insurance as an investment - for merge
TRANSCRIPT
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Insurance as
an investment
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T.Y.B B I INSURANCE AS AN INVESTMENT
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HYPOTHESISOBJECTIVE OF THE STUDY
Objectives of a project tell us why project has been taken under study. It
helps us to know more about the topic that is being undertaken and helps us to
explore future prospects of the topic.
The various research objectives of the study are:
To study the Insurance facilities offered by the Insurancecompanies to its customers.
To study as to how much Insurance has penetrated in the mindsof the customers.
To explore the future prospects of Insurance. To study the benefits that are provided to the individual under
Insurance.
PURPOSE OF THE STUDY
The main purpose of this study to get an overview of the Insurance sector in the
Indian economy and study as to how it has helped as an investments in the minds
of customers.
The aim of this project is to develop a insurance as an investment tocustomers.
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Create a Insurance system that is easily accessible by customers from thecomfort of their homes, offices etc.
Reduce the flow of human traffic and long queues at Insurance offices. Promote efficient and effective Insurance for the companies by focusing on
those services that still require physical presence to the public.
IMPORTANCE OF THE STUDY
This will cover the benefits derived in using Insurance and its fundamental.
INSURANCE HOW IS IT INVESTMENT? Many consumers today are turning
to the ease and convenience of Insurance to take care of their financial needs and
future events. To know the customer perception of the study.
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RESEARCH AND METHODOLOGYDATA COLLECTION
Primary data: -Primary data are those which are collected fresh and for the first time and
thus happen to be original in chapters. I have collected my data through phone
calling and through direct communication with respondents in one form or another
or through personal interviews. Through observation method I was able to record
the natural behavior of the group. Sometimes I verify the truth of statements made
by informants in the context of a questionnaire or a schedule.
Secondary data :-Data are those data which are being already collected by someone else and
which have already been passed through the statistical process. I have collected my
published date form Internet and the books, magazines and newspapers.
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EXECUTIVE SUMMARYThis is an study to attempt the insurance sector in India has completed all
the facets of competition from being an open competitive market to being
nationalized and then getting back to the form of a liberalized market once again.
India Life Insurance sector came into existence with the nationalization of Life
Insurance Corporation (LIC) in 1956. At that time, all private companies were
taken over by LIC.
The IT in insurance sector is an important key factor. Through the online
insurance it possible to insurance companies to compete in the competition world.
It is the one of the requirement of modern business world.
Anyone that uses a computer and has internet services will find that online
insurance companies are packed with many benefits. There are hundreds of
insurance companies that have online websites that allows their customers conduct
all of the business they need to stay insured.
The Internet is a powerful tool for the savvy online consumer. We can
review products, compare prices, research companies and purchase almost
anything. It takes a lot of work and may take several years to become a successful
online insurance agent.
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INTRODUCTION
In one form or another, we all own insurance. Whether it's auto, medical,
liability, disability or life, insurance serves as an excellent risk-management and
wealth-preservation tool. Having the right kind of insurance is a critical component
of any good financial plan. While most of us own insurance, many of us don't
understand what it is or how it works. In this tutorial, we'll review the basics of
insurance and how it works, then take you through the main types of insurance out
there. (To read more about insurance, see our Special Insurance Feature.)
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INSURANCE:
Insurance is a form of risk management in which the insured transfers the
cost of potential loss to another entity in exchange for monetary compensation
known as the premium. (For background reading, see The History Of Insurance In
Investopedia.comthe resource for investing and personal finance education.
INVESTMENT :
Investment is the commitment of money or capital to purchase financial
instruments or other assets in order to gain profitable returns in the form of interest,
income, or appreciation of the value of the instrument. Investment is related to
saving or deferring consumption.
An investment involves the choice by an individual or an organization such
as a pension fund, after some analysis or thought, to place or lend money in a
vehicle, instrument or asset, such as property, commodity, stock, bond, financial
derivatives (e.g. futures or options), or the foreign asset denominated in foreign
currency, that has certain level of risk and provides the possibility of generating
returns over a period of time. When an asset is bought or a given amount of money
is invested in the bank, there is anticipation that some return will be received from
the investment in the future.
Investment is a term frequently used in the fields of economics, business
management and finance. It can mean savings alone, or savings made through
delayed consumption. Investment can be divided into different types according to
various theories and principles.
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BRIEF HISTORY OF INSURANCEThe story of insurance is probably as old as the story of mankind. The same
instinct that prompts modern businessmen today to secure themselves against loss
and disaster existed in primitive men also. They too sought to avert the evil
consequences of fire and flood and loss of life and were willing to make some sort
of sacrifice in order to achieve security. Though the concept of insurance is largely
a development of the recent past, particularly after the industrial era past few
centuriesyet its beginnings date back almost 6000 years.
With the establishment of Oriental Life Insurance Company in Kollata, Life
Insurance in its modern form came to India from England in the year 1818.
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Important milestones in the Indian life insurance business
1912: The Indian Life Assurance Companies Act enacted as the first statute to
regulate the life insurance business.
1928: The Indian Insurance Companies Act enacted to enable the government to
collect statistical information about both life and non-life insurance businesses.
1938: Earlier legislation consolidated and amended to by the Insurance Act with
the objective of protecting the interests of the insuring public.
1956: 245 Indian and foreign insurers and provident societies are taken over by the
central government and nationalised. LIC formed by an Act of Parliament, viz. LIC
Act, 1956, with a capital contribution of Rs. 5 crore from the Government of India.
The General insurance business in India, on the other hand, can trace its roots to
the Triton Insurance Company Ltd., the first general insurance company
established in the year 1850 in Calcutta by the British.
