Description
Cost benefit analysis (CBA), sometimes called benefit–cost analysis (BCA), is a systematic process for calculating and comparing benefits and costs of a project, decision or government policy (hereafter, "project").
1.1. INDUSTRY PROFILE
DEFINITION OF INSURANCE Promise of reimbursement in case of loss; paid to people or companies who are concerned about hazards and for that they make prepayments to an insurance company Policy: This may be as written contract or certificate of insurance. Indemnity: Protection against future loss ORIGIN OF INSURANCE The idea of insurance was born out of a desire of the people that many should share the losses suffered by an individual. Originally it was restricted to forms other than life assurance. It started with marine insurance, where the losses on account of perils of the sea like piracy, sinking or damage to cargo were shared by all who were engaged in sea trade. As regards life insurance, in early days mutual societies were formed to render service to the member in the event of sickness, unemployment and premature death. ‘ Decent funeral’ was considered as the immediate financial need. Gradually, the financial loss following death of the breadwinner was extended to include the future earning power. In India, the word ‘yogakshema’ is used in Rig Veda suggesting that some form of community insurance was practiced by the Aryans over 3000 years ago. During Buddhist period, burial societies existed which were mutual in their character and used to help a family by building house, protecting the widow and marrying the girls. Reference to some forms of insurance is also found in the codes of Hammurabi, manu (Manav Dharam Shastra).
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The first policy providing life assurance cover for a period of 12 months was issued as 1583 A.D. in England. The Amicable society started granting fluctuating sum on death since 1705 and a fixed sum since 1757. With the development of mortality table, life assurance acquired a scientific character. The Equitable society founded in 1762 was the first to be established on scientific basis. In India, Bombay Mutual Assurance society Ltd. was the first insurance company to be formed in 1870. Oriental Life Assurance Company Limited followed it in 1874.
INSURANCE HISTORY The roots of insurance might be traced to Babylonia, where traders were encouraged to assume the risks of the caravan trade through loans that were repaid (with interest) only after the goods had arrived safely: a practice resembling bottomry and given legal force in the Code of Hammurabi (c.2100 B.C.). The Phoenicians and the Greeks applied a similar system to their seaborne commerce. The Romans used burial clubs as a form of life insurance, providing funeral expenses for members and later payments to the survivors. With the growth of towns and trade in Europe, the medieval guilds undertook to protect their members from loss by fire and shipwreck, to ransom them from captivity by pirates, and to provide decent burial and support in sickness and poverty. By the middle of the 14th cent., as evidenced by the earliest known insurance contract (Genoa, 1347), marine insurance was practically universal among the maritime nations of Europe. In London, Lloyd's Coffee House (1688) was a place where merchants, ship owners, and underwriters met to transact business. By the end of the 18th cent. Lloyd's had progressed into one of the first modern insurance companies. In 1693 the astronomer Edmond Halley constructed the first mortality table, based on the statistical laws of mortality and compound interest. The table, corrected (1756) by Joseph Dodson, made it
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possible to scale the premium rate to age; previously the rate had been the same for all ages. Insurance developed rapidly with the growth of British commerce in the 17th and 18th cent. Prior to the formation of corporations devoted solely to the business of writing insurance, policies were signed by a number of individuals, each of whom wrote his name and the amount of risk he was assuming underneath the insurance proposal, hence the term underwriter. The first stock companies to engage in insurance were chartered in England in 1720, and in 1735, the first insurance company in the American colonies was founded at Charleston, S.C. Fire insurance corporations were formed in New York City (1787) and in Philadelphia (1794). The Presbyterian Synod of Philadelphia sponsored (1759) the first life insurance corporation in America, for the benefit of Presbyterian ministers and their dependents. After 1840, with the decline of religious prejudice against the practice, life insurance entered a boom period. In the 1830s the practice of classifying risks was begun. The New York fire of 1835 called attention to the need for adequate reserves to meet unexpectedly large losses; Massachusetts was the first state to require companies by law (1837) to maintain such reserves. The great Chicago fire (1871) emphasized the costly nature of fires in structurally dense modern cities. Reinsurance, whereby losses are distributed among many companies, was devised to meet such situations and is now common in other lines of insurance. The Workmen's Compensation Act of 1897 in Britain required employers to insure their employees against industrial accidents. Public liability insurance, fostered by legislation, made its appearance in the 1880s; it attained major importance with the advent of the automobile.
