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INTRODUCTIONOF
INSURANCETO
NEW JOINERS
- Chapter 1
WHY ONE SHOULD GO FOR INSURANCE ?
Mr. X , working in a private firm, is the sole bread earner of his family. His wife is a housewife and he has two children – one daughter studying in College (class 12th) and one son studying in school (Class 9th). Entire family is dependant on him for their needs.
Mr. X dies all of a sudden due to an accident.
What will happen to his –
Wife, Daughter, Son
INSURANCE
WHAT INSURANCE MEANS
* Mitigating of loss or damage or injury to property, life or person in case of unforeseen event (damage).* Sharing of risk or mishappening by many.* Protection of the economic values of assets.* A mechanism to reduce the effect of adverse or unpleasant situations such as death accident etc.* It also means the reduction of the impact of the risk on the owner of the asset and those who depend on that asset.
CONCEPT OF INSURANCE
Insurance has developed from the concept of sharing. Sharing exists from the beginning of human civilization i.e. from stone age to barter to joint family to nuclei family.
HOW PEOPLE USED TO LIVE IN STONE AGE ?• People (cavemen) lived in caves,
trees etc• Wore clothes made 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 less fortunate.
Cont…
HOW PEOPLE USED TO LIVE IN BARTER AGE ?
* People lived in villages
* For livelihood - grew crops weaved the cloth made earthen pots etc.
* Exchanged the excess produce for goods which they didn’t have or was in shortage.
HOW PEOPLE USED TO LIVE IN JOINT FAMILY AGE ?
* The head of the family i.e. KARTA earnedKARTA’s earnings was shared by all the family 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.
STONE AGE
BARTER AGE
JOINT FAMILY
NUCLEI FAMILY
HISTORY OF INSURANCE* The story of insurance is probably as old as the story of mankind – its beginnings date back almost 6000 years * The travelers by land were exposed to the risk by robbery, the goods carried by ships were at the mercy of winds etc. * a system was developed whereby the trader was absolved of his debt (both principal and interest) should certain specific contingencies occur.
INSURANCE -ABROAD
*During the 17th Century London was centre of world commerce and ships sailed from London to all ports.* There was lack of machinery for communications due to which the merchants used COFFEE HOUSES as the meeting places to contact other businessmen.* They agreed to share the losses to their goods (robbed at high seas, bad weather spoiling goods, ships sinking etc.) while being carried by ships.*The first Life Insurance Policy (available record) was issued on 18th June 1583 in England.
HISTORY OF INSURANCE – INDIAYear of Name of the CompanyInception 1818 Oriental Life Insurance Society1870 Indian Insurance Company: Bombay Mutual Assurance Society Ltd.1870 English Insurance Company: The European and the Albert. 1874 Oriental Life Assurance Company 1896 Bharat 1897 Empire of India
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Year of Name of the CompanyInception 1900s - The Hindusthan Cooperative,Calcutta
The United India, Madras The Bombay Life, Bombay The New India, Bombay The Jupiter, Bombay The National, Calcutta The Lakshmi, New Delhi
NATIONALIZATION OF LIFE INSURANCE BUSINESS
Life insurance business was nationalized by merging 170 companies and 75 provident fund societies transacting life business in India.
Life Insurance Corporation of India came into being on 1st September 1956, having the exclusive privilege of doing life insurance business in India.
ENTRY OF PRIVATE INSURERS IN THE INDIAN MARKET
* In 1999, the relevant laws were amended due to which L.I.C. no longer has the exclusive privilege of doing life insurance business in India.
* As on 31st March 2002, 11 new insurers got registered and are carrying on life insurance business.
PURPOSE AND NEED OF INSURANCE Perils such as fire, floods, breakdowns, lightning, earthquakes etc. cause damage to life and property i.e. assets are exposed to risk This risk may or may not happen i.e. there is uncertainty 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.
HOW INSURANCE WORKSRisk of a few people is spread among a large number of people.For example: 10 families live in a village. Decide Rs.1000/- will be given to the family which is in problem.Each family decides to contribute Rs.100/- every year towards the fund1st 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/- is given to the family who has suffered the loss
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The manner in which the loss is to be shared is determined before-hand. It is proportionate to the risk that each person is exposed to.
Insurance Companies collect the amount in advance from each person and create a fund from which the losses are paid.
For Example:
In a village there are 400 houses, each valued at Rs.20,000. Every year, on an average, 4 houses get burnt, resulting into a total loss of Rs.80,000. If all the owners come together and contribute Rs.200 each, the common fund would be Rs.80,000. This is enough to pay Rs.20,000 to each of the 4 owners whose houses got burnt. Thus, the risk of 4 owners is spread over 400 house-owners of the village.
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
THE HUMAN ASSET* Human Beings are income-generating assets: Manual labour, professional skills, business acumen etc are assets of an individual and he earns money (livelihood) through it.* Death can snatch away this asset: Due to the untimely death of an individual there is loss to the dependants of the deceased individual.* Insurance is necessary to help those dependent on this asset: Insurance help those who are dependant on the income of the deceased individual.
MORE INFORMATION ON INSURANCE
Insurance is done for both, tangible as well as for intangible assets.
• Tangible Assets: Car, House etc.• Intangible Assets: Voice of a singer,
legs of a dancer etc.
BUSINESS OF INSURANCE
The business of insurance is to:a) bring together persons with common insurance interest (sharing the same risk)b) collect the share or contribution (called premium) from them, andc) pay out compensations (called claims) to those who suffer.
CLASSIFICATION OF INSURANCE BUISINESS
LIFENON-LIFE
MISCELLANEOUS
FIRE MARINE
INSURANCE FOR
SOCIAL SECURITY
ECONOMIC WELFARE OF THE FAMILY
ECONOMIC WELFARE OF THE SOCIETY
SOCIAL SECURITY
Social status Old Age
Marriage
Social function
ECONOMIC WELFARE OF THE FAMILY
ClothingSocial statusFood
Education
ECONOMIC WELFARE OF THE SOCIETY
Port TrustHousing Schemes
Electricity
Roads
ADVANTAGES OF LIFE INSURANCE
Policy monies are protected against attachments by courts Income-tax benefits and capital gains tax exemptions are available Marketability and liquidity are better i.e. life insurance policy can be transferred, mortgaged or loan can be raised against it.
POINTS FOR THE AGENTS
* Life insurance is one of the best ways for protecting family against economic loss due to untimely death of the BREAD WINNER•Insurance acts as a friend in need while family is in financial crisis •It helps family to survive and maintain social status
Cont …..
*Life insurance is superior to other forms of savings in terms of security, marketability, stability of value or liquidity. *Life insurance enhances the existing standard of living *Life insurance perpetuates life, liberty and the pursuit of happiness*Life insurance makes lives live
