life insurance an investment alternative

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Life Insurance: A Type of Investment Alternative

EXECUTIVE SUMMARY

Money Investment is 10% inspiration and 90% perspiration

The project includes what are life insurance and its various benefits available to

policy holders. In short the project conveys that buying a life insurance is an

investment and the benefits obtained in these investments are not comparable

with those of others.

Life is uncertain and it is not possible to predict the different events that

can occur. However, there is always a need to earn income to support

yourself and your dependents.

Financial planning is required to understand the impact of different events

on our lives and on the quality of life for our families. It is lie scenario

building and understanding what financial requirements we would have at

various stages in our lives and hence trying to reduce the financial riss

that we are e!posed to by proactively taing steps to guard against at least

some of these riss. These could include buying insurance cover,

investing in mutual funds, fi!ed deposits or government bond etc

" good investment is one which earns a decent return after providing for

ta!es and inflation. The three critical factors effecting investmentdecisions are safety, liquidity and e!pected rate of return.

#ust as buying life insurance is a necessity and more important to buy it

early. $ith proper financial planning one can wor out as to how much

money an individual is entitled to get after the end of a particular term.

%o if you start saving early, you accumulate more even with lesser

investment.

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Life insurance and related annuity products are frequently used to provide

the funding for retirement plans and other types of plans. &lanning for

retirement is an important e!ercise for any individual. " retirement plan

from a life insurance company helps an individual insure his life for a

specific sum assured. "t the same time, it helps him in accumulating a

corpus, which he receives at the time of retirement.

Life insurance is bought for several reasons. Ta! benefits, of course, are a

ey driver for taing life insurance.

The saving component of life insurance pits the insurer in direct

competition with other financial institution and saving instruments, such

as ban deposit, equities and mutual fund.

Insurance may not be most beneficial to invest your hard earned money,

but there are sufficient reasons for one to believe that it can be a highly

lucrative avenue to facilitate savings.

Life Insurance &olicy can be a valuable asset, both as an investment as

well as indirect future benefits accrued.

O!ECTIVE O" T#E $RO!ECT

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The objective of the project is to find out whether Life Insurance can be

considered as an investment alternative by the common people or not.

The main reason behind preparing this project is to mae people aware that

life insurance is one of the most important investment avenues and it

provides number of benefits to the insured person.

The objective of doing this project is to understand how investments will be

beneficial for future.

SCO$E O" T#E $RO!ECT

The project gives brief description about the following.

1 $hat is life insurance'

& $hat is investment'

' (ifferent types of Investment "venues

( Life insurance policies and plans

) Life insurance versus other investment avenues

* )enefits of life insurance

RESEARC# MET#O+O,O-Y

(ata for the project is obtained in two ways primary source and

secondary source.

$RIMARY SOURCE./

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The researcher collected primary data by preparing questionnaire and

interviewed people.

SECO+ARY SOURCE./

%econdary data for the project has been gathered from various sites on internet.

ITRO+UCTIO

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#AT IS ,I"E ISURACE2

Insurance is defined as a co*operative device to spread the loss caused by a

particular ris over a number of people who are e!posed to it and who agree to

ensure themselves against that ris. There are different inds of insurance+*

arine Insurance

Fire Insurance

Life Insurance iscellaneous Insurance

Life insurance is a policy that you can enter with your insurance company,

which promises a certain amount to your beneficiary in the event of your death,

in e!change for your premium payments.

Human beings lives are insured under life insurance. " life insurance is a

combination of savings as well as security element. The insured is assured that

the insurance company will pay his family the insured amount in case of his

premature death. If he is alive and the policy matures for payment, the saving so

made will be helpful in his old age.

It also involves insuring the life to safeguard ones future as well as to mae

future family needs secured even in case of death of earning members.

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Life insurance involves an element of investment which already leads to

compulsory saving and income returns in future.

Life insurance today plays a major role in one-s life at various stages. It is a

contract that pledges payment of an amount to the person assured or his

nominee/ on the happening of the event insured against.

)uying insurance is e!tremely useful if you are the principal earning member

in the family. In case of your unfortunate premature demise, your family can

remain financially secure because of the life insurance policy that you have

purchased.

(ifferent people buy insurance for a variety of reasons. Insurance should be

brought for the sae of insurance only. $hile buying insurance it is to be

remembered that a part of the premium that is paid goes towards ris coverage.

The return from insurance can never be more than one can get from some of the

other options. "t, the same time other options do not offer insurance. They are

purely investments.

SOME IM$ORTAT AS$ECTS O" ,I"E ISURACE

1 Life insurance is not only the best possible way for family protection.

There is no other way.

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& Insurance is the only way to safeguard against the unpredictable riss of

the future. It is unavoidable.

' The terms of life are hard but the terms of insurance are easy.

( The value of life is far greater than the value of property. 0nly insurance

can preserve it.

) Life insurance is not surpassed by many other savings or investment

instrument, in terms of security, maretability, stability of value or

liquidity.

* Life insurance enhances the e!isting standards of living.

3 Life insurance perpetuates life, liberty and the pursuit of happiness.

4 Life insurance is a way of life.

#AT IS IVESTMET2

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The concept of investment has many meaning. Investment is the

employment of funds with the aim of getting return on it. It is the commitment

of funds which have been saved from current consumption with the hope that

some benefits will receive in future. Thus, it is reward for getting money.

