winter internship project title “analysis of risk

8/14/2019 Winter Internship Project Title ANALYSIS of RISK

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Winter Internship Project Title

ANALYSIS OF RISK FACTORS IN INSURANCE & TAX PLANNING

Submitted By:-

Varsha Hemnani

PGDM (2009-2011)

Under the Supervision of Company Guide:

Mr. Nilesh Nishant Assistant Sales manager (metlife, Pune)

Indira School of Career Development

ISCD

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ACKNOWLEGEMENT

It has been an honour to work with Metlife. The experience has been extremely pleasurable asthis organization has provided me with invaluable knowledge, ideas and a better understanding

of different sectors.

At first, I would like to thank Mr. Nilesh Nishant (Assistance Sales manager of the

company) for providing me constant guidance and support. The clarity that was lent to the

project was all due to him.

I also thank all the office employees at the Pune branch for making the environment at work

extremely conducive and for also being very approachable.

Family and friends deserve special thanks for rendering their support at each stage of my project.Without their cooperation, this project would not have been successful.

And finally, I would like to thankIndira School of Career Development, for providing me all

the requisite knowledge and the opportunity to work for this Company.

Varsha Hemnani

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DECLARATION

I varsha hemnani, hereby declare that this project is the record of

authentic work carried out by me during the academic year 2009- 11

and has not been submitted to any other University or Institute

towards the award of any degree

Varsha Hemnani

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TABLE OF CONTENTS

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ACKNOWLEDGEMENT.......

2

EXECUTIVE SUMMARY...

5

COMPANY PROFILE.....

7

SCOPE OF THE PROJECT...

16

OBJECTIVE OF THE PROJECT.18

METHODOLOGY.....

18

PROJECTS IN DETAIL ..............

19

Analysis of Risk Factors in Insurance.......................................19

Tax

Planning.....................................................................................

33

LEARNINGS......

48

BIBLIOGRAPHY..

49

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EXECUTIVE SUMMARY

The objective of this project was to ascertain the dynamics of insurance industry with respect toTax Planning and Risk Factors. Under this project reports have been prepared for the company.

It covers the research report on the following.

TAX PLANNING

This project was being prepared for the company and it covers the following the aspects:

Qualitative Tax Planning tips for the customers

Different kinds of benefits of Tax Planning

Making people aware of how they can save tax using different types of investments

instruments available in the market.

INSURANCE SELLING PROCESS

A comprehensive report on Insurance industry was prepared and it covered following aspects:

Insurance and its working

Regulatory Authorities

Procedure for registering a Mutual Fund with SEBI

Types of Insurance products and Schemes

Investments in Insurance

Companies operating in India

Insurance Industry scenario 2008-09

ANALYSIS OF RISK FACTOR IN INSURANCE

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This research was done to find out the scenario the overall investment industry in respect to risk.

With a comprehensive market research and information from other sources a report was prepared

on how important does the risk factor play in investment products and what types of risk are

involved and covered in the investment of insurance product.

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ABOUT THE Industry

1.2.1Background of insurance

Life Insurance in its modern form came to India from England in the year

1818. Oriental Life Insurance Company started by Europeans in Calcutta was

the first life insurance company on Indian Soil. All the insurance companies

established during that period were brought up with the purpose of looking

after the needs of European community and Indian natives were not beinginsured by these companies. However, later with the efforts of eminent

people like Babu Muttylal Seal, the foreign life insurance companies started

insuring Indian lives. But Indian lives were being treated as sub-standard

lives and heavy extra premiums were being charged on them, Bombay

Mutual Life Assurance Society heralded the birth of first Indian life insurance

in the year 1870, and covered Indian lives at normal Com ran no rates.

Insurance is an Rs 450 billion industry in Indian. The value of the market is determined by gross

premium Incomes. The life insurance segment writes about 80% of the overall market value.

Indian Insurance market was at its all time high 1 n 2003 with a grow thing of about 17 .4% over

the pervious year. Since 2001 Insurance is growing at the rate of 15-20 % annually. The growth

in the 'Insurance industry is affected by volatility in real estate rates, GDP rates and long term

'Interest rates. Fluctuations in exchange rates also affect the growth in this sector, The gross

premium as a percentage of the GDP has gone up from 2.3 in the year 2000 to 4.8 in 2006.

Together with banking services, it adds about 7% to the country's GDP.

Some of the important milestones in the life insurance business in India are

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British India Period

1818 : Oriental Life Insurance Company, the first life insurance company on Indian soil started

functioning.

1870 : Bombay Mutual Life Assurance Society, the first Indian life 'Insurance

company started 'Its business,

1912 : The Indian Life Assurance Companies Act enacted as the first statute to regulate the life

'Insurance business.

1928: The Indian Insurance Companies Act enacted to enable the government to Collect

statistical 'Information about both life and non life insurance businesses.

1938 : Earlier legislation consolidated and amended to by the Insurance Act with the objective of

protecting the 'Interests of the insuring pubic.

1956 : 245 Indian and foreign insurance and provident societies are taken

over by the central government and nationalized. LIC formed by an Act of

Parliament, viz. LIC Act, 1956, with a capital contribution of Rs. 5 chores from

the Government of India.

Liberalization of Indian Insurance

1994: Insurance sector invited private participation to induce a spirit of

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competition amongst the various insurers and. to provide a choice to the

consumers.

