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CONTENTS PG.NO

1 Introduction to insurance

2 Introduction to life insurance

3 Review of literature

4 Company profile

5 Plans of BLSI & ULIP

6 Comparison analysis

7 conclusion

INTRODUCTION TO INSURANCE

1818 saw 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.      In 1914, the Government of India started publishing returns of Insurance Companies in India. 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 nationalizing 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.      The history of general insurance dates back to the Industrial Revolution in the west and the consequent growth of sea-faring trade and commerce in the 17th century. It came to India as a legacy of British occupation. General Insurance in India has its roots in the establishment of Triton Insurance Company Ltd., in the year 1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd was set up. This was the first company to transact all classes of general insurance business.1957 saw the formation of the General Insurance Council, a wing of the Insurance Association of India. The General Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices. 

    In 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins. The Tariff Advisory Committee was also set up then.     In 1972 with the passing of the General Insurance Business (Nationalization) Act, general insurance business was nationalized with effect from 1st January, 1973. 107 insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the New India Assurance Company Ltd., the Oriental Insurance Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was incorporated as a company in 1971 and it commence business on January 1sst 1973.      This millennium has seen insurance come a full circle in a journey extending to nearly 200 years. The process of re-opening of the sector had begun in the early 1990s and the last decade and more has seen it been opened up substantially. In 1993, the Government set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector. The objective was to complement the reforms initiated in the financial sector. The committee submitted its report in 1994 wherein, among other things, it recommended that the private sector be permitted to enter the insurance industry. They stated that foreign companies are allowed to enter by floating Indian companies, preferably a joint venture with Indian partners.      Following the recommendations of the Malhotra Committee report, in 1999, the Insurance Regulatory and Development Authority (IRDA) was constituted as an autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in April, 2000. The key objectives of the IRDA include promotion of competition so as to enhance customer satisfaction through increased consumer choice and lower premiums, while ensuring the financial security of the insurance market.      The IRDA opened up the market in August 2000 with the invitation for application for registrations. Foreign companies were allowed ownership of up to 26%. The Authority has the power to frame regulations under Section 114A of the Insurance Act, 1938 and has from 2000 onwards framed various regulations ranging from registration of companies for carrying on insurance business to protection of policyholders’ interests.     In December, 2000, the subsidiaries of the General Insurance Corporation of India were restructured as independent companies and at the same time GIC was

converted into a national re-insurer. Parliament passed a bill de-linking the four subsidiaries from GIC in July, 2002.      Today there are 28 general insurance companies including the ECGC and Agriculture Insurance Corporation of India and 24 life insurance companies operating in the country.      The insurance sector is a colossal one and is growing at a speedy rate of 15-20%. Together with banking services, insurance services add about 7% to the country’s GDP. A well-developed and evolved insurance sector is a boon for economic development as it provides long- term funds for infrastructure development at the same time strengthening the risk taking ability of the country FUNCTION OF INSURANCE

The functions of Insurance can be bifurcated into three parts:

1. Primary Functions2. Secondary Functions3. Other Functions

The primary functions of insurance include the following:

Provide ProtectionThe primary function of insurance is to provide protection against future risk, accidents and uncertainty. Insurance cannot check the happening of the risk, but can certainly provide for the losses of risk.

Collective bearing of risk Insurance is a mean by which few losses are shared among larger number of people. All the insured contribute the premiums towards a fund and out of which the persons Exposed to a particular risk is paid.

Assessment of risk Insurance determines the probable volume of risk by evaluating various factors that give rise to risk. Risk is the basis for determining the premium rate also.

Provide Certainty

Insurance is a device, which helps to change from uncertainty to certainty. Insurance is device whereby the uncertain risks may be made more certain.

Research and publicity

Insurers also spend money in research and publicity in creating risk consciousness amongst which has a far reaching effect on reduction in national waste.The secondary functions of insurance include the following:

Prevention of Losses Prevention of losses causes lesser payment to the assured by the insurer and this will encourage for more savings by way of premium. Reduced rate of premiums stimulate for more business and better protection to the insured.

Small capital to cover larger risks Insurance relieves the businessmen from security investments, by paying small amount of premium against larger risks and uncertainty.

Contributes towards the development of larger industries Insurance provides development opportunity to those larger industries having more risks in their setting up. Even the financial institutions may be prepared to give credit to sick industrial units which have insured their assets including plant and machinery.

If improves efficiencyThe insurance eliminates worries and miseries of loans at death and destruction of property. The carefree person can devote his body and soul together for better achievement. It improves not only his efficiency, but the efficiencies of the masses are also advanced.

It helps economic progressThe insurance by protecting the society from huge losses of damage, destruction and death, provides an initiative to work hard for the betterment of the masses. The next factor of economic progress. The capital is also immensely provided by the masses. The property, the valuable assets, the man, the machine and the society cannot lose much at the disaster.

The other functions of insurance include the following:

Means of savings and investment

Insurance serves as savings and investment, insurance is a compulsory way of savings and it restricts the unnecessary expenses by the insured's For the purpose of availing income-tax exemptions also, people invest in insurance.

Source of earning foreign exchange Insurance is an international business. The country can earn foreign exchange by way of issue of marine insurance policies and various other ways.

Risk Free trade Insurance promotes exports insurance, which makes the foreign trade risk free with the help of different types of policies under marine insurance cover.

PURPOSE OF INSURANCE1. Insurance spreads the economic burden of losses by using funds contributed by members of the group to pay for them. Thus, it is a loss spreading device..The fundamental purpose of insurance however is neither the spreading nor the prevention of losses. Rather, it is reduction of the uncertainty which is caused by awareness of the possibility of loss.