Important milestones in the Indian generalinsurance business
1907: The Indian Mercantile Insurance Ltd. set up, the first company to transact all
classes of general insurance business.
1957: General Insurance Council, a wing of the Insurance Association of India,
frames a code of conduct for ensuring fair conduct and sound business practices.
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1968: The Insurance Act amended to regulate investments and set minimum
solvency margins and the Tariff Advisory Committee set up.
1972: The General Insurance Business (Nationalisation) Act, 1972 nationalised the
general insurance business in India with effect from 1st January 1973.
107 insurers amalgamated and grouped into four companies viz. the National
Insurance Company Ltd., the New India Assurance Company Ltd., the
Oriental Insurance Company Ltd. and the United India Insurance Company
Ltd. GIC incorporated as a company.
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FUNDAMENTALS OF INSURANCE
How does insurance work? Insurance works by pooling risk.What does this
mean? It simply means that a Investopedia.com the resource for investing and
personal finance education.
large group of people who want to insure against a particular loss pay their
premiums into what we will call the insurance bucket, or pool. Because the number
of insured individuals is so large, insurance companies can use statistical analysis
to project what their actual losses will be within the given class. They know that
not all insured individuals will suffer losses at the same time or at all. This allows
the insurance companies to operate profitably and at the same time pay for claims
that may arise. For instance, most people have auto insurance but only a few
actually get into an accident. You pay for the probability of the loss and for the
protection that you will be paid for losses in the event they occur.
RISKS :
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Life is full of risks - some are preventable or can at least be minimized,
some are avoidable and some are completely unforeseeable. What's important to
know about risk when thinking about insurance is the type of risk, the effect of that
risk, the cost of the risk and what you can do to mitigate the risk. Let's take the
example of driving a car. (For more insight on the concept of risk, seeDetermining
Risk And The Risk Pyramid.) Type of risk: Bodily injury, total loss of vehicle,
having to fix your car The effect: Spending time in the hospital, having to rent a
car and having to make car payments for a car that no longer exists The costs: Can
range from small to very large Mitigating risk: Not driving at all (risk avoidance),
becoming a safe driver (you still have to contend with other drivers), or
transferring the risk to someone else (insurance) Let's explore this concept of risk
management (or mitigation) principles a little deeper and look at how you may
apply them. The basic risk management tools indicate that risks that could bring
financial losses and whose severity cannot be reduced should be transferred. You
should also consider the relationship between the cost of risk transfer and the value
of transferring that risk.
RISK CONTROL :
There are two ways that risks can be controlled. You can avoid the risk
altogether, or you can choose to reduce your risk.
RISK FINANCING :
If you decide to retain your risk exposures, then you can either transfer that
risk (ie. to an insurance company), or you retain that risk either voluntarily (ie. you
identify and accept the risk) or involuntarily (you identify the risk, but no
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Investopedia.com the resource for investing and personal finance education
insurance is available).
RISK SHARING :
Finally, you may also decide to share risk. For example, a business owner
may decide that while he is willing to assume the risk of a new venture, he may
want to share the risk with other owners by incorporating his business. So, back to
our driving example. If you could get rid of the risk altogether, there would be no
need for insurance. The only way this might happen in this case would be to avoid
driving altogether. Also, if the cost of the loss or the effect of the loss is reasonableto you, then you may not need insurance. For risks that involve a high severity of
loss and a low frequency of loss, then risk transference (ie. insurance) is probably
the most appropriate protection technique. Insurance is appropriate if the loss will
cause you or your loved ones a significant financial loss or inconvenience. Do keep
in mind that in some instances, you are required to purchase insurance (i.e. if
operating a motor vehicle). For risks that are of low loss severity but high loss
frequency, the most suitable method is either retention or reduction because the
cost to transfer (or insure) the risk might be costly. In other words, some damages
are so inexpensive that it's worth taking the risk of having to pay for them yourself,
rather than forking extra money over to the insurance company each month.
THE RISK MANAGEMENT PROCESS:
After you have determined that you would like to insure against a loss, the
next step is to seek out insurance coverage. Here you have many options available
to you but it's always best to shop around. You can go directly to the insurer
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through an agent, who can bind the policy. The process of binding a policy is
simply a written acknowledgement identifying the main components of your
insurance contract. It is intended to provide temporary insurance protection to the
consumer pending a formal policy being issued by the insurance company. It
should be noted that agents work exclusively for the insurance company. There are
two types of agents:
1. Captive Agents: Captive agents represent a single insurance company and are
required to only do business with that one company.
2. Independent Agent: Independent agents represent multiple companies and
work on behalf of the client (not the insurance company) to find the most
appropriate policy.
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WHAT IS INVESTMENT ?
Investment is the commitment of money or capital to purchase financial
instruments or other assets in order to gain profitable returns in the form of interest,
income, or appreciation of the value of the instrument. Investment is related tosaving or deferring consumption.
An investment involves the choice by an individual or an organization
such as a pension fund, after some analysis or thought, to place or lend money in a
vehicle, instrument or asset, such as property, commodity, stock, bond, financial
derivatives (e.g. futures or options), or the foreign asset denominated in foreign
currency, that has certain level of risk and provides the possibility of generating
returns over a period of time. When an asset is bought or a given amount of money
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is invested in the bank, there is anticipation that some return will be received from
the investment in the future.
Investment is a term frequently used in the fields of economics, business
management and finance. It can mean savings alone, or savings made through
delayed consumption. Investment can be divided into different types according to
various theories and principles.
