1. CAN YOU BE SURE AS TO WHAT MAY HAPPEN TO “U” IN THE NEXT FEW MINUTES???????

2. DO YOU LOVE YOUR NEAR AND DEAR ONES AS MUCH AS YOU LOVE YOURSELF????

3. DO YOU WANT TO BE FINANCIALLY SECURE IN THE EVENT OF ANY UNFORSEEN CALAMITY???

4. PRESENTING INSURANCE!!! PROVIDING UNPARALLED RISK COVER & PROTECTION AGAINST FUTURE EXIGENCIES!!!!!

5. Invest the next 15 minutes of your time to understand INSURANCE in the right perspective...

6. INSURANCE STRATEGIST Volume I - Basic Module BYS.Krishnamoorthy

7. OBJECTIVE OF THE PRESENTATION ► Highlighting the fundamentals of insurance as a financial product ► Insight into the Indian Insurance industry – players and products available in the market ► The tax implications of insurance

8. FUNDAMENTALS OF INSURANCE

9. Basic Terminology… ► What is insurance?  Insurance is a contract between two parties where one party (the insurer) agrees to protect the other party (the insured) in the event of any loss or unforeseen event. Insurance can be broadly classified into two categories – Life Insurance and Non Life Insurance. ► What do you mean by premium payable on an insurance policy?  Premium is the periodical amount that the insured needs to pay to the insurance company to enjoy the benefits of the insurance policy.

10. Basic Terminology… ► What do you mean by “sum assured”?  Sum assured refers to the amount for which the insurance cover is taken. ► What is meant by death benefit?  The amount received from the insurance company on the death of the insured is known as death benefit. ► What do you mean by “riders”?  Riders are additional benefits that are added on to an insurance policy to make it more compatible to the needs of the policyholder. Riders are generally applicable only for life insurance and not for general insurance. ► What is maturity benefit?  The amount received on the maturity of the policy is known as maturity benefit.

11. Why insurance??? PRIMARY REASON ► Life is full of uncertainties ► Provides the much required RISK COVER ► Serves as a financial buffer in the wake of any un-favorable and un-foreseen circumstances ► Ensures that near and dear ones are not left in financial doldrums due to any exigency ► The risk cover that insurance provides has no parallels in the financial world

12. Why insurance ??? SECONDARY REASON ► Money back plans provides an element of liquidity by returning a portion of the sum assured at regular intervals. This is in addition to the risk cover ► Unit linked plans invest a percentage of the premiums in market securities and provide returns. This combines market linked returns along with risk cover

13. Types of insurance policies… ► Term plan  A traditional insurance plan  Cheapest plan available in the market today  The sum assured is returned on death, while maturity benefits are nil.  Suitable for person’s having dependants  Term plan can be made more attractive by taking up riders

14. Types of insurance policies… ► Endowment plan  Advancement over the term plan  This plan offers maturity benefits and death benefits  Endowment plans are generally participative in nature and pay bonuses to the policyholder at the end of the policy term. E.g. LIC endowment plans offer bonuses @ Rs.50/- per thousand sum assured  Suitable for persons who believe in asset creation

15. Types of insurance policies… ► Money back plans  Such plans are comparatively more expensive than other insurance plans  Money back plans return a certain percentage of the sum assured at regular intervals  These plans will be appropriate in cases where the client requires additional funds in the near future along with a risk cover  Such plans also offer bonus payments at the of the policy period

16. Types of insurance policies… ► Unit linked insurance plans  These plans combine market linked returns with the valuable risk cover  A portion of the premium is invested in market instruments  The returns that are generated are ploughed back into a separate account known as accumulation account.  On maturity the policyholder gets the value in the accumulation account or the sum assured whichever is higher. However, in some policies the benefit is sum assured plus the balance in the accumulation account.

17. ULIPs (Contd.) ► Similar to the concept of mutual funds such ULIPs offer the following investment options to the investors:  Equity centric schemes invest primarily in equity and equity related instruments. This is relevant for aggressive investors having an appetite for risk  Balanced schemes invest in a combination of equity and debt instruments. This is suitable for investors who are prepared to take a moderate amount of risk  Liquid schemes or money market schemes invest primarily in money market instruments or debt instruments. This is suitable for highly conservative investors, who are not prepared to take risk and prefer safe investment avenues

18. INSIGHT INTO THE INSURANCE INDUSTRY

19. This section of the module highlights the various players in the insurance industry, the schemes which have emerged blockbusters in the insurance industry and a critical description of the same

20. Players in the insurance industry ► Public sector life insurance company:  Life Insurance Corporation of India – a state owned leviathan having a majority market share in the country ► Private sector life insurance companies:  ICICI Prudential Life Insurance Company  Birla Sun Life Insurance Company  OK Kotak Mahindra Life Insurance Company  Max New York Life Insurance Company

21. Other private insurance players ► AMP Sanmar Life Insurance Company ► Tata AIG Life Insurance Company ► Alliance Bajaj Life Insurance Company ► Aviva Life Insurance Company ► Metlife Insurance Company ► SBI Life Insurance Company ► ING Vyaysya Life Insurance Company ► HDFC Standard Life Insurance Company

22. Market pulse in the insurance industry ► A shift from traditional term, endowment and money back plans to the new market related unit linked plans. ► This is because in addition to the risk cover that such plans invest a portion of their premiums in market linked instruments which generate returns, ► All the plans in the product portfolio of Birla Sun Life Insurance Company are unit linked in nature which proves that such plans are the in thing in today’s context.

