Insurance

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Insurance and Business.• The term risk broadly refers to situations where outcomes are

uncertain. Risk often refers specifically to variability in outcomes around the expected value.

• Major types of business risk that produce fluctuations in business value include price risk, credit risk, and pure risk.

• Pure risk is loss form damage to and theft or expropriation of business assets, legal liability for injuries to customers and others, work place injuries to employees and obligations under employee benefit plans.

• Major risk management methods include loss control, loss financing and internal risk reduction.

• Pooling arrangements reduce risks for each participant, provided losses are not perfectly positively correlated.

• The amount or risk that can be reduced through pooling arrangements increases as the number of participants increases, all other factors being held constant

• Loss financing methods include retention (self insurance) ,insurance, hedging and other contractual risk transfers.

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DefinitionIndividuals face the following risks:

• Risk of an early death• Risk of out-living ones income• Risk of illness and health problems to oneself & the family• Risk of accident causing loss of life or impairment• Risk of loss and damage of property• Risk from professional liability

• Insurance is a contract by which the one party, in consideration of a price paid to him adequate to the risk, becomes security to the other that he shall not suffer loss, damage or prejudice by the happening of the perils specified to certain things which may be exposed to them”- Laurenace, J

• “Insurance is a method of spreading over large number of persons, a possible financial loss too serious to be conveniently born by an individual.” – Maclean J B

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Nature of Insurance• Following are the general characteristics of insurance:• insurance aids business• Co operative device under which large number of

persons agree to share the financial loss due to a particular risk.

• Payment is made at certain contingency – except for life insurance.

• Insurance is not gambling• Insurance is not charity. It is against premium paid. • It is a service.• It is a species of general contract. All requisites of a valid

contract are required.

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Functions of InsurancePrimary functions:• Provide protection against future risk – economic loss• Collective bearing of risk. • Assessment of risk• Provide Certainty-Secondary functions: • Prevention of Losses - safety instructions• Small capital to cover larger risks• Contributes towards the development of larger industriesOther functions: • Means of savings and investment• Source of earning foreign exchange• Risk Free trade

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Business of Insurance• Writings of Manu, Yagnavalkya and Kautiilya refer to pooling of resources

that could be re- distributed in times of calamities such as fire, floods, epidemics and famine.

• The first Insurance Company was started in India in 1818.• LIC of India formed in 1956 – 245 private Cos nationalised.• In 1972, four General Insurance Cos were formed by nationalising 107

General Insurance companies -(1) National insurance Co Lltd (2) New India Assurance Co Ltd (3) Oriental Insurance Co Ltd and (4) United India insurance Co Ltd.

• Following Malhotra Committee Report ,IRDA was constituted in 2000.• This opened up insurance sector for Private players.• 16 new entrants during 2000-2001 and number increasing each year. • Banks entering the market - joint ventures with foreign finance majors• During 2008-2009 , 3 new entrants in Life Insurance (including Canara HSBC

OBC Life Insurance Company Ltd.) and one in General Insurance. • Latest - ‘India First Life Insurance Co Ltd’, registered on 15.11.2009• 21 Life and 19 Non life Insurance Companies are registered with IRDA, apart

form ECGC and Agricultural Insurance Company of India Ltd.

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Insurance density - Comparison DENSITY - RATIO OF PREMIUM ($) TO POPULATION