While dealing with the various options of investment, the defining terms of
investment need to be kept in mind.
INVESTMENT IN TERMS OF ECONOMICS :
According to economic theories, investment is defined as the per-unit
production of goods, which have not been consumed, but will however, be used for
the purpose of future production. Examples of this type of investments are
tangible goods like construction of a factory or bridge and intangible goods like 6
months of on-the-job training. In terms of national production and income, Gross
Domestic Product (GDP) has an essential constituent, known as gross investment.
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INVESTMENT IN TERMS OF BUSINESS MANAGEMENT:
According to business management theories, investment refers to tangible
assets like machinery and equipments and buildings and intangible assets like
copyrights or patents and goodwill. The decision forinvestment is also known as
capital budgeting decision, which is regarded as one of the key decisions.
INVESTMENT IN TERMS OF FINANCE:
In finance, investment refers to the purchasing of securities or other
financial assets from the capital market. It also means buying money market or real
properties with high market liquidity. Some examples are gold, silver, real
properties, and precious items. Financial investments are in stocks, bonds, and
other types of security investments. Indirect financial investments can also be
done with the help of mediators or third parties, such as pension funds, mutual
funds, commercial banks, and insurance companies.
PERSONAL FINANCE& REAL ESTATE:
According to personal finance theories, an investment is the implementation
of money for buying shares, mutual funds or assets with capital risk . According to
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real estate theories, investment is referred to as money utilized for buying property
for the purpose of ownership or leasing. This also involves capital risk.
COMMERCIAL REAL ESTATE:
Commercial real estate involves a real estate investment in properties for
commercial purposes such as renting
RESIDENTIAL REAL ESTATE:
This is the most basic type of real estate investment, which involves buying
houses as real estate properties.
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INSURANCE WHICH ACT AS INVESTMENT
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Pension :
A pension is a fixed sum paid regularly to a person, typically, given
following a retirement from service.[1] Pensions should not be confused with
severance pay; the former is paid in regular installments, while the latter is paid in
one lump sum.
The terms retirement plan or superannuation refer to a pension granted upon
retirement.[2]Retirement plans may be set up by employers, insurance companies,
the government or other institutions such as employer associations or trade unions.
Called retirement plans in the United States, they are commonly known as pension
schemes in the United Kingdom and Ireland and superannuation plans or super[3]in
Australia and New Zealand. Retirement pensions are typically in the form of a
guaranteed life annuity, thus insuring against the riskoflongevity.
A pension created by an employer for the benefit of an employee is
commonly referred to as an occupational or employer pension. Labor unions, the
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government, or other organizations may also fund pensions. Occupational pensions
are a form of deferred compensation, usually advantageous to employee and
employer for tax reasons. Many pensions also contain an additional insurance
aspect, since they often will pay benefits to survivors or disabled beneficiaries.
Other vehicles (certain lotterypayouts, for example, or an annuity) may provide a
similar stream of payments.
The common use of the term pension is to describe the payments a person receives
upon retirement, usually under pre-determined legal and/or contractual terms. A
recipient of a retirement pension is known as a pensioneror retiree.
Types of pensions
EMPLOYMENT-BASED PENSIONS (RETIREMENT PLANS)
A retirement plan is an arrangement to provide people with an income during
retirement when they are no longer earning a steady income from employment.
Often retirement plans require both the employer and employee to contribute
money to a fund during their employment in order to receive defined benefits upon
retirement. It is a tax deferred savings vehicle that allows for the tax-free
accumulation of a fund for later use as a retirement income. Funding can be
provided in other ways, such as from labor unions, government agencies, or self-
funded schemes. Pension plans are therefore a form of "deferred compensation". A
SSAS is a type of employment-based Pension in the UK.
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SOCIAL AND STATE PENSIONS
Many countries have created funds for their citizens and residents to provide
income when they retire (or in some cases become disabled). Typically thisrequires payments throughout the citizen's working life in order to qualify for
benefits later on. A basic state pension is a "contribution based" benefit, and
depends on an individual's contribution history. For examples, see National
Insurance in the UK, or Social Security in the USA. Many countries have also put
in place a "social pension". These are regular, tax-funded non-contributory cash
transfers paid to older people. Over 80 countries have social pensions.[4] Examples
are the Old Age Grant in South Africa and the Universal Superannuation scheme in
New Zealand.
DISABILITY PENSIONS
Some pension plans will provide for members in the event they suffer a disability.
This may take the form of early entry into a retirement plan for a disabled member
below the normal retirement age.
BENEFITS
Retirement plans may be classified as defined benefit or defined contribution
according to how the benefits are determined.[4]A defined benefit plan guarantees
a certain payout at retirement, according to a fixed formula which usually depends
on the member's salary and the number of years' membership in the plan. A
defined contribution plan will provide a payout at retirement that is dependent
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upon the amount of money contributed and the performance of the investment
vehicles utilized.
Some types of retirement plans, such as cash balance plans, combine features of
both defined benefit and defined contribution plans. They are often referred to as
hybrid plans. Such plan designs have become increasingly popular in the US since
the 1990s. Examples include Cash Balance and Pension Equity plans.
DEFINED BENEFIT PLANS
Main article: Defined benefit pension plan
A traditional defined benefit (DB) plan is a plan in which the benefit on retirement
is determined by a set formula, rather than depending on investment returns. In the
US, 26 U.S.C. 414(j) specifies a defined benefit plan to be any pension plan that
is not a defined contribution plan (see below) where a defined contribution plan is
any plan with individual accounts. A traditional pension plan that defines a benefit
for an employee upon that employee's retirement is a defined benefit plan.
