Life insurance

Nature of life insurance

1. Peculiar nature – event bound to happen

2. Covers death due to natural causes and accidents

3. It’s a long term contract

4. A contract of assurance

5. Can’t be indemnified (subrogation and contribution doesn’t apply)

6. It is an a long term investment

Features and principles

I. Nature of a general contract

a) agreement

b) Competency (eligibility) of parties

c) Free consent of parties

d) Legal consideration -valid from 1st premium

e) Legal objective - support the family

II. Insurable interest (Pecuniary interest)

Insurable interest

Own life

III. Utmost good faith (indisputable clause)

IV. Warranties

1. Informative warranty

2. Promissory warranty

3. Breach of warranty

V. Proximate cause

VI. Assignment and nomination

VII.Return of premium

VIII.Alaeatory

IX. Indemnity/subrogation (N/A)

Aleatory

• Insurance contracts are aleatory• There is no equal value exchanged

1. Either insurer collects premium and if there is no loss doesn’t pay back

(or)

2. The insured pays small premium and collects huge amounts as compensation.

Types of life insurance

I. Duration of the policy payments

II. Method of premium payments

III. Participation in profits

IV. Number of lives covered

V. Method of payment of claim

VI. Unit linked insurance

Classification of policies

I. Duration of policy

- whole life policy

- limited payment whole life policy

- convertible whole life policy

contd

2. On the basis of Term Insurance policies

- Temporary Assurance Policy

- Renewable Term Policies

- Convertible Term Policies

contd

3. On the basis of Endowment Policies

-pure endowment policy

- ordinary endowment

- joint endowment

- double endowment

- fixed term (marriage)

- educational annuity policy

contd

- triple benefit policy

- anticipated endowment

- multi purpose policy

- children’s deferred endowment assurance

On the basis of premium payment

• Single premium• Level premium

On basis of participation of profits

• Participating policy• Non participating policy

On the basis of number of persons insured

• Single life • Multiple life

On methods of payment

• Lump sum policies• Annuity policy

- immediate annuity

- deferred annuity

- fixed and variable annuity

Money back policies

• Money back policy• Sinking fund policy

(Contd)

• Unit linked policies• Group insurance schemes

Actuaries

A business professional who deals with financial impact of risk and uncertainty

Deals in financial security systems like,

Asset management

Liability management

Analytical skills

Business knowledge, etc.,

1. Life , health and pension actuaries- Deal in mortality risk, consumer

choice, morbidity,…

Products – deal with life insurance, annuities, pension, mortgage and credit insurance, long and short term disability, medical, dental and health care.

Types of actuaries

2. Casualty actuaries- Non-life/general insurance act.- Deal with catastrophic, unnatural

risks

Products – auto, home owners, communal property, workers compensation, title insurance, malpractice, environment/marine, terrorism,..

• Appointment:

1. An insurer registered to carry on business in India shall appoint an actuary – APPOINTED ACTUARY for IRDA act.

2. A resident of India

3. Fellow member of actuarial society of India and possess certificate of practices issued by the society.

4. Not above 70 years

• Duties

1. Render actuarial service to insurer.

2. Product design and pricing/wording of contract investments and re-insurance.

3. Ensuring the solvency of insurer firms.

4. To comply with provisions of act to,- Fix premium- Give interim bonus

5. To ensure policy holders responsible expectations been considered.

6. To ensure premium charged are fair

contd

Cover notes/Binders

• Temporary document sent to the insured, till permanent certificate of policy issued

• In life insurance cover notes are not issued, but letter of acceptance is issued

after the first premium received as binders.

Process of Assignment

1. Procedure

2. Notice

3. Priority

4. Acknowledgement

5. Recognition

6. Conditional assignment

Surrender value• Amount the insurer decides to pay on

surrendering the policy

• Paid up value• If assured discontinues premium payment

after 2 years

Days of grace • 15 days from due date (monthly premium)• 30 days (quarterly, half yearly, annual)

Revival of discontinued policies• During life time, within 5 years before date of

maturity

Loans• When policy has surrender value it has a loan

value• 95% of surrender value given as loan• 5% kept as interest reserve• Repayment as per convenience of assured –

instalments or maturity value• Best form of investment for insurance company

Age proof and death proof• Certificate of birth and death• 7 years of disappearance – (dead)

Suicide – intentional / willful act• If there is a clause insurer can avoid payment• Assignee given some consideration

Payment of claim• With proof as owner or nominee or assignee