Whole Life Insurance Tripod by jennyyingdi


									                              EXECUTIVE SUMMARY

       IRDA Act has changed the way the Insurance functions in India. With the
licensing of the private players to enter the business of Life Insurance, the sector is
determined to be the next boom in the industry. Companies are making alliances for
expertise and capital in the field of Insurance. As big names of the Industry have
combined forces competition is steaming up. On one hand it’s not going to be an easy
task for the Company to unearth Life Insurance Corporation of India from the market at
one blow because of its wide distribute network and on the other hand there is fear from
the fresh breed of competitors.
       In a situation like this, the private players would have to concentrate their
attention on mainly two factors
   a) Service Levels
   b) Innovation
       Innovative products are the need of the day an through this project report I would
       like to supplement my understanding of the need for innovation through examples
       an practices followed over the world.

The masses would expect more to be delivered by the Private Insurance Players. Will the
Insurance Players make it top the hearts of the customer, only time will show.


Insurance is an Rs.400 billion business in India and yet its spread in the country is
relatively thin. Insurance as a concept has not been able to make headway in India.
Presently LIC enjoys a huge market share in life insurance business while GIC enjoys it
in general insurance business. Until recently there have been very little options before the
consumers to decide the insurer. A successful passage of the IRDA Bill has cleared the
way of private sector operators in collaboration with their overseas partner.

Insurance together with banking services add about 7% to India’s GDP. Gross premium
collection is about 2% of GDP and has been growing by 15-20% per annum. India also
has the highest number of life insurance policies in force in the world, and total investible
funds with the LIC are almost 8% of GDP. Yet more than three-fourths of India’s
insurable population has no life insurance or pension cover. Health insurance of any kind
is negligible and other forms of non-life insurance are much below international

To tap the vast insurance potential and to mobilize long-term savings we need reforms
which include revitalizing and restructuring of the public sector companies, and opening
up the sector to private players. A statutory body needs to be made to regulate the market
and promote a healthy market structure. Insurance Regulatory Development Authority
(IRDA) is one such body, which checks on these tendencies. IRDA role comprises of
following three functions:
(a) Protection of consumer’s interest.
(b) To ensure financial soundness and solvency of the insurance industry, and
(c) To ensure healthy growth of the insurance market.
Setting up of the IRDA will play a crucial role in the sector. The private players will have
to see that it acts as a facilitator and not as a regulator. Huge responsibilities will have to
be undertaken by the private players in this respect because no company would be happy
to undergo penalties.

India being one of the lowest insured nations in terms of sum assured, opening up the
insurance sector will probably bring more people into its fold, which means channeling of
more savings into productive investment.

Opening up of the Insurance sector is likely to bring in a more professional and focused
approach. Moreover the foreign players would also bring sophisticated actuarial
techniques with them, which would facilitate the insurer to effectively price the product.
It is very important that trained marketing professionals who are able to communicate
specific features of the policy should sell the policy. In the next millennium all these
activities would play a crucial role in the overall development and maturity of the
insurance industry

To conclude the opening up of the insurance sector in India promises to pay rich
dividends in the years to come. Once the huge untapped potential in the industry is filled
up it will result in the following benefits:
   Boost to economic growth.
   Better products (Innovation)
   Improved services (Technology)
   Satisfied consumers (Service)
Thus as the country moves up the technology scales and the economy becomes
increasingly sophisticated, the insurance industry must have imagination, innovativeness,
expertise, technology as well as whiplash of competition to respond constructively,
promptly and fairly to the changing and complex demand of its clientele. We could
expect a revolution in the Insurance sector soon.


Life Insurance in its existing form came to India from the United Kingdom with the
establishment of a British firm Oriental Life Insurance Company in Calcutta in 1818
followed by Bombay Life Assurance Company in 1823.
The Indian Life Assurance Companies Act, 1912 was the first statutory measure to
regulate life insurance business. Later in 1928 the Indian Insurance Companies Act was
enacted to enable the Government to collect statistical information about both life and
non-life insurance business transacted in India by Indian and foreign insurers including
provident insurance societies. In 1938 with a view to protecting the interest of insuring
public earlier legislation was consolidated and amended by the Insurance Act 1938 with
comprehensive provisions detailed and effective control over the activities of insurers.
The Act was amended in 1950 resulting in far reaching changes in the insurance sector.
These included a statutory requirement of equity capital for companies carrying on life
insurance business, ceiling on share holdings in such companies, stricter control on
investments, submission of periodical returns relating to investments and such other
information to the controller. The controller could also call for appointment of
administrators and put a ceiling on expenses of management and agency commission for
mismanaged companies.
By 1956, 154 Indian insurers, 16 foreign insurers and 75 provident societies were
carrying on life insurance business in India. Life insurance business was concentrated in
urban areas and confined to the higher strata of the society. On January 19, 1956, the
management of life insurance business of 245 Indian and foreign insurers and provident
societies then operating in India was taken over by the Central Government. An Act of
Parliament, viz. LIC Act 1956 with a capital contribution of Rs.50 million, formed Life
Insurance Corporation in September 1956.
The then Finance Minister Mr. C.D.Deshmukh while piloting the bill for nationalization
outlined the objectives of LIC thus:
"To conduct the business with utmost economy with the spirit of trusteeship; to charge
premium no higher than warranted by strict actuarial considerations; to invest the funds
for obtaining maximum yield for the policy holders consistent with safety of capital; to

render prompt and efficient service to policy holders thereby making Insurance widely

                            THE INVESTMENT PROCESS
Various financial organizations act as a mediator between the investors and the
Corporates and those in need of money. The flow of money and investments by various
financial institutions is depicted in the following diagram.
Investors              Intermediaries          Market / Product             Issuers

Fig: 1 The Investment Process

The Insurance Company acts as the intermediary between the persons who have savings
to invest and the person who needs the money. Thus the insurance Company acts as a
machinery to channelise the savings.

