JAYAB S CHEEMA

B.Com(Hons)4th Sem

RQ3810A13

10800650

Banking & Insurance

Why do I need Insurance?

Life insurance provides risk
cover which no other
insurance option offers.
Following are the advantages of Life Insurance:
It provides full protection against risk of death.
Encourages and forces compulsory savings as the saved money cannot be
withdrawn and premium has to be paid regularly.
Provides loan to tie over a temporary difficult phase and is also acceptable
as security for a commercial loan.
Provides tax benefits to policyholders.
Hedges risk against uncertainty.

Here are top 14 life Insurance Companies in India selling ULIP’s.

• Bajaj Allianz Life Insurance Company Limited
• Birla Sun Life Insurance Company Limited
• HDFC Standard Life Insurance Company Limited
• ICICI Prudential Life Insurance Company Limited
• ING Vysya Life Insurance Company Limited
• Life Insurance Corporation of India
• Max New York Life Insurance Company Limited
• MetLife India Insurance Company Pvt. Limited
• Kotak Mahindra Old Mutual Life Insurance Company Limited
• SBI Life Insurance Company Limited
• Tata AIG Life Insurance Company Limited
• AMP Sanmar Life Insurance Company Limited
• Aviva Life Insurance Company Pvt. Limited
How do I compare life insurance policies?
There is such wide range of policies that it is natural that a person would feel lost in
the jargon. To make the right decision, compare the following features of different
policies:
Premium - The amount of money you have to pay regularly to continue your
insurance coverage. The premium amount is depends on age, policy, premium
payment options and policy term.
Term - The number of years the policy is valid. The longer the term the lower the
premium. The policy term varies from a minimum of 5 years to a maximum 55
years.
Term of premium payment - The number of years you have to pay premium on
your policy. It may be the same as the policy term or less. Some policies have the
options wherein one can select the premium payment term.
Sum Assured - The amount received on death of the policyholder. A lot of policies
offer a larger amount of sum assured than other benefits .So, if you are concerned
more about leaving a bigger amount for your family for the same premium select a
policy with more sum assured
Bonus - is declared as a proportion of the sum assured, by the insurancecompany
each year depending on the profit made by the company. It is paid only as a lump
sum either on maturity or to the family upon death.
Maturity - It is the amount of money you receive from the insurance company if
you survive the policy term.
Cover - is also known as death benefit. It is the amount of money your nominee
receives from the insurance company upon your death. It is the sum assured plus
the bonus.
Returns - the amount of money realised at the end of the term of the policy
calculated in percentage terms every year. It can be compared to the rate of
interest that you receive from other insurance.

Factors to consider while taking insurance

How much insurancecan you afford?

• Low premium high cover
• Cover for short term
• Higher cover with high returns

What is you motive for taking insurance?

• Protection
• investment
 • future expenses
• retirement planning

How much insurance you need?

This will depend on:
• your life stage and your needs
• the wealth, income and expense levels of your dependents
• their significant foreseeable expenses
• the inheritance you would leave them, and
• the lifestyle you want to provide for them.

Understanding the calculation of returns

Every insurer tries to make it appear that their plansare more attractive. One has to
know the terms used to find out which plan is providing the best deal and what will
have significant impact on the returns they are expecting from the policy
1. Bonus Calculation
The basis of bonus calculation is very important. Different insurance
companieshave their own ways of calculating returns - some declare it as a
percentage of the premium, while some as percentage of the sum assured.
Company A (Rs.) Company B (Rs.)
Sum Assured 5,00,000 5,00,000
Annual Premium 20,000 20,000
Bonus 1,000 25,000
Though both the companies have declared a 5 % bonus the returns are
totally different as A has declared it as percentage of annual premium while
B has declared it as percentage of the sum assured.
2. Amount invested
The insurer invests the premiums paid by an individual. The amount
`invested' by the company will differ if there are additional benefits added on
to the policy such as disability rider, accident cover etc.
Company A (Rs.) Company B (Rs.)
Annual Premium 20,000 20,000
Company expenses 2,500 2,500
Accident cover 1,000 0
 Disability cover 500 0
Amount available for 16,000 17,500
invest ment
When choosing a policy, it is always advisable ask whether the additional
benefits come at a cost or form a part of the policy.
3. Sum Assured of the Policy
A policy which provides a higher amount of sum assured for a given premium
when compared to policies with similar features and benefits is preferable to
a policy with lower sum assured. This is because if they declare returns on
basis of sum assured the policy with higher sum will give better returns
Illustration: The annual premium on both the policies is Rs.20,000 and the
return is 5% of sum assured .
Company A (Rs.) Company B (Rs.)
Sum Assured 2,00,000 1,80,000
Bonus 10,000 9,000