Country 2007 2006 2005 2004 2003 2002 2001U K 7113.7 6466.7 4599.0 4508.4 4058.5 3879.1 3393.8France 4147.6 4075.4 3568.5 3207.9 2698.3 2064.2 1898.8U S A 4086.5 3923.7 3875.2 3755.1 3637.7 3461.6 3266.0H K 3373.2 2787.6 2544.9 2217.2 1832.6 1583.0 1545.2Japan 3319.9 3589.6 3746.7 3874.8 3770.9 3498.6 3507.5Australia 3000.2 2580.8 2569.9 2471.4 2041.4 1705.9 1668.3Singapore 2776.0 1957.7 1983.4 1849.3 1620.5 1030.7 959.0Germany 2662.1 2436.8 2310.5 2286.6 2051.2 1627.7 1484.2Taiwan 2628.0 2250.2 2145.5 1909.0 1433.3 1279.2 1088.5S Korea 2384.0 2071.3 1706.1 1419.3 1243.0 1159.8 1060.1S Africa 878.5 855.8 714.6 686.5 583.9 425.3 446.3Malaysia 332.1 292.2 283.3 256.5 227.0 198.0 198.3Russia 209.4 150.9 122.8 114.4 98.2 66.6 65.8Brazil 202.2 160.9 128.9 101.1 82.6 72.2 64.0Thailand 129.7 110.1 99.0 92.1 79.6 65.2 53.9China 69.9 53.5 46.3 40.2 36.3 28.7 20.0India 46.6 38.4 22.7 19.7 16.4 14.7 11.5

Pakistan 6.5 5.9 4.6 3.7 2.9 2.7 2.7WORLD 607.7 554.8 518.5 511.5 469.6 422.9 393.3

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Insurance Penetration - ComparisonPENETRATION - RATIO OF PREMIUM ($) TO GDP ($)

Country 2007 2006 2005 2004 2003 2002 2001U K 15.70 16.50 12.45 12.6 13.37 14.75 14.18Taiwan 15.70 14.50 14.11 14.13 11.31 10.16 8.62S Africa 15.30 16.00 13.87 14.38 15.88 18.78 17.97S Korea 11.80 11.10 10.25 9.52 9.63 11.61 12.07H K 11.80 10.50 9.93 9.27 7.88 6.65 6.34France 10.30 11.00 10.21 9.52 9.15 8.58 8.58Japan 9.60 10.50 10.54 10.51 10.81 10.86 11.07USA 8.90 8.80 9.15 9.36 9.61 9.58 8.97Singapore 7.60 6.50 7.47 7.5 7.59 4.91 4.58Australia 6.80 7.00 6.60 8.02 7.99 8.48 9.15Germany 6.60 6.70 6.79 6.97 6.99 6.76 6.59India 4.70 4.80 3.14 3.17 2.88 3.26 2.71

Malaysia 4.60 4.90 5.42 5.4 5.35 4.91 5.18Thailand 3.40 3.50 3.61 3.52 3.45 3.24 2.94Brazil 3.00 2.80 3.01 2.98 2.96 2.79 2.14China 2.90 2.70 2.70 3.26 3.33 2.98 2.2Russia 2.40 2.30 2.27 2.83 3.25 2.77 3.06Pakistan 0.70 0.80 0.67 0.71 0.62 0.62 0.68World 7.50 7.50 7.52 7.99 8.06 8.14 7.83

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Growth of Premium in India.GROSS DIRECT PREMIUM OF NON-LIFE INSURANCE

(Rs. Crore)2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02

Pub. Sec 17813.71 17283.45 15976.44 14948.82 14284.65 13520.44 11917.59Growth%) (3.07) (8.18) (6.87) (4.65) (5.65) (13.45) (13.59)

Pvt. Sec 10991.89 8646.57 5362.66 3507.62 2257.83 1349.80 467.65Growth% (27.12) (61.24) (52.89) (55.35) (67.27) (188.64)

Total 28805.60 25930.02 21339.10 18456.45 16542.49 14870.25 12385.24

Growth% (11.09) (21.51) (15.62) (11.57) (11.25) (20.06)(17.97)

FIRST YEAR PREMIUM (INCL. SINGLE PREMIUM) LIFE INSURANCE (Rs. Crore)

LIC 59996.56 56223.56 28515.87 20653.06 17347.62 15976.76 19588.77Growth% (6.71) (97.17) (38.07) (19.05) (8.58) (-18.44) (101.93)

