IC LIFE INSURANCE. 1. CHAPTER 1 disclose all facts that are material and relevant, as though it is a new policy. Breach of At Book Value. This is the . The IC Pre-recruitment qualication for life agents syllabus covers the Insurance companies are continuously recruiting new employees and agents .. A discussion of specic general insurance products is outside the scope of this book. Online IC 33 exam questions and answers test | Free IC exam training guide ic book | IC 33 irda exam | IC 33 life insurance exam papers | irda IC
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Thursday, May 30, Insurance Institute of India · Insurance Institute of India. IC Search: College Of Insurance · Sign In New Users:: Create An Account. Insurance Institute of India. ICHindi. Search: College Of Insurance · Sign In New Users:: Create An Account. Navigation. Page Icon Home; About us. History. The IC course material which is being published by Insurance Institute of India course material has been prepared based on the syllabus provided by the IRDA where the organisers want to know about the new non-traditional policies.
In how many days it should be honored by Insurance Co 15 days 60 days 90 days 42 Karthik written to his insurer about non settlement of a maturity calim,as per regulations,the insurer has to reply to this within how many working days 3 7 10 43 Raju is a certified license holder under what circumstances he needs to hold his certified license with him that is issued by irda under all circumstances when he sells term insurance when he represents himself as another insurer when he sells pension policies 44 A policy has been rejected by the company under direct intimation to the customer and copy to the Agent, what is the next action of the Agent He has to inform the customer that the co has broken relationship with the customer He plans to change the plan He has to explain the reasons for rejection to the customer He takes up with the higher authorities 45 Lung Cancer and Smoking. Which of the following statement best describes the principle of Insurable Interest. Ramesh declares all his liabilities Ramesh is elder than Harish Ramesh owes money form Harish Harish suffers financial loss incase of death of Ramesh 48 What is the min age to enter into the contract of insurance
It is call given by the company to the employees to give good service c. It is the philosophy of service above self 4. What according to majority of salesmen is the important secret behind their success? Repeated visit to clients place b. Product Knowledge d. Commitment to serving their customers 5. Regulators insist that the agent should give the best advice.
That means a. The agent should suggest a plan which he can explain well b. The agent should suggest the plan which gets him more commission c. The agent should give best suited advice to the client out of the several alternate solutions d. The agent should suggest the most popular plan 6.
To instill confidence in the policy holder the first thing the agent should do is a. Ensure prompt delivery of the first premium receipt and policy bond b. Promise good service while leaving the house of the proposer c. Leave his visiting card with the proposer and ask him to call when required d. Praise the prospect profusely before leaving his home 7. In claim settlement an agent has to help the policy holder a.
Only when the claimants approach the agent he has to act b. An agent should take active role in processing the claim c. Agent has no role to play in claim settlement d.
Only when the office asks the agent has to step in 8. Effective communication means a. Communicating to others and eliciting the expected reaction b. Repeating the same thing till the person listens c Talking to the customer when he is alone d.
Talking loudly to the other person so that he gives his full attention 4 9. The business of insurance relates to the protection of the economic value of assets. An asset is valuable to its owner because they expect some benets from it. The benet can be in the form of income generated from the asset giving a car on rent or convenience using the car for their own travel.
Human beings are also assets in the sense that they have the capacity to generate income themselves. Every human being has a nite life span, and death is certain. But the timing of death is uncertain.
If a person dies unexpectedly early in their working life, then their family will lose the income that person would have generated in future, had they survived for their entire working life.
This is where life insurance acts to ll the nancial gap left behind by the early death of a person. The timing of death is uncertain for everyone, so potentially every human being needs life insurance from an early age, to protect future income.
Life insurance can protect the family from nancial hardship in the event that the untimely death of an individual leads to a loss of income. Be aware Insurance cannot prevent the insured event from happening. It can only provide compensation for the loss that comes as a result of the insured event happening.
Question 1. The act of downloading insurance is an act of: Suggested activity Speak to your family members or friends who have bought insurance. Ask them the points they considered before downloading the insurance and the reason s they bought it.
So now we know, in the simplest of terms, how insurance works. We have seen how it can benet the individual by providing protection against the losses that arise from lifes most unhappy events. However, insurance and the insurance industry also have benets beyond the individual, and we will look at these in the following sections. B Role of nancial services and insurance As an employer, a producer of prot and a provider of funds for investment, the nancial services industry has a huge role to play in the wider economy of the country.
