UNIT 5

Types Of Insurance: There are two broad categories of insurance:

● Life Insurance
● General insurance

1. Life Insurance – The insurance policy whereby the policyholder (insured) can ensure
financial freedom for their family members after death. It offers financial compensation in
case of death or disability. While purchasing the life insurance policy, the insured either
pays the lump-sum amount or makes periodic payments known as premiums to the
insurer. In exchange, of which the insurer promises to pay an assured sum to the family
if insured in the event of death or disability or at maturity. Depending on the coverage,
life insurance can be classified into the below-mentioned types:

● Term Insurance: Gives life coverage for a specific time period.The term insurance plan is
one of the most sought-after types of life insurance policies in India. This is one of the
types of life insurance policy in India that you can buy for a specific period of 10, 20, 30
or more years, hence the name. While some other types of life insurance policy offer
maturity benefits, term insurance does not. It is one reason why term insurance, being
the best insurance policy in India, is comparatively cheaper than other types of life
insurance schemes. Term insurance is pure life cover, unlike other types of life insurance
policies which have a saving component. You can also opt for a significant life cover at a
lower premium as compared to other types of life insurance policy which are costlier but
have built-in saving components.

● Whole life insurance: Offer life cover for the whole life of an individual. As a life insurance
policyholder, you get the benefits depending on the types of life insurance plans. What
distinguishes a whole life insurance plan from other types of life insurance is that it
provides insurance coverage to the insured for the entire life, up to 100 years of age.
The death benefit is payable to the beneficiary in the case of the untimely demise of the
policyholder. On the other hand, you are eligible to receive a maturity benefit under a
whole life insurance policy if you cross 100 years of age. Another significant feature of
these types of life insurance plans is that some plans offer the option to pay a premium
for the first 10-15 years while you get the benefits for the entire life.

● Endowment policy: a portion of premiums go toward the death benefit, while the
remaining is invested by the insurer.Endowment policies are one of the types of life
insurance policies that provide you with the combined benefit of life insurance and
savings. Along with giving you the life cover, these types of life insurance help you save
money regularly over a period to get a lump sum at maturity. What makes them one of
the most useful types of life insurance policies is that they help fulfill long-term goals in
life. You will also get the maturity amount if you survive the policy tenure. Endowment
policies, being one of the most appropriate types of life insurance plans, also help you
create a financial cushion for your family to meet various financial objectives in life.
● Money back Policy: a certain percentage of the sum assured is paid to the insured in
intervals throughout the term as survival benefit.The purpose of investing in the
insurance policy in India for your loved ones can be to create wealth over an extended
period. However, most of the types of life insurance do not provide any provision to get
funds before their tenure ends. It is where a money back policy plays a vital role in
solving the problem of liquidity. As the name suggests, money back policies are one of
the popular types of life insurance policies in India that give money back regularly.It pays
a percentage of the assured sum throughout the policy tenure, unlike other types of life
insurance plans that offer no returns till maturity.

● Pension Plans: Also called retirement plans are a fusion of insurance and investment. A
portion from the premiums is directed towards retirement corpus, which is paid as a
lump-sum or monthly payment after the retirement of the insured. Retirement Plans are
insurance plans which provide financial security and help you with wealth creation after
your retirement. With a Retirement Plan, you will get a sum of money as pension in the
vesting period. In case of your untimely demise during the policy term, your nominee will
get the death benefits. Retirement Plans come with death benefits as well as vesting
benefits providing protection to you and your family members.

● Child Plans: Provides financial aid for children of the policyholders throughout their lives.
A child plan is an investment+insurance plan that helps you meet your child’s financial
needs. A child insurance plan will help you create wealth for your child’s future needs
like education. You can start investing in these plans from the birth of your child. You get
the flexibility of investing your hard earned money into several funds on the basis of your
financial condition and goals in mind.

● ULIPS: Unit Linked Insurance Plans: Same as endowment plans, a part of premiums go
toward the death benefit while the remaining goes toward mutual fund investments.
A ULIP is one of the types of life insurance policies in India that fulfill both these aspects.
Amongst different types of life insurance, it is the one that offers life cover along with
investment opportunities. Being one of the types of life insurance, it has a lock-in period
of five years, which makes it a long-term investment instrument that comes with risk
protection. ULIPs also allow you to balance your funds as per market dynamics.

● Group Life Insurance: Just like group health insurance, group life insurance is one of the
types of life insurance that covers a group of people under one master policy. These
types of life insurance are generally provided as part of an employment benefit. A unique
feature of these types of life insurance products is that you will get the insurance cover if
you remain a part of the group. It is different from the individual types of life insurance
plans in which the coverage continues throughout the chosen policy tenure.
 2. General Insurance – Everything apart from life can be insured under general insurance.
It offers financial compensation on any loss other than death. General insurance covers
the loss or damages caused to all the assets and liabilities. The insurance company
promises to pay the assured sum to cover the loss related to the vehicle, medical
treatments, fire, theft, or even financial problems during travel. General Insurance can
cover almost anything, and everything but the five key types of insurances available
under it are –

● Health Insurance: Covers the cost of medical care.