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Traditionally, retirement plans have been administered by institutions which exist
specifically for that purpose, by large businesses, or, for government workers, by
the government itself. A traditional form of defined benefit plan is the final salary
plan, under which the pension paid is equal to the number of years worked,
multiplied by the member's salary at retirement, multiplied by a factor known as
the accrual rate. The final accrued amount is available as a monthly pension or a
lump sum, but usually monthly.
The benefit in a defined benefit pension plan is determined by a formula that can
incorporate the employee's pay, years of employment, age at retirement, and other
factors. A simple example is a Dollars Times Service plan design that provides a
certain amount per month based on the time an employee works for a company.
For example, a plan offering $100 a month per year of service would provide
$3,000 per month to a retiree with 30 years of service. While this type of plan is
popular among unionized workers, Final Average Pay (FAP) remains the most
common type of defined benefit plan offered in the United States. In FAP plans,
the average salary over the final years of an employee's career determines thebenefit amount.
Averaging salary over a number of years means that the calculation is averaging
different dollars. For example, if salary is averaged over five years, and retirement
is in 2009, then salary in 2004 dollars is averaged with salary in 2005 dollars, etc.,
with 2004 dollars being worth more than the dollars of succeeding years. The
pension is then paid in first year of retirement dollars, in this example 2009 dollars,
with the lowest value of any dollars in the calculation. Thus inflation in the salary
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averaging years has a considerable impact on purchasing power and cost, both
being reduced equally by inflation
This effect of inflation can be eliminated by converting salaries in the averaging
years to first year of retirement dollars, and then averaging.
In the United Kingdom, benefits are typically indexed for inflation (known as
Retail Prices Index (RPI)) as required by law for registered pension plans.[5]
Inflation during an employee's retirement affects the purchasing power of the
pension; the higher the inflation rate, the lower the purchasing power of a fixed
annual pension. This effect can be mitigated by providing annual increases to thepension at the rate of inflation (usually capped, for instance at 5% in any given
year). This method is advantageous for the employee since it stabilizes the
purchasing power of pensions to some extent.
If the pension plan allows for early retirement, payments are often reduced to
recognize that the retirees will receive the payouts for longer periods of time. In the
United States, under the Employee Retirement Income Security Act of 1974, any
reduction factor less than or equal to the actuarial early retirement reduction factor
is acceptable.[6]
Many DB plans include early retirement provisions to encourage employees to
retire early, before the attainment of normal retirement age (usually age 65).
Companies would rather hire younger employees at lower wages. Some of those
provisions come in the form of additional temporary or supplemental benefits,
which are payable to a certain age, usually before attaining normal retirement age.
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FUNDING
Defined benefit plans may be either funded or unfunded.
In an unfunded defined benefit pension, no assets are set aside and the benefits are
paid for by the employer or other pension sponsor as and when they are paid.
Pension arrangements provided by the state in most countries in the world are
unfunded, with benefits paid directly from current workers' contributions and
taxes. This method of financing is known as Pay-as-you-go (PAYGO or PAYG).[8]
The social security systems of many European countries are unfunded[citation needed],
having benefits paid directly out of current taxes and social security contributions,
although several countries have hybrid systems which are partially funded. Spain
set up the Social Security Reserve Fund and France set up the Pensions Reserve
Fund; in Canada the wage-based retirement plan (CPP) is funded, with assets
managed by the CPP Investment Board while the U.S. Social Security system is
funded by investment in special U.S. Treasury Bonds.
In a funded plan, contributions from the employer, and sometimes also from plan
members, are invested in a fund towards meeting the benefits. The future returns
on the investments, and the future benefits to be paid, are not known in advance, so
there is no guarantee that a given level of contributions will be enough to meet the
benefits. Typically, the contributions to be paid are regularly reviewed in a
valuation of the plan's assets and liabilities, carried out by an actuary to ensure that
the pension fund will meet future payment obligations. This means that in adefined benefit pension, investment risk and investment rewards are typically
assumed by the sponsor/employer and not by the individual. If a plan is not well-
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funded, the plan sponsor may not have the financial resources to continue funding
the plan. In many countries, such as the USA, the UK and Australia, most private
defined benefit plans are funded[citation needed], because governments there provide tax
incentives to funded plans (in Australia they are mandatory). In the United States,
non-church-based private employers must pay an insurance-type premium to the
Pension Benefit Guaranty Corporation, a government agency whose role is to
encourage the continuation and maintenance of voluntary private pension plans
and provide timely and uninterrupted payment of pension benefits.
CRITICISMS
Traditional defined benefit plan designs (because of their typically flat accrual rate
and the decreasing time for interest discounting as people get closer to retirement
age) tend to exhibit a J-shaped accrual pattern of benefits, where the present value
of benefits grows quite slowly early in an employee's career and accelerates
significantly in mid-career: in other words it costs more to fund the pension for
older employees than for younger ones (an "age bias"). Defined benefit pensions
tend to be less portable than defined contribution plans, even if the plan allows a
lump sum cash benefit at termination. Most plans, however, pay their benefits as
an annuity, so retirees do not bear the risk of low investment returns on
contributions or of outliving their retirement income. The open-ended nature of
these risks to the employer is the reason given by many employers for switching
from defined benefit to defined contribution plans over recent years. The risks tothe employer can sometimes be mitigated by discretionary elements in the benefit
structure, for instance in the rate of increase granted on accrued pensions, both
before and after retirement.
