HYPOTHESIS
OBJECTIVE
OF THE STUDY
Objectives of a project tell us why
project has been taken under study. It helps us to know more about the topic
that is being undertaken and helps us to explore future prospects of the topic.
The
various research objectives of the study are:
Ø To study the Insurance facilities offered by
the Insurance companies to its customers.
Ø To study as to how much Insurance has
penetrated in the minds of the customers.
Ø To explore the future prospects of Insurance.
Ø To study the benefits that are provided to the
individual under Insurance.
Ø To know the general views of people about life
insurance
Ø To know, whether insurance is an investment or
not?
PURPOSE OF THE STUDY
The main purpose of this study to get an overview of the Insurance
sector in the Indian economy and study as to how it has helped as an
investments in the minds of customers.
Ø The aim of this project is to develop a
insurance as an investment to customers.
Ø Create a Insurance system that is easily
accessible by customers from the comfort of their homes, offices etc.
Ø Reduce the flow of human traffic and long
queues at Insurance offices.
Ø Promote efficient and effective Insurance for
the companies by focusing on those services that still require physical
presence to the public.
IMPORTANCE OF THE STUDY
This will cover the benefits derived in using Insurance
and it’s fundamental. INSURANCE – HOW IS IT INVESTMENT? Many
consumers today are turning to the ease and convenience of Insurance to take
care of their financial needs and future events. To know the customer perception
of the study.
RESEARCH
AND METHODOLOGY
DATA
COLLECTION
Ø Primary
data: -
Primary data are those which are collected
fresh and for the first time and thus happen to be original in chapters. I have
collected my data through phone calling and through direct communication with
respondents in one form or another or through personal interviews. Through
observation method I was able to record the natural behavior of the group.
Sometimes I verify the truth of statements made by informants in the context of
a questionnaire or a schedule.
Ø Secondary
data :-
Data are those data
which are being already collected by someone else and which have already been
passed through the statistical process. I have collected my published date form
Internet and the books, magazines and newspapers.
EXECUTIVE SUMMARY
This is an study to attempt the
insurance sector in India has completed all the facets of competition –from
being an open competitive market to being nationalized and then getting back to
the form of a liberalized market once again. India Life Insurance sector came
into existence with the nationalization of Life Insurance Corporation (LIC) in
1956. At that time, all private companies were taken over by LIC.
The IT in insurance sector is an
important key factor. Through the online insurance it possible to insurance
companies to compete in the competition world. It is the one of the requirement
of modern business world.
Anyone that uses a computer and has
internet services will find that online insurance companies are packed with
many benefits. There are hundreds of insurance companies that have online
websites that allows their customers conduct all of the business they need to
stay insured.
The Internet is a powerful
tool for the savvy online consumer. We can review products, compare
prices, research companies and purchase almost anything. It takes a lot of work
and may take several years to become a successful online insurance agent.
INTRODUCTION
INSURANCE:
Insurance is a form of risk management in which the insured transfers
the cost of potential loss to another entity in exchange for monetary
compensation known as the premium. (For background reading, see The History Of Insurance InInvestopedia.com
– the resource for investing and personal finance education.
INVESTMENT :
Investment is the commitment of money or
capital to purchase financial instruments or other assets in order to gain
profitable returns in the form of interest, income, or appreciation of the
value of the instrument. Investment is related to saving or deferring
consumption.
WHAT IS INSURANCE?
WHAT IS INSURANCE?
It is a contract between the insured
and the insurance company whereby the insured financial risk is covered by the
insurance company. The risk can be of your vehicle, property, legal etc. So
effectively, you pass on the risk to the insurance company and they charge you
a nominal sum of money for taking that risk which is called Insurance Premium.
WHY
INSURANCE?
Does any one of us know when something
will go wrong with us and whether that time our responsibilities to fulfill.
Does any one of us know when we something will go wrong with us and whether
that time our responsibilities would be over or not? We all know that in life unexpected is always
expected. Our life is full of uncertainties with lot of
goals, short term goals, long term goals, known
goals – unknown goals. We are all born with some responsibilities to
fulfill…..but we do not know how much time we will get to fulfill those
responsibilities.
What if
anything goes wrong to us, who will provide financial security to the family.
Who will fulfill all the dreams that you would have thought for. This is
where insurance can help you. Insurance is one of the greatest inventions
in the field of personal financial products. But it becomes fatal to financial
life and costly once you end purchasing a wrong insurance solution.
BRIEF
HISTORY OF INSURANCE
The story of insurance is probably as
old as the story of mankind. The same instinct that prompts modern businessmen
today to secure themselves against loss and disaster existed in primitive men
also. They too sought to avert the evil consequences of fire and flood and loss
of life and were willing to make some sort of sacrifice in order to achieve
security. Though the concept of insurance is largely a development of the
recent past, particularly after the industrial era – past few centuries – yet
its beginnings date back almost 6000 years.
With the establishment of Oriental
Life Insurance Company in Kollata, Life Insurance in its modern form came to
India from England in the year 1818.
Important milestones in the Indian life
insurance business
1912: The Indian Life Assurance Companies Act enacted as the first
statute to regulate the life insurance business.
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 to by the
Insurance Act with the objective of protecting the interests of the insuring
public.
1956: 245 Indian and foreign insurers and provident societies
are taken over by the central government and nationalised. LIC formed by an Act
of Parliament, viz. LIC Act, 1956, with a capital Contribution of Rs. 5 crore
from the Government of India.
