Insurance provides Insurance provides security against loss of a given contingency. A sense of security removes tension and fears.

It stimulates more and better work. The insurance provides adequate amount to the dependents at the early death of the property owner to pay off the unpaid loan. The insurance assists the family and provides adequate amount at the time of need. Systematic saving is possible because regular premiums are required to be compulsory paid. Life Insurance is a best media of saving. In India, the Insurance policies carry a special exemption from income tax and excise duty. All the needs of the individual such as family needs, old age needs, re-adjustment needs, special needs are helped by insurance for meeting requirements and necessary needs.

Insurance provides against loss of human wealth. Loss of damage of property can also be indemnified by the insurance company. As insurance provides protection against loss of property, if any such damage arises, the assets can be replaced without loss of production. Thus, Economic development of the country is not affected. Adequate capital from insurance company accelerates production cycle in the country. Economic growth of the country is assured and the process of growth is accelerated which is essential in a country like India where the population is increasing very fast. In the form of premium the Insurance Company gets lot of money supply from the public which insurance corporation put into production. Thus the money which would have come into circulation might have gone for productive purposes.

1.5 FUNCTIONS OF INSURANCE

(A) Primary Functions: 1. Provision of certainty of payment at the time of loss. The element of uncertainty is reduced by better planning and administrations. The insurer charges premium for providing certainty. Life without risks and uncertainties is unthinkable. Man encounters risks of various types since the inception of civilization. Minor risks can be ignored but the major risks cannot be ignored and their avoidance is desirable. One of the ways or techniques of meeting the risk and loss prevention is insurance. It removes all uncertainties and the assured is given certainty of payment of loss.

2. Provision of protection. Another function of the insurance is to provide protection against the probable chances of loss. The insurance cannot check the happening of risk in future but it can surely provide for losses to the assured by charging premium.

3. Risk sharing. Risk is uncertain and therefore, the loss arising from the risk is also certain. All business concerns face the problem of risk. If the concern is big enough the handling of risk becomes a specialized function. Risk and insurance are interwoven with each other. Insurance is the outcome of the existence of various risks in our day to day life. It does not eliminate

risks but it reduces the financial loss caused by risks. It spreads the whole loss over a large number of persons who are exposed by a particular risk.

(B) Secondary Functions: 1. Prevention of Loss. Prevention is always better than cure. Prevention of loss is by far the best solution to the problem of risk. It is the most effective and cheapest method to avoid the unfortunate consequences. For example fire can be prevented by having the fire resistant construction, observing safety instructions, installation of automatic sparkler system etc. similarly, automobile accidents can be minimized and life span can be prolonged by better roads, better lights and better traffic regulations by providing better medical facilities. But sometimes prevention of protection is not possible and effective. When prevention fails other methods must be adopted. The insurance joins hands with those institutions which are actively engaged in preventing the losses of the society. Reduction in loss causes lesser payment to the assured and so more saving is possible which will assist in reducing the premium. Lesser premium invites more business and more business in its turn results in lesser share to the assured. Reduced premiums stimulate more business and better protection to the insured.

2. Provision of capital: Insurance provides capital to the society there is a great need for huge amount of capital for planned development of a country. The accumulated funds are invested in providing proper infrastructure and n investing in productive channel. The insurance companies are rendering

positive help in the development of trade, commerce and industries of a country though different schemes of investments. A countrys natural resources can be exploited with the long term ad huge amounts of investments by the insurance companies. The development of Australia and Canada has resulted due to the assistance given by the sun Life Insurance Company of Canada and the National Mutual Insurance Association of Australia. In India since nationalization, the Life Insurance Association of Australia. In India since nationalization, the Life Insurance Corporation has been playing an important and spectacular role in socio-economic development.

3. Improvement of efficiency: The Insurance eliminates worries and miseries of losses as death and destruction of property. A care free person can devote his energies for better achievement of goals. It improves not only his efficiency but the efficiencies of the masses are also advanced.

4. Ensuring welfare of the society: Insurance is a saga of service and security. Security of life and property given by it brings peace of mid to the insureds. The investment of L.I.C in welfare schemes like electricity, housing water supply, agriculture, agro industries and industrial estates has solved many pressing problems in India. The expansion of the held of insurance and industrialization automatically lead to better scope.

1.6 CLASSIFICATION OF INSURANCE

Classification of insurance business has evolved over the centuries as insurance has developed, depending upon the nature and type of business. The various types of covers have been grouped into several classes. These classifications have come about by practice within insurance companies, and by the influence of legislation controlling the transacting of insurance business. insurance business have developed into: Two broad divisions of

a) b)

Long-term and General or non-life insurance business, which is mainly short term

mostly one year.