● Fire Insurance: give coverage for the damages caused to goods or property due to fire.

● Travel Insurance: compensates the financial liabilities arising out of non-medical or

medical emergencies during travel within the country or abroad

● Motor Insurance: offers financial protection to motor vehicles from damages due to
accidents, fire, theft, or natural calamities.

● Home Insurance: compensates the damage caused to home due to man-made

disasters, natural calamities, or other threats.

Variable Life Insurance: In a variable life insurance policy, the bulk of the premium is invested
in one or more separate investment accounts, with the opportunity to select from a wide range
of investment options—fixed-income, stocks, mutual funds, bonds, and money market funds.
The interest earned on the accounts increases with the account's cash value.
Risk tolerance and investment objectives determine the amount of risk to be undertaken.

Normally, insurers have their own professional investment managers supervising the
investments. Therefore, the overall asset performance of the investment is generally the main
topic of concern.

A variable life policy is quite risky because the cash value and death benefits can fluctuate in
according to the performance of the investment portfolio. Therefore, if the underlying
investments perform well, the death benefit and cash value may increase accordingly. If the
investments perform worse than expected, the death benefit and cash value may decrease.

Adjustable life insurance and universal life insurance are the same type of life insurance
policy. Adjustable life insurance is the name given to older universal life insurance policies.

These policies were the first universal life insurance policies designed in the 1980s.
● Universal life (UL) insurance is a form of permanent life insurance with an investment
savings element plus low premiums.
 ● Beneficiaries only receive the death benefit.
● Unlike term life insurance, a UL insurance policy can accumulate cash value.

As the name implies, the COI( cost of insurance) is the minimum amount of a premium payment
required to keep the policy active. It consists of several items rolled together into one payment.
COI includes the charges for mortality, policy administration, and other directly associated
expenses to keep the policy in force. COI will vary by policy based on the policyholder’s age,
insurability, and the insured risk amount.

Collected premiums in excess of the cost of UL insurance accumulate within the cash value
portion of the policy. Over time the cost of insurance will increase as the insured ages. However,
if sufficient, the accumulated cash value will cover the increases in the COI.

Much like a savings account, a UL insurance policy can accumulate cash value. In a UL
insurance policy, the cash value earns interest based on the current market or minimum interest
rate, whichever is greater. As cash value accumulates, policyholders may access a portion of
the cash value without affecting the guaranteed death benefit.

Adjustable life insurance or universal life works like other life insurance products but has the
added benefit of flexibility, depending on your financial scenario. The policy has a death benefit
that is paid out tax-free to a beneficiary if the insured were to pass away, and premiums are paid
on a monthly or annual basis.

Group life insurance: This is life insurance that you buy as part of a group – typically through
work as part of your employee benefits package, or via a member organization. Most group life
insurance is term, but some companies also offer permanent coverage as a voluntary
(employee-paid) benefit.

Industrial life insurance is a type of life insurance that is commonly sold to industrial workers,
and which carries a face value that is considerably lower than other types of life insurance.
Industrial life insurance premiums are paid on either a weekly or a monthly basis. Generally, the
face values of industrial life insurance policies are no more than $10,000. This is considerably
lower than other types of life insurance policies, which typically have face values of hundreds of
thousands. Industrial life insurance is a good option for people who want some life insurance but
cannot afford to pay high premiums.Industrial life insurance, also called debit life insurance or
street insurance, is a type of low-coverage policy that was traditionally marketed to workers in
lower-paying industries, specifically those in industrial jobs. While most life insurance policies
come with death benefits in the hundreds of thousands of dollars, the death benefit of an
industrial life insurance is usually $10,000 or less. As a result, it’s a type of burial insurance. It’s
designed to cover funeral expenses and limited end-of-life costs, rather than any sort of lasting
income replacement. Historically, industrial life insurance premiums were collected in-person by
an agent, also called a tally man, who came to the policy owner’s home. The premiums for
industrial life insurance were generally paid on a very regular basis. While other insurance
policies might be paid monthly, it’s not uncommon for an industrial policy’s premiums to get
collected weekly or biweekly.
Phasing out industrial life insurance: Industrial life insurance is now very rare owing to two
major issues. The first is that these policies offered low coverage to the policy owner but still
cost a relatively high amount to the insurance provider. That’s because sending out an agent to
collect premiums in-person, especially on such a frequent basis, required a significant
investment from the insurance provider. Additionally, industrial life insurance has become less
sought-after as digital insurance tools develop further. Now, many policy owners want the ability
to manage their policies and pay their premiums online. With industrial life insurance, records of
premium payments were often maintained in a book that the policy owner would have to give to
their insurer in order to make a claim. With online insurance tools, today’s policy owners can
track their policy payments without having to maintain hard-copy records.

