Documente Academic
Documente Profesional
Documente Cultură
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Table of contents
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SNo. TOPIC PAGE NO.
1 Introduction of Insurance 5
2 Principles of Insurance 5
3 Functions of Insurance 6
4 Types of Insurance 8
7 Children Plans 22
8 Family Plans 25
9 Statement of Problem 29
11 Recommendations 39
12 References 40
13 Appendix 41
Insurance
Insurance is basically sharing of losses. In Law and economics, insurance
is a form of risk management primarily used to hedge against the risk of
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a contingent loss. Insurance is defined as the equitable transfer of the
risk of a potential loss, from one entity to another, in exchange for a
premium. Insurer, in economics, is the company that sells the insurance.
Insurance rate is a factor used to determine the amount, called the
premium, to be charged for a certain amount of insurance coverage.
Risk management, the practice of appraising and controlling risk, has
evolved as a discrete field of study and practice.
Principles of insurance
2. Definite Loss. The event that gives rise to the loss that is subject
to insurance should, at least in principle, take place at a known
time, in a known place, and from a known cause
4. Large Loss. The size of the loss must be meaningful from the
perspective of the insured. Insurance premiums need to cover both
the expected cost of losses, plus the cost of issuing and
administering the policy, adjusting losses, and supplying the capital
needed to reasonably assure that the insurer will be able to pay
claims.
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but by the factors surrounding the sum of all policyholders so
exposed.
FUNCTIONS OF INSURANCE
1. Primary function
2. Secondary functions
3. Other functions
Primary functions
1. Provide Protection - The primary function of insurance is to
provide protection against future risk, accidents and uncertainty.
Insurance cannot check the happening of the risk, but can certainly
provide for the losses of risk. Insurance is actually a protection
against economic loss, by sharing the risk with others.
2. Collective bearing of risk - Insurance is a device to share the
financial loss of few among many others. Insurance is a mean by
which few losses are shared among larger number of people. All the
insured contribute the premiums towards a fund and out of which
the persons exposed to a particular risk is paid.
3. Assessment of risk - Insurance determines the probable volume
of risk by evaluating various factors that give rise to risk. Risk is the
basis for determining the premium rate also.
4. Provide Certainty - Insurance is a device, which helps to change
from uncertainty to certainty. Insurance is device whereby the
uncertain risks may be made more certain.
Secondary functions
1. Prevention of Losses - Insurance cautions individuals and
businessmen to adopt suitable device to prevent unfortunate
consequences of risk by observing safety instructions; installation of
automatic sparkler or alarm systems, etc. Prevention of losses
cause lesser payment to the assured by the insurer and this will
encourage for more savings by way of premium. Reduced rate of
premiums stimulate for more business and better protection to the
insured.
2. Small capital to cover larger risks - Insurance relieves the
businessmen from security investments, by paying small amount of
premium against larger risks and uncertainty.
3. Contributes towards the development of larger industries -
Insurance provides development opportunity to those larger
industries having more risks in their setting up. Even the financial
institutions may be prepared to give credit to sick industrial units
which have insured their assets including plant and machinery
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Other functions
Types of Insurance
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may cover both legal liability claims against the driver and loss of
or damage to the insured's vehicle itself.
2. Aviation insurance- insures against hull, spares,
deductible, hull war and liability risks.
3. Boiler insurance- (also known as boiler and machinery
insurance or equipment breakdown insurance) insures against
accidental physical damage to equipment or machinery.
4. Builder's risk insurance- insures against the risk of
physical loss or damage to property during construction. Builder's
risk insurance is typically written on an "all risk" basis covering
damage due to any cause (including the negligence of the insured)
not otherwise expressly excluded.
5. Business insurance- can be any kind of insurance that
protects businesses against risks. Some principal subtypes of
business insurance are (a) the various kinds of professional liability
insurance, also called professional indemnity insurance, which are
discussed below under that name; and (b) the business owners
policy (BOP), which bundles into one policy many of the kinds of
coverage that a business owner needs, in a way analogous to how
homeowners insurance bundles the coverage’s that a homeowner
needs.
6. Casualty insurance- insures against accidents, not
necessarily tied to any specific property.