In other words an investment is a sacrifice of current money or other resources

for future benefits. Investment is generally made to earn profits, for capital

appreciation, for higher returns for the purpose of eeping the money safe, and

to secure your future. 1very investor has to find out one or more avenues ofinvestment and act accordingly.

Financial planning maes this possible. Financial planning attempts to

ma!imi2e returns eeping in mind the liquidity and security of investment.

Three basic principles of financial planning are as under+

%etting realistic goals

%tarting investment early

Thining long term, while allowing for short term needs that may arise

Factor effecting investment decisions+*

The three critical factors effecting investment decisions are+

SA"ETY.%afety refers to financial soundness of the investment. $hether the

principal and returns on investment are received bac.

,I5UI+ITY.Liquidity refers to the quicness with which the assets can be converted

to cash whenever it is required. 1.g. saving account in ban is highly

liquid while investment in ban is less liquid. It may be noted that it is

important to consider the penalties that apply when an investment is

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turned into cash. any investments can readily be turned into cash, but

the cost when it is done can be significant.

EX$ECTE+ RATE O" RETUR.This is the amount of money that an investment earns.

)esides the above three factors we must also consider two additional factors

which affect overall return. These are the factors of ta!ation and inflation.

Inflation can be defined as a rise in the average level of prices of goods and

services.

" good investment is that which earns a decent after providing for ta!es and

inflation.

3our economic well*being in long run depends significantly on how wisely or

foolish you invest. It is for the investor to select the best avenues for safe and

profitable investment of their surplus funds.

%ome investment avenues provide ma!imum safety but low return while someother offer attractive returns but limited safety. %ome more investment avenues

offer ta! benefit.

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+I""ERET TY$ES O"

IVESTMET AVEUES

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$ide varieties of investment avenues are now available in India. "n

investor can himself select the best avenues after studying the merits and

demerits of different avenues. 1ven financial advertising, newspaper

supplement on financial matters and investment journals offer guidance to

investors in the selection of suitable investment avenues.

Today-s investor is faced with an overwhelming number of choices when

it comes to implementing an investment strategy. %ince the right combination of

investments in the right types of accounts can mean reaching your goals sooner

rather than later, it is important to now your alternatives.

There are various avenues for investing of our hard*earned money. 1ach

avenue may yield different rate of return. $hile understanding these avenues

and evaluating the rate of return, we must always eep in mind that there is

relationship between the e!pected return on an investment and the ris that this

return is not achieved which may include loss of the original investment/.

4reater the ris, higher is the e!pected return.

For e!ample, investments in shares may yield a higher return because

there is a ris of the amount invested being wiped out. However debt

instruments yield only a fi!ed lower yield but return of capital and interest are

safer.

1ach one of us can study the advantages and disadvantages of each

investment*opportunity and tae decision accordingly.

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"o66o7in8 are te vario:s aven:es o; investment avai6a


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1 ,i;e ins:ran=e.In a broad sense, life insurance can be viewed as an investment. Insurance

premiums represent the sacrifice and the assured sum the benefit.

& Money Mar?et Instr:ment.

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" debt instrument which has a maturity of less than one year at the time of

issue are called money maret instruments and is also an important avenues

of investment. The important money maret instruments are Treasury bill,

5ommercial paper, 5ertificate of deposits.

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&ublic &rovident Fund &&F/ provides ta! free returns and hence is a very

good form of investment. 1mployer &rovident Fund 1&F/ is compulsory

saving, which get deducted from the salary.

4 Rea6 Estate.For the bul of investors the most important assets in their portfolio is

residential house. In addition to the residential house, the more affluent

investors are liely to be interested in the following types of real estate+

"gricultural land, %emi*urban land, Time shares in a holiday resort.

9 $ost O;;i=e." popular scheme of the post office provides regular monthly income to the

depositors. The minimum amount invested is 8s 9:::. The interest rate is

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Institution

? Fi!ed deposits

with bans

High Low Low

@ utual fund units

equity schemes/

Low High High

A utual fund unit

debt scheme/

oderate High oderate

B 4overnment &%C

bonds

High oderate oderate

D &&F High Low oderate

= &ost office High Low oderate

9: 5ompany depositsand debentures

Low Low High

11 ,i;e Ins:ran=e #i8 ,o7 Moderate

9> 8eal estate oderate Low oderate

9? 4old and silver oderate High Low

,I"E ISURACE

1veryone is e!posed to various riss. Future is very uncertain, but there is

way to protect one-s family and mae one-s children-s future safe. Life

Insurance companies help us to ensure that our family-s future is not justsecure but also prosperous.

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Life Insurance is particularly important if you are the sole breadwinner for

your family. The loss of you and your income could devastate your family.

Life insurance will ensure that if anything happens to you, your loved ones

will be able to manage financially.

+E"IITIO O" ISURACE

Insurance has been defined to be that in, which a sum of money as a

premium is paid by the insured in consideration of the insurer-s bearings the

ris of paying a large sum upon a given contingency. The insurance thus is a

contract whereby+

a. 5ertain sum, termed as premium, is charged in consideration,

b. "gainst the said consideration, a large amount is guaranteed to

be paid by the insurer, who received the premium,

c. The compensation will be made in certain definite sum, i.e., the

loss or the policy amount which ever may be, and

d. The payment is made only upon a contingency

ore specifically, insurance may be defined as a contact between two

parties, wherein one party the insurer/ agrees to pay to the other party the

insured/ or the beneficiary, a certain sum upon a given contingency the ris/

against which insurance is required.

