Insurance

Assignment
Submitted by:-
Divya Gupta (25)
Rohan Patil (40)
Ketki Puranik (44)
Shradha Saraogi (48)
Shruti Vaze (58)
Rahul Velinker (59)
 Introduction

Life is a roller coaster ride and is full of twists and turns. You cannot take anything for granted in
life. Insurance policies are a safeguard against the uncertainties of life. Insurance is a system by
which the losses suffered by a few are spread over many, exposed to similar risks. Insurance is a
protection against financial loss occurring on the happening of an unexpected event. Insurance
policy helps in not only mitigating risks but also providing a financial cushion against adverse
financial burdens suffered.

An insurance cover is an intangible product evidenced by a written contract known as the

‘policy’. Insurers market various insurance covers either directly or through various distribution
channels—individual agents, corporate agents (including Bancassurance) and Brokers. The
marketer in the distribution network is in direct interface with the prospect and the customer.

Being able to understand an insurance policy before its purchase is important for any person.
Understanding one’s needs and finding a policy which comes closest to satisfying those needs (if
not exactly), is crucial. One needs to be aware of the types of policies available and the
advantages and drawbacks of each.

Broadly, policies can be divided into two types, Traditional Plans and Unit Linked Insurance
Plans. Both come with their share of positives and negatives and a thorough understanding of the
same is crucial before taking the decision of buying a policy.
 Traditional Plans

These are also called as the Conventional Plans. They are of several types. We shall now take a
brief look at the types of Traditional Plans and a little bit of information on them.

Pension Plans

Retirement is a natural progression and only if you are financially secure during these years can
you hope to live a comfortable retired life. Pension plans are designed to accumulate your
savings during your earning years and thereafter provide you with a regular income after
retirement so that you don't have to depend on your children or society.

Further, the premium payment in the case of pension plans can be made as recurring payments
for a fixed period of time (regular premium) or once as a lump sum (single premium). Either
way, the amount and returns thereon are cumulated and paid out to the policy holder at the
retirement date as a lump sum. Part of this lump sum is then used to purchase an annuity which
provides post retirement income

Money Back Plans

When you plan for your future, ideally you should set out with specific goals and these should
have costs and deadlines attached to them. Once this is done, money back plans provide an
excellent vehicle to take you to the fulfillment of these goals.

Money-back plans are insurance products which pay out pre-defined benefits at periodic times
during the entire term of the policy. For instance, in a money-back plan with a 20 year term, 25
per cent of the sum assured could be paid out after every five years (i.e., at the end of the 5th,
10th and 15th year) and the remaining 25 per cent of the sum assured along with the bonus, if
any, would be paid out at the end of the 20th year. However, in the case of the unfortunate death
of the insured person, the total sum assured (100%) and bonuses will be paid.

Children's Plans

Your children are your pride and joy and you would like them to have the best that money can
buy. And with a sound financial plan, you can make sure that the materializing of their dreams is
not hindered for want of funds. Children's insurance policies and products are designed with this
specific aim in mind.
These plans set out to secure you financially against the back drop of constraints such as inflation
and the rising cost of education. They help you to fund various aspirations like an overseas
education, extra curricular activities, sports training, supplementary vocational education,
marriage celebrations, etc. by providing a lump sum amount at a specified future date.

An additional feature offered by children's plans is that they continue to offer financial protection
even in the event of the loss of the premium paying parent. This ensures that the amount
envisaged is actually delivered even in the event of unforeseen eventualities.

Endowment Plans

Life is full of risks - both financial and non financial. While it is difficult to eliminate the non-
financial risks, insurance helps you to minimize the financial ones. Endowment plans are one
such product. They ensure that you receive an assured amount at the end of the policy term plus
bonuses, if any. If, due to unfortunate circumstances, the insured person expires during the term
of the policy, the sum assured and bonuses go to the nominee. Endowment plans can be taken in
the name of minors too.

Term Plans

As the breadwinner of the family, even the best financial plan that you create can go out of gear
if you are not around to meet the financial commitments it entails. With term plans, you can be
sure that in the event of your unfortunate demise your family will be compensated for the
financial loss to the extent that you see fit.

