A SUMMER TRAINING REPORT IN HDFC Standard Life Insurance Company Ltd

ON Life Insurance and Taxation IILM INSTITUTE FOR HIGHER EDUCATION

Submitted to:

Submitted by: Rishi Raj Bora (Batch 2010-12)

Table of Content
S.No
1. 2. 3. 4. 5. 6. 7.

Contents

Page. No.

1.

1.

Certificate of supervisor...............................................................................3 Certificate of authentication.........................................................................4 Acknowledgement........................................................................................5 Preface.........................................................................................................6 Executive Summary......................................................................................7 Objective and scope of research...................................................................8 Life Insurance Introduction to Insurance Industry..................................................10 IRDA (The Insurance regulatory and development authority).............................................................11 Company profile of HDFC-Standard Life...................................................................................................12 Joint Venture....................................................................................15 Corporate Objectives and Values.....................................................16 Corporate accolades and recognition................................................17 Product and services provided by HDFC life.........................................................................................18 SWOT analysis of the organisation..................................................22 Comparative Analysis of Insurance market in India Major Players in Indian Insurance Market................................................................................................24 A comparative study of different life Insurance Companies operating in India 2011...................................................25 April 2010 to Feb 2011......................................................................26 ULIP Scenario....................................................................................28 Taxation on life Insurance A brief about taxation in life Insurance sector..................................................................................30 Various sections related to Insurance sector..................................................................................32 Instruments that help us save tax........................................................35 Tax benefit on Insurance and 2

1. 2. 3.

Pension................................................................................................37 Life Insurance to cover future taxes....................................................37 Life Insurance to shelter investment...................................................38 Growth and income.............................................................................38 Some tax benefits from various plans.................................................38 Conclusion........................................................................................................40 Appendix/Annexure..........................................................................................41 Bibliography......................................................................................................42

Certificate of Supervisor

This is to certify that Mr. RISHI RAJ BORA Roll No.20102297 has completed the research project titled INSURANCE AND TAXATION under my supervision in partial fulfilment of the Post Graduation Diploma Management.

Date: Place:

Supervisor (Mentor)
3

Certificate of authentication

This is to certify that the Project report is genuinely made by Rishi Raj Bora and no plagiarism is done. The project is done on the topic Insurance and Taxation under the guidance of Mr.Shambhu Singh Nathawat and Mr. Rahul and have been completed successfully.

Faculty coordinator: M/S Ridhi Bhatia

4

Students: Rishi Raj Bora Date : Place: ( PG20102297)

Acknowledgement

Through this acknowledgment, I express my sincere gratitude to all those people who have been associated with this assignment and have helped me with it and made it a worthwhile experience. Firstly I extend my thanks to the various people who have shared their opinions and experiences through which I received the required information crucial for my report.

Finally, I express my heartfelt thanks and gratitude to my mentors of HDFC life Mr. Shambhunath and Mr. Rahul who gave me the corporate exposure in a practical manner and guided us and gave us valuable suggestions regarding the project report. I also warmly thank my College mentor Ms. Ridhi Bhatia for her great response and contribution in making our project a fruitful one.
5

PREFACE
The liberalization of the Indian insurance sector has been the subject of much heated debate for some years. The policy makers where in the catch 22 situation wherein for one they wanted competition, development and growth of this insurance sector which is extremely essential for channelling the investments in to the infrastructure sector. At the other end the policy makers had the fears that the insurance premia, which are substantial, would seep out of the country; and wanted to have a cautious approach of opening for foreign participation in the sector. As one of the rare occurrences the entire debate was put on the back burner and the IRDA saw the day of the light thanks to the maturing polity emerging consensus among factions of different political parties. Though some changes and some restrictive clauses as regards to the foreign participation were included the IRDA has opened the doors for the private entry into insurance. Whether the insurer is old or new, private or public, expanding the market will present multitude of challenges and opportunities. But the key issues, possible trends, opportunities and challenges that insurance sector will have still remains
6

under the realms of the possibilities and speculation. What is the likely impact of opening up Indias insurance sector? The large scale of operations, public sector bureaucracies and cumbersome procedures hampers nationalized insurers. Therefore, potential private entrants expect to score in the areas of customer service, speed and flexibility. The critics counter that the benefit will be slim, because new players will concentrate on affluent, urban customers as foreign banks did until recently. This seems to be a logical strategy. Start-up costs-such as those of setting up a conventional distribution network are large and high-end niches offer better returns. However, the middle- market segment too has great potential. Since insurance is a volumes game. Therefore, private insurers would be best served by a middle-market approach, targeting customer segments that are currently untapped.

Executive Summary

As a management trainee I hereby chosen insurance sector because it has large opportunities and gives me greater exposure not only professionally but morally also and creates better relationship and social network. Insurance sector is a vast sector and have huge potentiality in Indian market as demand for investment is growing up as peoples standard of living and per capita has risen up. It is also a noble work as insurance as it secures the life of person financially and brings hope to policyholder. Insurance is need for every individual and group whether in form of family, business, spouse etc. Modern time requires insurance to prevent unknown risk .The scenario is
7

becoming more complex day by day one can use insurance for investment purpose. Working as a trainee I got to know the real picture behind the insurance sector in HDFC life. We understand clients need in better manner and how to fulfill their needs. HDFC life gave me perfect platform to understand the market as it is already renowned name in the market. It is a joint venture between HDFC and a group of company of Standard Life. HDFC life is one of the oldest private sector insurance company in India and running successfully with glory. As an organisation it believes in creating standard and harmony with employees and basic importance is customer satisfaction. Approx 21 companies like LIC, SBI insurance ICICI prudential, Birla Sun life, Tata AIG, Aviva, Bajaj Allianz, Religare etc. are giving fierce competition and challenges to HDFC life. IRDA regulates the various activities of insurance companies and it is autonomous body. The ULIP plan and conventional plan gives a choice to policyholders to invest according to market share and securities or use traditional insurance practices. It covers risk of both individual and group.

