CAN YOU BE SURE AS TO CAN YOU BE SURE AS TO WHAT MAY HAPPEN TO WHAT MAY HAPPEN TO “U” IN THE NEXT FEW “U” IN THE NEXT FEW

MINUTES???????MINUTES???????

DO YOU LOVE YOUR DO YOU LOVE YOUR NEAR AND DEAR NEAR AND DEAR

ONES AS MUCH AS ONES AS MUCH AS YOU LOVE YOU LOVE

YOURSELF????YOURSELF????

DO YOU WANT TO BE DO YOU WANT TO BE FINANCIALLY SECURE FINANCIALLY SECURE IN THE EVENT OF ANY IN THE EVENT OF ANY

UNFORSEEN UNFORSEEN CALAMITY???CALAMITY???

PRESENTING PRESENTING INSURANCE!!!INSURANCE!!!

PROVIDING UNPARALLED PROVIDING UNPARALLED RISK COVER & PROTECTION RISK COVER & PROTECTION

AGAINST FUTURE AGAINST FUTURE EXIGENCIES!!!!!EXIGENCIES!!!!!

Invest the next 15 Invest the next 15 minutes of your time minutes of your time

to understand to understand INSURANCE in the INSURANCE in the

right perspective... right perspective...

INSURANCE INSURANCE STRATEGISTSTRATEGIST

Volume I - Basic Volume I - Basic ModuleModule

BYBYS.KrishnamoorthyS.Krishnamoorthy

OBJECTIVE OF THE OBJECTIVE OF THE PRESENTATIONPRESENTATION

► Highlighting the fundamentals Highlighting the fundamentals of of insurance insurance as a financial as a financial product product ► Insight into the Indian Insight into the Indian Insurance Insurance industry – industry – players players and products and products available in the available in the market market ► The tax implications of The tax implications of insuranceinsurance

FUNDAMENTALS FUNDAMENTALS OF INSURANCEOF INSURANCE

Basic Terminology…Basic Terminology…►What is insurance?What is insurance?

Insurance is a contract between two parties Insurance is a contract between two parties where one party (the insurer) agrees to protect where one party (the insurer) agrees to protect the other party (the insured) in the event of the other party (the insured) in the event of any loss or unforeseen event. Insurance can be any loss or unforeseen event. Insurance can be broadly classified into two categories – Life broadly classified into two categories – Life Insurance and Non Life Insurance. Insurance and Non Life Insurance.

►What do you mean by What do you mean by premium payablepremium payable on an insurance policy?on an insurance policy? Premium is the periodical amount that the Premium is the periodical amount that the

insured needs to pay to the insurance company insured needs to pay to the insurance company to enjoy the benefits of the insurance policy.to enjoy the benefits of the insurance policy.

Basic Terminology…Basic Terminology…► What do you mean by “What do you mean by “sum assuredsum assured”?”?

Sum assured refers to the amount for which the Sum assured refers to the amount for which the insurance cover is taken. insurance cover is taken.

► What is meant by What is meant by death benefitdeath benefit? ? The amount received from the insurance company on The amount received from the insurance company on

the death of the insured is known as death benefit. the death of the insured is known as death benefit. ► What do you mean by What do you mean by “riders“riders”?”?

Riders are additional benefits that are added on to an Riders are additional benefits that are added on to an insurance policy to make it more compatible to the insurance policy to make it more compatible to the needs of the policyholder. Riders are generally needs of the policyholder. Riders are generally applicable only for life insurance and not for general applicable only for life insurance and not for general insurance. insurance.

► What is What is maturity benefitmaturity benefit?? The amount received on the maturity of the policy is The amount received on the maturity of the policy is

known as maturity benefit.known as maturity benefit.