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In the 19th cent. Many friendly or benefit societies were founded to insure the life and health of their members, and many fraternal orders were created to provide low-cost, members-only insurance. Fraternal orders continue to provide insurance coverage, as do most labor organizations. Many employers sponsor group insurance policies for their employees; such policies generally include not only life insurance, but sickness and accident benefits and old-age pensions, and the employees usually contribute a certain percentage of the premium. Since the late 19th cent. There has been a growing tendency for the state to enter the field of insurance, especially with respect to safeguarding workers against sickness and disability, either temporary or permanent, destitute old age, and unemployment. The U.S. government has also experimented with various types of crop insurance, a landmark in this field being the Federal Crop Insurance Act of 1938. In World War II the government provided life insurance for members of the armed forces; since then it has provided other forms of insurance such as pensions for veterans and for government employees. After 1944 the supervision and regulation of insurance companies, previously an exclusive responsibility of the states, became subject to regulation by Congress under the interstate commerce clause of the U.S. Constitution. Until the 1950s, most insurance companies in the United States were restricted to providing only one type of insurance, but then legislation was passed to permit fire and casualty companies to underwrite several classes of insurance. Many firms have since expanded, many mergers have occurred, and multiple-line companies now dominate the field. In 1999, Congress repealed banking laws that had prohibited commercial banks from being in the insurance business; this measure was expected to result in expansion by major banks into the insurance arena. In recent years insurance premiums (particularly for liability policies) have increased rapidly, leaving unprecedented numbers of Americans uninsured. Many blame the insurance conglomerates, contending that U.S. citizens are paying for bad risks made
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by the companies. Insurance companies place the burden of guilt on law firms and their clients, who they say have brought unreasonably large civil suits to court, a trend that has become so common in the United States that legislation has been proposed to limit lawsuit awards. Catastrophic earthquakes, hurricanes, and wildfires in late 1980s and the 90s have also strained many insurance company's reserves. How to really buy insurance When faced with prospects of figuring out how much insurance to buy ,most people pluck a figure out of the air -something that just seems adequate .this is obviously not the way to make this important decision . The only reasonable way of making this decision is to unemotionally create a financial plan that your family should follow if you die suddenly. Families also have to consider the impact of the both parents passing away in the accident .The impact of such a tragedy could be greater then just a sum of the two deaths occurring separately heads to consider. LOAN AND DEBTS As far as possible, take debtors’ insurance so that your debts can be paid off straight away, if you have you have a housing loan, the lender has probably made sure that you already have such insurance for a loan. Other loans need to be considered, while you can add these to your main term insurance, taking a policy where the insurance company will directly pay off lenders has the advantage that your survivors will not be temped to carry the loans. Do not waste money in insuring unsecured personal debt like credit card debt .The card issuer cannot make your family pay so there’s no need to cover that, unlike say, vehicle loans where u wouldn’t want the family car repossessed by the lender.
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FUTURE EXPENSES The hardest part of living for the future expenses is estimating and allowing for the inflation. Take a reasonable (at least 7 percent) inflation rate in account. EDUCATION Insurance companies are making some attempts at designing policies that will ensure that your children’s education is paid for. What you ideally need is a policy that is conceptually term insurance, that is, which does not have any payout if your children get educate during your life time. LIVING EXPENSES Estimate what living expenses are going to be end estimate the investment needed to yield that much return. Your term insurance should be for this account. Make a realistic financial plan and not an idealized one. Perhaps your spouse will need to start working if she doesn’t do so now. Take into account the investment needed if she would start a small business. This kind of unemotional, careful and realistic thinking is really the heart of making a sudden-death financial plan. Don’t shy away from it . The fact is that Indians have a deep-set cultural antipathy against planning for their deaths. A minuscule number of Indians make a will. Even the country’s most successful and richest entrepreneur, who organized every thing else about his business so carefully (and whose death was not sudden), died without making a will and left his two sons to fight public battles for the inheritance.