Insurance in particular benets society economically and socially. Socially, it protects people from nancial hardship should a disaster happen, for example a family that loses its income provider will not have to deprive its children of a higher education. Economically, it also provides employment. This is not just direct employment in the industry itself, but also, because companies no longer have to hold funds in reserve in case a disaster happens, they can invest those funds into their businesses.
The economic role is of particular importance because, according to the Government, a lot of money needs to be invested into the basic infrastructure of India if it is to continue to grow at its present rate. The Governments expenses already amount to more than its income, and so there is a role for private companies to play in developing this infrastructure and this includes insurance companies.
The monies they raise from premiums can be invested into the development of the basic infrastructure needs of India: In this way, insurance benets society as a whole, not just those who hold insurance.
Life insurance is a long-term commitment for the life insured; they will need to keep paying the premium year after year for a long time.
The long-term nature of this relationship means that the insurance industry is particularly well placed to meet the cost of providing infrastructure projects such as the building of airports, roads, bridges, ports and power plants etc. We can see from all of this that a well-developed and evolved insurance sector benets economic development and at the same time strengthens the risk-taking ability of the country.
Some of the benets for the policyholder are shown below: Investment option Insurance products are an excellent investment option where the policyholder not only gets the advantage of insurance cover, but also a return on their investments based on their risk appetite.
Protection of nancial security Insurance companies provide compensation in case something happens to the assets or the individual insured, as per the terms and conditions of the policy.
Life insurance protects the family against the loss of the income provider, helping to provide for the familys needs and the childrens education and marriage.
Hence the effect of loss is considerably reduced for an individual. Tax benets Insurance offers considerable tax benets under the Income Tax Act Premium paid up to Rs. The death benet or the maturity benet received by the nominee or the policyholder is tax-free under Section 10 10D of the Act, as per prevailing laws, before premium paid up to Rs. Planning for life stage needs Today the insurance products that are being offered by insurance companies are designed to suit the needs of individuals in different age groups.
This allows individuals to invest in insurance policies to meet their various and changing priorities. Example A vouuu pe sou wHo Has jusl sla led ea u uu cau buv a le m usu auce p au lo pu e p olecl ou o au uLlP unit-linked insurance plan for high returns based on their risk appetite.
Au ud v dua wHo s O vea s o d aud s oo uu lo uvesl lo lHe lam v's lulu e. Au ud v dua oo uu lo el emeul ucome cau uvesl u peus ou p aus. Au ud v dua cau uvesl u a wHo e ol le po cv lo p ov de cove ove lHe cou se ol lHe eul e lel me. Develops the habit of saving An individual learns to save a certain amount of money from their income in order to pay their insurance premium.
This encourages the habit of saving among individuals. Loan against insurance policy Individuals can also take out a loan against their insurance policies, subject to the conditions and privileges of the policy, without affecting any policy benets. Releases capital and management When the management of a company knows that many of the risks faced by that company are covered by insurance, they no longer need to set funds aside to cover the impact of those risks taking place.
They are also free to concentrate on developing and growing their business. This makes the company more effective, which in turn helps to improve the overall economy of the country. However, insurance can only make a positive contribution to society if people have condence that they will only be sold a policy that meets their needs and that the policy will protect them should an insured event happen.
If people dont feel this condence, then they will not download the insurance and all these benets will be lost or reduced. Therefore, the insurance market needs to take a professional approach in all that it does. C Benets of a professional insurance market A professional insurance market is one that is open and honest in its dealings with customers and one that keeps the interests of its customers at the forefront of all that it does.
There are numerous benets of taking such a professional approach as we shall see here. Needs-based selling A professional market ensures that the customer gets what they are looking for rather than what the company wishes to sell them. This is called needs-based selling. A customer who is condent that they will only be sold a product that meets their needs is more likely to download and then download again, and recommend insurance to others.
The insurance industrys Regulator the IRDA has been proactively trying to address concerns about mis-selling, which is where a customer has been sold a policy that does not meet their needs in some way.