1997: Insurance regulator IRDA was set up as there felt the Feed:

To set up an independent regulatory body, that provides greater autonomy

to insurance companies in order to improve their performance, In the first

year of insurance market liberalization (2001) as much as 16 private sector

companies including joint ventures with leading foreign insurance companies

have entered the Indian insurance sector. Of this, 10 were under the life

insurance category and six under general insurance. Thus in all there are 25players (12-life insurance and l3-general insurance) in the Indian insurance

industry till date.

3Company Profile

MetLife Begins

The origins of Metropolitan Life Insurance Company (MetLife) go back to

1863, when a group of New York City businessmen raised $100,000 to found

the National Union Life and Limb Insurance Company.

The new company insured Civil War sailors and soldiers against disabilities

due to wartime wounds, accidents, and sickness. In 1868, after several

reorganizations and five difficult years, the company decided to focus on the

life insurance business. A new company was chartered to sell "ordinary"insurance to the middle class. The founders chose the name because they

had been most successful in New York City, or the "Metropolitan" District.

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This new venture also faced difficulties. A severe business depression that

began in the early 1870s rapidly put half of the 70 life insurance companies

operating in New York State out of business. Only very large, long-

established ordinary life insurance companies remained strong. Policy lapses

over successive years forced the company to contract until it reached its

lowest point in the late 1870s.

In 1879, MetLife President Joseph F. Knapp turned his attention to England,

where "industrial" or "workingmen's" insurance programs were widely

successful. American companies had not bothered to pursue industrial

insurance up to that time because of the expense involved in building and

sustaining an agency force to sell policies door to door and to make the

weekly collection of five- or ten-cent premiums.

By importing English agents to train an American agency force, MetLife

quickly transferred successful British methods for use in the United States.

By 1880, the company was signing up 700 new industrial policies a day.

Rapidly increasing volume quickly drove down distribution costs, and the

new program proved immediately successful.

The MetLife agent became an important person in the lives of these strivingfamilies. Manuals instructed agents to call at a home at the same time each

week to ensure familiarity and contact. In the process of collecting

premiums, insurance agents listened to the problems, concerns, and hopes

of their clients. So successful was this approach that by 1909, MetLife

became the nation's largest life insurer in terms of insurance in force, a

leadership position we continue to hold today in North America.

Company profile

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The "everyone" in MetLifes vision took on added meaning in 2000 as the

company welcomed an important new constituency: shareholders. MetLife

transformed itself from mutual to stock ownership in April of that year

through a demutualization and initial public offering that was completed in

just 18 months after Board authorization.

The year 2001 was a true test of the qualities that define MetLife. The

companys core values, brought to life in what MetLife does every day, were

no more evident than in MetLifes response to the tragic events that shook

our nation on September 11. MetLife responded quickly. The company

served its customers, communities and employees during this difficult time.

At the same time, MetLife invested $1 billion in a broad array of publicly-

traded common stocks.

In 2001, MetLife was the first insurance company to establish a financial

holding company with a nationally chartered bank. Leveraging its

unparalleled distribution channels, MetLife entered the retail-banking arena

with the launch of MetLife Bank, making it an easy and convenient way for

MetLifes customers to realize their financial goals.

MetLife announced in 2002 that it would be continuing its long-standingrelationship with Snoopy and the rest of the PEANUTS characters. The

company signed a new contract that would allow the characters to appear in

MetLifes domestic and international advertising for the next 10 years.

The sale of State Street Research & Management Company to BlackRock,

Inc. was announced in 2004. In line with MetLifes strategy to focus on core

business growth, the sale benefited many of the companys Individual and

Institutional Business clients who held investments through State StreetResearch, as it became part of one of the largest publicly traded investment

management firms in the U.S.

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The companys stated long-term goal is to become the recognized leader

throughout the world for relationship building, connectedness and caring in

financial services in the "giant league" with over 100 million people as

MetLife customers by the year 2010.

MetLife took a major step toward realizing this goal in 2005, when it acquired

Travelers Life & Annuity and substantially all of Citigroups international

insurance businesses for $12 billion. Completed on July 1, 2005, the

Travelers acquisition made MetLife the largest individual life insurer in North

America based on sales, the second largest provider of retail annuities and

the largest provider of institutional annuities.

Working Mother magazine honored MetLife in 2005 by naming the company

one of the "100 Best Companies for Working Mothers," for the seventh

consecutive year. In 2005, the company was named to DiversityInc.s list of

the Top 50 Companies for Diversity. In early 2006, MetLife was also named

to the National Association for Female Executives annual list of Top 30

Companies for Executive Women.

In 2006, MetLife appointed C. Robert (Rob) Henrikson chairman of the board

of directors, president and chief executive officer of MetLife, Inc. Henriksonwas appointed CEO on March 1, 2006 and chairman of the board on April 25,

2006.

Henrikson has been the architect of an aggressive growth strategy that

included double-digit organic growth, the divestiture of non-core businesses,

and an M&A strategy which resulted in market leadership in all of MetLifes

core product lines. Before it was commonly talked about, Henrikson

recognized the opportunities presented by the changing demographics in aglobal marketplace and set the company on a course for continued success

by developing innovative products and services and strengthening the

companys distribution power in the U.S. and 16 markets in Asia Pacific, Latin

America and Europe.

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Today, a time when consumers are feeling a greater financial burden than

ever before, MetLife is helping millions of customers create their own

personal safety net. At no time in the companys history has MetLife been as

well positioned to capitalize on its history, its reputation for security andstability, and its innovative products and services as it is today.

In the future, MetLife will continue to grow its business with focus, innovation

and profitability. This will be accomplished by drawing on the reservoir of

history that has produced an enduring set of corporate values based on more

than 138 years of integrity, social responsibility, strong leadership and

financial strength.