Why insurance???Why insurance???PRIMARY REASONPRIMARY REASON

► Life is full of uncertaintiesLife is full of uncertainties► Provides the much required Provides the much required RISK COVERRISK COVER► Serves as a financial buffer in the wake of Serves as a financial buffer in the wake of

any un-favorable and un-foreseen any un-favorable and un-foreseen circumstancescircumstances

► Ensures that near and dear ones are not left Ensures that near and dear ones are not left in financial doldrums due to any exigencyin financial doldrums due to any exigency

► The risk cover that insurance provides has The risk cover that insurance provides has no parallels in the financial worldno parallels in the financial world

Why insurance ???Why insurance ???SECONDARY REASONSECONDARY REASON

►Money back plans provides an element Money back plans provides an element of liquidity by returning a portion of the of liquidity by returning a portion of the sum assured at regular intervals. This is sum assured at regular intervals. This is in addition to the risk cover in addition to the risk cover

►Unit linked plans invest a percentage of Unit linked plans invest a percentage of the premiums in market securities and the premiums in market securities and provide returns. This combines market provide returns. This combines market linked returns along with risk cover linked returns along with risk cover

Types of insurance policies…Types of insurance policies…

►Term planTerm plan A traditional insurance plan A traditional insurance plan Cheapest plan available in the market Cheapest plan available in the market

today today The sum assured is returned on death, The sum assured is returned on death,

while maturity benefits are nil. while maturity benefits are nil. Suitable for person’s having dependantsSuitable for person’s having dependants Term plan can be made more attractive Term plan can be made more attractive

by taking up ridersby taking up riders

Types of insurance Types of insurance policies…policies…

►Endowment planEndowment plan Advancement over the term planAdvancement over the term plan This plan offers maturity benefits and This plan offers maturity benefits and

death benefitsdeath benefits Endowment plans are generally Endowment plans are generally

participative in nature and pay bonuses participative in nature and pay bonuses to the policyholder at the end of the to the policyholder at the end of the policy term. E.g. LIC endowment plans policy term. E.g. LIC endowment plans offer bonuses @ Rs.50/- per thousand offer bonuses @ Rs.50/- per thousand sum assuredsum assured

Suitable for persons who believe in asset Suitable for persons who believe in asset creationcreation

Types of insurance Types of insurance policies…policies…

►Money back plans Money back plans Such plans are comparatively more Such plans are comparatively more

expensive than other insurance plansexpensive than other insurance plans Money back plans return a certain Money back plans return a certain

percentage of the sum assured at regular percentage of the sum assured at regular intervalsintervals

These plans will be appropriate in cases These plans will be appropriate in cases where the client requires additional funds where the client requires additional funds in the near future along with a risk coverin the near future along with a risk cover

Such plans also offer bonus payments at Such plans also offer bonus payments at the of the policy periodthe of the policy period

Types of insurance Types of insurance policies…policies…

► Unit linked insurance plansUnit linked insurance plans These plans combine market linked returns These plans combine market linked returns

with the valuable risk coverwith the valuable risk cover A portion of the premium is invested in A portion of the premium is invested in

market instruments market instruments The returns that are generated are The returns that are generated are

ploughed back into a separate account ploughed back into a separate account known as accumulation account. known as accumulation account.

On maturity the policyholder gets the value On maturity the policyholder gets the value in the accumulation account or the sum in the accumulation account or the sum assured whichever is higher. However, in assured whichever is higher. However, in some policies the benefit is sum assured some policies the benefit is sum assured plus the balance in the accumulation plus the balance in the accumulation account. account.