4) Bonus on maturity
Some policies have a lumpsum bonus payable on maturity. This amount
depends upon the performance of the insurance company.
 COMPARING ICICI PRUDENTIEL LifeTime
Pension II & RELIANCE Golden year Plan
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Key Features
n Invest systematically and secure your golden years
n A flexible unit-linked pension product that is different from
traditional life insurance products with Vesting Age between 45
and 70 years

n Eight different investment funds to choose from

n Flexibility to switch between funds
n Option to pay Regular, Single as well as Top-up Premiums
n Flexibility to advance/extend your Vesting Age
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Flexibilities
Flexibility to pay top-ups: If you have received a bonus or some lumpsum
money you can use that as a top-up to increase your investments at any
time in your Policy. The minimum Top up amount is Rs. 2,500. 95% of any
amount paid as top-up is allocated to your funds.
Flexibility to pay Single Premium: If you do not want to pay premium
regularly, you can choose to opt for Single Premium. The minimum Single
Premium amount is Rs 10,000.

Flexibility to switch between funds: Depending upon the performance of

your funds you can switch between them. There will be one free switch in a
Policy Year and for additional switches,
Switching Charge of 1% of amount switched will be levied, subject to
a maximum of Rs 1000 on each such occasion.

Flexibility to advance/extend your Vesting Age: You may choose

to extend the Vesting Date to any later Policy Anniversary, provided
the Policy vests before the attainment of age 70 years.

What is the Policy Term?

Minimum Policy Term: 5 years

Who can buy this product?

Minimum age at entry: 18 years
Maximum age at entry: 65 years

Minimum age at vesting: 45 years

Maximum age at vesting: 70 years
What if I want to discontinue paying premium?
If premiums have not been paid for at least 3 consecutive years from inception,the
Policy will continue to participate in the performance of Unit Funds chosen.

Revival
Within a period of 3 years from the due date of first unpaid premium but before the
maturity date of the Policy.

What if I want to discontinue the Policy? OR Exit Option.

You may surrender your Policy after 3 years from commencement. The Surrender
Value we will pay is a percentage of your Fund Balance according to the following
table:
Year of policy Surrender value as a percentage of
the Fund value

First 3 years Nil

4th Policy 90%

5th Policy 95%

6th and subsequent Policy year 100%

Key feature-
Four different investment funds to choose from-

Pension Maximiser II (Growth)

Pension Protector II (Income)

Pension Balancer II (Balanced)

Pension Preserver (Short-term money

market fund)

How does LifeTime Pension II

work?

This pension plan works in two

phases:

1-The first phase is the Accumulation

Phase when you pay regular premium
into the policy and accumulate savings
foryour retirement.

2- The second phase is the Annuity

(Pension) capital Phase when you start
receiving pension from the
accumulated amount via your chosen
annuity option.

Flexibilities-

to pay top-ups: Minimum top-up amount is Rs.5,000

to pay Single Premium: The minimum annual premium is Rs. 10,000

to switch between funds: 4 free switches allowed every policy year, all other
switches will be charged at Rs. 100 per switch.

to advance/extend your Vesting Age: Choose a vesting date when you are 45
years old. However, you have the option of postponing this vesting date till the age of
75 years.
What is the Policy Term?
Minimum Policy Term: 10 years
Who can buy this product?
Minimum age at entry: 18 years
Maximum age at entry: 60 years

Minimum age at vesting: 45 years

Maximum age at vesting: 75 years

Surrender OR Exit Option

After 1 year from commencement.

Ulip
Insurance cover is bundled with an investment benefit under a single contract; the customer gets
insurance cover as well as investment returns based on market performance. The most important point is
that the risk under ULIPs is borne by the policyholder.
IRDA''s ULIP guidelines-
The Insurance Regulatory and Development Authority (IRDA) recently introduced its much-awaited
guidelines to govern unit-linked insurance policies (ULIPs), which are among the most popular class of
life insurance policies sold in the country today.