When this happens the public becomes wary and cynical about the value of insurance. For example, with unit-linked insurance plans ULIPs a break up of the premium including all the charges is given in the policy. The Regulator has made it mandatory for companies to disclose the commissions earned by agents on the product in the benet illustration document. This practice makes the customer aware of how much money is going towards life cover, investments and other expenses information they need to know.
An insurance market that operates in this professional way will bring many benets to its customers, itself, society and the wider economy: Higher condence among policyholders A professional approach to insurance selling incorporating needs-based selling and disclosure combined with various steps like regulation, a grievance redressal system, the Ombudsman and the IRDA grievance call centre see section D4 have greatly helped to build the publics condence in the system.
The public can be assured that they are being treated fairly by the industry and, if they have a legitimate concern, that the Regulator will support them. Therefore they are more likely to see insurance as a practical way of meeting their needs.
Increase in insurance penetration India has the worlds second largest population and thereby the potential to be the second biggest insurance market.
The addressable market is so vast that there is scope for all insurers to nd new customers rather than competing with each other for the same ones. This will increase the market penetration of insurance, but will only be true if the public has condence that they are safe to address their needs through downloading insurance.
Social benets As insurance spreads to more parts of the Indian community, with more people seeing it as a safe and valuable option, less people will be thrown into nancial hardship as a result of a family tragedy or other unforeseen event. Employment generation An increase in the penetration of insurance will mean more employment opportunities.
Insurance companies are continuously recruiting new employees and agents to sell their products.
With a dynamic market and new roles emerging, professionals can keep looking for new opportunities. An insurance market that has a reputation as a professional industry will attract good quality personnel to a career in insurance, which will also help to promote the markets professionalism. Increase in prots for the insurance company A company that is professional in its approach to selling insurance and is, therefore, trusted by the public will nd that it is able to sell more insurance.
This, combined with the spread of insurance to new customers as condence in insurance grows, will increase the protability of the insurance company. We can see that these benets of a professional insurance market will contribute to an increase in the overall benets that insurance offers to the wider economy, as discussed in section B. More protable companies, more jobs, and less nancial hardship at an individual and corporate level will all enhance the overall economic success of the Indian economy and release more funds for investment in its businesses and infrastructure.
Now that we have looked at how insurance can benet not just individuals but society as a whole, lets pause for a moment to consider how we came to be where we are today.
The insurance market in India has not always been the way it is today, and we shall look at how it has developed over the years in the next section. Since the earliest times insurance has been carried out in some form or other. Insurance in India has developed over time and has taken ideas from other countries England in particular.
The history of insurance in India can be divided into three phases as follows: Figure 1. However, the company failed in In the Madras Equitable had begun transacting life insurance business in the Madras Presidency. The Government of India therefore decided to nationalize insurance business. The Council speaks out on issues of common interest, participates in discussions related to policy formation, and acts as an advocate for high standards of customer service in the insurance industry.
It was incorporated on 22 November under the Companies Act as a private company limited by shares. The Government only had enough foreign currency reserves to nance a few days of imports. In its report in , the committee recommended, among other things, that the private sector and foreign companies but only through a joint venture with an Indian partner be permitted to enter the insurance industry.
D3 Phase III Post-liberalisation As we have seen, following the recommendations of the Malhotra Committee, the insurance sector was opened to private companies. Foreign companies were also allowed to participate in the Indian insurance market through joint ventures JVs with Indian companies. The key objectives of the IRDA include the promotion of competition with a view to increasing customer satisfaction through more consumer choice and lower premiums, while ensuring the nancial security of the insurance market.
Since it has introduced various regulations ranging from the registration of companies for carrying on insurance business to the protection of policyholders interests. As a result, general insurance business was opened up to the private sector. Their ownership was vested with the Government of India.
GIC was notied as a reinsurance company. In appendix 1 we have provided lists of the life and general insurance companies that are active in India at the present time. Take a look at it now and get a feel for how many companies operate in the different sectors. D4 Recent developments in the insurance industry By India was the fth largest insurance market in the world and it is still growing rapidly.
There has been a lot of change in the decade since the market was opened up to the private sector. In this section we will look at some of the important developments of the last few years.