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The age bias, reducedportability and open ended risk make defined benefit
plans better suited to large employers with less mobile workforces, such as the
public sector (which has open-ended support from taxpayers). This coupled with a
lack of foresight on the employers part means a large proportion of the workforce
are kept in the dark over future investment schemes.
Defined benefit plans are sometimes criticized as being paternalistic as they enable
employers or plan trustees to make decisions about the type of benefits and family
structures and lifestyles of their employees. However they are typically more
valuable than defined contribution plans in most circumstances and for most
employees (mainly because the employer tends to pay higher contributions than
under defined contribution plans), so such criticism is rarely harsh.
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The "cost" of a defined benefit plan is not easily calculated, and requires an actuary
or actuarial software. However, even with the best of tools, the cost of a defined
benefit plan will always be an estimate based on economic and financial
assumptions. These assumptions include the average retirement age and lifespan of
the employees, the returns to be earned by the pension plan's investments and any
additional taxes or levies, such as those required by the Pension Benefit Guaranty
Corporation in the U.S. So, for this arrangement, the benefit is relatively secure but
the contribution is uncertain even when estimated by a professional.
EXAMPLES
Many countries offer state-sponsored retirement benefits, beyond those provided
by employers, which are funded by payroll or other taxes. The United States Social
Security system is similar to a defined benefit pension arrangement, albeit one that
is constructed differently than a pension offered by a private employer.
Individuals that have worked in the UK and have paid certain levels of national
insurance deductions can expect an income from the state pension scheme after
their normal retirement. The state pension is currently divided into two parts: the
basic state pension, State Second [tier] Pension scheme called S2P. Individuals will
qualify for the basic state pension if they have completed sufficient years
contribution to their national insurance record. The S2P pension scheme is
earnings related and depends on earnings in each year as to how much an
individual can expect to receive. It is possible for an individual to forgo the S2Ppayment from the state, in lieu of a payment made to an appropriate pension
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scheme of their choice, during their working life. For more details see UK pension
provision.
DEFINED CONTRIBUTION PLANS
Main article: Defined contribution plan
In a defined contribution plan, contributions are paid into an individual account for
each member. The contributions are invested, for example in the stock market, and
the returns on the investment (which may be positive or negative) are credited to
the individual's account. On retirement, the member's account is used to provide
retirement benefits, sometimes through the purchase of an annuity which then
provides a regular income. Defined contribution plans have become widespread all
over the world in recent years, and are now the dominant form of plan in the
private sector in many countries. For example, the number of defined benefit plans
in the US has been steadily declining, as more and more employers see pension
contributions as a large expense avoidable by disbanding the defined benefit plan
and instead offering a defined contribution plan.
Money contributed can either be from employee salary deferral or from employer
contributions. The portability of defined contribution pensions is legally no
different from the portability of defined benefit plans. However, because of the
cost of administration and ease of determining the plan sponsor's liability for
defined contribution plans (you do not need to pay an actuary to calculate the lump
sum equivalent that you do for defined benefit plans) in practice, defined
contribution plans have become generally portable.
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In a defined contribution plan, investment risk and investment rewards are
assumed by each individual/employee/retiree and not by the sponsor/employer. In
addition, participants do not necessarily purchase annuities with their savings upon
retirement, and bear the risk of outliving their assets. (In the United Kingdom, for
instance, it is a legal requirement to use the bulk of the fund to purchase an
annuity.)
The "cost" of a defined contribution plan is readily calculated, but the benefit from
a defined contribution plan depends upon the account balance at the time an
employee is looking to use the assets. So, for this arrangement, the contribution is
known but the benefit is unknown (until calculated).
EXAMPLES :
In the United States, the legal definition of a defined contribution plan is a
plan providing for an individual account for each participant, and for benefits
based solely on the amount contributed to the account, plus or minus income,
gains, expenses and losses allocated to the account (see 26 U.S.C. 414(i)).
Examples of defined contribution plans in the United States include Individual
Retirement Accounts (IRAs) and 401(k) plans. In such plans, the employee is
responsible, to one degree or another, for selecting the types ofinvestments toward
which the funds in the retirement plan are allocated. This may range from choosing
one of a small number of pre-determined mutual funds to selecting individual
stocks or othersecurities.
Most self-directed retirement plans are characterized by certain tax
advantages, and some provide for a portion of the employee's contributions to be
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largely borne by the plan sponsor. As with defined contribution designs, plan
benefits are expressed in the terms of a notional account balance, and are usually
paid as cash balances upon termination of employment. These features make them
more portable than traditional defined benefit plans and perhaps more attractive to
a more highly mobile workforce. Target benefit plans are defined contribution
plans made to match (or resemble) defined benefit plans.
CONTRASTING TYPES OF RETIREMENT PLANS
Advocates of defined contribution plans point out that each employee has the
ability to tailor the investment portfolio to his or her individual needs and financial
situation, including the choice of how much to contribute, if anything at all.
However, others state that these apparent advantages could also hinder some
workers who might not possess the financial savvy to choose the correct
investment vehicles or have the discipline to voluntarily contribute money to
retirement accounts. This debate parallels the discussion currently going on in the
U.S., where many Republican leaders favor transforming the Social Security
system, at least in part, to a self-directed investment plan.
FINANCING
There are various ways in which a pension may be financed.
This section requires expansion.
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Defined contribution pensions, by definition, are funded, as the "guarantee" made
to employees is that specified (defined) contributions will be made during an
individual's working life.
There are many ways to finance your pension and save for retirement. Pension
plans can be set up by your employer, matching your contribution each month, by
the state or personally through a pension scheme with a financial institution, such
as a bank or brokerage firm. Pension plans often come with a tax break depending
on the country and plan type.
