Insurance session

WELCOME TO THE WEALTH MANAGEMENT COURSE - SESSION 4S G Raja Sekharan

Wealth management courseSession 1 Overview of Financial planning and Wealth

management

Session 2 Equity, Debt, Mutual funds.

Session 3 / 4 Equity, Debt, Mutual funds

Session 5 Insurance, Derivatives, Bullion

Session 6 Real Estate, Private Equity, Venture Capital

Session 7 Macro Economics -Monetary and Fiscal policies, Inflation and interest rate

Session 8 Tax planning, Retirement planning, Estate planning

Session 9 Wealth management Industry in India and relationship management as a career

Session 9 Executive interaction

Session 10 Final wrap up

TYPES ON LIFE INSURANCE POLICIES IN INDIA

TRADITIONAL PRODUCTS

Plans of Insurance

Term Product Pure Endowment

Risk Cover OnlyNo Survival

Benefit

Survival Benefit onlyNo Risk Cover

TRADITIONAL PRODUCTS

Term Insurance

Whole Life Insurance

Annuities

Endowment

WHOLE LIFE POLICY

A whole life policy runs as long as the policyholder is alive.

A simple whole life policy requires the insurer to pay regular premiums throughout the life. Sometimes the insurer pays for a term of 15-20 years.

The insured amount and the bonus is payable only to the nominee of the beneficiary upon the death of the policyholder. There is no survival benefit as the policyholder is not entitled to any money during his / her own lifetime. Sometimes the survival benefit is paid at the age of 85 years

EXAMPLE OF WHOLE LIFE POLICY FROM RELIANCE

Age /sex - 25 years, male Premium paying term – 20 years Policy term – 60 years ( till 85 years of age) Sum assured -Rs 100 lacs Installment premium – Rs 2.66 lacs per

annum In case of death of the policy holder anytime

till his 85th year, the nominee will get Rs 100 lacs plus a bonus that keeps accumulating every year (the amount is not guaranteed).

TERM LIFE INSURANCE POLICY

Provide the Death Benefit if the Insured dies within the specified term

Specified TermPure Risk Cover

High Risk Cover Low CostPremiums increase with age

TERM INSURANCE EXAMPLE

Age 25No of years 20Sum assured 1,00,00,000.00

Annual Term insurance premiumAEGON Religare 8100Aviva -Life shield plus 13199Birla Sunlife High net worth term plan 12800SBI Life shield 19040

ENDOWMENT POLICY An endowment life insurance policy is designed primarily to

provide a living benefit and only secondarily to provide life insurance protection. Therefore, it is more of an investment than a whole life policy.

Endowment policies covers risk for a specified period, at the end of which the sum assured is paid back to the policyholder, along with the bonus accumulated during the term of the policy

Endowment life insurance pays the face value of the policy either at the insured's death or at a certain age or after a number of years of premium payment

When compared to whole life policies, the premium rates for endowment policies are higher and the bonus rates lower.

The endowment amount paid at the maturity of the policy can be used for meeting major expenditures such as children's education and marriage, etc.

ENDOWMENT INSURANCE PLAN

Benefits ofEndowment

Money at Maturity-

Sum Assured

Money in case of deathDeath Benefit

With Bonus Policy

KOTAK ENDOWMENT PLAN

Age /sex – 25 years Premium paying term – 5 years Policy term -30 years Sum assured – Rs 100 lacs Annual premium –Rs 10.94 Guranteed benefit on death for 30 years –Rs 100

lacs Plus benefits that will accumulate over 30 years

and paid back ( IRR cannot be guaranteed)

EDUCATIONAL & MARRIAGE ENDOWMENT

These plans serve two basic needs for children

Education

Marriage

The plan gives S.A at a stipulated

date which coincideswith the age of son or

daughter when money

is required for

MONEY BACK POLICY Money back policy provides for periodic payments of partial

survival benefits during the term of the policy, as long as the policyholder is alive.

They differ from endowment policy in the sense that in endowment policy survival benefits are payable only at the end of the endowment period.

