regular - Year 1

73%

Regular - Year 2

73%

Regular - Year 3+

99%

Regular Premium Increases

99%

Single Premium Top-Up

99%

The unit price each day will include a fund management charge. This charge is 0.80% of the fund value per annum taken on a daily basis. A flat fee of Rs 15 per month will be deducted by cancellation of units on each monthly charge date. This will be proportioned across funds according to the fund holdings at the time of cancellation of units.

63

Risk benefits will be charged for by cancelling units on each monthly charge date, based on the person's age at that time. We do not charge for premium redirections or switches but we may do so in the future. We do not charge for altering the regular premium amount (including making a policy paid-up and reinstating a paid-up policy), but we may do so in the future. On cancellation or surrender of the policy before 3 years of regular premiums have been paid, we will charge 25% of the outstanding premiums due during this 3-year period.

EXCLUSIONS No benefit will be paid if the death has occurred directly or indirectly as a result of suicide within one year from the date of first being covered under the policy. We will not pay Extra Health Benefits if the critical illness has occurred within 6 months of the start of the contract. We may not pay Extra Health Benefits if we do not receive a duly completed claim form within 26 weeks of the illness, disability, operation or other circumstances giving rise to the claim. We will not pay Extra Health Benefits if the critical illness is caused directly or indirectly by any of the following:

64

•

Intentionally self-inflicted injury or attempted suicide, irrespective of mental condition.

•

Alcohol or solvent abuse, or the taking of drugs except under the direction of a registered medical practitioner.

•

War, invasion, hostilities (whether war is declared or not), civil war, rebellion, revolution or taking part in a riot or civil commotion.

•

Taking part in any flying activity, other than as a passenger in a commercially licensed aircraft.

•

Taking part in any act of a criminal nature.

•

Pregnancy or childbirth or complications arising there from.

GENERAL INFORMATION UNIT PRICES We will set the unit price of a fund by dividing the value of the assets in the fund at the valuation time by the number of units in existence for the fund. The resulting price will be rounded to the nearest Rs. 0.0001. The value of the assets will be calculated as the Market or Fair Value of the fund’s Investments plus Current Assets (including accrued income) less Current Liabilities and Provisions (including accrued expenses). This price will be published on our company's website. ALTERATION TO CHARGES No changes can be made to our current charges without prior approval from the Insurance Regulatory and Development Authority. 65

The following are the maximum caps on each of the different type of charges: The fund management charge will not exceed 2% per annum; the flat fee can be altered from the value at inception increased in line with inflation subject to a maximum of 5% per annum over the period since inception; up to 5 switches will be free in a year, any additional switch can be charged up to 2% of the switched amount; premium redirection and other adhoc policy servicing requests can be charged up to Rs. 250 per request increased in line with inflation subject to a maximum of 5% per annum over the period since inception; the surrender charge can vary up to 100% of outstanding regular premiums due in the first 3 years. The mortality charge rates are guaranteed for the term of the policy.

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PROHIBITION OF REBATES Section 41 of the Insurance Act, 1938 states: 1. No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to take out or renew or continue an insurance in respect of any kind of risk relating to lives or property in India, any rebate of the whole or part of the commission payable or any rebate of the premium shown on the policy, nor shall any person taking out or renewing or continuing a policy accept any rebate, except such rebate as may be allowed in accordance with the published prospectuses or tables of the insurer. 2. Any person making default in complying with the provisions of this section shall be punishable with fine, which may extend to five hundred rupees.

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UNIT LINKED PENSION PLAN The unit linked pension plan is basically an insurance contract, which is designed to provide a retirement income for life. Your premiums are invested in units of the investment fund of your choice, based on the prevailing unit price. On vesting the value of your units will be used to buy your retirement benefits. On earlier death, the beneficiary receives the value of your units plus a cash lump sum of Rs. 1,000. PREMIUMS You agree to pay level premiums regularly, either quarterly, half-yearly or annually, throughout the term of the policy or a single premium at the start of the policy. The minimum premium amount for regular premium mode is Rs. 10,000 each year and for single premium, it is Rs. 25,000. To facilitate increased investment, we allow additional single premium top-ups at any time. The minimum single premium top-up is Rs. 5,000. Premiums can be paid by cash, cheque or demand draft. FUNDS AND INVESTMENT The policy is fully unitised with a range of funds to match your needs and approach to risk. (By risk we mean the likely volatility in the value of units in the fund.) Each investment fund is composed of units. All the units in a fund are identical. You can choose from the following funds: Liquid fund The Liquid fund invests 100% in bank deposits and high quality shortterm money market instruments. The fund is designed to be cash secure and has a very low level of risk; however unit prices may