Product Profile

1.Met Suraksha Plus

nsure your family stays secure...always!

Home loans, EMIs and other such liabilities are a regular feature in all of our

lives. Yet none of us want the burden of these payments to fall on our loved

ones. MetLifes protection plans act as that all-important shelter,

guaranteeing you complete peace of mind. Learn More...

2. Met Health Care

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A smart health plan for you and your family.

The only thing certain about life is its uncertainty!! More so in today's day &

age. This uncertainly coupled wtih constant anxiety and pressure couldaffect your

health. As such you can never be sure when a health condition may come

calling on you. To ensure you are well protected to face any health condition

that could befall you, MetLife presents- Met Health Care, a simple health

insurance policy with unique and smart advantage for you and your family.

Learn More...

3. Met Pension Par

At the end of the day, it's not about the years in your life, but the life in your

years.

Retirement means new beginnings, new joys and the possibility to realize the

unfulfilled dreams of your youth. However, its also a time of anxiety, a time

when financial independence is of upmost importance.

MetLifes comprehensive retirement plans ensure a financially secure

retirement and guarantee your peace of mind. So that you can make your

dreams a reality, anytime, anywhere. Learn More...

Met Growth Super.

4. Met Vishwas - Rural Met Suvidha Rural

Dream big dreams. They have a funny way of coming true.

What is life without a dream? Be it that grand wedding for your children, a

house or a car. MetLife savings plans help you realize your dreams and

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protect you and your loved ones from lifes uncertainties. Keep your savings

growing and ensure complete peace of mind. Learn More...

Met Sukh

5. Met Bhavishya

Free the childs potential, and you will transform him into the world

- Maria Montessori (Italian physician and educator, 1870-1952)

Security for your childs future, peace of mind for you.

With educational expenses rising by the day, future-proofing your childs

tomorrow is now more critical than ever. MetLifes childrens insurance plans

offer you that assurance, helping you ensure that there are no surprise

roadblocks down the road. Learn More...

6. Met Easy Plus

Get the best of both worlds. Protect your family and help your money do a

little more, all at once.

MetLifes Unit-Linked Insurance Plans ensure systematic enhancement of

your wealth. Be it higher returns or the right blend of protection and wealth

optimization, they help you ensure the right choice and peace of mind.

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SCOPE OF THE PROJECT

MetLife India Incorporation provides exclusive services to all our clients and financial

intermediaries. Its sales people, research analysts, and investment bankers provide unique

products and premier facilitation. It provides product innovation, research and advice, and

comprehensive access to the worlds capital markets.

MetLife India Incorporation does an in-depth research for its clients and provides them with the

analysis and solutions. In todays scenario research reveals hidden facts which facilitate

forecasting the future.

As the Indian market expands, information relating to the companies, sector and other countries

has acquired greater significance than at anytime in the past. As the companies move from local

to national and to global, their managers need information much faster than at any time earlier.

With the disposable income of the buyers growing faster and the investment pattern is alsochanging accordingly, so in todays scenario research is tool with the help of which hidden facts

can be revealed and trends can be observed. Rate of growth in a particular sector can be

forecasted which will help in decision making.

Research played a key role in recognizing the opportunities and threats and continuously

monitoring changes in the environment and identifying and researching different aspects such as

demographics, household patterns etc. that have an impact on the market.

Analyzing business behavior, industries and different sectors helps in knowing the level of

growth that is expected so that investment can be made in that particular sector and the company.

In the recent days companies have started outsourcing it and getting the information easily.

MetLife also provides its clients with the detailed research reports along with the analysis.

This project involves detailed research on various sectors, industries, companies, and countries,

and consequently preparing the research reports for the customers of the company. This will help

the company to maintain its current business with the existing preferred partners as well as create

new opportunities through the new partners, thereby leading to better market penetration of its

products.

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OBJECTIVE OF THE PROJECT

The objective of the project was to do detailed research on the requirements of the client of thecompany and to give them the best solution to their problem.

RESEARCH METHODOLOGY

The first step of the project was to get a clear understanding of the products and services that

MetLife offers. This is a pre-requisite for this project, as would be for any, so as to get a better

understanding about the kind of products and services that MetLife offers to its customers. It

helped during the entire project because a clear idea was generated about the entire industry, howit works, and what companys offers and most importantly, how it helps the customers.

After understanding the companys services and the level of research that had to be done,

following method was followed in order to get the most relevant information:-

Understand the research topic and the field or the sector on which research was to be

done.

Identify all the aspects on which information was to be found out.

Collect all the information related to the topic and all the latest facts and figures relating

to it, through internet. Survey is also conducted wherein 200 people between all the agegroup were contacted to gather information and opinion relating to the topic.

At last compile all the information and prepare a proper research report.

PROJECTS IN DETAIL

ANALYSIS OF RISK FACTORS IN INSURANCE

The project dealt with an in-depth research on the risk factors in insurance industry. After doing

a detailed study on the industry various aspects were revealed.

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INTRODUCTION

People seek security. A sense of security may be the next basic goal after food, clothing, and

shelter. An individual with economic security is fairly certain that he can satisfy his needs (food,

shelter, medical care, and so on) in the present and in the future. Economic risk (which we will

refer to simply as risk) is the possibility of losing economic security. Most economic risk derives

from variation from the expected outcome.

What is Risk?

Risk, in traditional terms, is viewed as a negative.

Websters dictionary, for instance, defines risk as exposing to danger or hazard.

