What is Insurance?

What is Insurance?

An arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a specified premium.

What is Insurance Premium?

An insurance premium is the amount of money that an individual or business must pay for an insurance policy. The insurance premium is considered income by the insurance company once it is earned, and also represents a liability in that the insurer must provide coverage for claims being made against the policy.

History of f Life Insurance

1818 saw the advent of life insurance business in India with the establishment of the Oriental Life Insurance Company in Calcutta. This Company however failed in 1834. In 1829, the
Madras Equitable had begun transacting life insurance business in the Madras Presidency. 1870 saw the enactment of the British Insurance Act and in the last three decades of
the nineteenth century, the Bombay Mutual (1871),Oriental (1874) and Empire of India (1897) were started in the Bombay Residency.
In 1914, the Government of India started publishing returns of Insurance Companies in India. The Indian Life Assurance Companies Act, 1912 was the first statutory measure to
regulate life business. In 1928, the Indian Insurance Companies Act was enacted to enable the Government to collect statistical information about both life and non-life
business transacted in India by Indian and foreign insurers including provident insurance societies. In 1938, with a view to protecting the interest of the Insurance public, the earlier legislation was consolidated and amended by the Insurance Act, 1938 with comprehensive provisions for effective control over the activities of insurers.
The Insurance Amendment Act of 1950 abolished Principal Agencies. However, there were a large number of insurance companies and the level of competition was high.
There were also allegations of unfair trade practices. The Government of India, therefore, decided to nationalize insurance business.
An Ordinance was issued on 19th January, 1956 nationalising the Life Insurance sector and Life Insurance Corporation came into existence in the same year. The LIC absorbed 154 Indian, 16 non-Indian insurers as also 75
provident societies—245 Indian and foreign insurers in all.

History of General Insurance

General Insurance came to India as a legacy of British occupation. General Insurance in India has its roots in theestablishment of Triton Insurance Company Ltd., in the year
1850 in Calcutta by the British. In 1907, the Indian Mercantile Insurance Ltd, was set up. This was the first  company to transact all classes of general insurance  business.
1957 saw the formation of the General Insurance Council, a wing of the Insurance Association of India. The General
Insurance Council framed a code of conduct for ensuring fair conduct and sound business practices.
In 1968, the Insurance Act was amended to regulate investments and set minimum solvency margins. The Tariff  Advisory Committee was also set up then.
In 1972 with the passing of the General Insurance Business (Nationalisation) Act, general insurance business  was nationalized with effect from 1st January, 1973. 107
insurers were amalgamated and grouped into four companies, namely National Insurance Company Ltd., the  New India Assurance Company Ltd., the Oriental Insurance
Company Ltd and the United India Insurance Company Ltd. The General Insurance Corporation of India was  incorporated as a company in 1971 and it commence
business on January 1st 1973.
In 1993, the Government set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to propose recommendations for reforms in the insurance sector.The objective was to complement the reforms initiated in the financial sector. The committee submitted its
report in 1994 wherein, among other things, it
recommended that the private sector be permitted to enter
the insurance industry. They stated that foreign companies
be allowed to enter by floating Indian companies, preferably
a joint venture with Indian partnersFollowing the recommendations of the Malhotra
Committee report, in 1999, the Insurance Regulatory
and Development Authority (IRDA) was constituted as an
autonomous body to regulate and develop the insurance industry. The IRDA was incorporated as a statutory body in
April, 2000. The key objectives of the IRDA include promotion of competition so as to enhancecustomer  satisfaction through increased consumer choice and lower
premiums, while ensuring the financial security of the insurance market.
In December, 2000, the subsidiaries of the General Insurance Corporation of India were restructured as  independent companies and at the same time GIC was  converted into a national re-insurer. Parliament passed a bill
de-linking the four subsidiaries from GIC in July, 2002.
Know About IRDAI
Insurance Regulatory and Development Authority (IRDAI) regulate the Indian insurance industry to protect the
interests of the policyholders and work for the orderly growth of the industry.
1991: Government of India begins the economic reforms programme and financial sector reforms
1993: Committee on Reforms in the Insurance Sector, headed by Mr. R. N. Malhotra, (Retired Governor, Reserve
Bank of India) set up to recommend reforms.
1994: The Malhotra Committee recommends certain reforms having studied the sector and hearing out the stakeholders.
Birth of IRDAI insurance Regulatory and Development Authority (IRDA) set
up as autonomous body under the
IRDA Act, 1999
IRDAI’s Mission: To protect the interests of policyholders,
to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto.
IRDAI’s Activities
Frames regulations for insurance industry in terms of Section 114A of the Insurance Act 1938 From the year 2000 has registered new insurance companies in accordance with
regulations.Monitors insurance sector activities for healthy development of the industry and protection of policyholders’
interests Functions and Duties of IRDAI
Section 14 of the IRDA Act, 1999 lays down the duties, powers and functions of IRDA.
 Registering and regulating insurance companies.
 Protecting policyholders’ interests.
 Licensing and establishing norms for insurance intermediaries.
 Promoting professional organisations in insurance.
 Regulating and overseeing premium rates and terms of non-life insurance covers.
 Specifying financial reporting norms of insurance companies.
 Regulating investment of policyholders’ funds by insurance companies.
 Ensuring the maintenance of solvency margin by insurance companies.
 Ensuring insurance coverage in rural areas and of vulnerable sections of society.