Long-Term: Long-Term insurance business refers to life, industrial life, insured pensions and permanent health insurance business which are normally issued for long periods-running into several years or even for whole of life time of the insured. In this context, life business is referred to as ordinary life business to distinguish it from industrial life business.

General or non-life insurance business: Policies under general insurance business, also referred to as non-life insurance business, are normally issued for

twelve months or shorter durations. Recently long-term agreements have made an entry into this type of business but the duration does not normally exceed five years.

Self Assessment Questions I:

1. Business of insurance is related to the protection of the ___________ values of assets.

2. Insurance contract is a contract for _________ benefit.

3. The _________ in India carry a special exemption from income tax and excise duty.

4. Insurance is a saga of service and ____________.

1.7 LIFE INSURANCE

Life insurance is the business of affecting the contracts of insurance upon human life, including any contract whereby the payment of money is assured on death or the happening of any contingency dependant on human life and any contract which is subject to the payment of premiums for a term dependant on human life. Characteristics of Life Insurance: In life insurance, unlike in general insurance, the promise has to be redeemed sooner or later. No claim is to be paid on a fire insurance policy, if there was no fire during the term of the policy. But the holder of a life insurance policy will have to be paid earlier, if he dies. Or later if he survives the term. The amount payable on a claim arising in life insurance is not in doubt. It is as mentioned in the policy. The amount payable in a claim arising in general insurance depends on the extent of damage, and has to be determined through surveys and assessment. Most of the claimants have not suffered a loss. They are survivors, asking for fulfillment of a promise in circumstances which are not tragic. Claimants of death benefits are people different from the ones who had taken out the policy, and perhaps know little about the circumstances and conditions under which the policy was taken and had been looked after. Almost all polices are long-term ones. Most of the polices are for term of 15 years or more. There could even be terms of 40 years or more.

1.8 IMPORTANCE OF LIFE INSURANCE

Security and safety: In case of life insurance payment is made when death occurs or the term of insurance is expired. In other words, insurance as security is provided against the loss of a given contingency.

Peace of mind: A sense of security removes all tensions and fears. It stimulates more and better work. By means of insurance much of the uncertainty that centres round the modern life may be eliminated.

Protects mortgaged property: The insurance provides adequate amount to the dependents at the early death of the property owner to pay off the unpaid loan.

Eliminates savings: In the event of death of the bread winner of the family or destruction of property, the family suffers a lot. The insurance assists the family and provides adequate amount at the time of need.

Encourages savings: Systematic saving is possible because regular premiums are required to be compulsorily paid. Unlike bank deposits the deposited insurance premiums cannot be withdrawn. Life Insurance is the best media of saving.

Provides profitable Investment: The elements of investment, i.e., regular saving, capital formation and return of the capital are observed in life insurance. In India, the Insurance policies carry a special exception from income tax and estate duty.

Fulfils the need of a Person: The needs of a person may be divided into (i) Family needs, (ii) Old age needs, (iii) Re-adjustment needs, (iv) Special needs including needs for education, marriage settlement of children etc. (v) Clean up funds for ritual ceremonies, payment of taxes etc. Insurance helps for meeting requirements and necessary needs.

1.9 FACTORS AFFECTING LIFE INSURANCE A life insurance policy is an agreement between you and your insurance company. An agreement cannot take place without the consent of both the parties involved in the contract. You will be charged premiums based on how you are rated on several pre-determined factors "Health" being one of the major factors.

Out of the many factors analyzed during the underwriting process, the health of the applicant attracts special attention. Medical examinations are carried out to learn more about your medical profile. We have thrown some light on certain health

related aspects taken into account by the insurance company before granting life insurance coverage. Learn how health and life insurance are related and why the words "Better Health, Lower Rates" are so meaningful!

Your age is also a factor in the cost of life insurance. If you want to attract lower insurance premiums then you might consider insuring yourself at a younger age. The premiums go up as we age. But if you buy that policy today, you will lock in that premium rate for length of the term - 10, 15, 20 years. A woman's life expectancy is longer than a man's. Thus women may pay a lower premium.

Insurance companies will check your existing medical records and conduct new medical tests in order to focus on certain specific areas to ascertain your insurance cost. These tests would include checking your cholesterol level, blood pressure, among other things. Your basic build, in the form of Height: Weight ratio shall also be calculated at the time of these tests. If the results are not according to the pre-defined standards set by the Insurance Company then you could be charged an extra amount of premium.