The Chinese symbols for risk, reproduced below, give a much better description of risk.

One measure of risk, used in this study note, is the standard deviation of the possible outcomes.

As an example, consider the cost of a car accident for two different cars, a Porsche and a Toyota.

In the event of an accident the expected value of repairs for both cars is 2500. However, the

standard deviation for the Porsche is 1000 and the standard deviation for the Toyota is 400. If the

cost of repairs is normally distributed, then the probability that the repairs will cost more than

3000 is 31% for the Porsche but only 11% for the Toyota.

Modern society provides many examples of risk. A homeowner faces a large potential for

variation associated with the possibility of economic loss caused by a house fire. A driver faces a

potential economic loss if his car is damaged. A larger possible economic risk exists with respect

to potential damages a driver might have to pay if he injures a third party in a car accident forwhich he is responsible.

Historically, economic risk was managed through informal agreements within a defined

community. If someones barn burned down and a herd of milking cows was destroyed, the

community would pitch in to rebuild the barn and to provide the farmer with enough cows to

replenish the milking stock. This cooperative (pooling) concept became formalized in the

insurance industry. Under a formal insurance arrangement, each insurance policy purchaser

(policyholder) still implicitly pools his risk with all other policyholders. However, it is no longer

necessary for any individual policyholder to know or have any direct connection with any other

policyholder.

What is Insurance?

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Insurance in its basic form is defined as A contract between two parties whereby one party

called insurer undertakes in exchange for a fixed sum called premiums, to pay the other party

called insured a fixed amount of money on the happening of a certain event."

In other words, Insurance is an agreement where, for a stipulated payment called the premium,

one party (the insurer) agrees to pay to the other (the policyholder or his designated beneficiary)

a defined amount (the claim payment or benefit) upon the occurrence of a specific loss.

In simple terms it is a contract between the person who buys Insurance and an Insurance

company who sold the Policy. By entering into contract the Insurance Company agrees to pay

the Policy holder or his family members a predetermined sum of money in case of any

unfortunate event for a predetermined fixed sum payable which is in normal term called

Insurance Premiums.

Insurance is basically a protection against a financial loss which can arise on the happening of an

unexpected event. Insurance companies collect premiums to provide for this protection. By

paying a very small sum of money a person can safeguard himself and his family financially

from an unfortunate event.

For Example if a person buys a Life Insurance Policy by paying a premium to the Insurance

company , the family members of insured person receive a fixed compensation in case of any

unfortunate event like death.

There are different kinds of Insurance Products available such as Life Insurance, Vehicle

Insurance, Home Insurance, Travel Insurance, Health or Mediclaim Insurance etc.

An overview of Indias insurance market

Insurance in India used to be tightly regulated and monopolized by state-run insurers. Following

the move towards economic reform in the early 1990s, various plans to revamp the sector finally

resulted in the passage of the Insurance Regulatory and Development Authority (IRDA) Act of

1999. Significantly, the insurance business was opened on two fronts. Firstly, domestic private-

sector companies were permitted to enter both life and non-life insurance business. Secondly,

foreign companies were allowed to participate, albeit with a cap on shareholding at 26%. With

the introduction of the 1999 IRDA Act, the insurance sector joined a set of other economicsectors on the growth march.

During the 2003 financial year1, life insurance premiums increased by an estimated 12.3% in

real terms to INR 650 billion (USD 14 billion) while non-life insurance premiums rose 12.2% to

INR 178 billion (USD 3.8 billion). The strong growth in 2003 did not come in isolation. Growth

in insurance premiums has been averaging at 11.3% in real terms over the last decade.

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Insurance development and potential

Notwithstanding the rapid growth of the sector over the last decade, insurance in India remains

at an early stage of development. At the end of 2003, the Indian insurance market (in terms of

premium volume) was the 19th largest in the world, only slightly bigger than that of Denmark

and comparable to that of Ireland.2 This was despite India being the second most populous

country in the world as well as the 12th largest economy. Yet, there are strong arguments in

favour of sustained rapid insurance business growth in the coming years, including Indias robust

economic growth prospect and the nations high savings rates.3 The dynamic growth of

insurance buying is partly affected by the (changing) income elasticity of insurance demand. It

has been shown that insurance penetration and per capita income have a strong non-linear

relationship.4 Based on this relation and other considerations, it can be postulated that by 2014

the penetration of life insurance in India will increase to 4.4% and that of non-life insurance to

0.9% (Table 2.1).

India in the international context

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The Indian insurance market is the 19th largest globally and ranks 5th in Asia, after Japan, South

Korea, China and Taiwan.6 In 2003, total gross premiums collected amount to USD 17.3 billion,

representing just under 0.6% of world premiums. Similar to the pattern observed in other

regional markets, and reflecting the countrys high savings rate, life insurance business

accounted for 78.5% of total gross premiums collected in the year, against 21.5% for non-life

insurance business.

Insurance density

Another measure of insurance development is per capita spending on insurance, i.e. insurance

density. By this measure, India is among the lowest-spending nations in Asia in respect of

purchasing insurance (Figure 3.3). An average Indian spent USD 16.4 on insurance products in2003, comprising USD 12.9 for life insurance and USD 3.5 for non-life insurance products. The

level

of spending is comparable to that of the Philippines (USD 14.6 in total), Indonesia (USD 14.5)

and Sri Lanka (USD 12.5). It lags behind China, which spent USD 36.3 per capita on insurance

products in 2003. One factor that has been slowing down the improvement of insurance density

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is Indias relatively high population growth rate, which has averaged 1.7% over the past ten

years.