Indian Insurance Market

The insurance industry of India consists of 53 insurance companies of which 24 are in life insurance business and 29 are non-life insurers. Among the life insurers, Life
Insurance Corporation (LIC) is the sole public sector company.
Out of 29 non-life insurance companies, there are six public sector insurers, which include two specialised insurers namely Agriculture Insurance Company Ltd for Crop
Insurance and Export Credit Guarantee Corporation of India
for Credit Insurance. Moreover, there are 5 private sector
insurers are registered to underwrite policies exclusively in
Health, Personal Accident and Travel insurance segments.
They are Star Health and Allied Insurance Company Ltd,
Apollo Munich Health Insurance Company Ltd, Max Bupa
Health Insurance Company Ltd, Religare Health Insurance
Company Ltd and Cigna TTK Health Insurance Company Ltd.
In addition to 53 insurance companies, there is sole
national re-insurer, namely, General Insurance Corporation
of India. Other stakeholders in Indian Insurance market
include approved insurance agents, licensed Corporate
Agents, Brokers, Common Service Centres, Web-Aggregators,
Surveyors and Third Party Administrators Servicing Health
Insurance claims.
Insurance Laws (Amendment) Act, 2015 provides for
enhancement of the Foreign Investment Cap in an Indian
Insurance Company from 26% to an Explicitly Composite
Limit of 49% with the safeguard of Indian Ownership and
Types of Insurance
Life Insurance
Health Insurance
Motor Insurance
Property Insurance
Travel Insurance
Group insurance
1. Life Insurance
Life Insurance is a financial cover for a contingency linked with human life, like death, disability, accident, retirement etc. Human life is subject to risks of death and disability due to natural and accidental causes. When human life is lost or a person is disabled permanently or temporarily, there is loss of income to the household.
2. Health Insurance
The term ‘Health Insurance’ relates to a type of insurance that essentially covers your medical expenses. A health insurance policy like other policies is a contract between an insurer and an individual / group in which the insurer agrees to provide specified health insurance cover at a particular “premium” subject to terms and conditions specified in the policy.
3. Motor Insurance
Motor insurance gives protection to the vehicle owner against (i). damages to his/her vehicle and (ii). pays for any Third Party Liability determined as per law against the owner of the vehicle. Third Party Insurance is a statutory requirement. The owner of the vehicle is legally liable for any injury or damage to third party life or property caused by or arising out of the use of the vehicle in a public place. Driving a motor vehicle without insurance in a public place is a punishable offence in terms of the Motor Vehicles Act, 1988
4. Property Insurance
Insurance of property means insurance of buildings, machinery, stocks etc against Fire and Allied Perils, Burglary Risks and so on. Goods in transit via Sea, Air, Railways, Roads and Courier can be insured under Marine Cargo Insurance. Hulls of ship and boats can be insured under Marine Hull Insurance. Further, there are specialized policies available such as Aviation Insurance Policy for insurance of planes and helicopters. Thus Property Insurance is a very vast category of General Insurance and the type of cover that you need depends upon the type of property you are seeking to cover.
5. Travel Insurance
Travel Insurance offers insurance protection while you travel. Travel Insurance may be called by different names by insurance companies. It is important for you to check and understand whether the policy covers domestic travel or overseas travel or both. Travel Insurance protects you and/or family against travel related accidents, unexpected medical expenditure during travel, losses such as baggage loss, loss of passport etc and interruption or delays in flights or delayed arrival of baggage etc.
6. Group insurance
Another kind of insurance is group insurance. In group insurance, schemes are offered by insurance companies to provide certain classes of individuals, the benefit of insurance coverage at moderate cost.
ULIP (Unit Linked Insurance Plan)
ULIP is a life insurance product, which provides risk cover for the policy holder along with investment options to invest in any number of qualified investments such as stocks, bonds or mutual funds. As a single integrated plan, the investment part and the protection part can be managed according to specific needs and choices.
Introduction:- In Unit Linked Insurance Plans(ULIP), the investments made are subject to risks associated with the capital markets. This investment risk in investment portfolio is borne by the policy holder. Thus, you should make your investment choice after considering your risk appetite and needs.
Charges, fees and deductions in a ULIP
ULIPs offered by different insurers have varying charge structures. Broadly, the different types of fees and charges are given below. However it may be noted that insurers have the right to revise fees and charges over a period of time.
Premium Allocation Charge-
This is a percentage of the premium appropriated towards charges before allocating the units under the policy. This charge normally includes initial and renewal expenses apart from commission expenses.
Mortality Charges-
These are charges to provide for the cost of insurance coverage under the plan. Mortality charges depend on number of factors such as age, amount of coverage, state of health etc.
Fund Management Fees-
These are fees levied for management of the fund(s) and are deducted before arriving at the Net Asset Value (NAV).
Policy/Administration Charges-
These are the fees for administration of the plan and levied by cancellation of units. This could be flat throughout the policy term or vary at a pre-determined rate.
Surrender Charges-A surrender charge may be deducted for premature partial or full encashment of units wherever applicable, as mentioned in the policy conditions.
Fund Switching Charge-Generally a limited number of fund switches may be allowed each year without charge, with subsequent switches, subject to a charge.

Service Tax Deductions-

Before allotment of the units the applicable service tax is deducted from the risk portion of the premium.
Investors may note, that the portion of the premium after deducting for all charges and premium for risk cover is utilized for purchasing units.

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