Health disorders such as asthma, sleep apnea, heart disease, a family history of certain illnesses, coupled with other factors could increase your cost of insurance.

Our society is suffering from a high rate of health disorders such as alcoholism and excessive smoking. Insurance companies will verify your alcoholic consumption and smoking patterns to calculate the life insurance premium. Although, insurance companies do not clearly define heavy alcohol consumption, excessive consumption of alcohol and smoking could result in higher premiums.

Your occupation also has an impact on your health and consequently your life expectancy. Insurance companies do adjust their premium rates for those who have extraordinary occupations considered "risky" such as scuba diving, mountain climbing, parachuting, piloting a plane, and others.

In brief, insurance companies would take into consideration all the possible information that directly or indirectly affects your life or well being before finalizing your insurance premium. 1.10 DEVELOPMENT OF LIFE INSURANCE The early development of life assurance was closely linked with that of marine insurance. The first life assurers were marine insurance underwriters, who started issuing policies on the life of a merchant, master and the crew of the ship, sailing along with the goods. If a ship was captured, the insurer paid the ransom needed to secure release of the captain and the sailors. Life assurance policies were granted during the reign of Queen Elizabeth these early contracts took the form of temporary assurance covering the life assured for a short period only. These were issued by private individuals known as underwriters who formed Mutual assurance associations which were in a way, self-insurance clubs. They issued annuities and pensions for a fixed period or for life to provide relief to widows on the death of their husbands. The first recorded life policy was issued on 18th June, 1583. 8D. For which some sixteen underwriters were responsible. However this first policy was subject to a dispute over payment because the policy-holders died within 11 months of issuing the policy. The underwriters contended that the policy periods of twelve months related to lunar months, which has expired. Happily, the court ruled that payment must be made.

It was in the eighteenth century that societies began to be formed with the object of granting life assurances. The amicable society (1705), the Equitable Life Assurance society (1762) the Westminster society (1792) were some important societies. The application of the mortality tables in 1755 by Dodson and societies. The application of the mortality tables in 1755 by Dodson and the introduction of actuarial science revolutionized the whole concept of life insurance. As the life assurances became better known, a practice grew up of speculating in lives, particularly of well-known people, like kings, national leaders or prisoners particularly, if charged with an offence that would call for capital punishment upon conviction. The premiums varied with their reputation and state of health. If persons of this category fell seriously ill, a huge amount of insurance was written. In order to put an end to this speculation, with its attendant evils, an Act called the Life Assurance Act (commonly known as the Gambling Act) was Passed in 1774. It prohibited all insurance on lives except those satisfying insurable interest requirements.

During the early years of the nineteenth century a large number of life assurance companies were formed a large number of companies failed and many of them preferred to amalgamate their business. In order to stabilize the business further, Life Assurance Companies Act, 1870 was passed. Further Acts were passed in 1871 and 1871.

The above legislation was repealed by the Assurance Companies Act, 1909, which was applied to all classes of insurance business. Later on, various acts were passed to meet the growing needs of the industry and to protect the insured. Some of these acts are: Industrial Assurance Act, 1923, Assurance Companies Act, 1946, Insurance Companies Act, 1958 and the Companies Act, 1967

Self Assessment Questions II

1. Risk is uncertain and therefore the loss arising from the risk is also ________.

2. ____________ is the best media of saving.

3. The elements of investment are regular saving; ___________ and return of the capital are observed in life insurance.

1.12 SUMMARY

The basic premise of globalization is opening up of new service markets to provide the developing countries with new opportunities for the expansion of trade and

economic growth. In the new economic reality of globalization, insurance companies face a dynamic global business environment.

Business of insurance is related to the protection of the economic values of assets. Large numbers of persons share loss arising due to a particular risk. No doubt that insurance is a co-operative device. Insurance provides security against loss of a given contingency. A sense of security removes tension and fears. Insurance provides against loss of human wealth. Loss of damage of property can also be indemnified by the insurance company. Functions of insurance are classified as primary functions and secondary functions. Primary functions include provision of certainty of payment at the time of loss, provision of protection & risk sharing. Secondary functions include prevention of loss, provision of capital, Improvement of efficiency and ensuring welfare of the society. Life insurance is the business of affecting the contracts of insurance upon human life, including any contract whereby the payment of money is assured on death or the happening of any contingency dependant on human life and any contract which is subject to the payment of premiums for a term dependant on human life.