01-inrtoduction to insurance

8/8/2019 01-Inrtoduction to Insurance

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CHAPTER 1CHAPTER 1

INTRODUCTIONINTRODUCTIONTOTO

INSURANCEINSURANCE

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WHY ONE SHOULD GO FOR INSURANCE ?

Mr. X , workingin a private firm, isthe sole bread earner of his family.

His wife is a housewife and he has

two children one daughterstudyingin College (class 12th) and one son

studyinginschool (Class 9th). Entirefamily is dependant on him for their

needs.


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SAVING

OTHERS

FOOD

CLOTHING

MEDICAL

EDUCATION

INCOME

HEAD OF FAMILY


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Mr. X dies all of a sudden dueto an accident.

What will happen to his

Wife, Daughter, Son


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SAVING

OTHERS

FOOD

CLOTHING

MEDICAL

EDUCATION

NO INCOME

NO MORE

DIED IN ACCIDENT

INSURANCE


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WHAT INSURANCE MEANS*Mitigating of loss or damage orinjury toproperty, life or personin case of unforeseenevent (damage).

* Sharing of risk ormishappening by many.

* Protection of the economic values of assets.

* A mechanism to reduce the effect of adverse orunpleasant situationssuch as death accident etc.

* It also means the reduction of the impact of therisk on the owner of the asset and those whodepend on that asset.


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CONCEPT OF INSURANCE

Insurance has developed from the

concept of sharing. Sharing exists fromthe beginning of human civilizationi.e.

fromstone age to barter to joint family to

nuclei family.


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HOW PEOPLE USED TO LIVE IN STONE AGE ?

People (cavemen) lived in caves, treesetc

Wore clothesmade of animal skins,

bark of trees etc went in a group for hunting for food

Excess food shared by them amongst

their fellow beings who were lessfortunate.

Cont


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HOW PEOPLE USED TO LIVE IN BARTER AGE ?

* People lived invillages

* For livelihood -

grew cropsweaved the cloth

made earthen pots etc.

* Exchanged the excess produce forgoods which they didnt have or wasin

shortage.


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HOW PEOPLE USED TO LIVE IN JOINT FAMILY AGE ?

* The head of the family i.e. KARTA earned

KARTAs earnings was shared by all thefamily members

* KARTA took care of the needs of all the

members of the family

* Complete protection was given to all the

members of the family.


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STONE AGE

BARTER AGE

JOINT FAMILY

NUCLEI FAMILY


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HISTORY OF INSURANCE

* The story of insurance is probably as old asthe story of mankind its beginnings dateback almost 6000 years

* The travelers by land were exposed to therisk by robbery, the goods carried by shipswere at the mercy of winds etc.

* a system was developed whereby the trader

was absolved of his debt (both principal andinterest) should certainspecific contingenciesoccur.


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INSURANCE -ABROAD

*During the 17th Century London was centreof world commerce and shipssailed fromLondon to all ports.

* There was lack of machinery forcommunications due to which themerchants used COFFEE HOUSES as themeeting places to contact otherbusinessmen.

*They agreed to share the losses to theirgoods (robbed at high seas, bad weatherspoilinggoods, shipssinking etc.) whilebeing carried by ships.

*The first Life Insurance Policy (availableth


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HISTORY OF INSURANCE INDIAYear of Name of the CompanyInception1818 Oriental Life Insurance Society

1870 Indian Insurance Company:Bombay Mutual Assurance SocietyLtd.1870 English Insurance Company:

The European and the Albert.1874 Oriental Life Assurance Company1896 Bharat1897 Empire of India

Cont


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Cont

Year of Name of the CompanyInception1900s - The Hindusthan Cooperative,Calcutta

The United India, MadrasThe Bombay Life, BombayThe New India, BombayThe Jupiter, Bombay

The National, CalcuttaThe Lakshmi, New Delhi


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NATIONALIZATION OF LIFE

INSURANCE BUSINESSLife insurance business was

nationalized by merging 170

companies and 75 provident fundsocieties transacting life businessin

India.

Life Insurance Corporation of Indiacame into being on 1st September

1956, having the exclusive privilegeof doing life insurance businessin


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ENTRY OF PRIVATE INSURERS

IN THE INDIAN MARKET

* In 1999, the relevant laws were amendeddue to which L.I.C.no longer has theexclusive privilege of doing life insurancebusinessin India.