Growing importance of IT All insurance companies now use information technology IT to benet their business and to improve convenience for their customers. Today, customers can pay their premiums and check the status and other details of their policy using the companys website. Updates relating to the receipt of premiums or changes to their policy are sent to the customer through mobile SMS. Bancassurance Many banks have joined with insurance companies to cross-sell insurance products to their customers.
Insurance companies benet from the wide network and loyal customer base of banks, and the contribution that bancassurance makes to insurance sales has steadily grown over the last few years. The banks benet through being able to provide value-added products to their customers and from the fee income they receive in return from the insurance companies.
Many banks have started their own life insurance subsidiaries. This eliminates the need for an intermediary and reduces costs.
This saving can be passed to customers in the form of reduced premiums. Micro-insurance products provide insurance protection to people in lower income groups, such as self-help group SHG members, farmers, rickshaw pullers and others against the risks that they and their assets are exposed to.
The premiums for these products may be as low as Rs. The minimum life insurance cover specied by the Regulator for this category is Rs. People who work in agriculture and allied activities are exposed to the hazards of nature so they need protection against risks like monsoon failure, oods etc. This is where micro-insurance can come to their rescue.
Grievance redressal Whenever any industry is experiencing fast growth there are bound to be concerns, and the insurance industry is no different. There has been an increase in complaints from customers about the settlement of their claims and customer service in general. As we saw earlier, the IRDA has taken steps to protect the interest of the policyholders.
The latest initiative from the IRDA is the setting up of a call centre which an insured can contact to seek the resolution of a grievance they have against their insurer. The unhappy customer can either call a toll-free number or email complaints irda. We will return to some of these topics in more detail later in this chapter.
First, however, we will continue our overview of the insurance industry in India by looking at the organisations and roles that feature within it. E Insurance organisations and roles E1 Types of insurance organisations Insurance organisations are divided into three main categories, as the following gure shows.
We will look briey at the various products the different types of insurance organisations offer in section G. Types of insurance organisation Insurance Life insurance Non-life insurance Reinsurance E1A Life insurance companies Life insurance companies cover risks that relate to human lives.
They offer different benets under different types of products and cover the risk of early death, as well as the risk of living into old age. Under traditional plans, like term insurance plans, insurance companies provide death cover. We saw an example of this when we looked at the case of Ajay at the start of this chapter. Under pension plans, insurance companies offer periodic monthly payments annuities to support the insured during their retirement. The exceptions to this are personal accident and health insurance, which are provided by non-life insurance companies.
Any asset either gives a monetary return e. All assets are exposed to various risks: If the asset is damaged by any of these risks, the owner will be at a disadvantage and they will lose the income or the convenience the asset provided.
Non-life insurance companies offer products that cover these risks and compensate the owner should the asset be damaged by one of them. It is a product from this type of company that an individual would download to protect their assets, for example, their home against re etc. E1C Reinsurance companies We saw in section A2 earlier that insurance is a risk transfer mechanism. Risk is transferred from those who are unable to bear it to those who can.
However, insurance companies can only take on so much risk. Once that limit is reached, the insurer itself is exposed to the risk of loss. When this happens insurers look to transfer some of their risks to someone else to shield themselves from overexposure. This is where reinsurance companies come into use. A reinsurance company is an insurer for the insurance company. Reinsurance companies take on a certain percentage of the risks on the insurance companys books, in return for the payment of a consideration.
E2 Roles in the insurance industry Apart from the insurer and the insured the other roles in the insurance industry include the following. It is the agents primary responsibility to meet the prospective client, understand their needs, and accordingly recommend suitable products. We shall discuss the role of agents in more detail in section H.
Corporate agents These include banks and brokers. More details about these are included in section F2. Intermediaries These can be individuals as well as organisations, like rms, banks and composite brokers. Intermediaries solicit and procure business from prospective clients for the insurance company. Underwriters These decide whether to accept or reject the insurance proposal. If the proposal is to be accepted, then the underwriter decides at what price it should be accepted.
Actuaries These calculate the standard price of products. They take into account statistical data and the past claims experience of the company. Apart from pricing individual products, they also do an overall nancial assessment of the insurance company from time to time to make sure that the company has sufcient reserves to pay for future liabilities. Third party administrators TPAs These do the work of building hospital networks. They also help with approvals at the time of cashless admission to a hospital and with settling the bill with the insurer on discharge.