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INSURANCE COMPANY Over a ten-year policy, 7 percent of your money is given away to the agent. Given what safe investment earns these days, commission alone received by the agents are a scandal. The commissions are enormous, generally around 25 per cent of first year premia and 5 per cent a year subsequently. For a financial product that is supposed to be an investment, this is shocking level. At the end of the day, these commission are probably the strongest against investing with an ensure that this ‘investment’ is an incredibly bad deal.Sure insurance is necessary but at these commission levels .it is a necessary evil. The only way to go about insuring oneself is to calculate how much cover you need and then find a good, low cost, term insurance that covers you for that amount. Investment and insurance just don’t mix NEED FOR INSURANCE When we consider some form of general insurance contract like fire insurance contract need for insurance protection becomes obvious, the insurable interest is easily identified, and extent of loss can easily be determined by a fair degree of accuracy. In general insurance, the principle of indemnity is applied to compensate for the financial loss suffered by the insured. But financial loss following loss of human life is not very easy to define. In life insurance, the concept of indemnity is applied with some modifications. The concept of Human Life Value (HLV) helps us in determining the sum for which a person needs life insurance. We will study this concept in the later part of this chapter.
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SHARING PF RISK Life is full of risks. For property, there are fire risks; for shipment of goods, there are perils of seas; for human life, there are risks of death or disability; so on and so forth. The risks are uncertain. They may or may not occur. People facing common risks come together and make their small contributions to the common fund. While it may not be possible to tell beforehand, which person will suffer, it is possible to tell how many persons on an average out of the group, may suffer losses. When risk occurs, the loss is made good out of the common fund. In this way, the risk id shared by all. The following example explains the above concept of insurance. EXAMPLE In a village, there are 400 houses, each valued at Rs20, 000/-. Every year four houses get burnt, resulting into a total loss of Rs. 80,000/-. If all the 400 owners come together and contribute Rs. 200/- each, the common fund would be Rs. 80,000/-. This is enough to pay Rs.20, 000/- to each of the 4 owners whose houses got burnt. Thus the risk of 4owners is spread over 400 house-owners of the village. ADVANTAGES OF LIFE INSURANCE It is superior to ordinary saving plan. The risk of death is covered under insurance scheme but not under ordinary saving plans. In case of death, insurer pays full sum assured, which would be several times larger than the total of the premiums paid. Under ordinary saving plans, only accumulated amount is payable. Insurance encourages compulsory saving and forces thrift. After taking insurance, if the premium is not paid, the policy lapses. Therefore, the insured is forced to go on paying premium.
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Easy settlement and protection against creditors. Once nomination or assignment is made, a claim under life insurance can be settled in a simple way. Under M.W.P. Act, the policy moneys become a kind of trust that cannot be taken away, even by the creditors. It helps to achieve the purpose of the Life Assured. If a lump sum amount is received in the hands of anybody, it is quite likely that the amount might be spent in speculative way. To overcome this risk, the life assured can provide that the claim amount be given in installments. Ready marketability and suitability for quick borrowing. If a policyholder is not in a position to pay the premium, he can surrender the policy for a cash sum. He can also take loan for a short period to tide over the difficulty. Sometimes, a life insurance policy is acceptable as security for a commercial loan. Tax relief. By paying the insurance premium, the life assured obtains significant relies in income tax and wealth tax. CLASSFICATION OF INSURANCE NEEDS The nature of needs for life assurance would vary to a great extent according to the circumstances of the person insuring his life. Classification of persons according to their circumstances: Young single Young married : saving. : basic need will be protection.
If with children, education of children also Need will also vary according to the type of income derived – wage earner, salaried person, employer. Attitude towards life assurance is determined by a person’s character, level of intelligence and outlook.
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Old single Old married
: Pension for life. : Joint life pension for the annuitant and spouse for life.
Careful study of prospect is essential to identify his life assurance needs.
COMMON NEEDS THAT CAN BE PROVIDED BY THE APPLICARION OF LIFE ASSURANCE 1. Cash Needs Death may be by accident or after prolonged illness. In case of prolonged illness, medical / grocer’s bills will have to be paid. Liquid cash is required to meet such liabilities. (Clean up fund). 2. Family Income Needs Incase of death of the bread-winner, a sudden and drastic cut in the standard of living of the family would have devastating effect on the morale of the family. It will be difficult for the young widow with children to work to replace loss of income, in which case children would loose both the parents. There would be a period of readjustment during which the family settles down to a lower standard of living. Family income policy under which readjustment income is provided, could meet the needs of the situation.
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3. Income needs of a widow on the death of her husband. Readjustment income. Continuous income on a reduced scale To supplement income she is earning. To partly replace income that is lost. In case she remarries, this need will cease completely. Capital death benefit should be utilized to provide for immediate cash needs and lifetime income for the widow. 4. Income needs of a husband on the death of his wife. EARNED INCOME LOST Earned income saved by wife who undertakes household duties. Housekeeper to look after the house and children. Additional expenses during readjustment period. Incase of working ladies, there is loss of income, which has to provide for.