3. An insurance scheme provides certainty for the individual members of the group by averaging loss costs. The contribution made by the individual to the group is assumed, on the basis of predictions, to be his share of losses suffered by the group.In exchange for this contribution, he is assured that the group will assume any losses that involve him. He transfers his risk to the group and averages his loss costs, thus substituting certainty for uncertainty. He pays a certain premium instead of facing the uncertainty of the possibility of large loss.

PRINCIPLE OF INSURANCE

Principles of Co-operation.

Insurance is co-operative device. If one person is providing for his own losses, it cannot be strictly insurance because in insurance, the loss is shared by a group of persons who are willing to co-operate. It is the duty and responsibility of the insurer to obtain adequate funds from the members of the society to pay them at the happening of the insured risk. Thus, the shares of loss took the form of premium. Today, all the insured

give a premium to join the scheme of insurance. Thus, the insured are co-operating to share the loss of an individual be payment of a premium in advance.

Principles of Probability

The loss in the shape of premium can be distributed only on the basis of theory of probability. The chances of loss are estimated in advance to affix the amount of premium. Since the degree of loss depends upon various factors, the affecting factors are analyzed before determining the amount of loss. With the help of this principle, the uncertainty of loss is converted into certainty. The insurer will have not to suffer loss as well have to gain windfall. Therefore, the insurer has to charge only so much of amount which is adequate to meet the loss. The probability tells what the chances of loss are and what will be the amount of losses.

The insurance, on the basis of past experience, present conditions and future prospects, fixes the amount of premium. Without premium, no-operation is possible and the premium cannot be calculated without the help of theory of probability, and consequently no insurance is possible. So, these two principles are the two main legs of insurance.

INTRODUCTION TO LIFE INSURANCEWhat is a life insurance policy?

A life insurance policy provides financial protection to our family in the unfortunate event of your death. At a basic level, it involves paying small sums each month (called premiums) to cover the risk of our untimely demise during the tenure of the policy. In such an event, our family (or the beneficiaries we have named in the policy) will receive a lump sum amount. In case we live till the maturity of the policy, depending on the type of life insurance policy we have opted for, we will receive returns the policy may have earned over the years. Today, there are many variations to this basic theme, and insurance policies cater to a wide variety of needs.

What are the various types of life insurance policies?

Given below are the basic types of life insurance policies. All other life insurance policies are built around these basic insurance policies by combination of various other features.

Term Insurance Policy

A term insurance policy is a pure risk cover policy that protects the person insured for a specific period of time. In such type of a life insurance policy, a fixed sum of money called the sum assured is paid to the beneficiaries (family) if the policyholder expires within the policy term. For instance, if a person buys a Rs 2 lakh policy for 15 years, his family is entitled to the sum of Rs 2 lakh if he dies within that 15-year period.

If the policy holder survives the 15-year period, the premiums paid are not returned back. The advantage, apart from the financial security for an individual’s family is that the premiums paid are exempt from tax.

These insurance policies are designed to provide 100 per cent risk cover and hence they do not have any additional charges other than the basic ones. This makes premiums paid under such life insurance policies the lowest in the life insurance category.

Whole Life Policy

A whole life policy covers a policyholder against death, throughout his life term. The advantage that an individual gets when he / she opts for a whole life policy is that the validity of this life insurance policy is not defined and hence the individual enjoys the life cover throughout his or her life.

Under this life insurance policy, the policyholder pays regular premiums until his death, upon which the corpus is paid to the family. The policy does not expire till the time any unfortunate event occurs with the individual.

Increasingly, whole life policies are being combined with other insurance products to address a variety of needs such as retirement planning, etc.

Premiums paid under the whole life policies are tax exempt.

Endowment Policy

Combining risk cover with financial savings, endowment policies are among the popular life insurance policies.

Policy holders benefit in two ways from a pure endowment insurance policy. In case of death during the tenure, the beneficiary gets the sum assured. If the individual survives the policy tenure, he gets back the premiums paid with other investment returns and benefits like bonuses.

In addition to the basic policy, insurers offer various benefits such as double endowment and marriage/ education endowment plans.

The concept of providing the customers with better returns has been gaining importance in recent times. Hence, insurance companies have been coming out with new and better ULIP versions of endowment policies. Under such life insurance policies the customers are also provided with an option of investing their premiums into the markets, depending on their risk appetite, using various fund options provided by the insurer, these life insurance policies help the customer profit from rising markets.

The premiums paid and the returns accumulated through pure endowment policies and their ULIP variants are tax exempt.

Money Back Policy

This life insurance policy is favoured by many people because it gives periodic payments during the term of policy. In other words, a portion of the sum assured is paid out at regular intervals. If the policy holder survives the term, he gets the balance sum assured.

In case of death during the policy term, the beneficiary gets the full sum assured.

New ULIP versions of money back policies are also being offered by various life insurers.

The premiums paid and the returns accumulated though a money back policy or its ULIP variants are tax exempt.

ULIPs

ULIPs are market-linked life insurance products that provide a combination of life cover and wealth creation options.

A part of the amount that people invest in a ULIP goes toward providing life cover, while the rest is invested in the equity and debt instruments for maximising returns. .

ULIPs provide the flexibility of choosing from a variety of fund options depending on the customers risk appetite. One can opt from aggressive funds (invested largely in the equity market with the objective of high capital appreciation) to conservative funds (invested in debt markets, cash, bank deposits and other instruments, with the aim of preserving capital while providing steady returns).

ULIPs can be useful for achieving various long-term financial goals such as planning for retirement, child’s education, marriage etc.