7. Credit insurance- repays some or all of a loan back when
certain things happen to the borrower such as unemployment,
disability, or death. Mortgage insurance (which see below) is a
form of credit insurance, although the name credit insurance more
often is used to refer to policies that cover other kinds of debt.
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be covered under DBA. This coverage typically includes expenses
related to medical treatment and loss of wages, as well as disability
and death benefits.
11. Directors and officers liability insurance protects an
organization (usually a corporation) from costs associated with
litigation resulting from mistakes incurred by directors and officers
for which they are liable. In the industry, it is usually called "D&O"
for short.
12. Disability insurance policies provide financial support in the
event the policyholder is unable to work because of disabling illness
or injury. It provides monthly support to help pay such obligations
as mortgages and credit cards.
a. Total permanent disability insurance provides benefits when a
person is permanently disabled and can no longer work in
their profession, often taken as an adjunct to life insurance.
13. Errors and omissions insurance: See "Professional liability
insurance" under "Liability insurance".
14. Expatriate insurance provides individuals and organizations
operating outside of their home country with protection for
automobiles, property, health, liability and business pursuits.
15. Financial loss insurance protects individuals and companies
against various financial risks. For example, a business might
purchase cover to protect it from loss of sales if a fire in a factory
prevented it from carrying out its business for a time. Insurance
might also cover the failure of a creditor to pay money it owes to
the insured. This type of insurance is frequently referred to as
"business interruption insurance." Fidelity bonds and surety bonds
are included in this category, although these products provide a
benefit to a third party (the "obligee") in the event the insured
party (usually referred to as the "obligor") fails to perform its
obligations under a contract with the obligee.
16. Health insurance policies will often cover the cost of private
medical treatments if the National Health Service in the UK (NHS)
or other publicly-funded health programs do not pay for them. It
will often result in quicker health care where better facilities are
available.
17. Liability insurance is a very broad superset that covers legal
claims against the insured. Many types of insurance include an
aspect of liability coverage. For example, a homeowner's insurance
policy will normally include liability coverage which protects the
insured in the event of a claim brought by someone who slips and
falls on the property; automobile insurance also includes an aspect
of liability insurance that indemnifies against the harm that a
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crashing car can cause to others' lives, health, or property. The
protection offered by a liability insurance policy is twofold: a legal
defense in the event of a lawsuit commenced against the
policyholder and indemnification (payment on behalf of the
insured) with respect to a settlement or court verdict. Liability
policies typically cover only the negligence of the insured, and will
not apply to results of willful or intentional acts by the insured.
a. Environmental liability insurance protects the insured from
bodily injury, property damage and cleanup costs as a result
of the dispersal, release or escape of pollutants.
b. Professional liability insurance also called professional
indemnity insurance, protects professional practitioners such
as architects, lawyers, doctors, and accountants against
potential negligence claims made by their patients/clients.
Professional liability insurance may take on different names
depending on the profession. For example, professional
liability insurance in reference to the medical profession may
be called malpractice insurance. Notaries public may take out
errors and omissions insurance (E&O). Other potential E&O
policyholders include, for example, real estate brokers, home
inspectors, appraisers, and website developers.
18. Life insurance provides a monetary benefit to a decedent's family
or other designated beneficiary, and may specifically provide for
burial, funeral and other final expenses. Life insurance policies
often allow the option of having the proceeds paid to the
beneficiary either in a lump sum cash payment or an annuity.
a. Annuities provide a stream of payments and are generally
classified as insurance because they are issued by insurance
companies and regulated as insurance and require the same
kinds of actuarial and investment management expertise that
life insurance requires. Annuities and pensions that pay a
benefit for life are sometimes regarded as insurance against
the possibility that a retiree will outlive his or her financial
resources. In that sense, they are the complement of life
insurance and, from an underwriting perspective, are the
mirror image of life insurance.
19. Locked funds insurance is a little-known hybrid insurance policy
jointly issued by governments and banks. It is used to protect
public funds from tamper by unauthorized parties. In special cases,
a government may authorize its use in protecting semi-private
funds which are liable to tamper. The terms of this type of
insurance are usually very strict. Therefore it is used only in
extreme cases where maximum security of funds is required.