Objective and scope of research

The focus is mainly on what the customer wants, how the organisation works , where will we discover better opportunities, which is the best option to match the market ,When does the investor invest the most and for what purpose.
8

The scope in Insurance business is than one gains trust from others by selling a concept .This will help in further growth and networking in future requirement. We know the insurance market and marketing in better manner. Insurance and Tax goes hand in hand. The tax benefits under sections 80C and 10(10D) of the Income Tax Act, 1961 puts on question How best we can utilise the benefit as per IRDA norms and give best to policy holders.

LIFE INSURANCE

Introduction To Insurance Industry THE HISTORY OF INDIAN INSURANCE INDUSTRY LIFE INSURANCE

10

In 1818 the British established the first insurance company in India in Calcutta, the Oriental Life Insurance Company. First attempts at regulation of the industry were made with the introduction of the Indian Life Assurance Companies Act in 1912. A number of amendments to this Act were made until the Insurance Act was drawn up in 1938. Noteworthy features in the Act were the power given to the Government to collect statistical information about the insured and the high level of protection the Act gave to the public through regulation and control. When the Act was changed in 1950, this meant far reaching changes in the industry. The extra requirements included a statutory requirement of a certain level of equity capital, a ceiling on share holdings in such companies to prevent dominant control (to protect the public from any adversarial policies from one single party), stricter control on investments and, generally, much tighter control. In 1956, the market contained 154 Indian and 16 foreign life insurance companies. Business was heavily concentrated in urban areas and targeted the higher echelons of society. Unethical practices adopted by some of the players against the interests of the consumers then led the Indian government to nationalize the industry. In September 1956, nationalization was completed, merging all these companies into the so-called Life Insurance Corporation (LIC). It was felt that nationalization has lent the industry fairness, solidity, growth and reach. Some of the important milestones in the life insurance business in India are: 1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate the life insurance business. 1928: The Indian Insurance Companies Act enacted to enable the government to collect statistical information about both life and nonlife insurance businesses.
11

1938: Earlier legislation consolidated and amended to by the Insurance Act with the objective of protecting the interests of the insuring public. 1956: The market contained 154 Indian and 16 foreign life insurance companies. 1938: reviewed and comprehensive legislation was enacted 1973:Non-life insurance business was nationalized and General Insurance Business (Nationalization) ACT 1972 was promulgated. The efficient and quality functioning of the Public Sector Insurance Companies. The untapped potential for mobilizing long-term contractual savings funds for infrastructure. The (Congress) government set up Insurance set u an Insurance Reforms committee in April 1993. The committee submitted its report in January 1994, recommended a phased program of liberalization, and called for private sector entry and restructuring of the LIC and GIC. The Insurance Regulatory and Development Authority (IRDA) Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in Parliament in December 1999. The IRDA since its incorporation as a statutory body in April 2000 has fastidiously stuck to its schedule of framing regulations and registering the private sector insurance companies. The other decision taken simultaneously to provide the supporting systems to the insurance sector and in particular the life insurance companies was the launch of the IRDAs online service for issue and renewal of licenses to agents. The approval of institutions for imparting training to agents has also ensured that the insurance companies would have a trained workforce of insurance agents in place to sell their products, which are expected to be introduced by early next year. Since being set up as an independent statutory body the IRDA has put in a framework of globally compatible regulations. In the private sector 12 life insurance and 6 general insurance companies have been registered
12

COMPANY PROFILE OF HDFC - STANDARD LIFE

The company was incorporated on 14th August 2000 under the name of HDFC Standard Life Insurance Company Limited. Their ambition from the beginning 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 first 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%.HDFC Standard Life Insurance Company Ltd. is one of Indias leading private life insurance companies, which offers a range of individual and group insurance solutions. It is a joint venture between Housing Development Finance Corporation Limited (HDFC Ltd.), Indias leading housing finance institution and one of the subsidiaries of Standard Life plc, leading providers of financial services in the United Kingdom. HDFC Incorporated in 1977 with a share capital of Rs 10 Crores , HDFC has since emerged as the largest residential mortgage finance institution in the country The corporation has had a series of share issues raising its capital to Rs. 119 crores. The gross premium income for the year ending March 31, 2007 stood at Rs. 2, 856 crores and new business premium income at Rs. 1,624 crores. The company has covered over 8,77,000 lives year ending March 31, 2007. HDFC operates through almost 450 locations throughout the country with its corporate headquarters in Mumbai, India. HDFC also has an International Office in Dubai, UAE, with service associates in Kuwait, Oman and Qatar. Some facts about the company are as follows Incorporated in 1977 as the first specialized Mortgage Company in India.

13

 Almost 90% of initial shareholding in the hands of domestic institutes and retail investors. Current 77% of shares held by foreign institutional investors. Besides the core business of mortgage HDFC has evolved into a financial conglomerate with holdings In: HDFC Standard Life insurance Company- HDFC holds 78.07 %. HDFC Asset Management Company HDFC holds 50.1% HDFC Bank- HDFC holds 22.25%. Intele net Global (Business Process Outsourcing) HDFC holds 50%. HDFC Chubb General Insurance Company HDFC holds 74%.

KEY PLAYERS

Mr.Deepak S Parekh

Mr.Keki M Mistry

Mr. Deepak S Parekh is the Chairman of the Company. He is also the Executive Chairman of Housing Development Finance Corporation Limited (HDFC Limited). He joined HDFC Limited in a senior management position in 1978. He was inducted as a whole-time director of HDFC Limited in 1985 and was appointed as its Executive Chairman in 1993. He is the Chief Executive Officer of HDFC Limited. Mr. Parekh is a Fellow of the Institute of Chartered Accountants (England & Wales).