The primary advantage of ULIPs is that the customer gets the advantages of both insurance and
mutual fund investment in a single contract. ULIPs also offer tax deduction of up to Rs100,000
from the gross total income under Section 80C of the Income Tax Act, 1961. Returns from
ULIPs are exempt from tax, subject to the conditions under Section 10(10D
1.The new provisions
IRDA has prescribed a minimum sum assured equal to 50 per cent of the total annualised
premium during the entire policy term or five times the annualised premium, whichever is higher. This
regulation is aimed at maintaining the basic characteristic of a life insurance policy, where life cover
should be the primary benefit. Till the policyholder turns 60 years old, the sum assured cannot be reduced
by partial withdrawals. This is aimed at protecting the life insurance cover.
2.Premium Holiday: If the policyholder stops paying premium instalments after paying premiums for
three years, the risk premiums and the applicable charges can be adjusted from the balance in the account
value, till such time as the balance in the account reduces to one year's premium. This would help
policyholders who are unable to pay premiums owing to a temporary disruption in income because of
change in employment, or any other sudden drop in income. But the policy would lapse and this benefit
would not be available if premium payments are stopped within three years.
3.Top-up Premiums: Top up premiums are irregular dump-in amounts allowed in a ULIP. Up to now,
there were no restrictions; it was possible, for example, to dump in Rs1 crore in a ULIP and invest the
entire amount in the market. But this vitiates the basic characteristic of the policy by making the
insurance component insignificant. To plug this loophole, IRDA has prescribed that a sum assured must
back any dump-in that exceeds 25 per cent of normal premium, which will be constant throughout the
term of the policy. Any appropriation towards a dump-in can take place only if the normal premiums are
paid.
4.Withdrawals from ULIPs: Earlier, withdrawals from ULIPs were possible even within a year of issue.
Now, withdrawals will be allowed only after three years. But once the customer is past the age of 60, all
withdrawals can be reduced from the sum assured.
5.Lock-in period: A top-up premium cannot be withdrawn for three years.
6.Settlement options: The policyholder has settlement options, to receive the policy benefits in various
forms, rather than a lump sum. For example, the company can give the policyholder an option to receive
the maturity benefit in the form of a monthly pension. IRDA has restricted such extended periods of
settlement to five years from the date of maturity.
7.Charges: Charges are costs appropriated by insurance companies from ULIP premiums. The IRDA has
listed the charges that insurance companies can levy on policyholders to enable customers to understand
and compare costs between different insurance companies.
8.Statement of Account: A statement of account, which forms part of the policy document, must be
issued at the end of each policy year and also when a transaction takes place, giving complete information
on the nature of the transaction (investment / switch over, etc), the NAV on the date of transaction,
number of units before and after the transaction, etc. The annual statement must give the number of units
in the account and the NAV on the date of the statement, besides other relevant information.
9.Market Conduct: There is an inherent risk in investing in ULIPs, as the performance of the funds
underlying the ULIPs governs their returns. To address these risks, the IRDA has authorised the Life
Insurance Council to formulate a Code of Conduct for sale of ULIPs. This includes mandatory training
for agents before they are authorised to sell ULIPs, documentation to enable the customer to understand
and acknowledge the risk involved in buying ULIPs, a code of conduct for their sale, educating
policyholders on risk factors, terminology, charges, etc.
10.Disclosure norms: All promotional materials and policy documents must carry a clear statement that
the investment risk is borne solely by the policyholder.
All advertisements for ULIPs must clearly address the question of risk and distinguish ULIPs from
conventional life insurance products. They must disclose all charges and guarantees, if any, and include a
statement that the fund name and the company name do not indicate the performance of the fund.
Advertisements must be simple, understandable to policyholders and avoid legal and financial jargon, to
avoid misleading sales.

CONCLUSION
Though unit-linked insurance schemes have proved to be incredibly popular, there were no regulations
and there were complaints that some insurance companies were taking unfair advantage of this, selling
ULIP policies that were little more than thinly disguised mutual funds. IRDA's new regulations are aimed
at ensuring that the customer gets a fair deal, at enhancing transparency, providing a better understanding
of the product design and assuring a reasonable amount of insurance cover in ULIPs, consistent with the
long-term nature of life insurance products.

Biblography-

www.lic.com

www.iciciprulife.com

www.indiainfoline.com

www.scribd.com

www.irdaindia.org