hdfc-stndrd lyf

8/7/2019 HDFC-stndrd lyf

1/117


2/117

(Department of Management Studies)

Preface

This project report has been prepared as per the requirement of the syllabus of

MBA course structure under which the students are the required to undertake

industrial internship. We look our project study of HDFC SLIC.

It was a firsthand experience for us as that we were exposed to the professional

set-up and were facing the market, which was really a great experience.

During project period, I had very touching experiences. When business is

involved, experiences counts a lot, as we know, experience are an instrument,

which leads towards success. As we all know that working in market on the

grass route level has always been a pleasure.

Now I take this opportunity to present the project report and sincerely hope that it

will be as much knowledge enhancing to the readers as it was to use during thefieldwork and the completion of the report.

2


3/117

Acknowledgement

I express my sincere thanks to my project guide, MR. SACHIN JAIN (External),MISS.SWATI JAIN and MISS.MAUSMI (Internal). Designation Senior Lecturer,

Dept of management studies, for guiding me right from the inception till the

successful completion of the project. I sincerely acknowledge her for extending

their valuable guidance, support for literature, critical reviews of project and the

report and above all the moral support she had provided to me with all stages of

this project.

I would also like to thank the supporting staff of PSOM management

Department, for their help and cooperation throughout our project.

ISHA SETHI

3


4/117

EXECUTIVE SUMMARY

HDFC Standard Life insurance is the oldest life insurance company in the world.

It is the largest insurer in the UK and is the 28th largest company in the world. In

India, the company is marketing life insurance products and unit linked

investment plans. From my research at HDFC SLIC, I found that the company

has a lot of competition from other private insurers like ICICI, Aviva, Birla Sun

Life and Tata AIG. It also faces competition from LIC. To compete effectively

HDFC SLIC could launch cheaper and more reasonable products with small

premiums and short policy terms (the number of years premium is to be paid).The ideal premium would be between Rs. 5000 Rs. 25000 and an ideal policy

term would be 10 20 years.

HDFC must advertise regularly and create brand value for its products and

services. Most of its competitors like Aviva, ICICI, Max, Reliance and LIC use

television advertisements to promote their products. The Indian consumer has a

false perception about insurance they feel that it would not benefit them if they

do not live through the policy term. Nowadays however, most policies are unit

linked plans where a customer is benefited even if their death does not occur

during the policy term. This message should be conveyed to potential customers

so that they readily invest in insurance.

Family responsibilities and high returns are the two main reasons people invest

in insurance. Optimum returns of 16 20 % must be provided to consumers to

keep them interested in purchasing insurance.

On the whole HDFC standard life insurance is a good place to work at. Every

new recruit is provided with extensive training on unit linked funds, financial

instruments and the products of HDFC. This training enables an advisor/sales

4


5/117

manager to market the policies better. HDFC was ranked 13 in the Best Places

to Work survey. The company should try to create awareness about itself in

India. In the global market it is already very popular. With an improvement in the

sales techniques used, a fair bit of advertising and modifications to the existing

product portfolio, HDFC would be all set to capture the insurance market in India

as it has around the globe.

5


6/117

TABLE OF CONTENTS

Introduction to Insurance

Research Design

Company Profile of HDFC SLIC

Company Profile of Tata AIG LIC

POPs and PODs

Competitive analysis

Analysis and Interpretation

Facts and findings

SWOT analysis

Future line of research

Conclusion

Suggestions and recommendations

Appendix

Bibliography

6


7/117

INDIAN INSURANCE

INDUSTRY

AN OVERVIEW

7


8/117

THE INSURANCE INDUSTRY IN INDIA

AN OVERVIEW

Insurance is a federal subject in India and has a history dating back to 1818. Life and

general insurance in India is still a nascent sector with huge potential for various global

players with the life insurance premiums accounting to 2.5% of the country's GDP while

general insurance premiums to 0.65% of India's GDP.[1]. The Insurance sector in India

has gone through a number of phases and changes, particularly in the recent years

when the Govt. of India in 1999 opened up the insurance sector by allowing private

companies to solicit insurance and also allowing FDI up to 26%. Ever since, the Indian

insurance sector is considered as a booming market with every other global insurance

company wanting to have a lion's share. Currently, the largest life insurance company in

India is still owned by the government

With the largest number of life insurance policies in force in the world, Insurance

happens to be a mega opportunity in India. Its a business growing at the rate of 15-20

per cent annually and presently is of the order of Rs 1560.41 billion (for the financial

year 2006 2007). Together with banking services, it adds about 7% to the countrys

Gross Domestic Product (GDP). The gross premium collection is nearly 2% of GDP and

funds available with LIC for investments are 8% of the GDP.

Even so nearly 65% of the Indian population is without life insurance cover while health

insurance and non-life insurance continues to be below international standards. A large

part of our population is also subject to weak social security and pension systems with

hardly any old age income security. This in itself is an indicator that growth potential for

the insurance sector in India is immense.

A well-developed and evolved insurance sector is needed for economic development as

it provides long term funds for infrastructure development and strengthens the risk

taking ability of individuals. It is estimated that over the next ten years India would

require investments of the order of one trillion US dollars. The Insurance sector, to some

extent, can enable investments in infrastructure development to sustain the economic

growth of the country. (Source: www.indiacore.com)

8
http://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Insurance_in_India#cite_note-0http://en.wikipedia.org/wiki/Insurance_in_India#cite_note-0http://en.wikipedia.org/wiki/Insurance_in_India#cite_note-0http://en.wikipedia.org/wiki/FDIhttp://www.indiacore.com/http://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Indiahttp://en.wikipedia.org/wiki/Insurance_in_India#cite_note-0http://en.wikipedia.org/wiki/FDIhttp://www.indiacore.com/


9/117

INSURANCE

INDUSTRY AND ITS

CHRACTERISTICS

Nature of the Industry

Goods and services. The insurance industry provides protection against financial

losses resulting from a variety of perils. By purchasing insurance policies, individuals

and businesses can receive reimbursement for losses due to car accidents, theft of

property, and fire and storm damage; medical expenses; and loss of income due to

disability or death.

Industry organization. The insurance industry consists mainly of insurance carriers (or

insurers) and insurance agencies and brokerages. In general, insurance carriers are

large companies that provide insurance and assume the risks covered by the policy.

Insurance agencies and brokerages sell insurance policies for the carriers. While some

of these establishments are directly affiliated with a particular insurer and sell only that

carriers policies, many are independent and are thus free to market the policies of a

variety of insurance carriers. In addition to supporting these two primary components,

the insurance industry includes establishments that provide other insurance-related

services, such as claims adjustment or third-party administration of insurance and

pension funds.

These other insurance industry establishments also include a number of independent

organizations that provide a wide array of insurance-related services to carriers and their

clients. One such service is the processing of claims forms for medical practitioners.

Other services include loss prevention and risk management. Also, insurance

companies sometimes hire independent claims adjusters to investigate accidents andclaims for property damage and to assign a dollar estimate to the claim.

Insurance carriers assume the risk associated with annuities and insurance policies and

assign premiums to be paid for the policies. In the policy, the carrier states the length

and conditions of the agreement, exactly which losses it will provide compensation for,

9


10/117

and how much will be awarded. The premium charged for the policy is based primarily

on the amount to be awarded in case of loss, as well as the likelihood that the insurance

carrier will actually have to pay. In order to be able to compensate policyholders for their

losses, insurance companies invest the money they receive in premiums, building up a

portfolio of financial assets and income-producing real estate which can then be used to

pay off any future claims that may be brought. There are two basic types of insurance

carriers: primary and reinsurance. Primary carriers are responsible for the initial

underwriting of insurance policies and annuities, while reinsurance carriers assume all

or part of the risk associated with the existing insurance policies originally underwritten

by other insurance carriers.