For example Canadians have the option to open aRegistered Retirement SavingsPlan (RRSP), as well as a range of employee and state pension programs[9]. This
plan allows contributions to this account to be marked as un-taxable income and
remain un-taxed until withdrawal. Most countrys governments will provide advice
on pension schemes.
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TYPES OF INSURANCE AS AN INVESTMENT
VEHICLE INSURANCE :
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Coverage: An auto insurance policy typically covers you and your spouse,
relatives who live in your home and other licensed drivers to whom you give
permission to drive your car. The policy is "package protection", which
provides coverage for both bodily injury and property damage liability as
well as physical damage to your vehicle. This damage can include both that
caused by the collision and damage cause by things "other than collision",
such as flood, fire, wind, hail, etc. (For more insight, read Shopping For Car
Insurance.)
Common Types of Coverage: Auto insurance typically covers personalinjury (PIP), medical payments, uninsured motorist, underinsured motorist,
auto rental, emergency road assistance and other damages to your car not
caused by a collision such as flood, fire and vandalism. Other coverage is
available, too.
Deductible: The deductible is the amount that you will pay out of pocketwhen you file a claim. Typically, the higher the deductible, the lower your
premiums.
Insurance Rates: How much you pay will depends on many factors,including your driving record, the value of your vehicle, where you drive,
how much you drive, your marital status, your desired coverage, your age,
sex and even your credit history.
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HOME INSURANCE :
Our homes and their contents are our greatest assets. That is why it is so
imperative that we protect their value. Homeowners insurance helps us achieve
that goal. Let's break down the different concepts that encompass this area. (For
background reading, see Beginners' Guide To Homeowners Insurance.)
Coverage: Homeowners insurance typically covers the dwelling (thestructure), personal property and contents, and some forms of personal
liability. The policy may cover direct and consequential loss resulting from
damage to the property itself, loss or damage to personal property, and
liability for unintentional acts arising out of the non-business, non-
automobile activities of the insured and members of that insured's
household.
FLOOD INSURANCE :
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financially and put you and your family in debt for years. So what is health
insurance and how does it work? Health insurance is a type of insurance that pays
for medical expenses in exchange for premiums. The way it works is that you pay
your monthly or annual premium and the insurance policy contracts healthcare
providers and hospitals to provide benefits to its members at a discounted rate.
This is how hospitals and healthcare providers get listed in your insurance provider
booklet. They have agreed to provide you with healthcare at the specified cost.
These costs include medical exams, drugs and treatments referred to as "covered
services" in your insurance policy.
As with any type of insurance, there are exclusions and limitations. To know
what these are, you have to read your policy to find out what is covered and what
is not. If you elect to have a medical procedure done that is not covered by your
insurance, you will have to pay for that service
The range of coverage for expenses varies depending on the type of plan, as
will the restrictions. You can purchase the insurance directly from the insurance
company through an agent or through an independent broker but most people get
their insurance coverage through employer-sponsored programs.
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This insurance helps you to prevent the losses against theft, fire, burglary or
any natural calamity like Earthquake, Floods etc. based on the points mentioned in
the policy.DISABILITY INSURANCE:
Aside from health insurance, disability is a very critical type of insurance
individuals should consider having. When it comes to your personal finances, long-
term disability can have a devastating effect if you are not prepared. Think about
this: the probability of becoming at least temporarily disabled during your working
years is higher than the probability of dying during your working years. (For
related reading, see The Disability Insurance Policy: Now In English.) Disability
insurance can replace a portion of the salary you were making before you became
disabled and unable to work after a serious injury or illness. But before you seek
coverage, you should first understand the different types of disability definitions
used by insurers.
LONG-TERM CARE INSURANCE :
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Name From To
C. B. Bhave 18 February 2008 18 February 2011
M. Damodaran 18 February 2005 18 February 2008
G. N. Bajpai 20 February 2002 18 February 2005
D. R. Mehta 21 February 1995 20 February 2002
S. S. Nadkarni 17 January 1994 31 January 1995
G. V. Ramakrishna 24 August 1990 17 January 1994
Dr. S. A. Dave 12 April 1988 23 August 1990
FUNCTIONS AND RESPONSIBILITIES
SEBI has to be responsive to the needs of three groups, which constitute the
market:
the issuers of securities the investors the market intermediaries.
SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial and
quasi-executive. It drafts regulations in its legislative capacity, it conducts
investigation and enforcement action in its executive function and it passes rulings
and orders in its judicial capacity. Though this makes it very powerful, there is an
appeals process to create accountability. There is a Securities Appellate Tribunalwhich is a three-member tribunal and is presently headed by a former Chief Justice
http://en.wikipedia.org/wiki/C._B._Bhavehttp://en.wikipedia.org/wiki/M._Damodaranhttp://en.wikipedia.org/wiki/Quasi-legislativehttp://en.wikipedia.org/wiki/Quasi-judicialhttp://en.wikipedia.org/wiki/Quasi-judicialhttp://en.wikipedia.org/wiki/Quasi-legislativehttp://en.wikipedia.org/wiki/M._Damodaranhttp://en.wikipedia.org/wiki/C._B._Bhave -
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of a High court - Mr. Justice NK Sodhi. A second appeal lies directly to the
Supreme Court.
SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively
and successively (e.g. the quick movement towards making the markets electronic
and paperless rolling settlement on T+2 basis). SEBI has been active in setting up
the regulations as required under law.