Term Assurance Plans are those plans where the sum assured is paid out only if the insured
person dies. There is no maturity benefit under these plans. Due to this feature, the premium
amount is relatively low.

The premium can be paid regularly or even in a lump sum, according to the design of the plan.
Such policies can be taken either on a single basis or on joint basis.
Whole Life Plans

Insurance has become a necessity, particularly in India where most families are dependent on a
single earning individual. Further, since there is no social security available in India, the
financial interests of the family have to be protected through other sources. Whole life insurance
policies are designed to provide lump sum payments to a family in the event of the death of the
insured person.

Unlike term insurance, a whole life insurance policy covers you for your entire life and not just
for a specific period of time.
 Advantages and Disadvantages of
Traditional Plans

Advantages
1. These plans are have a lower risk and are suitable for those not having a high risk apetite and
are looking for a safe long term saving instrument.

2. Simpler to understand by the customer.

Disadvantages
1. Not Flexible.

2. There is no transparency.

3. Very Rigid. No exit policy.

4. No investment option given to the customer.

5. Cannot withdraw money partially.

6. High Surrender Charges.

7. Longer term.
 Unit Linked Insurance Plans (ULIPS)

In Unit Linked Plans, 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.

Another factor that you need to consider is your future need for funds. There are a lot of unit-
linked insurance products to suit your goals - be it for your retirement planning, for your health,
for your child's education and marriage or for investment purposes.

Which Investor Class Are They Most Suited For?

1. Those who wish to closely track their investments: Unit linked plans allow
policy takers to closely monitor their portfolios. They also offer the flexibility to
switch your capital between funds with varying risk-return profiles.
2. Individuals with a medium to long term investment horizon: Unit linked plans
are ideal for individuals who are ready to stay invested for relatively long periods
of time.
3. Those with varying risk profiles: Across the seven funds offered, the equity
component varies from zero to a maximum of 100 per cent. Thus there is a choice
of funds available to all types of investors - from risk-averse investor to those
investors who have strong risk appetite.
4. Investors across all life stages: This plan category offers a variety of plans
which can be opted for depending upon the life stage you are in and your needs
and financial liabilities at that point in time.

How Is It Structured?

In a Unit Linked Plan, the premiums you pay are invested in the funds chosen by you after
deducting allocation charges and charges including those for managing funds, policy
administration and for providing insurance cover are deducted from the funds by cancelling
certain units. The value of each unit of a fund is determined by dividing the total value of the
fund's investments by the total number of units.
Servicing A Unit Linked Plan

1. Single Premium: The policy holder is required to pay the entire premium amount
as a lump sum at the beginning of the policy term.
2. Regular Premium Payment (annually, semi-annually or monthly): The policy
holder has to pay the pre-determined premium amount periodically i.e. annually,
semi annually or monthly, depending upon the premium payment term opted for.
3. Number of Premium Paying Years: This depends on the term of the policy that
you have chosen. In most cases, the policy term and the number of premium
paying years (in case of regular premiums) are the same. However, some policies
give the insured the option of choosing the number of premium paying years.

Charges

The following charges are generally deducted from your policy towards the cost of benefits and
administration services

1. Administration charges: A fee is charged for administration of your policy

every month. Administration charges are deducted by cancelling units
proportionately from each of the funds you have chosen.
2. Fund management charges: These charges are towards meeting expenses
related to managing the fund. This is charged as a percentage of the fund's value
and is deducted before arriving at the net asset value of the fund.
3. Switch charges: You can switch between the funds available to suit your
changing needs and goals. In a policy year, a fixed number of such switches are
available free of cost. Subsequent to this, each switch would attract a certain
charge. These charges are deducted by cancelling units proportionately from each
of the funds you have chosen.
4. Surrender charges: These charges are levied for premature encashment of units.
They are charged as a percentage of the fund value and depend on the policy year
in which the policy has been surrendered.
5. Mortality Charges: Depending upon the age, and the amount of cover, these
charges are levied towards providing a death cover to the insured.
6. Premium Allocation Charge: This charge is deducted as a fixed percentage of
the premium received, and is usually charged at a higher rate in the initial years of
a policy. This charge varies depending upon whether the policy is a single
premium or regular premium policy, the size of the premium, premium frequency
and payment mode.
7. Partial Withdrawal Charges: Lump sum withdrawals are allowed from the fund
after the lapse of three years of the policy term and subject to pre-specified
 conditions. However, such withdrawals attract charges, as mentioned in the
respective policy brochures.