An important feature of money back policies 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-back components. The bonus is also calculated on the full sum assured

This type of policy is perfect for individuals who are in their late 30s or early 40s and are looking at significant payouts after 10-15 years to fund their children's higher education, marriage and other expenses

AEGON RELIGARE MONEY BACK PLAN You choose the protection (sum assured) you need. Based on the age and the sum assured, the premium per

year is calculated. For 25 years age and sum assured of Rs 100 lacs, the

premium is Rs 11,18,600 per annum. Premium paid for 10 years You get back 10% of sum assured at 4th year ( Rs 10 lacs) You get back 20% of sum assured at 8th year ( Rs 20 lacs) You get back 30% of sum assured at 12th year ( Rs 30 lacs) You get back 60% of sum assured at 16th year ( Rs 60 lacs) In case of Death in these 16 years – you get sum assured ( Rs

100 lacs) There is also bonus based on the profits from funds managed

by the company that will accrue over the period

AEGON RELIGARE MONEY BACK PLANyear payment returns term cost Net cashflow

01 January 2010 1118600 -8100 1110500

01 January 2011 1118600 -8100 1110500

01 January 2012 1118600 -8100 1110500

01 January 2013 1118600 -8100 1110500

01 January 2014 1118600 -1000000 -8100 110500

01 January 2015 1118600 -8100 1110500

01 January 2016 1118600 -8100 1110500

01 January 2017 1118600 -8100 1110500

01 January 2018 1118600 -2000000 -8100 -889500

01 January 2019 1118600 -8100 1110500

01 January 2020 -8100 -8100

01 January 2021 -8100 -8100

01 January 2022 -3000000 -8100 -3008100

01 January 2023 -8100 -8100

01 January 2024 -8100 -8100

01 January 2025 -8100 -8100

01 January 2026 -6000000 -8100 -6008100

01 January 2027 -8100 -8100

01 January 2028 -8100 -8100

01 January 2029 -8100 -8100

01 January 2030 -8100 -8100

01 January 2031 -8100 -8100

IRR for this cashflow is 1.055%We have not accounted for the bonuses yet and that will be extra

JOINT LIFE POLICY Covers two people under one policy.

The SA is paid on the death of any of the insured persons during the term or at the end of the term

Some plans also provide payment of SA on death of one life, and the policy is continued to cover the second life till maturity without payment of further premium.

If both the lives assured survive the date of maturity, only basic sum assured is paid

Bonus accrue on a single sum assured only

JOINT LIFE PLAN

In case of partnership insurance, the partnership deed will be examined to ascertain the nature of financial interest of each partner

Each life will be underwritten separately

A joint life declaration is necessary to create a joint

interest in the policy

Joint declaration

GROUP INSURANCE POLICY Group insurance offers life insurance protection under group

policies to various groups such as employers-employees, professionals, co-operatives, weaker sections of society, etc

It also provides insurance coverage for people in certain approved occupations at the lowest possible premium cost.

Many employees see group insurance coverage as a major perk for faithful company service.

The main advantages of the group insurance schemes are low premium and simple insurability conditions. Premiums are based upon age combination of members, occupation and working conditions of the group.

A major feature of group insurance is that the premium cost on an individual basis may not be risk-based

LOAN COVER TERM ASSURANCE POLICY

Loan cover term assurance policy is an insurance policy, which covers a home loan.

The cover on such a policy keeps reducing with the passage of time as individuals keep paying their EMIs (equated monthly instalments) regularly, which reduces the loan amount.

The premium of loan cover term assurance policy is structured in a manner to cover the outstanding amount of the loan.

PENSION PLAN OR ANNUITIES

Contract under which insurer makes series of periodic payments in exchange for annuity considerations

Annuity Contract

InsurerAnnuity Benefit Payments

Periodic Payments

Premiums

Insured

IMMEDIATE ANNUITY

Immediate AnnuityAs per Return Rates

Benefit payments (Pension) begin one annuity period after

purchaseQuarterl

ySemi-

AnnuallyMonthly Annually

Purchase price in Lump sum.

DEFERRED ANNUITY

PurchaseDate

Deferment period

Period between purchase and

beginning of benefit payments

Payout Period

Period during which insurer makes benefit

payments

Vesting AgePremiums/Consideration

Annuity payments

TYPES OF ANNUITIES

Duration of Benefits

Life Annuity

Benefit payments for at least the lifetime of a

named person

Annuity CertainBenefit

payments for a time period

stated in annuity contract

LIFE INSURANCE V/S ANNUITY

Life insurance covers the risk of dying too early

Annuity covers the risk of living too long

Annuity is the reverse of life insurance

RETIREMENT /PENSION PLANSAEGON RELIGARE INSTA PENSION PLAN

Eligibility is minimum 50 years and max 85 years

Premium – Single premium For Rs.1000 premium – you will get annual

pension of Rs 42.79 ( age 50th year) For Rs.1000 premium – you will get annual

pension of Rs 165.78 ( age 85th year)

UNIT LINKED INSURANCE PLANS Unit linked insurance plan (ULIP) is life insurance solution that provides

for the benefits of risk protection and flexibility in investment. The investment is denoted as units and is represented by the value that

it has attained called as Net Asset Value (NAV). The policy value at any time varies according to the value of the underlying assets at the time.