The General insurance business in India, on the other hand,
can trace its roots to the Triton Insurance Company Ltd., the first general
insurance company established in the year 1850 in Calcutta by the British.
Important milestones in the Indian GENERAL INSURANCEbusiness
1907: The Indian Mercantile Insurance Ltd. set up, the first
company to transact all classes of general insurance business.
1957: General Insurance Council, a wing of the Insurance
Association of India, frames a code of conduct for ensuring fair conduct and
sound business practices.
1968: The Insurance Act amended to regulate investments and
set minimum solvency margins and the Tariff Advisory Committee set up.
1972: The General Insurance Business (Nationalizations) Act,
1972 nationalised the
general insurance business in India with effect from 1st January 1973.
general insurance business in India with effect from 1st January 1973.
107 insurers
amalgamated and grouped into four companies viz. the National
Insurance Company Ltd., the New India Assurance Company Ltd., the
Oriental Insurance Company Ltd. and the United India Insurance Company
Ltd. GIC incorporated as a company.
Insurance Company Ltd., the New India Assurance Company Ltd., the
Oriental Insurance Company Ltd. and the United India Insurance Company
Ltd. GIC incorporated as a company.
FUNDAMENTALS OF INSURANCE
How does insurance work? Insurance works by pooling risk.What
does this mean? It simply means that a Investopedia.com – the resource for
investing and personal finance education.
large group of people who want to insure against a particular
loss pay their premiums into what we will call the insurance bucket, or pool.
Because the number of insured individuals is so large, insurance companies can
use statistical analysis to project what their actual losses will be within the
given class. They know that not all insured individuals will suffer losses at
the same time or at all. This allows the insurance companies to operate
profitably and at the same time pay for claims that may arise. For instance,
most people have auto insurance but only a few actually get into an accident.
You pay for the probability of the loss and for the protection that you will be
paid for losses in the event they occur.
RISKS:
Life is full of risks - some are preventable or can at least
be minimized, some are avoidable and some are completely unforeseeable. What's
important to know about risk when thinking about insurance is the type of risk,
the effect of that risk, the cost of the risk and what you can do to mitigate
the risk. Let's take the example of driving a car. (For more insight on the
concept of risk, see Determining Risk And The Risk Pyramid.) Type of
risk: Bodily injury, total loss of vehicle, having to fix your car The effect:
Spending time in the hospital, having to rent a car and having to make car
payments for a car that no longer exists The costs: Can range from small to
very large Mitigating risk: Not driving at all (risk avoidance), becoming a
safe driver (you still have to contend with other drivers), or transferring the
risk to someone else (insurance) Let's explore this concept of risk management
(or mitigation) principles a little deeper and look at how you may apply them.
The basic risk management tools indicate that risks that could bring financial
losses and whose severity cannot be reduced should be transferred. You should
also consider the relationship between the cost of risk transfer and the value
of transferring that risk.
RISK CONTROL:
There are two ways that risks can be controlled. You can
avoid the risk altogether, or you can choose to reduce your risk.
RISK FINANCING:
If you decide to retain your risk exposures, then you can
either transfer that risk (ie. to an insurance company), or you retain that
risk either voluntarily (ie. you identify and accept the risk) or involuntarily
(you identify the risk, but no Investopedia.com – the resource for investing
and personal finance education insurance is available).
RISK SHARING:
Finally, you
may also decide to share risk. For example, a business owner may decide that
while he is willing to assume the risk of a new venture, he may want to share
the risk with other owners by incorporating his business. So, back to our
driving example. If you could get rid of the risk altogether, there would be no
need for insurance. The only way this might happen in this case would be to
avoid driving altogether. Also, if the cost of the loss or the effect of the
loss is reasonable to you, then you may not need insurance. For risks that
involve a high severity of loss and a low frequency of loss, then risk
transference (ie. insurance) is probably the most appropriate protection
technique. Insurance is appropriate if the loss will cause you or your loved
ones a significant financial loss or inconvenience. Do keep in mind that in
some instances, you are required to purchase insurance (i.e. if operating a
motor vehicle). For risks that are of low loss severity but high loss
frequency, the most suitable method is either retention or reduction because
the cost to transfer (or insure) the risk might be costly. In other words, some
damages are so inexpensive that it's worth taking the risk of having to pay for
them yourself, rather than forking extra money over to the insurance company
each month.
THE RISK MANAGEMENT PROCESS:
After you have determined that you would like to insure
against a loss, the next step is to seek out insurance coverage. Here you have
many options available to you but it's always best to shop around. You can go
directly to the insurer through an agent, who can bind the policy. The process
of binding a policy is simply a written acknowledgement identifying the main
components of your insurance contract. It is intended to provide temporary
insurance protection to the consumer pending a formal policy being issued by
the insurance company. It should be noted that agents work exclusively for the
insurance company. There are two types of agents:
1. Captive Agents:
Captive agents represent a single insurance company and are required to only do
business with that one company.
2.
Independent Agent: Independent agents represent
multiple companies and work on behalf of the client (not the insurance company)
to find the most appropriate policy.
WHAT IS INVESTMENT?
Investment is the commitment of
money or capital to purchase financial instruments or other assets in order to
gain profitable returns in the form of interest, income, or appreciation of the
value of the instrument. Investment is related to saving or deferring
consumption.