Switching Between Funds

There is flexibility to switch between funds available under a unit linked plan. You may wish to
switch between equity and debt funds, in times when there is market volatility or interest rate
fluctuations. At times, changes in your financial standing, liabilities or risk profile may also
require that you change your investments accordingly.

Making Withdrawals

You may also make partial withdrawals from your funds after a certain specified period, subject
to a partial withdrawal charge. The withdrawal amount should be at least the minimum
prescribed withdrawal amount and the fund must not fall below the minimum fund value after
the withdrawal. You can make a full withdrawal of your policy before its maturity date.
However, surrender charges will be applicable in this case.
 Advantages and Disadvantages of ULIPS

Advantages

1. Market linked returns: Unit linked plans give you an opportunity to earn market-linked
returns as part of the premiums are invested in market linked funds which invest in different
market instruments including debt instruments and equity in varying proportions.

2. Life protection, Investment and Savings: Unit linked plans offer the twin benefits of life
insurance and savings at market-linked returns. Thus, you have the opportunity to invest your
money to earn higher returns, while taking care of your protection needs. Investing in unit linked
plans helps to inculcate a regular habit of saving and investing, which is important for building
wealth over the long term.

3. Flexibility: Unit Linked Plans offer you a wide range of flexible options such as

- The option to switch between investment funds to match your changing needs.

- The facility to partially withdraw from your fund, subject to charges and conditions.

- Single premium additions to enable the policy holder to invest additional sums of money (over
and above the regular premium) as and when desired, subject to conditions.

Disadvantages

1. Carries Risk.

2. You lose a lot of amount as entry load in ULIPs which take a minimum of 5 years to recover.

3. The insurance part of the ULIP costs too much.

4. Premium allocation charge, mortality charge, fund management charge and many more hidden
costs are very high.
 Differences Between ULIPS and
Traditional Plans

Having seen the various features, advantages and disadvantages of Traditional Plans and ULIPS,
we can now compare the two as follows:-

Unit Linked Insurance Plans Conventional plans

Description Unit Linked Insurance Plans offered by Conventional Plans are traditional
insurance companies allow policy holders to insurance plans. They usually invest
direct part of their premiums into different in low risk return options and offer
types of funds (equity, debt, money market, guaranteed maturity proceeds along
hybrid etc.) Here the risk of investment is with declared bonuses.
borne by the policyholder.
Key Features:-
Flexibility of Unit Linked Plans give you flexibility to These plans do not allow you to
investment: invest as per your risk profile, financial choose investment avenues. Your
commitments and convenience. You can funds are invested as per the
choose to invest either in equity, or in debt or strategy and discretion of the
in hybrid fund and even change your company.
investment strategy.
Transparency Most Unit Linked Plans allow you to track Your premiums are invested in a
your portfolio. They also regularly intimate common 'with profits' fund and
regarding the percentage of the premium that therefore you cannot track your
is invested along with the charges levied. You individual portfolio.
are also kept informed about the value and
number of fund units that you hold.
Maturity benefits At the time of maturity you redeem the units At the time of maturity you get the
payout: collected at the then prevailing unit prices. sum assured plus bonuses, if
Some plans also offer you loyalty or applicable in the plan.
additional units annually or at the time of
maturity.
Partial Unit Linked Plans allow you to make Conventional plans do not allow
withdrawal: withdrawals from your fund, provided the you to withdraw part of your fund.
fund does not fall below the minimum fund Instead, some policies offer you the
value and subject to other conditions. facility to take a loan against your
investment.
Switching Available. You can change your investment Not available since the investment
options: fund decision by switching between the funds decision is taken by the insurance
as being offered by the policy. company.
Charges Unit Linked Plans specify the charges. under These plans do not specify the
structure: various heads. charges involved.
Single premium Available. The single premium top-up facility The top-up facility is not available.
Top-up allows you to invest an extra amount over and
above your regular premiums in your unit
linked plan.
Benefit Snapshot  Unit Linked Plans give you flexibility  Conventional plans offer
of investment fixed premiums linked to
 They allow you to track your the sum assured.
portfolio.  The maturity benefits for
 Unit Linked Plans offer the benefit of these plans include the sum
a single premium top up which allows assured plus bonuses, if
you to invest ad hoc additional applicable
amounts
 Unit Linked Plans allow partial
withdrawals, subject to conditions and
switching between funds by paying
some charges, if necessary.
 Unit Linked Plans give you the option
of a premium vacation.
 CASE