Annuities and Pension

In these types of life insurance policies, the insurer agrees to pay the insured a stipulated sum of money periodically. The purpose of an annuity is to protect against financial risks as well as provide money in the formof pension at regular intervals.

How does insurance work? 

Insurance works by pooling risk.What does this mean? It simply means that a 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.

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 (we 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. We can avoid the risk altogether, or we can choose to reduce your risk.

Risk FinancingIf we decide to retain our risk exposures, then we can either transfer that risk (ie. to an insurance company), or we retain that risk either voluntarily (ie. we identify and accept the risk) or involuntarily (we identify the risk, but no insurance is available).

Risk SharingFinally, we 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 we 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 us, then we 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 us or our loved ones a significant financial loss or inconvenience. Do keep in mind that in some instances, we 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 ProcessAfter you have determined that you would like to insure against a loss, the next step is to seek out insurance coverage. Here we have many options available to you but it's always best to shop around. We 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 our 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.

UnderwritingUnderwriting is the process of evaluating the risk to be insured. This is done by the insurer when determining how likely it is that the loss will occur, how much the loss could be and then using this information to determine how much you should pay to insure against the risk. The underwriting process will enable the insurer to determine what applicants meet their approval standards. For example, an insurance company might only accept applicants that they estimate will have actual loss experiences that are comparable to the expected loss experience factored into the company's premium fees. Depending on the type of insurance product you are buying, the underwriting process may examine your health records, driving history, insurable interest etc. 

The concept of "insurable interest" stems from the idea that insurance is meant to protect and compensate for losses for an individual or individuals who may be adversely affected by a specific loss. Insurance is not meant to be a profit center for the policy's beneficiary. People are considered to have an insurable interest on their lives, the life of their spouses (possibly domestic partners) and dependents. Business partnersmay also have an insurable interest on each other and businesses can have an insurable interest in the lives of their employees, especially any key employees.

Insurance ContractThe insurance contract is a legal document that spells out the coverage, features, conditions and limitations of an insurance policy. It is critical that we read the contract and ask questions if we don't understand the coverage. We don't want to pay for the insurance and then find out that what we thought was covered isn't included

Insurance terminology:

Bound: Once the insurance has been accepted and is in place, it is called "bound". The process of being bound is called the binding process.

Insurer: A person or company that accepts the risk of loss and compensates the insured in the event of loss in exchange for a premium or payment. This is usually an insurance company. 

Insured: The person or company transferring the risk of loss to a third party

through a contractual agreement (insurance policy). This is the person or entity who will be compensated for loss by an insurer under the terms of the insurance contract.

Insurance Rider/Endorsement: An attachment to an insurance policy that alters the policy's coverage or terms.

Insurance Umbrella Policy: When insurance coverage is insufficient, an umbrella policy may be purchased to cover losses above the limit of an underlying policy or policies, such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.

Insurable Interest: In order to insure something or someone, the insured must provide proof that the loss will have a genuine economic impact in the event the loss occurs. Without an insurable interest, insurers will not cover the loss. It is worth noting that for property insurance policies, an insurable interest must exist during the underwriting process and at the time of loss. However, unlike with property insurance, with life insurance, an insurable interest must exist at the time of purchase only. 

FUNDAMENTAL PRINCIPLES OF INSURANCE

Some useful terms in Insurance:

A) INDEMNITY

A contract of insurance contained in a fire, marine, burglary or any other policy

excepting life assurance and personal accident and sickness insurance) is a contract

of indemnity. This means that the insured, in case of loss against which the policy

has been issued, shall be paid the actual amount of loss not exceeding the amount

of the policy, i.e. he shall be fully indemnified. The object of every contract of

insurance is to place the insured in the same financial position, as nearly as

possible, after the loss, as if his loss had not taken place at all. It would be against

public policy to allow an insured to make a profit out of his loss or damage.

B) UTMOST GOOD FAITH

Since insurance shifts risk from one party to another, it is essential that there must

be utmost good faith and mutual confidence between the insured and the insurer. In

a contract of insurance the insured knows more about the subject matter of the

contract than the insurer. Consequently, he is duty bound to disclose accurately all

material facts and nothing should be withheld or concealed. Any fact is material,

which goes to the root of the contract of insurance and has a bearing on the risk

involved. It is only when the insurer knows the whole truth that he is in a position

to judge

(a) Whether he should accept the risk and

(b) What premium he should charge.

If that were so, the insured might be tempted to bring about the event insured

against in order to get money.

C) Insurable Interest - A contract of insurance affected without insurable interest

is void. It means that the insured must have an actual pecuniary interest and not a

mere

anxiety or sentimental interest in the subject matter of the insurance. The insured

must be so situated with regard to the thing insured that he would have benefit by

its existence and loss from its destruction. The owner of a ship run a risk of losing

his ship, the charterer of the ship runs a risk of losing his freight and the owner of

the cargo incurs the risk of losing his goods and profit. So, all these persons have

something at stake and all of them have insurable interest. It is the existence of

insurable interest in a contract of insurance, which distinguishes it from a mere

watering agreement.

D) Causa Proxima - The rule of causa proxima means that the cause of the loss

must be proximate or immediate and not remote. If the proximate cause of the loss

is a peril insured against, the insured can recover. When a loss has been brought

about by two or

more causes, the question arises as to which is the causa proxima, although the

result could not have happened without the remote cause. But if the loss is brought

about by any cause attributable to the misconduct of the insured, the insurer is not

liable.