An investment involves the
choice by an individual or an organization such as a pension fund, after some
analysis or thought, to place or lend money in a vehicle, instrument or asset,
such as property, commodity, stock, bond, financial derivatives (e.g. futures
or options), or the foreign asset denominated in foreign currency, that has
certain level of risk and provides the possibility of generating returns over a
period of time. When an asset is bought or a given amount of money is invested
in the bank, there is anticipation that some return will be received from the investment
in the future.
Investment is a term frequently used in the
fields of economics, business management and finance. It can mean savings
alone, or savings made through delayed consumption. Investment can be
divided into different types according to various theories and principles.
While dealing with the various
options of investment, the defining terms of investment need to be kept
in mind.
WHY INVEST?
Ø Earn
Return on idle resources
Ø Generate
sum of money for specified goal in life
Ø Make
provision for uncertain future
Ø To
meet the cost of inflation
We,
Indians work hard for our entire life to earn our living. Out of that we save
somepart in a hope that it will be used for our future to make it happy and
reliable. These savings aregenerally invested with a hope to get good returns
from it. So, this invested money earns usprofit in a regular course. These
profit margins depend upon the different investment optionsavailable in the
market. Below are mentioned some of the basic and most opted for
investmentoptions to suit all financial situations.
VARIOUS TYPES
INVESTMENTS
INVESTMENT IN TERMS OF ECONOMICS:
According
to economic theories, investment is defined as the per-unit production
of goods, which have not been consumed, but will however, be used for the
purpose of future production. Examples of this type of investments are
tangible goods like construction of a factory or bridge and intangible goods
like 6 months of on-the-job training. In terms of national production and
income, Gross Domestic Product (GDP) has an essential constituent, known as
gross investment.
INVESTMENT IN TERMS OF BUSINESS MANAGEMENT:
According to business management theories, investment
refers to tangible assets like machinery and equipments and buildings and
intangible assets like copyrights or patents and goodwill. The decision for investment
is also known as capital budgeting decision, which is regarded as one of the
key decisions.
INVESTMENT IN TERMS OF FINANCE:
In finance, investment refers
to the purchasing of securities or other financial assets from the capital
market. It also means buying money market or real properties with high market
liquidity. Some examples are gold, silver, real properties, and precious items.
Financial investments are in stocks, bonds, and other types of security investments.
Indirect financial investments can also be done with the help of mediators or
third parties, such as pension funds, mutual funds, commercial banks, and
insurance companies.
PERSONAL FINANCE& REAL ESTATE:
According to personal finance
theories, an investment is the implementation of money for buying shares,
mutual funds or assets with capital risk .According to real estate theories, investment
is referred to as money utilized for buying property for the purpose of
ownership or leasing. This also involves capital risk.
COMMERCIAL REAL ESTATE:
Commercial real estate involves a
real estate investment in properties for commercial purposes such as
renting
REAL ESTATE:
This is the most basic type of real
estate investment, which involves buying houses as real estate properties.
INSURANCE WHICH ACT AS AN INVESTMENT
Risks and uncertainties are part of
life's great adventure -- accident, illness, theft, natural disaster - they're
all built into the working of the Universe, waiting to happen.
Role 1: insurance as "Investment"
Insurance is an attractive option for investment.
While most people recognize the risk hedging and tax saving potential of
insurance, many are not aware of its advantages as an investment option as
well. Insurance products yield more compared to regular investment options, and
this is besides the added incentives (read bonuses) offered by insurers.
You cannot compare an insurance product with
other investment schemes for the simple reason that it offers financial
protection from risks, something that is missing in non-insurance products.
In fact, the premium you pay for an
insurance policy is an investment against risk. Thus, before comparing with
other schemes, you must accept that a part of the total amount invested in life
insurance goes towards providing for the risk cover, while the rest is used for
savings.
In life insurance, unlike non-life products,
you get maturity benefits on survival at the end of the term. In other words,
if you take a life insurance policy for 20 years and survive the term, the
amount invested as premium in the policy will come back to you with added
returns. In the unfortunate event of death within the tenure of the policy, the
family of the deceased will receive the sum assured.
Now, let us compare insurance as an investment
options. If you invest Rs 10,000 in PPF, your money grows to Rs 10,950 at 9.5
per cent interest over a year. But in this case, the access to your funds will
be limited. One can withdraw 50 per cent of the initial deposit only after 4
years.
The same amount of Rs 10,000 can
give you an insurance cover of up to approximately 5-12 lakh (depending upon
the plan, age and medical condition of the life insured, etc) and this amount
can become immediately available to the nominee of the policyholder on death.
Thus insurance is a unique
investment avenue that delivers sound returns in addition to protection.
Role 2: insurance as "Risk cover"
First and foremost, insurance is about risk
cover and protection - financial protection, to be more precise - to help
outlast life's unpredictable losses. Designed to safeguard against losses
suffered on account of any unforeseen event, insurance provides you with that
unique sense of security that no other form of investment provides. By buying
life insurance, you buy peace of mind and are prepared to face any financial
demand that would hit the family in case of an untimely demise.
To provide such protection,
insurance firms collect contributions from many people who face the same risk.
A loss claim is paid out of the total premium collected by the insurance
companies, who act as trustees to the monies.
Insurance also provides a safeguard in the
case of accidents or a drop in income after retirement. An accident or
disability can be devastating, and an insurance policy can lend timely support
to the family in such times. It also comes as a great help when you retire, in
case noun toward incident happens during the term of the policy.