                          CONCEPT OF LIFE INSURANCE

Life Insurance is a contract for payment of a sum of money to the person assured (or
failing him/her, to the person entitled to receive the same) on the happening of the event
insured against.
Usually the insurance contract provides for the payment of an amount on the date of
maturity or at specified dates at periodic intervals or at unfortunate death if it occurs
earlier. Obviously, there is a price to be paid for this benefit. Among other things, the
contract also provides for the payment of premiums by the assured. Life Insurance is
universally acknowledged as a tool to eliminate risk, substitute certainty for uncertainty
and ensure timely aid of the family in the unfortunate event of the death of the
breadwinner. In other words, it is the civilized world's partial solution to the problems
caused by death
In a nutshell, life insurance helps in two ways: premature death, which leaves dependent
families to fend for itself and old age without visible means of support


The benefits to the investors are as follows: -

    Superior To Any Other Savings Plan
       Unlike any other savings plan, a life insurance policy affords full protection
       against risk of death. In the event of death of a policyholder, the insurance
       company makes available the full sum assured to the policyholders' near and dear
       ones. In comparison, any other savings plan would amount to the total savings
       accumulated till date. If the death occurs prematurely, such savings can be much
       lesser than the sum assured. Evidently, the potential financial loss to the family of
       the policyholder is sizable.

    Encourages And Forces Thrift
       A savings deposit can easily be withdrawn. The payment of life insurance
       premiums, however, is considered sacrosanct and is viewed with the same
       seriousness as the payment of interest on a mortgage. Thus, a life insurance policy
       in effect brings about compulsory savings.

    Easy Settlement And Protection Against Creditors
       A life insurance policy is the only financial instrument the proceeds of which can
       be protected against the claims of a creditor of the assured by effecting a valid
       assignment of the policy.

    Administering The Legacy For Beneficiaries
       Speculative or unwise expenses can quickly cause the proceeds to be squandered.
       Several policies have foreseen this possibility and provide for payments over a
       period of years or in a combination of installments and lump sum amounts.

    Ready Marketability And Suitability For Quick Borrowing

   A life insurance policy can, after a certain time period (generally three years), be
   surrendered for a cash value. The policy is also acceptable as a security for a
   commercial loan, for example, a student loan. It is particularly advisable for
   housing loans when an acceptable LIC policy may also cause the lending
   institution to give loan at lower interest rates.

 Disability Benefits
   Death is not the only hazard that is insured; many polices also include disability
   benefits. Typically, these provide for waiver of future premiums and payment of
   monthly installments spread over certain time period.

 Accidental Death Benefits
   Many policies can also provide for an extra sum to be paid (typically equal to the
   sum assured) if death occurs as a result of accident.

 Tax Relief
   Under the Indian Income Tax Act, the following tax relief is available
   a) 20 % of the premium paid can be deducted from your total income tax liability.

   b) 100 % of the premium paid is deductible from your total taxable income.
   When these benefits are factored in, it is found that most polices offer returns that
   are comparable/ or even better than other saving modes such as PPF, NSC etc.
   Moreover, the cost of insurance is a very negligible.


       While marketing creates form utility and possession utility respectively, it is only
distribution, which provides time and place utility. Distribution plays a very critical role
of servicing the demand created by company on a continuous basis.
       An insurance agent sells an Insurance policy to the final customer. According to
the rules laid down by IRDA, an insurance agent must have completed 100 hours of
training and must have passed the examination conducted by the IRDA

Channel Design

                                        Head Office

 Regional Branch           Regional Branch          Regional Branch     Regional Branch

       The Head office undertakes complicated underwriting decisions. Every regional
branch is in direct contact with the head office.

The regional Branch consists mainly of the Branch Manager, Business Development
Officers and Customer Service officers. The structure of a Regional office is as under

                              Regional      Branch
                              headed by Branch

 Business                Business              Business                Business
 Development             Development           Development
 Officer                 Officer               Officer

 Insurance                 Insurance             Insurance              Insurance
                            Agents                Agents                 Agents

                             Structure of a regional office

        Thus every business development officer controls and manages a team of
insurance agents under him. The Officer looks after the needs of the agent from time to


Traditional Plans of Life Insurance
There are four basic classes of life insurance contracts. They are: -
a) Term Insurance
b) Whole Life Insurance
c) Endowment
d) Annuities

Term Insurance
Such a policy plan covers for a specified period or term only, and may also be described
as temporary insurance. The policy benefit is also payable if:
a) The insured person dies during the specified period or term; and
b) The policy is valid at the time of the death.
This form of cover is an exception to the general rule that a life insurance always results
in a claim. Indeed, in the great majority of cases, term insurance runs their course without
a claim. For these reasons, it is the cheapest form of cover available.

Term insurance is designed to cover a specific short-term need. Term insurance can
be purchased on an annually increasing premium basis or on a level premium basis, if

Level premium term policies can be procured on a five-year, ten year, fifteen year,
twenty year or even a thirty-year basis. Some of these level term policies contain a re-
entry provision. Policies with a re-entry provision require the insured to submit
favorable evidence of insurability at specific intervals indicated in the policy. If the
insured submits favorable evidence of insurability, the policy will renew at a lower
re-entry premium. If he were unable to provide favorable evidence, the renewal
premium would be higher.

Some term policies are convertible to an upper age limit. A conversion provision
allows the policy owner to change the policy to a permanent plan of insurance

without evidence of insurability. Term policies, which contain the option to convert,
require greater premiums than the term plans that do not contain this feature.

Although term insurance may appear relatively inexpensive in the early years, the
premiums eventually become prohibitive and the policy may lapse prior to the
actuarial life expectancy of the insured.

When analyzing term insurance, one should review the current as well as the
guaranteed premiums rates for each policy before making a final decision.

Whole Life Insurance
This contract has no fixed term. In most contract premiums are paid up to the date of
death, when the sum assured becomes payable. However premiums can be paid for
limited term selected by the proponent Thereafter the policy continues as fully paid up
policy and sum assured is paid on death only. All contracts will have claims made against
them and this being so the premiums charged are much higher than for term insurance.
Usually this type of insurance is used to cover the event of early deaths over lengthy

The annual premium required for whole life insurance is calculated assuming no
interest or dividends and with maximum mortality rates. This policy design must
produce a guaranteed cash surrender value equal to the initial face amount at the
insured's age 100. Since this design uses the most conservative actuarial assumptions,
its annual premium is greater than some of the other designs, which inherently have
greater downside risks.