Primary insurance carriers offer a variety of insurance policies. Life insurance provides

financial protection to beneficiariesusually spouses and dependent childrenupon thedeath of the insured. Disability insurance supplies a preset income to an insured person

who is unable to work due to injury or illness, and health insurance pays the expenses

resulting from accidents and illness. An annuity(a contract or a group of contracts that

furnishes a periodic income at regular intervals for a specified period) provides a steady

income during retirement for the remainder of ones life. Property-casualty insurance

protects against loss or damage to property resulting from hazards such as fire, theft,

and natural disasters. Liability insurance shields policyholders from financial

responsibility for injuries to others or for damage to other peoples property. Mostpolicies, such as automobile and homeowners insurance, combine both property-

casualty and liability coverage. Companies that underwrite this kind of insurance are

called property-casualty carriers.

Some insurance policies cover groups of people, ranging from a few to thousands of

individuals. These policies usually are issued to employers for the benefit of their

employees or to unions, professional associations, or other membership organizations

for the benefit of their members. Among the most common policies of this nature are

group life and health plans. Insurance carriers also underwrite a variety of specialized

types of insurance, such as real-estate title insurance, employee surety and fidelity

bonding, and medical malpractice insurance.

Other organizations in the industry are formed by groups of insurance companies, to

perform functions that would result in a duplication of effort if each company carried

10


11/117

them out individually. For example, service organizations are supported by insurance

companies to provide loss statistics, which the companies use to set their rates.

Recent developments. Congressional legislation now allows insurance carriers and

other financial institutions, such as banks and securities firms, to sell one anothersproducts. More insurance carriers now sell financial products such as securities, mutual

funds, and various retirement plans. This approach is most common in life insurance

companies that already sold annuities, but property and casualty companies also are

increasingly selling a wider range of financial products. In order to expand into one

anothers markets, insurance carriers, banks, and securities firms have engaged in

numerous mergers, allowing the merging companies access to each other's client base

and geographical markets.

Insurance carriers have discovered that the Internet can be a powerful tool for reaching

potential and existing customers. Most carriers use the Internet simply to post company

information, such as sales brochures and product information, financial statements, and

a list of local agents. However, an increasing number of carriers are starting to expand

their Web sites to enable customers to access online account and billing information,

and some carriers even allow claims to be submitted online. Many carriers also provide

insurance quotes online based on the information submitted by customers on their

Internet sites. In fact, some carriers will allow customers to purchase policies through

the Internet without ever speaking to a live agent.

In addition to individual carrier-sponsored Internet sites, several lead-generating sites

have emerged. These sites allow potential customers to input information about their

insurance policy needs. For a fee, the sites forward customer information to a number of

insurance companies, which review the information and, if they decide to take on the

policy, contact the customer with an offer. This practice gives consumers the freedom to

accept the best rate.

11


12/117

Working Conditions

Hours. Many workers in the insurance industryespecially those in administrative

support positionswork a 5-day, 40-hour week. Those in executive and managerial

occupations often put in more than 40 hours. There are several occupations in the

insurance industry where workers may work irregular hours outside of office settings.

Those working in sales jobs need to be available for their clients at all times. This

accommodation may result in these individuals working 50 to 60 hours per week. Also,

call centers operate 24 hours a day, 7 days a week, so some of their employees must

work evening and weekend shifts. The irregular business hours in the insurance industry

provide some workers with the opportunity for part-time work. Part-time employees

make up 8 percent of the workforce.

Work environment. Insurance employees working in sales jobs often visit prospective

and existing customers homes and places of business to market new products and

provide services. Others working in the industry may need to frequently leave the office

to inspect damaged property, and at times can be away from home for days, traveling to

the scene of a disastersuch as a tornado, flood, or hurricaneto work with affected

policyholders and government officials.

A small, but increasing, number of insurance employees spend most of their time on the

telephone working in call centers, answering questions and providing information to

prospective clients or current policyholders. These jobs may include selling insurance,

taking claims information, or answering medical questions.

As would be expected in an industry dominated by office and sales employees, the

incidence of occupational injuries and illnesses among insurance workers is low. In

2006, only 1.3 cases per 100 full-time workers were reported among insurance carriers,

while just 0.7 cases per 100 full-time workers were reported among agents and brokers.

These figures compare with an average of 4.4 for all private industry.

12


13/117

Employment

The insurance industry had about 2.3 million wage and salary jobs in 2006. Insurance

carriers accounted for 62 percent of jobs, while insurance agencies, brokerages, and

providers of other insurance-related services accounted for 38 percent of jobs.

The majority of establishments in the insurance industry were small; however, a few

large establishments accounted for many of the jobs in this industry. Insurance carriers

tend to be large establishments, often employing 250 or more workers, whereas

agencies and brokerages tend to be much smaller, frequently employing fewer than 20

workers (chart 1).

Many insurance carriers home and regional offices are situated near large urban

centers. Insurance workers who deal directly with the public are located throughout the

country. Almost all of those working in sales work out of local company offices or

13


14/117

independent agencies. Many others in the industry work for independent firms in small

cities and towns throughout the country.

Occupations in the

Industry

About 44 percent of insurance workers are in office and administrative support jobs such

as those found in every industry (table 1). Many office and administrative support

positions in the insurance industry, however, require skills and knowledge unique to the

industry. About 29 percent of insurance workers are in management or business and

financial operations occupations. About 16 percent of wage and salary employees in the

industry are sales workers, selling policies to individuals and businesses. Several othersare employed in computer and mathematical science occupations.

Office and administrative support occupations. Office and administrative support

occupations in this industry include secretaries, typists, word processors, bookkeepers,

and other clerical workers. Secretaries and administrative assistants perform routine

clerical and administrative functions such as drafting correspondence, scheduling

appointments, organizing and maintaining paper and electronic files, or providing

information to callers. Bookkeeping, accounting, and auditing clerks handle all financial

transactions and recordkeeping for an insurance company. They compute, classify,

update, and record numerical data to keep financial records complete and accurate.

Insurance claims and policy processing clerks process new policies, modifications to

existing policies, and claims forms. They review applications for completeness, compile

data on policy changes, and verify the accuracy of insurance company records.

Customer service representatives have duties similar to insurance claims and policy

processing clerks, except they work directly with customers by processing insurance

policy applications, changes, and cancellations over the phone. They may also process

claims and sell new policies to existing clients. These workers recently are taking on

increased responsibilities in insurance offices, such as handling most of the continuing

contact with clients. A growing number of customer service representatives work in call

centers that are open 24 hours a day, 7 days a week, where they answer clients

14
http://www.bls.gov/oco/cg/cgs028.htm#table1http://www.bls.gov/oco/cg/cgs028.htm#table1


15/117

questions, update policy information, and provide potential clients with information

regarding the types of policies the company issues.

Management, business, and financial operations occupations. Top executives

direct the operations of an independent insurance agency, brokerage, or a largeinsurance carrier. Marketing managers direct carriers development of new types of

policies that might appeal to the public and strategies for selling them to customers.

Sales managers direct the activities of the sales workers in local sales offices of

insurance carriers and independent agencies. They sell insurance products, work with

clients, and supervise staff. Other managers who work in their companies' home offices

are in charge of functions such as actuarial calculations, policy issuance, accounting,

and investments.

Claims adjusters, appraisers, examiners, and investigators decide whether claims are

covered by the customers policy, estimate and confirm payment, and, when necessary,

investigate the circumstances surrounding a claim. Claims adjusters work for property

and liability insurance carriers or for independent adjusting firms. They inspect property

damage, estimate how much it will cost to repair, and determine the extent of the

insurance companys liability; in some cases, they may help the claimant receive

assistance quickly in order to prevent further damage and begin repairs. Adjusters plan

and schedule the work required to process claims, which may include interviewing the

claimant and witnesses and consulting police and hospital records. In some property-

casualty companies, claims adjusters are called claims examiners, but in other

companies, a claims examiners primary job is to review claims to ensure that proper

guidelines have been followed. Only occasionallyespecially when disasters suddenly

increase the volume of claimsdo these examiners aid adjusters with complicated

claims.