We, as a group have decided to take ICICI Prudential’s ULIP plan named ICICI Pru LifeStage
Wealth II for understanding the various features in a ULIP. The following is the study of the
plan.

ICICI Pru LifeStage Wealth II is a unit linked insurance plan that offers multiple choices to decide how
your savings would be invested based on your risk appetite. Further, it provides you with an insurance
cover to help you realize your dreams without compromising your family’s protection.

Features at a glance:-

Minimum Premium Premium payment Minimum annual

option premium (Rs.)
Regular pay 24,000
Limited pay 5 48,000
Limited pay 7 36,000
Limited pay 10 24,000
Maximum Premium Rs. 100,000 per annum for all premium
payment options
Modes of Premium Payment Yearly / Half yearly / Monthly
Premium Payment Term (PPT) Premium payment Premium payment
option term
Regular pay Policy term
Limited pay 5 5 years
Limited pay 7 7 years
Limited pay 10 10 years
Policy Term 10 / 15 / 20 / 25 /30 years
Minimum Sum Assured for age at entry below Higher of (10 × annual premium) and (0.5 ×
45 years Policy Term × annual premium)
Minimum Sum Assured for age at entry 45 Higher of (7 × annual premium) and (0.25 ×
years and above Policy Term × annual premium)
Maximum Sum Assured As per maximum Sum Assured multiples
Minimum/ Maximum age at entry 7/ 65 years
Minimum/ Maximum age at maturity 18 / 75 years
Tax Benefits Premium and any benefit amount received
under this policy will be eligible for the tax
benefit as per the prevailing Income Tax laws
T&C 3.
How the customer benefits

 Multiple portfolio strategies: Choose a personalized portfolio strategy from

o Fixed Portfolio Strategy: Option to allocate your savings in the funds of your
choice
o LifeCycle based Portfolio Strategy: A unique and personalized strategy to create
an ideal balance between equity and debt, based on your age
o Trigger Portfolio Strategy: A unique portfolio strategy to protect gains made in
equity markets from any future equity market volatility while maintaining a pre-
defined asset allocation
 Flexible premium payment options: You can either pay premium throughout the policy
term or for a limited period
 Top up: Flexibility to invest surplus money over and above your regular premiums
 Loyalty Additions: Paid at the end of every policy year, starting from the 10th policy
year, on payment of all due premiums
 Automatic Transfer Strategy: Helps you eliminate the need to time your investment
 Tax Benefits: On premiums paid and benefits received, as per prevailing tax laws.

