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1.1. INDUSTRY PROFILE
DEFINITION OF INSURANCE
Promise of reimbursement in case of loss; paid to people or companies who are
concerned about hazards and for that they make prepayments to an insurance company
Policy: This may be as written contract or certificate of insurance. Indemnity: Protection
against future loss
ORIGIN OF INSURANCE
The idea of insurance was born out of a desire of the people that many should
share the losses suffered by an individual. Originally it was restricted to forms other than
life assurance. It started with marine insurance, where the losses on account of perils of
the sea like piracy, sinking or damage to cargo were shared by all who were engaged in
sea trade.
As regards life insurance, in early days mutual societies were formed to render
service to the member in the event of sickness, unemployment and premature death.
Decent funeral was considered as the immediate financial need. Gradually, the financial
loss following death of the breadwinner was extended to include the future earning
power.
In India, the word yogakshema is used in Rig Veda suggesting that some form
of community insurance was practiced by the Aryans over 3000 years ago. DuringBuddhist period, burial societies existed which were mutual in their character and used to
help a family by building house, protecting the widow and marrying the girls. Reference
to some forms of insurance is also found in the codes of Hammurabi, manu (Manav
Dharam Shastra).
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The first policy providing life assurance cover for a period of 12 months was
issued as 1583 A.D. in England. The Amicable society started granting fluctuating sum
on death since 1705 and a fixed sum since 1757. With the development of mortality table,
life assurance acquired a scientific character. The Equitable society founded in 1762 was
the first to be established on scientific basis. In India, Bombay Mutual Assurance society
Ltd. was the first insurance company to be formed in 1870. Oriental Life Assurance
Company Limited followed it in 1874.
INSURANCE HISTORY
The roots of insurance might be traced to Babylonia, where traders were
encouraged to assume the risks of the caravan trade through loans that were repaid (withinterest) only after the goods had arrived safely: a practice resembling bottomry and
given legal force in the Code of Hammurabi (c.2100 B.C.).
The Phoenicians and the Greeks applied a similar system to their seaborne
commerce. The Romans used burial clubs as a form of life insurance, providing funeral
expenses for members and later payments to the survivors.
With the growth of towns and trade in Europe, the medieval guilds undertook to
protect their members from loss by fire and shipwreck, to ransom them from captivity by
pirates, and to provide decent burial and support in sickness and poverty. By the middle
of the 14th cent., as evidenced by the earliest known insurance contract (Genoa, 1347),
marine insurance was practically universal among the maritime nations of Europe.
In London, Lloyd's Coffee House (1688) was a place where merchants, ship
owners, and underwriters met to transact business. By the end of the 18th cent. Lloyd's
had progressed into one of the first modern insurance companies. In 1693 the astronomer
Edmond Halley constructed the first mortality table, based on the statistical laws of
mortality and compound interest. The table, corrected (1756) by Joseph Dodson, made it
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possible to scale the premium rate to age; previously the rate had been the same for all
ages.
Insurance developed rapidly with the growth of British commerce in the 17th and
18th cent. Prior to the formation of corporations devoted solely to the business of writing
insurance, policies were signed by a number of individuals, each of whom wrote his
name and the amount of risk he was assuming underneath the insurance proposal, hence
the term underwriter.
The first stock companies to engage in insurance were chartered in England in
1720, and in 1735, the first insurance company in the American colonies was founded at
Charleston, S.C. Fire insurance corporations were formed in New York City (1787) and
in Philadelphia (1794). The Presbyterian Synod of Philadelphia sponsored (1759) the first
life insurance corporation in America, for the benefit of Presbyterian ministers and their
dependents.
After 1840, with the decline of religious prejudice against the practice, life
insurance entered a boom period. In the 1830s the practice of classifying risks was begun.
The New York fire of 1835 called attention to the need for adequate reserves to meet
unexpectedly large losses; Massachusetts was the first state to require companies by law
(1837) to maintain such reserves.
The great Chicago fire (1871) emphasized the costly nature of fires in structurally
dense modern cities. Reinsurance, whereby losses are distributed among many
companies, was devised to meet such situations and is now common in other lines of
insurance. The Workmen's Compensation Act of 1897 in Britain required employers to
insure their employees against industrial accidents. Public liability insurance, fostered by
legislation, made its appearance in the 1880s; it attained major importance with the
advent of the automobile.
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In the 19th cent. Many friendly or benefit societies were founded to insure the life
and health of their members, and many fraternal orders were created to provide low-cost,
members-only insurance. Fraternal orders continue to provide insurance coverage, as do
most labor organizations. Many employers sponsor group insurance policies for their
employees; such policies generally include not only life insurance, but sickness and
accident benefits and old-age pensions, and the employees usually contribute a certain
percentage of the premium.
Since the late 19th cent. There has been a growing tendency for the state to enter
the field of insurance, especially with respect to safeguarding workers against sickness
and disability, either temporary or permanent, destitute old age, and unemployment. The
U.S. government has also experimented with various types of crop insurance, a landmark
in this field being the Federal Crop Insurance Act of 1938. In World War II the
government provided life insurance for members of the armed forces; since then it has
provided other forms of insurance such as pensions for veterans and for government
employees.
After 1944 the supervision and regulation of insurance companies, previously an
exclusive responsibility of the states, became subject to regulation by Congress under the
interstate commerce clause of the U.S. Constitution. Until the 1950s, most insurance
companies in the United States were restricted to providing only one type of insurance,
but then legislation was passed to permit fire and casualty companies to underwrite
several classes of insurance. Many firms have since expanded, many mergers have
occurred, and multiple-line companies now dominate the field. In 1999, Congress
repealed banking laws that had prohibited commercial banks from being in the insurance
business; this measure was expected to result in expansion by major banks into the
insurance arena.
In recent years insurance premiums (particularly for liability policies) have
increased rapidly, leaving unprecedented numbers of Americans uninsured. Many blame
the insurance conglomerates, contending that U.S. citizens are paying for bad risks made
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by the companies. Insurance companies place the burden of guilt on law firms and their
clients, who they say have brought unreasonably large civil suits to court, a trend that has
become so common in the United States that legislation has been proposed to limit
lawsuit awards. Catastrophic earthquakes, hurricanes, and wildfires in late 1980s and the
90s have also strained many insurance company's reserves.
How to really buy insurance
When faced with prospects of figuring out how much insurance to buy ,most
people pluck a figure out of the air -something that just seems adequate .this is obviously
not the way to make this important decision . The only reasonable way of making this
decision is to unemotionally create a financial plan that your family should follow if you
die suddenly.
Families also have to consider the impact of the both parents passing away in the
accident .The impact of such a tragedy could be greater then just a sum of the two deaths
occurring separately heads to consider.
LOAN AND DEBTS
As far as possible, take debtors insurance so that your debts can be paid off
straight away, if you have you have a housing loan, the lender has probably made sure
that you already have such insurance for a loan. Other loans need to be considered, while
you can add these to your main term insurance, taking a policy where the insurance
company will directly pay off lenders has the advantage that your survivors will not be
temped to carry the loans.
Do not waste money in insuring unsecured personal debt like credit card debt .The
card issuer cannot make your family pay so theres no need to cover that, unlike say,
vehicle loans where u wouldnt want the family car repossessed by the lender.
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FUTURE EXPENSES
The hardest part of living for the future expenses is estimating and allowing for
the inflation. Take a reasonable (at least 7 percent) inflation rate in account.
EDUCATION
Insurance companies are making some attempts at designing policies that will
ensure that your childrens education is paid for. What you ideally need is a policy that is
conceptually term insurance, that is, which does not have any payout if your children get
educate during your life time.
LIVING EXPENSES
Estimate what living expenses are going to be end estimate the investment needed
to yield that much return. Your term insurance should be for this account. Make a
realistic financial plan and not an idealized one. Perhaps your spouse will need to start
working if she doesnt do so now. Take into account the investment needed if she would
start a small business.