Credit life insurance: is a type of life insurance policy designed to pay off a borrower's
outstanding debts if the borrower dies.Credit life insurance is a type of life insurance policy
designed to pay off a borrower's outstanding debts if the policyholder dies. It's typically used to
ensure you can paydown a large loan like a mortgage or car loan. The face value of a credit life
insurance policy decreases proportionately with the outstanding loan amount as the loan is paid
off over time until there is no remaining loan balance. Credit life insurance is typically offered
when you borrow a significant amount of money, such as for a mortgage, car loan, or large line
of credit. The policy pays off the loan in the event the borrower dies. Such policies are worth
considering if you have a co-signer on the loan or you have dependents who rely on the
underlying asset, such as your home. If you have a co-signer on your mortgage, credit life
insurance would protect them from having to make loan payments after your death. Credit life
insurance is a specialized type of policy intended to pay off specific outstanding debts in case
the borrower dies before the debt is fully repaid. Credit life policies feature a term that
corresponds with the loan maturity. The death benefit of a credit life insurance policy decreases
as the policyholder's debt decreases. Credit life policies often have less stringent underwriting
requirements.

Ordinary life insurance: is a type of life insurance in which policyholders pay premiums for
their whole lives at a set price and interval. However, ordinary life insurance policies are often
considered paid up if the policyholder reaches 100 years of age. Ordinary life insurance is a
term that is often used interchangeably with "whole life insurance."

Participating policies: A participating policy is an insurance contract that pays dividends to the
holder. Dividends are generated from the profits of the insurance company that sold the policy
and are typically paid out on an annual basis over the life of the policy. Most policies also
include a final or terminal payment when the contract matures. Some participating policies may
include a guaranteed dividend amount, which is determined at the onset of the policy. A
participating policy is also referred to as a "with-profits policy."A participating policy pays
dividends to the holder of the insurance policy. They are essentially a form of risk sharing, in
which the insurance company shifts a portion of risk to policyholders. Policy holders can either
receive their premiums in cash through mail or keep them as a deposit with the insurance
company to earn interest or have the payments added to their premiums.Participating policies
are typically life insurance contracts, such as a whole life participating policy. The dividend
received by the policyholder can be taken in different ways: it can be used to pay the insurance
premium; it can be left with the policy to generate interest like a regular savings account; or the
policyholder can take a cash payment like that on a stock.

Non- participating policies: A non-participating policy does not share the surplus earnings,
and therefore does not receive a dividend payment. That is profits are not invested in
non-participating programs, so no distributions are paid out to policyholders. This form of policy
is often referred to as a charity or non-par policy. In the case of a non-participating policy, the
policyholder is not paid a bonus or dividend.In non-participating policies, there are no payments
because the profits are not shared. The rates are far less than active plans. For example, a term
insurance policy or fixed life insurance policy is a policy which is not involved in returning cash
value.

TYPES OF LIFE INSURANCE (in details):

● Term life insurance is a type of life insurance policy that provides coverage for a certain
period of time, or a specified “term” of years. If the insured dies during the time period
specified and the policy is active, or “in force,” then a death benefit will be paid. Term
insurance is initially much less expensive compared to permanent life insurance, such as
 whole life and universal life. This is because it’s not designed to last through old age,
which is when life insurance premiums are the most expensive. And, unlike most types
of permanent life insurance, term life insurance has no cash value. There are various
types of term insurance policies available. Many policies offer level premiums for the
duration of the policy, such as 10, 20, or 30 years. These are often referred to as “level
term” policies. A premium is a specific cost, typically monthly, that insurance companies
charge policyholders to provide the benefits that come with the insurance policy. The
insurance company calculates premiums based on health, age, and life expectancy. A
medical exam that reviews the insured person’s health and family medical history might
be required, depending on the type of policy chosen. Premiums are typically fixed and
paid for the length of the term. If the person insured dies prior to the expiration of the
policy, then the insurance company will pay the death benefit to their beneficiaries. If the
term expires and the individual dies afterward, there would be no coverage or payout.
However, the policyholder can often extend or renew the insurance, but the new monthly
premium will be based on the person’s age at the time of the renewal. As a result,
premiums are higher upon renewal. Many term policies are also “convertible,” which
means they can be converted into a permanent life insurance policy, such as universal or
whole life, within a certain number of years after the policy was taken out. If you convert
term life insurance to permanent life insurance, the premium will increase. Term
insurance is a type of life insurance policy that provides coverage for a certain period of
time, such as 30 years. If the insured dies during the time period specified in a term
policy and the policy is active, then a death benefit will be paid. Most term policies offer
level premiums for the duration of the policy. Many term policies offer the option to
convert from term to permanent insurance.