The projected premium offset period for whole life insurance; however, is generally
shorter and its projected cash surrender value is generally greater than the other
illustrated designs.

Whole life policies can be procured on a level premium basis as well as on a modified
premium basis. Modified premium policy designs typically have a lower guaranteed
level premium for an initial period of years and a higher guaranteed ultimate premium

Whole life policies can also be procured on a guaranteed limited payment basis.
These policies are guaranteed to be paid for a period of years. Some of these types are
called a 10 payment life, 20 payment life, Life Paid up at Age 65 or 85 or paid up at
some other upper age limit. These policies are the only ones that guarantee a
shortened premium payment period. Since these limited payment policies guarantee
the policy to be paid up at some shorter specified period, they require greater annual
premiums than typical whole life insurance. All other policies illustrating a shortened
premium payment period are based upon certain actuarial assumptions, which are not

Premiums on all other life insurance policies are due for life; however, out-of-pocket
premiums are eliminated because the internal cash flow of the contract, namely
dividends or interest, becomes sufficient to pay the premiums actually due. This is
called a "vanishing premium", "premium offset" or an "abbreviated payment plan". If
interest or dividend rates decline, the projected period becomes extended.
Alternatively, if they increase, the projected period will shorten.

One should obtain illustrations with reductions in dividend rates so he will be able to
quantify the effect a reduction in dividend rate will have on the policy contemplated
before he actually makes the purchase.

Endowment Policy
An Endowment Plan provides for the payment of the sum assured at the end of the
specified term or upon earlier death. Should the insured person survive the term the
policy is said to mature. Thus, a claim may arise under such a plan either by death or
maturity. As with the term insurance, the description of the policy must include reference
to the number of years of the term involved, e.g. a 20 year endowment provides for
payment of the face value after 20 years or upon earlier death.

This refers to the income or other financial provision for retirement or old age. It is a
series of periodic payments to the person receiving the benefits, for life or on other
agreed terms or conditions, in return for a single premium or a series of payments.

In addition to these products, foreign Companies have been creative in bringing out
different types of policies. Although some of the policies are in force in India we can
expect some more of these to be introduced in the market.

       In addition to these there have come about in International Markets a variety of
Life Insurance Policies, which cater to specific needs of the customer. Some of the
innovation in Insurance Products is discussed below.

                             Innovative Life Insurance Products

Survivorship Life Insurance

Survivorship insurance insures the life of two individuals and pays a death benefit at
the second death of the two insured. The primary purpose of survivorship insurance is
to create a source of "tax exclusive" funds to buy assets from the estate, or to lend
money to the estate, to offset the significant estate taxes, which will ultimately be due
on the second death of a married couple.

A survivorship life insurance contract is extremely cost effective as an investment to
the heirs. The tax-free rate of return to the death benefit at the actuarial life
expectancies of the insured is quite competitive. This makes this form of insurance
quite desirable in most estate plans where at least a portion of the assets in excess of
the credit shelter are passing through the unlimited marital deduction.

"First-to-Die" Life Insurance

First-to-Die life insurance pays a death benefit on the first of two or more people to

Most typically, this insurance is most commonly used in business succession plans
with several shareholders.

Term Blended Life Insurance

A term blend is a concept, which lowers the initial premium requirements and
provides a greater investment rate of return than typical whole life insurance. This
occurs because one can allocate a specific portion of whole life and term insurance
together in one contract to meet certain budgetary constraints.

The term insurance portion is supposed to automatically decrease as the face amount
of the base whole life contract increases, if properly designed. This concept levels the
escalating future premium requirements of term insurance. The projected dividends
paid on the base contract are utilized to pay for the non-guaranteed term insurance
premiums in order to lower the effect on cash flow.

The greater the amount of whole life procured within a term blend, the more secure
the contract would be in a period of dividend or interest decline. The greater the
amount of whole life, however, the greater the annual premium requirement and the
shorter the projected "vanish" or "premium offset" period.

Term blends can be procured with different whole life to term ratios; such as 80/20%,
75/25%, 60/40% and 50/50%. When term insurance is added to a whole life insurance
contract, the contract becomes more dividend sensitive. This occurs because the
dividends are used to pay for the non-guaranteed term insurance; to offset the
ultimate premium, if applicable; as well as, to offset the premiums due. Since the
dividend is responsible for more functions, the result would be more dramatic in a
period of dividend decline.

Universal Life Insurance

The universal design allows the consultant to determine whether the policy should be
designed to lapse before life expectancy, after life expectancy or at age 100. It also
allows him to make certain assumptions to calculate a desired scheduled premium.

The problem with this design is that the assumptions utilized in generating the
illustrations are sometimes inconsistent with the risk tolerance level of the insured.

This can expose the policy owner to additional downside risks, which he or she would
normally not find acceptable.

In order to properly analyze the effect changes in interest and mortality rates will
have on this design, we mature the contract as an endowment at current interest and
mortality rates and disclose the point in which the policy will lapse using the current
scheduled premium assuming a 2% drop in interest as well as guaranteed rates. We
also calculate the premium required to mature a universal life policy under the
assumption which is closest to the risk tolerance level of the insured.

Variable Life Insurance

The variable whole life and universal designs are similar to the underlying traditional
life designs; except the client determines the investment allocation.

Variable whole life and universal life policies were designed to provide the
policyholder with the ability to invest the excess premiums collected among a myriad
of investment funds.

The investment funds are typically within the following portfolios: Stock, Fixed
Income, Balanced or Specialized Portfolios.

Stock Portfolios:

These funds are usually common, indexed, dividend, "blue chip" or international
stock funds.

Fixed Income Securities or Bond Portfolios:

These funds are generally money market, fixed interest accounts, government,
high or low-grade corporate, zero coupon or mixed bond funds.

