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LIFE INSURANCE PRODUCTS
Introduction- Need for products
“Different people want different benefits and different mixes of benefits .”
Philip Kotler
What is a product ? “ A product is anything that can be
offered to a market for attention, acquisition , use or consumption and that might satisfy a need or want .”
Philip Kotler
IntroductionCompanies may possess variety
product mix
Half of profits of all US Fortune companies came from products that did not exist ten years ago.
Companies introduce new products to tap existing clients and explore new segments
Why is there a need for new products ?Changes in tastes of customersIntense competitionChange in economic/social environmentIncrease in purchasing powerFailure of old products/ recently
launched products - actual product may not have
been properly designed, incorrectly positioned,
poorly advertised, greater competition.
Insurance productsAre described as UNSOUGHT consumer
goods by Kotler.“ There are consumer goods that a
customer does not know or knows about but does not normally think of buying. Classic examples are life insurance.”
Unsought goods require lot of advertising, personal selling and marketing efforts.
Life insurance is seldom bought, always sold .
Life Insurance ProductsAll products require approval of IRDA
before launch, designed by actuaries.Individual (including pension ) and group
products Products may be packaged/ straight-jacketed
(“take it or leave it “) - could work only in monopoly environment
Non-packaged -flexibility –with riders/add-ons - available with competition by private players
One single product cannot suit all customersIndian consumer is curious and demanding
Features of any life insurance productWho can be insured ?What can be the sum assured ?Under what events would SA be
payable ?How/when would the SA be payable ?Term of the policy - minimaxAge at entryPremium payment modesAny additional benefits like riders ?Conditions/exclusions under each policy
Basic elements of life products Life insurance business based on two basic instincts – fear and greedTerm insurance takes care of fear of death Pure endowment fulfills the greed for moneyTI & PE are basic elements in every life
insurance planCalled the basic building blocks in all LI
product design. Every company has different products to suit the need of every customer.
Contd….PE (savings only) seldom issued by
insurance companies as a separate policyTI has always been one of the product
range of each LI companyA TI policy is a contract that provides
life cover for a limited number of years, the face value of the policy being payable only when death occurs and nothing in case of survival
Features of term insuranceCan be issued for a short period of
short, fixed terms.Most important feature is it’s low cost –
high value.Suitable for budget-conscious individuals
who are looking for family protection against financial liabilities like loan, loss of income
Contd…..Employers can cover life of employeesBest form of collateral security against
housing/education loanNo risk coverage beyond specified termConditions/flexibility may vary between
companiesUnsuitable for those interested in
maturity benefits, except premium-back cases
Contd…..May have renewable or convertible
featuresSome with fixed terms of 5-10 years
have built-in automatic renewal feature, whereby at end of each fixed period, automatic renewal takes place. Premium increases with each renewal.
Restrictions may be placed by each company on the number of such renewals/maximum age for such renewals.
Contd….Convertible feature allows policy owner
to have the option to exchange his term policy for a permanent policy, viz Whole life or Endowment policy without having to produce further evidence of insurability.
Good for young people fresh into careers.
Endowment PlansCombination of PE & TI. This plan offers face value plus
accumulated bonuses on maturity & death.May have single or regular premium
paying modesSeveral companies may offer choice of
riders like AB/PDBSuitable when life cover along with medium
term to long term savings needed.
Contd…..Not suitable for those looking for
flexibility to meet future lifestyle changesIncome/occupation may prevent
policyholder from taking this plan.Loans can be taken.PH wants guaranteed MC/DC Interest sensitive product - life insurance
products give low returns & due to inflation, money value gets reduced long –term.
Contd….Insurers try to add additional benefits
like loyalty / guaranteed additions.Allowing periodic returns of a portion of
face value – money back plans - risk , growth, liquidity.
Endowment plans allow people to SAVE, building a corpus for old age.
EI is decreasing TI & increasing investment (saving accumulation ).
Traditional & unit-linked plans offered.