* As on 31st March 2002, 11 new insurersgot registered and are carrying on life

insurance business.


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PURPOSE AND NEED OF INSURANCE Perilssuch as fire, floods, breakdowns,

lightning, earthquakes etc. cause damage to

life and property i.e. assets are exposed to risk

Thisriskmay ormay not happeni.e. there isuncertainty about the risk.

Insurance can only be done against the

uncertainties which may occur and cannot be

avoided.

Insurance compensates the losses (not

fully) that occur due to peril.


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HOW INSURANCE WORKS

Risk of a few people isspread among a large numberof people.

For example: 10 families live in a village.

Decide Rs.1000/- will be given to the family which isinproblem.

Each family decides to contribute Rs.100/- every yeartowards the fund

1st year Rs.1000/- is collected in the fund.

2nd year Its Rs.2000/-, 3rd year Rs.3000/-

In 4th year one head of the family dies.From the fund, Rs.1000/- isgiven to the family whohassuffered the loss

Cont


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Cont..

The manner in which the loss is to be shared isdetermined before-hand. It is proportionate to

the risk that each person is exposed to.

Insurance Companies collect the amount inadvance from each person and create a fund

from which the losses are paid.


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For Example:

In a village there are 400 houses, each valuedat Rs.20,000. Every year, on an average, 4

houses get burnt, resulting into a total loss ofRs.80,000. If all the owners come together andcontribute Rs.200 each, the common fund wouldbe Rs.80,000. This is enough to pay Rs.20,000

to each of the 4 owners whose houses gotburnt. Thus, the risk of 4 owners is spread over400 house-owners of the village.


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FUNDAMENTALS OF

INSURANCE TO REMAIN FAIR TO ONESELF

THERE MUST BE LARGE NUMBER OF

PEOPLE TO SHARE THE RISK. IT SHOULD NOT BE INTENTIONAL

IT SHOULD NOT BE FRAUDULANT


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THE HUMAN ASSET

* Human Beings are income-generatingassets:Manual labour, professional skills,business acumen etc are assets of anindividual and he earnsmoney (livelihood)

through it.* Death can snatch away this asset:

Due to the untimely death of anindividual thereis loss to the dependants of the deceasedindividual.

* Insurance is necessary to help thosedependent on this asset:

Insurance help those who are dependant onthe income of the deceased individual.

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MORE INFORMATION ON

INSURANCE

Insurance is done for both, tangible as well

as forintangible assets.

Tangible Assets: Car, House etc.

Intangible Assets: Voice of a singer, legs of a

dancer etc.


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BUSINESS OF

INSURANCEThe business of insurance is to:

a) bring together persons withcommon insurance interest(sharing the same risk)

b) collect the share or contribution

(called premium) from them, andc) pay out compensations (calledclaims) to those who suffer.


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CLASSIFICATION OF INSURANCE BUISINESS

LIFE

MISCELLANEOUS

FIREMARINE


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INSURANCE FOR

SOCIAL SECURITY

ECONOMIC WELFARE OF THE FAMILY

ECONOMIC WELFARE OF THE SOCIETY


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SOCIAL SECURITYSOCIAL SECURITY

Social statusOld Age

Marriage

Social function


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ECONOMIC WELFARE OF THE FAMILYECONOMIC WELFARE OF THE FAMILY

ClothingSocial status

Food

Education


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ECONOMIC WELFARE OF THE SOCIETYECONOMIC WELFARE OF THE SOCIETY

Port TrustPort TrustHousing SchemesHousing Schemes

Electricity

Roads


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ADVANTAGES OF LIFE INSURANCEPolicy monies are protected againstattachments by courts

Income-tax benefits and capital gains taxexemptions are available

Marketability and liquidity are betteri.e. lifeinsurance policy can be transferred,

mortgaged or loan can be raised against it.


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POINTS FOR THE AGENTS* Life insurance is one of the best

ways for protecting family against

economic loss due to untimely deathof the BREAD WINNER

Insurance acts as a friend inneed

while family isin financial crisisIt helps family to survive and

maintain social status

Cont..


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*Life insurance is superior to other forms of savingsin terms of security, marketability, stability of value orliquidity.*Life insurance enhances the existing standard of

living*Life insurance perpetuates life, liberty and thepursuit of happiness*Life insurance makes lives live


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