● Whole life insurance, also known as traditional life insurance, provides permanent
death benefit coverage for the life of the insured. In addition to paying a death benefit,
whole life insurance also contains a savings component in which cash value may
accumulate. Interest accrues at a fixed rate and on a tax-deferred basis. Whole life
insurance policies are one type of permanent life insurance. Universal life, indexed
universal life, and variable universal life are others. Whole life insurance is the original
life insurance policy, but whole life does not equal permanent life insurance as there are
many types of permanent life.Whole life insurance guarantees payment of a death
benefit to beneficiaries in exchange for level, regularly-due premium payments. The
policy includes a savings portion, called the “cash value,” alongside the death benefit. In
the savings component, interest may accumulate on a tax-deferred basis. Growing cash
value is an essential component of whole life insurance.Whole life insurance lasts for an
insured's lifetime, as opposed to term life insurance, which is for a specific amount of
years. Whole life insurance is paid out to a beneficiary or beneficiaries upon the
insured's death, provided the policy was in force. Whole life insurance has a cash
savings component, which the policy owner can draw or borrow from. The cash value of
a whole life policy typically earns a fixed rate of interest. An outstanding loan principal
and interest reduce death benefits.
● Endowment policies are a type of life insurance policy, which provides the combined
benefit of insurance coverage and savings. Endowment plan helps the insured to save
regularly over a particular time period in order to avail a lump-sum amount at the
maturity of the policy. The maturity amount is paid in case the insured survives the entire
tenure of the policy. However, in case of an unfortunate demise of the insured during the
policy tenure, a sum assured amount as death benefit along with bonus (if any) is paid to
the beneficiary of the policy. Besides this, endowment policy also helps to create a
financial cushion for the future so that one can meet the long-term and short-term
financial objectives of life. The endowment policy is a variant of a life insurance product
that not only provides insurance coverage to the family of the insured but also works as
a savings plan to create a financial cushion for the family in the long term. As a
remunerative option of investment, the endowment insurance plan helps to accumulate
wealth in the long term, so that one can achieve the financial objectives of life. There are
two options offered in an endowment plan that is, with profit and without profit. In a profit
endowment insurance policy, the basic sum assured amount along with the guaranteed
additional bonus is offered to the policyholder. This amount is guaranteed right from the
initiation of the policy. However, the final payout as maturity benefit provided is
comparatively higher depending on the bonuses announced from time to time by the
insurance company. On the other hand, without a profit endowment insurance plan,
there are no additional bonuses offered by the insurance company. The plan only offers
maturity benefits and death benefits to the policyholder. The main feature of an
endowment policy is that it works as a savings plan for an individual and offers a
lump-sum payout along with the guaranteed additional bonus as a maturity benefit to the
policyholder after the completion of the policy tenure.

● A money-back policy is a policy which gives money-back at regular intervals. This

money-back is paid during the plan tenure and is a percentage of the Sum Assured.
Money-back pay-outs are called Survival Benefits. These benefits are paid during the
plan tenure and on maturity, the remaining Sum Assured is paid along with vested
bonuses. However, if the insured dies during the plan tenure, the full Sum Assured is
paid irrespective of the Survival Benefits already paid. A Money back policy is a type of
policy that offers policyholders Survival Benefits as well as investment opportunities in
addition to Maturity Benefits. An average money back policy with a 20 year tenure would
thus pay the policyholder what is known as a 'Survival Benefit' a few years after the start
of the policy. Around 20% of the Sum Assured would be paid out periodically, while the
balance would be paid out at the time of policy maturity with a bonus, if any. In the event
the insured individual does not survive till the policy maturation, the nominee would
receive the Death Benefit (the entire Sum Assured) and the policy would be terminated.
This is what makes the plan unique. Some of the salient features of Money Back Policy
are:
★ The Survival Benefits are calculated as a percentage of the sum assured.
★ Survival Benefits are paid at regular intervals during the plan tenure. There is a
fixed interval when the benefits would be paid. Every plan has a different payout
 structure. Similarly, the percentage of Sum Assured paid as Survival Benefits is
also not fixed and varies between different plans.
★ If the plan matures, the remaining portion of the Sum Assured (actual Sum
Assured less the Survival Benefits already paid) is paid as maturity benefit.
However, in case of death, the entire Sum Assured is paid irrespective of the
money-back benefits already paid.
★ Money-back plans usually come as participating plans where bonuses are added.
The accrued bonus is then paid on maturity or on death.
★ Riders are also available under many money-back plans. Rider benefits are paid
as a lump sum only when the contingency covered by the rider occurs during the
plan tenure.

● Pension Plans: Also called retirement plans are a fusion of insurance and investment. A
portion from the premiums is directed towards retirement corpus, which is paid as a
lump-sum or monthly payment after the retirement of the insured. Retirement Plans are
insurance plans which provide financial security and help you with wealth creation after
your retirement. With a Retirement Plan, you will get a sum of money as pension in the
vesting period. In case of your untimely demise during the policy term, your nominee will
get the death benefits. Retirement Plans come with death benefits as well as vesting
benefits providing protection to you and your family members.

