IC-38 Class Notes

In a VILLAGE:
Houses – 400
Valuation of each house – Rs. 20,000/-
Average 4 houses get destroyed every year

FUND – Rs.80,000/-
Each house will contribute – Rs. 200/-
River. 250/- . . . . . . . . . . . . . . 200/- . . . . . . . . . . . . . . . . 150/-
Death. 60yrs . . . . . . . . . . . . . 40yrs . . . . . . . . . . . . . . . . 20yrs
Risk of Few shared by Many
• The origin of modern commercial insurance business started from London’s
Lloyd Coffee House. # Bottomry Loan
• 1st Life insurance company in the world was Amicable Society for Perpetual
Assurance established in 1706.
• 1st life insurance company to be set up in India in 1818 was The Oriental Life
Insurance Company Ltd.
• 1st Indian Life insurance company was Bombay Mutual Assurance Society Ltd.
found in 1870 in Mumbai.
• 1st Non-life insurance company established in India in 1872 was Triton
Insurance Company Ltd.
i) Life Insurance & ii) Non-Life Insurance (General Insurance)
• Only Human Life Other than human life (any Asset)
• Death Accident
• Uncertainty
Will happen # May happen
• Assurance (Guarantee) # Insurance (Up to)
• Life Insurance = Sum Assured and Non-Life Insurance = Sum Insured
 iii) Reinsurance = When an insurance company buys insurance in its name
from another insurance company is called REINSURANCE.

• Life Insurance is contract of ASSURANCE, while Non-Life Insurance is

contract of INDEMNITY (Compensation), as per Indian Contract Act. 1872.

• In 1912, the Life Insurance Companies Act and the Provident Fund Act.
were passed to regulate the insurance business.
• The Insurance Act 1938 was the first legislation enacted to regulate the
conduct of insurance companies in India.
• Life insurance Business was nationalized on 1st September 1956 by
merging 170 insurance companies and 75 Provident Fund societies and Life
Insurance Corporation of India (LIC) was formed.
* Non – Life insurance business was nationalized in 1972 by amalgamating 106
insurers, General Insurance Corporation of India (GIC) & its subsidiaries were
formed through GIBNA (General Insurance Business Nationalization Act.1972).
 • National Insurance Company Ltd. (Non-Life) is the oldest insurance
company founded in 1906, which is still running its business.
• 24 life insurance companies operate in India (regulated by IRDAI)
• The postal department, under the Government of India, also transacts life
insurance business via Postal Life Insurance, but is exempt from the
purview of the regulator (IRDAI = Insurance Regulatory and Development
Authority of India).

2 types of Risk Burdens –

i) Primary burden of risk – Investment for Present use.
ii) Secondary burden of risk – Investment for Future use.

Risk management techniques:

• Risk avoidance - Controlling risk by avoiding a loss situation.
• Risk retention - One tries to manage the impact to risk and decides to bear
the risk and its effects by oneself.
Risk reduction and Control - This is a more practical and relevant approach
than risk avoidance. It means taking steps to lower the chance of occurrence of
a loss and / or to reduce severity of its impact if such loss should occur.

# Govt. Sponsored Insurance Schemes – RKBY, RSBY, ESI, and Rural Insurance Schemes
# Run by insurer and not supported by Govt. schemes - Jan Arogya

Risk Classification – 4 persons, 30 yrs old, Sum Assured – Rs. 5,00,000/-

1. Preferred Risk (Lives) – Rs. 49,000/- (yearly premium)
2. Standard Risk (Lives) – Rs.50, 000/- (yearly premium)
3. Sub-standard Risk (Lives) – Rs. 51,000/- (yearly premium)
4. Declined Risk (Lives) – X

1. Loss Prevention – measures to reduce chances of occurrence

2. Loss Reduction – measures to reduce the degree of loss
*****
1. Name – 2. Age – 3. Location – 4. Profession
 CHAPTER – 2: CUSTOMER SERVICE
• Customers provides the bread and butter of a business and no enterprise
can afford to treat them indifferently.
• Insurance is a Service. Insurance is an Intangible good.
Customer lifetime value: i) Historical Value, ii) Present Value and iii) Potential Value
Active Listening:
i) Paying Attention
ii) Demonstrating that you are listening - Use of body language plays an
Important role here.
iii) Provide feedback
iv) Not being Judgmental - Such judgmental approach can result in the
listener being unwilling allow the speaker to continue speaking,
considering it a waste of time.
v) Responding appropriately
vi) Empathetic listening - Being empathetic literally means putting
yourself in the other and feeling his or her experience as he or she
would feel it.
*****
 Chapter – 3: Grievance Redressal Mechanism
IGMS (Integrated Grievance Management System): acts as a central repository
of insurance grievance data and as a tool for monitoring grievances in the
industry. Policy holders can register on this system with their policy details.
Complaints are then forwarded to the respective insurance company.