In the offices of life and health insurance carriers, claims examiners are the counterparts

of the claims adjuster who works in a property and casualty insurance firm. Examiners in

the health insurance carriers review health-related claims to see whether the costs are

reasonable based on the diagnosis. Examiners check claim applications for

completeness and accuracy, interview medical specialists, and consult policy files to

verify information on a claim. Claims examiners in the life insurance carriers review

causes of death and also may review new applications for life insurance to make sure

15


16/117

that the applicants have no serious illnesses that would prevent them from qualifying for

insurance.

Insurance investigators handle claims in which companies suspect fraudulent or criminal

activity, such as suspicious fires, questionable workers disability claims, difficult-to-explain accidents, and dubious medical treatment. Investigators usually perform

database searches on suspects to determine whether they have a history of attempted

or successful insurance fraud. Then, the investigators may visit claimants and witnesses

to obtain a recorded statement, take photographs, inspect facilities, and conduct

surveillance on suspects. Investigators often consult with legal counsel and are

sometimes called to testify as expert witnesses in court cases.

Auto damage appraisers usually are hired by insurance companies and independent

adjusting firms to inspect the damage to a motor vehicle after an accident and to provide

unbiased estimates of repair cost. Claims adjusters and auto damage appraisers can

work for insurance companies, or they can be independent or public adjusters.

Insurance companies hire independent adjusters to represent their interests while

assisting the insured, whereas public adjusters are hired to represent the insureds

interests against insurance carriers.

Management analysts, often called loss control representatives in the insurance

industry, assess various risks faced by insurance companies. These workers inspect the

business operations of insurance applicants, analyze historical data regarding workplace

injuries and automobile accidents, and assess the potential for natural hazards,

dangerous business practices, and unsafe workplace conditions that may result in

injuries or catastrophic physical and financial loss. They might then recommend, for

example, that a factory add safety equipment, that a house be reinforced to withstand

environmental catastrophes, or that incentives be implemented to encourage automobile

owners to install air bags in their cars or take more effective measures to prevent theft.

Because the changes they recommend can greatly reduce the probability of loss, loss

control representatives are increasingly important to both insurance companies and the

insured.

Underwriting is another important management and business and financial occupation in

insurance. Underwriters evaluate insurance applications to determine the risk involved in

16


17/117

issuing a policy. They decide whether to accept or reject an application, and they

determine the appropriate premium for each policy.

Sales and related occupations.Insurance sales agents, also referred to as producers,

may work as exclusive agents, or captive agents, selling for one company, or asindependent agents selling for several companies. Through regular contact with clients,

agents are able to update coverage, assist with claims, ensure customer satisfaction,

and obtain referrals. Insurance sales agents may sell many types of insurance, including

life, annuities, property-casualty, health, and disability insurance. Many insurance sales

agents are involved in cross-selling or total account development, which means that,

besides offering insurance, they have become licensed to sell mutual funds, annuities,

and other securities. These agents usually find their own customers and ensure that the

policies sold meet the specific needs of their policyholders.

Professional and related occupations. The insurance industry employs relatively few

people in professional and related occupations, but they are essential to company

operations. For example, insurance companies lawyers defend clients who are sued,

especially when large claims may be involved. These lawyers also review regulations

and policy contracts. Nurses and other medical professionals advise clients on wellness

issues and on medical procedures covered by the companys managed-care plan.

Computer systems analysts, computer programmers, and computer support specialists

are needed to analyze, design, develop, and program the systems that support the day-

to-day operations of the insurance company.

Actuaries represent a relatively small proportion of employment in the insurance

industry, but they are vital to the industrys profitability. Actuaries study the probability of

an insured loss and determine premium rates. They must set the rates so that there is a

high probability that premiums paid by customers will cover claims, but not so high that

their company loses business to competitors.

17


18/117

Table 1. Employment of wage and salary workers in insurance by occupation, 2006

and projected change, 2006-2016.

(Employment in thousands)

Occupation

Employment,

2006

Percent

change,

2006-16

Number Percent

All occupations 2,316 100.0 7.4

Management, business, and financial occupations 661 28.6 8.3General and operations managers 41 1.8 -1.9

Marketing and sales managers 20 0.9 7.2Computer and information systems managers 14 0.6 5.9Financial managers 24 1.0 6.6

Claims adjusters, examiners, and investigators 218 9.4 10.8Insurance appraisers, auto damage 12 0.5 12.0

Human resources, training, and labor relations

specialists28 1.2 10.9

Management analysts 29 1.2 5.4Accountants and auditors 40 1.7 7.8

Financial analysts 16 0.7 16.9Insurance underwriters 91 3.9 5.6

Professional and related occupations 258 11.2 8.6Computer programmers 21 0.9 -15.1

Computer software engineers 28 1.2 24.7Computer support specialists 19 0.8 6.8Computer systems analysts 33 1.4 15.5

Actuaries 11 0.5 5.4Market research analysts 12 0.5 6.5

Lawyers 12 0.5 5.6Title examiners, abstractors, and searchers 23 1.0 -5.5

Registered nurses 25 1.1 6.2

Sales and related occupations 367 15.8 14.4

First-line supervisors/managers of non-retail sales

workers18 0.8 3.8

Insurance sales agents 313 13.5 15.7

Office and administrative support occupations 1,009 43.6 4.0First-line supervisors/managers of office and

administrative support workers62 2.7 -6.0

Billing and posting clerks and machine operators 18 0.8 -2.5

18


19/117

Table 1. Employment of wage and salary workers in insurance by occupation, 2006

and projected change, 2006-2016.

(Employment in thousands)

Occupation

Employment,

2006

Percent

Number PercentBookkeeping, accounting, and auditing clerks 47 2.0 8.9

Customer service representatives 266 11.5 19.2File clerks 15 0.7 -45.3

Receptionists and information clerks 24 1.0 10.0Executive secretaries and administrative assistants 57 2.4 8.2

Secretaries, except legal, medical, and executive 62 2.7 -1.5Data entry keyers 22 0.9 -13.5

Insurance claims and policy processing clerks 222 9.6 -2.6Mail clerks and mail machine operators, except postal

service14 0.6 -21.0

Office clerks, general 106 4.6 7.8Note: Columns may not add to totals due to omission of occupations with small

employment

Training and

Advancement

A few jobs in the insurance industry, especially in office and administrative support

occupations, require no more than a high school diploma. However, employers prefer to

hire workers with a college education for most jobs, including sales, managerial, and

professional jobs. When specialized training is required, it usually is obtained on the job

or through independent study during work or after-work hours. Many insurance

companies expect their employees to take continuing education courses to improve their

people skills and their knowledge of the industry. Opportunities for advancement arerelatively good in the insurance industry.

Office and administrative support occupations. Graduation from high school or a 2-

year postsecondary business program is adequate preparation for most beginning office

and administrative support jobs. Courses in word processing and business math are

19


20/117

assets, and the ability to operate computers is essential. On-the-job training usually is

provided for clerical jobs such as customer service representatives. Because

representatives in call centers must be knowledgeable about insurance products in

order to provide advice to clients, more States are requiring customer service

representatives to become licensed. Several years of experience and training can help

beginners advance to higher paying positions. Office and administrative support workers

may also advance to higher paying claims adjusting positions and entry-level

underwriting jobs.

Management, business, and financial operations occupations. Management,

business, and financial jobs require the same college training as similar jobs in other

industries. Managerial positions usually are filled by promoting college-educated

employees from within the company. However, some companies prefer to hire liberalarts graduates at a lower cost, and many insurers send them to company schools or

enroll them in outside institutes for professional training. A masters degree, particularly

in business administration or a related field, is an asset for advancement into higher

levels of management.

For beginning underwriting jobs, many insurance companies prefer college graduates

who have a degree in business administration or a related field. As an underwriters

Career develops; it becomes beneficial to earn one of the voluntary professional

certifications in underwriting. For example, the National Association of Health

Underwriters offers two certification programs: the Registered Health Underwriter (RHU)

designation and the Registered Employee Benefits Consultant (REBC) designation.