14

Mr. Keki M. Mistry joined the Board of Directors of the Company in December, 2000. He is currently the Vice Chairman and Chief Executive Officer of HDFC Limited. He joined HDFC Limited in 1981 and became an Executive Director in 1993. He was appointed as its Managing Director in 2000. Mr. Mistry is a Fellow of the Institute of Chartered Accountants of India and a member of the Michigan Association of Certified Public Accountants. GROUP COMPANIES HDFC Bank: World Class Indian Bank- among the top private banks in India. HDFC AMC: One of the top 3 AMCs in India- Preferred investment manager. Intelenet Global: BPO services for international customers. CIBIL: Credit Information Bureau India Limited. HDFC Chubb: Upcoming Private companies in the field of General Insurance. HDFC Mutual Fund HDFC reality.com: Helps to search properties in all major cities in India HDFC securities

STANDARD LIFE Standard Life is Europes largest mutual life assurance company. Standard Life, which has been in the life insurance business for the past 185 years is a modern company surviving quite a few changes since selling its first policy in 1825. The company expanded in the
15

19th century from kits original Edinburgh premises, opening offices in other towns and acquitting other similar businesses. Standard life currently has assets exceeding over 70 billion under its management and has the distinction of being accorded AAA rating consequently for the six years by standard and poor. Currently 5 million policy holders benefiting from the services offered.

Joint Venture
HDFC is considered as one of the first company to approach for private insurance certification in India. It has reached many standards and won many awards, respect and accolades from various trusts. HDFC life is rated AAA by both CRISIL and ICRA. Standard life is also a leading company and has long experience and customer satisfaction in insurance and running successfully for 185 years. Standard life is mainly a parent company who creates and guide the child company HDFC life towards various aspects of insurance sector. Standard Life is rated AAA by Moodys and Standard and poors. The joint venture of both the big firms creates a better brand image and trust worthiness. Through joint venture it is also following the regulation of joint venture of private companies under IRDA act. The
16

asset base of HDFC life and Standard Life is 15000 crore and 60000 crore respectively which reflects the strength of both the organisation in terms of capital asset value. HDFC is the majority stakeholder in the insurance jv with 81.4% as staple and standard of as staple 18.6%. Both the companies are long term players and gain trust ethically and bring financial strength through joint hands of both.

Corporate objectives and values

Vision The most successful and admired life insurance company, which means that we are the most trusted company, the easiest to deal with, offer the best value for money, and set the standards in the industry. The most obvious choice for all.

Values

Integrity- adherence to moral and ethical principles. Innovation-Encourage innovation continuously and
17

Customer centric-Be friendly with customer and win the trust of customer. Customer satisfaction is the basic importance in terms of values Team work-Encourage better team work and healthy competition with harmony in different groups. People care one for all-Work for people ethically and earn a goodwill through best services. Joy and simplicity-To create a rejoicing and joyful environment in work place for better output and create simple functions for easiness with customer and employees both.

Corporate accolades and recognition

Rated by 'Business world' as 'India's Most Respected Private Life Insurance Company' in 2004. Rated as the "Best New Insurer - 2003" by Outlook Money magazine, India number 1 personal in finance magazine. In year 2008 received some prestigious awards like CIO Bold 100 and CIO Security Awards for risk bearing and innovation, PC Quest Best IT Implementation Award for vast IT application on training, inventory, licensing etc as a part of consultant corner, silver abby at goa fest through AAAI for advertisement
18

and Unit Linked Savings Plan Tops Mint Best TV Ads Survey. Received CIO 'The Ingenius 100 2009' Award for 3rd consecutive year for taking security to higher level of technological excellence and diamond edge award 2009 for its mobile workforce portal in the year 2009. Got the laurel to be named among the top 50 companies to work with according to study conducted by the Great Place to Work Institute, India in partnership with The Economic Times. It ranked 34th among 50 companies in India in 2010 edition. Also 'YoungStar Super' Voted 'Product of the Year 2010' according to consumer survey of product innovation 2010.

Product and Services provided by HDFC life insurance

The tagline of HDFC life Sar Utha ke jiyo truly fits the activities done by HDFC life insurance. One can feel the respect, security and emotion behind the words. HDFC life gives benefit not only for future risk but ensures financial securities by providing better returns through various popular plans. HDFC offers plans for both risk cover and investment purpose. All the plans are mainly based on following plans19

 Conventional Unit-Linked Plan Conventional Plan-These are plans which are traditionally followed and returns are generally fixed. Customer are used to conventional plan and are widely used. The returns bonuses are paid after maturity of the policy but flexible plans are also available for customers. Some of the best suited examples are children plans, retirement plans etc. The returns are stable and risk are very low. Sum-assured* and Fund value with terminal bonuses* are given on maturity. Other benefits given are accidental aids benefit, risk protection of finance of sudden uncertainties. Covers* are the rate at which sum assured is multiplied to give the actual rate of return for certain period. Unit-Linked Plan Unit linked plan are also popularly known as ULIP plans. These plans are new concept which depends on security market. The plans rely on highest NAV (Net Asset Value) of market. The plans are mainly for investment purpose and are designed for the need for customer who urges for higher return. The risk is high but return is high. Policies like Crest gives guarantee on higher return through highest return in the plan period. Other examples are pro growth super, new money back policy etc. There is also provision of funds like short term fund*, income fund*, balance fund*, blue chip fund* and opportunity fund*. The risk and returns increases respectively with different funds. The customer has option to choose any of this fund and invest in it. They also can use the option of switching in which they can wholly or partially transfer their money from one fund to another and nominal amount is charged for switching option of the fund.
( * denotes that look for annexure at the back)