23. Blockbusters in the insurance industry (a partial list) ► Premier life plan offered by ICICI Prudential ► Smart kid plan offered by ICICI Prulife ► Mahalife Gold offered by Tata AIG ► Bima Plus offered by Life Insurance Company ► Life Guard Plan – a term plan with a new perspective!

24. Premier Life Plan offered by ICICI Pru. Life Insurance Co. ► Unit linked insurance plan ► Minimum contribution is Rs.60,000 per annum ► Death benefit is higher of the sum assured or the value in the accumulation account whichever is higher ► Partial withdrawals are possible after 3 years premiums are paid.

25. Premier Life Plan offered by ICICI Pru. Life Insurance Co. ► Flexibility to choose the premium paying term – 3 year, 5 year, 7 year or 10 year ► Minimum sum assured is Rs.1,00,000. The multiple can be a minimum of 1 and a maximum of 25 ► This plan offers the following investment options maximiser, protector, balancer and preserver ► Minimum top up is Rs.5,000

26. Life Guard plan of ICICI Prulife ► Comes with 3 variants:  Level term assurance  Level term assurance with return of premium  Single premium plan ► Level term assurance is a pure risk plan and offers no maturity benefits ► Level term assurance with return of premium offers

27. Maha Life Gold by Tata AIG Life Insurance Company ► Limited premium paying term with a life long cover ► Premium paying term is 15 years ► A highly recommended product for retirement planning purposes ► Guaranteed addition of 5% (on the sum assured) every year from the 10 th year of the policy ► Non guaranteed cash dividends after the 6 th year of the policy ► Sum assured along with the guaranteed and non guaranteed additions will be returned on death or on maturity which is on the 100 th year, whichever is earlier.

28. Bima Plus plan offered by LIC ► A market linked plan offered by Life insurance corporation of India ► This plan offers the following funds:  Secured fund, balanced fund and risk fund ► In case of death the following benefits are payable:  1 st 6 months – 30% SA + cash value of the units  Next 6 months – 60% SA + cash value of units  1 st year – Full sum assured + cash value of units  During 10 th year – 105% of SA + cash value of units ► In the case of death at any time amount equal to the sum assured is payable (in addition to the death benefit) ► Maturity benefit is the total of the sum assured along with the balance in the accumulation account

29. Smart Kid Plan by ICICI Pru ► This plan comes in the following variants:  Smart kid regular premium  Smart kid unit linked regular premium  Smart kid unit linked regular premium II ► Sum assured can be a multiple of the amount of premium that is payable ► Death benefit is that the sum assured is paid immediately and all the future contributions are waived. Waiver of premium rider is available at a very nominal cost. ► You can choose to make a minimum contribution of Rs.18,000 under this plan

30. Smart Kid Plan by ICICI Pru Life ► This policy acquires a surrender value after the first year’s premiums are paid ► The 4 kinds of schemes that are available are maximiser, growth, protector and preserver. ► It is possible to make 4 free switches every year, but after that a switching charge is levied.

31. TAX BENEFITS OFFERED BY INSURANCE

32. This section of the module highlights the various tax sops that are available with insurance products

33. Tax implications of insurance… ► Premiums towards any insurance policy is eligible for a rebate under section 88 (subject to the gross total income) ► Premiums towards pension plans is eligible for a deduction under section 80CCC of the income tax law (up to a maximum of Rs.10,000) ► Premiums towards any mediclaim policy is eligible for a deduction under section 80D up to Rs.10,000 ► Any sum received from an insurance company either as a death benefit or as a maturity benefit will be exempt from tax under section 10(10D)

34. Tax implication of insurance… ► Keyman policy: (discussed in detail later)  Premiums payable towards a keyman policy is admissible as a business expenditure  Maturity benefit in the case of a keyman policy is taxable. Benefit of section 10(10D) is not available to a keyman policy  Death benefit is also taxable in the case of a keyman policy

35. Tax implication of insurance… ► Single premium plan  Premium towards a single premium plan is eligible for a rebate under section 88.  However, this condition will be applicable only when the premium does not exceed 20% of the sum assured. ► Tax implication on surrender of an insurance plan  Amount received on surrender of an insurance policy before the expiry of the term will be taxable

36. Tax implication of insurance… ► Tax treatment in the case of retirement plans  Amount contributed towards any pension plans will be eligible for a deduction under section 80CCC up to Rs.10,000  The lump sum amount that is received at the vesting age will be exempt from tax  However, regular money received as annuity from the insurance company will be taxable under the head “Income from Salaries”.

37. END OF VOLUME I