F) Mitigation of Loss - In the event of some mishap to the insured property, the

insured must take all necessary steps to mitigate or minimize the loss, just as any

prudent person would do in those circumstances. If he does not do so, the insurer

can avoid the payment of loss attributable to his negligence. But it must be

remembered that though the insured is bound to do his best for his insurer, he is,

not bound to do so at the risk of his life.

G) Subrogation - The doctrine of subrogation is a corollary to the principle of

indemnity and applies only to fire and marine insurance. According to it, when an

insured has received full indemnity in respect of his loss, all rights and remedies

which he has against

Third person will pass on to the insurer and will be exercised for his benefit until

he (the insurer) recoups the amount he has paid under the policy. It must be

clarified here that the

Insurer’s right of subrogation arises only when he has paid for the loss for which

he is liable under the policy and this right extends only to the rights and remedies

available to the insured in respect of the thing to which the contract of insurance

relates.

H) Contribution - Where there are two or more insurance on one risk, the

principle of contribution comes into play. The aim of contribution is to distribute

the actual amount of loss among the different insurers who are liable for the same

risk under different policies in respect of the same subject matter. Any one insurer

may pay to the insured the full amount of the loss covered by the policy and then

become entitled to contribution from his co-insurers in proportion to the amount

which each has undertaken to pay in case of loss of the same subject-matter.

In other words, the right of contribution arises when

1) There are different policies, which relate to the same subject matter

2) The policies cover the same peril which caused the loss, and

3) All the policies are in force at the time of the loss, and

4) One of the insurers has paid to the insured more than his share of the loss.

Policy is a form of security for the person who insures his life and his family. Life

insurance policies have helped trade and other economic activities to flourish in a

great manner. It has generated lots of job opportunities. It is looked upon as a

lucrative career option. Life insurance companies have also entered the

international business

MAJOR PLAYERS OF INDIA IN INSURANCE

Reliance Life Insurance is a part of the Reliance group. It is one of the partners

of Reliance Capital Ltd which is a Anil Dhirubhai Ambani Group. Reliance Capital

is one India's most dominant private sector financial services companies. They

offer insurance products which help you with savings as well as give you

protection.

Canara HSBC Life is a joint venture of Canara Bank, HSBC Insurance (Asia

pacific) & Oriental bank of Commerce. The Company got its approval from IRDA

in June 2008 and from that commencing its business. They have more than 4100

branches all over India.

DLF pramerica Life Insurance Company Ltd. is a joint venture between DLF

Limited & Prudential International Insurance Holdings Limited. DLF Pramerica

believes in delivering a secure & enrich life to there customers.

MetLife One of the fastest growing insurance company in India is MetLife. The

company started its operations in between 2000-2001. They have a range of

various products to offer.

ICICI Prudential ICICI Bank with Prudential plc, both well known & strong

financial institutions came together in December 2000 to form an insurance

company - ICICI Prudential Life Insurance.

Max New York Life Max India’s leading multi business corporation & New York

Life joined there hands in 2000.The company started there operations in 2001. The

company is involved in Life & health products.

Bajaj Allianz Bajaj who are into iron & steel, finance, insurance & etc and

Allianz who provides financial services when came together they formed Bajaj

Allianz Life Insurance Company.

Bharti AXA Bharti AXA Life Insurance is a joint venture between Bharti &

AXA. The company started its functionality in December 2006 and they always

believe to be a strong financial institute.

HDFC Standard Life HDFC Standard Life Insurance is a joint venture between

Housing Development Finance Corporation Limited & a Group of Standard Life

Plc.The Company started commencing its business in December 2000.

AEGON Religare AEGON Religare Life Insurance Company Ltd is a joint

venture with AEGON, Religare and Bennett, Coleman & Company a part of Times

Group. AEGON Religare Life Insurance company was launched in July 2008.

Kotak Mahindra A joint venture of Kotak Mahindra group & Old Mutual plc is

known as Kotak Mahindra Old Mutual Funds. The Company started commencing

its business in 2001. The company aim is to help customers in making there

financial decisions.

Future Generali Life Future Generali is a joint venture between Future Group of

India & Italy based Generali Group.Future Generali in India is into both Life &

Non Life businesses in India. The company wants to provide a financial security to

all.

SBI Life SBI Life Insurance Company Limited is a joint venture between State

Bank of India and BNP Paribas Assurance. It is present in more than 41 countries

across the world. SBI Life offers a variety of plans in life insurance and pension.

Shriram Life Shriram Life Insurance Company is a joint venture between Shriram

Group and Sanlam Group.Shriram Group is one of India’s most esteemed financial

services & Sanlam Group is one of the largest life insurance providers of South

Africa.

TATA AIG The TATA Group and American International Group Inc together

formed Tata AIG Life Insurance Co. Ltd.Tata Group holds 74% stake in the

insurance venture with AIG holding the balance 26%. They started their operations

in April 2001

Aviva Aviva, one of UK's largest insurance company and world's 5th largest

insurance group. It was one of the first international insurance company to set up

its office in India in the year 1995. They introduced the concept of banc assurance

in India.

IDBI Fortis IDBI Fortis Life Insurance Co. Ltd is a joint venture between three

financial institutes; they are IDBI Bank, Federal Bank and Fortis. They introduced

there plans in March 2008. IDBI owns 48% equity while Federal Bank and Fortis

own 26% equity each.

Sahara The Sahara Pariwar stepped into the insurance business by launching

Sahara India Life Insurance Co. Ltd. They received the IRDA license in February

2004 and started their operations in October 2004. They are the first solely owned

private sector insurance company in India.

ING VYSYA ING Life was established in 2001 as a joint venture between ING

Insurance International B.V. (INGI), ING Vysya Bank Limited and GMR

Industries Limited. At present, INGI, Exide Industries Limited, Ambuja Cement

Ltd, Enam Group are the joint venture partners.