Protection plans
20

The protection plan is for safeguarding well being of the family and protects from uncertain financial scarcity in time of need. The protection plan mainly covers the uncertain demises, critical illness, accidental assistance for finance, major operations and transplants. This plan helps to protect family and individual for future. Some of plans provide by HDFC life under this heading HDFC Term Assurance Plan HDFC Premium Guarantee Plan HDFC Loan Cover Term Assurance Plan HDFC Home Loan Protection Plan Childrens plan The childrens plan mainly emphasis on benefit of child in future. The plan covers child to youngsters .The plan is designed to secure a better life with protection from uncertainties and give financial strength for future development of the Children. It indirectly fulfil the need of education, marriage etc. Some of plans provide by HDFC life under this heading HDFC SL Youngstar Super II HDFC SL YoungStar Super Premium HDFC Children's Plan

Health Plans Health Plans give the benefit for risk of health problems due to change in lifestyle, age, geographical condition, critical activities like exposure to radioactive material. It ensures the policy holder is in
21

safety financial no matter how critical the illness is. Some of plans provide by HDFC life under this heading HDFC Critical Care Plan HDFC SurgiCare Plan Saving and Investment Plans A wise family will definitely invest on securing the future and gain financial favour through its own investment and gain more return. Investment Plans assures the customer lump sum amount as interest and bonus. The plan also motivates to save and invest more rather than spending. For faster growth and prosperity saving and investment are best suited for customer. Mainly young entrepreneur can choose this option. The plan pave the way to financial goal. HDFC life gives different financial consultancy support on investment plans purposes through experts and suit the plan according to need of customer. Some of plans provide by HDFC life under this heading HDFC SL Crest HDFC SL ProGrowth Super II HDFC SL ProGrowth Maximiser HDFC Endowment Assurance Plan HDFC SL New Money Back Plan HDFC Single Premium Whole of Life Insurance Plan HDFC Assurance Plan HDFC Savings Assurance Plan HDFC SL ProGrowth Flexi HDFC SL Endowment Gain Insurance Plan HDFC SL ClassicAssure Insurance Plan HDFC Life Sampoorn Samridhi Insurance Plan
22

Retirement Plans Retirement plans mainly emphasis on financial stability and security after retirement of policyholder. The policy holder does not have to face scarcity of money to fulfil his/her need or depend on others for money and he/she can lead a respectful life through this plans. Retirement Plan provide them tool to accumulate their savings from regular income. Pension plans are becoming more critical today as ones living standard, inflation etc. Some of plans provide by HDFC life under this heading

HDFC Personal Pension Plan HDFC Immediate Annuity HDFC SL Pension Maximus HDFC Life Classic Pension Insurance Plan

Rural Products and Social Products

HDFC life also provides services to rural development and encourages small savings in rural areas. HDFC life also insure development of large group and provide lump sum amount in times or requirement or maturity whichever ends first .The dealing in this area is comparatively lesser than other plans but it is raising for company. Some of plans provide by HDFC life under this heading Rural Products HDFC Gramin Bima Kalyan Yojana HDFC Gramin Bima Mitra Yojana HDFC Bima Bachat Yojana Social Products HDFC Development Insurance Plan
23

SWOT ANALYSIS OF THE ORGANISATION STRENGTH Strong brand name which creates trust among the mass Domestic player in the country therefore knows the market better More competitive sense and better equipped with man power loyalty. First mover advantage in Insurance market in India. Strong Financial hold in assets and securities. Liberalization and Privatization are giving exposure towards foreign investment. Large pool of technical knowledge, skilled and talented employees are available. Association with very highly qualified, experienced and trusted Company call Standard life. WEAKNESS People rely on private insurance less because it is new concept in India and LIC is having already good hold in the market. Cost of management is heavy in managerial activities like recruitment, training, purchases as insurance sector definetly require this activities. The returns profit in starting is low as huge investment is done and returns began to come in later period which may sometime be difficult for company to operate in liquidity prospect Poor retention tied up agents. OPPORTUNITIES Large Indian market which is unexplored and untapped even now. Growing standards of people and open thinking of new generation of spending rather than saving. World class standard and expertise has a huge opportunity towards setting standards. International companies can help setting a trend and a standard. Better outsourcing opportunities in Indian market through technical skills of Indian experts. THREATS Cut throat competition by the other leading players like LIC,SBI Insurance, Birla Sunlife etc. Attraction towards Indian market and entrance of big players like AIG through joint venture with Indian big players like TATA, Reliance etc. Attractive offers and rigorous innovation can divert the minds of customers towards other players. Large number of competitors and still the number of competitors are growing.

24

********************

Comparative Analysis of Insurance Market in India 2010-2011

25

Some of the major players in Indian life insurance market which are with competition to HDFC life are as follows

Life Insurance Corporation of India (LIC) SBI Life Insurance Company Limited . Max New York Life Insurance Co. Ltd. ICICI Prudential Life Insurance Company Ltd. Om Kotak Mahindra Life Insurance Co. Ltd. Birla Sun Life Insurance Company Ltd. Tata AIG Life Insurance Company Ltd. ING Vysya Life Insurance Company Private Limited Allianz Bajaj Life Insurance Company Ltd. Metlife India Insurance Company Pvt. Ltd. AMP SANMAR Assurance Company Ltd. Dabur CGU Life Insurance Company Pvt. Ltd.

LIC and is at the pinnacle as it is the oldest running insurance giant in the country and government undertaking company. Other private companies which follow with high rise are Tata AIG, Birla sunlife, Kotak Mahindra and Bajaj Allianz. The main reason behind LIC in top slot is that it had gained trust with the people for so many years and build a big market share. People are slowly gaining trust on private players but are not fully confident on investing on private players. In short LIC has built a monopoly in the market.SBI life insurance company ltd. is also performing well as a government company. The private players have to compete more for establishing their name in the market. So far many private companies were established after 2000 after government deregulated act for privatization of Insurance. The private players are new to the market and are in process to gain some reputation and market
26

share. Many private has collaborated with experienced foreign giants to give better output and gain experience and also following the regulations of IRDA to joint venture with parent company of private companies.