They have a major role to play in non-life insurance business. The Regulator The Regulator has the responsibility of ensuring the smooth running of the insurance sector. The IRDA grants licences to insurance companies and makes sure all insurance companies are in compliance with the regulations at all times.
It also has a responsibility to protect the interests of the small policyholders against the mighty insurance companies.
Training institutes These have the responsibility of supplying trained manpower to meet the ever growing need for skilled labour in the insurance industry. NGOs Protecting the customers rights Non-Governmental Organisations NGOs play an important role in spreading awareness about insurance products and protecting the rights of the customers.
The role of NGOs is more important in the rural areas where they work with Self Help Groups SHGs and insurance companies on deeper penetration of micro-insurance products at the grassroots level.
You will see that some of these roles in the market are to do with the selling of insurance products or insurance distribution as it is known. How do they do this? Lets take a look in this next section.
F Insurance distribution Marketing of insurance products is done through two channels: Of those involved in the distribution of insurance which do you think would be a direct marketing channel and which an indirect marketing channel? F1 Direct marketing channels A direct marketing channel may involve a sales force employed by the insurer and will certainly include the activities of the insurers full-time staff based in the ofce.
Advertising will focus on the target audience, whether it is done through television, email marketing, newspapers, hoardings or online advertising.
The contract is concluded between the insurance company and the insured with no middleman. This channel for the sale of insurance products is relatively new in India, but is fast catching up with more traditional methods. For some time, insurance companies have been using online payment gateways to collect renewal premiums and their websites to solicit sales inquiries for their insurance products, but it was only late in that insurance companies in India introduced products that are exclusively sold via the internet.
Because these online products are being sold directly to the end customer, with no intermediaries, insurance companies can sell these products much cheaper, as the intermediary commissions are eliminated. F2 Indirect marketing channels Although, as we have seen, online insurance sales are increasing at a fast rate, intermediaries still make a major contribution to the sale of insurance company products.
Intermediaries include the following: Indirect marketing channels Indirect marketing channels Individual agents Bancassurance Insurance brokers Comparison websites Direct brokers Reinsurance brokers Composite brokers Individual agents These are hired by insurance companies and given the required training.
After passing the prescribed examination and getting their licence, these agents seek and gain insurance business for the insurer. Agents are not on the payroll of the insurance company but are paid commission based on the sales they make. Current regulations in India mean that an individual can act as an insurance agent for only one life insurance company at a time.
Bancassurance As we saw in section D4, insurance companies partner with banks to sell their products through them. Current regulations in India state that a bank can only act as an insurance agent for one life insurance company at a time. Insurance brokers These can sell the products of a number of life insurance companies. They have the advantage of being able to compare the insurance products of various insurance companies and then offer a plan that best suits the requirements of the customer.
The broker represents the client: Comparison websites These are a recent phenomenon and use the internet to collect together and provide quotes from various life insurance companies. An individual can input their details and compare quotes from different companies.
They can then choose the one that best suits their needs. However, these websites are not regulated so the customer would be wise to check with the insurance company before making a nal decision on the download. Consider this Which is better selling insurance by direct marketing or indirect marketing?
Why do you think this? What sort of products are available? We will be taking the time to look at life insurance products later in this study text.
For now, we will give a very brief overview of the types of insurance that are available. G Insurance products As we saw in section E1, apart from reinsurance, the insurance market is broadly divided into two categories life insurance and non-life insurance.
Life insurance covers risks related to human lives. All other risks are covered under non-life insurance or general insurance. G1 Non-life insurance market The non-life insurance market is further divided into sub-categories. Non-life insurance market Fire insurance Non-life insurance market Marine insurance Miscellaneous Liability insurance Property insurance Motor insurance Health insurance Travel insurance It is a continuously developing market with new products being introduced from time to time as society has a need for them.
G2 Life insurance market There are many products available in the life insurance market and we will consider them in detail in chapters 5, 6 and 7. However, here we will give a brief description of the main types of product so that you can start to see what sort of products you could be involved in selling. The main products offered under life insurance are show below. Main life insurance products Whole life insurance plans Main life insurance products Endowment insurance plans Term insurance plans Pension and savings plans Unit linked insurance plans ULIPs A discussion of specic general insurance products is outside the scope of this book.
