Sei sulla pagina 1di 15

INSTITUTE OF COMMERCE, NIRMA UNIVERSITY

B.COM (HONORS) PROGRAMME


(2017-2020)

INSURANCE INDIVIDUAL ASSIGNMENT


TOPIC: INVESTMENT IN INSURANCE SECTOR

Submitted to: Prof. Niyati Nawab


Submitted on: 26/09/2019
Submitted by:
PARASKUMAR MASARIA IC171139
AKNOWLEDGEMENT

Primarily, I would thank God for the blessings which helped me to


complete this project with success. Then I would like to thank our
Professor of Insurance (INS), Prof. Niyati Nawab, whose valuable
guidance has been a great help for completing the project and make it a
success, his suggestions and his instructions has served as the major
contribution towards the completion of the project.

Then I would like to thank our parents who have helped me with their
valuable suggestions and guidance which helped us in various phases of
completion of the project. I would also like to present my gratitude towards
my friends who helped me by providing various sources to get information
regarding the project. Last but not the least I would like to thank my
classmates who have helped me a lot, directly or indirectly.
INTRODUCTION

Insurance companies generally function on two dimensional landscapes which include (a)
underwriting activity which is mainly centered on collecting premiums and honoring claim,
and (b) investment activity which is meant to dispense assets into various investments to earn
additional revenues in the form of interests, dividends and realized capital gains. Under
underwriting activity, insurance companies collect premiums from people and form an
insurance fund. The insurance fund should not be held ticking over until claims being lodged.
It should be invested through creating a float. Insurance investment activities diversify firm's
capital base and enhance its ability to settle claims when they occur. Insurance capital and
reserves are paramount hotspot of money finances of the economy. Insurance industry
particularly in emerging markets like India is playing an important role in the advancement of
capital markets, providing finance to companies and governments and bringing forward the
mechanisms for corporate control and risk management. Insurance companies additionally
decrease dependence on the banking system and acting as stun absorber now and again for
budgetary trouble (OECD, 2011). Toward the same time, the consistent streams of premium
considerably in period of business sector downturn empowers insurers to be a hotspot of
liquidity and to purchase all the holdings that are undervalued throughout the downturn when
a significant number of market players 123 sell.

Conveniently for present purposes, this means that the probability (but not the certainty) is
that overall the hypothetical insurance company will have total losses in the given year of $1
million – 1 percent risk per building times 100 $1M buildings is equivalent to one $1M
building times 100 percent.
To make money, the insurance company has to charge each building client enough for their
insurance to pay off the probable $1 million loss, plus some additional amount calculated by
its actuaries to take into account less probable outcomes and finally another amount that
represents the desired profit. For purposes of illustration, you could assume the company
needs to take in total premiums of $3 million.
Why is investment necessary?

At present, just earning money is not sufficient, as the money one earns may not be adequate
enough to fulfil the financial goals of life. Thus, it is very important to make an investment.
The savings lying ideal in the bank account is an opportunity lost. Therefore, one should invest
the money smartly in various investment plans in order to receive profitable returns out of it.
By choosing the best investment plan, one can gain maximum returns on investment over a
long-term period and can accumulate wealth to fulfil the major objectives of life.

Investment Plans

At various life stages, one need funds. An individual need to build the corpus. Whether the
need is for child's education, marriage or retirement savings. When one starts looking up for
various ways to build funds, one tends to look investment plans where your money grows
while you sit back. Because of the number of investment avenues, there is no simple solution
to it. However, the simplicity of investment plans offered by the most life insurance
companies is one of finest options available.
Investment plan is the simplest ways to build wealth over the time. Life insurance companies
offer various investment plan options. These are the wealth creation products for the future
when you will require it. It requires planning and understanding of different options
available.
Types of Insurances Investment Plans

 Unit Linked Insurance Plan Unit Linked Insurance Plan (ULIP), is a combination of
insurance and investment. In ULIP, a part of the premiums is deducted as insurance,
and the other part of the premium is invested in market. Funds can be invested in
bonds, equity, debts, market funds, or hybrid, depending on the investor. It offers
transparency about the investment of your funds which you can evaluate and track as
Net Asset Value (NAV). ULIP offers both coverage and investment options. As a
Survival Benefit, you get the Maturity amount, depending on the prevailing prices of
the units. As a Death Benefit, the nominee will receive the sum assured.
How ULIPs justify the investment needs:

Potential of Returns

The potential returns on ULIPs are lower since the ULIPs fall is a member of low-risk product,
unlike a mutual fund product.

