Introduction to Insurance sector in India In India, insurance has a deep-rooted history.

It finds mention in the writings of Manusmrithi, Dharmasastra and Kautilya (Arthasastra). The writings talk in terms of pooling of resources that could be re-distributed in times of calamities such as fire, floods, epidemics and famine. This was probably a pre-cursor (Predecessor) to modern day insurance. Ancient Indian history has preserved the earliest traces of insurance in the form of marine trade loans and carriers contracts. Insurance in India has evolved over time heavily drawing from other countries, England in particular. In 1818 the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in the last three decades of the nineteenth century, the Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were started in the Bombay Residency. This era, however, was dominated by foreign insurance offices which did good business in India, namely Albert Life Assurance, Royal Insurance, Liverpool and London Globe Insurance and the Indian offices were up for hard competition from the foreign companies. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938, with a view to protecting the interest of the Insurance public, the earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers. The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large number of insurance companies and the level of competition was high. There were also allegations of unfair trade practices. The Government of India, therefore, decided to nationalize insurance business. An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75 provident societies 245 Indian and foreign insurers in all. The LIC had monopoly till the late 90s when the Insurance sector was reopened to the private sector.

Life Insurance in India

Life insurance is popularly referred to as life assurance. Life insurance is a contract between two parties whereby one party agrees to pay to the other party, a certain amount of money as premium to make good the loss of life arising out of an uncertain event of death in which the insured has interest. In the case of life insurance, the underwriter agrees to pay the assured or his heirs, a certain sum of money on death or on the happening of an event dependent upon human life in consideration of premiums paid by the assured. Section 2(11) of the Insurance Act, 1938 defines Life Insurance business as follows: Life Insurance Business is the business of effecting contracts of insurance upon human life, including any contract whereby the payment of money is assured on death (except death by accident only) or the happening of any contingency dependant on human life and any contract which is subject to the payment of premiums for a term dependant on human life and shall be deemed to include: (a) The granting of disability and double or triple indemnity accident benefits if so provided in the contract of insurance. (b) The granting of annuities on human life; and (c) The granting of superannuation allowances and annuities payable out of any fund applicable solely to the relief and maintenance of persons engaged in any particular profession, trade or employment or of the dependants of such persons Human life is subject to risks of death and disability due to natural and accidental causes. When human life is lost or a person is disabled permanently or temporarily, there is a loss of income to the household. The family is put to hardship. Sometimes, survival itself is at stake for the dependants. Risks are unpredictable. Death/disability may occur when one least expects it. An individual can protect himself or herself against such contingencies through life insurance. T h o u g h H u m a n l i f e c a n n o t b e valued, a monetary sum could be determined which is based on loss o f income in future years. Hence in life insurance, the Sum Assured (or the amount guaranteed to be paid in the event of a loss) is by way of a benefit in the case of life insurance. It is the uncertainty that is risk, which gives rise to the necessity for some form of protection against the financial loss arising from death. Insurance substitutes this uncertainty by certainty. The primary purpose of life insurance is the protection of the family. Insurance in its various forms protects against such misfortunes by

having the losses of the unfortunate fe w paid by the contribution of the many that are exposed to the s a m e r i s k . Need for the Life Insurance: The original basic intention of life insurance is to provide for one family and perhaps others in the event of death. Originally, polices were to provide for short periods of time, covering temporary risk situations, such as sea voyages. As life insurance became more established. It was realized what a useful tool it was in a number of situations, including: Temporary needs threats: The original purpose of Life Insurance remains an important element, namely providing for replacement of income on death etc. Regular saving: Providing ones family and oneself, as a medium to long term exercise (through a series of regular payment of premiums). This has been become more relevant in recent times as people seek financial independence from their family. Investment: Put simply, the building up of saving while safeguarding it from ravages of inflation. Unlike regular saving products are traditionally lump is investments, where the individual makes are onetime payment. Retirement: Provision for ones on later years has become increasingly necessary. Especially in charging culture abs social environment, one can buy a suitable insurance policy which will provide periodical payments on ones old age.

Role of Life Insurance Corporation Largest Insurance Company in India-71 % market share in 2012, monpoly for 50 years, insurance is not an option but necessity in current times. Largest institutional investor. Provides expenses of Central government-24.6 percent of the expenses of the central. Govt. Maximum types of schemes which touch every aspect of life-40+ schemes. Covers different economic sections of the society.

 Largest insurer in rural areas. Help in Channelizing Money of NRI's through schemes-Currency Policy One of the biggest Employer-8 zonal Offices and 113 divisional offices located in different parts of India, 350 million policies and corpus of Rs 8 trillion. Non inflationary source of funds for the government. Funds to Private sector. Within 57 year of its existence, LIC contributed 7% to GDP. Social service with profit.

