Assignment on Life Insurance

COURSE CODE:BBA 224

COURSE TITLE:INSURANCE AND RISK MANAGEMENT
SUBMITTED BY:SADIA AFRIN
ID:18.01.02.019
INSTITUTE:AHSANULLAH
UNIVERSITY OF SCIENCE AND TECHNOLOGY(DEPT.
OF SCHOOL OF BUSINESS)
SUBMITTED TO:MR. MD. MAHFUJUR RAHMAN
(ASSISTANT PROFESSOR,SCHOOL OF
BUSINESS,AHSANULLAH UNIVERSITY OF SCIENCE
AND TECHNOLOGY)
Table of Contents
1.0 Introduction.........................................................................................................3
2.0 Features of Life Insurance Contract....................................................................3
2.1 Nature of General Contract.............................................................................3
2.1.1Agreement.................................................................................................4
2.1.2 Competency of the parties........................................................................4
2.1.3 Free consent of the parties........................................................................4
2.1.4 Legal consideration..................................................................................4
2.1.5 Legal objective.........................................................................................4
2.2 Insurable Interest.............................................................................................5
2.2.1 Insurable interest in other’s life...............................................................5
2.3Utmost Good Faith...........................................................................................5
2.4 Warranties........................................................................................................5
2.4.1 Breach of Warranty..................................................................................6
2.5Proximate Cause...............................................................................................6
2.6 Assignment and Nomination...........................................................................6
3.0 The Importance of Life Insurance in Economic World.......................................6
4.0 Prospects of Life Insurance.................................................................................8
5.0 Opportunities and Challenges for Business.........................................................9
6.0 References.........................................................................................................10

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 Executive Summary

Life insurance is a contract between an insurer and a

policyholder in which the insurer guarantees payment of a death
benefit to named beneficiaries when the insured dies. The
insurance company promises a death benefit in exchange for
premiums paid by the policyholder.Here is an overview of
features ,opportunities,challenges of life insurance.

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1.0 Introduction
Life insurance contract may be defined as the contract,whereby the insurer in
consideration of a premium undertakes to pay a certain sum of money either one
the death of the insured or on the expiry of a fixed period. Life policies are legal
contracts and the terms of the contract describe the limitations of the insured
events. Specific exclusions are often written into the contract to limit the liability
of the insurer; common examples are claims relating to suicide, fraud, war, riot,
and civil commotion. Most people understand the primary benefits of having life
insurance: Your family gets money if you die unexpectedly – and you get the
reassurance of knowing they’ll have resources to help carry on without you.

2.0 Features of Life Insurance Contract

1.Nature of General Contract

2.Insurable Interest
3.Utmost Good Faith
4.Warranties
5.Proximate Cause
6.Assignment and Nomination
7.Return of Premium
8.Other Features
2.1 Nature of General Contract
Since the life insurance contract is a sort of contract it is approved by the Indian
Contract Act. According to Section 2(H) and Section 10 of Indian Contract Act, a
valid contract must have the following essentialities:
1.Agreement (offer and acceptance)
2.Competency of the parties
3.Free consent of the parties
4.Legal consideration
5.Legal objective
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2.1.1Agreement
An offer or proposal is intimation to another of ones intention to do or to abstain
from doing anything with a view to obtaining the assent of that other person to
such an act or abstinence. When the person to whom the proposal or offer is made
signifies his assent to it, the offer is said to be accepted. The offer and acceptance
in life insurance is of typical nature. Submission of proposal along with the
premium is an offer and the dispatch of acceptance-letter is the acceptance.

2.1.2 Competency of the parties

The essential element of a valid Contract is that the parties to it must be legally
competent to contract. Every person is competent to contract who is of the age of
majority according to the law, who is of sound mind, and who is not disqualified
from contracting by any law. The insurer will be competent to contract if he has
got the license to carry on insurance business. Majority is attained when a person
completes age of 18 years. A minor is not competent to contract.

2.1.3 Free consent of the parties

In life insurance, both parties must know the exact nature of the risk to be
underwritten. If the consent is not free, the contract is generally avoidable at the
option of the party whose consent was not freely given.

2.1.4 Legal consideration

The presence of a lawful consideration is essential for a legal contract. The insurer
must have some consideration in return of his promise to pay a fixed sum at
maturity or death whichever may be the case. The consideration need not be
money only. It should be anything valuable or to which value may be assigned. It
may be interest, right, dividend, etc. The first premium is consideration and
subsequent premiums are merely conditions to contract.

2.1.5 Legal objective

The contract would be legal only when the object is legal. The object of a legal life
insurance contract is to protect oneself or ones family against financial losses at the

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death of the insured. The contract is, sometimes, to provide for financial
emergencies that may occur in old age.