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5. Retirement income needs. In advanced countries, there is ? ? Old age pension under social security scheme; Pension scheme set up by the employer to supplement old age pension under social security scheme. ? ? Individual endowment plan with annuity option or retirement annuity policy. Need for regular income in old age is very much present and it will be increasingly recognized on account of improvement in longevity. ? Joint family system has disintegrated.
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All the above-mentioned schemes for old age security are not there. Liquid cash received at the time of retirement in respect of Gratuity, PF etc. often gets consumed by unwise investment or conspicuous investment. Immediate annuity, deferred annuity, immediate annuity certain, deferred annuity certain, immediate annuity with return of purchase price, deferred annuity with return of notional cash option and `Jeevan Suraksha` policy of LICI provide solution to various retirement income needs. 6. Educational Needs. These days education is very costly and higher education requires lot of money. It may not be possible for widow to finance cost of higher education after the death of the bread-winner. Education Annuity and Marriage Endowment policy is suitable for such s situation. 7. Business Needs Circumstances under which a businessman may find it necessary to go for life insurance cover for one or more of the following purposes: To protect and of his own one-man concern. To preserve continuity in a partnership in the event of death of a partner. To safeguard against loss this would result from the death of key employees. To provide life assurance benefits during service and pension after service for employees and their dependents. ? To provide annuity to highly placed executives under deferred compensation plan.
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IN INDIA… Insurance in India can be traced back to the Vedas. For instance, yogakshema, the name of Life Insurance Corporation of India’s corporate headquarters, is derived from the Rig Veda. The term suggests that a form of “community insurance” was prevalent around 1000 BC the Aryans. Burial societies of the kind found in ancient Rome were formed in the Buddhist period to help families build houses, protect widows and children. Bombay Mutual Assurance Society, the first Indian life assurance society, was formed in 1870. Other companies like Oriental, Bharat and Empire of India were also set up in the 1870-90s. It was during the swadeshi movement in the early 20 th century that insurance witnessed a big boom in India with several more companies being set up. As these companies grew, the government began to exercise control on them. The Insurance Act was passed in 1912, followed by a detailed and amended insurance Act of 1938 that looked into investments, expenditure and management of these companies’ funds. By the mid-1950s, there were around 170 insurance companies and 80 provident fund societies in the country’s life insurance scene. However, in the absence of regulatory systems, scams and irregularities were almost a way of life at most of these companies. As a result, the government’ decided nationalize the life assurance business in India. The Life Insurance Corporation of India was set up in 1956 to take over around 250 life companies.
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For years, insurance remained a monopoly if the public sector. It was only after seven years of deliberation and debate – after the RN Malhotra Committee report of 1994 became the first serious document calling for the re- opening up of the insurance sector to private players – that the sector was finally opened up to private players in 2001. The Insurance Regulatory & Development Authority, and autonomous insurance regulator set up in 2000, has extensive powers to oversee the insurance business and regulate in a manner that will safeguard the interest of the insured.
MARKET SHARE OF INSURANCE INDUSTRY
NAME OF THE PLAYER LIC ICICI PRUDENTIAL BIRLA SUNLIFE BAJAJ ALLIANZ SBI LIFE HDFC STANDARD TATA AIG MAX NEWYORK AVIVA OM KOTAK MAHINDRA ING VYSYA AMP SANMAR MET LIFE
MARKET SHARE ( IN % ) 82.3 5.63 2.56 2.03 1.80 1.36 1.29 0.90 0.79 0.51 0.37 0.26 0.21
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Variety is the spice of life, unless you’re in the insurance business. Traditionally, the most successful insurance firs generally take on the least risk. However, factors such as deregulation, globalization, the Internet, and the events of September 11 are shaking up the industry. The life insurance industry (about 60% f worldwide premiums) has changed the most profoundly in the products it sells. Over the last quarter of a century, life insures such as A XA, ING Group, Nippon Life, and Assicurazioni Generali, have seen their business sift from life insurance coverage to annuity products. This fundamentally changes the way life insurance firms do business, as they concentrate on managing investment risk, rather than the mortality risk of an individual. As a result, insurance firms now compete more directly with financial services firms. The Gramm-Lleach-Biley Act in the US and “Big Bang” financial deregulation in Japan opened the door for banks and insurance firms to combine their businesses. In Europe, global financial service titans already exist, notably Ge5rman insurance company Allianz (with stakes in deutshe Bank, HVB Griup, and Dresdner Bank), and Swiss bank Credit Suisse (parent of insurance firm Winterhur). Foreign firms seeking inroads to the US and Japan finds them freed from regulatory shackles, tll. As regulatory barriers fall, consolidation among insurance groups, particularly non-life insurers, is on the rise. The top 10-property/casualty companies (including State Farm, Aviva, American International Group, and Zurich Financial Services) already account for almost half of all premiums written. A dwindling number of local firms are left to fight for the remaining scraps of market share. The Internet has changed the way insurers are doing business. Companies are continuing to offer more products via the virtual highway, thus increasing the competitive marketplace. With the insurance markets in the US and Japan becoming saturated, growth in other markets (Particularly South America) is imperative for a company’s success, as well.