Pvt. Sec 33715.95 19425.65 10269.67 5564.57 2440.71 965.69 268.509Growth% (73.56) (88.84) (84.55) (127.99) (152.74) (259.65)

Total 93712.52 75649.21 38785.54 26217.64 19788.32 16942.45 19857.28Growth% (23.88) (94.96) (47.94) (32.49) (16.80) (-14.68)

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Current Position and Prospects• As per the provisional figures provided by the Life Insurance Council, the life

insurance penetration in year 2008-09 was 4.30 percent.• Gross direct premium during 2008-09 was Rs.87054.03 Crores. • As per press reports, first half of the current year shows a jump of 10.8 per cent

in gross first year premium.• According to the Investment Commission of India, the Indian insurance market

is expected to be around US$ 52 billion by 2010. The CAGR is expected to be over 30 per cent per annum.

• The total investment opportunity is estimated to be US$ 14 - 15 billion.• In October, the cabinet approved the proposal for raising the foreign

investment limit to 49% from the present 26%.• Largely untapped market with 17% of the world’s population • Nearly 80% of the population is without insurance• Strong economic growth with increase in affluence and rising risk awareness

leading to rapid growth in the insurance sector• Innovative products such as ULIPs are likely to drive industry growth• Investment opportunities exist in both life and non-life segments.

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Applicable Laws• Life Insurers transact life insurance business; General

Insurers transact the rest. No composites are permitted as per law.

• The following legislations deals with insuracne: The Insurance Act, 1938 The Life Insurance Corporation Act, 1956 The Marine Insurance Act, 1963 The General Insurance Business (Nationalisation) Act, 1972 Insurance Regulatory & Development Authority Act, 1999.

• Insurance Industry has Ombudsmen in 12 cities. Each Ombudsman is empowered to redress customer grievances in respect of insurance contracts on personal lines where the insured amount is less than Rs. 20 lakhs, in accordance with the Ombudsman Scheme.

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Kinds of InsurancePERSONAL INSURANCE Life Insurance Personal accident Insurance Health Insurance

PROPERTY INSURANCE Marine Insurance Fire Insurance Automobile Cattle Insurance Crop Insurance Machinery Insurance Theft Insurance

FIDELITY INSURANCE Fiduciary Insurance Credit accident Insurance Privilege Insurance

LIABILITY INSURANCE Third Party Insurance Employees Insurance Motor Insurance Reinsurance

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Insurance Vs. Wager Insurance Wager

1. Contract of indemnity ( except life, personal accident etc.), for loss on happening on an event.

Not a contract of indemnity. Voluntary acceptance of risk.

2. Event occurrence a contingency The event is bound to happen. 3. Effected to cover an existing risk No risk until the bet is made.4. To protect against the loss. To earn speculative gain. 5. Event is not desired by any party Event is desired 6. It is known who bears the risk Known only after the event7. Presence of insurable interest. Pecuniary interest created.8. No concealment of facts. No such ‘utmost good faith’ exist.6. Legally valid contract A contract void ab initio7. Adequate consideration

calculated scientifically.No such consideration.

8. Varying degree of loss. Either win or lose.

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Principles of Insurance• Utmost Good Faith• Insurable Interest• Indemnity• Double Insurance• Reinsurance• Subrogation • Attachment of risk.• Contribution• Proximate Cause

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Uberrimae fidei• A contract of insurance is of utmost good faith. It is the duty of

the proposer to disclose all material facts.• Material Fact: affect the judgment or decision of both parties

to the contract – whether to offer/ accept and on what terms.• Full and True disclosure: Disclosed in that form in which they

really exist. No concealment, misrepresentation, mistake or fraud . Duty extends to material facts which the insured ought to know.

• Duty on both parties: rule holds good for both.• Facts need not be disclosed:

which diminishes the risk comes to the knowledge of the insured after the contract known to the insured or which cab be inferred from the facts. Waived by the policy.