2.2 Insurable Interest

An individual always has an insurable interest in his own life. Its presence is not
required to be proved. Bunyon says “Every man is presumed to possess an
insurable interest in his estate for the loss of his future gains or savings which
might be the result of his premature death”. The insurable interest in own life is
unlimited because the loss to the insured or his dependents cannot be measured in
terms of money and, therefore, no limit can be placed to the amount of insurance
that one may take on ones own life.
2.2.1 Insurable interest in other’s life
Life insurance can be affected on the lives of third parties provided the proposed
has insurable interest in the third party. There are two types of insurable interest in
others life. First where proof is not required and second, where proof is required.

2.3Utmost Good Faith

Life insurance requires that the principle of utmost good, faith should be preserved
by both the parties. The principle of utmost good faith says that the parties,
proposer (insured) and insurer must be of the same mind at the time of contract
because only then the risk may be correctly ascertained. They must make full and
true disclosure of the facts material to the risk.
2.4 Warranties
Warranties are an integral part of the contract, i.e., these are the basis of the
contract between the proposer and insurer and if any statement, whether material or
non-material, is untrue, the contract shall be null and void and the premium paid by
him may be forfeited by the insurer. The policy issued will contain that the
proposal and personal statement shall form part of the Policy and be the basis of
the contract. Warranties may be informative and promissory. In life insurance the
informative warranties are more important. The proposal is expected to disclose all
the material facts to the best of his knowledge and belief.

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2.4.1 Breach of Warranty
If there is breach of warranty, the insurer is not bound to perform his part of the
contract unless he chooses to ignore the breach. The effect of a breach of warranty
is to render the contract voidable at the option of the other party provided there is
no element of fraud. In case of fraudulent representation or promise, the contract
will be Void ab initio.
2.5Proximate Cause
The efficient or effective cause which causes the loss is called proximate cause. It
is the real and actual cause of loss. If the cause of loss (peril) is insured, the insurer
will pay; otherwise the insurer will not compensate. In life insurance the doctrine
of Causa Proxima (Proximate Cause) is not applicable because the insurer is bound
to pay the amount of insurance whatever may be the reason of death. It may be
natural or unnatural. So, this principle is not of much practical importance in
connection with life assurance, but in the following cases the proximate causes are
observed in the life insurance, too.
2.6 Assignment and Nomination
Notice for this purpose must be given to the insurer who will acknowledge the
assignment. Once the assignment is completed, it cannot be revoked by the
assignor because he ceases to be the owner of the Policy unless reassignment is
made by the assignee in favor of the assignor. An assignee may be the owner of the
policy both on survival of the life assured, or on his death according to the terms of
transfer. A nomination can be cancelled before maturity, but unless notice is given
of any such cancellation to the insurer, the insurer will not be liable for any
bonafide payment to a nominee registered in the records. When the policy matures,
or if the nominee dies, the sum shall be paid to the Policy-holder or his legal
representatives.

3.0 The Importance of Life Insurance in Economic World

Insurance is one of the main and important fields of the economy. The main aim of
the insurance is to protect people from risks and from dangers. As we know in
modern period there are too many accidents, bad events and unexpected dangers.
These risks can happen every time in social life.
People always think about this problem, how to escape from these risks. For this
reason insurance is considered the best tool for these problems. People use
insurance to keep their assets and life under guarantee. So, insurance gained

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popularity in the world. Insurance plays great role both in developed and
developing countries’ economy. We can show the importance of life insurance in
world economy like that.
1. Insurance provides safety and security: Insurance always provides financial
support and decreases dangers in economic and social life. First and foremost, it
must be made clear that the segment goes beyond protecting against the risk of
death.In case of life insurance financial assistance guarantee to the family of the
insured on his death.
2. Insurance makes financial resources: One of the main roles of insurance in
economy is that, it generates financial resources by collecting insurance premiums.
These funds are invested in government securities and stock. This process
increases development economy of each country.
3. Insurance increases savings: One of the main roles of insurance is that, it
encourages people’s savings. Life insurance increases people’s savings due to
payment of regular premium and it provides regime of investment. It develops a
habit of saving money by paying premium. So, insured get the lump sum amount at
the maturity of the contract . Thus life insurance encourages savings.
4. Insurance spreads risk: The insurance sector is susceptible to systemic risks
generated in other parts of the financial sector. For most classes of insurance,
however, there is little evidence of insurance either generating or amplifying
systemic risk, within the financial system itself, or in the real economy.
5. Insurance provides increasing employment in economy: One of the main
problems in economy is unemployment. Many countries suffer from this problem
nowadays. The number of unemployed people is increasing in developing
countries usually. But insurance system helps to solve this problem in economy.
So, insurance companies provides increasing employment with hiring new
workers.