Consumer Forum: The Consumer Protection Act, 1986 (COPA) (Judiciary system)
Like a CIVIL COURT. COPA amended in 2002.
1. District Level / Commission = <20L / State Govt of each district
2. State Level / Commission = >20L - <100L / State Govt
3. National Level / Commission= >100L / Central Govt
No FEES THERE in Consumer Court
Consumer cannot resale the product.
 Ombudsman
➢ Reconciliatory Body (mutually settlement)
➢ Complaint first need to be lodged with Company’s complaints
department and if not satisfied with it, then you can move to the
Ombudsman within ONE year in writing
➢ Ombudsman resolves disputes within 90 days and gives “AWARD”
➢ Company must respect the AWARD and implement within 15 days
➢ No party is bound to obey the “AWARD”
➢ Maximum limit of dispute to be lodged with the Ombudsman is
Rs. 20, 00, 000/- (presently Rs.30, 00, 000/-)
➢ There are 12 regional offices (but currently 17) across the country and
every office has restricted jurisdictional limit
➢ If policy holder goes to Consumer Court prior to Ombudsman, then
cannot move back to Ombudsman (because it’s a reconciliatory body)
➢ No FEES THERE in OMBUDSMAN

*****
 Chapter – 4: REGULATORY ASPECTS OF INSURANCE AGENTS

1. Training = 25 hours
2. Education = Rural area – Min. 10th Standard &
Urban area – 10+2 standard
Rural area = Population below 5000 and Urban area = Population Above 5000
3. Exam Fees – Rs. 250/-
4. Age – Min 18 years

Types of Agent –
i) Individual Agent (represents Company), ii) Corporate Agent, iii) Composite
Agent (1 Life, 1 Non-Life, 1 Health Insurance together and a Monoline
Insurance) and iv) Broker (Represents Customer).
(Composite Agency = One individual – 1 Life Insurance Com., 1 Non-Life
Insurance Com. and Health Insurance Com.)
 1. Form I-A = for Individual Life Insurance Agency
2. Form I-B = for Composite Agency
3. Form I-C = For Resignation from agency or termination from Agency

IRDAI = INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY OF INDIA

• Application gets accepted or rejected within 21 days and appointment

Letter to be issued or rejected within 7 days after passing the exam by
“Designated Official”.
• Under Section 42 of Insurance Act. deals with becoming Agent.

Who conducts the IC-38 exam? - A) NSE-IT B) III, C) IRDAI, D) SEBI

Ans. B) III (Insurance Institute of India)

*****
 Chapter – 05: LEGAL PRINCIPLES OF AN INSURANCE CONTRACT
Insurance Contract – an insurance policy is a contract between 2 parties –
Insurer (Insurance Company) and Insured (Policy holder) as per Indian Contract
act, 1872.
Elements of a Valid Contract:
1. Offer = Customer and Accept = Company
2. Consideration = Premium is Consideration
3. Agreement between parties = Consensus Ad Idem (Same in Mind)
4. Free consent
i) Coercion (By Threatening / through criminal means / by forcefully)
ii) Mistake
iii) Misrepresentation (to provide wrong information)
iv) Undue Influence
v) Fraud
 5. Capacity of the both parties
6. Legality (Stamp Duty is paid)

* Solvency Margin = 1.5 times of Sum Assured

Special features of Insurance Contract:

1. Uberrima Fides or Utmost good faith:
Fully disclosure of material facts. Remains effective the entire policy
term. 1st 3 years’ customer will prove if any information provided by him / her is
wrong. After 3 years, its company’s duty to prove that information (which the
customer has provided) was wrong.

2. Insurable Interest: i) Legal Relationship

ii) Financial Relationship
• In case of Life Insurance, it is considered once, at the time of PURCHASING the
policy and in case of Non-Life insurance it is considered twice, at the time of
PURCHASING the policy and at the time of UNCERTAINTY happened.

3. Proximate Clause: To find out the actual cause. “Falling off horse”/ “fire
in factory” (It applies in Non-Life Insurance)

i) Insurance is a contract of Adhesion

ii) Non-Life Insurance is a contract of Subrogation
*******

Price # Value
Chapter – 6: WHAT LIFE INSURANCE INVOLVES
• Human Life Value (HLV) – invented by Prof. Hubener
• HLV calculation purpose: To calculate the maximum Sum Assured one can
take at the point of time.
Formula: (Annual Income – Annual Expense) ÷ Rate of Interest.