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Insurable Interest• The legal right enjoyed by the owner of a property to insure is called

‘Insurable Interest’. • The insured derives pecuniary benefit from the existence of the property

and will suffer loss from its destruction.• The insurance will become null and void, without the insurable interest. An

insurable interest must be: Definite. Capable of valuation. Valid and subsisting. Should involve legal liability. Time of insurable interest

• Insurable interest arises by ownership Law Contract Legal liability Interest of a Person in Life

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Insurable Interest in ..• Life Insurancee

Own life Close ties of blood or marriage When pecuniary interest is involved

• creditor in the life of debtor, partnership firm - partners, an insurer- assured, an employee - employer, an employer - key employee.

• Property Insurance Part or Joint Ventures Mortgagees and Mortgagors Executors and Trustees Bailees, Agents Husband and Wife

• Liability Insurance to the extent of any potential liability may be incurred by way of

damages or other costs.• Insurable Interest of Insurer - reinsurance

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Insurable interest – when?

Marine insurance : at the time of loss

Life insurance : at the inception of the policy; continuing insurable interest is not necessary

Other Insurances : at the time of loss and also at inception

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Indemnity

• A contract of indemnity is one in which the promiser promises to make good the loss that occurs to the promisee on the happening of an event. Indemnity Contract – Fire or Marine Insurance Non-indemnity Contract – Life Insurance

• The principle of Indemnity states that under the policy of insurance, the insured has to be placed after the loss in the same financial position in which he was immediately before the loss.

• Applicability: – When the losses suffered by the insured can be measured in terms of money– It is practicable to place the insured in the same financial position which he

occupied before the loss

• In Marine Cargo where valued polices are issued, there is only commercial indemnity- the value declared for insurance is accepted at the time of loss.

• If the sum insured is less than the indemnity, only the sum insured is payable.• Property insurances- Condition of average- If there is under insurance only

proportionate value is payable.• Exceptions for Indemnity: Life, Personal Accident

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Return of Premium

• Premium once paid cannot be refunded, except:

• Non attachment of risk - when risk is not run.• Agreement in policy• Undeclared balance in the open policy

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Proximate Cause • The active efficient cause that sets in motion a train of events

which brings about a result without intervention of any force started and working actively from a new independent source.

• Insurer is liable to indemnify only against the insured peril• Proximate cause literally means the nearest cause or the direct

cause.• The insurer is only liable for loss, if the risk insured against is the

proximate to the last cause of loss• The insurer is responsible only if the nearest cause comes within

the meaning of the risk insured. • A man fell from a horse and sustained injuries that prevented him

from moving. As a result he contracted pneumonia due to lying in the wet and died. The proximate cause of his death was the fall and not pneumonia.

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Proximate Cause - Liability of insurer• There are three types of perils related to a claim under an

Insurance policy Insured Perils Excepted Perils Uninsured Perils

• Insurers are liable to pay claims arising out of losses caused by Insured Perils only.

• Losses can occur in the following manners Loss due to a single cause. A series or chain of events one following and resulting from the

other causing the loss – Event starting the chain should be insured peril.

A series or chain of events, which is broken by a new event independently from a different source causing the loss – Broken sequence. The event interrupting and causing the loss should be insured peril.

Two or more events occurring simultaneously and resulting in loss – All events should be insured perils.

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Subrogation • Subrogation means the restitution of the rights of an assured in

favour of the insurer against the third party for any damages caused by him in place of the assured after the insurer has indemnified him for the loss.

• The doctrine of subrogation is a corollary to the principle of indemnity and applies only to fire and marine insurances.

• all rights and remedies which the insured has against third person will pass on to the insurer

• when an insurer has paid the loss as per contract of insurance.• The right cannot be exercised for his benefit until the insurer

recoups the amount he has paid under the policy. • This right extends only to the rights and remedies available to

the insured in respect of the thing to which the contract of insurance relates.