IM$ORTACE O" ISURACE

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Insurance benefits society by allowing individuals to share the riss faced

by many people. )ut it also serves many other important economic and

societal functions. )ecause insurance is available and affordable, bans can

mae loans with the assurance that the loan-s collateral property that can be

taen as payment if a loan goes unpaid/ is covered against damage. This

increased availability of credit helps people buy homes and cars. Insurance

also provides the capital that communities need to quicly rebuild and recover

economically from natural disasters, such as tornadoes or hurricanes.

Insurance itself has become a significant economic force in most

industriali2ed countries. 1mployers buy insurance to cover their

employees against wor*related injuries and health problems. )usinesses

also insure their property, including technology used in production, against

damage and theft. )ecause it maes business operations safer, insurance

encourages businesses to mae economic transactions, which benefits the

economies of countries. In addition, millions of people wor for insurance

companies and related businesses. Insurance as an investment that offers a lot

more in terms of returns, ris cover E as also that ta! concessions E added

bonuses.

ot all effects of insurance are positive ones. The possibility of earning

insurance payments motivates some people to attempt to cause damage orlosses. $ithout the possibility of collecting insurance benefits, for instance,

no one would thin of arson, the wilful destruction of property by fire, as a

potential source of money.

EE+ "OR ,I"E ISURACE

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1 The need for life insurance comes from the need to safeguard our family.

If you care for your family-s need you will definitely consider insurance.

& How you will be able to satisfy all those needs' )etter lifestyle, good

education, desired house. )ut again you just cannot fritter away all your

earnings. 3ou need to save a part of it for the future too G a wise decision.

This is where insurance helps you.

' Factors such as fewer number of earning members, stress, pollution,

increased competition, higher ambitions etc are some of the reasons why

insurance has gained importance and where insurance plays a successfulrole.

( Insurance provides a sense of security to the income earner as also to the

family. )uying insurance frees the individual from unnecessary financial

burden that can otherwise mae him spend sleepless nights.

) The most common reason for buying life insurance is to replace the

income lost when you die. For e!ample, say that you wor, and your

income is used to support yourself and your family. $hen you die, and

your pay checs stops, the life insurance proceeds can be used to continue

to support the family members you-ve left behind.

As 6i;e ins:ran=e


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&roviding for one-s family and oneself, as a medium to long term e!ercise

through a series of regular payment of premiums. This has become more

relevant in recent times as people see financial independence from their

family.

' Investment.&ut simply, the building up of savings while safeguarding it from the

ravages of inflation. Cnlie regular saving products, investment products

are traditionally lump sum investments, where the individual maes a

onetime payment.

( Retirement.&rovision for one-s owns later years became increasingly necessary,

especially in a changing cultural and social environment. 0ne can buy a

suitable insurance policy, which will provide periodical payments in ones

old age.

EDamp6e to :nderstand te need ;or ins:ran=e./

r. "tul is @A and self*employed. His wife "nita, who is a housewife,

loos after their two children aged ? and D years. They stay in a rented

accommodation, where the rent is 9A,::: rupees per month. r. "tul has

taen up a loan of 8s.>lah. His monthly earnings on average are @:,:::

rupees r. "tul passes away in an unfortunate road accident.

Following are the some financial implications of his death on his family+*

The income, previously provided by r. "tul would stop.His wife and children may have to see financial assistance from other

relatives.

His wife may not have enough money to pay bac the loan of 8s. >lahs.

The family may have to move into a cheaper accommodation.

His widow may have to tae up wor to earn money.

The education of his children may suffer.

The simple e!ample illustrates the impact premature death can have on a

family, where the main earner has no life cover.

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%o it is understood about the obvious benefits life insurance could offer

the typical family.

" simple life insurance policy term assurance/ could have provided r.

"tul-s family with a lump sum that could have been invested to providean income equal to all or part of his income.

Tere are many reasons ;or p:r=asin8 6i;e ins:ran=e amon8 7i=

are te ;o66o7in8./

1 Family protection to provide financial security to surviving family

members on the death of the insured person.

& To pay for children-s education.

' To provide fund to pay estate ta!es or other final obligations necessary

to settle a deceased person-s estate.

( To provide the funds necessary for the deceased person-s burial

e!penses.

) "ccumulation of funds to supplement retirement income.

#AT +OES ,I"E ISURACE O""ER

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Life insurance means different things to different people. For some, itis a premium to be paid on time. For others it offers liquidity since

cash can be borrowed when needed. For the investment*minded, it

denotes a constantly growing capital account and numerous other

benefits.

Life insurance is nothing but the creation of capital funds on an

instalment basis. 0nly here, the results are guaranteed. Life insurance

is basically a property that is bought under a contract, accompanied by

contractual guarantees that ensure large sums of money at the death of

the insured.

Life insurance offers different things to different people which are as

follows+*

1 Ins:ran=e :ys Time and Money.&eople lie to refer to life insurance as time insurance, the reason

being that life insurance proceeds are paid to the insured-s

beneficiaries in case of death. The money offered by life insurance

helps buy time to adjust to the change of circumstances. Insurance

provides large amounts of cash that will eep the lifestyle for the

survivors the way it was before the insured-s death.

& Ins:ran=e O;;ers $ea=e o; Mind.

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For the person who buys an insurance policy, it offers absolute and

complete peace of mind. He or she nows that the decision made

by him will provide sound benefits in the future, whether or not the

individual may live to see it. The life insurance policy will

subsequently prove this in the future if and when funds are needed.

This is the guarantee of the insurance contract.