The American Institute for Chartered Property-Casualty Underwriters (AICPU) offers the

CPCU program, which includes courses covering a broad range of insurance, risk

management, and general business topics involving both personal and commercial loss

exposures. Earning the CPCU designation requires passing 8 exams, meeting a

requirement of at least three years of insurance experience, and abiding by the AICPUs

and CPCU Societys code of professional ethics. In conjunction with the Insurance

20


21/117

Institute of America, the AICPCU offers 22 insurance-related educational programs,

including claims, underwriting, risk management, and reinsurance.

In almost every State, those working as a claims examiner or adjuster must obtain a

license. Licensing requirements for these workers vary by State and can includeprelicensing education or passing a licensing exam. In some cases, professional

designations may be substituted for the exam requirement. Separate or additional

requirements may apply to public adjusters. For example, some States may require

public adjusters to file a surety bond. Often, claims adjusters working for companies can

work under the company license and not need to become licensed themselves. Most

companies prefer to hire college graduates and those with previous experience or who

have obtained licensure for claims adjuster and examiner positions. No specific college

major is required, although most workers in these positions have a business,accounting, engineering, legal, or medical background. In addition, many adjusters and

examiners choose to pursue certain certifications and designations to distinguish

themselves. Many State licenses and professional designations require continuing

education for renewal. Continuing education is important because adjusters and

examiners must be knowledgeable about changes in the laws, recent court decisions,

and new medical procedures.

Auto damage appraisers typically begin as auto body repairers and then are hired by

insurance companies or independent adjusting firms. Most companies prefer auto

damage appraisers to have formal training, and many vocational colleges offer 2-year

programs on how to estimate and repair damaged vehicles. Some States require them

to be licensed, and certification may be required or preferred. Computer skills also are

an important qualification for many auto damage appraiser positions. As with adjusters

and examiners, continuing education is important for appraisers, because many new carmodels and repair techniques are introduced each year.

Licensing requirements to become an insurance investigator may vary among States.

Most insurance companies prefer to hire former law enforcement detectives or private

investigators as insurance investigators. Many experienced claims adjusters or

21


22/117

examiners also can become investigators. Most employers look for individuals with

ingenuity and who are persistent and assertive. Investigators must not be afraid of

confrontation, should communicate well, and should be able to think on their feet. Good

interviewing and interrogation skills also are important and usually are developed in

earlier careers in law enforcement.

Sales and related occupations. Although some employers hire high school graduates

with potential or proven sales ability for entry-level sales positions, most prefer to hire

college graduates.

All insurance sales agents must obtain licenses in the States in which they plan to sell

insurance. In most States, licenses are issued only to applicants who complete specified

courses and pass written examinations covering insurance fundamentals and State

insurance laws. New agents receive training from their employer, either at work or at the

insurance companys home office. Sometimes, entry-level employees attend company-

sponsored classes to prepare for examinations. The National Alliance for Insurance

Education and Research offers a wide variety of courses in health, life, and property and

casualty insurance for independent insurance agents. Others study on their own and, as

on-the-job training, accompany experienced agents when they meet with prospective

clients. After obtaining a license, agents must earn continuing education credits

throughout their careers in order to remain licensed insurance sales agents.

Insurance sales agents wishing to sell securities and other financial products must meet

State licensing requirements in these areas. Specifically, they must pass an additional

examinationeither the Series 6 or Series 7 licensing exam, both of which are

administered by the Financial Industry Regulatory Authority (FINRA). The Series 6 exam

is for individuals who wish to sell only mutual funds and variable annuities; the Series 7

exam is the main FINRA series license and qualifies agents as general securities

representatives. To demonstrate further competency in financial planning, many agents

also find it worthwhile to obtain a certified financial planner (CFP) or chartered financial

consultant (ChFC) designation.

22


23/117

Sales workers may advance by handling greater numbers of accounts and more

complex commercial insurance policies. They may also choose to start an independent

insurance agency. Many also obtain related designations such as the CPCU

underwriting designation, offered by the AICPCU.

Professional and related occupations. For actuarial jobs, companies prefer

candidates to have degrees in actuarial science, mathematics, or statistics. However,

candidates with degrees in business, finance, or economics are becoming more

common. Actuaries must pass a series of national examinations to become fully

qualified. Completion of all the exams takes from 5 to 10 years. Some of the exams may

be taken while an individual is in college, but most require extensive home study. Many

companies grant study time to their actuarial students to prepare for the exams.

Outlook

Demand for insurance will increase, but employment in the insurance industry will

increase more slowly than employment growth across all industries.

Employment change. Wage and salary employment in the insurance industry is

projected to grow about 7 percent between 2006 and 2016, compared to the 11 percent

growth projected for wage and salary employment in all industries combined. While

demand for insurance is expected to rise, job growth will be limited by corporate

downsizing, productivity increases due to new technology, and increasing use of direct

mail, telephone, and Internet sales. However, some job growth will result from the

industrys expansion into the broader financial services field, new types of insurance

entering the market, and growth in demand for medical service and health insurance.

Medical service and health insurance is the fastest growing segment of the insurance

industry. Significant growth is expected over the long term, even though increasing

health insurance premiums have recently become difficult for some people to afford. As

the members of the baby boom generation grow older and a growing share of the

23


24/117

Nations population moves into the older age groups, more people are expected to buy

health insurance and long-term-care insurance, as well as annuities and other types of

pension products sold by insurance sales agents. If legislation is enacted that makes

health insurance affordable to more people, even greater increases in demand for this

type of insurance should result.

Population growth also will stimulate demand for auto insurance and homeowners

insurance. Also, population growth will create additional demand for businesses to

service the needs of more people, and these businesses will need insurance as well. In

addition, growing numbers of individuals and businesses are purchasing liability policies

to protect against possible large liability awards from lawsuits brought by people

claiming injury or damage from a product.

Many successful insurance companies will recognize the Internets potential as a

powerful marketing tool, increasing employment growth of some occupations while

slowing growth of others. Growing use of the Internet might reduce costs for insurance

companies, but it also could enable many clients to turn first to the Internet to get

information on their policies, obtain price quotes on possible new policies, or submit

claims. As insurance companies begin to offer more information and services on the

Internet, employment in some occupations, such as insurance sales agents, could be

adversely affected.

Productivity gains caused by the greater use of computer software will continue to limit

the growth of certain jobs within the insurance industry. For example, the use of

Underwriting software that automatically analyzes and rates insurance applications will

limit the employment growth of underwriters. Workers in claims now may not have to

visit the site of customers damage; they may use satellite imagery to inspect the

damage from their computers. In addition, the Internet allows insurance investigators to

handle an increasing number of cases by drastically reducing the amount of time it takes

them to perform background checks, limiting the additional investigators that must be

hired to handle a growing workload. Also, computers have made communications easier

among sales agents, adjusters, and insurance carriersmaking all much more

24


25/117

productiveby linking them directly to the databases of insurance carriers and other

organizations. Furthermore, insurance carriers contain costs by increasing using

customer service representatives to deal with the day-to-day processing of policies and

claims.

Job prospects. Workers in property and casualty insurance, particularly in auto

insurance, will be most affected by increasing reliance on the Internet. Auto policies are

relatively straightforward and can be issued more easily without the involvement of a live

agent. Also, auto premiums tend to cost more per year than do other types of policies,

so people are more likely to shop around for the best priceand the Internet makes it

easier to compare rates among companies.

Insurance companies will continue to face increased competition from banks and

securities firms entering the insurance markets. As more of these firms begin to sell

insurance policies, they will employ increasing numbers of insurance sales agents. In

order to stay competitive, more insurance companies are expanding the range of

financial products and services they offer, or are establishing partnerships with banks or

brokerage firms.

Although employment in the insurance industry is expected to grow slowly, thousands of

openings are expected to arise in this large industry to replace workers who leave the

industry, retire, or stop working for other reasons. Despite the fact that the internet

allows many people to buy policies online, many sales agents still will be needed to

meet face-to-face with clients; some customers prefer to talk directly with an agent,

especially regarding complicated policies. Opportunities will be best for sales agents

who sell more

than one type of insurance or financial service. Opportunities should be good for

adjusters because they will still be needed to inspect damage and interview witnesses

as the insurance industry, the Nations population, and the number of claims all grow.