This kind of unemotional, careful and realistic thinking is really the heart of
making a sudden-death financial plan. Dont shy away from it . The fact is that Indians
have a deep-set cultural antipathy against planning for their deaths. A minuscule number
of Indians make a will. Even the countrys most successful and richest entrepreneur, who
organized every thing else about his business so carefully (and whose death was not
sudden), died without making a will and left his two sons to fight public battles for the
inheritance.
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INSURANCE COMPANY
Over a ten-year policy, 7 percent of your money is given away to the agent. Given
what safe investment earns these days, commission alone received by the agents are a
scandal. The commissions are enormous, generally around 25 per cent of first year
premia and 5 per cent a year subsequently. For a financial product that is supposed to be
an investment, this is shocking level. At the end of the day, these commission are
probably the strongest against investing with an ensure that this investment is an
incredibly bad deal.Sure insurance is necessary but at these commission levels .it is a
necessary evil.
The only way to go about insuring oneself is to calculate how much cover you
need and then find a good, low cost, term insurance that covers you for that amount.
Investment and insurance just dont mix
NEED FOR INSURANCE
When we consider some form of general insurance contract like fire insurance
contract need for insurance protection becomes obvious, the insurable interest is easily
identified, and extent of loss can easily be determined by a fair degree of accuracy. In
general insurance, the principle of indemnity is applied to compensate for the financial
loss suffered by the insured.
But financial loss following loss of human life is not very easy to define. In life
insurance, the concept of indemnity is applied with some modifications. The concept of
Human Life Value (HLV) helps us in determining the sum for which a person needs life
insurance. We will study this concept in the later part of this chapter.
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SHARING PF RISK
Life is full of risks. For property, there are fire risks; for shipment of goods, there
are perils of seas; for human life, there are risks of death or disability; so on and so forth.
The risks are uncertain. They may or may not occur. People facing common risks come
together and make their small contributions to the common fund.
While it may not be possible to tell beforehand, which person will suffer, it is
possible to tell how many persons on an average out of the group, may suffer losses.
When risk occurs, the loss is made good out of the common fund. In this way, the risk id
shared by all.
The following example explains the above concept of insurance.
EXAMPLE
In a village, there are 400 houses, each valued at Rs20, 000/-. Every year four houses get
burnt, resulting into a total loss of Rs. 80,000/-. If all the 400 owners come together and
contribute Rs. 200/- each, the common fund would be Rs. 80,000/-. This is enough to pay
Rs.20, 000/- to each of the 4 owners whose houses got burnt. Thus the risk of 4owners is
spread over 400 house-owners of the village.
ADVANTAGES OF LIFE INSURANCE
It is superior to ordinary saving plan. The risk of death is covered under insurance
scheme but not under ordinary saving plans. In case of death, insurer pays full sum
assured, which would be several times larger than the total of the premiums paid. Under
ordinary saving plans, only accumulated amount is payable.
Insurance encourages compulsory saving and forces thrift. After taking insurance,
if the premium is not paid, the policy lapses. Therefore, the insured is forced to go on
paying premium.
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Easy settlement and protection against creditors. Once nomination or assignment
is made, a claim under life insurance can be settled in a simple way. Under M.W.P. Act,
the policy moneys become a kind of trust that cannot be taken away, even by the
creditors.
It helps to achieve the purpose of the Life Assured. If a lump sum amount is
received in the hands of anybody, it is quite likely that the amount might be spent in
speculative way. To overcome this risk, the life assured can provide that the claim
amount be given in installments.
Ready marketability and suitability for quick borrowing. If a policyholder is not
in a position to pay the premium, he can surrender the policy for a cash sum. He can also
take loan for a short period to tide over the difficulty. Sometimes, a life insurance policy
is acceptable as security for a commercial loan.
Tax relief. By paying the insurance premium, the life assured obtains significant
relies in income tax and wealth tax.
CLASSFICATION OF INSURANCE NEEDS
The nature of needs for life assurance would vary to a great extent according to
the circumstances of the person insuring his life. Classification of persons according to
their circumstances:
Young single : saving.
Young married : basic need will be protection.
If with children, education of children also Need will also vary according to the type of
income derived wage earner, salaried person, employer. Attitude towards life assurance
is determined by a persons character, level of intelligence and outlook.
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Old single : Pension for life.
Old married : Joint life pension for the annuitant and spouse for life.
Careful study of prospect is essential to identify his life assurance needs.
COMMON NEEDS THAT CAN BE PROVIDED BY THE APPLICARION OF
LIFE ASSURANCE
1. Cash Needs
Death may be by accident or after prolonged illness. In case of prolonged illness,
medical / grocers bills will have to be paid. Liquid cash is required to meet such
liabilities. (Clean up fund).
2. Family Income Needs
Incase of death of the bread-winner, a sudden and drastic cut in the standard of
living of the family would have devastating effect on the morale of the family. It will be
difficult for the young widow with children to work to replace loss of income, in which
case children would loose both the parents.
There would be a period of readjustment during which the family settles down to
a lower standard of living.
Family income policy under which readjustment income is provided, could meet
the needs of the situation.
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3. Income needs of a widow on the death of her husband.
Readjustment income.
Continuous income on a reduced scale
To supplement income she is earning.
To partly replace income that is lost.
In case she remarries, this need will cease completely.
Capital death benefit should be utilized to provide for immediate cash needs and
lifetime income for the widow.
4. Income needs of a husband on the death of his wife.
EARNED INCOME LOST
Earned income saved by wife who undertakes household duties.
Housekeeper to look after the house and children.
Additional expenses during readjustment period.
Incase of working ladies, there is loss of income, which has to provide for.
5. Retirement income needs.
In advanced countries, there is
Old age pension under social security scheme;
Pension scheme set up by the employer to supplement old age pension under
social security scheme.
Individual endowment plan with annuity option or retirement annuity policy.
Need for regular income in old age is very much present and it will be
increasingly recognized on account of improvement in longevity.
Joint family system has disintegrated.
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All the above-mentioned schemes for old age security are not there.
Liquid cash received at the time of retirement in respect of Gratuity, PF etc. often
gets consumed by unwise investment or conspicuous investment. Immediate annuity,
deferred annuity, immediate annuity certain, deferred annuity certain, immediate annuity
with return of purchase price, deferred annuity with return of notional cash option and
`Jeevan Suraksha` policy of LICI provide solution to various retirement income needs.
6. Educational Needs.
These days education is very costly and higher education requires lot of money. It
may not be possible for widow to finance cost of higher education after the death of the
bread-winner. Education Annuity and Marriage Endowment policy is suitable for such s
situation.
7. Business Needs
Circumstances under which a businessman may find it necessary to go for life
insurance cover for one or more of the following purposes:
To protect and of his own one-man concern.
To preserve continuity in a partnership in the event of death of a partner.
To safeguard against loss this would result from the death of key employees.
To provide life assurance benefits during service and pension after service for
employees and their dependents.
To provide annuity to highly placed executives under deferred compensation plan.
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IN INDIA
Insurance in India can be traced back to the Vedas. For instance, yogakshema, the
name of Life Insurance Corporation of Indias corporate headquarters, is derived from the
Rig Veda. The term suggests that a form of community insurance was prevalent around
1000 BC the Aryans.
Burial societies of the kind found in ancient Rome were formed in the Buddhist
period to help families build houses, protect widows and children.
Bombay Mutual Assurance Society, the first Indian life assurance society, was formed in
1870. Other companies like Oriental, Bharat and Empire of India were also set up in the
1870-90s.
It was during the swadeshi movement in the early 20 th century that insurance
witnessed a big boom in India with several more companies being set up.
As these companies grew, the government began to exercise control on them. The
Insurance Act was passed in 1912, followed by a detailed and amended insurance Act of
1938 that looked into investments, expenditure and management of these companies
funds.