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occasionally go down due to the use of short-term money market instruments.

Secure Managed The Secure Managed fund invests 100% in Government Securities and Bonds issued by companies or other bodies with a high credit standing, however a small amount of working capital may be invested in cash to facilitate the day-to-day running of the fund. This fund has a low level of risk but unit prices may still go up or down. Defensive Managed 15% to 30% of the Defensive Managed fund will be invested in high quality Indian equities. The remainder will be invested in Government Securities and Bonds issued by companies or other bodies with a high credit standing. In addition, a small amount of working capital may be invested in cash to facilitate the day-to-day running of the fund. The fund has a moderate level of risk with the opportunity to earn higher returns in the long term from some equity investment. Unit prices may go up or down. Balanced Managed 30% to 60% of the Balanced Managed fund will be invested in high quality Indian equities. The remainder will be invested in Government Securities and Bonds issued by companies or other bodies with a high credit standing. In addition a small amount of working capital may be invested in cash to facilitate the day-to-day running of the fund. The fund has a higher level of risk with the opportunity to earn higher returns

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in the long term from the higher proportion it invests in equities. Unit prices may go up or down. EQUITY MANAGED FUND 0% to 40% of the equity managed fund will be invested in Govt. Securities & bonds. The remainder will be invested high class Indian equities. Further increased exposure to equities to give a Greater long term return. A smaller bond holding will aid diversification and provide a little stability.

Growth Fund The Growth fund invests 100% in high quality Indian equities. In addition a small amount of working capital may be invested in cash to facilitate the day-to-day running of the fund. The fund has a higher level of risk with the opportunity to earn higher returns in the long term from the investment in equities. Unit prices may go up or down. The past performance of any of the funds is not necessarily an indication of future performance. There are no investment guarantees on the returns of unit linked funds. None of the funds participate in the profits of HDFC Standard Life Insurance Company Limited or any of its policyholder funds.

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AGE AND TERM LIMITS The age and term limits for taking out a Unit Linked Pension Plan are: (years)

Minimum Maximum Minimum Maximum Minimum Maximum Age at Age at Age at Age at Term Term Entry Entry Vesting Vesting Regular Premium 10 Version

40

18

60

50

70

Single Premium 5 Version

40

18

65

50

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CAN A CUSTOMER ALTER THE LEVEL OF PREMIUMS Regular premiums can be increased at any time. If needed, the policyholder can reduce the regular premium levels (even to zero ie the policy is converted to pay up status) provided: •

3 years of regular premiums have been paid

•

The monetary value of the unit holding across all funds is at least Rs 15,000.

In addition, you can pay single premium top-up(s) at any point of time. WHAT HAPPENS IF CUSTOMER SURRENDER THE POLICY The policyholder can surrender the policy at any point of time during the contract term for regular premium paying policies. For single premium contracts, the contract needs to remain in-force for a minimum period of six months before you can surrender.

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WHAT HAPPENS IF A CUSTOMER STOPS PAYING PREMIUMS IN REGULAR PREMIUM PAYING CONTRACT?

This product has a grace period of 15 days for the payment of each premium after the initial premium. If you stop paying premiums, before you have paid 3 years of annual premiums, we will cancel your policy and return to you the value of your unitised fund, less cancellation charges. If, after three years, you are unable to pay the premiums, you have the option to make the policy paid-up, provided the policy has accumulated sufficient policy value. Currently, this amount will be Rs. 15,000. If you make you policy paid up you will continue to be protected according to the benefits you selected. To provide this cover, we will continue to collect our usual charges on each monthly charge date. It is important to note that if no further premiums are paid, this may reduce the value of your fund over time, or even exhaust it completely. A paid-up policy can be reinstated to premium paying status at any point of time in the future. If the fund value of a paid-up policy falls below Rs. 15,000 we will cancel the policy and return to you the fund value, less cancellation charges.