' M:6tip6e App6i=ation.The future is uncertain for each and every one. o one nows how

long he or she will live. The investment benefit is paid to the

insured-s beneficiaries after his death or it can be used during the

life as well. Life insurance policy owners can turn to the cash value

of the policy in case of a financial emergency when all avenues are

either bloced or denied. They now that they can avail of loans

based on their insurance policies. Insurance policy owners can use

the cash value of their policies to meet their long term financial

needs as well. They may have purposefully invested in insurance to

use the cash in the policy for their children-s future marriage

e!penses or higher education fees.

( End:rin8 E6asti=ity.%ince life insurance is fle!ible enough to serve several needs, the

insured can eep several long term goals in mind once he or she

invests in the insurance plan. The cash value of the policy can be

allocated towards augmenting the monthly income during the

retirement years. Leisure years should be turned into pleasure

years. &ermanent life insurance is designed on the concepts of long

term fle!ibility.

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) "inan=ia6 Se=:rity.The insurance policy offers contractual guarantees to people

looing for peace of mind when they buy life insurance. Life

insurance offers complete financial security. The purchase of life

insurance demonstrates concern for a family-s future financial well

being.

* Ins:ran=e is Sa;er.o financial institution can do what life insurance does. o

industry can bac its products with reserves and surplus as sound as

those of the insurance industry. The proof of strength and safety

that insurance companies have ensured even under the most

adverse of conditions is a matter of pride for the entire insurance

industry. For generation after generation, life insurance has been

acclaimed as the very benchmar of security against which the

other industries are measured.

#O MUC# ,I"E ISURACE S#OU,+ A

I+IVI+UA, #AVE

0ne of the simplest rules is to assume that insurance is a

replacement for your lost earning capacity. 5alculate your total

income for the years that you e!pect to wor.

"ssuming that the prevailing interest rate is = times your current annual income.

"ssuming that a family needs 8s. 9:: annually for household

e!penditure and the rate of interest would be at =< and then the

breadwinner needs to have a life insurance policy of appro!imately

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8s. 9>::. If the insurance amount were to be put in the ban by the

family, the family would get a comfortable 8s. ;B p.a. which would

at least let the family maintain the current lifestyle.

#o7 m:= 6i;e ins:ran=e do I need2

The need for life insurance is based on various factors including

your current life*style, e!pected outgoings in future, your present

age and your family si2e.

The first step should be to estimate how much financial support your

dependents would need in order to continue to enjoy the same lifestyle as

they enjoy today in the event that you are not around to provide that

support. In estimating this support, you should consider all regular

monthly e!penses including food, rentals, conveyance, school fees,

medical e!penses, any debts to be repaid etc. and also estimated ones lie

for children-s education and marriage and your e!pected needs after

retirement.

"lways provide for unforeseen contingencies that your dependents might

need during the period of adjustment. )ased on this analysis and the

e!pected returns on the investments in future, you can wor out a sum of

money that would help your dependents achieve financial independence

even if you are not around to support them.

$hile the situation of every individual would be different, and should be

evaluated separately, one rule of thumb is to buy a cover for an amount

equal to B*9: times your annual income.

5learly, the need for insurance is not static and will change as your life

stage changes G so you must re*wor the requirement periodically and

review the coverage available from time to time.

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RI-#T TIME TO UY ,I"E ISURACE

)uying Life Insurance cannot ever be compared with other

investment decisions since it is very much in contrast with those

stoc maret investments where you wait for the right time to buy

and sell. either is this lie receiving tips on particular scrip doing

well in the maret and holding great future prospects.

This is because the future is always uncertain. #ust as buyinginsurance is a necessity so also buying insurance early in life is

important too. $ith proper financial planning one can wor out as

to how much money an individual is entitled to after the end of a

particular term. " policy that will fulfil your child-s future

educational needs would have to be timed appro!imately so that he

receives the policy amount at that time when he needs it the most.

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would charge a higher premium to cover that ris/. )y buying a policy

at an early age, you would be able to protect your dependents against

the unforeseen event lie death at a much lower overall cost.

& "s you grow older, the chances that you would suffer from health

problems are higher, and obtaining insurance could become difficult at

that stage even if you want to.

' If you are buying insurance with a view to create a large sum of

money at a pre*determined age to meet certain planned e!penses lie

your children-s education or for your post*retirement e!penses, thensaving early on in your life is highly beneficial. 3ou will have to save

much more or for longer duration to get the same amount of money if

you start saving late in your life.

The premium that you pay on your insurance policy is mainly dependent

upon two things+

Yo:r A8e and te Ten:re o; te po6i=y.The younger you are the lower is your insurance premium amount. "t

younger age, you would be physically sound and may not be suffering

from illness. This would entitle you to a lower premium on the policy.

Therefore it is advisable to buy insurance at an early age to reduce the

cost of insurance.

,I"E ISURACE $O,ICIES

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Life insurance is an important part of wealth management planning. The

following are the most popular types of life insurance+

9. $hole G Life &olicy

>. 1ndowment &olicy?. oney G )ac policy

@. Term &olicy

#O,E F ,I"E $O,ICY " whole*life policy is one that covers the insured for almost all

his life. Cnder this type of policy, the premium is payable throughout

the life of the insured person. The policy amount is paid to the

beneficiary upon the death of the policyholder. The main advantage of

this policy is it cost. (ue to its long duration, the premiums are quite

low. However, the policy also carries some advantages. "s the

insurance cover continues throughout the life of the policyholder, he

continues to be insured even when his life no longer has any economic

value.