By the mid-1950s, there were around 170 insurance companies and 80 provident
fund societies in the countrys life insurance scene. However, in the absence of regulatory
systems, scams and irregularities were almost a way of life at most of these companies.
As a result, the government decided nationalize the life assurance business in
India. The Life Insurance Corporation of India was set up in 1956 to take over around
250 life companies.
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For years, insurance remained a monopoly if the public sector. It was only after
seven years of deliberation and debate after the RN Malhotra Committee report of 1994
became the first serious document calling for the re- opening up of the insurance sector to
private players that the sector was finally opened up to private players in 2001.
The Insurance Regulatory & Development Authority, and autonomous insurance
regulator set up in 2000, has extensive powers to oversee the insurance business and
regulate in a manner that will safeguard the interest of the insured.
MARKET SHARE OF INSURANCE INDUSTRY
NAME OF THE PLAYER MARKET SHARE ( IN % )
LIC 82.3
ICICI PRUDENTIAL 5.63
BIRLA SUNLIFE 2.56
BAJAJ ALLIANZ 2.03
SBI LIFE 1.80
HDFC STANDARD 1.36
TATA AIG 1.29
MAX NEWYORK 0.90
AVIVA 0.79
OM KOTAK MAHINDRA 0.51
ING VYSYA 0.37
AMP SANMAR 0.26
MET LIFE 0.21
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Variety is the spice of life, unless youre in the insurance business. Traditionally,
the most successful insurance firs generally take on the least risk. However, factors such
as deregulation, globalization, the Internet, and the events of September 11 are shaking
up the industry.
The life insurance industry (about 60% f worldwide premiums) has changed the
most profoundly in the products it sells. Over the last quarter of a century, life insures
such as A XA, ING Group, Nippon Life, and Assicurazioni Generali, have seen their
business sift from life insurance coverage to annuity products. This fundamentally
changes the way life insurance firms do business, as they concentrate on managing
investment risk, rather than the mortality risk of an individual. As a result, insurance
firms now compete more directly with financial services firms.
The Gramm-Lleach-Biley Act in the US and Big Bang financial deregulation in
Japan opened the door for banks and insurance firms to combine their businesses. In
Europe, global financial service titans already exist, notably Ge5rman insurance company
Allianz (with stakes in deutshe Bank, HVB Griup, and Dresdner Bank), and Swiss bank
Credit Suisse (parent of insurance firm Winterhur). Foreign firms seeking inroads to the
US and Japan finds them freed from regulatory shackles, tll.
As regulatory barriers fall, consolidation among insurance groups, particularly
non-life insurers, is on the rise. The top 10-property/casualty companies (including State
Farm, Aviva, American International Group, and Zurich Financial Services) already
account for almost half of all premiums written. A dwindling number of local firms are
left to fight for the remaining scraps of market share.
The Internet has changed the way insurers are doing business. Companies are
continuing to offer more products via the virtual highway, thus increasing the competitive
marketplace. With the insurance markets in the US and Japan becoming saturated, growth
in other markets (Particularly South America) is imperative for a companys success, as
well.
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The attacks on the world trade center have changed the face of the insurance
industry; issues such as asbestos claims and liability suits have taken a backseat to the
mad scramble of how to cover terrorism. As a result of September 11, and to a lesser
degree the Enron scandal, premiums are rising and underwriting standards are tightening.
A slew of new ventures have started up (primarily in Bermuda), as insurers see the
possibility of lucrative business.
In 2004 the insurance industry came under scrutiny when New York Attorney
general Eliot Spitzer sued marsh & McLennan, the worlds largest insurance brokerage,
for price fixing and for accepting kickbacks. As a result, Jeffrey Greenberg was forced to
resign as CEO of Marsh & McLennan, along with five other executives who admitted to
rigging bids. The probes continue as Spitzer and other officials look to clean up the
industry.
KEYMAN INSURANCE
With the IRDA stipulating in end April that key man policy should be sold only
with a life cover element and without maturity benefits, premium collections from such
plans are likely to slacken.
Signs of an incipient slowdown are evident from the numbers for the first two
months of this fiscal, with group premiums down 23 percent on a single-premium
adjusted basis. Though premium collections may dip, this may not have a detrimental
impact on companies as such group plans score low on the profitability front.
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LIFE INSURANCE AT THE CROSSROADS CHALLENGES AND
OPPORTUNITIES
Life insurance, in its pristine form, evolved out of a sense of co-operation within
the community that was present even at the dawn of history. The Sanskrit term
yogakshema, which means "well-being, is present in the Rig Veda and it is used in the
context of some form of insurance in vogue during the Aryan times. There are references
in Kautilyas Arthashastra to some kind of social security system for the welfare of the
subjects. Later on, the Indian joint family system too fulfilled the need for security.
In the Western world, life insurance evolved mainly from the maritime industry.
Shakespeare speaks of putters out of five in some of his plays an oblique reference to
private financiers who used to gamble on the lives of sea-farers by offering five times the
money deposited with them in case of certain contingencies.
In its present form, life insurance had its origin in England and made its debut in
India in the year 1818. Initially, Indians were not considered on par with Europeans as far
as their insurability was concerned.
There were also many other failures. It was in the early part of the 20th century
that some kind of legislation was made to regulate the industry. From then on, life
insurance made great strides in the country.
At the time of Independence and thereafter, there were more than 200 companies
operating in India and not all of them on sound ethical principles. Many factors combined
together to prompt the then Government to nationalize the life insurance industry in 1956
to form the Life Insurance Corporation of India
The years from 1956 to 1999 saw the Life Insurance Corporation of India emerge
as a giant financial institution and the lone organization purveying life insurance, if we
ignore the minimal presence of postal life insurance.
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The institution succeeded in penetrating many areas and segments of the
population and in garnering public money for public welfare.
Winds of Change
It was in the 1990s that the winds of change started sweeping over India and
brought in their wake many changes in the economy. Liberalization ensured competition
in many fields and there was a clamour that the insurance industry too be opened up to
private Indian and foreign players to provide the customer with a choice.
The Malhotra Committee, appointed in 1993 was given the mandate to study the
industry and to suggest the changes that were necessary to make it modern and in tune
with peoples aspirations. The report submitted by the committee was the precursor of the
IRDA bill, which was recently passed by the Parliament.
Life insurance industry is poised for a big growth as many Indian and foreign
companies are waiting in the wings for the green signal to start their operations. The
Indian consumer will be presented with a bewildering array of products, different in
price, features, benefits and procedures.
How he is going to make his choice will determine the future of the industry.
With the market thrown open, the industry is at the crossroads again with reference to the
course of its future direction and the opportunities and the challenges it faces for itself,
the regulator, and the society as a whole.
Challenges
The biggest challenge faced by the Government today is that of a regulator with
the prospect of about 30 or 40 players, each represented by thousands of agents, brokers
and intermediaries. To evolve a free and fair method of assessing the companies, to
ensure fair play between the competitors and to safeguard the interests of the largely
uninformed customers are the main tasks ahead.
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The other and equally serious aspect is to ensure that the vast amounts collected
by the insurance and pension funds are utilized for the welfare of the people. Though the
Government itself would not be the guarantor of the policy monies, nevertheless, it is
accountable through its regulatory mechanism, to put in place prudential norms of
investment and accounting, revenue recognition, fair valuation of assets and liabilities,
determining necessary margins towards any contingencies and proper reserves for
shrinkage of investments will have to be made. Nevertheless, care has to be taken to see
that there is not too much of control and regulation.
A certain degree of autonomy in the functioning of insurance companies has to be
allowed so that they get necessary freedom and space to perform and excel. The IRDA,
along with the advisory committee constituted recently, is eminently qualified toundertake these tasks.