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TAX BENEFITS Premiums paid under this plan are eligible for tax benefits under Section 80CCC of the Income Tax Act, 1961.

CHARGES We will deduct charges from the policy to cover our costs. A percentage of each premium is invested to buy units, this percentage is called the Investment Content Rate. The rates are as follows: Premium paid (Rs)

Investment Content Rate (ICR)

Single Premium Initial Payment

94%

Single Premium Top-Up(s)

99%

Regular Premiums Year 1

78%

Year 2

78%

Year 3 +

99%

Regular Premium Increases

99%

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Single Premium Top-Up(s)

99%

The unit price each day will include a fund management charge. This charge is 0.80% of the fund value per annum taken on a daily basis. A flat fee of Rs 15 per month will be deducted by cancellation of units on each monthly charge date. This will be proportioned across funds according to the fund holdings at the time of cancellation of units. We do not charge for the flat death cover of Rs. 1,000, but we may do so in the future. We do not charge for premium redirections or switches but we may do so in the future. We do not charge for altering the regular premium amount (including making a policy paid-up and reinstating a paid-up policy), but we may do so in the future. On cancellation or surrender of the policy before 3 years of regular premiums have been paid, we will charge 20% of the outstanding regular premiums due during this 3-year period. ALTERATION TO CHARGES No changes can be made to our current charges without prior approval from the Insurance Regulatory and Development Authority. In any case, the fund management charge will not exceed 2% per annum.

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EXCLUSION

There will be no exclusions on this policy.

GENERAL INFORMATION Unit Prices We will set the unit price of a fund by dividing the value of the assets in the fund at the valuation time by the number of units in existence for the fund. The resulting price will be rounded to the nearest Rs. 0.0001. The value of the assets will be calculated as the Market or Fair Value of the fund’s Investments plus Current Assets (including accrued income) less Current Liabilities and Provisions (including accrued expenses). This price will be published on our company’s website.

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PROHIBITION OF REBATES Section 41 of the Insurance Act, 1938 states: 1. No person shall allow or offer to allow, either directly or indirectly, as an inducement to any person to take out or renew or continue an insurance in respect of any kind of risk relating to lives or property in India, any rebate of the whole or part of the commission payable or any rebate of the premium shown on the policy, nor shall any person taking out or renewing or continuing a policy accept any rebate, except such rebate as may be allowed in accordance with the published prospectuses or tables of the insurer. 2. Any person making default in complying with the provisions of this section shall be punishable with fine which may extend to five hundred rupees.

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BASIS OF COMPARISION 1.MEANING

ENDOWMENT PLAN

YOUNG STAR PLAN

PENSION PLAN

The unit linked endowment plan is an insurance policy that is designed to pay a lump sum on maturity or on earlier death.

HDFC Unit Linked Young Star Plan is designed to provide a lump sum to the child at maturity.

The unit linked pension plan is basically an insurance contract, which is designed to provide a retirement income for life.

2.PREMIUM

Pay a level

Pay a level premium regularly, either quarterly, halfyearly or annually, throughout the term of the policy. The minimum premium amount is Rs. 10,000 each year.

Pay level premiums regularly, either quarterly, halfyearly or annually, throughout the term of the policy or a single premium at the start of the policy. The minimum premium amount for regular premium mode is Rs. 10,000 each year and for single premium, it is Rs. 25,000.

You can switch existing investments from your any of your unit linked funds, to any other available unit linked fund.

This plan does not provide risk cover benefit.

premium regularly, either quarterly, halfyearly or annually, throughout the term of the policy. The minimum premium amount is Rs. 10,000 each year.