Liquidity
ULIPs can be anytime used for money withdrawal to get through any financial emergency.
This totally depends on the investment tenure of the product.

Risk exposure

As one of the best investment plans, ULIP plans are less prone to risks because the simple ideas
of ULIPs are to provide coverage. Although ULIP plans have a variety of scope to invest its
funds the ULIPs needs to be handled diligently since they are basically insurance products.

 Endowment Plan Endowment plan is the traditional insurance product with an


investment opportunity. It is a combination of coverage and investment. Funds are not
linked to market. The premiums you pay throughout the period is divided into two
parts:

1. Part of the premium is used as an investment


2. Another part of the premiums is kept as a risk cover On maturity, the
returns are guaranteed with profit, although minimal. In case, if the
investor dies before maturity, the nominee receives the sum assured.

 Money Back Plan Money Back plan is a type of investment plan by life insurance
companies that combines investment and insurance. It offers death risk coverage and
returns as a percentage of sum assured at equal intervals. Pay premiums for a pre-
decided number of years, and receive payouts every year after the premium payment
period ends. The policyholder receives money periodically. On maturity, the rest of
the sum assured is paid back. The survival benefit also comes with terminal bonuses.
In case if the investor passes away during the term, the coverage is paid to the
nominee.
Objectives and features of Investment Plans:

Wealth
Creation

Loan Financial
Facilitator Protection

Features
Death risk
Save Taxes
Coverage

Retirement
Flexibility
Savings

Wealth Creation
Investment plans with life insurance are sure shot way to accumulate wealth over a period. As
an investor one can choose suits the best depending on the risk, returns and disposal amount
to buy a plan. In future, when you would require funds for child’s education, child’s
marriage, retirement, pension, etc. life insurance investment plans will financially aid you.
Financial Protection
Life insurance policy provides life coverage with investment options, which takes care of the
family financially as both Survival and Death Benefits are provided. At maturity,
policyholder receives the returns with profit in the pocket. This way one can provide long-
term financial security to the family. In case of an unfortunate eventuality, policyholder dies
before maturity period, the insurance company will pay the nominee the sum assured. In this
way, it provides financial protection to the family of the policyholder.
Death Risk Coverage
Not all investment avenues offer death risk coverage options. However, investment plans by
life insurance do. These plans include death risk coverage. This way, your family’s financial
needs are taken care even in your absence. The sum assured is paid to the nominee in the
event of the death of the policyholder.
Retirement Savings
One can buy these investment plans at any given time of life stage. That said, this allows you
create the corpus for the retirement. One can buy and build funds that can be used at the later
stage of life. In this way, even after retirement the investor will financially independent.
Flexibility
Flexibility of money to be invested and the duration. One can opt as feasible, depending on
the needs and planning.
Save Taxes
Investment plans are not only risk cover or wealth accumulation plans, but these plans also
help in tax savings. As per section 80C and 10(10D) of Indian Tax Act, premiums and payout
are exempted from tax. A perfect combination of savings, wealth creation, financial
protection with tax benefits.
Loan Facilitator
Life insurance investment plans also act as a loan facilitator. But, it depends on the coverage
one has taken, premiums paid, eligibility for the loan amount, etc.
Investment Parameter

Risk Tolerance

Tax
Time Horizon
Considerations

Diversification Liquidity

Marketability

 Risk Tolerance:
A measure of how much risk someone is willing to take purchasing an investment.

 Time Horizon:
The amount of time available to attend a financial objective. Time horizon affect the
investment maker used to attend goals. The longer the time horizon, the Les concern
is there about short term liability. One can invest in longer-term less liquid asset that
on a higher.

 Liquidity:
Individuals who has capacity to invest is limited or whose income expenditure floors
are uncertain or who are investing for meeting a particular personal or business
expenditure may be concerned with liquid ATI for the ability to convert investment
into cash without loss of value.

 Marketability:
An ease with which an asset can be bought or sold.