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Contribution • The right of insurers who have paid a loss under a policy

to recover a proportionate amount from other insurers, who are liable for the same loss.

• Where there are two or more insurances on same risks, the loss will be shared proportionately among the insurers according to the ratable proportion of the loss.1) the insured asset must be common to all the policies2) the risk insured against must be common to all the policies3) the insured owner of the asset must be the same person4) All policies must be in force during the occurrence of loss.

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IRDA• “Insurance Regulatory and Development Authority Act”

constituted by an act of parliament• The Authority is a ten member team consisting of

(a) a Chairman; (b) five whole-time members; (c) four part-time members,

• All the members are appointed by the Central Government from persons of ability, integrity and standing who have knowledge or experience in Life Insurance, General Insurance, Actuarial Science, Finance, Economic, Law, Accountancy, Administration or any other discipline which the Govt. feels may be useful to the Authority

• The Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business.

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Powers and Functions include..• Registration of Insurers, Intermediaries and Agents• Regulating returns and conditions of contract of

Insurance.• Promoting and regulating professional organisations

connected with Insurance and Reinsurance business• Monitoring investment of funds and solvency

margin of Insurance Company. • Regulation for advertisements whether issued by

insurance company or an insurance intermediary including an agent.

• Authority to be advised by Insurance Advisory Committee (IAC), which shall consist of not more than 25 members

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Insurance Co. - Certain regulations • Paid-up capital of company - not less than 100 crores for life

or general Insurance and 200 crores in the case of reinsurance business.

• Company to appoint an actuary to be approved by the IRDA whose duty will be to Valuate assets in appropriate manner Valuate liability as required Ensure maintenance of prescribed solvency margin.

• Assets of insurer should be invested as … 25% in Government securities(including deposit in RBI), At least 25% in Government/other approved securities; Up to 15% of the controlled fund of the insurers can be invested in

other insurance; Up to 25% of the assets of GIC can be invested in other investment;

• No fund of policy holder can be invested outside India.

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Rural or Social SectorFor all new life insurer:-( percentage of total insurance)• First year-7%• Second year-9%• Third year-12%• Fourth year-14%• Fifth year-16%• Sixth year-18%• For Genral Insurance• First year- 2%• Second year- 3%• Third year- 5%• Fourth year- 5% so on… All insurers are obliged to issue 5,7,10,15,20,and 25 thousand lives in

first six years respectively.

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Life Insurance• Business of effecting contracts of insurance upon

human life, including any contract whereby the payment of money is assured on death (except death by accident only) or the happening of any contingency dependent on human life.

• Popular Products: Endowment Assurance (Participating), and Money Back (Participating). More than 80% of the life insurance business is from these products.

• New products have been launched by life insurers. These include linked-products

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Assignment and Nomination• Nomination – claim amount is paid to the nominee in case of death of

the assured. can be made by insured – own life policies only. At the time of proposal later only by endorsement in the policy with notice to insurer. Can be changed.

• Assignment transfers the right on the policy to the assignee. Made by an endorsement on the policy Can also be by a separate deed. If deed, stamp duty is payable. Notice of Assignment to the insurer In absolute assignment, all rights are transferred to the assignee. In conditional assignment, right till death of the assignee. Cannot be revoked by the assignor Only life policies can be assigned. Reassignment by the assignee similar manner. Assignment cancels nomination.