● Child Plans: A child plan is a tailor-made investment cum insurance option to meet the
financial needs of a child. In a child plan, there are two components– insurance and
investment. The insurance component is designed to protect the child from unfortunate
events such as the demise of the parent wherein the child gets a fixed annual payment
in case such an event occurs. The investment component is designed to meet the
financial needs of the child through accumulation of money by investing in various
instruments. A child plan is a type of life insurance that helps financially secure the future
of your child. It gives the assurance that the child will get the financial support from the
insurance even if something untoward happens to the parents. A child insurance plan
offers life cover and provides flexible payouts during crucial milestones of your child’s
life. Moreover, some of the best child plans are designed keeping in mind the fact that
life is unpredictable. It helps to build a corpus, which will help the parents manage major
expenses related to children like higher education. This corpus can be used even during
unfortunate incidents like untimely demise of parents.if due to any unfortunate event the
insured (parents) die, the company will pay a portion of the maturity amount to the child
annually until maturity. All the premiums payable after death shall be waived off. On
maturity, the full cover amount will be given to the child. If the insured outlives the policy
term then the full cover amount will be given to the child at the end of the term. Also, if
there is any mid-term requirement, parents can withdraw the amount from the corpus.
● A unit linked insurance plan (ULIP) is a multi-faceted product that offers both
insurance coverage and investment exposure in equities or bonds. This product requires
policyholders to make regular premium payments. Part of the premiums goes toward
insurance coverage, while the remaining portion is pooled with assets from other
policyholders and invested in either equities, bonds, or a combination of both. A unit
linked insurance plan can be used for various purposes, including providing life
insurance, building wealth, generating retirement income, and paying for the education
of children and grandchildren. In many cases, an investor opens a ULIP to provide
benefits to their descendants. With a life insurance ULIP, the beneficiaries would receive
payments following the owner’s death. A unit linked insurance plan’s investment options
are structured much like mutual funds, in that they pool investments with those from
other investors. As such, a ULIP's assets are managed with an eye toward
accomplishing a specified investment objective. Investors can buy shares in a single
strategy or diversify their investments across multiple market-linked ULIP funds.
Policyholders must commit an initial lump-sum payment when they first buy into a ULIP,
followed by annual, semi-annual, or monthly premium payments. Although the premium
payment obligations vary from product to product, in all cases, they are proportionally
directed towards a designated investment mandate. The regular premium payments
enable policyholders to systematically build up principal more quickly than could be
accomplished by waiting for returns to accumulate. In addition, many ULIPs offer the
option of "topping up", or adding significant lump sums to the balance. ULIPs are unique
in that they offer flexibility to investors, who may adjust their fund preferences throughout
the duration of their investment. For example, they can shuttle between stock funds,
bond funds, and diversified funds depending on their investment needs.
★ A unit linked insurance plan is a product that offers a combination of insurance
and investment payout.
★ ULIP policyholders must make regular premium payments, which cover both the
insurance coverage and the investment.
★ ULIPs are frequently used to provide a range of payouts to their beneficiaries
following their death.

● Group Life insurance: Group life insurance is offered by an employer or another

large-scale entity, such as an association or labor organization, to its workers or
members. It is fairly inexpensive, may even be free for certain employees, and is pretty
common nationwide. Group life often has a relatively low coverage amount and is
offered as a piece of a larger employer or membership benefit package. Members of a
group life policy do not need to submit to a medical examination and are not subject to
individual underwriting. Group life insurance is a single contract for life insurance
coverage that extends to a group of people. By purchasing group life insurance policy
coverage through an insurance provider on a wholesale basis for its members,
companies are able to secure costs for each individual employee that are much lower
than if they were to purchase an individual policy.Those receiving group life insurance
coverage may not have to pay anything out of pocket for policy benefits. People who
choose to take more-advanced coverage alongside it may elect to have their portion of
the premium payment deducted from their paycheck. Just as with regular insurance
policies, insured parties are required to list one or more beneficiaries before the policy
comes into effect. Beneficiaries can be changed at any point during the coverage period.
The typical group policy is for term life insurance, often renewable each year with a
company’s open-enrollment process. This is in contrast to whole life insurance, which
provides coverage no matter when you die. Whole life insurance policies are permanent,
have higher premiums and death benefits, and constitute the most popular type of life
insurance. With group life insurance, the employer or organization purchasing the policy
for its staff or members retains the master contract. Employees who elect coverage
through the group policy usually receive a certificate of coverage, which is needed to
provide to a subsequent insurance company in the event that an individual leaves the
company or organization and terminates their coverage.
★ Group life insurance is offered by an employer or another large-scale entity, such
as an association or labor organization, to its workers or members.
★ Group life insurance is fairly inexpensive and may even be free since many
members pay into the group policy.
★ Some organizations require group members to participate for a minimum amount
of time before they are granted coverage, which is generally pretty basic.
★ Group life policies do not require individuals to complete a medical exam or
underwriting.
★ Group life policy death benefits are generally limited.
Actuarial science:
Actuarial science is a discipline that makes use of mathematical and statistical methods to
determine financial risks in the insurance and finance fields. Actuarial science uses probability
and statistical mathematics to define, analyze, and solve the financial implications of uncertain
future events. Traditional actuarial science generally revolves around mortality analysis and life
table growth, and the application of compound interest.