 Diversification:
The extent to which one seeks to diversify for spread the investment to reduce the
risk.

 Tax considerations:
Many investments comfort certain income Tax benefit and one may like to consider the post
tax rates of various investment.
How Insurance Company Make Money

Investment management assumes great importance in the case of insurance companies where
huge funds are collected by means of premium. Since these funds are not immediately
required to meet the liabilities, insurance companies are able to invest a major portion of fund
in investible assets and earn optimum rate of return from these investment. Investment
operation of insurance companies can reduce the cost of insurance and increase the
profitability of business. While making investment, insurance companies are guided by
certain fundamental cannons i.e. safety, profitability, liquidity, diversification and increasing
of life business.

Safety: Security of capital must be the prime consideration for insurance companies in
making their investment decision because they are entrusted with the responsibility to pay
claim as and when arises.

Profitability: The ability of insurance companies to run its business on a solvent basis
depend to a large extent on how they are invested their fund. The obligation of insurers is not
merely the security of fund, but earning a rate of return not less than that on which premium
are based

Liquidity: Liquidity represents convertibility of investments into cash without undue loss of
capital. The principle is crucial because of pressing requirement of money for payment of
claims.

Diversification: Diversification of investment simply means spreading investment over


different channels. It can be viewed as a sound policy of not relying unnecessarily on a single
class of investment

Increasing of Life Business: Investment ought to be made in those segments which are
going to profit business in the return. Naturally, the social objective principle aids in
expanding the business.
Benefits to the Companies

Rapid Growth

Health insurance changes frequently to match market demand and to keep up with politics.
With these changes usually comes growth, both in existing and new companies .The
environment of rising interest rates we’re enjoying now indicates growth in the insurance
sector. There have also been many new start up insurance companies that have done very
well. These start-ups take a different approach than typical insurance companies to reduce
rates for consumers and increase coverage.

Unique Prospects

Insurance companies encompass an entire network of premiums, attorneys, policies, and


coverage. There are life insurers, auto insurers, reinsurers, property and casual insurers,
renter’s insurers, etc. There are countless opportunities to diversify portfolios within this
industry. Each prospect is unique with pros and cons. evaluating several different types of
insurance before investing is important for being profitable.

High-Profit Potential

Insurance companies are designed for a profitable output. They have millions of customers
paying them between a few hundred to several thousand dollars every year. Small claims are
often made, but large claims are few and far between. Each claim increases insurance
premiums, which is very good for both the company and the investors.

Insurance Companies Are Risk Aware

The one thing you always want to watch out for when making a large investment is the risk.
Thankfully, insurance companies do a lot of that work for you. They’re extremely averse to
risks of any kind, and they factor that into the cost of their premiums.
Do All People Get the Insurance Money at the Time of Claim?

If ones case is a genuine case and he/she have all the necessary documentation and proofs
available, then the claims get processed without a glitch. Most insurance companies have a
claim settlement ratio of more than 90%. So in 9 out of 10 cases on an average, insured get the
insured sum when they make the claim. If they lie about their personal and other relevant details
while applying for the insurance, then it is a different matter altogether. For example if a person
does not disclose about his alcohol addiction and liver condition while applying for the
insurance to avoid paying the higher premium. The insurer is free to not pay anything to that
person, if they later find this out, when he makes the claim in times of need.

It might be wondering how the insurance companies even manage to pay more than 100-200
times the premium amount when insured claim it. It might seem unbelievable but the insurance
companies arrive at the premium amount after careful research and estimations so that the
premium collected every year from all people is slightly more than what they have to disburse
at the time of claim. If there are 100 people insured, there will be only 3 who would file a claim
and the other 97 would not. Since the insurance industry runs on volume, these odds keep the
insurance machinery well-oiled and running. The extra money that remains can be carried
forward and used in years when the number of claims goes up due to some reason.
CONCLUSION

I would like to give my concluding remarks by stating that insurance sector has a lot more
potential other that covering risk that is an individual taking a life insurance policy helps him
cover risk as well as provides various other benefits as discussed above and not only that it
also helps him from tax relaxation. With this the insurance companies who get paid with so
many premium enjoy various benefits and having a good awareness about various risk it
helps them to survive and grow easily.

Potrebbero piacerti anche