Opportunities likewise should be good for actuaries, even though the number of

available jobs will small, because many people are discouraged from following this

career path due to the stringent qualifying requirements of the examination system.

25


26/117

Earnings

Industry earnings. Weekly earnings of nonsupervisory workers in the insurance

industry averaged $798 in May 2006, considerably higher than the average of $568 for

all private industry. Earnings of the largest occupations in insurance in May 2006,

appear in table 2

Table 2. Median hourly earnings of the largest occupations in insurance, May 2006

Occupation InsuranceAll

industriesGeneral and operations managers $53.02 $40.97Insurance underwriters 25.29 25.17First-line supervisors/managers of office and

administrative support workers24.36 20.92

Claims adjusters, examiners, and investigators 23.42 24.36Executive secretaries and administrative assistants 18.70 17.90Bookkeeping, accounting, and auditing clerks 15.55 14.69Insurance claims and policy processing clerks 14.97 14.96Customer service representatives 14.79 13.62Secretaries, except legal, medical, and executive 12.65 13.20clerks, general 11.38 11.40

The method by which insurance sales agents are paid varies greatly. Most independent

sales agents own their own businesses and are paid a commission only. Sales agents

who Office are employees of an agency may be paid a salary only, a salary plus

commission, or a salary plus a bonus. An agents earnings usually increase rapidly with

experience. Many agencies also pay an agents expenses for automobiles and

transportation, travel to conventions, and continuing education.

Benefits and union membership. Insurance carriers offer attractive benefits packages,

as is frequently the case with large companies. Yearly bonuses, retirement investment

plans, insurance, and paid vacation often are standard. Insurance agencies, which

generally are smaller, offer less extensive benefits.

Unionization is not widespread in the insurance industry. In 2006, 3 percent of all

insurance workers were union members or were covered by union contracts, compared

with 12 percent of workers throughout private industry

26


27/117

HISTORICAL PERSPECTIVE

The history of life insurance in India dates back to 1818 when it was conceived as a

means to provide for English Widows. Interestingly in those days a higher premium wascharged for Indian lives than the non - Indian lives, as Indian lives were considered more

risky to cover. The Bombay Mutual Life Insurance Society started its business in 1870. It

was the first company to charge the same premium for both Indian and non-Indian lives.

27


28/117

The Oriental Assurance Company was established in 1880. The General insurance

business in India, on the other hand, can trace its roots to Triton Insurance Company

Limited, the first general insurance company established in the year 1850 in Calcutta by

the British. Till the end of the nineteenth century insurance business was almost entirely

in the hands of overseas companies.

Insurance regulation formally began in India with the passing of the Life Insurance

Companies Act of 1912 and the Provident Fund Act of 1912. Several frauds during the

1920's and 1930's sullied insurance business in India. By 1938 there were 176

insurance companies.

The first comprehensive legislation was introduced with the Insurance Act of 1938 that

provided strict State Control over the insurance business. The insurance business grew

at a faster pace after independence. Indian companies strengthened their hold on this

business but despite the growth that was witnessed, insurance remained an urban

phenomenon.

The Government of India in 1956, brought together over 240 private life insurers and

provident societies under one nationalized monopoly corporation and Life Insurance

Corporation (LIC) was born. Nationalization was justified on the grounds that it would

create the much needed funds for rapid industrialization. This was in conformity with the

Government's chosen path of State led planning and development.

The non-life insurance business continued to thrive with the private sector till 1972. Their

operations were restricted to organized trade and industry in large cities. The general

insurance industry was nationalized in 1972. With this, nearly 107 insurers were

amalgamated and grouped into four companies- National Insurance Company, New

India Assurance Company, Oriental Insurance Company and United India Insurance

Company. These were subsidiaries of the General Insurance Company (GIC).

KEY MILESTONES

1912: The Indian Life Assurance Companies Act enacted as the first statute to regulate

the life insurance business.

28


29/117

1928: The Indian Insurance Companies Act enacted to enable the government to collect

statistical information about both life and non-life insurance businesses.

1938: Earlier legislation consolidated and amended by the Insurance Act with the

objective of protecting the interests of the insuring public.

1956: 245 Indian and foreign insurers along with provident societies were taken over by

the central government and nationalized. LIC was formed by an Act of Parliament- LIC

Act 1956- with a capital contribution of Rs. 5 crore from the Government of India.

INDUSTRY REFORMS

Reforms in the Insurance sector were initiated with the passage of the IRDA Bill in

Parliament in December 1999. The IRDA since its incorporation as a statutory body in

April 2000 has fastidiously stuck to its schedule of framing regulations and registering

the private sector insurance companies. Since being set up as an independent statutory

body the IRDA has put in a framework of globally compatible regulations.

The other decision taken simultaneously to provide the supporting systems to the

insurance sector and in particular the life insurance companies was the launch of the

IRDA online service for issue and renewal of licenses to agents. The approval of

institutions for imparting training to agents has also ensured that the insurance

companies would have a trained workforce of insurance agents in place to sell their

products

Most of the present day Life Insurance Companies in India are joint ventures between

Indian groups and conglomerates and global insurance companies. The terms of the

joint ventures include a majority stake holding of Indian partner in the JV. The life

insurance deals include a detail information guide to the customer from the insurance

agent or broker citing the various insurance plans and policies available, the insurance

29


30/117

premium estimates and estimate of the prices of the insurance policy short listed, the

guidelines and terms of the insurance company and many such info.

The life insurance companies work in close association with the life insurance agents andbrokers. Special training and education is provided to each insurance agent or broker

about the facts of life insurance, how it works, industry info, insurance leads, types of

insurance policies on offer, claims settlements, life insurance laws in India, knowledge

about the return of premium procedure of the life insurance company and the tax savings

the insurance policy would provide.

Besides the usual life insurance services covering individual insurance, group life

insurance, family insurance, health insurance and medi claims, Life insurance products in

India are also designed for special target groups like:

For seniors over 50, over 65 etc

For kids or children

For diabetics

For the elderly

For HIV patients

The ratings and reviews of the Life Insurance Companies in India are available

online where you can check the rankings and rating of the insurance company

you wish to buy a policy from. You can make comparison among the various life

insurance policies on offer by the life insurance companies of India.

A comprehensive list of the major insurance companies has been provided here

with compete profile of the company, their insurance products and policies, the

terms and statistics of the insurance providers etc.

Every company has different policy to offer. You just need to choose which is the

best for you. The amount for which you want to take the policy, the tenure of

policy and the amount you want to pay in each installments, all these factors you

need to keep in mind and then choose the company which fulfills all your needs

and provides full transparency

30


31/117

PRESENT SCENARIO - LIFE INSURANCE INDUSTRY IN

INDIA

The life insurance industry in India grew by an impressive 47.38%, with premium income

at Rs. 1560.41 billion during the fiscal year 2006-2007. Though the total volume of LIC's

business increased in the last fiscal year (2006-2007) compared to the previous one, its

market share came down from 85.75% to 81.91%.

The 17 private insurers increased their market share from about 15% to about 19% in a

year's time. The figures for the first two months of the fiscal year 2007-08 also speak of

the growing share of the private insurers. The share of LIC for this period has furthercome down to 75 percent, while the private players have grabbed over 24 percent.

With the opening up of the insurance industry in India many foreign players have

entered the market. The restriction on these companies is that they are not allowed to

have more than a 26% stake in a companys ownership.

Since the opening up of the insurance sector in 1999, foreign investments of Rs. 8.7

billion have poured into the Indian market and 19 private life insurance companies have

been granted licenses.

Innovative products, smart marketing, and aggressive distribution have enabled fledgling

private insurance companies to sign up Indian customers faster than anyone expected.

Indians, who had always seen life insurance as a tax saving device, are now suddenly

turning to the private sector and snapping up the new innovative products on offer.