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20. Marine insurance and marine cargo insurance cover the loss or
damage of ships at sea or on inland waterways, and of the cargo
that may be on them. When the owner of the cargo and the carrier
are separate corporations, marine cargo insurance typically
compensates the owner of cargo for losses sustained from fire,
shipwreck, etc., but excludes losses that can be recovered from the
carrier or the carrier's insurance. Many marine insurance
underwriters will include "time element" coverage in such policies,
which extends the indemnity to cover loss of profit and other
business expenses attributable to the delay caused by a covered
loss.
21. Mortgage insurance insures the lender against default by the
borrower.
22. National Insurance is the UK's version of social insurance.
23. No-fault insurance is a type of insurance policy (typically
automobile insurance) where insured are indemnified by their own
insurer regardless of fault in the incident.
24. Nuclear incident insurance covers damages resulting from an
incident involving radioactive materials and is generally arranged at
the national level. (For the United States, see the Price-Anderson
Nuclear Industries Indemnity Act.)
25. Pet insurance insures pets against accidents and illnesses - some
companies cover routine/wellness care and burial, as well.
26. Political risk insurance can be taken out by businesses with
operations in countries in which there is a risk that revolution or
other political conditions will result in a loss.
27. Pollution Insurance. First-party coverage for contamination of
insured property either by external or on-site sources. Coverage for
liability to third parties arising from contamination of air, water, or
land due to the sudden and accidental release of hazardous
materials from the insured site. The policy usually covers the costs
of cleanup and may include coverage for releases from
underground storage tanks. Intentional acts are specifically
excluded
28. Property insurance provides protection against risks to property,
such as fire, theft or weather damage. This includes specialized
forms of insurance such as fire insurance, flood insurance,
earthquake insurance, home insurance, inland marine insurance or
boiler insurance.
29. Purchase insurance is aimed at providing protection on the
products people purchase. Purchase insurance can cover individual
purchase protection, warranties, guarantees, care plans and even
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mobile phone insurance. Such insurance is normally very limited in
the scope of problems that are covered by the policy.
30. Retrospectively Rated Insurance is a method of establishing a
premium on large commercial accounts. The final premium is based
on the insured's actual loss experience during the policy term,
sometimes subject to a minimum and maximum premium, with the
final premium determined by a formula. Under this plan, the
current year's premium is based partially (or wholly) on the current
year's losses, although the premium adjustments may take months
or years beyond the current year's expiration date. The rating
formula is guaranteed in the insurance contract. Formula:
retrospective premium = converted loss + basic premium × tax
multiplier. Numerous variations of this formula have been
developed and are in use.
31. Social insurance can be many things to many people in many
countries. But a summary of its essence is that it is a collection of
insurance coverage’s (including components of life insurance,
disability income insurance, unemployment insurance, health
insurance, and others), plus retirement savings, that mandates
participation by all citizens. By forcing everyone in society to be a
policyholder and pay premiums, it ensures that everyone can
become a claimant when or if he/she needs to. Along the way this
inevitably becomes related to other concepts such as the justice
system and the welfare state. This is a large, complicated topic that
engenders tremendous debate, which can be further studied in the
following articles (and others):
a. Social welfare provision
b. Social security
c. Social safety net
d. National Insurance
e. Social Security (United States)
f. Social Security debate (United States)
32. Terrorism insurance provides protection against any loss or
damage caused by terrorist activities.
33. Title insurance provides a guarantee that title to real property is
vested in the purchaser and/or mortgagee, free and clear of liens
or encumbrances. It is usually issued in conjunction with a search
of the public records performed at the time of a real estate
transaction.
34. Travel insurance is an insurance cover taken by those who travel
abroad, which covers certain losses such as medical expenses, lost
of personal belongings, travel delay, personal liabilities, etc.
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35. Workers' compensation insurance replaces all or part of a
worker's wages lost and accompanying medical expense incurred
because of a job-related injury.
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Build-up of businesses
Today, Kotak Mahindra group is one of the well known brands in India.
Started in 1985, kotak mahindra group is enjoying a net worth of more
than Rs.30000 crore and a leading financial institution of India.