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The attacks on the world trade center have changed the face of the insurance industry; issues such as asbestos claims and liability suits have taken a backseat to the mad scramble of how to cover terrorism. As a result of September 11, and to a lesser degree the Enron scandal, premiums are rising and underwriting standards are tightening. A slew of new ventures have started up (primarily in Bermuda), as insurers see the possibility of lucrative business. In 2004 the insurance industry came under scrutiny when New York Attorney general Eliot Spitzer sued marsh & McLennan, the world’s largest insurance brokerage, for price fixing and for accepting kickbacks. As a result, Jeffrey Greenberg was forced to resign as CEO of Marsh & McLennan, along with five other executives who admitted to rigging bids. The probes continue as Spitzer and other officials look to clean up the industry.
KEYMAN INSURANCE With the IRDA stipulating in end April that key man policy should be sold only with a life cover element and without maturity benefits, premium collections from such plans are likely to slacken. Signs of an incipient slowdown are evident from the numbers for the first two months of this fiscal, with group premiums down 23 percent on a single-premium adjusted basis. Though premium collections may dip, this may not have a detrimental impact on companies as such group plans score low on the profitability front.
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LIFE
INSURANCE
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THE
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CHALLENGES
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OPPORTUNITIES Life insurance, in its pristine form, evolved out of a sense of co-operation within the community that was present even at the dawn of history. The Sanskrit term yogakshema, which means "well-being”, is present in the Rig Veda and it is used in the context of some form of insurance in vogue during the Aryan times. There are references in Kautilya’s Arthashastra to some kind of social security system for the welfare of the subjects. Later on, the Indian joint family system too fulfilled the need for security. In the Western world, life insurance evolved mainly from the maritime industry. Shakespeare speaks of ‘putters out of five’ in some of his plays – an oblique reference to private financiers who used to gamble on the lives of sea-farers by offering five times the money deposited with them in case of certain contingencies. In its present form, life insurance had its origin in England and made its debut in India in the year 1818. Initially, Indians were not considered on par with Europeans as far as their insurability was concerned. There were also many other failures. It was in the early part of the 20th century that some kind of legislation was made to regulate the industry. From then on, life insurance made great strides in the country. At the time of Independence and thereafter, there were more than 200 companies operating in India and not all of them on sound ethical principles. Many factors combined together to prompt the then Government to nationalize the life insurance industry in 1956 to form the Life Insurance Corporation of India The years from 1956 to 1999 saw the Life Insurance Corporation of India emerge as a giant financial institution and the lone organization purveying life insurance, if we ignore the minimal presence of postal life insurance.
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The institution succeeded in penetrating many areas and segments of the population and in garnering public money for public welfare. Winds of Change It was in the 1990’s that the winds of change started sweeping over India and brought in their wake many changes in the economy. Liberalization ensured competition in many fields and there was a clamour that the insurance industry too be opened up to private Indian and foreign players to provide the customer with a choice. The Malhotra Committee, appointed in 1993 was given the mandate to study the industry and to suggest the changes that were necessary to make it modern and in tune with people’s aspirations. The report submitted by the committee was the precursor of the IRDA bill, which was recently passed by the Parliament. Life insurance industry is poised for a big growth as many Indian and foreign companies are waiting in the wings for the green signal to start their operations. The Indian consumer will be presented with a bewildering array of products, different in price, features, benefits and procedures. How he is going to make his choice will determine the future of the industry. With the market thrown open, the industry is at the crossroads again with reference to the course of its future direction and the opportunities and the challenges it faces for itself, the regulator, and the society as a whole.