Some of these products include investment plans with insurance and good returns (unit

linked plans), multi purpose insurance plans, pension plans, child plans and money

back plans. (www.wikipedia.com)

31


32/117

32


33/117

RESEARCH DESIGN

RESEARCH DESIGN

INTRODUCTION

A Research Design is the framework or plan for a study which is used as a guide in

collecting and analyzing the data collected. It is the blue print that is followed in

completing the study. The basic objective of research cannot be attained without a

33


34/117

proper research design. It specifies the methods and procedures for acquiring the

information needed to conduct the research effectively. It is the overall operational

pattern of the project that stipulates what information needs to be collected, from which

sources and by what methods.

RESEARCH METHODOLOGY

TITLE OF THE STUDY

34


35/117

Comparative study of the products of HDFC Standard Life Insurance Company

Limited and Tata AIG Life Insurance Company Limited for HDFC Standard Life

Insurance Company Ltd.

DURATION OF THE PROJECT

3 months

STATEMENT OF THE PROBLEM

This study was undertaken to identify which type of insurance plans HDFC SLIC should

market to beat Tata AIG LIC in India. A survey was undertaken to understand the

preferences of Indian consumers with respect to insurance. While marketing policies the

sole duty of an advisor/ agent is to provide insurance plans as per customer

requirements.

In effect plans (insurance products) should be flexible to suit individual requirements.

This research tries to analyze some key factors which influence the purchase of

insurance like the term of the policy, the type of company, the amount of annual

premium payable (capacity and willingness to spend), risk taking ability and the

influence of advertising. Solutions and recommendations are made based on qualitative

and quantitative analysis of the data.

OBJECTIVES OF THE STUDY

To analysis the product details of HDFC Standard life Insurance Company

limited and Tata AIG life Insurance Company Limited.

To find Points of Parity and Points of Difference of HDFC Standard Life

Insurance Company Limited and Tata AIG Life Insurance Company Limited.

35


36/117

To find out factors that influence customers to purchase insurance policies

and give suggestions for further improvement.

TYPE OF DATA COLLECTED

There are two types of data used. They are primary and secondary data. Primary data is

defined as data that is collected from original sources for a specific purpose. Secondary

data is data collected from indirect sources. (Source: Research Methodology, By C. R.

Kothari)

PRIMARY SOURCES

These include the survey or questionnaire method, telephonic interview as well as the

personal interview methods of data collection.

SECONDARY SOURCES

These include books, the internet, company brochures, product brochures, the company

website, competitors websites etc, newspaper articles etc.

SAMPLING

Sampling refers to the method of selecting a sample from a given universe with a view

to draw conclusions about that universe. A sample is a representative of the universe

selected for study.

SAMPLE SIZE

36


37/117

The sample size for the survey conducted was 270 respondents. This sample size was

taken on 95% confidence level and 6 significant level. Data universe for this sample is

10,00,000 which is approx population of Jaipur excluding people below age of 18 years.

SAMPLING TECHNIQUE

Random sampling technique was used in the survey conducted.

PLAN OF ANALYSIS

Tables were used for the analysis of the collected data. The data is also neatly

presented with the help of statistical tools such as graphs and pie charts. Percentages

and averages have also been used to represent data clearly and effectively.

STUDY AREA

The samples referred to were residing in Jaipur City. The areas covered were Sitapura,

Mansarovar , Sanganer , Vaishali Nagar , Badi Choppad , Malviya Nagar.

Introduction to insurance - An overview of the industry, history, key milestones,

reforms in the industry, present scenario in India.

37


38/117

Research Design - Introduction, Research methodology, title of the study, duration

of the project, statement of the problem, objectives of the study, sampling, plan of

analysis and study area.

Company profile of HDFC SLIC Introduction of HDFC SLIC, products and

services, vision and core values, human resource, organizational structure,

introduction to unit linked funds, national & international presence of the

organization.

Company profile of Tata AIG Introduction of Tata AIG, products and services,

vision and core values. The advantages of investing in HDFC SLIC compared to

other financial instruments.

Points of Parity and Points of Difference between HDFC SLIC and Tata AIG LIC

Comparison between different plans, charges, fees, deductions and riders

available with HDFC SLIC and Tata AIG LIC

Competitive analysis Information about the plans offered by LIC and other privateinsurers in India. Comparisons between the plans to find the most popular and

beneficial plans which HDFC SLIC can incorporate into their product portfolio.

Analysis and Interpretation A survey on factors that influence people to

purchase Life Insurance Policy.

Facts and findings- Facts about the survey

Swot analysis- Description of strength, weakness, opportunity and threats to HDFC

SLIC

38


39/117

Problems requiring more research Future line of work

Conclusion

Suggestions and recommendations - The techniques used to market insurance

and their advantages and disadvantages along with suggestions for improvement.

Appendices

Bibliography

39


40/117

COMPANY PROFILE

OF

HDFC STANDARD LIFE

INSURANCE COMPANY

LTD.

40


41/117

HDFC STANDARD LIFE INSURANCE COMPANY

LIMITED

Life insurance

Life insurance or life assurance is a contract between the policy owner and the

insurer, where the insurer agrees to pay a sum of money upon the occurrence of the

insured individual's or individuals' deathor other event, such as terminal illness or critical

illness. In return, the policy owner agrees to pay a stipulated amount called a premium

at regular intervals or in lump sums. There may be designs in some countries where bills

and death expenses plus catering for after funeral expenses should be included in

Policy Premium. In the United States, the predominant form simply specifies a lump sumto be paid on the insured's demise.

As with most insurance policies, life insurance is a contract between the insurer and the

policy owner whereby a benefit is paid to the designated beneficiaries if an insured

event occurs which is covered by the policy.

The value for the policyholder is derived, not from an actual claim event, rather it is the

value derived from the 'peace of mind' experienced by the policyholder, due to the

negating of adverse financial consequences caused by the death of the Life Assured.

To be a life policy the insured event must be based upon the lives of the people named

in the policy.

Insured events that may be covered include:

Serious illness

Life policies are legal contracts and the terms of the contract describe the limitations of

the insured events. Specific exclusions are often written into the contract to limit the

liability of the insurer; for example claims relating to suicide, fraud, war, riot and civil

commotion.

Life-based contracts tend to fall into two major categories:

41
http://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Deathhttp://en.wikipedia.org/wiki/Deathhttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Beneficiaryhttp://en.wikipedia.org/wiki/Illnesshttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Deathhttp://en.wikipedia.org/wiki/Insurancehttp://en.wikipedia.org/wiki/Beneficiaryhttp://en.wikipedia.org/wiki/Illness


42/117

Protection policies - designed to provide a benefit in the event of specified event,

typically a lump sum payment. A common form of this design is term insurance.

Investment policies - where the main objective is to facilitate the growth of capital

by regular or single premiums. Common forms (in the US anyway) are whole life,

universal life and variable life policies.

Overview

Parties to contract

There is a difference between the insured and the policy owner (policy holder), although

the owner and the insured are often the same person. For example, if Joe buys a policy

on his own life, he is both the owner and the insured. But if Jane, his wife, buys a policy

on Joe's life, she is the owner and he is the insured. The policy owner is the guarantee

and he or she will be the person who will pay for the policy. The insured is a participant

in the contract, but not necessarily a party to it.

The beneficiary receives policy proceeds upon the insured's death. The owner

designates the beneficiary, but the beneficiary is not a party to the policy. The owner can

change the beneficiary unless the policy has an irrevocable beneficiary designation.

With an irrevocable beneficiary, that beneficiary must agree to any beneficiary changes,

policy assignments, or cash value borrowing.

In cases where the policy owner is not the insured (also referred to as the celui qui vit or

CQV), insurance companies have sought to limit policy purchases to those with an

"insurable interest" in the CQV. For life insurance policies, close family members and

business partners will usually be found to have an insurable interest. The "insurable

interest" requirement usually demonstrates that the purchaser will actually suffer some

kind of loss if the CQV dies. Such a requirement prevents people from benefiting from

the purchase of purely speculative policies on people they expect to die. With noinsurable interest requirement, the risk that a purchaser would murder the CQV for

insurance proceeds would be great. In at least one case, an insurance company which

sold a policy to a purchaser with no insurable interest (who later murdered the CQV for

the proceeds), was found liable in court for contributing to the wrongful death of the

victim (Liberty National Life v. Weldon, 267 Ala.171 (1957)).