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Insurance sector in India was opened for private players in 2001,
because of a huge proportion of India’s population was untapped by
Life Insurance corporation of India, well known by its name LIC.
Today we have more than 15 insurance layers in India, which are
competing for more and more business with approximately equal
benefits to policy holders, but with same benefits in different ways.
When we have so many options available, then it is very difficult for us
to select best plan, which can provide us best benefits. Today India’s
Insurance sector with banking sector is adding more than 7.5% to
country’s GDP. Out of all players LIC is enjoying more than 60%
business alone, but over the time LIC’s business has reduced in
percentage terms. Market share of various companies in India for 2007
is –
Rs. In crores
Insurer Till 2007 Till 2006 Market share in
percentage
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LIC 55934.69 25645.19 74.18
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10000/- to any amount, but most of the ULIP plans offer minimum
premium limit at Rs. 10000/- p.a.
Sum Assured--- Sum assured is the amount for which proposer/ insurer
want a risk cover. This can vary from minimum 5 times of annual
premium to- No. of term years*annual premium with different plans and
with different companies.
If we broadly divide all these funds into different categories, then we can
classify these funds into these categories.
2. Dynamic Bond, floating rate, gilt fund- here most of our money
will be invested in debt market and government securities, this fund
is somehow more conservative then money market fund, because
here rate of return is more than money market and it provide a
little protection against inflation. Here our more than 80% money
will be invested in debt market plus some money in money market
sometimes because of some downside trends in debt markets.
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4. Dynamic balanced- In this fund we invest our 30-60 % money in
stock market, rest of the money we can invest in debt market, this
fund is moderate than earlier plans because here it is compulsory
for us to kept our at least 30% money in stock market, which make
it more return offering and more risky fund, rest of the money can
be investing in debt and call money market according to demand
and market trends.
Top ups- Top ups are the extra money except to our regular premiums.
This facility can be seen a as a addition benefit to both the parties plan
holder as well as insurance company. If plan is working more efficiently
then policy holder can earn a good return by adding his savings to his
policy and when ever he want that money he can take this money back.
On the other hand insurance which want more and more business, they
can invest this extra money can expand their business. As most of the
insurance companies charge 2% allocation charges on Top ups, this help
them in earning extra benefits for working more efficiently. Minimum limit
for top ups is Rs.5000/- with some exceptions.
Companies are also proving additional increase in sum assured which can
be vary from 125%- 500% of amount in Top ups exceeding 25% of
regular premiums paid till the date.
Riders- Policy holder also can opt for extra benefits like accidental and
disability benefit, critical illness benefit, waivers. These benefits are
provided by most of the companies, but there are also some companies
which are providing health care benefits as well. Here it is very important
to notice that riders can be availed by a person who is at least 18 year
old.
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loan from our own, It means we can withdraw money from our fund
value, there are some restriction on withdrawal like , we can’t withdraw
money within first 3 years of our policy and in case of Insurer is a minor
then we can’t withdraw money till the minor reach the age of 18 years.
Another restriction on withdrawal is that we have to keep our fund value
at least equal to our first year’s premium amount, but there are some
companies which ask for a minimum balance of up to 150 % of first year
premium, but not more than that that in any case.
Maturity age- most of the companies are proving this option with in the
range of 70- 75 years, but there are other option as well where we can
keep on our policy activate after that age limit.
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will increase by 1 billion, enough for writing for most of the administration
charges.
Lapses- Where the premiums for the first 3 years are not paid within the
grace period, the policy together with the rider benefits, shall lapse from
the due date of unpaid premiums.
Revival period- Any lapsed policy can be revived within 2 years of the
date of lapse by payment of arrears of premiums with interest and
collection charges. Revival charges and time duration for revival is
mostly equal in all the plans with every company.
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Now after considering all of these facts, We can make a point of view that
for comparing ULIPs it is not compulsory to consider each and every
thing. There are only a few things which make all the difference between
ULIPs.
From all these differences some are company specific, and some others
are plan specific.
While comparing all these policies we can compare these policies we can
define our criteria for differentiation and comparison.