Life insurers play a critical role in the private placement debt market. By
developing specialized expertise in risk analysis and monitoring, life insurance
companies provide reliable and customized funding to a segment of corporate
borrowers not well served by others. Finally, life insurers play an important role in
local and state economies, through coverage provided, benefits paid out,
investments made and jobs provided.
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4.0 Prospects of Life Insurance
Insurance consumption in any society would depend on the quantities demanded,
the quantities supplied and the price applicable to those quantities. Among the
several factors that influence the demand for life insurance are : a)Savings habit of
the members of the society. b)Religious beliefs.c)Age-group of
population.d)Political and economic stability.e)Price sensitivity of the demand for
insurance.f)Level of education and risk consciousness.g)Work Participation rate of
women.
However, there are certain prospects that inherently understand the value of life
insurance and are a lot more likely to purchase it, and purchase it from you.
1. Growing Families
Couples who have just married or are having kids are likely to purchase life
insurance. They want to protect the family they have just created and understand
that life insurance will do just that.
2. Existing Property and Casualty Customers
If you are a full lines agency, don’t underestimate the power of marketing life
insurance to your current property and casualty customers. You have already
gained the trust of these customers, so they’ll be more open to cross-selling.
3. New Business Owners
New business owners are prime candidates for life insurance. Most new businesses
have buy-sell agreements that require the owners to carry life insurance.
Businesses may also want to purchase insurance for their key employees.
4. New Homeowners
New homeowners, especially first-time home buyers, are excited about their
purchase and want to ensure that their new asset—the one that cost them all that
time, money, and effort—is protected for the long haul. Some will have bypassed
(or will still be considering) mortgage insurance—and a solid life insurance policy
can make that purchase unnecessary. Explain how you’re saving them money.
5. People with Health Issues
A lot of people don’t understand the importance of life insurance until they are
diagnosed with a serious health issue. This is unfortunate for the customer who
will have to pay very high premiums or face the risk of being turned down. These
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prospects definitely understand the value of life insurance and are willing to pay
the premiums to protect their families.
By marketing life insurance to these five prospects you are much more likely to
close sales. These prospects understand the value of life insurance and are ready to
buy. Keep your eyes and ears open for referrals from family, friends, and existing
customers.

5.0 Opportunities and Challenges for Business

Opportunities of life insurance
1. High Rate of Growth of GDP
GDP is a reflection of overall growth of economy. Reforms and deregulation of
Indian Economy has positively influenced growth rate of GDP and boosted
domestic savings. GDP has a direct bearing on disposable income, saving and
investment. Thus, when there is an increase in savings and national productivity, it
has a direct positive impact on the sale of life insurance.
2. Domestic Savings
The reforms and liberalization have exerted significant impact on income,savings
and insurance purchase. India is one of the countries in the world which has
maintained higher growth rate in domestic savings in spite of economic
deregulation and increased consumerism. This is mainly due to the higher
propensity of household sector to save. Thus, steady growth in economy,
expansion of service sector and increase in GDS all contribute significantly to the
expansion of the insurance market
.
3. Disposable Income
The disposable income is the most important factor for life insurance demand.It is
the measure of purchasing power and improvement in general economic wellbeing
of the population of a country. A part of disposable income goes for consumption
and the other part is saved and this saved part is very crucial for expansion of
insurance market.

Challenges of Life Insurance

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1. Promoting Life Insurance Literacy
Since economic and financial literacy is very low in India, insurance companies
need to create an environment of awareness and understanding about the variety of
insurance products by disseminating information and educating public about
relative benefits and strengths of insurance.
2. Differentiated Focus on Diverse Market Segment
Life Insurance market is unique and consists of unlimited critical factors with
varying degree of choices led by various concerns about saving risk, old age,
health, disposable income, seasonality in income, prioritization of consumption
etc.Therefore, market segmentation is a key concern for any insurance company
and at the same time forecasting medium to long term changes in specific market
segment is also a very challenging task. In order to increase penetration level,
marketing efforts need to be directed through market segmentation approach based
on rural and urban market, high end and low end market; pension and retirement
market etc.Although,in recent times segment specific products and marketing
strategies are being designed to deal with this issue. Nevertheless, a more scientific
approach is required to design distinct products and a specialized training to sell
them.
3. Protecting the Mortality Shocks Another critical yet not so much discussed
challenge is the emerging mortality shock as referred by Swiss Re, arising out of
natural calamities such as earthquakes, floods, volcanoes, chemical plants and
epidemics such as SARS, HIV and AIDS.These killer happenings may destroy the
little improvement in mortality. Risks arising out of these unpredictable
happenings are huge and unpredictable. These are costly but crucial challenges,
which need industrial level initiatives and serious research forprediction of such
risks. The efficiency of a life insurance company to manage suchrisks would be a
deciding factor of growth.

6.0 References
Here are some url links which I used for gathering information
https://sg.inflibnet.ac.in/bitstream/10603/106259/15/15_chapter%208.pdf
https://eprawisdom.com/jpanel/upload/articles/1215pm6.B.%20Raghavendra
%20&%20C.%20Gangadhar.pdf
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