Balanced Portfolios:

These funds purchase cash instruments, bonds and stocks in varying amounts
depending on the fund's objective. The funds are usually either conservatively or
aggressively managed funds.

Specialized Portfolios:

These funds are generally, gold, precious gems, natural resources or real estate

Corporate Split Dollar

A split-dollar plan is a method of purchasing life insurance; it is not a type of life
insurance policy. A split dollar plan can be utilized with any form of life insurance. A
split dollar plan can use the collateral assignment, split-ownership or endorsement

With the collateral assignment approach, the irrevocable insurance trust would be the
owner and applicant of the new policy from inception. There would be a separate
agreement, which would collaterally assign the right to a return of its advances. This
assignment would be secured by the cash value and/or death benefit of the insurance

Private Split Dollar

Private split dollar, if properly structured, may allow a client to utilize cash value life
insurance to achieve two objectives:

1. Supplemental retirement income, and

2. To shelter a significant portion of the life insurance death proceeds from
taxation in the estates of both the client and the spouse.

Generally, an over-funded variable universal life policy is used as the funding
mechanism for this approach. Under the basic plan, the cash value is owned by the
insured spouse with the understanding that the spouse will later access policy values
through income tax free withdrawals and loans in excess of basis to supplement the
couple’s retirement income.

The pure insurance element (the net death proceeds in excess of the spouse’s interest
in the policy) is owned by an irrevocable insurance trust designed to avoid inclusion

in the estates of both the insured and spouse. This enables the death benefit
component to be paid to the trust, income and estate tax free.

The amount of cash value attributable to the spouse increases each year, thereby
reducing the "tax free" net amount at risk attributable to the trust if a level death
benefit life insurance policy is used. To ensure that the "tax free" amount attributable
to the trust remains level, a variable universal life policy with an increasing death
benefit option is most often utilized.

The basic concept of private split dollar is relatively straightforward. A number of
variations are available to meet the individual client’s goals and objectives. All
variations, however, should keep two goals in mind:

           1. To exclude the net death benefit (total death benefit minus the
               spouse’s cash surrender value) from the estates of both the client
               and the spouse; and

           2. To allow reasonable income tax free access to the policy values for
               the funding of a supplemental retirement need.

This is accomplished through a combination of withdrawals to the policy’s cost basis
with policy loans thereafter. This, of course, assumes that the policy will remain in
force and will not be classified as a modified endowment under IRC Section 7702A.
If the life insurance policy is eventually lapsed or surrendered prior to the death of the
insured, any policy loans in excess of cost basis will result in taxable income.

This is why we stress that the policy be conservatively designed so that as investment
earnings, loan interest rates and mortality charges fluctuate, the policy can be
reasonably maintained within the risk tolerance of the policy owner.

There are four legal and tax issues which should be examined before one
contemplates private split dollar:

       1. The split dollar element; and

       2. The estate taxation; and

       3. The gift taxation; and

          4. The income taxation

Life Insurance in a Profit Sharing Plan

There is also a "seasoned money" provision, which would allow 100% of the profit
sharing account, which is over 24 months old, to be used for the purchase of any type
of life insurance. The five year rule allows the entire account as well as annual
contributions to be used if the insured has been a participant in the profit sharing plan
for longer than five years.

Only a portion (the net amount at risk) of the death proceeds received on the policies
in the profit sharing plan will be income tax free under IRC Section 101. An amount
equal to the cash surrender value at the date of the insured’s demise will be taxable as
ordinary income to the named beneficiary. Also, all proceeds will be included in each
insured’s taxable estate for estate tax purposes. This means that any proceeds still
remaining at the second death of a husband and wife will be taxable at a rate up to

Once an individual has accumulated sufficient assets, we feel that insurance within a
pension or profit sharing plan should be avoided. This is because of the adverse tax
effects, which occur upon the death of the insured. It is not worth the tax savings on
the annual premiums to have the entire death benefit included within the taxable

We also feel that the portion of the annual contribution contributed to whole life
insurance adversely affects the amount one can accumulate for retirement. The
internal rate of return to the cash surrender value of a whole life policy is not as
competitive as a growth-oriented, no-load mutual fund or stocks and bonds.

This means that clients with significant net worth should consider:

1. Surrendering the policies and have the cash surrender value invested with their
other more competitive profit sharing investments.

2. Purchasing the policies from the profit sharing plan for their interpolated
terminal reserve and subsequently gift them to an irrevocable trust. This option

should only be contemplated if it is determined that these policies are actually
necessary and they are competitively priced in today’s marketplace.

3.Making a maximum loan and subsequently distributing the loaned policies to
the insured and then to an irrevocable insurance trust if the corporation is a c-
corporation. It should be noted, that the corpus of the loan and inherent loan
interest might adversely affect the policies. Every individual should also be aware
that there are prohibitive transaction problems, which will occur with this
technique if the insured are also owners of an s-corporation. If the corporation has
Sub-chapter S status, this option would not be a viable alternative.


                                   - A CASE STUDY

JLM Consulting Group, Inc. specializes in obtaining insurance on the life of
individuals with impaired medical histories. In the past, they have negotiated very
favorable offers on individuals with hypertension, adult onset diabetes, heart
conditions, cancer and other ratable conditions.

Insurance companies are basically "bookmakers" and sometimes depending upon the
age, health history or face amount, they shift a portion of the risk to other insurance
companies called reinsurance companies. The amount the initial carrier retains is
called their retention limit. The amount they shift to another carrier is called

There are two types of reinsurance; treaty and facultative. Treaty reinsurance means
that the insurance company's underwriter binds the reinsurer's underwriter at the rates
originally negotiated. Facultative reinsurance means that both the initial insurance
company's underwriter and the reinsurance underwriter determine their rating based
upon their independent interpretation of the medical file reviewed. This is the least
favorable with impaired risk cases.

To properly negotiate impaired risk cases, our firm attempts to negotiate informally at
first with the most aggressive carriers without triggering reinsurance. This is because
once reinsurance makes a facultative determination; all carriers will be informed of
their determination. If this rating is less favorable than the rates already negotiated
with the initial carriers, we will lose our initial rate. This is because there are a limited
number of reinsurers available.