With the entry of private sector
players in insurance, you have a wide range of products and services to choose
from. Further, many of these can be further customized to fit individual/group
specific needs. Considering the amount you have to pay now, it's worth buying
some extra sleep.
Role 3: insurance as "Tax planning"
Insurance serves as an excellent tax saving mechanism too. The
Government of India has offered tax incentives to life insurance products in
order to facilitate the flow of funds into productive assets. Under Section 88
of Income Tax Act 1961, an individual is entitled to a rebate of 20 per cent on
the annual premium payable on his/her life and life of his/her children or
adult children. The rebate is deductible from tax payable by the individual or
a Hindu Undivided Family. This rebate is can be availed upto a maximum of Rs
12,000 on payment of yearly premium of Rs 60,000. By paying Rs 60,000 a year,
you can buy anything upwards of Rs 10 lakh in sum assured. (Depending upon the
age of the insured and term of the policy) This means that you get a Rs 12,000
tax benefit. The rebate is deductible from the tax payable by individual Hindu
Undivided Family
PENSION:
A pension is a fixed sum paid
regularly to a person, typically, given following a retirement from service.[1] Pensions should not be confused with severance pay; the former is paid in regular
installments, while the latter is paid in one lump sum.
The terms retirement plan or
superannuation refer to a pension granted upon retirement.[2] Retirement plans may be set up by employers, insurance
companies, the government or other institutions such as employer associations
or trade unions. Called retirement
plans in the United
States, they are commonly
known as pension schemes in the
United
Kingdom and Ireland and superannuation
plans or super[3] in Australia and New Zealand. Retirement pensions are typically
in the form of a guaranteed life annuity, thus insuring against the risk
of longevity.
A pension created by an employer for
the benefit of an employee is commonly referred to as an occupational or
employer pension. Labor unions, the government, or other
organizations may also fund pensions. Occupational pensions are a form of deferred
compensation,
usually advantageous to employee and employer for tax
reasons. Many pensions also contain an additional insurance aspect, since they often will pay
benefits to survivors or disabled beneficiaries. Other vehicles (certain lottery payouts, for example, or an annuity) may provide a similar stream of
payments.
The common use of the term pension is to describe the payments a person receives upon
retirement, usually under pre-determined legal and/or contractual terms. A
recipient of a retirement pension is known as a pensioner or retiree.
TYPES OF PENSIONS:
EMPLOYMENT-BASED PENSIONS (RETIREMENT PLANS):
A retirement plan is an arrangement
to provide people with an income during retirement when they are no longer
earning a steady income from employment. Often retirement plans require both
the employer and employee to contribute money to a fund during their employment
in order to receive defined benefits upon retirement. It is a tax deferred
savings vehicle that allows for the tax-free accumulation of a fund for later
use as a retirement income. Funding can be provided in other ways, such as from
labor unions, government agencies, or self-funded schemes. Pension plans are
therefore a form of "deferred compensation". A SSAS
is a type of employment-based Pension in the UK.
SOCIAL AND STATE PENSIONS:
Many countries have created funds for
their citizens and residents to provide income when they retire (or in some
cases become disabled). Typically this requires payments throughout the
citizen's working life in order to qualify for benefits later on. A basic state
pension is a "contribution based" benefit, and depends on an
individual's contribution history. For examples, see National Insurance in the
UK, or Social Security in the USA. Many countries have also put in place a
"social pension". These are regular, tax-funded non-contributory cash
transfers paid to older people. Over 80 countries have social pensions.[4]
Examples are the Old Age Grant in South Africa and the Universal Superannuation
scheme in New Zealand.
DISABILITY PENSIONS:
Some pension plans will provide for
members in the event they suffer a disability. This may take the form of early
entry into a retirement plan for a disabled member below the normal retirement
age.
BENEFITS:
Retirement plans may be classified as
defined benefit or defined contribution according to how
the benefits are determined.[4] A defined benefit plan guarantees a certain payout at
retirement, according to a fixed formula which usually depends on the member's
salary and the number of years' membership in the plan. A defined contribution
plan will provide a payout at retirement that is dependent upon the amount of
money contributed and the performance of the investment vehicles utilized.
Some types of retirement plans, such
as cash balance plans, combine
features of both defined benefit and defined contribution plans. They are often
referred to as hybrid plans.
Such plan designs have become increasingly popular in the US since the 1990s.
Examples include Cash Balance and Pension Equity plans.
DEFINED BENEFIT PLANS:
A traditional defined benefit (DB)
plan is a plan in which the benefit on retirement is determined by a set
formula, rather than depending on investment returns. In the US, 26
U.S.C.§ 414(j) specifies a defined benefit plan to be any pension plan that
is not a defined contribution plan (see below) where a defined contribution
plan is any plan with individual accounts. A traditional pension plan that defines a benefit for an employee upon that employee's retirement is a
defined benefit plan.
Traditionally, retirement plans have
been administered by institutions which exist specifically for that purpose, by
large businesses, or, for government workers, by the government itself. A
traditional form of defined benefit plan is the final salary plan, under which the pension paid is equal to the
number of years worked, multiplied by the member's salary at retirement,
multiplied by a factor known as the accrual
rate. The final accrued amount is available as a monthly pension or a
lump sum, but usually monthly.