In conventional life insurance, actuarial science focuses on calculating longevity, creating life
tables, and applying compound interest to build life insurance plans, annuities, and
endowments.

Applications of Actuarial Science

1. Life insurance: Suppose an insurance broker is evaluating what is the price to be charged for
a plain term insurance to a 25-year-old client and a 40-year-old client. In the above situation,
there are several variables involved, i.e., the current health of the client, expected lifespan,
lifestyle choices, etc. So, it’s not humanly possible to do a quick calculation to come up with a
price. This is where the genius of the actuary becomes useful.
The actuary is able to access historical data across genders, age groups, and various other
strata. Using a complex mathematical model, the actuary can estimate the probabilities of
survival for each of the strata. All that remains is putting the client in the appropriate strata,
thereby obtaining how risky the client is to insure.
Let’s assume the probability of death is 2% for the 25-year-old and 8% for the 40-year-old. In
both cases, the sum insured is $100,000. Therefore, the premium charged would be 2% of
$100,000 and 8% of $100,000, respectively.

2. Health insurance: Let’s suppose a healthy person who is 30 years old needs to be insured.
Now, the analysis must also focus on the type of occupation a person does, the probability of
disability, and other contingencies. A variation of the life insurance model would be deployed to
arrive at the premium to be charged.
An actuary is a professional who specializes in the field of analyzing financial risks by
implementing statistical, financial and mathematical theories. In insurance, actuaries aid in
assessing risks which help companies in the estimation of premiums for their policies.

Actuarial practices involve analyzing factors related to a customer’s life expectancy, construction
of mortality tables that help one to have a measurement of predictability and offering insight to
brokers.
Actuarial science mostly finds its application in the life insurance mortality analysis. However,
they can also be applied in case of other general insurance fields like property and liability
insurance.
Sometimes recommendations for the determination of premium for insurance policies made by
actuaries can also have a positive impact on the behavior of policyholders.
As per the Appointed Actuary regulations put forth by the Insurance Regulatory and
Development Authority of India, any insurer or insurance company should mandatorily appoint
an actuary to manage financial risks and uncertainty of the insurance business.

To be appointed as an actuary with any insurance company, an individual has to fulfill the
following criteria, as put forth under regulations:
● He/she should be a resident of India.
● Should be a fellow member as per the Actuaries Act, 2006.

Role of Actuary:

It is ideal for insurance companies to create policies that bear minimal risk and can generate
stable returns.

Estimating risk and return from each proposal also in turn aids in assuring policyholders that
their claims will be settled.

With regards to insurance, actuarial practices involve analyzing factors related to a customer’s
life expectancy, construction of mortality tables that help one to have a measurement of
predictability and offering insight to brokers.

Actuarial science mostly finds its application in the life insurance mortality analysis.

However, they can also be applied in case of other general insurance fields like property and
liability insurance.

Sometimes recommendations for the determination of premium for insurance policies made by
actuaries can also have a positive impact on the behavior of policyholders.

For instance, premium payable by non-smokers for life insurance policies is often
significantly lesser than that for smokers. This might push individuals to quit smoking to
avail their life insurance policies at a lower premium.

Approval of new policies and submission of copy to IRDA before it is available to the general
public.

Verify companies capital adequacy periodically.

Provisions of life insurance:

● Incontestability: Generally, after a policy has been in force for two years, the insurance
company cannot contest the validity of the policy for any reason other than failure to pay
the premiums.
 ● Misstatement Of Age Or Gender: If the applicant lists the wrong age or gender on the
policy, this provision allows the insurance company to recalculate benefits and/or
premiums based on the applicant’s true age or gender.

● Suicide: This policy provision generally states that if a insured commits suicide within the
first two years of the insurance contract, the death benefit is limited to the total premiums
paid.

● Grace Period: After the first premium payment, life insurance policies provide a minimum
grace period of 31 days after the due date to make the next premium payment. If the
premium is not paid before the grace period expires, the policy will lapse. During the
grace period the policy remains in force. If the insured dies during the grace period, the
insurance company may deduct any premium due from the death benefit.

● Reinstatement Provision: This provision allows a policy to be reinstated if for some

reason the policy has lapsed. The reinstatement is subject to the limitations and
requirements spelled out in the policy. Generally, the insured must make a written
application for reinstatement, meet the company’s underwriting guidelines, and pay all
overdue premiums (plus interest) and reinstatement fees.

● Nonforfeiture Benefits: The following nonforfeiture benefits may be available if a policy

lapses due to non-payment of premiums:
★ Reduced Paid-up Insurance — This option allows the insured to receive reduced paid-up
life insurance coverage.
★ Extended Term — This option allows the policyowner to keep the policy in force, as term
life coverage, to a specified future date. The length of the extended term benefit will
depend on the amount of cash value in the policy and the age of the insured.
★ Cash Surrender — The owner may elect to take the available cash value in a lump sum.