Star Union Star Union Dai-ichi Life Insurance Co.Ltd. is formed by three various

financial institutions. Bank of India, Union Bank of India and Dai-ichi Mutual Life

Insurance Company This firm was incorporated in the year 2007 and got their

IRDA license on the 26th Dec 2008

Birla Sun Life Insurance Company Limited is a joint venture between The Aditya Birla Group, one of the largest business houses in India and Sun Life Financial Inc., a leading international financial services organisation. The local knowledge of the Aditya Birla Group combined with the expertise of Sun Life Financial Inc., offers a formidable protection for your future.

The Aditya Birla Group has a turnover of close to Rs. 119000 crores, with a market capitalisation of Rs. 133875 crores (as on 31st March 2008). It has over 100,000 employees across all its units worldwide. It is led by its Chairman - Mr. Kumar Mangalam Birla. Some of its key companies are Hindalco, Grasim and Aditya Birla Nuvo.

Sun Life Financial

Sun Life Financial Inc. is a leading international financial services organisation providing a diverse range of wealth accumulation and protection products and services to individuals and corporate customers. Tracing its roots back to 1865, Sun Life Financial and its partners today have operations in key markets worldwide, including Canada, the United States, the United Kingdom, Hong Kong, the Philippines, Japan, Indonesia, India, China and Bermuda. As of 31 March 2008, the Sun Life Financial group of companies had total assets under management of US$ 343 billion

Sun Life Financial Inc. trades on the Toronto (TSX), New York (NYSE) and

Philippine (PSE) stock exchanges under ticker symbol "SLF".

.

Brands Of Aditya Birla Group

Birla Sun Life Insurance (BSLI) has been operating for 9 years. It has contributed significantly to the growth and development of the life insurance industry in India. It pioneered the launch of Unit Linked Life Insurance plans amongst the private players in India. It was the first player in the industry to sell its policies through the Bancassurance route and through the Internet. It was the first private sector player to introduce a Pure Term plan in the Indian market. BSLI has covered more than 2 million lives since it commenced operations. And its customer base is is spread across more than 1500 towns and cities in India. The company has a capital base of Rs. 1274.5 crores as on 31st March 2008.

With an experience of over 9 years, BSLI has contributed significantly to the growth and development of the life insurance industry in India and currently ranks amongst the top 5 private life insurance companies in the country.

Known for its innovation and creating industry benchmarks, BSLI has several firsts to its credit. It was the first Indian Insurance Company to introduce “Free Look Period” and the same was made mandatory by IRDA for all other life insurance companies. Additionally, BSLI pioneered the launch of Unit Linked Life Insurance plans amongst the private players in India. To establish credibility and further transparency, BSLI also enjoys the prestige to be the originator of practice to disclose portfolio on monthly basis. These category development initiatives have helped BSLI be closer to its policy holders’ expectations, which gets further accentuated by the complete bouquet of insurance products (viz. pure term plan, life stage products, health plan and retirement plan) that the company offers.

Add to this, the extensive reach through its network of 600 branches and 1,75, 000 empanelled advisors. This impressive combination of domain expertise, product range, reach and ears on ground, helped BSLI cover more than 2 million lives since it commenced operations and establish a customer base spread across more than 1500 towns and cities in India. To ensure that our customers have an impeccable experience, BSLI has ensured that it has lowest outstanding claims ratio of 0.00% for FY 2008-09. Additionally, BSLI has the best Turn around Time according to LOMA on all claims Parameters. Such services are well supported by sound financials that the Company has. The AUM of BSLI stood at Rs. 8165 crs as on February 28, 2009, while as on March 31, 2009, the company has a robust capital base of Rs. 2000 crs.

Achievements of BSLI

1st to introduce ULIP fund options.

1st to launch illustrations so that customers understand the products better

before they buy.

1st to issue NAVs of funds for better transparency.

1st to disclose portfolio on a monthly basis.

1st to introduce “Free Look Period” and the same was made mandatory by IRDA for all other Life Insurance Companies.

SWOT Analysis

STRENGTH:

➢Multi-channel distribution and one of the largest distribution networks in India.➢ Implementing Six-Sigma process.➢Customer centric products and services.➢ Superior investment and risk management framework .➢ Company has maximum number of MDRT as well as good number of HNI advisors.➢ Training process of the company is very strong.

Different plan for different peoples. According to the change in surrounding environment like changes in

customer requirement.

WEAKNESS:

➢Company does not penetrate on the rural market at a time.➢There is no plan for the low income group.➢Fees for the advisor is high than the other company.

OPPORTUNITY:

➢Insurance market is very big, where company can expand its horizon in insurance industry. Though good investment and insurance it is easy to top Indian customers.➢The huge insurance market (77%) is left so company has opportunity to expand our products.

THREATS:

➢OLD HABITS DIE HARD’: It’s still difficult task to win the confidence of public towards private company.➢ The company is facing major threats from LIC-which is an only government company.

SALES PROCEDURE IN BSLI

BSLI ensure that its policyholder get the best out of the policy offered to them by their Advisors. Forthis, BSLI follows a set of procedure of selling Insurance to the clients. The sales procedure can be diagrammatically represented as follows

1. Pitching the customer: The first and foremost thing is that, client should be ready to purchase the Insurance plan. Insurance is not a very preferable product yet

in India. And, thus, co. has to be very vigilant. Advisors, at BSLI, maintain relationships and make the most of their Goodwill. Insurance is a Relationship oriented business. Keeping this in mind BSLI also initiated Bancassurance, Birla Sun Life Insurance where Banks’ image of being loyal to the customers, plays a major role in pitching the customer to buy Insurance. BSLI uses following routes for distributing their Product to general public: a. Direct Personal Contacts (through Advisors) b. Bancassurance (through Banks) c. Personal Relations (through co. employees) d. Existing Policyholders.