The benefit in a defined benefit
pension plan is determined by a formula that can incorporate the employee's
pay, years of employment, age at retirement, and other factors. A simple
example is a Dollars Times Service plan design that provides a certain amount
per month based on the time an employee works for a company. For example, a
plan offering $100 a month per year of service would provide $3,000 per month
to a retiree with 30 years of service. While this type of plan is popular among
unionized workers, Final Average Pay (FAP) remains the most common type of
defined benefit plan offered in the United States. In FAP plans, the average
salary over the final years of an employee's career determines the benefit
amount.
Averaging salary over a number of
years means that the calculation is averaging different dollars. For example,
if salary is averaged over five years, and retirement is in 2009, then salary
in 2004 dollars is averaged with salary in 2005 dollars, etc., with 2004
dollars being worth more than the dollars of succeeding years. The pension is
then paid in first year of retirement dollars, in this example 2009 dollars, with
the lowest value of any dollars in the calculation. Thus inflation in the
salary averaging years has a considerable impact on purchasing power and cost,
both being reduced equally by inflation
This effect of inflation can be
eliminated by converting salaries in the averaging years to first year of
retirement dollars, and then averaging.
In the United Kingdom, benefits are typically indexed for
inflation (known as Retail Prices Index (RPI)) as required by law for registered pension plans.[5] Inflation during an employee's retirement affects the
purchasing power of the pension; the higher the inflation rate, the lower the
purchasing power of a fixed annual pension. This effect can be mitigated by
providing annual increases to the pension at the rate of inflation (usually
capped, for instance at 5% in any given year). This method is advantageous for
the employee since it stabilizes the purchasing power of pensions to some
extent.
If the pension plan allows for early
retirement, payments are often reduced to recognize that the retirees will receive the payouts for longer
periods of time. In the United States, under the Employee Retirement Income Security Act of 1974, any reduction factor less than or
equal to the actuarial early retirement reduction factor is
acceptable.[6]
Many DB plans include early retirement
provisions to encourage employees to retire early, before the attainment of
normal retirement age (usually age 65). Companies would rather hire younger
employees at lower wages. Some of those provisions come in the form of
additional temporary or supplemental benefits, which are
payable to a certain age, usually before attaining normal retirement age.
FUNDING:
Defined benefit
plans may be either funded or unfunded;
In an unfunded defined benefit pension, no assets are set aside and
the benefits are paid for by the employer or other pension sponsor as and when
they are paid. Pension arrangements provided by the state in most countries in
the world are unfunded, with benefits paid directly from current workers'
contributions and taxes. This method of financing is known as Pay-as-you-go (PAYGO or PAYG).[8] The social security systems of many European countries are unfunded
.having benefits paid directly out of current taxes and social security
contributions, although several countries have hybrid systems which are
partially funded. Spain set up the Social Security Reserve Fund and France set
up the Pensions Reserve Fund; in Canada the wage-based retirement plan (CPP) is
funded, with assets managed by the CPP
Investment Board
while the U.S. Social Security system is funded by investment in special U.S. Treasury
Bonds.
In a funded plan, contributions from the employer, and sometimes also
from plan members, are invested in a fund towards meeting the benefits. The
future returns on the investments, and the future benefits to be paid, are not
known in advance, so there is no guarantee that a given level of contributions
will be enough to meet the benefits. Typically, the contributions to be paid
are regularly reviewed in a valuation of the plan's assets and liabilities,
carried out by an actuary to ensure that the pension fund will
meet future payment obligations. This means that in a defined benefit pension,
investment risk and investment rewards are typically assumed by the
sponsor/employer and not by the individual. If a plan is not well-funded, the
plan sponsor may not have the financial resources to continue funding the plan.
In many countries, such as the USA, the UK and Australia, most private defined benefit plans
are funded[citation needed], because governments there provide tax incentives to
funded plans (in Australia they are mandatory). In the United States,
non-church-based private employers must pay an insurance-type premium to the Pension Benefit Guaranty Corporation, a government agency whose role is
to encourage the continuation and maintenance of voluntary private pension
plans and provide timely and uninterrupted payment of pension benefits.
DEFINED CONTRIBUTION PLANS
In a defined contribution plan,
contributions are paid into an individual account for each member. The
contributions are invested, for example in the stock market, and the returns on
the investment (which may be positive or negative) are credited to the
individual's account. On retirement, the member's account is used to provide
retirement benefits, sometimes through the purchase of an annuity which then
provides a regular income. Defined contribution plans have become widespread
all over the world in recent years, and are now the dominant form of plan in
the private sector in many countries. For example, the number of defined
benefit plans in the US has been steadily declining, as more and more employers
see pension contributions as a large expense avoidable by disbanding the
defined benefit plan and instead offering a defined contribution plan.
Money contributed can either be from
employee salary deferral or from employer contributions. The portability of defined contribution pensions is
legally no different from the portability of defined benefit plans. However,
because of the cost of administration and ease of determining the plan
sponsor's liability for defined contribution plans (you do not need to pay an
actuary to calculate the lump sum equivalent that you do for defined benefit
plans) in practice, defined contribution plans have become generally portable.
In a defined contribution plan,
investment risk and investment rewards are assumed by each
individual/employee/retiree and not by the sponsor/employer. In addition,
participants do not necessarily purchase annuities with their savings upon
retirement, and bear the risk of outliving their assets. (In the United
Kingdom, for instance, it is a legal requirement to use the bulk of the fund to
purchase an annuity.)