In addition, a proposal has also been mooted to constitute a federation of
insurance companies analogous to the Indian Banks Association. Such an institution will
provide guiding principles, lay down a code of insurance ethics and generally act as a
facilitator for both the life and non-life industry.
As for the existing player, the public sector giant, the Life Insurance Corporationof India, the challenge is one of sustaining the huge growths it has shown in the recent
times. It has to face competition for the first time in its history, particularly in the urban
centres.
It has to manage its huge operations more efficiently than at any other time in the
past. It has to think of equipping its personnel (staff and agents) to face competitors and it
may have to think of diversifying its activities to achieve economies in some areas.
As far as the prospective entrants are concerned, the greatest challenge is to
establish their presence in the minds of the public. Insurance, particularly life insurance,
it is said, is never bought but sold. To convince a large population, which is
comparatively not well informed about the intangible benefits of life insurance is indeed
an onerous task.
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On top of that, to establish the brand equity of a new name in a new field is quite
a challenge. The second most important challenge facing a new entrant is that of setting
up infrastructure and to reach out to as many areas as possible, since life insurance is
based on probability and the wider the spread, the greater are the chances of success in
maintaining the expense ratios at a reasonable level.
Modern life perhaps offers challenges that will be common to all the above.
Improvements in health and longevity, the recent breakthroughs in the mapping of the
human genome and the frequent changes in the economy may have far-reaching effects
on life and health insurance. Devising products that match the changing needs of the
people and managing the funds in a volatile scenario are two problems that will have to
be tackled by every player in the days to come.
Opportunities
Recent experience has shown that wherever an industry has been thrown open to
competition, the size of the market has grown and the existing players have retained
nearly 80% of the market share. The size of the insurable population in India is indeed
vast and the existing player has managed to cover about one-fourth of it. The
opportunities before the players are therefore aplenty in terms of target audience.
The falling interest rates, the collapse of many small-time financial institutions,
the scope for entering related areas like banking and pensions in a bid for synergy and
the promise of e-commerce are some of the other opportunities knocking at the doors of
the insurance majors.
There is a probability of a spurt in employment opportunities. A number of web-
sites are coming up on insurance, a few financial magazines exclusively devoted to
insurance and also a few training institutes being set up hurriedly. Many of the
universities and management institutes have already started or are contemplating new
courses in insurance.
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It also augurs well for greater development of professionalism of the trade and
expansion of opportunities for everyone concerned. The pension market, which perhaps
has not been very vibrant in the country, is also likely to witness a sea change with huge
expansion in terms of premium and number of policies. Health insurance, which is still
in its infancy, is also likely to get a major boost, ultimately leading to improvement in
the quality of medical treatment and facilities in the country.
The opening of the insurance sector will throw open a huge array of opportunities,
many of which will be in unrelated fields and may give a bigger push to the
development of the national economy as a whole.
Life insurance has today become a mainstay of any market economy since it
offers plenty of scope for garnering large sums of money for long periods of time. A
well-regulated life insurance industry which moves with the times by offering its
customers tailor-made products to satisfy their financial needs is, therefore, essential if
we desire to progress towards a worry-free future.
The journey of life is full of wonderful dreams. To make them come true, your
need for protection, investment, and financial liquidity keeps changing at different
stages of life. The birth of a child will require you to increase your insurance cover; amarriage in the family will require additional money.
Similarly on a promotion you may want to increase your investments, to create a
large kitty for future expenses. Usually you would require multiple financial products to
meet all your needs and would have to actively manage them. However with the Life
Maker Unit Linked Investment Plan you can meet all your financial needs, without
the tedium of managing multiple products
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1.2. COMPANY PROFILE
ABOUT MAX GROUP
Founded in 1985, Max India limited is a public limited company listed in the NSE
and BSE with over 37,000 shareholders. Prominent shareholders are Mr. Analjit Singh &
family and private equity firm Warburg Pincus, while the remaining shares are held by
institutional investors and the public.
Max India limited is a multi-business corporate, driven by the spirit of enterprise,
focused on knowledge, people and service-oriented businesses of healthcare and life
insurance.
Max also maintains interests in-
Clinical research (neeman medical international)
Specialty plastic products businesses (max specialty products)
Healthcare staffing (max health staff)
Telecom services (Hutchison max telecom ltd.)
Max New York life insurance, founded as a joint venture between Max India
limited and New York life, a fortune 100 company, is one of the leading private life
insurers in India.
Max healthcare, a subsidiary of Max India limited is India's first provider of
comprehensive, standardized, seamless, and integrated world-class healthcare services.
Max India limited is a multi-business corporate, driven by the spirit of enterprise,
focused on knowledge, people and service-oriented businesses of healthcare and life
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insurance. Max also maintains interests in clinical research, it and telecom services, and
specialty plastic products businesses.
Max is a young, modern Indian corporation, with a strong capability of
recognizing opportunities ahead of their time. Max has been able to form and strengthen
international alliances with global leaders across a wide spectrum of management
activity. Max India is led by a skilled team of professional managers and is recognized
for commercially successful manufacturing and service delivery businesses.
Max has created enviable history marked by tremendous growth in various fields
and has been ranked among the "top two hundred most valuable Indian companies" by
business India (October 2000).
Max's deep understanding of Indian consumer combined with a large pool of
professionals and an enterprising spirit have helped complement its relationship with
industry leaders of global stature like New York life International of USA. With a unique
experience of growing through the 'jv route' max is proud of the excellent relations it has
with each of its partners.
Max India already has successful and enduring partnerships with some of the
most respected specialist organizations in the world, some of which are gist brocades of
the Netherlands, Deutschland, Germany, and Hutchinson telecommunications ltd., Hong
Kong, Singapore general hospital, Harvard medical international inc., USA, Lockheed
martin global telecommunications.
Businesses
Healthcare
Primary care segments
Secondary care segments
Tertiary care segments
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Life insurance
Max New York life insurance co. Ltd.
It and telecom services
Comsat max
Max Health scribe limited
Max Mind Crossing
VISION
To be one of India's most admired Corporate for service excellence and a
successful multi-business enterprise for its stakeholders i.e. customers, shareholders,
employees, JV partners, etc.
MISSION
Establish niche service business in 2 areas of healthcare, and life insurance. Rank
in top 3 players in each niche. Partner with "best in class" world leaders. Maintain
traditional business.
PARTNERSHIPS
Max has grown through the 'joint venture route and has a tradition of very
enriching, enduring partnerships. We have extensive, in-depth experience in building
businesses from the ground-up. And have created successful businesses in areas, which
were either not traditionally considered as 'business' areas, or were new/emerging fields
of business.
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Max India's business success and tradition of excellence have been made possible
in very large measure by collaborating with international leaders. These partnerships are
manifest across our diverse businesses, and are represented as equity partnerships, and/or
technical collaborations.
Max is proud of excellent relations it has with each of its partners. Not only have
our partnerships stood the test of time, they have consistently grown, developed, and
attained optimum stature. This has been made possible by our practiced belief that
regardless of the ratio of collaboration and its attendant business mechanics, each
partnership must be worked in the spirit of a 50:50 relationship. We recognize and
respect the expertise our partners offer, and try to maximize it for mutual benefit
NEW YORK LIFE THROUGH HISTORY
New York life Insurance Company, has been ranked at fortune 68, in the 2005
fortune 500 listing of companies, is one of the largest providers of life insurance coverage
in America. Founded in 1845, the company has over us$215 billion in assets under
management.
New York Life insurance company has been among the highest rated companies
by leading independent rating agencies including - a.m. best company (a++), Fitch
(formerly duff & Phelps) (AAA), Moodys investors service (aa1) and standard & Poors
(AA+) the company has its headquarters in new York city and has operations in the
united states, Argentina, Hong Kong, soar, India, Indonesia, Mexico, the Philippines,
south Korea, Thailand and Taiwan. The company maintains representative offices in the
people's republic of china and Vietnam.