Depending on

3. RISK cover Age at entry, your may between

choose 3

levels of cover – Low, Medium or

The policy is fully unitised with a range of funds to match your needs and approach to 78

High. For each You can also risk. give us a level the Sum premium Assured is redirection instruction to based on the redirect future amount of premiums to different unit premium you linked fund. pay each year. 4. AGE AND TERM LIMITS

5. CHARGES

Minimum term of this plan is 10 years and maximum 30 years, minimum age at entry is 18 years and maximum 60 years in life option and 55 in life and health and extra life option.

25 years, minimum term of this plan is 10 years and maximum age at entry is 18 years and maximum 60years in life option and 55 years in life and health option.

Minimum term of policy in single premium is 5 year and, In regular premium is 10 year, and maximum 40 years. Minimum age at entry is18 years and maximum 60years and 65 years respectively.

Administration charges in this plan for first and second year is 27% and

Administration charges in this plan for first and second year is 27% and

A flat fee of Rs 15 per month will be deducted by cancellation of units on each monthly charge date.

A flat fee of Rs 15 per month will be deducted by cancellation of units on each monthly charge date.

Administration charges in this plan 6% on initial payment and 27% on regular premium for first and second year and flat fee is same for this plan also.

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6.EXCLUSION

No benefit will be paid if the death has occurred directly or indirectly as a result of suicide within one year

No benefit will be paid if the death has occurred directly or indirectly as a result of suicide within one year

There will be no exclusions on this policy.

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CONCLUSION Unit linked plans are increasingly become popular,

Due to scientific

investment approach and a number of investor-oriented benefits, return on investment is very high in unit linked plans.

The Unit linked endowment plan provides high return on investment, in this plan you may choose between 3 levels of cover – Low, Medium or High. Unit linked Endowment Plan gives the option of additional protection against the six common critical illnesses, as well as additional protection if death is as the result of an accident, your premiums are invested in units of the investment fund of your choice, based on the prevailing unit price. The unit linked young star plan of HDFC SLIC is very investor friendly. And if an investor invests his money in the above discussed plan he can get very handsome return plus the life risk cover. There are other advantages like premium redirection, risk diversified, top up etc. which make this plan very splendid. Only with one disadvantage that the entry fee is very high it’s around 27%. The unit linked pension plan is basically an insurance contract, which is designed to provide a retirement income for life. Your premiums are invested in units of the investment fund of your choice, based on the prevailing unit price. On vesting the value of your units will be used to buy your retirement benefits. In nutshell we can say that these three plans having different features which fulfill the different needs of the policy holders. So it’s very difficult to say which plan is best. Any from these three can be best in different situations.

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SUGGESTIONS •

HDFC Standard Life insurance can cut down on its administrative charges, which are 27% for first and second year and on a higher side when we compare with administrative charges of unit plan insurance of some of the other life insurance companies.

•

The company needs to launch some major initiatives for its financial consultants to make them sell more unit linked plans. As if now the contribution of unit link plans in total sales of HDFC Standard Life insurance is less than 50% and this is one focus area the company needs to workout.

•

There needs to be initiatives on behalf of HDFC Standard Life Insurance to offer advisory services to its customers as far as investment of their money in various funds is concerned.

•

To better position there unit link products in comparison to the competition the company can also think about offering capital guarantee on investment in unit linked products.

•

HDFC Standard Life insurance’s unit linked plans clearly stand out as a good investment option when taken up from a longer perspective, so the company should ideally focus on positioning its products as a long term investment option rather than a short term one.

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•

As if now HDFC Standard Life Insurance is just offering a couple of riders viz. accidental benefit rider and critical illness rider with their unit link plans and there is a scope for improving upon their products by offering a few more riders like additional term rider, major surgical rider etc.

•

Unit linked Pension Plan of HDFC Standard Life Insurance comes without the option of risk cover and is a pure pension plan. In order to make their pension plan more competitive the option of offering risk cover in unit linked pension plan should be there.

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LIMITATIONS 1. The scope is limited due to only three unit link plans are

said to cover in the report. 2. Time period is limited for the completion of project. 3. Many problems arise while collected data. 4. All plans satisfy the different needs of policy holders, so it was very difficult to make comparison between them.