CHILDREN PLANs
Children plan are those plans which are launched targeting young
couples and who have a lot of dreams for their children, but may be
their income will not allow them to fulfill their dreams after years
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down the line when their children actually want a adequate of lump
sum with them for the purpose of higher education, professional
qualification etc. As life is uncertain, these plans are launched
keeping in mind that, whether parents will be their or not, children
can fulfill their dreams.
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Particulars Kotak Mahindra OM ICICI Prudential Bajaj Allianz Birla Sun
/Features LIFE Insurance LIFE Insurance LIFE Insurance LIFE Insurance
7. Fund value
after 2 years 194.4% / 183.6% 211.7% / 210.24% 167.2% 246.5%
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13. fund 522.4% / 503.9% 542.4% / 540.4% 490.4 607.2%
value at the
end of 4 years
14.
Allocation for 99% / 99% 95% / 95% 99% 100
5th year
15. charges 8% / 8% 8% / 8% 8% 8%
613.4% / 594.9% 629.4% / 627.4% 581.4% 697.2%
What if Sum assured + fund Sum assured + future Sum assured + Sum assured+
Proposer value will increase premium will be paid future premium enhanced sum
will die by 1000% by company on it’s will be paid by assured+ maturity
during 5th own company on it’s continuation
year of own charges
the policy
If not-
16. fund value
736.1% / 713.9% 755.3% / 752.9% 697.7% 836.6%
at the end of
5th year
17. allocation
99% / 99% 98% / 98% 99% 100%
for 6th year
835.1% / 812.9% 864.8% / 862% 796.7% 936.6%
18. charges
10 % / 10 % 10% / 10% 10% 10%
825.1% / 802.9% 862.5% / 859.5% 786.7% 926.6%
From the above table, we can assume that Birla Sun life is providing
maximum returns, but in the case of demise of proposer Kotak OM is the
most beneficiary for family of proposer.
FAMILY PLANs
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These plans are more focused on future protection and savings. As these
plans are very different from children plans, because children plans are
considered to be long term plans or most of the times considered for a
fixed time period and some of the condition make it safe for Insurance
companies to make it minimum exit period, but on the other hand Family
Plans are more transaction based plans.
Charges are more in case of family plans, in comparison to children plans.
So it becomes more difficult for any Investor to decide which policy can
give him maximum benefits.
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Particulars KOTAK OM ICICI PRU. BAJAJ ALLIANZ BIRLA SUN
/Features Safe Investment II LIFE
1. On Death Sum assured will Sum assured or fund Sum assured will be Sum assured or
be paid only after value which ever is paid only after fund value
completion of 5 higher. completion of 7 which ever is
years of policy, years of policy, higher.
before completion before completion
of 5 years only of 7 years only fund
fund value or value or premiums
premiums paid till paid till date will be
date will be paid(whichever is
paid(whichever is higher)
higher)
2. Premiums We can assume We can assume same We can assume We can assume
taken for same level of level of premiums for same level of same level of
simplification premiums for all all of the premiums for all of premiums for all
of calculation of the plans( Rs.20000) the of the
plans( Rs.20000) plans( Rs.20000) plans( Rs.20000
)
6. charges 4% 4.8% 6%
188.6% 189.1% 176.8% 4%
7. Fund value 245.2 245.83% 228.84% 205.7%
after 2 years 267.4%
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3rd year 94%
9. Charges 6% 8% 7.84%
327.7% 333.83% 319% 5.4%
10. Fund value 426% 444% 414.7% 356%
after 3 years 462.8%
11. allocation in 92.5% 96% 97%
fourth year 96%
1. When we will analyze above table for the first time then we can say
that BIRLA SUN LIFE is providing best benefits in comparison to other
companies, but this is not the only criteria to analyze performance of
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the other companies. Here we need to analyze all the facts very
closely for a better analysis. Some of these facts are as follows.
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1. Lack of brand awareness of kotak Mahindra old mutual amongst the
people of Haryana
2. Lack of confidence among the consumers on private players making it
difficult for the company to establish itself
3. Existence of other private players and competitors in the market
before entering of kotak
4. Concern on the aspect of ULIP policy on account of higher risk
quotient
5. Few agent representatives make it difficult to explore new markets
and customers
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ULIPs are not very old products for insurance sector in India. Customers
are not well aware of ULIPs. Insurance advisors are representing ULIPs
as higher return products in addition to risk cover. They are providing
only positive parts of plans and hiding risk factors attached to plan. So it
is not beneficial to survey ULIP holders for finding out reliable statistics.