Once the reinsurance market is flooded, competition for business is thwarted. This is
why the Company never likes to negotiate with another agent or broker who may be
less experienced or have less negotiation power. They write a significant amount of
premium with all carriers, which give our firm greater leverage than most brokers or

It has been their experience that when more than one brokerage firm negotiates on
behalf of a client, the client gets hurt. This is because too much "non-controlled"
information flows between carriers regarding another carrier's less favorable initial
interpretation. If a well-known carrier suggests a high medical rating; an aggressive
underwriter will begin to question his interpretation and withdraw or modify his offer.
This makes the client pay significantly more premium than he would have if the
initial offer weren't modified or withdrawn. A carrier has only to be a little more
competitive to get the case. Thus, when they find out they are so much better than the
competition, they increase their initial offer to be less than the competition but
significantly more than their original offer.

With proper negotiations, carriers should be made to feel that all other carriers are
prepared to make more favorable offers than they are willing to make. We advise the
underwriter that we have presented the other offers to our potential client and he will
purchase them from a competitor unless they move from their original position. The
carrier can then determine if they can compete more favorably or will walk away
from the case. Any offer which appears to be significantly worse than others should
be stopped in the preliminary stages if there is no room for improvement. This
prevents contamination of the MIB and reinsurance marketplace.

When the Company obtains a prospective client's medical records, they pay his
physicians to provide us with a very strong cover letter, which explains his medical
history in the most favorable light. We feel that every insurance carrier's Medical
Department gets paid to find a medical basis for the carrier to assess additional
premium for an impaired medical history. In every medical file there are things that
are "subjective" and the Company must obtain the most favorable interpretation from
your client's attending physicians. The attending physician's interpretation provides
the Company with a firm basis to argue our position against each Medical Director.

Proper negotiations in business take time, if the Company appears too anxious to
accept any offer, it would be a disadvantage. This process will take at least four
weeks after we receive all of the medical records. If the physicians respond very
quickly, the whole process may be completed sooner. In case of any problems in

obtaining records from any physician, the Company contacts the prospective client in
order for him to attempt to push the request along.

The Company aims to obtain the most favorable rates within the marketplace on all of
their prospective clients. They analyze each negotiated offer based upon five criteria;
cash flow, cumulative cost with use of money, historical performance, financial
strength and the actuarial assumptions used in making each projection. They analyze
each carrier's results at current assumptions as well as reduction in assumptions to
disclose how a policy will perform in a period of economic decline. This will enable
the client to determine which carrier is most suited to his goals and objectives and
within his risk tolerance level.


How much insurance is required on the life of an individual is a very personal
decision and is dependent upon one's personal objectives. The amount should be
calculated with assistance of a competent insurance consultant, accountant or
attorney. Naturally, the advisor would have to have a good understanding of one's
personal financial condition, income requirements and goals and objectives.

Basically, for replacement of income, one should generally calculate the amount of
the income shortage, after considering the income, which can be generated from his
income producing assets, current life insurance policies and Social Security, and
divide it by 5% or 6%. The interest rate used in the calculation should represent the
after tax rate which could be reasonably generated from the tax-free proceeds
received by the beneficiary without invading corpus.

For cash needs, like mortgage cancellation, other debts and a dependents post-
secondary education one should just simply determine what amount of corpus would
be reasonable.

For estate liquidity purposes, one should calculate his estate tax liability and
determine how much cash will be available within the estate to pay the estate taxes
when due. He should then determine the potential tax savings created by some of the
leveraging techniques instituted in his estate plan and discuss his goals and objectives
openly with his financial and insurance advisors.


Every individual has different financial goals and objectives and tolerance for risk;
therefore, a general statement, which would be appropriate for all individuals, cannot
be prudently made.

One should understand the differences between each type of insurance policy and the
underlying risks. He should then assess the downside risks associated with each
design and compare them to the up-side potential of the policy in his specific

This comparison is extremely difficult if an individual is getting different stories from
each salesperson; especially if each illustration presented uses a different set of
actuarial assumptions and these actuarial assumptions are not properly quantified,
disclosed and understood by the prospective client.

One should seek the services of an independent insurance consulting company who
can perform a complete market analysis and educate the client on the actual
differences between each design. This will allow an individual to determine which
policy and carrier is most suitable to his goals and objectives and risk tolerance level.

        These types of neutral agencies are yet to evolve in India because of the late entry
of the private insurance players.

         Since the IRDA Act has been passed a lot many financial companies are seeking
licenses to enter this previously forbidden sector. A few of the competitors are listed

Birla Sun Life Insurance
Birla Sun Life is a joint venture between the Aditya Birla Group and the Sun Life
Assurance Company of Canada.

Aditya Birla Group
Aditya Birla Group is India's second largest business house, with a turnover of over
$4.75billion and an asset base of $3.8 billion. The Group is a well diversified
conglomerate with 72,000 strong workforce spanning 40 Companies spread across 17
The flagship companies of the Group - Grasim, Hindalco, Indian Rayon and Indo Gulf -
hold      leadership   positions     in    their    respective     areas    of     business.

Sun Life Assurance
Sun Life Assurance Co. of Canada, established in 1871, is licensed in Canada, the U.S.,
the Philippines, Hong Kong, and the U.K. Its major lines of business are life insurance,
annuities and mutual funds and investment services. Sun Life's rating reflects extremely
strong diversification of revenues and profitability, outstanding capitalization, good
fundamental earnings, and high-quality investments. In Canada, the company is
especially strong in the corporate life and health insurance and savings markets. In the
U.S., the company is a top 20 player in the variable annuity market and a significant force
in the upscale individual insurance market. In the U.K., Sun Life is among top 20 life and
health insurers.