For the last 47 years, New York life has had the highest number of agents who
qualify as members of the 'million-dollar round table'. The mdrt is the world's most
prestigious organization of insurance sales professionals.
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As a leader in the insurance industry, New York life continues to bring to its
operations new management concepts, advanced technologies, new distribution and
training systems and innovative insurance products.
ABOUT NEW YORK LIFE
New York Life has been one of the world's leading providers of Life Insurance
for over 160 years Trusted by millions across the globe, New York life is ranked at no. 68
in the 2005 fortune 500 lists of companies, with over us $215 billion in assets under
management.
New York life is a specialist in the business of life insurance since that's been
their only business since 1845 Among the proud family of new York life policyholders
have been many luminaries, including ten former us presidents. New York life is the
largest life insurance provider for the Indian community in the US. So it understands the
Indian consumer, their needs, their concerns and their aspirations.
New York life has never failed in its commitment to deliver to its policyholders
despite having gone through two world wars, famine, drought, the great depression, and
numerous such catastrophes as pioneers of the industry, New York life has also been in
the forefront of setting many path-breaking trends in the business of life insurance.
First to offer cash dividends to policy owners in 1845.
First to insure women at the same rate as men in 1894
First to introduce a disability benefit clause in 1920
First to offer unemployment insurance in 1992.
First to offer complete customer care on the web in 1998
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Max New York life Insurance Company limited
Max New York life insurance Company limited is a joint venture between max
India limited, a multi-business corporation focusing on life insurance, health care and
information technology, and New York life, a fortune 100 companies with over 150 years
of experience in the life insurance business.
In 2000, Max New York life became the first indo-American insurance joint
venture registered and granted a license to conduct business in India. Since that time,
Max New York life has acquired a national presence, establishing a wide distribution
network with 35 offices located across 27 cities in India, which are staffed by over 1,500
employees and over 7,700 highly competent life insurance agent advisors.
In 2003, Max New York life became the first life insurance company in India to
receive the ISO 9001:9002 certification for its commitment to quality. All of max new
York lifes offices are supported by state-of-the-art technology designed to enhance its
goal of providing excellent service to customers. It has also set up a centre for operational
excellence at its head office in Gurgaon, Haryana, just outside of new Delhi.
Max New York life is one of the leaders in private life insurance in India. With its
flexible products and benefit solutions, max new York life is driven by a strong set of
customer-focused values that form the core of its business and exemplify its slogan,
your partner for life. Max New York life insurance Company limited has been an imp
associate insurer since 2002.
KEY PRODUCTS
LIFE
Term life
Employee deposit linked insurance
Total and permanent disability (accidental) rider
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Accidental dismemberment rider
Accidental death benefit rider
Critical illness rider
PENSIONS
Retirement gratuity schemes
Superannuating
VISION
Become the most admired life insurance company in India.
MISSION
Become one of the top 3 new life insurance companies
Become a national player - dominant in north India
Be the brand of first choice among all stake holders
Become the employer of choice
Be the principal of choice for agents
VALUES
Together, max India limited and New York life aim to become Indias preferred
insurance brand. This vision will be realized through our unique set of values, which are
as follows:
Knowledge
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Together, Max India limited and New York life aim to become Indias preferred
insurance brand. This vision will be realized through our unique set of values, which are
as follows
Caring
Together, max India limited and new York life aim to become Indias preferred
insurance brand. This vision will be realized through our unique set of values, which are
as follows:
Honesty
Together, max India limited and New York life aim to become Indias preferred
insurance brand. This vision will be realized through our unique set of values, which are
as follows:
Excellence
Excellence at Max New York life implies the ability to perform at a consistently
high level. Focused on the value of continuous improvement in people, processes and the
organization, the company strives for the highest standards of quality in every aspect of
its business.
Achievements
Max New York life is the first life insurance companies in India to be awarded the
is0 9001:2000 certifications.
Max New York life was among the top 25 companies to work with in India,
according to 2003 business world magazine, "great workplaces in India", max
new York life was ranked at the 20th position. This survey is the local version of
the "great places to work" survey carried out every year in 22 countries.
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We were among top five most respected private life insurance companies in India
according to 2004' business world most respected survey. It makes it more
special as that year insurance as a category was included for the first time.
We have truly built an enviable sales force. With 126 agents becoming members
of the mdrt in 2005, Max New York life has moved up in the 'Top 50 mdrt Global
List.
The Way Max New York Life Works
Max New York life is a young vibrant company proud of the excellent track record it has
created for itself in a relatively short period of time. Mnyl has today become one of the
most aggressive players in the insurance services domain. A key factor in our success has
been our ability to attract some of the most talented people in any industry.
Max New York Life Insurance in many ways is a lens to India. We represent rich
diversity in our workforce and this is reflected in our open work environment. Within this
diversity we have successfully created a strong emotional bond, which threads everyone
together irrespective of his or her function, location, seniority or background.
This identification with one organization and one purpose draws its strength from our
simple and powerful vision statement, which is to become the "most admired life
insurance Company in India". By developing structure, systems and a workplace culture
that provides challenging jobs, rewards performance and delivers opportunities
continuously, mnyl is striving to get the best out of its most valuable asset its people.
Our "In House Culture Recipe" has some of the finest ingredients going into its making.
Some of the more prominent aspects of our culture are stated below:
Customer comes first
Do it right the first time
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Bias for result oriented action
Strength and discipline
Clarity of purpose Financial
International quality standards
Inclusive meritocracy
Learning opportunities
Fun at work
Commitment to published value system
At mnyl, we endeavor to create an environment where everyone can reach their
full potential and to do their jobs effectively for our customers. We encourage learning at
all levels and career stages which support personal and professional development. The
organization provides all the right elements that you need to get to the top with ample fun
and learning opportunities as added advantage.
We believe that work is fun, when you enjoy it the most. To make-work more fun,
we provide a dynamic, fast paced and flexible work environment to our people. We
nurture the relationships through celebrating our people's happiness, hobbies,
achievements, and festivals thoroughly fun club, which stands for life youth and fun.
Finally it would be appropriate to say that the cornerstones for all our interactions
and behaviors are the mnyl values and beliefs.
These are non-negotiable behaviors that breathe life and vigor into the
organization and its vision. Our values influence the way we work and interact with our
colleagues; as well as the way we serve our clients and engage with all our stakeholders.
Mnyl recognizes the need for appreciation for demonstrating our core values thru
behaviors.
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We provide a platform in the form of cultural ambassador to recognize employees
demonstrating our values of caring, honesty, excellence, knowledge, integrity, and
teamwork. Possibly then the best way to explain the mnyl culture would be to share our
mnyl values and beliefs.
Max New York Life, one of Indias leading life insurance companies, announced
signing up Rahul Dravid, Indian crickets most reliable batsman, as its brand ambassador.
Max New York Life Insurance Company Limited is a joint venture that brings
together two large forces - Max India Limited, a multi-business corporate, together with
New York Life International, a global expert in life insurance. The very nature of our
business makes us highly customer-sensitized at Max New York Life.
We believe in building relationships with the people we serve, so that our
customers enjoy the highest quality of service in life insurance.
This fact comes alive from our defining qualities, all of which are outlined below.
We are experts in life insurance: That's all we do. New York Life has over 160 years of
experience in the life insurance business. It is a Fortune 100 company that has been
trusted by millions worldwide, across generations.
Our existence is rooted in our commitment to financial strength, integrity and
responsibility. We have increased our capitalization requirement to Rs. 527 crore from
the initial Rs.100 crore that has been stipulated by the Insurance Regulatory and
Development Authority (IRDA). Our investments are confined only to debt instruments
and we meet both Indian and US reporting norms. Max New York Life also deposits one
per cent of the premium income with the RBI, towards Contingency Funds.