42
http://en.wikipedia.org/wiki/Protectionhttp://en.wikipedia.org/wiki/Protectionhttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Whole_life_insurancehttp://en.wikipedia.org/wiki/Universal_life_insurancehttp://en.wikipedia.org/wiki/Variable_universal_life_insurancehttp://en.wikipedia.org/wiki/Insurable_interesthttp://en.wikipedia.org/wiki/Wrongful_deathhttp://en.wikipedia.org/wiki/Protectionhttp://en.wikipedia.org/wiki/Investmenthttp://en.wikipedia.org/wiki/Whole_life_insurancehttp://en.wikipedia.org/wiki/Universal_life_insurancehttp://en.wikipedia.org/wiki/Variable_universal_life_insurancehttp://en.wikipedia.org/wiki/Insurable_interesthttp://en.wikipedia.org/wiki/Wrongful_death


43/117

Contract terms

Special provisions may apply, such as suicide clauses wherein the policy

becomes null if the insured commits suicide within a specified time (usually two

years after the purchase date; some states provide a statutory one-year suicide

clause). Any misrepresentation by the insured on the application is also grounds

for nullification. Most US states specify that the contestability period cannot be

longer than two years; only if the insured dies within this period will the insurer

have a legal right to contest the claim on the basis of misrepresentation and

request additional information before deciding to pay or deny the claim.

The face amount on the policy is the initial amount that the policy will pay at the death of

the insured or when the policy matures, although the actual death benefit can provide forgreater or lesser than the face amount. The policy matures when the insured dies or

reaches a specified age (such as 100 years old).

Costs, insurability, and underwriting

The insurer (the life insurance company) calculates the policy prices with intent to fund

claims to be paid and administrative costs, and to make a profit. The cost of insurance is

determined using mortality tables calculated by actuaries. Actuaries are professionals

who employ actuarial science, which is based in mathematics (primarily probability and

statistics). Mortality tables are statistically-based tables showing expected annual

mortality rates. It is possible to derive life expectancy estimates from these mortality

assumptions. Such estimates can be important in taxation regulation

The three main variables in a mortality table have been age, gender, and use of

tobacco. More recently in the US, preferred class specific tables were introduced. The

mortality tables provide a baseline for the cost of insurance. In practice, these mortality

tables are used in conjunction with the health and family history of the individualapplying for a policy in order to determine premiums and insurability. Mortality tables

currently in use by life insurance companies in the United States are individually

modified by each company using pooled industry experience studies as a starting point.

In the 1980s and 90's the SOA 1975-80 Basic Select & Ultimate tables were the typical

reference points, while the 2001 VBT and 2001 CSO tables were published more

43
http://en.wikipedia.org/wiki/Suicidehttp://en.wikipedia.org/wiki/Maturity_(finance)http://en.wikipedia.org/wiki/Actuaryhttp://en.wikipedia.org/wiki/Tobaccohttp://en.wikipedia.org/wiki/Suicidehttp://en.wikipedia.org/wiki/Maturity_(finance)http://en.wikipedia.org/wiki/Actuaryhttp://en.wikipedia.org/wiki/Tobacco


44/117

recently. The newer tables include separate mortality tables for smokers and non-

smokers and the CSO tables include separate tables for preferred classes.

Recent US select mortality tables predict that roughly 0.35 in 1,000 non-smoking males

aged 25 will die during the first year of coverage after underwriting. Mortalityapproximately doubles for every extra ten years of age so that the mortality rate in the

first year for underwritten non-smoking men is about 2.5 in 1,000 people at age

65.Compare this with the US population male mortality rates of 1.3 per 1,000 at age 25

and 19.3 at age 65 (without regard to health or smoking status).

The mortality of underwritten persons rises much more quickly than the general

population. At the end of 10 years the mortality of that 25 year-old, non-smoking male is

0.66/1000/year. Consequently, in a group of one thousand 25 year old males with a

$100,000 policy, all of average health, a life insurance company would have to collect

approximately $50 a year from each of a large group to cover the relatively few expected

claims. (0.35 to 0.66 expected deaths in each year x $100,000 payout per death = $35

per policy). Administrative and sales commissions need to be accounted for in order for

this to make business sense. A 10 year policy for a 25 year old non-smoking male

person with preferred medical history may get offers as low as $90 per year for a

$100,000 policy in the competitive US life insurance market.

The insurance company receives the premiums from the policy owner and invests them

to create a pool of money from which it can pay claims and finance the insurance

company's operations. Contrary to popular belief, the majority of the money that

insurance companies make comes directly from premiums paid, as money gained

through investment of premiums can never, in even the most ideal market conditions,

vest enough money per year to pay out claims

Rates charged for life insurance increase with the insurer's age because, statistically,

people are more likely to die as they get older.

Given that adverse selection can have a negative impact on the insurer's financial

situation, the insurer investigates each proposed insured individual unless the policy is

below a company-established minimum amount, beginning with the application process.

Group Insurance policies are an exception.

44
http://en.wikipedia.org/wiki/Smokinghttp://en.wikipedia.org/wiki/Group_Insurancehttp://en.wikipedia.org/wiki/Smokinghttp://en.wikipedia.org/wiki/Group_Insurance


45/117

This investigation and resulting evaluation of the risk is termedunderwriting.Health and

lifestyle questions are asked. Certain responses or information received may merit

further investigation. Life insurance companies in the United States support the Medical

Information Bureau (MIB), which is a clearinghouse of information on persons who have

applied for life insurance with participating companies in the last seven years. As part of

the application, the insurer receives permission to obtain information from the proposed

insured's physicians.[5]

Underwriters will determine the purpose of insurance. The most common is to protect

the owner's family or financial interests in the event of the insurer's demise. Other

purposes include estate planning or, in the case of cash-value contracts, investment for

retirement planning. Bank loans or buy-sell provisions of business agreements are

another acceptable purpose.

Life insurance companies are never required by law to underwrite or to provide

coverage to anyone, with the exception ofCivil Rights Act compliance requirements.

Insurance companies alone determine insurability, and some people, for their own

health or lifestyle reasons, are deemed uninsurable. The policy can be declined (turned

down) or rated Rating increases the premiums to provide for additional risks relative to

the particular insured

Many companies use four general health categories for those evaluated for a life

insurance policy. These categories are Preferred Best, Preferred, Standard, and

Tobacco

Preferred Best is reserved only for the healthiest individuals in the general population.

This means, for instance, that the proposed insured has no adverse medical history, is

not under medication for any condition, and his family (immediate and extended) has no

history of early cancer, diabetes, or other conditions. Preferred means that the proposed

insured is currently under medication for a medical condition and have a family history ofparticular illnesses

Most people are in the Standard category. Profession, travel, and lifestyle factor into

whether the proposed insured will be granted a policy, and which category the insured

falls. For example, a person who would otherwise be classified as Preferred Best may

45
http://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Medical_Underwritinghttp://en.wikipedia.org/wiki/Life_insurance#cite_note-4http://en.wikipedia.org/wiki/Civil_Rights_Acthttp://en.wikipedia.org/wiki/Civil_Rights_Acthttp://en.wikipedia.org/wiki/Cancerhttp://en.wikipedia.org/wiki/Diabeteshttp://en.wikipedia.org/wiki/Underwritinghttp://en.wikipedia.org/wiki/Medical_Underwritinghttp://en.wikipedia.org/wiki/Life_insurance#cite_note-4http://en.wikipedia.org/wiki/Civil_Rights_Acthttp://en.wikipedia.org/wiki/Cancerhttp://en.wikipedia.org/wiki/Diabetes


46/117

be denied a policy if he or she travels to a high risk country.Underwriting practices can

vary from insurer to insurer which provide for more competitive offers in certain

circumstances.

