Sunday, 30 December 2012

Life Insurance

History of Life Insurance in India                                                                          
Life Insurance in India was nationalized in the year 1956 when a number of private companies were brought under the banner Life Insurance Corporation of India.Till the year 2000 when the insurance sector was privatized it held the monopoly of Life Insurance business in India. It has been most successful Insurance organisation in the world, recording highest number of lives covered, highest number of claims settled and lowest ratio of the outstanding claims in the entire world.
An Insurance contract is called a contract of Uberrima Fides - a contract of utmost good faith.....

This is a unique business on the lives of human beings. One cannot assign a value to the life of a person. A person cannot be rated or evaluated in terms of money. Yet when one loses his/her near and dear ones, a member of the family, it is going to be a big blow to the economic health of the family. At the same time an insurance company cannot be expected to blindly agree to the contract at an unreasonable sum assured. So the sum assured will be decided by the income, health and paying capacity of the proposer and the life assured. And here enters the principle of good faith. Though death is the only certainty in life, the time and the cause are beyond one's reach. So it is the honest responsibility of the proposer to disclose all the material facts which may affect his life and the premium calculation. If he conceals or misleads on any health or family related information, there is a risk of his claim being repudiated. So one has to be extremely honest in answering the questions in the proposal forms.

How is Insurance premium calculated ?
There are three factors that go into the calculation of Life Insurance premium - mortality, interest and expenses. Since the basic principle of Life Insurance is to give financial compensation at the unfortunate event of death of the life assured, the mortality rates of the country is taken into account while arriving at the probability of the death while calculating the premium. The second factor is interest. When a person purchases the policy, he will be paying the same installment of premium at every due date through out the term of his policy. This premium may be less or more compared to the cost of the policy at different stages during the term of the policy. And the insurer has to pay both death and maturity claims to his policy holders. So the premium so collected will be invested by Life Insurance of India in the statutory bodies as per the IRDA regulations. The interest earned on these investments will have a bearing on the premium calculation. And the final consideration is the expenses. The company [ Life Insurance ] will have its expenses in the form of salary, commission, underwriting, office maintenance et all which will have a bearing on the premium calculation. There are experienced actuaries who will be regularly calculating and monitoring the premium and the bonus of the policies.

Privatisation of Life Insurance in India 
In spite of the competition by 23 private companies, Life Insurance Corporation of India not only is holding its ground but growing from strength to strength even after a decade of privatization onslaught. Though it initially experienced a setback when the private players started capturing group insurance and market linked insurance markets, LIC with its vast experience and hold on the public sentiment and loyalty, regained its ground and from 52% it has now regained more that 80% of the share while 23 companies together could capture hardly 20%

The secrets behind the success of LIC of India
The secret of its success lies in its highly principled, clean and above the board practices. Though it settles lakhs of claims worth crores of rupees and sanctions thousands of rupees' loan applications everyday, there has never been an incident of bribery or corruption And it imparts high level of training to its employees and agents, adapts to changing market scenario and upgrades its technology constantly. It has a very good planning, execution and review practices which are the envy of every other business organisation. [Life Insurance] being a long term contract, customers in India have remained loyal to this great organisation. No wonder it goes on winning the awards for the most trusted brand year after year.