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Unit 8: Life Insurance

The insurers put a rider that the insured’s wishes would be carried out while investing the Notes
amounts collected. The insured had to be responsible for the investments. Many schemes were
introduced with this condition that the insured were responsible for the returns. The insurers
had to segregate the premiums (unbundling) into cost of issue of the policy, cost of covering the
death risk and the amount to be invested. In the traditional policies the insurers were responsible
for the investment since such splitting was not practiced. The insuring public wanted more
return for the investment in insurance and wanted the life cover also at a minimum cost. In these
plans the premium is unbundled, that is, the investment portion is separated from the expenses
of the policy, the cost of insurance etc. The insured person knows what is invested in units.
He also knows where the amount is being invested. He should be aware of the fluctuations of
the market and should shift the investment from one area to another by an action called
‘switching’. These plans are introduced mainly because:
1. The inflation was catching up, reducing the purchase capacity of the returns.
2. The bonus rates were coming down in conventional plans.

3. The interest rates were coming down in the financial market.
4. The insuring public was growing more and more aware of the insurance needs,
5. The boom experienced in the share market encouraged the insuring public to go for such
plans which would give them adequate returns.
The financial market consisted of mutual funds and shares. The policy holder is treated as a
small investor and hence investment in shares is not feasible as it involves an outlay of huge
amounts. The mutual funds are representing small investors and the amounts collected are
accumulated to large amounts for the investments to be made. Hence the investment is in
mutual funds and the insured can opt for any of the three types:

High risk, or
Balanced risk, or
Low risk.

This does not mean that there are only three types of investments. Every insurer has various
methods of computations of these. The returns are directly related to the type of investment and
the insured is given the privilege of changing the risk (switching) pattern after a period of time
(usually after the 1st year). More than once also he can change the options but the minimum
period he has to stick to the type of investment may be prescribed. After the first 3 or 4 changes
(free switches) further switches are at cost. If the insured is not in a position to exercise the switch
the insurer will automatically switch to the next best option as per his understanding of the
market. This is done to protect the interests of the insured.

8.3.7 Other Insurance Products in India

You will find out that there are other insurance products in India as well. Following are the
other insurance products in India:

Health Insurance

A Health insurance policy is a contract between an insurance company and an individual. The
contract can be renewable annually or monthly, the recent health insurance products offered by
the life insurance company are designed like the term insurance where in the premium is

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