icici prudential life insurance

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Project on Life Insurance

An Introduction to insuranceA system under which the insurer, for a consideration usually agreed upon in advance, promises to reimburse the insured or to render services to the insured in the event that certain accidental occurrences result in losses during a given period. It thus is a method of coping with risk. Its primary function is to substitute certainty for uncertainty as regards the economic cost of loss-producing events.

Insurance relies heavily on the law of large numbers. In large homogeneous populations it is possible to estimate the normal frequency of common events such as deaths and accidents. Losses can be predicted with reasonable accuracy, and this accuracy increases as the size of the group expands. From a theoretical standpoint, it is possible to eliminate all pure risk if an infinitely large group is selected. From the standpoint of the insurer, an insurable risk must meet the following requirements:

1. The objects to be insured must be numerous enough and homogeneous enough to allow a reasonably close calculation of the probable frequency and severity of losses.

2. The insured objects must not be subject to simultaneous destruction. For example, if all the buildings insured by one insurer are in an area subject to flood, and a flood occurs, the loss to the insurance underwriter may be catastrophic.

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Project on Life Insurance

3. The possible loss must be accidental in nature, and beyond the control of the insured. If the insured could cause the loss, the element of randomness and predictability would be destroyed.

4. There must be some way to determine whether a loss has occurred and how great that loss is. This is why insurance contracts specify very definitely what events must take place, what constitutes loss, and how it is to be measured.

From the viewpoint of the insured person, an insurable risk is one for which the probability of loss is not so high as to require excessive premiums. What is excessive depends on individual circumstances, including the insured's attitude toward risk. At the same time, the potential loss must be severe enough to cause financial hardship if it is not insured against. Insurable risks include losses to property resulting from fire, explosion, windstorm, etc.; losses of life or health; and the legal liability arising out of use of automobiles, occupancy of buildings, employment, or manufacture. Uninsurable risks include losses resulting from price changes and competitive conditions in the market. Political risks such as war or currency debasement are usually not insurable by private parties but may be insurable by governmental institutions. Very often contracts can be drawn in such a way that an uninsurable risk can be turned into an insurable one through restrictions on losses, redefinitions of perils, or other methods.

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Project on Life Insurance

Life insurance industryLife insurance may be defined as a plan under which large groups of individuals can equalize the burden of loss from death by distributing funds to the beneficiaries of those who die. From the individual standpoint life insurance is a means by which an estate may be created immediately for one's heirs and dependents. It has achieved its greatest acceptance in Canada, the United States, Belgium, South Korea, Australia, Ireland, New Zealand, The Netherlands, and Japan, countries in which the face value of life insurance policies in force generally exceeds the national income.

In the United States in 1990 nearly $9.4 trillion of life insurance was in force. The assets of the more than 2,200 U.S. life insurance companies totaled nearly $1.4 trillion, making life insurance one of the largest savings institutions in the United States. Much the same is true of other wealthy countries, in which life insurance has become a major channel of saving and investment, with important consequences for the national economy.

Life insurance is relatively little used in poor countries, although its acceptance has been increasing.

Types of contracts The major types of life insurance contracts are term, whole life, and universal life, but innumerable combinations of these basic types are sold. Term insurance contracts, issued for specified periods of years, are the simplest. Protection under these contracts

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Project on Life Insurance

expires at the end of the stated period, with no cash value remaining. Whole life contracts, on the other hand, run for the whole of the insured's life and gradually accumulate a cash value. The cash value, which is less than the face value of the policy, is paid to the policyholder when the contract matures or is surrendered. Universal life contracts, a relatively new form of coverage introduced in the United States in 1979, have become a major class of life insurance. They allow the owner to decide the timing and size of the premium and amount of death benefits of the policy. In this contract, the insurer makes a charge each month for general expenses and mortality costs and credits the amount of interest earned to the policyholder. There are two general types of universal life contracts, type A and type B. In type-A policies the death benefit is a set amount, while in type-B policies the death benefit is a set amount plus whatever cash value has been built up in the policy.

Life insurance may also be classified, according to type of customer, as ordinary, group, industrial, and credit. The ordinary insurance market includes customers of whole life, term, and universal life contracts and is made up primarily of individual purchasers of annual-premium insurance. The group insurance market consists mainly of employers who arrange group contracts to cover their employees. The industrial insurance market consists of individual contracts sold in small amounts with premiums collected weekly or monthly at the policyholder's home. Credit life insurance is sold to individuals, usually as part of an installment purchase contract; under these contracts, if the insured dies before the installment payments are completed, the seller is protected for the balance of the unpaid debt.

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Project on Life Insurance

Insurance may be issued with a premium that remains the same throughout the premium-paying period, or it may be issued with a premium that increases periodically according to the age of the insured. Practically all ordinary life insurance policies are issued on a level-premium basis, which makes it necessary to charge more than the true cost of the insurance in the earlier years of the contract in order to make up for much higher costs in the later years; the so-called overcharges in the earlier years are not really overcharges but are a necessary part of the total insurance plan, reflecting the fact that mortality rates increase with age. The insured is not overpaying for protection, because of the claim on the cash values that accumulate in the early years; the policyholder may borrow on this value or may recapture it completely by lapsing the policy. The insured does not, however, have a claim on all the earnings that accrue to the insurance company from investing the funds of its policyholders.

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Project on Life Insurance

INSURANCE SECTOR IN INDIAThe insurance sector in India has come a full circle from being an open competitive market to nationalisation and back to a liberalised market again. Tracing the developments in the Indian insurance sector reveals the 360-degree turn witnessed over a period of almost two centuries. A brief history of the Insurance sector The business of life insurance in India in its existing form started in India in the year 1818 with the establishment of the Oriental Life Insurance Company in Calcutta. Some of the important milestones in the life insurance business in India are:

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.

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1956: 245 Indian and foreign insurers and provident societies 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. Some of the important milestones in the general insurance business in India are:

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 (Nationalisation) Act, 1972 nationalised the 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 AssuranceICICI PRUDENTIAL

Project on Life Insurance

Company Ltd., the Oriental Insurance Company Ltd. and the United Ind