A Comparative study of different life insurance companies operating in India 2011

Diagram Courtesy: www.freepress.in

As per the diagram the biggest pie is possessed by LIC with 50% share. ICICI prudential is the second in share with 10% and first in private sector to have the bigger pie. HDFC life market share has overall 6%. HDFC life has increased its share from 4.6% (Financial year-2008) to 6% (2010 December) which is appreciable. The share may look tiny but is expected to grow to 9% due to rise in market shares and growing trust among people on HDFC life. The returns are also coming back after long investment gradually for the company which shows positive sign. But comparing to many Private companies except ICICI prudential HDFC life market share is comparatively is in descent zone and can be placed in second in private sector market share as per
27

diagram. Other companies like Reliance, Bajaj, Max, Birla, Tata, Met and Kotak are holding market shares of 5%, 4%, 3%, 4%, 2%, 1% and 2 % respectively. Other players holds 8 % of total market share.

April 2010 to February 2011 As per the statistics released by the Insurance Regulatory and Development Authority (IRDA), the life insurance industry collected weighted new business premium income of Rs574 billion in the first eleven months of FY2010-11 (April 2010 to February 2011). Private sector life insurers witnessed a decline of 15.1 per cent in their weighted new business premium in this period, while state-owned insurer LIC registered a significant increase of 61.0 per cent in its weighted new business premium collection. As a result, the weighted new business market share of private sector life insurers decreased to 40.0 per cent compared to 55.9 per cent in the corresponding period of FY2009-10. Despite experiencing a negative growth of 12.9 per cent, ICICI Prudential maintained its position as the market leader, a position which it has held since the beginning of this financial year. SBI Life ranked second, with a negative growth of 33.2 per cent, down from its position as the market leader in FY200910. HDFC Life, which was ranked fourth in the same period the previous financial year, registered a 13.0 per cent growth and progressed to the third position. Of the 22 private life insurers, only eight registered positive growth in weighted new business premium in the first eleven months of FY2010-11. This list of positive performers includes three companies among the top 10 - HDFC Life, Max New York Life and Canara HSBC OBC Life, with the rest being smaller players with less than one per cent market share. With insurers reported to increase focus on single premium business through more single premium product launches, business under single premium domain witnessed an increase of about 31 per cent in the period April 2010 to February 2011 as compared to the same period in the previous fiscal. Major increase was
28

due to the private players which saw an increase in single premiums of about 210 per cent in this period. The graph given below compares the weighted new business premium income written by private sector life insurers in the first eleven months of FY2010-11 with the same period of FY2009-10.

29

30

ULIP Scenario- ULIPs Contribution To Policies Sold In 2010-11 (Up To 8 March, 2011)

As per Life Insurance Council data, an industry body of life insurance companies in India, Life insurance industry paid Rs 10954 crore in commission to insurance agents in 9 months during April-December 2010 period. Total commission paid to agents fell to 5.88 per cent of the total premium collected, against 6.41 per cent in the same period last year. The number of agents also dipped by 2,73,984 to 27,10,301, as compared to 29,84,285 in 2009. Life Insurance Corporation, the only state-owned life insurer, also reduced its agent strength by 62,956 during the calendar HDFC life has performed well in ULIP sector and earned profit from ULIP plans. HDFC see better earnings in ULIP plans therefore trying to concentrate more in ULIP through various existing market securities .ULIP is growing trend in Indian Insurance market. A tie with SEBI and IRDA regulation are followed by companies to earn faster profit and growth. There is competition in ULIP sectors .

**********
31

Taxation on Life Insurance

32

A brief about taxation in life insurance sector

The life insurance market is overflowing with variety products like pure life insurance, health insurance, children insurance plan, pension plan etc. giving you a wide spectrum to choose from. Life insurance is an amazing tax-saving tool and an indispensable part of an individual's financial planning exercise. Life Insurance is a critical part of an individual's personal insurance portfolio. It's a strategic part of the future security that one must provide for one's family in the face of the inevitable. Insurance is an important part of Income tax regulation. The proper type and the appropriate level of life insurance can be a matter of life and death. Securing the long-term financial security and quality of life for the people you love most is crucial, and the first step in securing it is life insurance. Many individuals also look at life insurance from tax planning perspective.

INCOME-TAX SURCHARGE RATE AS PER INCOME OF INDIVIDUAL AND HUF

A] INCOME-TAX RATES FOR ASSESSMENT YEAR 2011-2012 (FINANCIAL YEAR 2010-2011) Tax Rates Income Slabs Individual & HUF Woman below age of 65 Individual above age of below age of 65 years 65 years years Income Rs.1,60,000 upto Income upto Rs.1,90,000 Income upto Rs.2,40,000 NIL

33

Rs.1,60,001 Rs.5,00,000 Rs.5,00,001 Rs.8,00,000

to Rs.1,90,001 Rs.5,00,000 to Rs.5,00,001 Rs.8,00,000 Above Rs.8,00,001

to Rs.2,40,001 Rs.5,00,000 to Rs.5,00,001 Rs.8,00,000 Above Rs.8,00,001

to 10% to 20% 30%

Above Rs.8,00,001

Education Cess : An additional surcharge called as Education Cess is levied at the rate of 2% on the amount of Income tax and surcharge (if any) in all cases shall be levied. Secondary and Higher : An additional surcharge, called the "Secondary and Higher Education Cess on income- at the rate of 1% of income-tax and surcharge (not including the Education Cess on Income-tax) in all cases shall be levied. With the introduction of the Direct Tax Code (DTC), to be implemented from the next financial year i.e. April 2011 onwards, only the approved pure life insurance products and annuity schemes would fall under the EEE tax status. As per the EEE tax regime the investments made into the life insurance policy, the earnings and the withdrawal all are exempt from tax. As per the DTC, rest of the life insurance schemes apart from those stated above would fall in the EET (Exempt, Exempt, Tax) category i.e. the withdrawals under these schemes would no longer be tax free. DTC deals with calculating the income eligible for taxation. Some of the introductions as per the DTC are

The Section 56(2)(f) of the DTC, states that amount that is received from life insurance policy including any amount received as bonus on the policy will be taxed under 'gross residuary income'. The Section 57(3) of the DTC deals with deductions applicable on `gross residuary income. According to this section, bonus and any other amount received on the life insurance policy, except in case of key man Insurance, will be exempted from tax if the premium paid is up to a maximum of 5% of the sum assured. Also the receipt from life insurance should be only after the completion of the policy term or in case of death of insured.