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So wish, within 15 days of receiving it We offer you multiple bonus options,
which includes options such as annual bonus, bonus accumulated and paid on maturity,
bonus used to offset premiums, bonus utilized to buy Paid up additions and bonus used to
buy one-year term insurance. So, you can decide how you want to use your bonus
payments.
Life insurance is a financial resource for your loved ones in the event of your
death. You enter into a contract with an insurance company that promises to provide your
beneficiaries a certain amount of money upon your death. In return, you make periodic
payments, known as premiums. The size of the premiums is generally based on factors
such as your age, gender, medical history and the dollar amount of life insurance you
select. Some policies may require a medical exam before premiums are established.
Certain types of life insurance may also provide benefits for you and your family
while you're still living. Policies such as whole life or universal life accumulate cash
value on a tax-deferred basis, and that value can be used to supplement your retirement
income or help provide for a child's education. Life insurance is an important part of
anyone's financial portfolio.
Financial advisors often recommend developing a financial plan that includes an
appropriate amount of life insurance as part of a comprehensive strategy for financial
security.
Life Insurance. A Rs. 27,500 Crores industry today, expected to grow to an
astronomical Rs. 115,000 crores by 2010. An industry poised for exciting change, as new
companies will be allowed to offer insurance products to the Indian consumer.
A transformation that will radically change the way we think about insurance and
the way we buy insurance. Max New York Life is a dynamic partnership between New
York Life, a globally respected insurance major and Max India, a business conglomerate
driven by the spirit of enterprise.
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Max New York Life Insurance Company is one of the joint venture companies,
which have got in-principle approval from IRDA to sell Life Insurance products in India.
Max New York Life aspires to be the "life insurance brand of first choice"
amongst Indian consumers. To achieve this company will draw on New York Life's
demonstrated competence in developing and managing a superior personal sales network.
For the last 46 years consecutively, the largest number of agents qualifying for
membership to the Million Dollar Round Table (MDRT) have been from New York Life.
The MDRT is the industry's most prestigious organization comprising the world's most
successful insurance agents.
Max New York Life, a merit oriented and equal opportunities employer, is
looking for a few good men and women who will spearhead the effort to realize this
vision.
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PRODUCT PROFILE
UNIT LINKED INVESTMENT PLAN similarity towards mutual funds
In structure, yes; in objective, no. 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 UNIT LINKED INVESTMENT
PLAN have an edge. To explain this further a UNIT LINKED INVESTMENT PLAN
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, UNIT LINKED INVESTMENT PLAN managers have several
advantages over mutual fund managers.
Since policyholder premiums come at regular intervals, investments can be planned out
more evenly.
Mutual fund managers cannot take a similar long-term view because they have bulk
investors who can move money in and out of schemes at short notice.
Insurers preference of UNIT LINKED INVESTMENT PLAN
Insurers love UNIT LINKED INVESTMENT PLAN for several reasons. Most
important of all, insurers can sell these policies with less capital of their own than what
would be required if they sold traditional policies.
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In traditional with profits policies, the insurance company bears the investment
risk to the extent of the assured amount. In UNIT LINKED INVESTMENT PLAN, the
policyholder bears most of the investment risk.
Since UNIT LINKED INVESTMENT PLAN is devised to mobilize savings,
they give insurance companies an opportunity to get a large chunk of the asset
management business, which has been traditionally dominated by mutual funds.
Unit-linked insurance plans, UNIT LINKED INVESTMENT PLAN, are distinct
from the more familiar with profits policies sold for decades by the Life Insurance
Corporation.
With profits policies are called so because investment gains (profits) are
distributed to policyholders in the form of a bonus announced every year.
UNIT LINKED INVESTMENT PLAN also serve the same function of
providing insurance protection against death and provision of long-term savings, but
they are structured differently.
In with profits policies, the insurance company credits the premium to a
common pool called the life fund, after setting aside funds for the risk premium on life
insurance and management expenses.
Every year, the insurer calculates how much has to be paid to settle death and
maturity claims. The surplus in the life fund left after meeting these liabilities is
credited to policyholders accounts in the form of a bonus.
In a UNIT LINKED INVESTMENT PLAN too, the insurer deducts charges
towards life insurance (mortality charges), administration charges and fund
management charges.
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The rest of the premium is used to invest in a fund that invests money in stocks
or bonds.
The policyholders share in the fund is represented by the number of units. The
value of the unit is determined by the total value of all the investments made by the
fund divided by the number of units.
If the insurance company offers a range of funds, the insured can direct the
company to invest in the fund of his choice. Insurers usually offer three choices an
equity (growth) fund, balanced fund and a fund, which invests in bonds.
In both with profits policies as well as unit-linked policies, a large part of the
first year premium goes towards paying the agents commissions.
Arguments aboutunit-linked or with profits
The two strong arguments in favor of unit-linked plans are that the investor
knows exactly what is happening to his money and two; it allows the investor to choose
the assets into which he wants his funds invested.
A traditional with profits, on the other hand, is a black box and a policyholder
has little knowledge of what is happening. An investor in a UNIT LINKED
INVESTMENT PLAN knows how much he is paying towards mortality, management
and administration charges.
He also knows where the insurance company has invested the money. The
investor gets exactly the same returns that the fund earns, but he also bears the
investment risk.
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Life Maker Unit Linked Investment Plan
In the Life Maker unit linked plan; the premiums you pay are invested in
funds offered by us. The appropriate ratio of investments into these funds will be
determined by you in consultation with your Agent Advisor.
These funds are invested in assets such as equities, money market instruments,
investment grade corporate bonds, and government securities. These funds offer a wide
range of returns. You can choose to invest your premiums in one or more of thesefunds, basis your risk taking ability
In turn, we issue units, which represent the value of your policy i.e. you can
"see" the value of your policy on any day by multiplying the number of your units by
the value of units on that day. The value of these units is called the Net Asset Value (or
NAV) and is normally published in newspapers on a daily basis.
The NAV is based on the market value of the underlying investments in that fund
i.e. equities, company bonds, government securities, etc
Flexible Protection
Choice of two insurance covers
You have the flexibility to choose from two insurance covers - as per your
need
Level insurance cover: In the unfortunate event of death the nominee shall receive
higher of the insurance cover or value of units.
Increasing insurance cover: In the unfortunate event of death the nominee shall
receive the sum of insurance cover and the value of units in the plan. You can
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change your type of cover from increasing insurance cover to level insurance
cover during the plan tenor
Change your Sum Assured
The plan allows you to change the level of your insurance cover to vary the ratio of
protection and investment
FLEXIBLE INVESTMENT
Choice of four attractive fund options
You have the option of investing your money in any ratio in four attractive funds. The
choice of your funds is derived from your investor risk profile which looks at factors
such as age, ability to invest & risk appetite
TYPES OF FUNDS
Conservative Fund
Invests largely in high quality fixed income securities issued by the Government
of India or companies or other bodies corporate with a high credit rating. A small
portion of the fund, not exceeding 15%, may be invested in high quality Indian equity
stocks. This fund will have a low to moderate level of risk and return
Balanced Fund
Invests in both high quality fixed income securities issued by the Government of
India or companies or other bodies corporate with high credit rating, as well as in high
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Full surrender can be made anytime. However, in the first 2 policy years, there is
a surrender charge of one year's premium, and of half of one years premium if
surrendered in the 3rd policy year. There are no surrender charges after 3 policy years.
We understand your need to adjust your investment portfolio based on factors like
changing interest rates or the volatility in the equities market or a change in your life
stage. The Life Maker plan allows you to switch between funds in any ratio without
any tax liability.
The switch allows you to change your risk return profile of your existing
investments. In every policy year, the first two switches are free. The switch option we
offer is one of the most powerful and flexible ones in the market where money from one
fund can be switched to multiple funds in a single switch.