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Term Insurance• Provides death cover only. • Benefit comes to the nominee only in case of death

of the holder• The premiums are very low• This is an ‘expense’ similar to ‘motor insurance’Options Available• Term Insurance policy convertible to whole life or

endowment plan• Term Insurance with increasing sum assured• Term Insurance with decreasing sum assured – for

mortgage loans protection

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Whole Life Insurance• Covers the risk of death of insured, whenever it

may happen, i.e. for the whole life • “The Term Insurance for the longest term”• Premium rates low but higher than Term Insurance Options available • Pure Whole Life Insurance – premiums payable

continuously throughout the life• Limited Payment Whole Life Insurance – premiums

payable for a limited and shorter period

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Endowment Assurance• Provides ‘death cover’ to the insured during the

policy period; and survival benefits at the end of the policy period

• Premium rates are high • Options Available• Money Back Plan • Endowment Plan for marriage/education• Endowment Plan with/without profit• Endowment Plan with double/triple risk cover • Unit Linked Endowment Plan

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Unit Linked Insurance Plan• The savings (investment) component of the

policy premium is invested into the financial market instruments to avail a greater rate of return than from traditional insurance policies.

• Return on investment linked to the financial market

Options Available• Investments can be made into equity (asset

appreciation), debt (regular income), or money market instruments, etc.

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Pension Plan • Provides for a lump sum amount and annuity

benefit payments at the stipulated retirement age.

• An effective way of contributing to ones own retirement benefits

• Helps in achieving financial independence for ones “Golden Years”

• An built-in life insurance cover, as an option• Unit liked pension plans also available

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Special insurance Plans• Children Policies: To provide for expenses

(lumpsum/recurring) related to education , etc. of children or for the benefit of disabled children, in the event of death of the parent.

• Joint Life Policies: Provides risk cover on ‘either or survivor basis’. During policy period, on death of one life, sum assured paid to the second life, and subsequent premiums waived, but the risk cover on second life continues.

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Calculation of Human Life Value• A person aged 30 has Annual salary 2lacs• His personal expenses annually is 1lac• He give for the family 1lac• His earning span is 30 years, so the family

requires 30lacs(this is over a period of 30years)• Human Life value= 100000*1-(1/(1+i)^30)/i• I=present bank rate of interest so at 8% it will

be 1lac*11.2578=1125780

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Premium• the monetary value of the risk contingent upon

the duration of human life and accepted by the insurer

• Premium is a ‘consideration’ paid by the policyholder, to the insurance co for ‘Insurance Contract’ in order to get benefits offered by an Insurance policy.

• A default in premium payment will result into discontinuance of contract. The Policy will be treated as lapsed and expected benefits will not be available

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Factors for determining premium • Mortality

a measure of the number of deaths in some population, scaled to the size of that population, per unit time. Mortality rate is typically expressed in units of deaths per 1000 individuals per year. Thus, a mortality rate of 9.5 in a population of 100,000 means 950 deaths per year in that entire population.

• Expenses Some margin are added to cover the company’s future expense levels to

be experienced in administering the policy.• Investments

Premiums received are invested from which bonuses are given• Contingency

A major catastrophe like an earthquake , riots, or epidemic can raise the number of deaths to higher levels than indicated by the mortality tables. Insurers therefore as a matter of safety provide for such contingencies and fluctuations by loading the premium suitably

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Calculation of PremiumTwo methods1. Value of Service:

premium determined according to the utility of insurance to each proponent. This is impracticable.

2. Cost of Service includes all expenses of the business plus small profit margin. At least

premium should cover cost of claim. • Net premium:

The premium charged to meet the amount of claim • Cost of administration

Fixed cost- spread over the policy life recurring cost.

• Method of distribution of expenses is called loading.

• Interest Factor: Benefit of interest on premium collected to be given to policy holders.

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Cost of ClaimsMortality:• Forecasting of death of single individual is not possible, but

expectation of number of deaths from a group of persons of same age can be forecasted on the basis of Theory of probability and Law of large numbers

• Mortality is a measure of the number of deaths in some population, scaled to the size of that population, per unit time. Mortality rate is typically expressed in units of deaths per 1000 individuals per year. Thus, a mortality rate of 9.5 in a population of 100,000 means 950 deaths per year in that entire population.

Expenses- Contingency • A major catastrophe like an earthquake , riots, or epidemic can

increase the risk of the insurer. Insurers therefore as a matter of safety provide for such contingencies and fluctuations .