DTC is framed with a view to improve the Indian Taxation System, making it at par with the international standards

34

Income Tax on Insurance- A Review

As we already completed the financial year march 2010-11, we start to worry about planning our investments to ensure maximum tax savings. The fear of finishing and furnishing our Income Tax details, and filing the IT returns on time engulfs us.

Various Sections relating to Income Tax

As per The Income Tax Act 1961, amended in 2008, there are 9 major sections
1. Section 80C:
Section 80L used to allow deduction of interest earned on, say, a National Savings Certificate or a bank deposit up to a limit of Rs 12,000. But now all these are gone .In their place has come Section 80C -- "u/s 80CCC, & u/s 80CCD", as the Finance Bill puts it. Thus, the new Section 80C of the Income Tax Act proposed in Union Budget gives you a bigger tax break than what the current regime offers.

Deduction in respect of Life Insurance Premia , Contribution to Provident Fund, etc. Rs 1 lakh can be invested under this section without any individual sublimits except in the case of Rs 10,000 in pension funds. Sections 88, 80L, 80CCC and 80CCD in. is clubbed

Schemes eligible for Section 80C benefits 35

PPF ELSS - Mutual Funds NSC KVP Life Insurance Senior Citizen Saving Scheme 2004 Post Office Time Deposit Account

Note : - Section 80CCC is for deduction in respect of contribution to certain Pension Funds. Section 80L is for deductions in respect to Interest on certain Securities, Dividends, etc

Sections abolished from Union Budget 2005-06 88 (Rebate on Life Insurance Premia, Contribution to Provident Fund, etc.) 80L (Deductions in respect to Interest on certain Securities, Dividends, etc.)
Note :Rebate of Rs 5,000 for women and Rs 20,000 for senior citizens have been wiped off.

The key features of the new provision Exemption available to all taxpayers irrespective of income bracket -earlier Section 88 did not provide benefit to those having income exceeding Rs 500,000. No exemption/adjustment for interest income All saving modes/options under Section 88 covered and also 80CCC and 80CCD covered.

Following benefits will continue irrespective of changes Interest paid on housing loan for self-occupied house property. Medical insurance premium. (Additional deduction of Rs 15000 u/s 80D to an individual paying medical insurance premium for his/her parent(s) Specified expenditure on disabled dependant. Expenses for medical treatment for self or dependant or member of an HUF. Deduction in respect of interest on loans for pursuing higher studies Section 80E. Deduction to person with disability. 36

Minimum Period of Holding: Unit-linked Insurance Plan -- 5 years, Life Insurance Premium -- 2 years Cost of construction or purchase of residential property -- 5 years Time deposit in Post Office Rules, 1981 -- 5 years Senior Citizen Saving Scheme Rules, 2004 -- 5 years. 1. Section 80CCC: Deduction for Contribution to Pension Funds
2. Section 80D:.

Health Insurance premiums paid for insuring your own health, or that of your spouse, parents and children also allows you to avail of tax rebates 3. Section 80DD: Any expenses incurred on the treatment of a handicapped dependent fall under this section.
4. Section 80DDB:

The deduction is allowed only for the diseases/ ailments prescribed in Rule 11DD.

5. Section 24 :

The interest paid for a personal loan taken for acquisition, construction and renovation of the house can be claimed for tax deduction up to Rs. 1.5 lakh. 6. Section 80E: Deduction in respect of repayment of loan taken for higher education
7. Section 80G:

Deduction in respect of donations to certain Funds, Charitable Institutions etc.

37

8. Section10(33)

Dividends from mutual funds are fully exempt from income tax under Section 10(33). Equity funds (schemes that invest 50 per cent of their funds in equity) are also exempt from dividend tax. This means that unlike companies, they do not have to pay tax at the rate of 10.2 per cent on the dividend that they distribute. 9. Section88 Upto 31 March 2005, rebates were available on the tax payable under three sections. According to the section, 30 per cent or 20 per cent or 15 per cent of the amount invested in certain schemes (schemes referred in Section 80C) was available as a rebate on the tax payable.

30 per cent of the amount invested was available as rebate only if the salary income of the individual was less than Rs. 1 lakh and if it constituted 90 per cent or more of the assessees gross total income. 20 per cent of the amount invested was available as rebate if the gross total income of the individual was less than Rs 1.5 lakh and the case did not fall under the above mentioned case. If gross total income was more than Rs. 1.5 lakh but less than Rs 5 lakh of the individual, a rebate of 15 per cent of the amount invested was available. If gross total income was more than Rs 5 lakh of the individual, then there is no rebate.