Re-direct future premium
Life Maker allows you to re-direct your future premiums. You can invest your
future premiums in a fund different from your earlier fund, or to multiple funds in a
ratio different from your earlier ratio (provided the amount paid into each fund meets
our minimum in-force requirement). Re-directing helps you change the risk - return
profile of your future investments. In every policy year, the first re-direction is free.
INVEST MORE THROUGH FUND TOP-UPS TO MATCH YOUR CASH
FLOWS
Planned top-ups
At inception, or from any premium due date, you can choose to invest extra
money in your plan through top-ups. You may also choose to discontinue paying the
top-ups anytime you want.
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Occasional top-ups: You can also invest extra money in your plan through
occasional top-ups of any amount, at any time (except in the first policy year).
Add-on Riders
Customize your policy benefits by adding Personal Accident Benefit or Dread
Disease riders to your policy at inception or on any policy anniversary.
Personal Accident Benefit (PAB) rider - if you opt for this rider, we will pay the rider
sum assured on accidental death or accidental disability.
Dread Disease (DD) rider - if you opt for this rider, we will pay the rider sum
assured on contracting any of the ten diseases covered under this rider. Please refer to
the Riders' brochure for details.
Guaranteed free units as loyalty bonus
In the last policy year, you can get free additional units, known as persistency
units. These are equal to 2.5% of your annual target premium multiplied by the
policy term, but not exceeding one annual target premium.
1. All premiums (including all top-ups) paid are eligible for a tax rebate
under Section 80C of the Income Tax Act of 1961.
2. All premiums on the Dread Disease rider are eligible for a tax rebate
under Section 80D of the Income Tax Act of 1961.
3. All maturity benefits are tax free under Section 10 (10D) of the Income
Tax Act of 1961.
4. All switches are tax-free.
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Handpicked, highly trained agent advisors, with a team of certified, and highly trained
agent advisors, supported by a team of specialists; we are fully equipped to help you
meet your unique financial goals.
GLOBAL LIFE INSURANCE EXPERIENCE
Benefit from our access to over 150 years of global life insurance experience. New
York Life Insurance Company, a Fortune 100 company founded in 1845, is the largest
mutual life insurance company in the United States and one of the largest life insurers in
the world.
Sample Illustration of Plan
If you are 30 years old, and buy Life Maker of tenor 30 years, and annual premium of
Rs. 20,000 for level insurance cover, you will pay Rs. 6 lacs to the company over the
plan tenor. The graph alongside illustrates the maturity values (in Rs lacs) you are likely
to receive, if the rate of return on investments of funds are 6% and 10%. If you choose
to add top-up premiums to your policy, the maturity values will significantly improve
Entry Age (age as at last birthday) 12 to 60 years
Tenor 10 to 58 years
Maximum Maturity Age 70 years
Minimum Sum Assured Rs. 100,000
Minimum Annual Premium Rs. 15, 000
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Premium Allocation
Entry Age (age as at last birthday) 12 to 60 years
Tenor 10 to 58 years
Maximum Maturity Age 70 years
Minimum Sum Assured Rs. 100,000
Minimum Annual Premium Rs. 15, 000
Premium Allocation
Policy Year Allocation % of Annual
Premium
1st year 75
2nd year 80
3rd year
onwards
100
Allocation percentage indicates the proportion of premiums, invested in the funds: All
Top-Up Premiums are allocated @ 101% of the Top-Up Premium you have paid. For
example, if you give a top-up Premium of Rs. 10,000/-, we will invest Rs. 10,100/- in
your chosen fund(s).
Expenses
Nominal fund management expense to professionally manage your investments. This
varies from 0.90% to 1.25% of net assets in the fund.
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A monthly administration fee of Rs. 50/-. This will be periodically reviewed to cover
inflation and administrative costs, but will never be more than 15% of the charge over
the previous year. Initial set up monthly expense (in the first year only). This will vary
from 0.15% to 0.25% of sum assured, depending on the plan tenor.
Mortality charge to provide insurance cover under the Life Maker plan and riders, if
any. Bid-Offer expense of 5%, with 1% for rounding of the premium on its allocation to
the funds
Standard exclusions & other exceptions
Not withstanding anything stated to the contrary in the Policy, if the Life Insured under
the Policy dies by suicide, whether sane or insane, within one year from the Effective
Date of this Policy, the Policy coverage shall come to an end simultaneously.
In such an event, we will only refund the value of your units. Additional exclusions are
as per rider chosen. Option to increase or decrease the sum assured is subject to our
prior approval, minimum stipulated limits and certain other conditions.
Please note that top-ups will not increase the sum assured. Top-up will be accepted only
after the annual target premium (i.e. the regular premium payable in a policy year) due
has been paid.
We reserve the right to add, close, combine or alter any Fund. All transactions in units
shall be on a forward pricing basis. We will determine the date of valuation of assets of
funds, the frequency of which shall not be less than once per week.
Life Maker is only the name of the policy and in no way indicates the quality of the
plan or its future returns or prospects.
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The investments in the units of any our funds are subject to market and other risks, and
the value of the units can increase or reduce depending on the factors affecting the debt
and equity markets from time to time.
CHAPTER 2: INTRODUCTION ABOUT STUDY
COST BENEFIT ANALYSIS
MEANING OF COST BENEFIT ANALYSIS
The cost benefit analysis helps in finding out the relationship of costs and revenues to
output. It enables the financial manager to study the general effect of the level of output
upon income and expenses and therefore upon profits.
COST BENEFIT ANALYSIS
Cost-Benefit Analysis (CBA) estimates and totals up the equivalent money value of the
benefits and costs to the community of projects to establish whether they are worthwhile.
These projects may be dams and highways or can be training programs and health care
systems.
The idea of this economic accounting originated with Jules Dupuit, a French engineer
whose 1848 article is still worth reading. The British economist, Alfred Marshall,
formulated some of the formal concepts that are at the foundation of CBA. But the
practical development of CBA came as a result of the impetus provided by the FederalNavigation Act of 1936.
This act required that the U.S. Corps of Engineers carry out projects for the improvement
of the waterway system when the total benefits of a project to whomsoever they accrue
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exceed the costs of that project. Thus, the Corps of Engineers had created systematic
methods for measuring such benefits and costs.
The engineers of the Corps did this with out much, if any, assistance from the economics
profession. It wasn't until about twenty years later in the 1950's that economists tried to
provide a rigorous, consistent set of methods for measuring benefits and costs and
deciding whether a project is worthwhile. Some technical issues of CBA have not been
wholly resolved even now but the fundamental presented in the following are well
established.
Principles of Cost Benefit Analysis
One of the problems of CBA is that the computation of many components of benefits and
costs is intuitively obvious but that there are others for which intuition fails to suggest
methods of measurement. Therefore some basic principles are needed as a guide.
There Must Be a Common Unit of Measurement
In order to reach a conclusion as to the desirability of a project all aspects of the project,
positive and negative, must be expressed in terms of a common unit; i.e., there must be a
"bottom line." The most convenient common unit is money. This means that all benefits
and costs of a project should be measured in terms of their equivalent money value.
A program may provide benefits which are not directly expressed in terms of dollars but
there is some amount of money the recipients of the benefits would consider just as good
as the project's benefits. For example, a project may provide for the elderly in an area a
free monthly visit to a doctor.
The value of that benefit to an elderly recipient is the minimum amount of money that
that recipient would take instead of the medical care. This could be less than the market
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value of the medical care provided. It is assumed that more esoteric benefits such as from
preserving open space or historic sites have a finite equivalent money value to the public.
Not only do the benefits and costs of a project have to be expressed in terms of equivalent
money value, but they have to be expressed in terms of dollars of a particular time. This
is not just due to the differences in the value of dollars at different times because of
inflation.
A dollar available five years from now is not as good as a dollar available now. This is
because a dollar available now can be invested and earn interest for five years and would
be worth more than a dollar in five years.