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Certain concepts

Days Of Grace:• The premium paid after due date but within certain period fixed. 30

days for yearly, half yearly and quarterly mode & 15 days for monthly mode.

Lapse:• If the premium is not paid within the grace period, it calls for

termination of policy contract.Non-Forfeiture:• If premium is paid for minimum 3 years, policy can not be forfeited. Paid-Up-Value:• When premiums are paid for minimum three years but not for entire

term of the policy, the S.A. is reduced by calculating paid up value and policy continues for certain duration with out paying further premium.

• Paid up Value =Sum Assured * No. of years Premium Paid

• Total Premium Payable

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Certain concepts• Surrender Value :

amount refunded on total discharge of the contract, in case the assured wishes to surrender this policy.

• Surrender Value = (Paid up Value + vested bonus)*S V factor %

• Sub standard risks : Increasing extra risk, decreasing extra risk, constant extra

risks Increase in premium, decrease in death benefits, change in

class and period of insurance, postponement of risk are the methods used

• Rider premium: For extra benefits, like double accident benefit etc. extra

premium charged.

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Reserves• Reserves in Life Insurance is not on an accumulation of profit.• Reserve is that fund, which together with future premiums and

interest will be sufficient to pay the future claims.• It is also considered as accumulation of the difference between

the net premiums revived in the past and the claims paid out.• ‘Life insurance fund’ is the surplus of revenue over expenditure. • ‘Net liability’ is excess of present value of future claims over the

present value of the future premiums. – Valuation is required.• Life Insurance fund should be sufficient to cover net liability. • Deficiency call for drastic actions by the Management. • Surplus is to provide for General contingency fund, divided

equalisation fund, bonus equalisation fund and taxation fund.• Balance available is profits – can be divided among the share

holders and policy holders.

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Bonus• Uniform bonus plan: Uniform bonus rate is given to all policy holders of

particular type. The bonus rate is based on the policy amount.• Contribution Method: Divisible surplus allotted to the polices in proportion

to the individual contribution of each policy to the surplus.Bonus options:• Cash bonus:

immediate payment with option for conversion.• Reversionary Bonus:

uniform percentage addition to sum assured or to the sum assured plus accumulated bonus . Former is called simple and later compound . Simple reversionary bonus is paid in India.

• Reduction in premium : permanent reduction in future premiums .

• Accumulation at interest Bonus: Insurer pays interest on bonus.

• Endowment option: Bonus is accumulated with interest . When accumulated value of the policy

becomes equal to the policy amount, the policy amount is paid in full before maturity.

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Policy conditionsRevival:• Bringing lapse policy in to force is called revival. This is subject to

underwriting.Surrenders:• It is a voluntary termination of the contract by policy holder

before it becomes a claim. This is allowed after minimum three years and value paid is called surrender or cash value.

Loans:• Policy holder can receive money from policy by assigning policy

to insurer. The interest is payable to insurer.Foreclosure:• The closure of policy before its maturity due to unpaid interest of

loan is called foreclosure.

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Claims• Maturity Claim: Maturity claim is paid when the term of

the policy is over.• Survival Benefit Payments: This is paid during the

currency of the policy and before the date of maturity. e.g. money back benefit.

• Death Claim: This claim is received by insurer on death of insured during the policy term.

• Claim Concession: Policy is lapsed, yet the insurer pays the death claim. After three policy years, within six months from the date of

lapse. After five or more policy years, within twelve months from the

date of lapse.

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IRDA on claims• The insurer should ask for all requirements in the

case of a claim at one time and not piecemeal• The decision to admit or to repudiate should be

made 30 days of receipt of papers• If an investigation is necessary ,it should be

completed within 6 months• Interest at 2% over the bank rate will be payable

for the delays in settling the death claims• Interest at the savings Bank rate will be paid if the

insurer is ready to pay but the claimants are not ready to collect

Insurance