Calculate: – Problem 1
1. Income – Rs. 10,000/- P.M.
Expense – Rs. 2,000/- P.M.
ROI – 8%
Answer: Income – Rs. 10,000/- P.M. X 12 = 1, 20, 000/-
Expense – Rs. 2,000/- P.M. X 12 = 24,000/-
Or 96000/- ÷ 8/100, or 96,000/- X 100/8 = Rs. 12, 00, 000/-
Problem 2 -
Income – Rs. 20,000/- P.M. x 12 = 2, 40, 000/-
Expense – Rs. 1, 00, 000/- P.A. = 1, 00, 000/-
ROI – 7%
240000.00 - 100000.00 = 1, 40, 000.00 x 100/7 = Rs. 20, 00, 000/-
Rs. 20, 00, 000/-
(Annual Income X 10 - X 15)
Monthly Income = Rs.50, 000/- x 12 = then annual income is Rs.6, 00, 000/-
6, 00,000/- X 10 & 15 = 60, 00, 000/- to 90, 00, 000/-

Level Premium = Average Premium

Actual - 200/- . . . . . . . . . . . . . . 250/- . . . . . . . . . . . . 300/-
Average - 250/- . . . . . . . . . . . . 250/- . . . . . . . . . . . . 250/-

Mortality Fund - [200/- + 210/- . . . . . 300/- [250/- + 50/-]

Life Fund – [50/- + 40/-] –> Reserve || 90% of the profit from Mortality Fund
and Life Fund goes to policy holder as BONUS every year as -000/ Sum Assured.
*****
 CHAPTER 7: FINANCIAL PLANNING

Financial planning is a process to identify his goals; assess net worth;

estimating future financial needs; and working towards meeting those needs.
Goals -
• Short term – buying LCD Television; family vacation.
• Medium term – buying a house
• Long term – Children’s education / marriage; post-retirement provision.
Financial Products:
• Transactional product – Bank deposits (like FD, RD, etc.)
• Contingency (emergency) product – Protection like insurance.
• Wealth accumulation product – Shares (equity), High Yielding (return)
Bonds, Real Estate etc.
*****
 CHAPTER -8: LIFE INSURANCE PRODUCTS – I

What is a product? – A product is a bundle of attributes.

Products may be -> • Tangible or • Intangible
Life insurance is a product that is intangible.

Product: i) Term Plan – Only Death Benefit (firstly for low budget / income)
ii) Endowment Plan – Death Benefit / Maturity Benefit
 Types of Term Plan
i) Decreasing Term Plan(DTP) : (Mortgage Loan (Home Loan)
MRI (Mortgage Redemption Insurance)  DTP  Home Loan
Loan Amount (Outstanding) DTP Sum Assured
30L 30L
28L 28L
26L 26L
24L 24L
22L 22L
20L 20L
18L 18L
16L 16L
14L 14L
12L 12L
10L 10L
8L 8L
6L 6L
4L 4L
2L 2L
0 0
 i) Decreasing Term Plan = Premium remains Level, but Sum Assured decreases
with loan amount every year.
ii) Increasing Term Plan = Sum Assured increases and premium also increases.
iii) Term Plan with Return of Premium (TROP) = If the policyholder dies, SA is
given and if not dies, then at maturity Premiums paid by the policy holder is
given back. It means there’s a small savings element.
Rider = Added benefit to the policy
ADBR (Accidental Death Benefit Rider)
WOPR = Waiver of Premium Benefit Rider (normally remains available in
children policies)
*****

Zaman - 9932994021
 Chapter – 9: LIFE INSURANCE PRODUCTS – II

Unbundling | Unbundle (unleash)

Unbundling = Separation of Protection [Sum Assured] and Savings elements
[amount which the policy holder gets at maturity].

Inflation = Constant price rising

Non-Traditional Plans
ULIP = Unit Linked Insurance Plan
VIP = Variable Insurance Plan (only one FUND – 100% equity fund)
ULIP = Multiple fund option. Customer has to select fund (or funds)
ULIP is for the knowledgeable persons only in equity (Share Market).