An automatic premium loan is often associated with a life insurance policy that has a cash
value. It is a specific clause, or rider, within the policy that allows the insurance issuer to
withdraw premium payments from the accrued value of the policy when the policyholder is
unable to or neglects to continue paying.

DIVIDEND OPTIONS : Participating policies, in due time, should qualify for dividends. dividends
become the disposable property of the participating policy owner immediately.
The policy, however, normally presents some options in respect of such dividends. They may
be:
(a) paid in cash at once;
(b) applied towards future premiums (renewals) of the policy;
(c) left with the insurer to earn interest;
(d) used to buy paid-up additional insurance;
SETTLEMENT OPTIONS: When the policy benefit becomes payable, there are different
possibilities for the beneficiary and/or policyowner. These are:
(a) a lump-sum settlement: a single payment, to complete the whole contract;
(b) an interest option: the proceeds are left with the insurer, who pays interest annually or at
agreed more frequent intervals;
(c) a fixed period option: the proceeds (and interest) are paid in installments over an agreed
period of time;

(d) a fixed amount option: the proceeds (and interest) are paid in agreed amount installments for
as long as the money lasts;
(e) a life income option: the proceeds (and interest) are paid in agreed installments for the
lifetime of the designated person - effectively this is purchasing an annuity

SUICIDE CLAUSE: One of the features of life insurance is that the benefit may be payable
even if the cause of the claim was the deliberate act of the insured life. This arises from the
underlying reason for life insurance, which originally was primarily to make provision for
dependants, rather than to benefit the insured personally. With a long term contract and under
those circumstances, it would be unfair to penalize the family in the tragic event of the insured
person taking his own life.

On the other hand, certain safeguards against the effecting of life insurance with suicide in mind
are perfectly reasonable. The usual provisions are:
(a) suicide is excluded for an initial period of the policy;
(b) that period may vary with insurers, but 1 year is very representative; should suicide occur
after that period the policy amount is payable;
(c) should suicide occur during that period the policy amount is not paid, but it is normal for the
policy terms to say that premiums paid (less any outstanding loan and interest) are refunded.

General insurance
General insurance covers home, your travel, vehicle, and health (non-life assets) from fire,
floods, accidents, man-made disasters, and theft. Different types of general insurance include
motor insurance, health insurance, travel insurance, and home insurance. A general insurance
policy pays for the losses that are incurred by the insured during the period of the policy.

Different Types of General Insurance: Today it is crucial to know about the different types of
general insurance because of the numerous benefits they offer. Read on to know more about
them:

1. Home Insurance: As the home is a valuable possession, it is important to secure your home
with a proper home insurance policy. Home and household insurance safeguard your house and
the items in it. A home insurance policy essentially covers man-made and natural circumstances
that may result in damage or loss.

2. Motor Insurance: Motor insurance provides coverage for your vehicle against damage,
accidents, vandalism, theft, etc. It comes in two forms, third-party and comprehensive. When
your vehicle is responsible for an accident, third-party insurance takes care of the harm caused
to a third-party. However, you must take into account one fact that it does not cover any of your
vehicle’s damages. It is also important to note that third-party motor insurance is mandatory as
per the Motor Vehicles Act, 1988. A comprehensive insurance policy safeguards your vehicle
against fire, earthquake, theft, impact damage, etc. Additionally, it provides coverage against
any third-party liability in the case of third-party property damage, bodily injury, or death.

3. Travel Insurance: When you are travel internationally and suffer losses because of loss of
baggage, trip cancellation, or delay in flight, a travel insurance policy safeguards you. You may
also be offered cashless hospitalization if you are hospitalized while traveling.

4. Health Insurance: Health insurance is a vital tool for risk mitigation and helps you deal with
medical emergencies. A health insurance plan covers hospitalization expenses up to the sum
insured. When it comes to health insurance, one can opt for a standalone health policy or a
family floater plan that offers coverage for all family members.

Difference between General Insurance & Life Insurance

● Life insurance provides coverage for your life. If a situation occurs wherein the
policyholder has a premature death within the term of the policy, then the nominee gets
the sum assured by the insurance company. It is one of the most important financial
instruments. Life insurance is different from general insurance on various parameters:

● General insurance policy is a short-term contract whereas life insurance is a long-term

contract.

● In the case of life insurance, the benefits and the sum assured is paid on the maturity of
the policy or in the event of the policy holder’s death. On the other hand, in the case of
general insurance, the claim or the actual loss amount is reimbursed when a specific
event occurs.

● Because the contract of life insurance is long-term in nature, the premium is paid all
through the term of the policy or until the minimum premium paying term. As far as the
premium of general insurance is concerned, the premium is paid if the policy is renewed
in the next year.