The Joint Venture
Sun Life Financial Services, which has a strategic relationship with the Aditya Birla
group in financial services in India, covering mutual funds, asset management,
distribution and stock broking, has now extended its association to life insurance and
pension business.
Birla Sun Life Insurance Company, the Joint Venture entity, will have an initial capital of
Rs. 125 Crores. 69% of the 74:26 JV, would be coming from the Group's flagship
company, Indian Rayon, 5% from the Group's financial services outfit, Birla Global
Finance, and the remaining 26% is to be brought in by the foreign partner Sun Life
Financial Services of Canada.
A six member Board, with equal representation from each of the JV Companies has been
constituted to run the Company. Mr. Donald A. Stewart, Chairman and CEO, Sun Life
Financial Services will head the Board. Mr. Kumar Mangalam Birla is a director on the
board. Other directors include Mr. Douglas Henck, Executive Vice-President of Sun
Life's Asian operations, Mr. Vijay Singh, Vice-President India, Sun Life Financial
Services, Mr. B. N. Puranmalka, Group Vice-Chairman, and Mr. S. K. Mitra, Group
Director, Financial Services of the Aditya Birla Group.
The area of focus will be the rural segment as the company plans to leverage the network
of the Aditya Birla Centre for Community Initiative and Rural Development in rural
areas. Its multi-channel distribution set up comprises insurance advisors for life and an
expert marketing team for group products.
Here the Aditya Birla Group contributes its knowledge of the Indian market and Sun Life
Financial contributes global expertise in the areas of protection and wealth management.
The cornerstones of the partnership are respect for each other, integrity and customer
focus. The joint venture companies are engaged in the activities of life insurance, asset
management, retail distribution and stock broking.

HDFC Standard Life Insurance Company Limited

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 net worth of the
corporation as on March 31, 2000 stood at Rs. 2,096 crores.
HDFC operates through 75 locations throughout the country with its Corporate
Headquarters in Mumbai, India. HDFC also has an international office in Dubai, U.A.E.,
with service associates in Kuwait, Oman and Qatar.

Standard Life
Standard Life is Europe's largest mutual life assurance company. Standard Life, which
has been in the life insurance business for the past 175 years, is a modern company
surviving quite a few changes since selling its first policy in 1825. The company
expanded in the 19th century from its original Edinburgh premises, opening offices in
other towns and acquiring 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 past six years by
Standard & Poor.

The Joint Venture
HDFC Standard Life Insurance Company Limited was one of the first companies to be
granted license by the IRDA to operate in life insurance sector. Each of the JV player is
highly rated and been conferred with many awards. HDFC is rated 'AAA' by both
CRISIL and ICRA. Similarly, Standard Life is rated 'AAA' both by Moody's and
Standard and Poors. These reflect the efficiency with which HDFC and Standard Life
manage their asset base of Rs. 15,000 Cr and Rs. 600,000 Cr. respectively.
Mr. Deepak Satwalekar is the MD and CEO of the venture. The company is starting with
a capital of Rs. 168 crores.

ICICI Prudential Life Insurance Company

ICICI Ltd., was established in 1955 by the World Bank, the Government of India and the
Indian Industry, to promote industrial development of India by providing project and
corporate finance to Indian industry.
Since inception, ICICI has grown from a development bank to a financial conglomerate
and has become one of the largest public financial institutions in India. ICICI has thus far
financed all the major sectors of the economy, covering 6,848 companies and 16,851
projects. As of March 31, 2000, ICICI had disbursed a total of Rs. 1,13,070 crores, since

Prudential plc.
Prudential plc. was founded in 1848. Since then it has grown to become one of the largest
providers of a wide range of savings products for the individual including life insurance,
pensions, annuities, unit trusts and personal banking. It has a presence in over 15
countries, and caters to the financial needs of over 10 million customers. It manages
assets of over US$ 259 billion (Rupees 11,39,600 crores approx.) as of December 31,
Prudential is the largest life insurance company in the United Kingdom (Source : S&P's
UK Life Financial Digest, 1998). Asia has always been an important region for
Prudential and it has had a presence in Asia for over 75 years. In fact Prudential's first
overseas operation was in India, way back in 1923 to establish Life and General Branch

ING Vysya Life Insurance Company Pvt Limited

Vysya Bank
Vysya Bank is one of the most aggressive of the older-generation private-sector banks.
With the investment from a foreign partner, Bank Brussels Lamberts, in the equity of the
bank, it is expected to gear up to effectively fight competition in the new liberalised era.
Vysya Bank is a big player given its significant branch penetration. It has a very high
degree of retail focus with good customer service. The Vysya Bank is one of the largest
private banks in India with around 2 million customers and 480 retail outlets.

ING Group is a global financial institution of Dutch origin, which is active in the field of
banking, insurance and asset management in more than 60 countries, with nearly 90,000
employees. ING comprises a broad spectrum of prominent companies working close to
the customer, many of them operating under their own brand names.
ING Insurance
ING Insurance is the worlds second largest life insurance company as per latest Fortune
rankings with a client base of over 50 million since it acquired ReliaStar and Aetna
Financial Services earlier this year. It is the third largest financial services company in
Europe and the tenth largest financial services company in the World.

The Joint Venture
ING has joined hands with Vysya Bank, one of India's leading private sector banks, to
form ING Vysya Life Insurance, which is expected to be the first Bankassurance venture
in the country. Together they have roped in Damani group, a stock broking firm and a
successful, long term investor as their third partner in the insurance venture.
As per the JV agreement, Vysya Bank would hold 49 per cent stake, ING 26 percent, and
the Damani Group would hold 25 per cent. The venture is to be capitalised with an initial
investment of Rs 125 crore, and an authorised capital of Rs 300 crore.

The management control would vest with ING with four of the nine-member board of the
venture are to be represented by ING. Vysya Bank would have three members, the
Damani group one and one member would be an outside director.

Life Insurance Corporation of India
LIC has been established by an act of the Parliament and started functioning from 1-9-
1956. It is an autonomous body authorised to run the life insurance business in India with
its Head Office at Mumbai.
It has 7 zonal offices, over 100 Divisional offices and 2040 branches in India. The
Corporation also has offices in London, Fiji and Mauritius.
The chairman of LIC is Mr.G.N.Bajpai.