ULIP investors have the option of investing across various schemes, i.e, diversified equity funds, balanced funds, debt funds etc. in a ULIP, the investment risk is generally borne by the investor.

In a ULIP, investors have the choice of investing in a lump sum (single premium) or making premium payments on an annual, half-yearly, quarterly or monthly basis.

Investors also have the flexibility to alter the premium amounts during the policy's tenure

UNIT LINKED PLANS

These products are called unbundled products

The policy holder is allocated units which are valued every week

Premium

. Mortality Charges

Investment Element

Expenses

They are more transparent in nature

Are Unbundled Plans

UNIT LINKED INSURANCE PLANS Expenses charged in a ULIP:

Premium allocation charge Mortality charges Fund management fee Administration charges Surrender charges Fund switching charge

ULIP EXAMPLE –AEGON RELIGARE FUTURE PROTECTION PLAN

You decide on the Sum assured or the premium you wish to pay every year

Decide on the no of years (policy term) Decide on the investment options (Secure,

Debt, Stable, Accelerator) – or Invest protection option

For 25 years old, male, for 20 years term and for Rs 100 lacs Sum assured, the premium is Rs 10 lacs per annum .


For 25 years old, male, for 20 years term and for Rs 100 lacs sum assured, the premium is Rs 10 lacs per annum - what do you get for it?

On Maturity – you will receive the fund value existing on the maturity date.

Settlement option – instead of taking the full fund on maturity date, you can take it in installments over a max of 5 years from maturity date –investment risk is yours.

On Death – the nominee will get the sum assured or the fund value – whichever is higher

Partial with drawl / Discontinuance terms


What they don’t tell you directly: The various charges:

Premium Allocation charge Policy Administration charge Mortality charge Fund management charge


Premium allocation chargeYear % Amount

1 4.50% 45,000.00

2 4% 40,000.00

3 4% 40,000.00

4 3% 30,000.00

5 3% 30,000.00

6 2% 20,000.00

7 2% 20,000.00

8 2% 20,000.00

9 2% 20,000.00

10 2% 20,000.00

11 1% 10,000.00

12 1% 10,000.00

13 1% 10,000.00

14 1% 10,000.00

15 1% 10,000.00

16 1% 10,000.00

17 1% 10,000.00

18 1% 10,000.00

19 1% 10,000.00

20 1% 10,000.00

Policy administration chargeYear % Amount

1 1.80 18,000.00

2 1.89 18,900.00

3 1.98 19,845.00

4 2.08 20,837.25

5 2.19 21,879.11

6 2.30 22,973.07

7 2.41 24,121.72

8 2.53 25,327.81

9 2.66 26,594.20

10 2.79 27,923.91

11 2.93 29,320.10

12 3.08 30,786.11

13 3.23 32,325.41

14 3.39 33,941.68

15 3.56 35,638.77

16 3.74 37,420.71

17 3.93 39,291.74

18 4.13 41,256.33

19 4.33 43,319.15

20 4.55 45,485.10


Year Total charges% or

premium

1 63,000.00 6.30

2 58,900.00 5.89

3 59,845.00 5.98

4 50,837.25 5.08

5 51,879.11 5.19

6 42,973.07 4.30

7 44,121.72 4.41

8 45,327.81 4.53

9 46,594.20 4.66

10 47,923.91 4.79

11 39,320.10 3.93

12 40,786.11 4.08

13 42,325.41 4.23

14 43,941.68 4.39

15 45,638.77 4.56

16 47,420.71 4.74

17 49,291.74 4.93

18 51,256.33 5.13

19 53,319.15 5.33

20 55,485.10 5.55

This does not include the mortality charge

And the fund management charge

Compare this with the Rs 8100 Per annum for term insurance by the same company

GROUP TASKS FOR NEXT CLASS

Group 4- please look at the current IPO offer of Oberoi realty and come back with your analysis of whether we must invest in it or not.

Group 5 - Make a 10 minute presentation on Investment opportunities in Bullion in India

Wealth management courseSession 1 Overview of Financial planning and Wealth

management

Session 2 Equity, Debt, Mutual funds.

Session 3 / 4 Equity, Debt, Mutual funds

Session 5 Insurance, Derivatives, Bullion

Session 6 Real Estate, Private Equity, Venture Capital

Session 7 Macro Economics -Monetary and Fiscal policies, Inflation and interest rate

Session 8 Tax planning, Retirement planning, Estate planning

Session 9 Wealth management Industry in India and relationship management as a career

Session 9 Executive interaction

Session 10 Final wrap up

THANK YOU

Insurance session

Business

Transcript of Insurance session