The "cost" of a defined
contribution plan is readily calculated, but the benefit from a defined
contribution plan depends upon the account balance at the time an employee is looking
to use the assets. So, for this arrangement, the contribution is known but the benefit is unknown (until calculated).
FINANCING
There are many ways to finance your
pension and save for retirement. Pension plans can be set up by your employer, matching
your contribution each month, by the state or personally through a pension
scheme with a financial institution, such as a bank or brokerage firm. Pension
plans often come with a tax break depending on the country and plan type.
For example Canadian’s have the option to open a Registered Retirement Savings Plan (RRSP), as well as a range of
employee and state pension programs[9]. This plan allows contributions to this account to be marked
as un-taxable income and remain un-taxed until withdrawal. Most country’s
governments will provide advice on pension schemes.
TYPES OF INSURANCE AS AN INVESTMENT
VEHICLE INSURANCE :
Coverage: An auto
insurance policy typically covers you and your spouse, relatives who live in
your home and other licensed drivers to whom you give permission to drive your
car. The policy is "package protection", which provides coverage for
both bodily injury and property damage liability as well as physical damage to
your vehicle. This damage can include both that caused by the collision and
damage cause by things "other than collision", such as flood, fire,
wind, hail, etc. (For more insight, read Shopping
For Car Insurance.)
·
Common Types of
Coverage: Auto insurance typically covers
personal injury (PIP), medical payments, uninsured motorist, underinsured
motorist, auto rental, emergency road assistance and other damages to your car
not caused by a collision such as flood, fire and vandalism. Other coverage is
available, too.
·
Deductible: The deductible is the amount that you will pay out of pocket
when you file a claim. Typically, the higher the deductible, the lower your
premiums.
·
Insurance Rates: How
much you pay will depends on many factors, including your driving record, the
value of your vehicle, where you drive, how much you drive, your marital
status, your desired coverage, your age, sex and even your credit history.
HOME INSURANCE:
Our homes and their contents are our greatest assets. That is
why it is so imperative that we protect their value. Homeowners insurance helps
us achieve that goal. Let's break down the different concepts that encompass
this area. (For background reading, see Beginners'
Guide To Homeowners Insurance.)
·
Coverage: Homeowners insurance typically covers the dwelling (the
structure), personal property and contents, and some forms of personal
liability. The policy may cover direct and consequential loss resulting from
damage to the property itself, loss or damage to personal property, and
liability for unintentional acts arising out of the non-business,
non-automobile activities of the insured and members of that insured's
household.
FLOOD INSURANCE:
Flood insurance is becoming more and more popular as places
that normally would not experience floods are suddenly finding themselves
suffering losses as a result of extreme weather. To the surprise of many of
these homeowners, their regular homeowner’s insurance policy did not cover
against flood. This is a separate type of coverage that you will have to
purchase if you consider flood to be a risk for your business or property. If
you live in a flood-prone area and you have a mortgage, the lender will require
you to purchase adequate coverage to insure the property. If you own the
Investopedia.com – the resource for investing and personal finance education.
property, you can elect
to self-insure and not buy insurance, but you have to remember that any damage
caused as a result of flooding will be your financial responsibility. The cost
of this kind of damage can run from the hundreds to thousands of dollars, so
it's worth considering purchasing the insurance to transfer this risk,
especially, if you live in a flood zone. If you don't live in a flood-prone
area, you may qualify for a discounted rate, which means a lower premium for
you.
WINDSTORM
INSURANCE :
Like
flood insurance, windstorm insurance is a separate type of coverage that
protects your home or business against wind damage. Wind damage may result from
items flying and destroying your property as a result of a hurricane, hail,
snow, sand or dust. Coverage for windstorm may be limited in states prone to
hurricane and tornadoes. If you live in a state like Florida, Louisiana, Texas
or the Carolinas, which are frequently barraged by tropical storms or
hurricanes, this should be an integral part of your asset protection planning.
Consult with your agent or broker for more details on this type of coverage.
Old.
HEALTH INSURANCE :
Health
insurance may be the most important type of insurance you can own. Without
proper health insurance, an illness or accident can wipe you out financially
and put you and your family in debt for years. So what is health insurance and
how does it work? Health insurance is a type of insurance that pays for medical
expenses in exchange for premiums. The way it works is that you pay your
monthly or annual premium and the insurance policy contracts healthcare
providers and hospitals to provide benefits to its members at a discounted
rate. This is how hospitals and healthcare providers get listed in your
insurance provider booklet. They have agreed to provide you with healthcare at
the specified cost. These costs include medical exams, drugs and treatments
referred to as "covered services" in your insurance policy.
As
with any type of insurance, there are exclusions and limitations. To know what
these are, you have to read your policy to find out what is covered and what is
not. If you elect to have a medical procedure done that is not covered by your
insurance, you will have to pay for that service
The
range of coverage for expenses varies depending on the type of plan, as will
the restrictions. You can purchase the insurance directly from the insurance
company through an agent or through an independent broker but most people get
their insurance coverage through employer-sponsored programs.
LIFE INSURANCE:
In
this policy, the insurance company pays in case of the
demise of the policy holder or at the time of the maturity of the policy. Now a
days a new policy has been launched by insurance companies in which you will be
covered under the insurance policy even after the
maturity of the policy. Read what are the different types oflife insurance
and which one is good for you. Read about health
insurance plans.