2. Sales Illustration: BSLI is the first company to give demonstration of the fund performance i.e. how a certain policy will perform or will give returns. BSLI Advisors give sales illustration. Fund performance is shown on 6% and 10% projections. If client find these projected returns suitable to his/her risk profile, he go for purchasing the policy.

3. Proposal Form: Now as client is ready to get insured, advisor gives him the proposal form and asks for all the documents required. Proposal form is a 4 page document that contains all the necessary information related to the Insured and the Owner of the policy. Documents required along with the proposal form are: Date-Of-Birth Proof Address & ID Proof Income Certificate Medical Certificates (only if Insurer is a senior citizen)

After Sales Service: Now after the Insurance is sold, follow-ups are required.

Advisor needs to maintain good relations with the policyholder. Insurance co. can

generate further business, only if, existing policyholders are satisfied with the

services being provided by the advisor of the co. Thus, BSLI keeps this in mind

and Business Development Executives continuously track the needs of the

policyholders. BSLI provides the policyholders with monthly updates of the fund

performance and also discloses the asset portfolio of the fund. This assists the

policyholders to manage their policy according to their risk profile. They can,

thus, change their fund allocation as well as the asset allocation in any fund,

chosen by them. 

ULIP

ULIP stands for Unit Linked Insurance Plan. It provides for life

insurance where the policy value at any time varies according to the

value of the underlying assets at the time. ULIP is life insurance solution

that provides for the benefits of protection and flexibility in investment.

The investment is denoted as units and is represented by the value that it

has attained called as Net Asset Value (NAV).

ULIP came into play in the 1960s and is popular in many countries in

the word. The reason that is attributed to the wide spread popularity of

ULIP is because of the transparency and the flexibility which it offers.

As times progressed the plans were also successfully mapped along

with life insurance need to retirement planning. In today’s times, ULIP

provides solutions for insurance planning, financial needs, financial

planning for children’s future and retirement planning. These are

provided by the insurance companies or even banks.

When the stock markets are volatile and unpredictability becomes a

hindrance to encourage further investment, it leaves the customers

perplexed. To top it all if the debt market doesn’t attract you because of

its low interest rate, investment may seem customary. However, lately

banks have been offering an 8% interest rate per annum for investors. A

reason good enough to invest in Fixed Deposits (FD). What’s more? The

investments in FDs qualify for tax benefits too under Section 80 C of the

Income Tax Act, 1961, provided the minimum tenure selected is five

years.

If the inclination to invest in stock market still persists but are still

skeptical, try via Unit Linked Insurance Plan (ULIP) route. It provides

cushion to those who are risk averse. ULIPs offer insurance protection

along with the option to invest in the stock market. The best part of

investing in stocks via ULIPs is that you can choose the funds suiting

your risk profile.

If you know that a particular fund is at its high and is performing well,

with the switch over option you can move to that fund. You can do that

when the fund in which you have invested is performing poorly or you

feel the returns are high in some other fund. The funds offered by ULIPs

give the investors an exposure to both high and low equity investments.

Based on your risk profile, make your pick.

Simple Explanation Of ULIPs –

Suppose that you buy a ULIP when you are 30 years old. The sum

assured is Rs 5 lakh and the term is 20 years. The premium that you will

pay over a period of 20 years will work out to around Rs 25,000 to Rs

30,000 depending on the company you choose.

In a term policy, your premium will remain fixed throughout the term of

the policy. So that means, if you opt to invest in a mutual fund and buy a

term policy, the amount of investment and cost of insurance will not

change over a period of time. For a similar example as above, if the 30

year old were to take a term insurance policy for Rs 5 lakh, he would

end up paying anywhere between Rs 40,000 to Rs 50,000 as insurance

premium.

This vast difference in cost of insurance is mainly because of cost of

distribution and administration as also the margins of the insurer. In a

ULIP, costs and margins are recovered commonly between the

investment portion and the insurance portion. However, if you were to

buy a term policy and a mutual fund, the insurance company will

recover its costs of distribution and administration as well as margins.

The mutual fund would again recover the same costs from your

investment portion.

Flexibility

A ULIP will give you flexibility of increasing your life cover, while

maintaining the same premium. This is done by simply reducing your

investment allocation. So suppose you have a risk cover of Rs 5 lakh and

would like to increase it to Rs 6 lakh, you can still continue to pay the

same amount of premium. The only difference would be that the amount

deducted towards the risk cover would be more and therefore, the

amount invested would be less.

Says Puneet Nanda of ICICI Pru. Life Insurance, “The reason why

ULIPs have become popular is because they offer huge amount of

flexibility during the course of the policy. You can vary your mix

between protection and savings or within savings, your fund mix.”

If you have a term policy and would like to increase your life cover,

your only option would be to buy another term policy. This would mean

paying administration charges all over again.

There’s more to the flexibility. With a ULIP you don’t have fear that

your policy will lapse if you were unable to pay your premium. The cost

of insurance will be taken out of your existing investment to keep the

policy going. But if you fail to pay premium on your term policy, it will

lapse.

Expenses

If you were to look at the expenses of a ULIP as compared with the

expenses of a mutual fund, there is a difference. In a ULIP charges are

front loaded, which means, most of the charges are recovered within the

first few years. That is why it does not make sense to invest in a ULIP if

you are looking at a short term. Look at a mutual fund if you are looking

at a time horizon of 3-5 years. In the long term, charges of a ULIP even

out and compare well with a mutual fund.