Working of the Plan

 Maturity benefit: At maturity, the Fund Value including the Top up Fund Value, if any, shall
be payable. Alternatively, you can opt for the Settlement Option available.
 Death benefit: In the unfortunate event of death of the life assured during the term of the
policy, the nominee shall receive Sum Assured plus Fund Value including Top up Fund Value, if
any, subject to Minimum Death Benefit.
 Loyalty Additions: Starting from the end of the tenth policy year, provided all due premiums
have been paid, a loyalty addition shall be allocated at the end of every policy year. This Loyalty
Addition will be calculated as a percentage of the average of Fund Values on the last day of eight
policy quarters preceding the said allocation. The Loyalty Addition for various Premium
Payment Options is shown below:

Premium Payment Option\ Year 10 Year 11 onwards

End of Policy Year
Regular Pay* 2% 0.75%
Limited Pay 5, Limited Pay 7, 2% 0.5%
Limited Pay 10*

* The term ‘Pay’ denotes number of years for which the premium should be paid into the policy.
For example, ‘Regular Pay’ requires premium payment for the entire policy term; ‘Limited Pay
7’ requires payment of premium for a period of only 7 years.

Loyalty Additions would be made by allocation of extra units at the end of the year.
Choice of multiple choice strategies

With ICICI Pru LifeStage Wealth II, you have the option to choose from three unique portfolio
strategies. These are:

 Fixed Portfolio Strategy: If you wish to manage your investment actively, we have a
Fixed Portfolio Strategy. Under this strategy, you must choose your own asset allocation
from any of the eight funds options. You can switch between these funds using our
switch option.

 LifeCycle based Portfolio Strategy: Your financial needs are not static in nature and
keep changing with your life stage. It is, therefore, necessary that your policy adapts itself
to your changing needs. This need is fulfilled by the LifeCycle based Portfolio Strategy
o Key features of this strategy
 Age based portfolio management: At Policy inception, your investments
will be distributed between two funds, Multi Cap Growth Fund and
Income Fund, based on your age. As you move from one age band to
another, we will re-distribute your funds based on your age. The age wise
portfolio distribution is shown in the table.

Asset allocation details at Policy inception and during Policy term

Age of Policyholder (years) Multi Cap Growth Fund Income Fund

0 – 25 85% 15%
26 – 35 75% 25%
36 – 45 65% 35%
46 – 55 55% 45%
56 – 65 45% 55%
66 – 80 35% 65%

 
o Quarterly rebalancing: On a quarterly basis, units shall be rebalanced as
necessary to achieve the above proportions of the Fund Value in the Multi Cap
Growth Fund and Income Fund. The re-balancing of units shall be done on the
last day of each Policy quarter. The above proportions shall apply until the last ten
quarters of the Policy are remaining.
o Safety as you approach maturity: As your Policy nears its maturity date, you
need to ensure that short-term market volatility does not affect your accumulated
savings. In order to achieve this, your investments in Multi Cap Growth Fund will
be systematically transferred to Income Fund in ten instalments in the last ten
quarters of your Policy.
 Trigger Portfolio Strategy: For you, maintaining a pre-defined asset allocation is a dynamic
process and is a function of constantly changing markets. The Trigger Portfolio Strategy enables
you to take advantage of substantial equity market swings and invest on the principle of “buy
low, sell high”. This strategy also allows you to protect gains made from equity market
investments from any future equity market volatility, in a systematic manner.

Under this strategy, your investments will initially be distributed between two funds - Multi Cap
Growth Fund, an equity oriented fund, and Income Fund, a debt oriented fund - in a 75%: 25%
proportion. The fund allocation may subsequently get altered due to market movements. We will
re-balance or re-allocate funds in the portfolio based on a pre-defined trigger event.
 Multi Cap Growth Fund Details
Below are the details of the fund which is used for the ULIP under consideration

Portfolio details as on September 30, 2011

Multi Cap Growth Fund
Objective : To generate superior long-term returns from a diversified portfolio of equity and equity related
instruments of large, mid and small cap companies.

SFIN: ULIF 085 24/11/09 LMCapGro 105

% Of Net Corporate
Company Industry total Rating % Of Net Assets
Assets Securities
Dr. Reddy's
Bank 16.74% AA+ 0.02%
Laboratories Ltd.
H D F C Bank Ltd. 5.08%
State Bank Of India 2.7% Total 0.02%
Axis Bank Ltd. 2.34%
Indusind Bank Ltd. 1.83% Government
% Of Net Assets
Bank Of Baroda 1.74% securities / T Bills
Allahabad Bank 1.46%
Kotak Mahindra Bank Other current assets & eq
0.79% 15.41%
Ltd.
Oriental Bank Of
0.68%
Commerce
Jammu & Kashmir Bank 100%
0.12%
Limited

Assets Held (Rs.