If the interest rate is r then a dollar invested for t years will grow to be (1+r) t. Therefore
the amount of money that would have to be deposited now so that it would grow to be
one dollar t years in the future is (1+r)-t. This called the discounted value or present value
of a dollar available t years in the future.
When the dollar value of benefits at some time in the future is multiplied by the
discounted value of one dollar at that time in the future the result is discounted present
value of that benefit of the project. The same thing applies to costs. The net benefit of the
projects is just the sum of the present value of the benefits less the present value of the
costs.
The choice of the appropriate interest rate to use for the discounting is a separate issue
that will be treated later in this paper.
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Valuations Should Represent Consumers or Producers Valuations As
Revealed by Their Actual Behavior
The valuation of benefits and costs should reflect preferences revealed by choices which
have been made. For example, improvements in transportation frequently involve saving
time. The question is how to measure the money value of that time saved. The value
should not be merely what transportation planners think time should be worth or even
what people say their time is worth.
The value of time should be that which the public reveals their time is worth through
choices involving tradeoffs between time and money. If people have a choice of parking
close to their destination for a fee of 50 cents or parking farther away and spending 5
minutes more walking and they always choose to spend the money and save the time and
effort then they have revealed that their time is more valuable to them than 10 cents per
minute. If they were indifferent between the two choices they would have revealed that
the value of their time to them was exactly 10 cents per minute.
The most challenging part of CBA is finding past choices which reveal the tradeoffs andequivalencies in preferences. For example, the valuation of the benefit of cleaner air
could be established by finding how much less people paid for housing in more polluted
areas which otherwise was identical in characteristics and location to housing in less
polluted areas. Generally the value of cleaner air to people as revealed by the hard market
choices seems to be less than their rhetorical valuation of clean air.
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Benefits Are Usually Measured by Market Choices
When consumers make purchases at market prices they reveal that the things they buy areat least as beneficial to them as the money they relinquish. Consumers will increase their
consumption of any commodity up to the point where the benefit of an additional unit
(marginal benefit) is equal to the marginal cost to them of that unit, the market price.
Therefore for any consumer buying some of a commodity, the marginal benefit is equal
to the market price. The marginal benefit will decline with the amount consumed just as
the market price has to decline to get consumers to consume a greater quantity of the
commodity.
The relationship between the market price and the quantity consumed is called the
demand schedule. Thus the demand schedule provides the information about marginal
benefit that is needed to place a money value on an increase in consumption.
The cost benefit analysis is used to answer many of the questions faced by management.
As profits are affected by the interplay of costs, volume and selling prices, managementmust have at its disposal analyses that can allow reasonably accurate presentation of the
effect a change in any one of these factors would have on the profit performance.
When plans are formulated for a given period certain questions of the following type
have to be answered should emphasis be placed on increasing sales volume? If so, to
which of the many products marketed should it be applied? Would an increase in selling
price even though accompanied by a decrease volume, result in more profitable
operations? Should efforts be made to reduce costs instead of increasing g volume or
selling price as a step toward increased profits?
If cost reduction is the answer should pressure be exerted to reduce variable or fixed
costs? Not all of these questions would be asked by management in every industrial
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enterprise since the elastic ting of demand and the extent of and nature of competition
would have a varying impact in different industries. Cost benefits analysis furnishes
complete picture of the profit structure, which enables management to distinguish
between the effect of sales volume flections and the results of price or cost changes upon
profits.
ADVANTAGES OF COST BENEFITS ANALYSIS
Cost benefits analysis is an important tool of profit planning it provide information about
the following matters.
1. The behavior of cost in relation to volume
2. Volume of production or sales, where the businesses will break even.
3. Sensitivity of profits due to variation in output.
4. Amount of profit for a projected sales volume.
5. Quantity of production and sales for a target profit level.
Cost benefit analysis may therefore be defined as a managerial tool showing the
relationship between various ingredients of profit planning cost (both fixed and variables)
selling price and volume of activity etc.
Such and analysis is useful to the finance manager in the following respects .
1. It helps him in forecasting the profit fairly accurately.
2. It is helpful in setting up flexible budget, since on the basis of the
relationship, it can ascertain the cost, sales and profits at different levels of
activity.
3. It also assists him in performance evolution for purposes of management
control.
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4. It helps in formulating price policy projecting the effect which different
price structures will have n cost and profits.
5. It helps determining the amount of overhead cost to be charged at various
levels of operations, since overhead rates are generally pre-determined n the
basis of a selected volume of production.
Thus, cost-benefit analysis is an important media through which the management can
have an insight into effects on profit on account of variations in costs and sales and take
appropriate decisions.
Risk and uncertainty
In common parlance the terms risk and Uncertainty have synonymous meaning.
However they differ from each other as given below.
Risk
Risk maybe defined as the chance of future loss that can be fore seen. In other words
in case of risk an estimate can be made about the degree of happening of the loss. This is
usually done by assigning probabilities to the risk on the basis of past data and the
probable trends.
Uncertainty
Uncertainty may defined as the unforeseen chance for future loss or damages. In case
of uncertainty since the firm cannot anticipate the future loss and hence it cannot directly
deal with it in its planning process, as is possible in the case of risk.
For example, a firm investing money in a foreign country cannot possibly foresee a coup
and taking over of the government by on unfriendly group similarly, a firm cannot
foresee the loss which may be due to destruction of its plant on account of earth quake of
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course, in those cases where occurrence of such earthquakes is quite frequent the firm can
possibly estimate the likelihood of the loss and such loss can be taken care of by the firm
in its planning process.
Such loss will not therefore fall in the purview of uncertainty, but will fall in the purview
of risk. Thus, there is a very thin line of distinction between the terms uncertainty and
Risk.
In this project, I have studied costs and benefits enjoyed by the customer of unit linked
investment plan (UNIT LINKED INVESTMENT PLAN) in Max New York Life
Insurance Company Limited. I have also studied the risk and returns they are deriving
under the unit linked investment plan by taking in to consideration of the portfolio of
companies investment in different periods of time.
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2.1. OBJECTIVES
The main aim of the present study is to accomplishing the following objectives.
1. To identify the Max New York Lifes investment allocation for UNIT
LINKED INVESTMENT PLAN Plan.
2. To know about how much percent of returns promised by Max New York
Life and also analyze what they are giving as returns to the investors.
3. To find out the disparities between the actual and promised rate of returns.
4. To analyses the range of customers invested in UNIT LINKED
INVESTMENT PLAN Plan.
5. To analyses the risk and return pattern of Max New York Life.
2.2. NEED FOR THE STUDY
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In the present world, each and every thing is marked by competition. Entry into the
financial market or the management of portfolio dealings is very risky and challengeable.
As a precaution the researcher aims at studying the nature of different financial assets in
the money and capital markets. By the proper study of cost benefit analysis, the company
as well as different investors can assess about different investments
2.3. LIMITATIONS
Limitations make the work dissatisfied every work has its own limitations.
Likely, my project is also having its own limitations
Three months time is insufficient to have a detailed study and analysis about the
various aspects of cost benefit analysis.
A detailed assistance tools to know and undertake analysis about the benefit was
lacked.
Any study cannot be 100% accurate at the times. This is because of the inherent
limitations that could be present in such a study. One of the limitations is since
its a Private insurance company the financial data are not supposed to be
disclosed.
Due to resource and time constraints, only percentage of different costcomponents has been considered and it is difficult to express in numerical values
because it varies based on the age of the individual.
2.4. RESEARCH METHODOLOGY
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PRIMARY DATA
Primary sources enables the researcher to get as close as possible to what actually
happened during an historical event or time. A primary source reflects the individuals
viewpoint of a participant or observer. Data collected from the company guide.
SECONDARY DATA
Companies existing investment portfolios quarterly review report, available
statistics, journals and magazines and Internet etc