So if you are looking for a long-term investment avenue with an

insurance cover that goes with it, then ULIP is the product for you and if

you are looking at a product that helps you focus purely on investment

and returns over a medium term, then go for a mutual fund. Experts say

the two products are different and ideally you should have both in your

portfolio.

As financial planners, we get queries from our clients on how to go

about managing their finances. We were recently faced with a rather

interesting query related to ULIPs. In this article we discuss the query

and our solution for the same.

Let us look at the information available,

The client’s age is 38 years and he wants a life insurance cover for

Rs 5,000,000. He has an above-average risk appetite.

He has been recommended a ULIP (unit linked insurance plan) by

his insurance agent with a sum assured of Rs 5,000,000 till he

reaches the age of 84 years. This works out to the client being

insured for a tenure of 46 years (i.e. 84 - 38).

The premium paying term however is only ten years and the actual

premium he will have to pay per annum is approximately Rs

894,000.

The client has also been advised by his agent to consider investing his

premiums in the ‘Aggressive’ (as has been defined by the insurance

company in question) option, which allows upto 35% exposure to

equities.

We have always maintained that one’s interests would be best served if

he keeps his life insurance and investment needs distinct.

Given below is our solution based on the client’s needs.

The insurance component To begin with, we knew from our

interaction with the client and based on the Human Life Value

Calculations that he is underinsured. An immediate action point for him

would be to buy a term plan. And considering his annual income, he

would need to buy a term plan for more than the sum assured

recommended on the ULIP (i.e. Rs. 5,000,000). Even if we were to

consider his sum assured to be Rs 5,000,000 (as per the ULIP) for a term

plan, the annual premium he would have to shell out would be

approximately Rs 30,000 per annum for a 30-Yr period.

The investment component

Having taken care of the client’s insurance needs, now let’s shift our

focus to his investments. We took into consideration the client’s current

financial portfolio. He had a sizable portion of his portfolio invested in

fixed income instruments like bonds and fixed deposits. Bearing this in

mind, our view was he did not need to have another debt-heavy (ULIP

with a 65% debt component) product in his portfolio. Instead what his

portfolio needed was a higher equity component; this would not only

‘balance’ his portfolio but also ensure that the portfolio reflects his true

risk profile.

It was also relevant that the client invest in equities since he was

considering his investments from a long-term (over 30 years) horizon.

This could be achieved by investing in equity-oriented mutual funds.

Mutual funds can offer several benefits:

Several studies have shown that over the long term, equities give a

higher return vis-à-vis fixed income instruments like bonds and

government securities. And given that the client’s investment

horizon is of over 30 years, this is an ideal time frame to reap the

rewards of investing in equities. Also, over a 30-Yr period, a 100%

equity mutual fund is better geared to outperform a ULIP portfolio

with a 65% debt component.

ULIP tend to be expensive propositions (vis-a-vis mutual funds)

during the initial years. However, over longer time horizons, the

expenses balance out and ULIPs work out to be cheaper as

compared to mutual funds. However, even if the lower expenses of

a ULIP vis-à-vis that of a mutual fund scheme were to be

considered, the latter would still surface as the better option.

Several mutual funds also have a track record to boast of.

Personalfn’s recommended equity-oriented funds have a proven

track record extending over several years and across market cycles.

ULIPs do not have much of a track record to show for; in fact most

ULIPs are yet to experience a bear phase.

Investing in a mutual fund portfolio will offer the benefit of

diversification to the client. The investor will reap the reward of

diversifying across several fund management styles. On the other

hand, by investing all his money in just one ULIP, the client would

be committing his entire corpus to just one style of investment.

This can prove to be quite risky over the long term.

You can make adjustments to your mutual fund portfolio. If you

believe you have made a wrong investment decision, you can

redeem your investment in a particular mutual fund and invest in

another one. Such adjustments are not entirely feasible in a ULIP.

The Tax Aspectwe also had to contend with Section 80C tax benefits. However, given

the client’s annual income, the Section 80C tax benefits were being

taken care of by way of Employees’ Provident Fund (EPF) as well the

recommended term plan. The client therefore can invest in regular

diversified mutual funds and not necessarily in tax saving funds (ELSS).

As can be seen, term plans combined with mutual funds have the

potential to add considerable value to an investor’s portfolio. In our view

individuals should first ensure that they are adequately covered by

opting for a term plan. Then they can either opt for ULIPs for the

investment component or as we have shown, they can consider mutual

funds.

Unit Linked Insurance Policies (ULIPs) as an investment avenue are

closest to mutual funds in terms of their structure and functioning. As is

the cases with mutual funds, investors in ULIPs are allotted units by the

insurance company and a net asset value (NAV) is declared for the same

on a daily basis.

Similarly ULIP investors have the option of investing across various

schemes similar to the ones found in the mutual funds domain, i.e.

diversified equity funds, balanced funds and debt funds to name a few.

Generally speaking, ULIPs can be termed as mutual fund schemes with

an insurance component.

However it should not be construed that barring the insurance element

there is nothing differentiating mutual funds from ULIPs.

Despite the seemingly comparable structures there are various factors

wherein the two differ.

In this article we evaluate the two avenues on certain common

parameters and find out how they measure up.

1. Mode of investment/ investment amounts

Mutual fund investors have the option of either making lump sum

investments or investing using the systematic investment plan (SIP)

route which entails commitments over longer time horizons. The

minimum investment amounts are laid out by the fund house.