1. Section 88B Under this section, an individual resident in India and above the age of 65 years was allowed to a maximum rebate of Rs. 20,000 on the tax payable.
2. Section88C

Under this section a lady resident in India, aged below 65 years, was allowed a maximum rebate on the tax payable of Rs 5,000.
3. Section89 (1)

This is available to an employee when he receives salary in advance or in arrear or when in one financial year, he receives salary of more than 12 months or receives 'profits in lieu of salary' W.e.f. 1.6.89, relief u/s 89(1) can be granted at the time of TDS by employees of all companies co-operative societies, universities or institutions as well as govt./public sector undertakings. The relief should be claimed by the employee in Form No. 10E and should be worked out as explained in Rule 21A of the Income Tax Rules. Note: The key point to be remembered in all the cases is that the above exemptions can be availed only if the policy serves the minimum lock in period term i.e. 3 years which is now
38

raised to 5 years. If an individual withdraws the policy beforehand, these provisions are no longer applicable.

Instruments that help us Save Tax

Life Insurance: All investments made towards Life Insurance are eligible for are bate u/s 80C of the Income Tax Act. Life Insurance products with a minimum lock in period of 3 yrs only are eligible for the rebate. Premiums paid under pension plans of various life insurers are also eligible for Tax rebate. The major advantage of a Life Insurance product is that they provide tax free interest income. Equity Linked Saving Schemes: These are Mutual Fund products and carry market risk. These too, like life insurance products, are eligible for tax rebate u/s 80C, if they have a lock in period of 3 years. A major disadvantage of these instruments is that they do not provide life cover. Public Provident Fund: These are 15 year long investments and provide tax-free returns. The current rate of returns is 8%. Maximum investment allowed under this instrument is Rs. 70, 000, which is eligible for a rebate u/s 80C. Bank Deposits: Tax rebate is available for 5 yrs deposits in any scheduled bank. The point to remember is that the entire interest income is taxable. National Saving Certificates: Government sponsored securities certificates, which are available in denominations of Rs. 100, Rs.500, Rs. 1000, Rs.5000 & Rs. 10,000 may be purchased from any post office, either directly or through authorized agents. They currently provide a rate of interest @ 8.16% p.a. compounded half yearly and paid after the maturity period of six years along with principal. Interest accruing annually is automatically reinvested and such re invested interest also qualifies for rebate u/s 80C of Income Tax Act. The interest earned is completely taxable.

Home Loans: Section 24 of the Income Tax Act allows you to deduct the total interest paid on your home loan from your taxable income for the same financial year. You can also claim arebate u/s 80C for the principal amount repaid on the home loan.
39

 Tuition Fee: The entire tuition fee paid for up to two children is exempted from tax. Donations of anykind like development fee etc. are excluded from the same. Loan on Higher Education: Those servicing a loan taken for higher education can claim a deduction on the interestpaid for the loan u/s 80E of the Income Tax Act. Currently there is no ceiling on theinterest

amount that can be claimed under this section. The principle amount is however completely taxable Health Insurance Plans: Rebate is available u/s 80D of the Income Tax Act, for premiums paid for self, spouse, children and parents. A limit of Rs.15, 000 is fixed for premiums paid for self, spouse and childrens. There is an additional benefit of Rs. 15,000 on premiums paid for parent(s) and in case the parents are senior citizens, the upper limit increases to Rs.20,000 .

Enjoy Dual Tax Benefits with Life Insurance: Save tax on Regular Premium paym ents - All the premiums paid towards insuring your life are exempted from tax up to Rs. 1,00,000/- as specified in section 80C of the Income tax act. Enjoy Tax free Maturity returns - One of the biggest advantages of investing in Life Insurance policies is that, the complete maturity amount is tax free. Thus, you save tax not only at the time of investing in a life insurance plan, you also get completely tax free returns after maturity.

Tax Benefits on Insurance and Pension

40

Life insurance and retirement plans are effective ways to save taxes when doing your yearend tax planning. To assist in tax planning, the tax breaks that are available under our various insurance and pension policies are described below: 1. HDFC lifes life insurance plans are eligible for tax deduction under Sec. 80C. 2. HDFC lifes Pension plans are eligible for a tax deduction under Sec. 80CCC. 3. HDFC lifes health insurance plans/riders are eligible for tax deduction under Sec. 80D. 4. The proceeds or withdrawals of our life insurance policies are exempt under Sec10(10D), subject to norms prescribed in that section. A life insurance tax shelter uses investments in life insurance to protect income or assetsfrom tax liabilities. Life insurance proceeds are not taxable in many jurisdictions. Since mostother forms of income are taxable (such as capital gains, dividends and interest income),consumers are often advised to purchase life insurance policies to either offset future taxliabilities, or to shelter the growth of their investments from taxation

Life insurance to cover future taxes

In those jurisdictions where life insurance proceeds are only tax free at death, tax liabilities that come due at death are often offset by a policy of the same size. Since the mathematics required to compare different strategies is quite complex, most consumers defer to an accountant or life insurance agent for advice. However, there are often vast differences of opinion between these professionals, even given the same starting conditions. This should not be surprising, given the huge future differences that even small variances in starting conditions can make. For example, assume that an individual is likely to owe $100,000.00 in taxes at death. If a permanent life insurance policy with a $100,000.00 death benefit costs $1,000 per year (remaining level for life), and the life expectancy of the person is 30 years, then thefollowing events could occur.

The individual could die early. In this case, it is unlikely that any alternative investment of the $1000 per year would have yielded the required $100,000.00 at death. The individual could live much longer than expected. The individual could have built up a significant cash value within the policy, depending on investment selection. As such, the individual would have access to these cash values tax-free regardless of growth, provided it is set up properly. Since one normally does not know which of these will occur (see adverse selection) calculations must be based on expected life expectancies for people of similar gender, physical condition, and behaviour.

41

Life insurance to shelter investment growth and income

In an attempt to achieve the "best of both worlds" (protection in the case of early death, and additional tax-protected returns in the case of long life), life insurance policies were created containing investment accounts having preferential tax treatment. This is most often done with a Variable universal life policy. See that article for some discussion of the tax issues.