SEBI has also been instrumental in taking quick and effective steps in light of the
global meltdown and the Satyam fiasco. It had increased the extent and quantity of
disclosures to be made by Indian corporate promoters. More recently, in light ofthe global meltdown,it liberalised the takeover code to facilitate investments by
removing regulatory structures. In one such move, SEBI has increased the
application limit for retail investors to Rs 2 lakh, from Rs 1 lakh at present
POWERS
For the discharge of its functions efficiently, SEBI has been invested with thenecessary powers which are:
1. to approve bylaws of stock exchanges.2. to require the stock exchange to amend their bylaws.3. inspect the books of accounts and call for periodical returns from recognised
stock exchanges.
4. inspect the books of accounts of a financial intermediaries.5. compel certain companies to list their shares in one or more stock
exchanges.
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6. levy fees and other charges on the intermediaries for performing itsfunctions.
7. grant licence to any person for the purpose of dealing in certain areas.8. delegate powers exercisable by it.
prosecute and judge directly the violation of certain provisions of the companies
Act.
The SEBI passed a stunning order of banning 14 life insurance companies
involved in serving ULIP products, on the ground that they were akin to mutual
funds and may need to obtain registration from SEBI to proceed further with it.
The 14 insurers among the list of companies banned by the SEBI from selling
ULIPs include as on
1. Aegon Religare Life Insurance Company Limited2. Aviva Life Insurance Company India Limited3. Bajaj Allianz Life Insurance Company Limited4. Bharti AXA Life Insurance Company Limited
http://www.sebi.gov.in/cmorder/ULIPOrder.pdfhttp://www.aegonreligare.com/http://www.avivaindia.com/http://www.bajajallianzlife.co.in/http://www.bharti-axalife.com/http://www.bharti-axalife.com/http://www.bajajallianzlife.co.in/http://www.avivaindia.com/http://www.aegonreligare.com/http://www.sebi.gov.in/cmorder/ULIPOrder.pdf -
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5. Birla Sun Life Insurance Company Limited6. HDFC Standard Life Insurance Company Limited7. ICICI Prudential Life Insurance Company Limited8. ING Vyasa Life Insurance Company Limited9. Kotak Mahindra Old Mutual Life Insurance Limited10.Max New York Life Insurance Co. Limited11.Metlife India Insurance Company Limited12.Reliance Life Insurance Company Limited13.SBI Life Insurance Company Limited14.TATA AIG Life Insurance Company Limited
ULIP is saving-cum-investment product that offers the option of life cover along
with market liked returns. These products are increasingly gaining popularity
among the investors on account of its multi-purpose catering of life cover and
equity market linked returns both. Additionally, they also provide Tax savings, so
they could very called All-in-One Policies.
However, SEBIs contention is that ULIPs are not pure insurance products and
such products are coupled with investment products which fall under its purview of
regulation. The investment component of the ULIPs, which ultimately finds its
way into the equity markets, is in the nature of mutual funds which falls under the
jurisdiction of SEBIs governance.
However, the spat does not end over here. In a reaction to the SEBI order,IRDA retaliated on Saturday by invoking its power under section 34(1) of the
Insurance Act, directing insurance companies to disregard the order from SEBI and
proceed further with their business as usual.
http://www.birlasunlife.com/http://www.hdfcinsurance.com/http://www.hdfcinsurance.com/http://www.inglife.co.in/http://www.kotaklifeinsurance.com/http://www.maxnewyorklife.com/http://www.maxnewyorklife.com/http://www.maxnewyorklife.com/http://www.metlife.co.in/http://www.metlife.co.in/http://www.metlife.co.in/http://www.reliancelife.com/http://www.reliancelife.com/http://www.reliancelife.com/http://www.sbilife.co.in/http://www.sbilife.co.in/http://www.sbilife.co.in/http://www.tata-aig-life.com/http://www.tata-aig-life.com/http://www.tata-aig-life.com/http://www.tata-aig-life.com/http://www.sbilife.co.in/http://www.reliancelife.com/http://www.metlife.co.in/http://www.maxnewyorklife.com/http://www.kotaklifeinsurance.com/http://www.inglife.co.in/http://www.hdfcinsurance.com/http://www.hdfcinsurance.com/http://www.birlasunlife.com/ -
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As pointed out at the start of this post, the parent should come ahead and
resolve the issue if the fight is getting out of bounds among the two children. A
drama involving as important an issue of conflict as this requires a prompt
redressing from the highest quarters as the Finance Ministry or even the PMO,
where stakes of gullible public are involved due to no fault of their own.
MY VIEW:
The spat between the top two regulators is invoking a comical sequence of
events in front of the world regarding the misplacement and dichotomy aspect of
the Indian law. The tragic drama initially involved a ruling passed by SEBI
authorities under the SEBI Act. However, the same ruling has been subsequently
quashed by the IRDA under Insurance Act.
The spat between the SEBI and IRDA could adversely impact the interest of
policyholders and insurers if the uncertainty prevails for a longer period of time.
The coming week could pan out as a high voltage event if the regulators continue
to take potshots against each other and in the process sandwich the sentiments of
policyholders.
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SEBI V/S IRDAThere is merit in the argument that Unit Linked Insurance Plans (ULIPs)
from insurance companies are more investments than insurance products.
Therefore, the Securities and Exchange Board of India appears to be well within its
rights in seeking jurisdiction over these products. However it must be said SEBI
perhaps has pressed the trigger a little too soon instead of exploring the option of
further discussions for resolving its differences with the insurance regulator.