E+OMET $O,ICY"n endowment policy is a combination of an insurance cover

and an investment vehicle. It covers the ris for a specified period, at

the end of which the sum assured is given bac to the policyholder,

along with the bonus accumulated during the term of the policy. In

case of death during the term of the policy, the sum assured is paid to

the beneficiary of the policy. The major advantage of this policy is that

the insured gets a consolidated sum at the end of the predetermined

period. He can use this sum the way he lies, to buy an annuity to

generate a monthly pension for himself and spouse, or on his

children-s education or marriage, or to mae any other investment of

his choice. In addition, it provides a limited life cover, thus being a

judicious mi! of insurance and investment.

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MOEY ACG $O,ICY Cnlie ordinary endowment insurance plans where the survival

benefits are payable only at the end of the endowment period, this

scheme provides for periodic payments of partial survival benefits

during the term of the policy, of course so long as the policyholder is

alive. "s important feature of this type of policy is that in the event of

death at any time within the policy term, the death claim comprises

full sum assured without deducting any of the survival benefit

amounts which may have already been paid as money*bac

components. The e!tra premium for this benefit is very reasonable andworth it. "mong the various endowment plans, money bac policies

are highly recommended.

TERM $O,ICY " term policy is structured lie a general insurance policy,

whereby the life of the person is insured for a specific short period,

and payment is made only if the person dies during that period. Thereis no payment if the person is alive at the end of the period. "s the

insured person is not entitled to any money at the end of the period if

he is alive, the cost of such policy is one of the least among the cost of

all other policy.

There are many Life Insurance 5ompanies lie+

LIF1 I%C8"51 508&08"TI0 0F I(I"

)"#"# "LLI" LIF1 I%C8"51 50&"3

I5I5I &8C(1TI"L LIF1 I%C8"51 50&"3

H(F5 %T"("8( LIF1 I%C8"51 50&"3

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)I8L" %C*LIF1 I%C8"51 50&"3

I4 3%3" LIF1 I%C8"51 50&"3

1TLIF1 I%C8"51 50&"3

T"T" "I4 LIF1 I%C8"51 50&"3

"J 1$ 308K LIF1 I%C8"51 50&"3

0 K0T"K "HI(8" LIF1 I%C8"51 50&"3

IVESTMET $,AS

There are various types of life insurance policies which provide

investment benefit and are as follows+

$o6i=ies o;;ered


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+eat ene;it.In case of unfortunate death of the Life "ssured during

the policy term %um "ssured shall be payable.

Mat:rity ene;it+ 0n survival to the end of the policy term, nothingshall be payable.

,ICHs e7 ima a=at is a participating non*lined savings cum protection

plan, where premium is paid in lump sum at the outset of the policy. It is a

money*bac plan which provides financial protection against death during the

policy term with the provision of payment of survival benefits at specified

durations during the policy term. In addition, on maturity, the single premium

shall be returned along with Loyalty "ddition, if any. This plan also taes care

of liquidity needs through its loan facility.

EE"ITS.

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"or po6i=y term 1& years.9A< of the %um "ssured at the end of each of ?rd,

Bth E ;th policy year

"or po6i=y term 1) years.9A< of the %um "ssured at the end of each of ?rd,

Bth, ;th E 9>th policy year

= Mat:rity ene;it.

&ayment of %ingle &remium e!cluding ta!es and e!tra premium, if any/ along

with Loyalty "ddition, if any, in case of Life "ssured surviving to the end of the

policy term.

,I"E ISURACE VS OT#ER IVESTMET AVEUES

There are various avenues for investing of our hard*earned money. 1ach avenue

may yield different rate of return. o financial institution can do what life

insurance does. o industry can bac its products with reserves and surplus as

sound as those of the insurance industry. The proof of strength and safety that

insurance companies have ensured even under the most adverse of conditions is

a matter of pride for the entire insurance industry. For generation aftergeneration, life insurance has been acclaimed as the very benchmar of security

against which the other industries are measured.

The difference between the life insurance and other investment alternatives are

as follows+

1 Contra=t o; Ins:ran=e.

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" contract of insurance is a contract of utmost good faith. The doctrine of

disclosing all material facts is embodied in this important principle,

which applies to all forms of insurance.

"t the time of taing a policy, policyholder should ensure that all

questions in the proposal form are correctly answered. "ny

misrepresentation, non*disclosure or fraud in any document leading to the

acceptance of the ris would render the insurance contract null and void.

& $rote=tion.

%avings through life insurance guarantee full protection against ris of

death of the saver. "lso, in case of termination, life insurance assures

payment of the entire amount assured with bonuses wherever applicable/

whereas in other savings schemes, only the amount saved with interest/

is payable.

' Aid to Tri;t.

Life insurance encourages thrift-. It allows long term savings since

payments can be made effortlessly because of the easy instalment-

facility built into the scheme. &remium payment for insurance is monthly,

quarterly, half yearly or yearly.

For e!ample+ The %alary %aving %cheme popularly nown as %%%

provides a convenient method of paying premium each month by

deduction from one-s salary.

In this case the employer directly pays the deducted premium to LI5. The

%alary %aving %cheme is ideal for any institution or establishment subject

to specified terms and conditions.

( ,i:idity.

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In case of insurance, it is easy to acquire loans on the sole security of any

policy that has acquired loan value. )esides, a life insurance policy is

also generally accepted as security, even for a commercial loan.