Suggested activity Ask your family members or friends about the life insurance plan s they have. Ask them why they chose that particular plan. We have now concluded our overview of the insurance market, the roles within it and the products it provides. Before we move on in the next chapter to look at the concepts behind insurance, lets conclude this one by looking at what it means to be an agent.
The Insurance Act requires that an insurance agent must have a licence, and the IRDA deals with all issues of licences and other matters relating to agents.
There are regulations which must be complied with at all stages in the process. Full details of these regulations and requirements will be covered later in the study text. In this introductory chapter we shall just outline the process of becoming an agent and explain what an agent does. H2 Role of an agent As stated in section F2, agents are hired by insurance companies and they act as the main link between the insurance company and the insured.
Their role is to recommend to clients the right products that address the clients needs. At the same time they must act in the interests of the insurance company by using their unique position of knowing their clients well enough to protect the insurance company from any undue adverse product selection.
This makes the role of the agent in the entire insurance business very crucial. Agents facilitate the smooth sale of insurance products by assisting their clients with completing the paperwork involved, and after the policy is sold the agent should ensure it is serviced properly until maturity or in the event of a claim.
At the time of a claim, the agent should also assist the client to complete the required formalities to ensure quick settlement. In India, life insurance agents deal with a range of insurances which are generally considered under the following headings: All these products will be looked at in later chapters.
Once licensed and appointed, the agent is an independent professional. At the heart of this is the need for agents to put the interests of their clients above all else. For instance, the agent should disclose all information relating to the insurance company that they represent and the products they are recommending. They should act in the best interests of the client while at the same time making sure that there is no adverse selection against the insurance company we will discuss adverse selection further in chapter 4.
In addition, the insurance agent needs to take steps to keep the business they have secured for their company. To do this they need to make every attempt both orally and in writing to ensure that the policyholder pays the premium within the required time. We will return to the Code of Conduct for agents later. Role of nancial services THe huauc a se v ces seclo uc ud uu lHe usu auce seclo Has a majo o e lo p av u lHe ove a ecouom c u owlH of the country.
Benets of professional insurance market A p oless oua usu auce ma el based ou ueeds-based se uu aud p ope d sc osu es w ead lo H uHe couhdeuce among policyholders, an increase in the penetration of insurance, job creation and enhancement of the overall success of the insurance company.
THe h sl pHase p e- be a sal ou was dom ualed bv p vale aud lo e uu usu auce compau es belo e lHe ove umeul nationalised the sector in Private participation was invited and also FDI. Currently there are 23 life insurance companies operating in India. Baucassu auce aud m c o- usu auce Have beeu introduced and grievance redressal systems established.
Insurance organisations and roles lusu auce bus uess s c ass hed ulo lH ee ma u lvpes - le. THe usu auce ma el s made up ol aueuls. Insurance distribution lusu auce s so d lH ouuH d ecl ma uu cHauue s emp ovees aud ule uel sa es aud ud ecl ma el uu cHauue s agents, bancassurance, brokers. Insurance products P oducls olle ed bv le usu auce compau es uc ude le m usu auce p aus. Becoming an agent To become au aueul a pe sou Has lo subm l lHe uecessa v lo m aud lees.
Have lHe euu ed uua hcal ou. Au aueul sHou d ecommeud lo c euls lHe besl p oducls lHal add ess lHe ueeds aud al lHe same l me ma e su e there is no adverse selection for the insurer. Au aueul sHou d coul uuous v sl ve lo mp ove lHe uow edue ol lHe owu usu e 's p oducls. You are transferring the risk you face to the insurance company to bear for you. Why do people need life insurance? What are the benets of having a professional insurance market?
List the participants who make up the insurance market. What indirect marketing channels are available to insurance companies?
What are the different types of products sold by life insurance companies? People need life insurance to help take care of their obligations should they die prematurely. These include the: The benets of a professional insurance market that focuses on needs-based selling and disclosure include: H uHe couhdeuce amouu po cvHo de s, au uc ease u usu auce peuel al ou, soc a beuehls, emp ovmeul ueue al ou, uc eased p ohls lo usu auce compau es, p em ums ava ab e lo cHauue ulo uveslmeul p ojecls, aud au mp ovemeul u lHe ove a u owlH ol lHe ecouomv.