Oil & Gas 15.92% 6,088.31
Million)
Oil & Natural Gas
4.27%
Corpn. Ltd.
Reliance Industries Ltd. 3.2%
Asset Mix Percentage as per F&U Actual%
Gail (India) Ltd. 3.15%
Bharat Petroleum Equity and Equity Maximum 100% and Minimum
1.83% 85%
Corpn. Ltd. related securities 80%
Debt, Money Market Maximum 20% and Minimum
Cairn India Ltd. 1.63% 12%
and Cash 0%
Hindustan Petroleum 1.26% Total 100% 100%
Corpn. Ltd.
Oil India Ltd. 0.59%

Technology 9.48%
Infosys Technologies
6.59%
Ltd.
Tata Consultancy
2.04%
Services Ltd.
Infotech Enterprises
0.75%
Ltd.
Redington (India) Ltd. 0.07%
Onmobile Global Ltd. 0.03%

Metals & Minerals 7.16%

Coal India Ltd. 1.92%
Tata Steel Ltd. 1.79%
Jindal Steel & Power
1.72%
Ltd.
Sesa Goa Ltd. 0.86%
Hindalco Industries Ltd. 0.65%
Usha Martin Ltd. 0.23%

Auto 5.76%
Mahindra & Mahindra
3.71%
Ltd.
Exide Industries Ltd. 1.25%
Ashok Leyland Ltd. 0.43%
Apollo Tyres Ltd. 0.36%

Infrastructure 5.26%
N T P C Ltd. 2.51%
Power Grid Corpn. Of
1.51%
India Ltd.
Satluj Jal Vidyut Nigam
1.24%
Limited

Consumer 4.97%
I T C Ltd. 3.72%
Shree Renuka Sugars
0.63%
Ltd.
Kansai Nerolac Paints
0.62%
Ltd.

Others 3.76%
Tata Chemicals Ltd. 2.12%
Sintex Industries Ltd. 1.16%
United Phosphorus Ltd. 0.4%
Container Corporation
0.07%
Of India Ltd.

Telecom 3.69%
Bharti Airtel Ltd. 3.69%

Cement 3.54%
Grasim Industries Ltd. 3.54%
Pharma &
2.9%
Healthcare
Lupin Ltd. 1.31%
Cipla Ltd. 0.9%
Dr. Reddy's
0.68%
Laboratories Ltd.

Finance 2.6%
Housing Development
1.84%
Finance Corpn. Ltd
Power Finance Corpn.
0.76%
Ltd.

Capital Goods 1.6%

Bharat Heavy
0.6%
Electricals Ltd.
Cummins India Ltd. 0.5%
Voltas Ltd. 0.5%

EPC 0.7%
Ashoka Buildcon Ltd. 0.32%
I V R C L Infrastructures
0.21%
& Projects Ltd.
Sadbhav Engineering
0.17%
Ltd.

Real Estate 0.38%

Prestige Estates
0.38%
Projects Ltd.

Media 0.12%
Jagran Prakashan Ltd. 0.12%

Total 84.58%
 Conclusion
Thus we saw the various features, advantages and disadvantages of both Traditional Plans as
well as Unit Linked Insurance Plans (ULIPs). Each has their pros and cons and therefore it is the
responsibility of the customers to study the various features of any plan that they intend to buy.
They have to decide upon a plan that suits their needs. It is the role of the agent to guide the
customers in providing the knowledge and the information such as the advantages, disadvantages
of the various types of plans like Traditional Plans and ULIPs. Making the right choice of plan is
the most crucial step. ULIPs have surpassed the Traditional Plans all over the world. Their
various features like their flexibility, higher returns etc, make them a very lucrative instrument to
invest in. However one must look at both sides of the coin before making any judgement.