) TaD Re6ie;.

Life insurance is the best way to enjoy ta! deductions on income ta! and

wealth ta!. This is available for amounts paid by way of premium for life

insurance subject to income ta! rate in force. "ssesses can also avail of

provisions in the law for ta! relief. In such cases the assured in effect

pays a lower premium for insurance than otherwise.

* Money en Yo: eed It.

" policy that has a suitable insurance plan or a combination of different

plans can be effectively used to meet certain monetary needs that may

arise from time to time.

5hildren-s education, start*in*life or marriage provision or even

periodical needs for cash over a stretch of time can be less stressful with

the help of these policies.

"lternatively, policy money can be made available at the time of one-s

retirement from service and used for any specific purpose, such as,

purchase of a house or for other investments. "lso, loans are granted to

policyholders for house or for other investments. "lso, loans are granted

to policyholders for house building or for purchase of flats subject to

certain conditions/.

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,I"E ISURACE A+ RETIREMET EE"IT

Life insurance and related annuity products are frequently used to provide the

funding for retirement plans and other types of plans. &lanning for retirement is

an important e!ercise for any individual. " retirement plan from a life insurance

company helps an individual insure his life for a specific sum assured. "t the

same time, it helps him in accumulating a corpus, which he receives at the time

of retirement.

y p6an ;or retirement2

1 For too many people, the joy of retirement after years of hard wor is

eclipsed by the financial uncertainties that it brings. (espite all the

planning and saving, you can never be sure whether your money will last

a life time.

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& 8etirement planning offers a way to ensure a more enjoyable, stress free

tomorrow. " prudent plan will ensure that increasing life e!pectancy ,

higher inflation and increasing ta!es do not eat away into your hard

earned savings.

' %ecurity and comfort during retirement is a top priority for everyone.

Hardly any people can cope up with the tas of using their accumulated

funds in the most advantageous manner possible while being able to

provide constant liquidity that cannot be outlived.

( &eople tend to thin that insurance is not needed after retirement. They

would willingly drop or change their permanent plans in order to provide

e!tra sources of income during their retirement.

+:rin8 te retirement yearsB 6i;e ins:ran=e provides.

1 Liquidity to pay the cost of dying, which includes the funeral e!penses,

prevailing debts, administration costs of estate settlement and ta!es, if

any

& %upplemental income through beneficiary arrangements for the

surviving spouse to whom the proceeds will be paid through settlement

options or other investments in order to supplement income.

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' Increases to retirement income since permanent insurance can be

surrendered for one of the settlement options to provide a regular

income that cannot be outlived.

( Fle!ibility to transfer the funds and the beneficiary named since during

the later years, the death of a spouse and a change in health or ta!

considerations may mae it useful for the owner of an insurance policy

to change ownership as well as beneficiary rights.

) (onations to family and charitable organisations.

8etirement is that point in an individual-s life when the funds,

which were saved for family security in the event of the insured-s

premature death will instead be utili2ed to afford the family-s

supplemental income needs. "t retirement, the individual may choose

to tae all of the cash value accumulated in the permanent policy and

receive monthly benefits for the rest of his life or fi!ed amounts from

time to time. It is fairly simple to achieve this with minimal

administration costs. In case of the individual suffers from a disability,

the premiums will continue to be paid through the provisions of the

waiver of premium by the insurance company. ost plans do not

require any frequent investment decisions. "nd a policy provides the

fle!ibility needed since cash can be withdrawn for personal or family

needs. If the policy is surrendered at retirement, the cash value

proceeds are placed under a settlement option.

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There are several choices+

9. $ith a life income settlement option, it could provide income during

the lifetime of either one or both spouses, operating in the same

manner as other retirement benefits.

>. If the insured wishes for more payout guarantees, other options could

be chosen. 0ne could choose a certain arrangement where payments

would be guaranteed for twenty years. If the insured dies before that

e!piration date, this option will continue to pay his beneficiary for the

remaining time in the period that forms the guarantee.

?. If the insured lived beyond that date, payments would continue for

lifetime. &rospects that were not aware of this will be pleased to learn

the important role life insurance can have in their retirement plans.

Ann:ities and Retirement $6annin8.

ore often, the primary purpose of an annuity is to provide retirement

income. "nnuities may be used to fund individual retirement accounts

I8"s/, in which case premium payments may be ta! deductible. "n

annuity gives you a fi!ed sum of money, at periodic intervals, for the rest

of your life. "dding a ta! deferred investment, lie an annuity, to our

retirement plan may help you realise your retirement dreams.

#o7 do ann:ities e6p in retirement2

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1 ,i;etime In=ome.

If outliving your savings is a concern, an annuity could be the

solution. 3ou can arrange to receive a steady stream of periodic

payments, for the rest of your life. 0nly annuities provide the

retirement income options that can protect you from outliving your

assets.

& Competitive Interest Rates.

"nnuities can offer competitive interest rates, as well as investment

fle!ibility. $ith some annuities you can Mloc*inN a guaranteed

interest rate for a specified period of time.

' ,evera8e te $o7er o; TaD +e;erra6.

" (eferred "nnuity allows you to accumulate money for retirement

on a ta!* deferred basis. 3ou put money in, and over time it earns

interest and multiplies. $ith deferred annuities, there are no ta!es on

earnings as well. Invest in an annuity now and defer the income

receipts till you retire G an effective retirement strategy.