ULIPs (Contd.)ULIPs (Contd.)► Similar to the concept of mutual funds such ULIPs Similar to the concept of mutual funds such ULIPs

offer the following investment options to the offer the following investment options to the investors:investors: Equity centric schemesEquity centric schemes invest primarily in equity invest primarily in equity

and equity related instruments. This is relevant for and equity related instruments. This is relevant for aggressive investors having an appetite for riskaggressive investors having an appetite for risk

Balanced schemes Balanced schemes invest in a combination of equity invest in a combination of equity and debt instruments. This is suitable for investors and debt instruments. This is suitable for investors who are prepared to take a moderate amount of riskwho are prepared to take a moderate amount of risk

Liquid schemes or money market schemes Liquid schemes or money market schemes invest invest primarily in money market instruments or debt primarily in money market instruments or debt instruments. This is suitable for highly conservative instruments. This is suitable for highly conservative investors, who are not prepared to take risk and investors, who are not prepared to take risk and prefer safe investment avenues prefer safe investment avenues

INSIGHT INTO THE INSIGHT INTO THE INSURANCE INSURANCE INDUSTRYINDUSTRY

This section of the module This section of the module highlights the various players highlights the various players in the insurance industry, the in the insurance industry, the schemes which have emerged schemes which have emerged blockbusters in the insurance blockbusters in the insurance industry and a critical industry and a critical description of the samedescription of the same

Players in the Players in the insurance industryinsurance industry

►Public sector life insurance company:Public sector life insurance company: Life Insurance Corporation of India – a state Life Insurance Corporation of India – a state

owned leviathan having a majority market owned leviathan having a majority market share in the countryshare in the country

►Private sector life insurance companies:Private sector life insurance companies: ICICI Prudential Life Insurance Company ICICI Prudential Life Insurance Company Birla Sun Life Insurance Company Birla Sun Life Insurance Company OK Kotak Mahindra Life Insurance CompanyOK Kotak Mahindra Life Insurance Company Max New York Life Insurance Company Max New York Life Insurance Company

Other private Other private insurance playersinsurance players

►AMP Sanmar Life Insurance CompanyAMP Sanmar Life Insurance Company►Tata AIG Life Insurance Company Tata AIG Life Insurance Company ►Alliance Bajaj Life Insurance CompanyAlliance Bajaj Life Insurance Company►Aviva Life Insurance Company Aviva Life Insurance Company ►Metlife Insurance Company Metlife Insurance Company ►SBI Life Insurance CompanySBI Life Insurance Company► ING Vyaysya Life Insurance CompanyING Vyaysya Life Insurance Company►HDFC Standard Life Insurance HDFC Standard Life Insurance

CompanyCompany

Market pulse in the Market pulse in the insurance industry insurance industry

► A shift from traditional term, endowment A shift from traditional term, endowment and money back plans to the new market and money back plans to the new market related unit linked plans. related unit linked plans.

► This is because in addition to the risk cover This is because in addition to the risk cover that such plans invest a portion of their that such plans invest a portion of their premiums in market linked instruments premiums in market linked instruments which generate returns, which generate returns,

► All the plans in the product portfolio of Birla All the plans in the product portfolio of Birla Sun Life Insurance Company are unit linked Sun Life Insurance Company are unit linked in nature which proves that such plans are in nature which proves that such plans are the in thing in today’s context. the in thing in today’s context.

Blockbusters in the Blockbusters in the insurance industryinsurance industry (a partial (a partial

list)list)►Premier life plan offered by ICICI Premier life plan offered by ICICI

Prudential Prudential ►Smart kid plan offered by ICICI PrulifeSmart kid plan offered by ICICI Prulife►Mahalife Gold offered by Tata AIGMahalife Gold offered by Tata AIG►Bima Plus offered by Life Insurance Bima Plus offered by Life Insurance

CompanyCompany►Life Guard Plan – a term plan with a Life Guard Plan – a term plan with a

new perspective!new perspective!

Premier Life Plan offered Premier Life Plan offered by ICICI Pru. Life Insurance by ICICI Pru. Life Insurance

Co.Co. ►Unit linked insurance plan Unit linked insurance plan ►Minimum contribution is Rs.60,000 per Minimum contribution is Rs.60,000 per

annumannum►Death benefit is higher of the sum Death benefit is higher of the sum

assured or the value in the assured or the value in the accumulation account whichever is accumulation account whichever is higherhigher

►Partial withdrawals are possible after 3 Partial withdrawals are possible after 3 years premiums are paid. years premiums are paid.