   LIC's progress at a glance:
                                                      yr         1957 yr          1999
                                                      (in Rs.crores) (in Rs.crores)
      Total volume of new business in one year
                                                      336             75606.62
         Individual
                                                      46              62446.65
         Group
      Business in force
                                                      1476.52         400747.88
         Individual
                                                      5.29            74798
         Group
      No of policies (in Lakhs)
                                                      56.86           850
         Individual
                                                      ----            251
         Group
   Life fund                                          410-440         127389
   Book value                                         381             120445
   Claims settled(in lakhs)                           3.21            59.84
   FYP                                                13.72           4071.73
   Renewal                                            74.35           17710.22

Max New York Life Insurance Company Limited

Max India Limited
Starting early 1999, Max has refocused itself into building a company based on the
knowledge platform that India represents. Today, Max is building businesses in the
emerging knowledge-based areas of Healthcare, Financial Services and Information
Technology. It has grown independently on its own and by joining hands in partnerships
with major international companies where specific business opportunities are best
addressed through joint ventures.
Max India has a significant presence in the most vital & fast growing sectors of the
Indian Economy, Telecommunication services, Electronic components distribution,
Speciality Plastic Films and Bulk Pharmaceuticals. These diversified businesses are
organised as Max India's 100% owned Business Units (BU) and equity sharing Joint
Ventures (JV). Each of the BUs & JVs, fully empowered to lead their operations, have
grown and obtained leadership position in their respective industries by providing high
quality products and services, working closely with their customers.

New York Life International Inc.
From its pioneering achievements since the days of its birth in 1845, New York Life has
grown to be a Fortune 100 company who is renowned as the global expert in life

In 1998 New York Life International Inc., a Fortune 100 company, had total revenues
amounting to almost US $ 20 billion, and was rated the number one provider of new life
insurance policies in the United States. In the same year, New York Life was also the
leader in insurance sales to the growing Indian community in the Unites States.

Today New York Life has over US $138 billion in assets under management and over
30,000 agents and employees worldwide. Its reputation as a company is amply
demonstrated by the fact that the October 2000 Fortune Survey named New York Life
amongst the top three most admired life and health insurance companies worldwide.

With over 3 million policy holders, New York Life is a leading provider of insurance in a
host of countries worldwide. To Indians specifically, New York Life is the preferred
choice for most of the burgeoning Indian community in the United States of America.

The Joint Venture
Max India Limited entered into a joint venture in November 1999 with New York Life
International Inc., the global arm of New York Life Insurance Company USA to address
the life insurance sector in India.
Currently, the Joint Venture is in the process of putting up a core team of professionals to
prepare the business plan and it expects to be in business by mid 2001 and aspires to be
the country's leading private sector life insurance company.

OM Kotak Mahindra Life Insurance

Kotak Mahindra Finance Limited
Kotak Mahindra Finance Limited has added yet another financial service in its portfolio,
with its entry into the Insurance sector. OM Kotak Mahindra Insurance Company Pvt.
Ltd. represents KMFL’s Life Insurance venture, a 74:26 joint venture with Old Mutual
The Life Insurance business offers Kotak Mahindra with an opportunity to leverage its
core strengths of Wealth Management and Retail Distribution.

Old Mutual plc.
Old Mutual plc. is a leading financial services provider in the world, providing a broad
range of financial services in the area of insurance, asset management and banking. It is a
leading life insurer in South Africa, with more than 30% market share. The partnership
with Old Mutual plc., provides the Kotak Mahindra group with an international
perspective and expertise in the life insurance business.


Accidental Death Insurance
Insurance that provides coverage in the event of death due to accidental injuries, but not
illness. In the event of death, payment is made to the insured's beneficiary. If bodily
injury occurs (e.g., the loss of a limb), the insured receives a sum specified by the

A policy under which an insurance company promises to make a series of periodic
payments to a named individual in exchange for a premium or a series of premiums
called the purchase price.

A life insurance policy is regarded under the law as a form of personal property. Its
owner can retain the policy, transfer it to someone else, mortgage or charge it or use it as
the basis of a trust. Assignments are actions taken which affect ownership of the policy.
There are several types of assignments. A legal assignment must be followed by a notice
to the insurance company. To protect the person who is assigned a life insurance policy, a
notice of assignment must be given to the insurance company. Once notice is given, the
person to whom the policy has been assigned to has precedence over all other interests
except for four cases:
      trustees in bankruptcy
      voluntary assignments between assignor and assignee
      evidence of willful blindness on the part of the assignee
      mortgage for unlimited amounts.

       Notice need not be given for such cases.
The party to whom an assignment (a transfer of property or rights to property) has been

An individual designated in a will to receive an inheritance, or the individual designated
to receive the proceeds of an insurance policy, retirement account, trust, or other asset. In
an insurance policy the person who is nominated is normally the beneficiary.

Cash Surrender Value
The amount that is available to the owner if a life insurance policy is surrendered any
time before the maturity date. The amount represents the cash value minus surrender
charges and any outstanding loans due upon cancellation of the policy.

Written request by an insured for the insurance company to cover an incurred loss,
usually submitted on the company's standard form.

A temporary assignment of the monetary value of a life insurance policy as security for a
loan. In the event of default, the creditor would receive proceeds or values only to the
extent of his interest.

Critical Illness Rider
A rider added to a life insurance policy to protect the insured against financial loss in the
event of a terminal illness. A critical illness rider makes living benefits payable to the
insured for medical expenses prior to death. Accelerated (or living) benefits paid reduce
the death benefit payable to the beneficiary(ies) upon death.

Date of commencement
The date on which cover begins, following acceptance of the risk by the insurer.

Dating Back
For non investment linked policies, the commencement date of the policy can be

backdated within the same financial year. This enables the life assured to take advantage
of the lower premium applicable to a younger age as the premiums is calculated with
reference to the date of commencement. The insurance cover will however begin only
from the date of acceptance. The extra premium on account of dating back has to be paid

Death Benefit
The amount payable, as stated in a life insurance policy, to the designated
beneficiary(ies) upon the death of the insured. The amount paid is the face value, plus
any riders that are applicable, less any outstanding loans.