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,I"E ISURACE A+ TAX EE"IT

Life insurance is bought for several reasons. Ta! benefits, of course,

are a ey driver for taing life insurance. %ome people invest- in

insurance, thining that returns are attractive. ery few however, buy

insurance for the right reason i.e. the life cover. In order to providesavings and investments, the government has provided certain ta!

relief in the form of ta! e!emptions, ta! deductions and ta! rebates.

Traditionally, buying life insurance has always formed an integral part

of an individual-s annual ta! planning e!ercise. $hile it is important

for individuals to have life cover, it is equally important that they buy

insurance eeping both their long*term financial goals and their ta!

planning in mind.

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Te In=ome TaD A=t.

In=ome +ed:=tion :nder Se=tion 40CCC.

$hen you invest money under an approved pension plan, you

are entitled to claim an income deduction of up to 8s. 9:,:::

per annum or the actual amount paid as premium, whichever is

lower.

)ut you must always eep a few factors in mind when

considering %ection =: 555/

9. $here the assessee or his nominee surrenders the "nnuity before its

maturity, then the surrender value shall be ta!able in the hands of the

assessee or his nominee in the year of receipt.

>. The amount of pension received will be ta!able in the hands of the assessee

or nominee

Additiona66yB yo: =an a6so =6aim re


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subject to a ma!imum ta! rebate with respect to premium paid of 8s.

D:,::: per annum/+

For individuals with 4ross Total Income upto 8s. 9.A lacs, upto

>:< of the premium paid

For individuals with 4ross Total Income between 8s. 9.A lacs

and upto 8s. A lacs, upto 9A< of the premium paid.

& In=ome +ed:=tion :nder Se=tion 40+.

$hen you invest money in an approved policy that is taen as insurance

on your health or the health of any of the dependents, you can claim an

income deduction of up to 8s. 9:,::: per annum or the actual premium

paid, whichever is lower. 5ertain life insurance companies also offer the

5ritical Illness 8ider with their products* and if the insurance company

has taen approval from the Income Ta! "uthority, benefit under %ection

=:( is also available for the 8ider &remium. In case such a policy is

taen by %enior 5iti2en as defined by the Income Ta! "ct/, the income

deduction is available up to an amount of 8s. 9A,::: per annum or the

actual premium paid, whichever is lower

' In=ome +ed:=tion :nder Se=tion 40++.

$hen you invest money in approved policies intended to cover the cost

of maintenance including medical treatment of a disabled dependent, and

then you can claim an income deduction of an amount up to 8s. @:,:::

per annum or the actual premium paid, whichever is lower.

( EDemption :nder Se=tion 10 J10+.

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The proceeds from any insurance policy are completely e!empt from

income ta! e!cept in case of maturity value of policies where the annual

premium is in e!cess of >:< of the sum assured.

,I"E ISURACE A+ SAVI-S

1 "n insurance contract provides ris coverage to the insured. $hen

however, the contract period covered a long time, as in case of life

insurance, premium payment have two components. 0ne goes toward

savings.

& The saving component of life insurance pits the insurer in direct

competition with other financial institution and saving instruments,

such as ban deposit, equities and mutual fund.

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' The bundling together of ris coverage and savings is peculiar to the

life insurance. In case of life insurance the insured cannot reclaim the

saving component without some penalty.

( 5ash value life insurance provides both death benefits and a savings

feature. $hen you buy a permanent or cash value policy, part of your

premium pays for the life insurance protection and part goes towards

the savings component.

) "s you pay your premiums the savings portion is invested, and the

principal and earnings accumulate as your cash value.

* 3ou are not required to leave the funds in the policy, however you can

sometimes withdraw from or borrow against the accumulated cash

value.

3 3ou can then use the withdrawn or borrowed funds to finance your

retirement, pay a child-s college tuition, or assist a child with a down

payment on a house, among other things.

4 This type of insurance can be a valuable asset, both as an investment

and for life insurance purposes.

Advanta8es o; :sin8 6i;e ins:ran=e as a savin8s vei=6e.

It provides life insurance protection for your family.

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3ou can earn money on your premium payments depending on

investment performance/

The cash value grows ta! deferred until withdrawn or

surrendered.

%ometimes you can withdraw from the cash value generally up

to a certain percentage/.

3ou can borrow from the cash value at a relatively low interest

the amount you can borrow will vary by policy type/.

3ou may have a number of investment choices depending on

policy type/.

AA,YSIS.

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It is observed that 9::< of the people invest in different

investment alternatives. Few people only invest in life

insurance policy and some do not invest in insurance policies.

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It is observed that >9< people invest in insurance policies and

9?< people invest in ban deposits. There are few investments

in shares E debentures, precious objects.

( at in;6:en=e yo: to ta?e :p ins:ran=e po6i=y2

0%

10%

20%

30%

40%

50%

60%

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It is observed that people invest in LI5 majorly for security

purpose E ta! saving. Few people invest in LI5 for investment

purpose. ery few people believe that LI5 would provide them

8etirement benefits.

) i= o; te ins:ran=e po6i=y yo: pre;er te most2

0.00%

5.00%

10.00%15.00%

20.00%

25.00%

30.00%35.00%

40.00%

45.00%50.00%

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It is analysed that majority of the people prefer money bac

policy. 0nly few people are in the favour of endowment policy,

whole life policy and term life policy.

* at in;6:en=ed yo: to ta?e 6i;e ins:ran=e po6i=y2

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Personal Interest Family Agents Advertisements t!ers "a# $aving

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

It is observed that majority of the people have invested in life

insurance as their personal interest. Few of them were influenced by their

family and agents. %ome found it ta! saving investment. 0nly few people were

influenced by advertisements.