PROPERTY
INSURANCE:
This
insurance helps you to prevent the losses against theft, fire, burglary or any
natural calamity like Earthquake, Floods etc. based on the points mentioned in
the policy.
DISABILITY INSURANCE:
Apart
from health insurance, disability is a very critical type of insurance
individuals should consider having. When it comes to your personal finances,
long-term disability can have a devastating effect if you are not prepared.
Think about this: the probability of becoming at least temporarily disabled
during your working years is higher than the probability of dying during your
working years. (For related reading, see The
Disability Insurance Policy: Now In English.) Disability insurance can
replace a portion of the salary you were making before you became disabled and
unable to work after a serious injury or illness. But before you seek coverage,
you should first understand the different types of disability definitions used
by insurers.
LONG-TERM CARE INSURANCE:
As
our life spans are extended, our family structures change and medical care
improves, the need for long-term care will continue to increase. A great number
of people over 65 will spend some time in a nursing home, assisted living or
extended care facility. The cost of such care can quickly erode the assets of
even the most well-prepared savers. The risk of outliving your money in this
situation can be great, and one of the best ways to transfer this risk is to
purchase long term care. (For background reading, see A New Approach To Long-Term Care Insurance and Failing Health Could Drain Your Retirement
Savings.) Long-term care (LTC) is defined as a need for assistance with
some of the activities of daily living (often called ADLs). ADLs include functions
that most of us perform each day, like eating, bathing, using the bathroom,
dressing, transferring and maintaining continence.
ADVANTAGES & DISADVANTAGES OF INSURANCE OPTIONS
Advantages
of Insurance as an Investment Option:
Income guaranteed
through annuities: Life indemnity is one of the
ideal tools for retirement preparation . Funds that are earned and hoarded
during the lifetime are utilized to supply a firm source of returns during the
retirement period.
Dividends enable
growth: Customary policies enable prospect
to share in the monetary increase without taking the risk of investment. The
investment revenue is shared out among the policyholders through yearly
announcement of bonus and/or dividends.
Risk guard: Because
life is filled with uncertainties, life insurance guarantees that your dear
ones continue to have monetary back up in case of any unexpected incident that
may lead to your detriment or demise.
Tax benefits: Insurance
plans offer tax-benefits that are appealing for both at the entry and exit
period under the majority of the plan.
Mortgage
recovery: In case of demise of the
policyholder who has unpaid loans and mortgages, the insurance acts as an
efficient instrument to cover up these charges, removing the burden of repayment
of the family.
Disadvantages
of Insurance as an Investment Option:
Inconsistent
premiums: Most policies contain mandatory
premiums that increase in due course. For an insured on a budget, who desires
to buy coverage adequate to profit his relations upon his decease, this policy
can be quite costly. The unstable inflation guarantees a steep climb.
Deduction of
funds: While policies include conditions in which
shares from cash accounts can be used to disburse premiums, such a request
practically always results in deducting funds from the cash value / investment
account.
Insufficient
funds: There is a lack of assurance that ample
finance will be accessible to cover unpaid premiums when the policyholder holds
inadequate funds.
Expiration of
term insurance: This kind of insurance in not
permanent; it is either for a fixed number of years or until a certain age. On
completion of the term or when the insured reaches a certain age the policy
expires compelling them to qualify for another insurance program, which may
require higher premium depending on the age and other factors.
Language of
premium: It is usually difficult to resolve
precisely how costly commissions truly are. The cost is commonly concealed
within the fine print of the terms and conditions, and it is normally explained
in language that is complex for someone who is unfamiliar to insurance
policies.
Unit Linked Insurance Plan (ULIP)
ULIP stands for Unit Linked Insurance Plans. As we know that insurance is for protecting our life from the any uncertain events like death or accident. The purpose of the normal insurance plan is just protecting the life but not ensuring any savings for the future. The examples for the pure insurance plans are term.
Many people wanted plan which gives
protection also gives the returns for their investment. So, insurance companies
come up with the ULIP plan where the premium amount is
invested in the stock market and returns better income on the maturity period.
What is the difference between ULIP and Mutual Funds?
In structure both ULIP and Mutual Funds looks similar. But, in objective they are different.
Because of the high first-year charges, mutual funds are a better option if you
have a five-year horizon. But if you have a horizon of 10 years or more, then ULIPs have an edge. To explain this
further a ULIP has high first-year charges towards
acquisition (including agents’ commissions). As a result, they find it
difficult to outperform mutual funds in the first five years. But in the
long-term, ULIP managers have several advantages over
mutual fund managers. Since policyholder premiums come at regular
intervals, investments can be planned out more evenly.
IRDA
GUIDELINES ON INSURANCE
Insurance
companies can now hold up to 15 per cent stake in any company, up from 10 per
cent at present, as the Insurance Regulatory and Development Authority (IRDA),
on Friday, permitted raising of the investment limit.
The decision
comes on the back of the Finance Ministry pitching for raising the equity
investment limit for insurance behemoth LIC to up to 30 per cent.
“Insurance
companies will now be allowed to increase their exposure in equity in a given
company from the present level of 10 per cent to a higher level of 12 per cent
and 15 per cent depending upon the size of the controlled fund of any given
insurer,” the IRDA said in a statement. It said that the move is in line with
the growing size of funds managed by the insurance companies and would not have
any adverse effect on the financial health of the insurer. “The Authority
believes that this is commensurate and appropriate given the size of funds
under consideration without adversely affecting the prudential management of
investments,” it said.