Premier Life Plan Premier Life Plan offered by ICICI Pru. offered by ICICI Pru. Life Insurance Co.Life Insurance Co.►Flexibility to choose the premium Flexibility to choose the premium

paying term – 3 year, 5 year, 7 year or paying term – 3 year, 5 year, 7 year or 10 year10 year

►Minimum sum assured is Rs.1,00,000. Minimum sum assured is Rs.1,00,000. The multiple can be a minimum of 1 The multiple can be a minimum of 1 and a maximum of 25and a maximum of 25

►This plan offers the following This plan offers the following investment options investment options maximisermaximiser, , protector, balancer and preserverprotector, balancer and preserver

►Minimum top up is Rs.5,000Minimum top up is Rs.5,000

Life Guard plan of ICICI Life Guard plan of ICICI PrulifePrulife

►Comes with 3 variants:Comes with 3 variants: Level term assuranceLevel term assurance Level term assurance with return of Level term assurance with return of

premiumpremium Single premium plan Single premium plan

►Level term assurance is a pure risk plan Level term assurance is a pure risk plan and offers no maturity benefitsand offers no maturity benefits

►Level term assurance with return of Level term assurance with return of premium offers premium offers

Maha Life Gold by Tata AIG Maha Life Gold by Tata AIG Life Insurance CompanyLife Insurance Company

► Limited premium paying term with a life long cover Limited premium paying term with a life long cover ► Premium paying term is 15 yearsPremium paying term is 15 years► A highly recommended product for retirement A highly recommended product for retirement

planning purposesplanning purposes► Guaranteed addition of 5% (on the sum assured) Guaranteed addition of 5% (on the sum assured)

every year from the 10every year from the 10thth year of the policy year of the policy► Non guaranteed cash dividends after the 6Non guaranteed cash dividends after the 6thth year of year of

the policythe policy► Sum assured along with the guaranteed and non Sum assured along with the guaranteed and non

guaranteed additions will be returned on death or guaranteed additions will be returned on death or on maturity which is on the 100on maturity which is on the 100thth year, whichever is year, whichever is earlier. earlier.

Bima Plus plan offered Bima Plus plan offered by LICby LIC► A market linked plan offered by Life insurance A market linked plan offered by Life insurance

corporation of Indiacorporation of India► This plan offers the following funds:This plan offers the following funds:

Secured fund, balanced fund and risk fundSecured fund, balanced fund and risk fund► In case of death the following benefits are payable:In case of death the following benefits are payable:

11stst 6 months – 30% SA + cash value of the units 6 months – 30% SA + cash value of the units Next 6 months – 60% SA + cash value of unitsNext 6 months – 60% SA + cash value of units 11stst year – Full sum assured + cash value of units year – Full sum assured + cash value of units During 10During 10thth year – 105% of SA + cash value of units year – 105% of SA + cash value of units

► In the case of death at any time amount equal to In the case of death at any time amount equal to the sum assured is payable (in addition to the the sum assured is payable (in addition to the death benefit)death benefit)

► Maturity benefit is the total of the sum assured Maturity benefit is the total of the sum assured along with the balance in the accumulation along with the balance in the accumulation accountaccount

Smart Kid Plan by ICICI PruSmart Kid Plan by ICICI Pru

► This plan comes in the following variants:This plan comes in the following variants: Smart kid regular premium Smart kid regular premium Smart kid unit linked regular premium Smart kid unit linked regular premium Smart kid unit linked regular premium IISmart kid unit linked regular premium II Smart kid unit linked regular premium IISmart kid unit linked regular premium II

► Sum assured can be a multiple of the Sum assured can be a multiple of the amount of premium that is payableamount of premium that is payable

►Death benefit is that the sum assured is Death benefit is that the sum assured is paid immediately and all the future paid immediately and all the future contributions are waived. Waiver of contributions are waived. Waiver of premium rider is available at a very premium rider is available at a very nominal cost. nominal cost.