Money back plansFeatures of risk , growth & liquidityPeriodical cash outflow to PHNo loan granted under this planSuitable for those who need periodic cash
flow to meet expenses, investmentsPremium higher than regular endowment
plan
Whole Life plans Provides protection throughout lifePayment on death is certainty in contrast
to TI.An excellent way to give person’s family
financial protection throughout life and help them after his death.
An estate planning tool, tax-free returnsOngoing & future family expenses
Types of whole life plansOrdinary whole life - plain vanilla policies. Insured pays premium lifelong depending
on his survival/death Certain maximum age fixed, treating as
maturity claim if survival occurs.Convertible whole life -option to convert
into endowment after, say, 5 years. Helpful to people who need higher insurance , but temporarily cannot afford endowment plan
Children’s PlansParent or guardian is proposerRisk on life of child begins after child attains a
specified age.If age at commencement is 6 and specified
age is 15, the gap of 9 years is deferrment period.
Date at which risk begins is deferred date.No insurance cover during deferrment period
– if child dies, the premiums are refunded.Risk begins automatically on deferred date
without any medical test.
Contd……When risk commences , premium is low . Title automatically passes to child on attaining 18
.Process called vesting.After vesting, policy becomes a contract between
insurer and insured person.Vesting cannot be less than 18.Can be market-linked and traditionalBenefits for the child like premium waiver and
payment of instalment claim in case of death of proposer – useful for continuing education/expenses
Rural insuranceSeveral companies have primarily
microinsurance term plans with refund of premia on survival.
Microinsurance (life) is protection of poor, rural people and their families against 3 Ds.
Microinsurance also deals with health and general insurance for the rural consumer
UNIT-LINKED INSURANCE PLANSCombination of insurance & investment of choicePH gets benefits from markets without
keeping track of market movements or monitoring his investment portfolio
Ulips balance risk & return, investing premia in a variety of funds – debt/equity/balanced
Amount invested is expressed in units.Based on fund value, value of units vary.Value of plan directly linked to value of fund.On death, prior to maturity, PH paid SA or value
of units whichever is greater
UNITSUnit prices calculated regularly for
each fundUP = Total market value of assets plus
current assets less current provisions / Total number of units on issue
Unit account can be enhanced by top-up premium
Switches from funds are allowedFull value of unit account paid on
maturity.
InvestmentsChoice of fundsSwitch units between fundsRedirect investments to other fundsVary premiums by making additional top-
upsInsurance desired must be specified
from the beginningSA to be selected after considering
various charges ; larger SA , more premium goes for insurance & less for investment
NAVNAV is the total value of the asset in the fund
minus expenses paid/payable divided by number of units issued.
Issue value of a unit usually 10/-NAV of a fund is indicator of value of the fund.PH can find out value of his policy.Insurer has to exhibit all charges – Contribution related charges – to cover running
expenses of policy - commission/policy charges- one-time or regular depending on mode
ChargesFund management fees - costs of
buying/ selling various instruments for funds
Mortality charges – risk cover – paid once or recurring
Rider charges – critical illness/ABSwitching charges - some companies
may give free switches/yearAdministration charges – IT costs,
operational costa, levied flat with option of increase yearly
FLOW -CHART OF A ULIP
Contribution
Contribution Related Charge deducted
Less 20%20,000 - 4000= 16,000
Mortality & Rider Charge deducted
16,000 – 750 = 15,250For the age 30 – mortality at 1.50/-per thousand
20,000/-
Life Protection
500,000
The Client invests resultant in chosen funds
15,250/- invested in debt fund at a NAV of 16/-
Invests in Funds debt/
equity or balanced
Units Allocated
953.125 units allocated
Fund Charges deducted
Represented as NAV
NAV of debt fund 16/- per unit
SUMMING UP ULIP provides Life protection Investment Flexibility Transparency Rider options Liquidity Tax planning HENCE , ULIPs act as a one-stop solution
THANK YOU