Demand elasticity and growth potential

Indias low level of insurance penetration and density has to be viewed in the context of the

countrys early stage of economic development. Per capita income in India is currently at around

USD 600 but is expected to increase rapidly, which could bring in an era of accelerated demand

for insurance. International experience tends to suggest that demand for insurance will take off

once per capita income has surpassed the USD 1000 mark (Figure 3.4). This income level is

deemed high enough for households to consider insurance protection, particularly as many

people begin to own their homes and cars. The empirical relationship between insurance demand

elasticity and per capita income can be characterized as a bell-shaped curve. Elasticity remains

relatively low at a low income level but increases at an accelerated rate once it has passed the

USD 1000 level. The following chart depicts the current position of different emerging marketsas well as their expected position by 2013.

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Market concentration and foreign market share

It is not surprising that the Indian market is highly concentrated, given that de-monopolization of

the insurance business only started in earnest from 2000. Currently, the insurance market in India

is still heavily dominated by the Life Insurance Corporation of India (LIC) and the four state-

owned non-life insurers.7 They respectively held 87% of the life insurance market and 83% of

the non-life market in 20038. It can be seen from Table 3.1 that India is one of the Asian

insurance markets with the highest concentration of business, in part reflecting the still dominant

positions of these former monopolies. On a positive note, the high level of concentration will

offer larger companies the opportunity to reap benefits from economies of scale and scope,

although the lack of a profit maximization focus in public-sector companies could be a

counteracting force.

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While the insurance business is highly concentrated in India, the share of foreign companies is

low (Table 3.2). Since there is a 26% cap on foreign shareholdings, none of the Indian insurers

can be considered as majority foreign-owned. Nevertheless, for the sake of comparison, the

share of private-sector companies which mostly have foreign partnerships has been used as a

proxy. In these terms, the share of foreign insurers in India is estimated at 13% and 14%

respectively in the life (new business) and non-life insurance sectors for the 2003 financial year.9

India differs from other Asian markets in the sense that its life insurance market is still heavilydominated by indigenous players, partly reflecting the fact that de-monopolization only took

hold in 2000. In contrast, most Asian life insurance sectors are already heavily populated by

foreign insurers. Conversely, foreign non-life insurers have achieved penetration in India similar

to those in other Asian markets. It can be expected that foreign insurance companies will

continue to expand their market share in India in the coming years, notwithstanding the fact that

public sector insurers are also proactively strengthening their business strategies to fight rising

competition.

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Risk Types

The risk (variance) on any individual investment can be broken down into two sources. Some of

the risk is specific to the firm, and is called firm-specific, whereas the rest of the risk is market

wide and affects all investments.

The risk faced by a firm can be fall into the following categories

1) Project-specific; an individual project may have higher or lower cash flows than

expected.

2) Competitive Risk, which is that the earnings and cash flows on a project can be affected

by the actions of competitors.

3) Industry-specific Risk, which covers factors that primarily impact the earnings and cash

flows of a specific industry.

4) International Risk, arising from having some cash flows in currencies other than the one

in which the earnings are measured and stock is priced

5) Market risk, which reflects the effect on earnings and cash flows of macro economic

factors that essentially affect all companies

CHARACTERISTICS OF AN INSURABLE RISK

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The potential loss must be significant and important enough that substituting a known

insurance premium for an unknown economic outcome (given no insurance) is desirable.

The loss and its economic value must be well-defined and out of the policyholders

control.

The policyholder should not be allowed to cause or encourage a loss that will lead to a

benefit or claim payment.

EXAMPLES OF INSURANCE

In many places, to drive a car legally, you must have liability insurance, which will pay benefits

to a person that you might injure or for property damage from a car accident. You may purchase

collision insurance for your car, which will pay toward having your car repaired or replaced in

case of an accident. You can also buy coverage that will pay for damage to your car from causes

other than collision, for example, damage from hailstones or vandalism.

Insurance on your residence will pay toward repairing or replacing your home in case of damage

from a covered peril. The contents of your house will also be covered in case of damage or theft.

However, some perils may not be covered. For example, flood damage may not be covered if

your house is in a floodplain.

At some point, you will probably consider the purchase of life insurance to provide your family

with additional economic security should you die unexpectedly. Generally, life insurance

provides for a fixed benefit at death. However, the benefit may vary over time. In addition, the

length of the premium payment period and the period during which a death is eligible for a

benefit may each vary. Many combinations and variations exist.

When it is time to retire, you may wish to purchase an annuity that will provide regular income

to meet your expenses. A basic form of an annuity is called a life annuity, which pays a regular

amount for as long as you live. Annuities are the complement of life insurance. Since payments

are made until death, the peril is survival and the risk you have shifted to the insurer is the risk of

living longer than your savings would last. There are also annuities that combine the basic life

annuity with a benefit payable upon death. There are many different forms of death benefits that

can be combined with annuities.

Disability income insurance replaces all or a portion of your income should you become

disabled. Health insurance pays benefits to help offset the costs of medical care, hospitalization,

dental care, and so on.

Employers may provide many of the insurance coverage are listed above to their employees.

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Categories of Risk

The thing you can or cannot change that affect your insurance.

Who Are You? (Things you cannot change)

Age

Medical History

Gender

The Choices You Have Made (Traits you can control)

Where you live, own property or drive (city/state)

Property type and value

Safety precautions/features on your property

Profession

Grades in school

Driving record and habits

Personal habits (smoking, drinking)

Marital status

Number of children or dependents Credit history

Faults of Another (Incidents you cannot change)

Accident / Crash

Damage to your property

Loss of property, injury or death

Theft of your property Credit history of spouse or dependents

CONCLUSION

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India is among the most promising emerging insurance markets in the world. Its current premium

volume of USD 18 billion has the potential to increase to USD 90 billion within the next decade.