The constituents of the insurance market include: The indirect marketing channels include: The different types of products sold by life insurance companies include: Insurance companies active in India January Table 1. In this chapter we will look at the nature of risk in more detail and the types of risks that can be insured against, in addition to explaining a little more about how risks are transferred and pooled.
Of course, as a life insurance agent you are concerned with the risks relating to human life and we shall focus our attention on these aspects in this chapter.
However, we shall also be making reference to some risks that apply to general insurances as this will help you to gain a good understanding of the concept of risk in its broadest sense. In insurance, risk is applied to certain assets that can be insured, such as a human life, a house, a car, etc. There is no single denition of risk because of the different contexts in which it can be used.
Here are some of the denitions of risk: Risk is the chance of damage or loss. Risk is doubt concerning the outcome of a situation. Risk is something or someone considered to be a potential hazard. Be aware In life insurance the word risk is used to describe the possibility of an unfavourable event occurring, for example untimely death or an unforeseen disability.
During a lifetime an individual can be exposed to many risks, some of these are: Figure 2. Life insurance mainly deals with two risks premature death and living too long. The other risks relating to human life are mostly covered under non-life insurance. However, life insurance companies offer additional benets or riders along with life insurance plans to cover the following risks death or disability due to accidents, illness and unemployment. His job involves frequent travelling to meet various retailers in his region in order to achieve his monthly and quarterly sales targets.
Sometimes he has to travel continuously for days, without any rest. Rakesh Gupta is exposed to the following risks, for which he should consider downloading insurance: Premature death Rakeshs job prole is quite stressful and involves intense travelling. He is exposed to the risk of early death which could occur due to an accident or illness caused by stress.
A life insurance plan can protect his family against the risk of Rakeshs early death. Accident Due to the frequent travelling that Rakesh has to do, he is prone to the risk of accidents that can result in either permanent or temporary disability. A life insurance plan with a disability benet rider or a separate accidental death policy can protect his family against the risk of Rakesh becoming disabled. Illness Due to the stressful nature of his job, Rakesh is exposed to the risk of suffering from critical illnesses.
A life insurance plan with a critical illness rider, or a health insurance policy, can help meet the hospitalisation expenses should Rakesh suffer from any critical illness. Unemployment If Rakesh has an accident and becomes disabled, he risks losing his job and becoming unemployed.
Living too long Should none of the above events occur during his working life and Rakesh retires, he may be exposed to the risk of living too long beyond retirement.
He is working for a private company that does not provide a monthly pension after retirement as part of his employee benets. Hence he needs to work towards building a retirement fund during his working life by investing in a retirement pension plan. On retirement he can download an annuity plan from a life insurance company that will pay him regular annuity payments during his retirement years.
Details about various life insurance plans, health insurance plans and riders will be discussed in later chapters. Be aware Insurance companies provide cover for only a specied number of risks. These risks are listed in the policy document. The insurance company will not provide protection for claims arising out of risks other than the specied risks.
Suggested activity After studying the risks that an individual is exposed to, discuss with your family income provider which risks they are exposed to due to the nature of their job. If you are the main income provider what risks are you personally exposed to? A2 Attitude to risk Each persons attitude to risk is different.
Therefore, we all respond to risks in different ways. Some people are willing to retain risks and carry them themselves, while others act cautiously and transfer them to an insurance company.
B Components of risk The components of risk include: If we could know in advance that an event is going to take place we could plan to prevent it or overcome it, and thereby limit or even remove the risk involved.
As a general principle insurance is only available for risks that are uncertain. This statement raises a question: So how can this statement be true?
It is true because, although we will all die one day, when we will die is uncertain. It is the uncertainty about the timing of death that makes death insurable. Once the timing of death becomes certain, when an individual is suffering from a fatal disease, for example, then an insurance company will not cover the risk. The following case studies show how this works. Case studies 1. There are 9 licensed web aggregators. TAC is the sole data repository for the non-life industry.
In addition, there are a dozen Ombudsman offices to address client grievances. Insurance education[ edit ] A number of institutions provide specialist education for the insurance industry, these include; National Insurance Academy , Pune, specialized in teaching, conducting research and providing consulting services in the insurance sector.
The institute is a global learning and research centre in insurance, risk management, actuarial sciences. They provide consulting services for the financial industry.