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GLOSSARY INSURANCE ACCELERATED DEATH BENEFITS A life insurance policy option that provides policy proceeds to insured individuals over their lifetimes, in the event of a terminal illness. This is in lieu of a traditional policy that pays beneficiaries after the insured’s death. Such benefits kick in if the insured becomes terminally ill, needs extreme medical intervention, or must reside in a nursing home. The payments made while the insured is living are deducted from any death benefits paid to beneficiaries. ANNUITY A life insurance product that pays periodic income benefits for a specific period of time or over the course of the annuitant’s lifetime. There are two basic types of annuities: deferred and immediate: Deferred annuities allow assets to grow tax deferred over time before being converted to payments to the annuitant. Immediate annuities allow payments to begin within about a year of purchase. CLAIM A demand made by the insured, or the insured's beneficiary, for payment of the benefits as provided by the policy. COMMISSION Fee paid to an agent or insurance salesperson as a percentage of the policy premium. The percentage varies widely depending on coverage, the insurer and the marketing methods.

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DEATH BENEFIT The limit of insurance or the amount of benefit that will be paid in the event of the death of a covered person.

DIVIDEND The return of part of the policy's premium for a policy issued on a participating basis by either a mutual or stock insurer. A portion of the surplus paid to the stockholders of a corporation. POLICY The written contract effecting insurance, or the certificate thereof, by whatever name called, and including all clause, riders, endorsements, and papers attached thereto and made a part thereof. PREMIUM The price of insurance protection for a specified risk for a specified period of time. SOLVENCY Having sufficient assets--capital, surplus, reserves--and being able to satisfy financial requirements--investments, annual reports, examinations--to be eligible to transact insurance business and meet liabilities.

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SURRENDER CHARGE Fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value. This fee reflects expenses the insurance company incurs by placing the policy on its books, and subsequent administrative expenses.

TERM INSURANCE A plan of insurance that covers the insured for only a certain period of time (term), not for his or her entire life. The policy pays death benefits only if the insured dies during the term. TERM RIDER Term insurance that is added to a whole life policy at the time of purchase or that may be added in the future. CERTIFIED FINANCIAL CONSOLTANT A party who is authorized by another party, the principal, to act on the principal's behalf in contractual dealings with third parties. Called a mandatory in Quebec. See also insurance agent. INSURER The party in an insurance contract that promises to pay a benefit if a specified loss occurs. INSURER The party in an insurance contract that promises to pay a benefit if a specified loss occurs.

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Surrender Period A set amount of time d Surrender Charge - Fee charged to a policyholder when a life insurance policy or annuity is surrendered for its cash value. This fee reflects expenses the insurance company incurs by placing the policy on its books, and subsequent administrative expenses.

Surrender Period A set amount of time during which you have to keep the majority of your money in an annuity contract. Most surrender periods last from five to 10 years. Most contracts will allow you to take out at least 10% a year of the accumulated value of the account, even during the surrender period. If you take out more than that 10%, you will have to pay a surrender charge on the amount that you have withdrawn above that 10%. Ruing which you have to keep the majority of your money in an annuity contract. Most surrender periods last from five to 10 years. Most contracts will allow you to take out at least 10% a year of the accumulated value of the account, even during the surrender period. If you take out more than that 10%, you will have to pay a surrender charge on the amount that you have withdrawn above that 10% Waiver of Premium A provision in some insurance contracts which enables an insurance company to waive the collection of premiums while keeping the policy in force if the policyholder becomes unable to work because of an accident or injury. The waiver of premium for disability remains in effect as long as the ensured is disabled.

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BIBLIOGRAPHY

WEBSITES •

www.hdfcinsurance.com

•

www.economictimes.com

•

www.irdaindia.com

•

www.bimaonline.com

•

www.ciionline.com

•

www.indiainfoline.com

•

www.iiifindia.com

•

www.google.com and other search engines

BROUCHERS •

HDFC Standard Life Insurance

BOOKS •

Life Insurance of RNIS Collage of Insurance

•

Mishra, M.N.; Insurance Principal and Practice

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