Some important tax benefits available under various plans of life insurance are highlighted below-

B] SOME IMPORTANT INCOME TAX BENEFITS AVAILABLE UNDER VARIOUS PLANS OF LIFE INSURANCE ARE HIGHLIGHTED BELOW: 1) Deduction allowable from Income for payment of Life Insurance Premium (Sec. 80C). (a) Life Insurance premia paid in order to effect or to keep in force an insurance on the life of the assessee or on the life of the spouse or any child of assessee & in the case of HUF, premium paid on the life of any member thereof, deduction allowed upto 20% of capital sum assured during any financial year. (b) Contribution to deferred annuity Plans in order to effect or to keep in force a contract for deferred annuity, on his own life or the life of his spouse or any child of such individual, provided such contract does not contain a provision to exercise an option by the insured to receive a cash payment in lieu of the payment of annuity is eligible for deduction. (c) Contribution to Pension/Annuity Plans - New Jeevan Dhara-I & Jeevan Akshaya - VI 2) Jeevan Nidhi Plan & New Jeevan Suraksha - I Plan (U/s. 80CCC) A deduction to an individual for any amount paid or deposited by him from his taxable income in the above annuity plans for receiving pension (from the fund set up by the Corporation under the Pension Scheme) is allowed. NOTE: The premium can be paid upto Rs.1,00,000/- to avail deduction u/s.80C, 80CCC & 80CCD (80CCD- Deduction in respect of contribution to pension scheme of Central Government.). However, there is no sectoral cap i.e. the limit of Rs.1,00,000/- can be exhausted by paying premium under any of the said sections. 3) Investment under long-term infrastructure bonds notified by the Central Government. (Sec. 80CCF) A deduction up to Rs. 20000/- is available to individuals and HUF for amount paid or
42

deposited as subscription to long-term infrastructure bonds notified by the Central Government. This is in addition to Rs. 1 lakh deduction available under section 80C. 3) Deduction under section 80D
1. Deduction allowable upto Rs.15,000/- if an amount is paid to keep in force an

insurance on health of assessee or his family (i.e. Spouse & children)

2. Additional deduction upto Rs.15,000/- if an amount is paid to keep in force an

insurance on health of parents

3. In case of HUF, deduction allowable upto Rs.15,000/- if an amount is paid to keep in

force an insurance on health of any member of that HUF

.

4) Jeevan Aadhar Plan (Sec.80DD) : Deduction from total income upto Rs.50000/- allowable on amount deposited with LIC under Jeevan Aadhar Plan for maintenance of an handicapped dependent (Rs.1,00,000/- where handicapped dependent is suffering from severe disability) 5) Exemption in respect of commutation of pension under Jeevan Suraksha & Jeevan Nidhi Plans: Under Section 10(10A) (iii) of the Income-tax Act, any payment received by way of commutations of pension out of the Jeevan Suraksha & Jeevan Nidhi Annuity plans is exempt from tax under clause (23AAB). 6) Income tax exemption on Maturity/Death Claims proceeds under Section 10(10D) Under the provisions of section 10(10D) of the Income-tax Act, 1961, Maturity/Death claims proceeds of life insurance policy, including the sum allocated by way of bonus on such policy (other than amount to be refunded under Jeevan Aadhar Insurance Plan in case of handicapped dependent predeceases the individual or amount received under a Keyman Insurance Plan) is exempted from income-tax. However any sum (not including the premium paid by the assessee) received under an insurance policy issued on or after the 1st day of April, 2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured will no longer be exempted under this section.

***************
43

CONCLUSION

Life Insurance plays a vital role and has become an important part in our life. This is a popular medium which assures us hope to lead a better life with financial security and strength and make us care free from unknown financial risk such as scarcity in times of need in future. It is truly a noble job. With change in time the face of insurance sector has changed and grown to better level because of the complexity in the social, political and culture. Insurance has become a new medium of investment. The best part is that tax is not levied in life insurance plans. So many investors take it as a better option to invest for savings and relief from tax. Life Insurance is surely beneficial and encourages saving. The purpose behind life Insurance is not only investment or tax saving but also to create value for money. It promises stability of our hard earned money and gives extra benefits in return like bonus, accidental aids, bonus, savings, child and retirement benefits etc. The privatisation of Insurance companies by government of India created a milestone in booming of Insurance market in India. Companies like HDFC life has are new born babies in this sector but they have huge scope in future to come. The main strength of HDFC life is knowing of domestic market better so it should take more advantage from its strength. The standard in service of Insurance market is flourishing due to entry of many private companies but competition has grown in much faster pace. Therefore new born companies and foreign companies
44

has to be more competitive, alert, aware and innovative to survive in such scenario.

Appendix

Balanced fund A type of fund for dynamic equity exposure to enhance the returns while the debt allocation reduces the volatility of returns. Blue Chip Fund Exposure to large-cap equities and equity related securities Cover (pg no.18) Word for insurance; it also refers to the amount of insurance. This is generally multiplied with sum assured to get certain insured amount.It can also be refered as rate. Income Fund (pg no.18) Fund which has higher potential returns due to higher duration and credit exposure. Short Term Fund (pg no.18) Low Capital risk as exposure is only to short-term securities (max 3-year residual maturity) Sum assured (pg no.18) The amount of cover taken under a life insurance policy, it is the minimum amount that will be paid on death of the policyholder during the policy term. Terminal bonus (pg no.18) A one-time bonus paid on maturity of a with-profit plan Opportunity fund (pg no.18) Exposure to mid cap equities and equity related securities

45

Bibliography

websites
www.moneycontrol.com www.hdfclife.com www.irdaindia.com www.wikipedia.com www.authorstream.com www.scribd.com www.investmentmoney.com www.incometaxindia.gov.in

Journals and books

Peraswamy, P., Principles and Practices of Insurance, 1st edition, Himalaya Publishing house 2003.

Outlook money Economic times

46

****THANK YOU****

Short notes

47