ULIP investors also have the choice of investing in a lump sum (single

premium) or using the conventional route, i.e. making premium

payments on an annual, half-yearly, quarterly or monthly basis. In

ULIPs, determining the premium paid is often the starting point for the

investment activity.

This is in stark contrast to conventional insurance plans where the sum

assured is the starting point and premiums to be paid are determined

thereafter.

ULIP investors also have the flexibility to alter the premium amounts

during the policy's tenure. For example an individual with access to

surplus funds can enhance the contribution thereby ensuring that his

surplus funds are gainfully invested; conversely an individual faced with

a liquidity crunch has the option of paying a lower amount (the

difference being adjusted in the accumulated value of his ULIP). The

freedom to modify premium payments at one's convenience clearly gives

ULIP investors an edge over their mutual fund counterparts.

2. Expenses

In mutual fund investments, expenses charged for various activities like

fund management, sales and marketing, administration among others are

subject to pre-determined upper limits as prescribed by the Securities

and Exchange Board of India.

For example equity-oriented funds can charge their investors a

maximum of 2.5% per annum on a recurring basis for all their expenses;

any expense above the prescribed limit is borne by the fund house and

not the investors.

Similarly funds also charge their investors entry and exit loads (in most

cases, either is applicable). Entry loads are charged at the timing of

making an investment while the exit load is charged at the time of sale.

Insurance companies have a free hand in levying expenses on their ULIP

products with no upper limits being prescribed by the regulator, i.e. the

Insurance Regulatory and Development Authority. This explains the

complex and at times 'unwieldy' expense structures on ULIP offerings.

The only restraint placed is that insurers are required to notify the

regulator of all the expenses that will be charged on their ULIP

offerings.

Expenses can have far-reaching consequences on investors since higher

expenses translate into lower amounts being invested and a smaller

corpus being accumulated. ULIP-related expenses have been dealt with

in detail in the article "Understanding ULIP expenses".

3. Portfolio Disclosure

Mutual fund houses are required to statutorily declare their portfolios on

a quarterly basis, albeit most fund houses do so on a monthly basis.

Investors get the opportunity to see where their monies are being

invested and how they have been managed by studying the portfolio.

There is lack of consensus on whether ULIPs are required to disclose

their portfolios. During our interactions with leading insurers we came

across divergent views on this issue.

While one school of thought believes that disclosing portfolios on a

quarterly basis is mandatory, the other believes that there is no legal

obligation to do so and that insurers are required to disclose their

portfolios only on demand.

Some insurance companies do declare their portfolios on a

monthly/quarterly basis. However the lack of transparency in ULIP

investments could be a cause for concern considering that the amount

invested in insurance policies is essentially meant to provide for

contingencies and for long-term needs like retirement; regular portfolio

disclosures on the other hand can enable investors to make timely

investment decisions.

4. Flexibility in Altering Asset Solution

As was stated earlier, offerings in both the mutual funds segment and

ULIPs segment are largely comparable. For example plans that invest

their entire corpus in equities (diversified equity funds), a 60:40

allotment in equity and debt instruments (balanced funds) and those

investing only in debt instruments (debt funds) can be found in both

ULIPs and mutual funds.

If a mutual fund investor in a diversified equity fund wishes to shift his

corpus into a debt from the same fund house, he could have to bear an

exit load and/or entry load.

On the other hand most insurance companies permit their ULIP

inventors to shift investments across various plans/asset classes either at

a nominal or no cost (usually, a couple of switches are allowed free of

charge every year and a cost has to be borne for additional switches).

Effectively the ULIP investor is given the option to invest across asset

classes as per his convenience in a cost-effective manner.

This can prove to be very useful for investors, for example in a bull

market when the ULIP investor's equity component has appreciated, he

can book profits by simply transferring the requisite amount to a debt-

oriented plan.

5. Tax Benefits

ULIP investments qualify for deductions under Section 80C of the

Income Tax Act. This holds well, irrespective of the nature of the plan

chosen by the investor. On the other hand in the mutual funds domain,

only investments in tax-saving funds (also referred to as equity-linked

savings schemes) are eligible for Section 80C benefits.

Maturity proceeds from ULIPs are tax free. In case of equity-oriented

funds (for example diversified equity funds, balanced funds), if the

investments are held for a period over 12 months, the gains are tax free;

conversely investments sold within a 12-month period attract short-term

capital gains tax @ 10%.

Similarly, debt-oriented funds attract a long-term capital gains tax @

10%, while a short-term capital gain is taxed at the investor's marginal

tax rate.

4. Despite the seemingly similar structures evidently both mutual funds and ULIPs have their unique set of advantages to offer. As

always, it is vital for investors to be aware of the nuances in both offerings and make informed decisions.

5. Who can invest in ULIPs?6. It is open to any resident of India who is above 18 years of age.

Individuals less than 55 years and 6 months of age can join the

plan for 10 years and those less than 50 years and 6 months for 15

years contributing 1/10th and 1/15th of the target amount every

year, respectively.

7. But still here are some basic differences

–

8. ULIPs Mutual

funds

Investment amounts- Determined by the

investor and can be

modified as well.

Minimum investment

amounts are

determined by the

fund house.

Expenses

No upper limits,

expenses determined

by the insurance

company

Upper limits for

expenses chargeable

to investors have been

set by the regulator

Portfolio disclosure Not mandatory*

Quarterly disclosures

are mandatory

Modifying asset

allocation

Generally permitted

for free or at a

nominal cost

Entry/exit loads have

to be borne by the

investor

Tax benefits

Section 80C benefits

are available on all

ULIP investments

Section 80C benefits

are available only on

investments in tax-

saving funds