► You can choose to make a minimum You can choose to make a minimum contribution of Rs.18,000 under this plancontribution of Rs.18,000 under this plan

Smart Kid Plan by ICICI Pru Smart Kid Plan by ICICI Pru LifeLife

►This policy acquires a surrender This policy acquires a surrender value after the first year’s premiums value after the first year’s premiums are paidare paid

►The 4 kinds of schemes that are The 4 kinds of schemes that are available are maximiser, growth, available are maximiser, growth, protector and preserver.protector and preserver.

► It is possible to make 4 free switches It is possible to make 4 free switches every year, but after that a switching every year, but after that a switching charge is levied. charge is levied.

TAX BENEFITS TAX BENEFITS OFFERED BY OFFERED BY INSURANCEINSURANCE

This section of the module This section of the module highlights the various tax sops highlights the various tax sops that are available with that are available with insurance productsinsurance products

Tax implications of Tax implications of insurance…insurance…

► Premiums towards any insurance policy is Premiums towards any insurance policy is eligible for a rebate under section 88 (subject eligible for a rebate under section 88 (subject to the gross total income)to the gross total income)

► Premiums towards pension plans is eligible for Premiums towards pension plans is eligible for a deduction under section 80CCC of the a deduction under section 80CCC of the income tax law (up to a maximum of income tax law (up to a maximum of Rs.10,000)Rs.10,000)

► Premiums towards any mediclaim policy is Premiums towards any mediclaim policy is eligible for a deduction under section 80D up eligible for a deduction under section 80D up to Rs.10,000to Rs.10,000

► Any sum received from an insurance company Any sum received from an insurance company either as a death benefit or as a maturity either as a death benefit or as a maturity benefit will be exempt from tax under section benefit will be exempt from tax under section 10(10D)10(10D)

Tax implication of Tax implication of insurance…insurance…

►Keyman policy: (discussed in detail later)Keyman policy: (discussed in detail later) Premiums payable towards a keyman policy Premiums payable towards a keyman policy

is admissible as a business expenditureis admissible as a business expenditure Maturity benefit in the case of a keyman Maturity benefit in the case of a keyman

policy is taxable. Benefit of section 10(10D) is policy is taxable. Benefit of section 10(10D) is not available to a keyman policy not available to a keyman policy

Death benefit is also taxable in the case of a Death benefit is also taxable in the case of a keyman policykeyman policy

Tax implication of Tax implication of insurance…insurance…

► Single premium plan Single premium plan Premium towards a single premium plan Premium towards a single premium plan

is eligible for a rebate under section 88. is eligible for a rebate under section 88. However, this condition will be However, this condition will be

applicable only when the premium does applicable only when the premium does not exceed 20% of the sum assurednot exceed 20% of the sum assured. .

► Tax implication on surrender of an Tax implication on surrender of an insurance planinsurance plan Amount received on surrender of an Amount received on surrender of an

insurance policy before the expiry of the insurance policy before the expiry of the term will beterm will be taxable taxable

Tax implication of Tax implication of insurance…insurance…

► Tax treatment in the case of retirement plans Tax treatment in the case of retirement plans Amount contributed towards any pension Amount contributed towards any pension

plans will be eligible for a deduction under plans will be eligible for a deduction under section 80CCC up to Rs.10,000section 80CCC up to Rs.10,000

The lump sum amount that is received at the The lump sum amount that is received at the vesting age will be exempt from taxvesting age will be exempt from tax

However, regular money received as annuity However, regular money received as annuity from the insurance company will be taxable from the insurance company will be taxable under the head “Income from Salaries”.under the head “Income from Salaries”.

END OF END OF VOLUME IVOLUME I