Health Insurance in India

Overview of the health insurance system based in India

Despite India's universal health care system, many Indians remain without adequate medical
coverage. Despite attempts to use health insurance to increase accessibility, most Indians lack
insurance.

Although India has a universal health care system, lack of coverage and infrastructure in the
public sector means that many Indians turn to the private sector for healthcare needs.

Increasing Accessibility: Because of widespread lack of health insurance, a number of plans,

both private and public, have been developed to try to put affordable medical care within the
reach of ordinary Indians.

The “Jan Arogya Yojana” insurance plan is the primary plan designed to be accessible to
low-income Indians. Costing Rs. 122 per year, it covers up to 60 days of hospitalization. The
plan, however, only reimburses patients after they have paid out of pocket, limiting its
accessibility to the poor.

Types of Health Insurance: There are two basic types of health insurance:

1. Mediclaim Plans: Mediclaim or hospitalization plans are the most basic

type of health insurance plans. They cover the cost of treatment when you are admitted to the
hospital. The payout is made on actual expenses incurred in the hospital by submitting original
bills. Most of these plans cover the entire family up to a certain limit.

2. Critical Illness Insurance Plans: Critical Illness Insurance Plans cover specific life-threatening
diseases. These diseases could require prolonged treatment or even change in lifestyle. Unlike
hospitalization plans, the payout is made on Critical Illness cover chosen by the customer and
not on actual expenses incurred in the hospital. The cover gives the flexibility to use for
changing lifestyle and medicines. Also it's a substitute for income for the time you could not
resume work due to illness. Payout under these plans are made on the diagnosis of the disease
for which the original medical bills are not required.

Anybody who has a health insurance policy will tell you that buying one is one of the smartest
financial decisions by any earning individual.

Here is a list of benefits any good health insurance plan should offer you:
● Protection against a large number of critical illnesses
● Flexibility to choose your health cover
● No increase in premiums during the policy term even if your health condition changes
● Long policy term that covers you even in your old age
● Large hospital network for easy access to medical treatment
A Mediclaim plan will either reimburse all your hospitalization expenses or settle the hospital
bills via a cashless facility.

With a Critical Illness Insurance plan, you will receive a lump-sum payout on the detection of a
critical illness. You don't have to be hospitalized for the same. If you are unable to work because
of the illness, then you can use the amount as a substitute for your monthly income. You can
even use the money to cover expenses for doctor visits, medicine purchases, medical tests or
any other expense that might arise during this time. That is why you need both – a Mediclaim
plan to cover your hospitalization expenses and a Critical Illness Insurance plan to cover your
loss of income and other expenses that arise due to an illness.

7 Types of Health Insurance Policies in India

● Individual Health Insurance.
● Family Floater Health Insurance.
● Group Health Insurance.
● Senior Citizens Health Insurance.
● Maternity Health Insurance.
● Critical Illness Insurance.
● Top-Up Health Insurance.

THIRD PARTY ADMINISTRATORS:( TPA’ s)

A Third Party Administrator is a body that processes insurance claims admissible under the
mediclaim policy. In general,these administrators are independent but can also act as an entity
belonging to the insurer/s. These bodies are licensed by Insurance Regulatory IRDAI.

TPA is held responsible for:

● High quality consistent services.
● Processing voluminous health insurance claims.

A Third Party Administrator will take care of the hospital bills and other expenses.
Every insurance company appoints a TPA for your service. You do not have to pay directly to
the administrator. A TPA can either approve of a cashless claim settlement or reimburse it later.
But in no case of complaint or query, will the health policyholder directly connect with the TPA.

For an insured, the connection will always be between them and the insurer only. TPA is
relevant to:
● Share immense knowledge of healthcare services
● Improvise the quality of services
● Manage and Investigate the claims
● Observe the Cashless and Reimbursement
● Issue the Health Cards to the insured
● Smooth Claim Processing and Settlement
● Arrange for Value-Added Services
 ● Helpline Facility
● Strengthens the Hospital Networks

A TPA is an intermediary between the insurance company and the policyholder. Their job is to
simplify the claim procedure under health insurance policies. As we know there can be two
kinds or types of claim: a) Cashless and b) Reimbursement.

As soon as there arises the need for a medical or emergency treatment, the policyholder visits a
hospital. If the individual is asked for hospitalization for a minimum of 24 hours (for unless
otherwise listed diseases like cataract) a claim becomes admissible.

The policyholder, in this case, will intimate the TPA or the insurer about the admission and the
need for the treatment. The TPA will then ask the hospital to arrange for a cashless facility, if
possible. Otherwise, the claim will be processed for reimbursement. After the treatment gets
over, the hospital will send all the bills to the TPA if cashless is approved. If not, then the
policyholder will have to submit the documents later.

The authorities at the TPA will scrutinize the bills and other documents post which the
settlement of the claim will be allowed. In case of cashless, the payment will be made to the
hospital. But for the reimbursement, the expenses will be received by the policyholder via the
insurance company.