In particular, life insurance, which currently makes up 80% of premiums, is widely tipped to lead

the growth. The major drivers include sound economic fundamentals, a rising middle-income

class, an improving regulatory framework and rising risk awareness. The examples have been

restricted to insurance, though many of the concepts can be applied to any situation where

uncertain events create financial risks.

Important steps have thus been already taken, but there are still major hurdles to overcome if the

market is to realize its full potential. To begin with, India needs to further liberalize investment

regulations on insurers to strike a proper balance between insurance solvency and investment

flexibility. Furthermore, both the life and non-life insurance sectors would benefit from less

invasive regulations. In addition, price structures need to reflect product risk. Obsolete

regulations on insurance prices will have to be replaced by risk-differentiated pricing structures.

Finally, the largely underserved rural sector holds great promise for both life and non-life

insurers. To unleash this potential, insurance companies will need to show long-term

commitment to the sector, design products that are suitable for the rural population and utilize

appropriate distribution mechanisms. Insurers will have to pay special attention to the

characteristics of the rural labor force, like the prevalence of irregular income streams and

preference for simple products, before they can successfully penetrate this sector.

SELLING PROCESS AT TATA-AIG

Selling Process includes various types of steps which helps me to achieve desired results.

Tax Planning.

Understanding of Various Concepts Related to Insurance.

Need Base Analysis Of Customers.

Offering Appropriate Solutions.

TAX PLANNING

What is Income Tax?

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Income Tax is all income other than agricultural income levied and collected by the central

government and shared with the states. According to Income Tax Act 1961, every person, who is

an assesses and whose total income exceeds the maximum exemption limit, shall be chargeable

to the income tax at the rate or rates prescribed in the finance act. Such income tax shall be paid

on the total income of the previous year in the relevant assessment year.

What is Tax Planning?

Tax Planning in India is a basic duty of every person paying income tax, which should be

followed diligently. Tax planning in India involves the selection of the right tax saving

instruments and making proper investments.

The amount of the tax to be paid is calculated on the nature of investments made, income earned,

and the quantum of other incomes like salary, rent from property, interest etc. There are many

deductions and exemptions applicable on the net taxable amount, depending upon the source of

income. To take advantage of these facilities tax planning is necessary. Moreover, the annual

budget of the government should be taken into consideration before planning as tax plans are

often changed.

Steps in Tax Planning:

There are three steps in Tax Planning India which would aid a person in making prudent tax plans

to reduce their income tax liability and ensure a better tomorrow by making compulsory savings by

investing in safe government schemes. These three steps in tax planning are:

1. Calculating taxable income.

2. Calculating tax payable on gross taxable income for the entire financial year.

3. To either pay the tax without tax planning or minimize tax through planning.

Tax Slabs in India:

In India, Individual income tax is a progressive tax with three slabs.

Tax Slabs are as follows:

No income tax is applicable on all income up to Rs. 150,000 per year. (Rs. 180,000 for

women and Rs. 2,25,000 for senior citizens)

From 150,001 to 300,000: 10% of amount greater than Rs. 150,000.

From 300,001 to 500,000: 20% of amount greater than Rs. 300,000.

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Above 500,000: 30% of amount greater than Rs. 500,000.

Education Cess on Tax Amount 3%.

A 10% surcharge (tax on tax) is applicable if the taxable income (taking into

consideration all the deductions) is above Rs. 10 lakh.

Deductions from Taxable Income:

Income Tax Act in India provides certain deductions from Taxable Income for various kinds of

investments under various sections. For example:

Section 80C Deductions

Section 80C of the Income Tax Act allows certain investments and expenditure to be tax-exempt.

The total limit under this section is Rs. 100,000 which can be any combination of the below:

Contribution to Provident Fund or Public Provident Fund

Payment of life insurance premium

Investment in pension Plans

Investment in Equity Linked Savings schemes (ELSS) of mutual funds

Investment in specified government infrastructure bonds

Investment in National Savings Certificates (interest of past NSCs is reinvested every

year and can be added to the Section 80 limit)

Payments towards principal repayment of housing loans. Also any registration fee or

stamp duty paid.

Payments towards tuition fees for children to any school or college or university or

similar institution. (Only for 2 children)

Section 80D: Medical Insurance Premiums

Medical insurance, popularly known as Mediclaim Policies, provide deduction up to Rs 30,000.

This deduction is additional to Rs.100,000 savings. For senior citizens, the deduction up to Rs.

20,000 is allowable. This deduction is available for premium paid on medical insurance for

oneself, spouse, parents and children. It is also applicable to the cheques paid by proprietor

firms.

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Interest on Housing Loans

For self occupied properties, interest paid on a housing loan up to Rs 150,000 per year is exempt

from tax. However, this is only applicable for a residence constructed within three financial years

after the loan is taken and also the loan if taken after April 1, 1999.

TAX PLANNING TIPS

1. Utilise the entire Section 80C deduction

Under Section 80C, the maximum deduction available is Rs 100,000 pa. Ideally, salaried

individuals whose gross total income is equal to or more than Rs 250,000 should utilise the entire

Rs 100,000 limit.

Consider the case of an individual whose taxable income is Rs 600,000 and who only utilises

half of the available Rs 100,000 limit. He would end up paying an additional tax of Rs 15,450 as

opposed to an individual with the same taxable income, but has utilised the entire limit.