Life insurance contracts are written on the basis of utmost good faith. That is, theproposer and the insurer both accept that the other is acting in good faith. This means

that the proposer can assume the contract offers what it represents without having to

fine comb the small print and the insurer assumes the proposer is being honest when

providing details to underwriter.

Death proceeds

Upon the insured's death, the insurer requires acceptable proof of death before it pays

the claim. The normal minimum proof required is a death certificate and the insurer's

claim form completed, signed (and typically notarizedIf the insured's death is suspicious

and the policy amount is large, the insurer may investigate the circumstances

surrounding the death before deciding whether it has an obligation to pay the claim.

Proceeds from the policy may be paid as a lump sum or as an annuity, which is paid

over time in regular recurring payments for either a specified period or for a beneficiary's

lifetime.

Insurance vs Assurance

The specific uses of the terms "insurance" and "assurance" are sometimes confused. In

general, in these jurisdictions "insurance" refers to providing cover for an event that

might happen (fire, theft, flood, etc.), while "assurance" is the provision of cover for an

event that is certain to happen. "Insurance" is the generally accepted term, however,

people using this description are liable to be corrected. In the United States both forms

of coverage are called "insurance", principally due to many companies offering both

types of policy, and rather than refer to themselves using both insurance and assurance

titles, they instead use just one.

46
http://en.wikipedia.org/wiki/Death_certificatehttp://en.wikipedia.org/wiki/Notary_publichttp://en.wikipedia.org/wiki/Notary_publichttp://en.wikipedia.org/wiki/Annuity_(financial_contracts)http://en.wikipedia.org/wiki/Life_annuityhttp://en.wikipedia.org/wiki/Life_annuityhttp://en.wikipedia.org/wiki/Death_certificatehttp://en.wikipedia.org/wiki/Notary_publichttp://en.wikipedia.org/wiki/Annuity_(financial_contracts)http://en.wikipedia.org/wiki/Life_annuityhttp://en.wikipedia.org/wiki/Life_annuity


47/117

Types of life insurance

Life insurance may be divided into two basic classes temporary and permanent or

following subclasses - term, universal, whole life and endowment life insurance.

TEMPORARY TERM

Term assurance: provides for life insurance coverage for a specified term of years for a

specified premium. The policy does not accumulate cash value. Term is generally

considered "pure" insurance, where the premium buys protection in the event of death

and nothing else.

The three key factors to be considered in term insurance are: face amount (protection or

death benefit), premium to be paid (cost to the insured), and length of coverage (term).

Various insurance companies sell term insurance with many different combinations of

these three parameters. The face amount can remain constant or decline. The term can

be for one or more years. The premium can remain level or increase. A common type of

term is called annual renewable term. It is a one year policy but the insurance company

guarantees it will issue a policy of equal or lesser amount without regard to the

insurability of the insured and with a premium set for the insured's age at that time.

Another common type of term insurance is mortgage insurance, which is usually a level

premium, declining face value policy. The face amount is intended to equal the amount

of the mortgage on the policy owners residence so the mortgage will be paid if the

insured dies.

A policy holder insures his life for a specified term. If he dies before that specified term is

up, his estate or named beneficiary receives a payout. If he does not die before the term

is up, he receives nothing. In the past these policies would almost always exclude

suicide. However, after a number of court judgments against the industry, payouts do

occur on death by suicide (presumably except for in the unlikely case that it can be

shown that the suicide was just to benefit from the policy). Generally, if an insured

person commits suicide within the first two policy years, the insurer will return the

47
http://en.wikipedia.org/wiki/Premiumhttp://en.wikipedia.org/wiki/Mortgage_insurancehttp://en.wikipedia.org/wiki/Premiumhttp://en.wikipedia.org/wiki/Mortgage_insurance


48/117

premiums paid. However, a death benefit will usually be paid if the suicide occurs after

the two year period.

Permanent Life Insurance

Permanent life insurance is life insurance that remains in force (in-line) until the policy

matures (pays out), unless the owner fails to pay the premium when due (the policy

expires OR policies lapse). The policy cannot be canceled by the insurer for any reason

except fraud in the application, and that cancellation must occur within a period of time

defined by law (usually two years). Permanent insurance builds a cash value that

reduces the amount at risk to the insurance company and thus the insurance expense

over time. This means that a policy with a million dollar face value can be relatively

expensive to a 70 year old. The owner can access the money in the cash value by

withdrawing money, borrowing the cash value, or surrendering the policy and receiving

the surrender value.

The four basic types of permanent insurance are whole life, universal life, limited pay

and endowment.

Whole life coverage

Whole life insurance provides for a level premium, and a cash value table included in the

policy guaranteed by the company. The primary advantages of whole life are

guaranteed death benefits, guaranteed cash values, fixed and known annual premiums,

and mortality and expense charges will not reduce the cash value shown in the policy.

The primary disadvantages of whole life are premium inflexibility, and the internal rate of

return in the policy may not be competitive with other savings alternatives. Riders are

available that can allow one to increase the death benefit by paying additional premium.

The death benefit can also be increased through the use of policy dividends. Dividends

cannot be guaranteed and may be higher or lower than historical rates over time.

Premiums are much higher than term insurance in the short-term, but cumulative

premiums are roughly equal if policies are kept in force until average life expectancy.

48
http://en.wikipedia.org/wiki/Permanent_life_insurancehttp://en.wikipedia.org/wiki/Whole_life_insurancehttp://en.wikipedia.org/wiki/Permanent_life_insurancehttp://en.wikipedia.org/wiki/Whole_life_insurance


49/117

Cash value can be accessed at any time through policy "loans". Since these loans

decrease the death benefit if not paid back, payback is optional. Cash values are not

paid to the beneficiary upon the death of the insured; the beneficiary receives the death

benefit only. If the dividend option: Paid up additions is elected, dividend cash values will

purchase additional death benefit which will increase the death benefit of the policy to

the named beneficiary.

Universal life coverage

Universal life insurance (UL) is a relatively new insurance product intended to provide

permanent insurance coverage with greater flexibility in premium payment and the

potential for a higher internal rate of return. There are several types of universal life

insurance policies which include "interest sensitive" (also known as "traditional fixed

universal life insurance"), variable universal life insurance, and equity indexed universal

life insurance.

A universal life insurance policy includes a cash account. Premiums increase the cash

account. Interest is paid within the policy (credited) on the account at a rate specified by

the company. Mortality charges and administrative costs are then charged against

(reduce) the cash account. The surrender value of the policy is the amount remaining in

the cash account less applicable surrender charges, if any.

With all life insurance, there are basically two functions that make it work. There's a

mortality function and a cash function. The mortality function would be the classical

notion of pooling risk where the premiums paid by everybody else would cover the death

benefit for the one or two who will die for a given period of time. The cash function

inherent in all life insurance says that if a person is to reach age 95 to 100 (the age

varies depending on state and company), then the policy matures and endows the face

value of the policy.

Actuarially, it is reasoned that out of a group of 1000 people, if even 10 of them live to

age 95, then the mortality function alone will not be able to cover the cash function. So

in order to cover the cash function, a minimum rate of investment return on the

premiums will be required in the event that a policy matures.

49
http://en.wikipedia.org/wiki/Universal_life_insurancehttp://en.wikipedia.org/wiki/Universal_life_insurance


50/117

Universal life insurance addresses the perceived disadvantages of whole life. Premiums

are flexible. Depending on how interest is credited, the internal rate of return can be

higher because it moves with prevailing interest rates (interest-sensitive) or the financial

markets (Equity Indexed Universal Life and Variable Universal Life). Mortality costs and

administrative charges are known. And cash value may be considered more easily

attainable because the owner can discontinue premiums if the cash value allows it. And

universal life has a more flexible death benefit because the owner can select one of two

death benefit options, Option A and Option B.

Option A pays the face amount at death as it's designed to have the cash value equal

the death benefit at maturity (usually at age 95 or 100). With each premium payment,

the policy owner is reducing the cost of insurance until the cash value reaches the face

amount upon ma

hdfc-stndrd lyf

Documents