Insurance players often take the stance that ULIPs should be exempt from SEBI's
purview because they are either contracts of insurance'' or bundled'' products
where the life cover is a vital and inseparable part of the structure. However, this
argument does not hold much water if one looks at how ULIPs are structured and
marketed today. Only a fraction of annual subscription paid by the investor goes to
secure his life cover; much of it goes into building a market-linked portfolio.
Mortality charges' (premium deducted for life cover) of some recently launched
ULIPs are as low as 2 per cent of the subscription. It follows that a good part of therisk associated with such ULIPs too is market-related and borne by the investor.
Then, it is their promise of market returns and not insurance cover (which can be
obtained at a far lower cost) that has made these plans a hit with retail investors.
That SEBI should have some measure of oversight over players managing
ULIPs is also desirable from a broader market perspective. At last count, insurance
companies managed more equity money and invested more in stocks than even
domestic mutual funds. If the insurance aspect of a ULIP cannot be separated from
the investment part, products with a sizeable investment component (say, over 51
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per cent of subscription) can perhaps register both with SEBI and the insurance
regulator. At stake, is not so much the issue of insurers offering investment-
oriented products being registered with SEBI. Rather it is one of streamlining
charges, disclosure of information relating to investment risks and commission
parity with distributors of mutual funds, so as to create a level playing field among
financial intermediaries.
Despite this, SEBI banning insurers from collecting additional
subscriptions on ULIPs that are already in force seems unduly harsh on retail
investors who run the risk of their policies facing a premature closure. SEBI has
not also helped its cause by singling out a few private insurers while allowing
others, especially those in the public sector, to continue to market these products.
In the event, the Centre-brokered compromise of restoring the status quo is the
only viable course of action although it is unfortunate that the Government has left
the matter to be decided by the Courts thus effectively abdicating its policy setting
role for these regulators.
SEBI versus IRDABattle Ensues over ULIPs
No comments and 3,610 views
Posted in Finance, Insurance, Investment, News, Stock Market.
Posted in Finance, Insurance, Investment, News. The ULIPs controversy that
started with the stock market regulator SEBI banning 14 Insurance companies from
issuing fresh ULIPs has drawn from fresh blood. Within 24 hours of this ban,
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WHY THERE IS A FIGHT?
SEBI manages all stock market related activities. They have power to
manage mutual funds and other investment schemes that invest in stock markets.
ULIPs are similar to mutual funds (investment in stock market) and some
part of insurance added to it. As ULIP are doing investment in share market, SEBI
should have a control over it and thats why SEBI is saying that insurers should
seek its approval for ULIP products.
IRDA is regulatory authority for insurance companies in India. As ULIP hasmore to do with Stock market investment and less with insurance part. Ideally
SEBI should also have say in regulation of ULIPs. The same was requested to
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IRDA by SEBI, but they refused to give them control, So Sebi has asked them to
stop selling Ulips, but IRDA has asked companies to continue selling the ULIPs.
SEBI has removed all entry loads on mutual fund investment, But insurance
agents are making lot of money in first 3-5 years of ULIP charging high entry load
on ULIP investment. Most of the ULIPs are mis-selled in India, saying that
investment have to be done only for 3-5 years, which is incorrect as if policy
holder does not continue this after that, he stands to loose.
This regulatory issue is turning into a battle of supremacy an outcome
wherein the consumer interest may be sidelined for the moment. IRDA seemsparticularly irritated as it may see this ban as an encroachment of its territory of
rightsperhaps ignoring the public good.
It may be noted that Insurance Business in India has been lacking efficiency.
The industry that was originally supposed to cover risks is selling investment
instruments many a times dependent upon stock market which bring in inherent
riskwhich is nearly opposite the whole philosophy of Insurance.
Barring the term plans which provides pure risk cover, rest of the insurance
policies have steep overheads and charges. Many policies including ULIP deduct
as much as 40% or more of the first year premium as charges.
India is a peculiar country which has a very poor ratio of premium to cover
which means that even though a lot of premium is being collected the coverprovided is very less. The primary reason for that is that a huge portion of the
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premium is diverted to investments and corresponding charges and load. Only a
small fraction of the premium goes into covering the actual risk.
These are major concerns that should ideally be addressed by IRDA, which has
acted very little in consumer interest. Insurance still ranks to be the no. 1 product
that is mis-sold making false claims and giving wrong product knowledge. In these
circumstances, it is obvious for the market regulator SEBI to take a note. SEBI has
made a great impact in the highly rigged mutual funds and stock markets, making
it far more transparent over the years
It is expected that with SEBI intervention, things would get better for thecommon man for whom Insurance is indispensable. It is high time that Insurance is
being sold as Insurance and Investment is being sold as Investment and that too
without leakage.
The government may be compelled to step in to resolve the issue as some
insurers are planning to approach the court.
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CONCLUSION
From the above project it is concluded that insurance which is
popularly known as protecting the saving the life of policy holder has no longer
remain the same today people like to take insurance which act as investment .Yes,
there are insurance which act as investment such as ULIP, annuity plan, pension
plan ect.Today the denand for such type of insurance is on a great height and like to invest
in such type of insurance. Which would help them in old aged for them pension
plan is suitable.Annuity plan is suitable for those people who want slow and steady
income for them it is unsuitable to invest.
Today people are investing in those insurance which act as an investment.
Investment in real estate and investment in share and debentures have became an
older concept, but instead insurance which act as investment are playing an
important role in todays senerio.
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BIBLIOGRAPHY
1) INVESTMENT IN INSURANCE - P.K Thomas2) GAIN OF INSURANCE - K.M Asif
3) FACTS OF INSURANCE - Z.K HusainWEBLIOGRAPHY
1) www.
2) www.
3) www.
4) www.
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