3 #ave yo: ta?en 6i;e ins:ran=e ;or yo:r ;ami6y2

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ajority of the people that is D:< have taen life insurance

policy for their family and only few people have not taen

insurance policy for their family.

4 At 7i= a8e yo: too? 6i;e ins:ran=e po6i=y2

2030 3040 40500%

10%

20%

30%

40%

50%

60%1 2 3

ajority of the people have invested at the age of >:*?: and

?:*@: and very few of them have invested at the age of @:*A:.

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9 at per=enta8e o; in=ome do yo: invest in yo:r

6i;e ins:ran=e po6i=y2

010% 1020% 2030%0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

It is observed that majority of the people invest :*9:< of their

income. Few of them invest 9:*>:< of their income and very less people invest

>:*?:< of their income.

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10 ame te =ompany in 7i= yo: are avin8 6i;e

ins:ran=e po6i=y2

ajority of the people have invested in Life Insurance

5orporation. They have invested in endowment policy, money

bac policy, term policy and whole life policy. Few people

have invested in )ajaj "llian2 and very few have invested in

a! Life Insurance and Tata "I".

11 Are yo: satis;ied 7it yo:r =:rrent 6i;e ins:ran=e

=ompany2

83%

17%

&es 'o

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It is analysed that majority of the people are satisfied with their

insurance company for providing them services. ery few are not satisfied with

their company.

1& #o7 do yo: rate te servi=e o;;ered @< rate it as very good.

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1' eter 6i;e ins:ran=e po6i=y is important

investment aven:e ;rom oter investment aven:es2

&es, 80%

'o, 20%

It is observed that =:< of the people find life insurance policy as

important investment avenues.

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OSERVATIO

1 The majority of respondents belonged to the age group of

>: to ?: years which followed by age group of ?: to @:

years.

& LI5 has a major maret share.

' The factors which influenced to select a life insurancecompany are the personal factor, followed by family, friends,

agents and advertisements.

( ajority of consumers are satisfied with the service and

quality of products of their life insurance companies.

) ajority of the respondents invest in life insurance policies for

security purpose followed by ta! savings, investment and

retirement benefits.

* ajority of the people have taen life insurance policy for

their family.

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,IMITATIOS

It is difficult to now if all the respondents gave accurate information6 some

respondents tend to give misleading information.

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COC,USIO

From this study it reveals that the consumer-s attitude towards Insurance &olicy

and Insurance 5ompany changed a lot. A years before the consumers and the

general public were not interested to tae an Insurance &olicy but now days

there are many options and choices in front of the customers.

They are interested to tae high return policies in order to secure their lives.

&eople are aware of all the benefits and returns of insurance policies. "s a result

of this new international and domestic companies are coming to the Indian

aret.

%ince there are many players in the Indian Insurance aret the competition

level is very high. %o the companies are introducing new schemes.

From this it is found that The LI5 is the major maret share holder in the

insurance field. 1ven if there are many players in this field still it is an untapped

maret.

Insurance may not be the best place to invest your hard*earned money. )ut there

are sufficient reasons for one to believe that it can be a highly lucrative avenue

to facilitate savings.

It is e!tremely unfair to compare the performance of insurance against other

investments without considering the core features of insurance. The very

essence of insurance is to protect your family from the uncertainty of your life.

ow, let us compare insurance as an investment options. If you invest 8s.

9:,::: in &&F, your money grows to 8s.9:, ;A: at ;.A< interest over a year.

)ut in this case, the access to your funds will be limited. 0ne can withdraw few

percent of the initial deposit after a particular period of time. The same amount

of 8s. 9:,::: can give you an insurance cover of up to appro!imately 8s A*9>

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lahs depending upon the plan, age and medical condition of the life insured

etc/ and this amount can become immediately available to the nominee of the

policyholder on death. Thus insurance is not 9::< but 9:::< more better

investment option as compared to other investment avenues.

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A$$E+IX

5:estionnaire

9. (o you mae investment for your future'

3es o

>. (o you invest in different types of investment avenues'

3es o

?. $hich are those investment avenues'

&ost 0ffice 8eal 1state )onds

%hares E (ebentures &&F E 1&F

)an (eposit &recious 0bjects

oney aret Instruments utual Funds

Life Insurance

@. $hat influence you to tae up insurance policy'

Ta! %aving 8etirement )enefits

%ecurity &urpose Investment

A. $hich of the insurance policy you prefer the most'

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$hole Life &olicy 1ndowment &olicy

Term &olicy oney )ac &olicy

B. $hat influenced you to tae life insurance policy'

&ersonal Interest Friends Family

"gents "dvertisements 0thers

D. Have you taen life insurance for your family'3es o

=. In which age you too life insurance policy'

>:*?: ?:*@: @:*A: A:*B:

;. $hat percentage of income do you invest in your life insurance policy'

:*9:< 9:*>:< >:*?:< ?:< E above

9:. ame the insurance company in which you are having life insurance

policy'

99."re you satisfied with your current life insurance company'

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3es o

9>.How do you rate the service offered by your Life Insurance 5ompany'

1!cellent ery 4ood 4ood

"verage &oor

9?. $hether life insurance policy is important investment avenue from other

investment avenues'

3es o

I,IO-RA$#Y

www.licindia.in

www.wiipedia.com

www.google.com

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life insurance an investment alternative