The move
comes about four years after the IRDA amended investment norms to prohibit an
insurer from holding more than a 10 per cent stake in a company.
Differences
had emerged between Finance Ministry and IRDA over the issue of raising
investment limit for LIC. The Ministry proposed to raise the limit up to 25 per
cent in case of LIC, while the regulator had reservations.
The IRDA said
LIC was on a par with all other private insurers and it would be imprudent to
raise the cap specifically for LIC to 30 per cent. The board of IRDA also
approved the health insurance regulations that would enable a more
consumer-friendly system. Further, the board has referred the matter to
insurance advisory committee to have more clarity on bancassurance regulation.
The board
also approved a standard proposal form to capture full details of a
policyholder in accordance with the KYC norms for sale of life insurance
products which would be mandatory after six months.
WHY THERE IS A FIGHT BETWEEN ULIPS AND SEBI
SEBI manages all stock market related
activities. They have power to manage mutual funds and other investment schemes
that invest in stock markets.
ULIPs are similar to mutual funds
(investment in stock market) and some part of insurance added to it. As ULIP are
doing investment in share market, SEBI should have a control over it and thats
why SEBI is saying that insurers should seek its approval for ULIP products.
IRDA is regulatory authority for
insurance companies in India. As ULIP has more to do with Stock market
investment and less with insurance part. Ideally SEBI should also have say in
regulation of ULIPs. The same was requested to IRDA by SEBI, but they refused
to give them control, So SEBI has asked them to stop selling Ulips, but IRDA
has asked companies to continue selling the ULIPs.
SEBI has removed all entry loads on
mutual fund investment, But insurance agents are making lot of money in first
3-5 years of ULIP charging high entry load on ULIP investment. Most of the
ULIPs are misspelled in India, saying that investment have to be done only for
3-5 years, which is incorrect as if policy holder does not continue this after
that, he stands to loose.
This regulatory issue is turning into
a battle of supremacy – an outcome wherein the consumer interest may be
sidelined for the moment. IRDA seems particularly irritated as it may see this
ban as an encroachment of its territory of rights – perhaps ignoring the public
good.
It may be noted that Insurance
Business in India has been lacking efficiency. The industry that was originally
supposed to cover risks is selling investment instruments many a times
dependent upon stock market – which bring in inherent risk – which is nearly
opposite the whole philosophy of Insurance.
Barring the term plans which provides
pure risk cover, rest of the insurance policies have steep overheads and
charges. Many policies including ULIP deduct as much as 40% or more of the
first year premium as charges.
India is a peculiar country which has
a very poor ratio of premium to cover – which means that even though a lot of
premium is being collected the cover provided is very less. The primary reason
for that is that a huge portion of the premium is diverted to investments and
corresponding charges and load. Only a small fraction of the premium goes into
covering the actual risk.
These are major concerns that should
ideally be addressed by IRDA, which has acted very little in consumer interest.
Insurance still ranks to be the no. 1 product that is mis-sold making false
claims and giving wrong product knowledge. In these circumstances, it is
obvious for the market regulator SEBI to take a note. SEBI has made a great
impact in the highly rigged mutual funds and stock markets, making it far more
transparent over the years
It is expected that with SEBI
intervention, things would get better for the common man for whom Insurance is
indispensable. It is high time that Insurance is being sold as Insurance and
Investment is being sold as Investment and that too without leakage.
The government may be compelled to
step in to resolve the issue as some insurers are planning to approach the
court.
CONCLUSION
I
have conclude that in present market scenario the main focus of peoples are not only on safety & security
but also on the better return. Therefore, we can say that insurance also act as
investment opportunity because of Tax benefits, good return and security of
life. These are the basic reason, which shows that people become more conscious
about return and security of money than life insurance factor.
From
the above project it is concluded that insurance which is popularly known as
protecting the saving the life of policy holder has no longer remain the same
today people like to take insurance which act as investment .Yes, there are
insurance which act as investment such as ULIP, annuity plan, pension plan etc.
Today
the demand for such type of insurance is on a great height and likes to invest
in such type of insurance. Which would help them in old aged for them pension
plan is suitable. Annuity plan is suitable for those people who want slow and
steady income for them it is unsuitable to invest.
Today
people are investing in those insurance which act as an investment. Investment
in real estate and investment in share and debentures have become an older concept,
but instead insurance which acts as investment are playing an important role in
today’s scenario.
SUGGESTIONS
Ø After
analyzing the whole project, I would like to give few suggestions to
company to increase their market area. These facts are:-
Ø Company
must have to focus on advertisement to aware customers regarding Aviv’s
products.
Ø Since
peoples are focusing on good return so company must have to give
preference on those products.
Ø Company
must also focus on rural area to increase market share.
Ø Company
must has to focus on relationship strategy to retain the old customer and
create new customer
BIBLIOGRAPHY
1)
INVESTMENT IN INSURANCE - P.K Thomas
2) GAIN OF
INSURANCE - K.M Asif
3) FACTS OF
INSURANCE - Z.K Husain
WEBLIOGRAPHY
2) WWW.SCRIBD.COM
3)
WWW.SLIDESHARE.COM
4)
WWW.MBASKOOL.COM
No comments:
Post a Comment