VIP and ULIP both type of policies is allowed in India by the Regulator (IRDAI).
• Fund Switching = Transferring fund amount from one fund to another fund(s)
Death Benefit in ULIP = Fund Value* or Sum Assured whichever higher is given.
Maturity Benefit = Only Fund Value*
*Fund Value = NAV (Net Asset Value) x Total No of Units.
*****

CHAPTER 10: APPLICATIONS OF LIFE INSURANCE

Married Women’s Property Act, 1874 (MWPA)

* Under Section – 06 | Policy becomes a Trust by itself.
* Policy remains beyond the limit of the creditors.
# Beneficiaries (age must be above 18 years)
1) Wife
2) Son(s) / daughter(s)
3) All of them together or any of them

If there is no Beneficiary, then the amount will go to the Official Trustee of

the State.
*Nomination gets cancelled

KeyMan Insurance:
# KEYMAN - Important person to business, for whom loss or profit depends in
business.
• Related to business profitability
• Premium paid by the Company
• Premium is taxable
• Claim is also paid to the company
*****
 CHAPTER 11: PRICING AND VALUATION IN LIFE INSURANCE

*Premium = Price for insurance.

200 @ 5% = Interest gained – 10/-
Net Premium = Risk Premium – interest
Or 200 – 10 = 190/- is net premium
Gross Premium = Net Premium + Loading for expenses + Loading for
contingencies + Bonus Loading (Example: - 190/- + 7/- + 3/- + 22/- = 222/-)
Surplus is the excess of value of assets over value of liabilities. If the SURPLUS
is negative, it is known as strain.
Surplus = Assets – Liabilities.
• Rebates: i) For sum assured
ii) For mode of premium payment (Yearly/Half Yearly/Quarterly/Monthly).
Anti-money laundering (AML):
* 3 - 7 year’s imprisonment and fine up to 5 lakhs.
Know Your Customer (KYC) -
i. Photographs and PAN details
ii. Age proof
iii. Proof of address – driving license, passport, telephone bill, electricity bill,
bank passbook etc.
iv. Proof of identity – driving license, passport, and voter ID card, PAN card, etc.
v. Income proof documents in case of high-value transactions
*****
 CHAPTER – 12: DOCUMENTATION – PROPOSAL STAGE
A) Proposal stage documentation:
i) Prospectus, ii) Proposal form, iii) Agent report,
iv) Medical examiners report, v) Moral hazard report

Valid Age Proof: i) Standard Age Proof – Proofs where DATE OF BIRTH
remains mentioned. (Example – PAN, Birth Certificate, Baptism Certificate etc.)
i) Non-Standard Age Proof – Proofs where AGE is mentioned (like Ration
Card, Village Panchayat Certificate, Horoscope, etc.)
*****
 Chapter – 13: DOCUMENTATION – POLICY CONDITION – I

Life Insurance is a contract of ASSURANCE (Guarantee) while Non-Life

Insurance is a contract of INDEMNITY (Compensation) as per Indian Contract
Act, 1872.
1. First Premium Receipt (FPR) = The policy contract has begun.
2. Policy Document = Evidence of the contract between the assured and
the insurance company as per Indian Contract Act, 1872.
3. Policy schedule = 1st part of the contract (Details of the contract)
4. Standard provisions = “ . . . . . the rights and privileges . . . . .”
5. Specific policy provisions = Pregnancy / Restricted clause. (LIEN PERIOD)
*****
 Chapter -14: DOCUMENTATION - POLICY CONDITION – II

• Due Date = The date on which customer need to pay Premium

• Grace Period = 31 Days for Life Insurance and 30 Days for Health
Insurance (for only monthly mode it is 15 Days for both)
If the policyholder dies during GRACE PERIOD, claim amount is given after
deducting the last unpaid premium. All the benefits continue in grace period.
• Lapse = If premium is not paid within Grace Period.
• Reinstatement / Revival = To revive the policy with paying of all the
outstanding premiums within 5 years’ time period.

Types of Revival:
1. Ordinary Revival = Revive within 6 months’ time period.
2. Special Revival = within 2 years of the original date of commencement of
the lapsed policy.
3. Loan cum revival = Revival of the policy with taking a loan against the policy.
4. Instalment Revival = Revive the policy in instalments of the total outstanding.
 • Non Forfeiture = Policy cannot be forfeited (non-refundable) after
payment of 3 years’ premium (as per U/S-113)
• Foreclosure = Closure of the policy before maturity.
Insurance Company can foreclose the policy.

• Free-look Period/Cooling off = Policy Holder can cancel the policy within
15 days since the date he/she received the Policy Bond. Three charges can
be deducted – i) Mortality charges for the specific time period, ii) Stamp
Duty, iii) Medical Examination Fees (If any).