Deferred Annuity
An annuity contract under which periodic benefits are scheduled to begin at some
designated future date after the date on which the annuity was purchased.

Endowment insurance pays the sum assured upon the death of the life insured during the
policy term or on survival to the end of the policy term.

Extended Term Insurance
A provision in some policies which provides the option of continuing the insurance for a
particular insured amount as per the policy condition as term insurance.

Grace Period
This provision offers the policy holder additional period of time after the due date, during
which the premium can be paid. The policy continues to remain in force during this grace
period and the premium continues to be payable.

Immediate annuity
An annuity that begins to make income payments immediately (or soon after) after the
first premium is paid, as opposed to a deferred annuity.

Insurance is a policy a person buys and upon that person's death, the family will be able
to get a certain sum of money.

Termination of a life insurance contract because of non-payment of premiums. If there
are nonforfeiture values, the policy lapses but may remain effective reduced paid-up

Life Annuity
An annuity that makes regular (e.g., monthly, quarterly, etc.) income payments for the
life of a person (the annuitant). The annuitant cannot outlive the payments. Upon his/her
death, however, all income payments cease and there are no beneficiary benefits.

Life Assured
A person whose life is covered under a life insurance policy.

Life Expectancy
The number of years a person is expected to live as determined by actuaries using
mortality (actuarial) tables This information is used to calculate annuity payments, life
insurance premiums, and annual minimum distributions from IRAs.

Life Expectancy Tables
Mortality tables that are used to calculate life expectancy figures.

Maturity Date
The date on which an endowment insurance policy's face amount will be paid to the
policy-owner if the life insured is still living.

Non-forfeiture Benefit

Benefit which prevents a life insurance policy that has built up a cash value from lapsing
due to non-payment of premiums by the policy-owner.

Non-participating policy
Non-participating policy is also known as a without-profit or non-par policy. The policy
owner does not share in any divisible surplus made by the life insurance company. No
bonus is paid on this policy.

Participating Policy
A participating policy is also known as a with-profits or par policy. A participating policy
charges a higher premium than a non-participating policy. In return, the policy owner
shares in the life insurance company's divisible surplus, in the form of bonus allotted to
the policy. The bonus is allotted in addition to the guaranteed sum assured. This bonus is
paid along with the basic sum assured.

Policy Bonuses
In participating policies the company gives the policyholders a share in the profits of the
company in the form of bonuses. Generally, there are two types of bonuses for insurance
policies. Reversionary bonus is a guaranteed addition to your insured amount and is paid
when the policy matures (i.e. when the sum assured becomes payable) or when the life
assured dies. Cash Bonuses are paid out at periodical intervals.

Policy Loan
Some of the non-investment-linked whole life and endowment plans have a loan option.
It allows the policyholders to take a loan up to 90% of the surrender value of the policy
without the need of a guarantor or security. Interest is charged on the loan amount and
compounded on a half yearly basis.

Policy Term
The period of coverage provided by an insurance policy.

A specified amount of money that the insurer receives in exchange for its promise to
provide the policy proceeds when a specific loss occurs.

Reinstatement / Revival
The process by which an insurer puts back into force a life insurance policy that has been
terminated for non-payment of premiums or a life insurance policy that has been
continued as an extended term or reduced paid-up insurance.

Renewal Premiums
Premiums that are payable after the initial premium and that are a condition for the
continuation of the policy.

Riders are additional benefits that one can add on to the policy. The rider can be opted for
at the time of taking the basic policy. Additional premium is charged for each rider. No
Bonuses are paid under the rider.

Sum Assured
The face amount of a policy payable upon a death or maturity claim.

Surrender or Cash Value
The surrender or cash value is the amount payable to the policyholder should the
policyholder decide to discontinue the policy. However, the insurance protection
provided under the policy will also cease. Not all insurance policies have surrender or
cash values.

Surrender Charge
Fee charged to a policyholder when a life insurance policy or annuity is surrendered for
its cash value.

Term Insurance Rider
An endorsement or attachment to a life insurance policy that provides additional term
coverage for the amount specified. If the insured dies during this time, the designated
beneficiary(ies) can receive death benefit proceeds..

Term Life Insurance
A form of life insurance which provides coverage for a specified period of time and does
not build cash value.

Waiting Period
A specific time that must pass following the onset of a covered disability before any
benefits will be paid under a disability income policy.


OM Kotak Mahindra Life Insurance
Regd. Office: 5C-II, Mittal Court,
224, Nariman Point,
Mumbai – 400 021
Telephone : +91-022-285 5550
Fax : +91-022-202 7391

Birla Sun Life Insurance Company Limited,
2nd Floor, Ahura Center,
Mahakali Caves Road,
Near MIDC, Andheri-East,
Mumbai - 400 093
Ph: +91-022-8307081/85

ICICI Prudential Life Insurance Company
9th Floor, South Towers
ICICI Towers
Bandra Kurla Complex,
Bandra (E)
Phone : +91-022-653 7914
E-Mail: wecoveru@icici.com ; lifeline@icici.com

HDFC Standard Life Insurance Company Limited,
Plot No.5, Ground Floor,
Churchgate Chambers,
Next to USIS, New Marine Lines,
Mumbai - 400 020.
Phone: +91-022-2316983/84/85/86/87
URL: http://www.hdfcinsurance.com

ING Vysya Life Insurance
Representative Office New Delhi,
Upper Ground Floor,
Gopal Das Bhawan,
28, Barakhamba Road,
New Delhi - 110001
Tel : +91-011-3311207
Fax : +91-011-3311174
Email : contact@ingvysyalife.com
URL : http://www.ingvysyalife.com

Max New York Life Insurance Company Limited
Max House,
1, Dr. Jha Marg, Okhla,
New Delhi 110 020
Phone: +91-011-6933619/16


      The IRDA Act
      Schoolnet Insurance Agents Manual

      www.birlasunlife.com
      www.iciciprulife.com
      www.licindia.com
      www.maxnewyorklife.com
      www.indiatimes.com
      www.timesofindia.com
      www.indian-express.com
      www.bimaonline.com
      www.google.com
      www.insurance.com


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