Also, at times, individuals make investments of over Rs 100,000 in Section 80C designated

avenues, since they fail to understand that the benefits are capped. For example, despite making

investments of Rs 70,000 in Public Provident Fund and Rs 40,000 in ELSS, the amount eligible

is only Rs 100,000.

Following investments/contributions qualify for Section 80C deductions,

Public Provident Fund

National Saving Certificate

Accrued interest on National Saving Certificate Life Insurance Premium

Tuition fees paid for children's education (maximum 2 children)

Principal component of home loan repayment

Equity Linked Savings Schemes (ELSS)

5-Year fixed deposits with banks and Post Office

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Individuals living in a rented accommodation should have House Rent Allowance (HRA)

as part of their salary.

Transport allowance is exempt upto Rs 800 per month.

Leave Travel Allowance (LTA) can be claimed twice in a block of four years for

domestic travel.

4. Claim tax benefits on house rent paid

Salaried individuals can claim rent paid by them for residential accommodation, if HRA doesn't

form part of their salary. This deduction is available under Section 80GG and is least of the

following:

25&percnt; of the total income or,

Rs 2,000 per month or,

Excess of rent paid over 10&percnt; of total income

Please note that the above deduction will be denied if the taxpayer or his spouse or minor child

owns a residential accommodation in the location where the taxpayer resides or performs his

office duties.

5. Opt for a joint home loan

As discussed earlier, the principal repayment on a home loan is eligible for a deduction of up to

Rs 100,000 pa and the interest paid is eligible for a deduction of up to Rs 150,000 per year.

In cases where the home loan is for a substantial sum, it is not uncommon for the interest and

principal repayment to exceed the stated limit. To ensure that the tax benefit is optimally utilized,

an individual can consider opting for a joint loan with his spouse or parent or sibling.

This will ensure that both the co-owners can claim tax deductions in the proportion of their

holding in the loan. The co-owner falling in the higher tax bracket should hold a higher

proportion of home loan to ensure that the tax benefits are maximized.

BENEFITS OF TAX PLANNING

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As can be seen in the table above, making use of the available tax deductions can go a long way

in helping individuals accumulate wealth.

Various Concepts Related to Insurance:

Insurance:

Insurance is a policy from a large financial institution that offers a person, company, or other

entity reimbursement or financial protection against possible future losses or damages. It is a

contract between two parties whereby one party called insurer undertakes in exchange for a fixed

sum called premiums, to pay the other party called insured a fixed amount of money on the

happening of a certain event. Insurance is bought in order to hedge the possible risks of the

future which may or may not take place. This is a mode of financially insuring that if such a

incident happens then the loss does not affect the present well-being of the person or the property

insured. Thus, through insurance, a person buys security and protection.

For example a biker is always subjected to the risk of head injury. But it is not certain that the

accident causing him the head injury would definitely occur. Still, people riding bikes cover their

heads with helmets. This helmet in such cases acts as insurance by protecting him/her from any

possible danger. The price paid was the possible inconvenience or act of wearing the helmet; this

is equivalent to the insurance premiums paid.

Human Life Value:

Human Life Value (HLV) is a methodology to determine the appropriate amount of sum assured you

need to have at present in case of future loss of income. In simple words, it is that amount, which can

ensure that the standard of living of the family is not affected even if the earning member is notthere. HLV calculation is a tool that is used very effectively for financial planning around the world.

It is a systematic way of understanding the gaps in the financial planning.

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Human Life Value is determined by 3 main factors:

1. Age.

2. Current and future expenses.

3. Current and future income.

For example: HLV of Mr. Vivek Rao is based on the present needs and income.Mr. Vivek Rao aged 41 years has an annual income of Rs.10 lacs, spends Rs.3

lacs on his personal expenses (including Taxes). He has Fixed Deposits of Rs.6

lacs. He also has a loan of Rs.10 lacs and plans to spend Rs.10 lacs each on his

sons education and his daughters marriage. His human life value will be as

follows.

Annual Gross Income 10,00,000

Less Expense on Self including taxes 300,000

Contribution to Family Standard of Living 700,000

Multiplying factor 15

Gross Human Life Value 1,05,00,000

Less Liquid Assets 600,000

Add Liabilities 1,000,000

Add Amount to fulfil family needs like daughters marriage & sons

education2,000,000

Human Life Value 1,29,00,000

Inflation Rate

What Is Inflation?

Inflation is a rise in the general level of prices of goods and services in an economy over a period of

time. When the general price level rises, each unit of the functional currency buys fewer goods and

services; consequently, inflation is a decline in the real value of moneya loss of purchasing power

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in the internal medium of exchange which is also the monetary unit of account in an economy. A

chief measure of general price-level inflation is the general inflation rate, which is the percentage

change in a general price index over time.

Effect of Inflation on Investment:

Inflation plays an important role in deciding which kind of investment we should choose. It has

adverse effect on investment. If inflation rate goes on raising it affects return on investment

adversely. Investors should consider effect of inflation in their investment. Higher inflation rate

decreases the real value of money. For example: If a person invested rs.1000 for 1 year in Fixed

Deposit at the rate of 10%. It means he will receive rs.100 for its investment after one year. Now

suppose if inflation rate during that period is 5% than actual return on its investment is 50 not rs.100

as its purchasing power now equals to rs.50.

MAN Concept:

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This concept means that before selling, the seller should make sure that the suspect should have the

Money, Authority and Power to buy the product, and then only the prospect will become a Suspect.