Functions of Life Insurance Corporation The functions of the Corporation shall be to carry on and develop life insurance business to the best advantage of the community. The Corporation shall have power (a) To carry on capital redemption business, annuity certain business or reinsurance business in so far as such reinsurance business relating to life insurance business; (b) To invest the funds of the Corporation in such manner as the Corporation may think fit and to take all such steps as may be necessary or expedient for the protection or realisation of any investment; including the taking over of and administering any property offered as security for the investment until a suitable opportunity arises for its disposal; (c) To acquire, hold and dispose of any property for the purpose of its business; (d) To transfer the whole or any part of the life insurance business carried on outside India to any other person or persons, if in the interest of the Corporation it is expedient so to do; (e) To advance or lend money upon the security of any movable or immovable property or otherwise; (f) To borrow or raise any money in such manner and upon such security as the Corporation may think fit; (g) To carry on either by itself or through any subsidiary any other business in any case where such other business was being carried on by a subsidiary of an insurer whose controlled business has been transferred to and vested in the Corporation by this act. (h) To carry on any other business this may seem to the Corporation to be capable of being Conveniently carried on in connection with its business and calculated directly or indirectly to render profitable the business of the Corporation; and

(i) To do all such things as may be incidental or conducive to the proper exercise of any of the powers of the Corporation. (j) In the discharge of any of its functions the Corporation shall act so far as may be on business principles. Important types of life insurance policies are: 1. Whole Life Policy 2. Endowment Policy 3. Joint Life Endowment Policy 4. Family Protection Policy 5. Multipurpose Policy 6. Convertible Whole Life Policy 7. Money Back Policy 1. Whole Life Policy: This is the purest form of permanent contract. Premiums are payable throughout the Life time of the life assured and the sum assured is payable only at his death. The element of protection of dependants is the dominating element and that of provision for old age is totally absent. This type of assurance provides a larger amount of life cover than any other permanent type of life assurance and it is therefore the most inexpensive form of permanent protection for dependants. It has the disadvantage that premiums continue in old age when the ability to pay them may be lessened by contraction of income. To obviate this difficulty the Corporation had decided that under these tables premiums are now limited to a maximum number and are payable either till age 80 or till 35 annual premiums are paid whichever is later. For example a person aged30 has to pay premiums for a maximum period of 50 years if he survives this period while a person aged 50 will have to pay for a maximum period of 35 years (i.e. not till age 80 but also beyond if he survives beyond age 80). With this benefit extended to all policies including those issued by the previous Insurers, the Corporation has no whole life assurance contract where under premiums are payable indefinitely throughout life. Whole Life Assurance by Limited Premiums: Under this type of policy, it can be arranged that premiums cease at retirement age so that the difficulties of maintaining the premiums in old age are removed. When the premium cease, the policy becomes fully paid-up. With profits policies continue to participate in profits till the claim arises even though the premiums have ceased. 2 Endowment Policy This is undoubtedly the most popular form of assurance at the present time. Under this class of contract, the sum assured is payable at the expiration of a fixed term of years or at death should that occur previously. This type of policy is really a combination of Life assurance and investment. In the case of policies running for long terms the assurance element predominates while in the case of assurances maturing at the end of comparatively shorter terms the actual cost of the life assurance is very small the bulk of the premium being required for the investment portion. 3 Joint Life Endowment Policy Under this plan, two lives are simultaneously insured and the sum assured is payable on the expiry of the term or/on the death of one of the assured lives during the endowment period. The premiums are payable throughout the endowment period or till the prior death of either of the lives

assured. It should be noted that one payment of the sum assured is envisaged even though two lives are insured; two payments on two deaths are not contemplated as the first death will determine the contract. 4 Family Protection Policy Many different names are given to describe policies such as Family Protection, Family Safeguard, Planned Protection etc., but most of them incorporate the idea of protecting or safeguarding the family while the family members are young. The policy provides that when the assured die during a fixed period, from the outset annual instalments or yearly income usually 10% to 12% of the basic sum assured shall be paid for the balance of the period. In addition the basic sum assured is paid either at the time of death or at the expiration of the fixed period or in varying proportion at both points of time. In the event of the life assureds surviving the specified term, only the basic sum assured is payable either at death or at maturity depending on the main plan of assurance. Premiums under this plan are generally payable for a fixed term of years or till death. 5Multipurpose Policy Under the multi-purpose policy the basic assurance is a type of family income policy under the endowment assurance scheme. The following benefits can be taken under the policy by paying appropriate extra premium: School Education Provision College Education Provision Marriage Provision for Daughter 6 Convertible W hole Life Policy This plan is essentially a whole life assurance with the option to convert after 5 years from commencement, into an endowment assurance effective from inception. This plan is suitable for a young man earning amongst income for the time being but with good prospects of higher income after a short period. The objective is to provide maximum assurance protection at minimum immediate cost and at the same time to offer a flexible contract which can be altered to an endowment assurance at the end of 5 years from the commencement of the policy by which time it is expected that there would be a rise in his income which would enable him to pay the larger premium payable after conversion. If the conversion option is not exercised the policy would continue as whole life assurance. 7 Money Back Policy This plan is suitable for those who besides providing for their old age and family, need lump sum benefit at periodic intervals. The sum assured is paid in suitable instalments. Yet throughout the period of assurance, the dependents are guaranteed the benefit of the full sum assured protection in the event of the death of the assured, irrespective of the instalments that might have been paid. The policy is available for 4 terms i.e. 12years, 15 years, 20 years and 25 years to suit ones best convenience. No loan is granted under this plan.

Modern Life Insurance in India