Nomination (U/S – 39)

Nominee = A nominee does not have any right to whole (Or part) of the Claim.
i) Name
ii) Age
iii) Relation
 • One or more than one can be nominated and there is no specific percentage.
• Nominee can be changed at any time through endorsement by the
Insurance Company and there is NO FEES.
Appointee (Guardian) – If the nominee is a minor, then policy holder will have
to appoint an appointee.
i) Name
ii) Age
iii) Relationship with both
iv) Signature of the Appointee

Assignment (U/S – 38):

Leaving the rights of the Policy benefits to the Assignee (Age – 18 years or
above) and Nomination gets cancelled.
1) Absolute Assignment = Absolutely given
2) Conditional Assignment = On condition (Like in the cases of loans)
*****
 Chapter No – 15: Underwriting
Types of underwriter –
i) Primary Underwriter = Agent (First contact to the policy holder)
ii) Secondary Underwriter = Department(al) official
Methods of Underwriting
1) Judgmental Method – Any medical examination
2) Numerical Method – From Positive points to negative points

* If the policy holder dies due to accident, claimant needs to produce

INQUEST Report.

Early death claim – If the policy holder dies within 3 years it is regarded as Early
Death Claim. In this case Company can resume an Investigation and the
investigation must have to be completed within 180 Days / 6 months.
*****
 Chapter – 16: PAYMENTS UNDER A LIFE INSURANCE POLICY

• Indisputability clause = U/S – 45 (3 years)

• Presumption of death (Court Decree) = as per the Indian Evidence Act, 1872, if the
policy holder remains missing for 7 years, policy settled as Death Claim (by Court
Decree “Presumed to be Dead”)

• Claim (Demand) must be settled by the company within 30 days’ time

period from the submission of all the documents properly. If any additional
document(s) is required, company will ask for the same to the claimant in a
single stroke manner within 15 days.
• If not settled within 30 days, Company will have pay penalty of Savings
Bank Account Interest + 2% interest.
• If Customer delays to submit documents, then Insurance Company will pay
only interest of savings bank account rate.
 *****
Chapter – 17 – 21: Health Insurance
HOELTH (Latin word) -> Health
1. Primary Health Care: Primary doctor
2. Secondary Health Care: Specialized doctor
3. Tertiary Health Care: Specialised super consultative care treatment is given.

1. Outpatient = Outdoor patient (OPD)

2. Inpatient = Min 24 hrs.
3. Day Care Centre = Max 24 hrs. (Cataract Surgery, Chemo therapy, dialysis,
Lithotripsy, * etc.)
4. Domiciliary Hospitalization Care = Medical facilities is given to the
patient at home (resumed medical facility min 3 days served).
*Lithotripsy = provided to administer treatment to Kidney Stone Patient
(basically treatment through Sound wave)
• Cashless Benefit: Where Insurance company pays directly to the hospital.
• Reimbursement Benefit: Firstly, policy holder pays for his/her treatment by
himself/herself and then submit the BILL to the insurance company. Insurance
company reimbursed it up to the limit.
TPA – Third Party Administrator
• To build a hospital, its required minimum 10 Inpatient Beds if there’s
population is below 10L, while 15 if the same is above 10 lakhs.

• Employees‟ State Insurance Scheme - introduced by ESI Act, 1948. -

Employee and Employer contribute 1.75% and 4.75% of pay roll
respectively; state governments will contribute 12.5%.

• Central Government Health Scheme (CGHS) was introduced in 1954 - this

scheme is for central government employees including pensioners and
their family members working in civilian job.
*****
 * Inter–Temporal Allocation = over time / across time.
* Efficient Allocation

Income Tax Act. 1961

U/S – 80C = Life Insurance Premium (up to Rs. 1, 50, 000/-)
U/S - 10(10D) = Total claim amount under Life Insurance policy
U/S – 80D = Health Insurance Premium
------- X -------
 ABBREVIATIONS:
1. IRDAI – Insurance Regulatory and Development Authority of India
2. IGMS – Integrated Grievance Management System
3. CPT – Current Procedure Terminology
4. IIB – Insurance Information Bureau
5. TPA – Third Party Administrator
6. NPPA – National Pharmaceutical Pricing Authority
7. ASHA – Accredited Social Health Activist
8. ANM – Auxiliary Nursing Midwife
9. GNM – General Nursing Midwife
10. PPN – Preferred Provider Network
11. TBA – Trained Birth Attendant
12. RSBY – Rashtriya Swasthya Bima Yojana
13. RKBY - Rasthriya Krishi Bima Yojana
14. COPA – Consumer Protection Act
15. MRI – Mortgage Redemption Insurance
16. RMJDY – Pradhan Mantri Jan Dhan Yojana
17. ULIP – Unit Linked Insurance Plan
18. VIP – Variable Insurance Plan