Before deciding suspect a person should identify that they should have enough money to buy that

service, prospect should have authority and power of taking decision, he should also have need of

buying the product. If a person have all these things than only he can become suspect of the product.

SPANCO Concept:

Some Products of Tata AIG:

Mahalife Gold:

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This unique policy is an ideal planning vehicle to fund your retirement. It provides a steady

income and insurance coverage for life. Premiums are payable only for the first 15 years, and can

be used to cover the future expenses of your children.

Key Features of the Policy:

A guaranteed annual coupon of 5% of the sum assured every year for the rest of the

insureds term from the 10th policy anniversary.

Yearly cash dividends are available from the 6th policy anniversary onwards (depending

on Company performance).

The entire sum assured is paid tax-free as per current Income Tax Laws.

Disability, Accident, Term and Critical Illness riders are available for added protection at

a nominal extra cost. (For juveniles, only Payer Benefit Rider is available).

Policy available for persons between 0 years and 60 years of age.

Invest Assure Optima:

Tata AIG Life Invest Assure Optima, a unit-linked insurance solution which helps to optimize

your investment returns, with a combination of high allocation and Guaranteed Addition, while

providing you with a comprehensive financial protection.


Option to save under Systematic Money Allocation & Regular Transfer Investment

(SMART).

Premium Paying Term: Same as Policy Term.

Minimum Sum Assured: 5 times the Annualized Premium.

Maximum Sum Assured: Policy Term times the Annualized Premium.

Guaranteed Addition.

Choose between seven Investment Fund Options i.e. Whole Life Mid-Cap Equity Fund,Whole Life Income Fund, Whole Life Short Term Fixed Income Fund, Whole Life

Aggressive Growth Fund, Whole Life Stable Growth Fund, Large-Cap Equity Fund and

Select Equity Fund

Choose from 5 available riders. These riders are not mandatory and are available at a

nominal additional cost.

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Premiums paid under this plan are eligible for tax benefits under 4 Section 80C of the

Income Tax Act, 1961.

Eligibility:

Minimum issue age of 0 (30 days) and maximum issue age of 55 years with maximum

maturity age of 70 years.

Policy Term: 10/15/20/25/30 years

Minimum Premium: Rs. 15,000 p.a.

Invest Assure Swarna Jeevan:

Tata AIG Life Invest Assure Swarna Jeevan, a unit linked non participating pension plan. This

plan helps in the investing money, build and multiplies capital and a person can look forward to a

regular income after retirement.


Policy terms: Regular/Limited Premium: 10 to 40 years

Flexibility to choose option of increasing premium every year - Tool to fight inflation

Flexibility to choose from amongst five Fund Options & Automatic Asset Allocation

option to adjust your corpus risk profile to your age

Option to save under Systematic Money Allocation & Regular Transfer Investment

(SMART)

Additional Allocation by the company to your fund from second year onwards for the

entire term

Easy to purchase option with Swarna Jeevan Certificate

Regular income post retirement

Premiums paid under this plan are eligible for tax benefits.

Death Benefit:

In case of unfortunate demise of the policyholder, while the policy is in force & before

the vesting date his/her nominee will receive the Total Fund Value which is equal to the

value of the Regular Premium Account Value plus the value of the Top-Up Premium

Account value at applicable unit price. The amount of death benefit either partially or

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entirely may be used by the nominee to purchase an annuity from the company or from

any other institution in the market.

Vesting Benefits:

On survival to the end of the policy term, you will receive the Total Fund Value which isequal to the value of the Regular Premium Account Value plus the value of the Top-Up

Premium Account valued at applicable unit price.

Analysis

Need Base Analysis of Customers Requirements:

In this I was trying to find out what is customers need regarding their investments? What are

the factors which they consider for taking investment decisions? This includes some steps

which are as follows:

a. Preparation of Questionnaire:

This includes preparation of Questionnaire to identify the customers need, purpose, income

etc. This includes finding the purpose of the investment. This also includes to find out which

investment tool they prefer most and why? All these help me in identify their need and their

purpose pf investment. (Please see annexure for Questionnaire)

b. Questionnaire filling by customers:

This includes filing of Questionnaire by various prospects Especially People who are

working in IT companies.

c. Analysis of questionnaires to determine need of the customers:

This help me in analysis of needs of various people due to which I am able to understand

their requirements and purpose of investment.

d. Offer appropriate solution as per their needs.

After analysis of needs the final step is offering appropriate solutions to customers. This

includes identify appropriate insurance policy according to customers requirement and

providing them best alternative for their investment needs.

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LEARNINGS

The Summer Internship Project provided me with absolute experiential learning and it has been aholistic understanding process at JRG Securities Limited, Pune. Some of the most positive

outcomes during the course of this project are mentioned below:

This project helped me in understanding the importance of research

It gave me the opportunity to visit various sites and get acquainted with the changes that

have taken place in the past few years.

It also gave me the opportunity to interact with different kind of people from differentsectors, different age-groups and different gender.

Preparation of the Research Reportswas a great experience as the objective was to collect

the maximum relevant information.

The biggest learning was presenting all the collected information in an organised manner

in a short and simple form.

Contacting 200 people for a survey through direct meetings, telephonic conversations and

mails was a great learning experience.

Quantification of information was one of the biggest challenge and thereby, a greatlearning process during the project

To sum it up, the learning from this project is more than what can be noted, as each stage

was different and hence exciting. I thank JRG Securities Limited for providing me with this

opportunity.

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winter internship project title “analysis of risk

Documents