Life advisors who are key players between insurance company and
customers are more reliable than customer can provide some reliable
data.
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No. of years in Insurance sector
20%
less than 2 years
The company had started its operations at Hisar in Nov. 2006 itself.
Accordingly, it has been able to attract insurance advisors ranging from a
year to 5 years or more. With a 50% ratio having only less than 2 year
experience in insurance sector, the co. has a young population at its
disposal. However, with co. also having people with experience of more
than 5 years, the co. has a good scope of promoting its policies &
improving sales.
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Awareness of Insurance plans
aware of some
17% plans
33%
aware of many
plans
50% aware of all plans
The survey brought out the interesting aspect of 50% people having
awareness of many plans but only 17% having a sound knowledge of all
the plans available in the market. However, one-third of the people
surveyed were only aware of a few plans.
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Purpose of buying an Insurance plan
20%
wealth creation
child education
53%
27% future protection
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Current & potential customers
40%
Rural Areas
Urban Areas
60%
In a place like hissar, customers are more into the rural segment. With
60% identified in the rural segment the scope for potential in insurance
business seems to be large. Here urban area does not include any big
cities, but only cities with more than population more than 50000.
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level of return & risk
As ULIPs are risk-return policies, people have varied needs for taking risk
& getting a return. Here, the customers seem more interested in taking
ULIP policies having high risk & high return. Only a few people seem to be
taking ULIP for low return. Also, more than one-third having avg. risk-
return perspective.
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Age level of Proposer
Less than 25
years
More than 45
years
The age of people going in for a insurance plan are mostly the married
people having children. This is brought forward in the survey with people
of 30-40 years & 40-45 years are the ones going in a majority. With
people in age group around 25 to 30 years less in numbers for taking a
ULIP plan.
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Customers level of income
There is also persons with a little and uncertain level of income, most of
the household, who are dependent on agriculture income, have limited
resources, and because of a few acres of land and another reason is joint
family. Yes, we can accept that now there is not so much trend of joint
families in rural India as well, but parents(Karta) of family does not to
any member to live alone ill the time all the member of the family are got
settled. On the other hand, most of the people are dependent on self
employment in agriculture sector, so their income is uncertain and their
expenses are increasing day be day, which are not in the same proportion
to increase in their income. They also want protection for their families,
so they opt for ULIPs and buy ULIPs with a little premium amount. But
there are also service persons, who are earning a fixed income, but not
so much that they can fulfill dreams of their children’s dream 10 years
down the line. Persons with higher level of income who are well aware of
market trends and want to adopt a good life style, but bank savings don’t
allow them to beat Inflation only. So they go for ULIPs because of
protection and good returns. Higher level of income society chose for
insurance plans, for
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Recommendations -
1. In the case of children Plans, headstart is the best plan, especially
in the case of death of the proposer, but if there is no case of
demise of the proposer than headstart plan is lacking behind some
how behind other companies and the one of the reason behind this
is allocation charges in the earlier years of the policy. What we can
do here is that we can increase our fund management charges by
some basic points up to (.2-.3%). This will help us in attracting
because after that also, we will be charging low fund management
charges.
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6. Brand matters a lot, Yes we are well known brand, but our presence
in Rural is not so much by the name of Kotak, we are known by
name Mahindra, so here we can play a game. We can advise our
advisors to represent the name Mahindra and kotak instead of
kotak and mahindra, because most of times we focus only on what
we say at the first place. In the case of other companies, all of
them are using their brand name, like ICICI, HDFC, BAJAJ, BIRLA at
the first place.
7. For big cities where our presence by name KOTAK is more, we can
use the same name KOTAK Mahindra.
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References-
www.kotaklifeinsurance.com
www.birlasunlife.com
www.iciciprulife.com
www.bimaonline.com
www.bajajallianz.com
www.hdfclifeinsurance.com
www.wikipedia.com
www.investopedia.com
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