Challenges The biggest challenge faced by the Government today is that of a regulator with the prospect of about 30 or 40 players, each represented by thousands of agents, brokers and intermediaries. To evolve a free and fair method of assessing the companies, to ensure fair play between the competitors and to safeguard the interests of the largely uninformed customers are the main tasks ahead. 18
The other and equally serious aspect is to ensure that the vast amounts collected by the insurance and pension funds are utilized for the welfare of the people. Though the Government itself would not be the guarantor of the policy monies, nevertheless, it is accountable through its regulatory mechanism, to put in place prudential norms of investment and accounting, revenue recognition, fair valuation of assets and liabilities, determining necessary margins towards any contingencies and proper reserves for shrinkage of investments will have to be made. Nevertheless, care has to be taken to see that there is not too much of control and regulation. A certain degree of autonomy in the functioning of insurance companies has to be allowed so that they get necessary freedom and space to perform and excel. The IRDA, along with the advisory committee constituted recently, is eminently qualified to undertake these tasks. In addition, a proposal has also been mooted to constitute a federation of insurance companies analogous to the Indian Banks’ Association. Such an institution will provide guiding principles, lay down a code of insurance ethics and generally act as a facilitator for both the life and non-life industry. As for the existing player, the public sector giant, the Life Insurance Corporation of India, the challenge is one of sustaining the huge growths it has shown in the recent times. It has to face competition for the first time in its history, particularly in the urban centres. It has to manage its huge operations more efficiently than at any other time in the past. It has to think of equipping its personnel (staff and agents) to face competitors and it may have to think of diversifying its activities to achieve economies in some areas. As far as the prospective entrants are concerned, the greatest challenge is to establish their presence in the minds of the public. Insurance, particularly life insurance, it is said, is never bought but sold. To convince a large population, which is comparatively not well informed about the intangible benefits of life insurance is indeed an onerous task. 19
On top of that, to establish the brand equity of a new name in a new field is quite a challenge. The second most important challenge facing a new entrant is that of setting up infrastructure and to reach out to as many areas as possible, since life insurance is based on probability and the wider the spread, the greater are the chances of success in maintaining the expense ratios at a reasonable level. Modern life perhaps offers challenges that will be common to all the above. Improvements in health and longevity, the recent breakthroughs in the mapping of the human genome and the frequent changes in the economy may have far-reaching effects on life and health insurance. Devising products that match the changing needs of the people and managing the funds in a volatile scenario are two problems that will have to be tackled by every player in the days to come.
Opportunities Recent experience has shown that wherever an industry has been thrown open to competition, the size of the market has grown and the existing players have retained nearly 80% of the market share. The size of the insurable population in India is indeed vast and the existing player has managed to cover about one-fourth of it. The opportunities before the players are therefore aplenty in terms of target audience. The falling interest rates, the collapse of many small-time financial institutions, the scope for entering related areas like banking and pensions in a bid for synergy and the promise of e-commerce are some of the other opportunities knocking at the doors of the insurance majors. There is a probability of a spurt in employment opportunities. A number of websites are coming up on insurance, a few financial magazines exclusively devoted to insurance and also a few training institutes being set up hurriedly. Many of the universities and management institutes have already started or are contemplating new courses in insurance.
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It also augurs well for greater development of professionalism of the trade and expansion of opportunities for everyone concerned. The pension market, which perhaps has not been very vibrant in the country, is also likely to witness a sea change with huge expansion in terms of premium and number of policies. Health insurance, which is still in its infancy, is also likely to get a major boost, ultimately leading to improvement in the quality of medical treatment and facilities in the country. The opening of the insurance sector will throw open a huge array of opportunities, many of which will be in unrelated fields and may give a bigger push to the development of the national economy as a whole. Life insurance has today become a mainstay of any market economy since it offers plenty of scope for garnering large sums of money for long periods of time. A well-regulated life insurance industry which moves with the times by offering its customers tailor-made products to satisfy their financial needs is, therefore, essential if we desire to progress towards a worry-free future. The journey of life is full of wonderful dreams. To make them come true, your need for protection, investment, and financial liquidity keeps changing at different stages of life. The birth of a child will require you to increase your insurance cover; a marriage in the family will require additional money. Similarly on a promotion you may want to increase your investments, to create a large kitty for future expenses. Usually you would require multiple financial products to meet all your needs and would have to actively manage them. However with the Life Maker™ Unit Linked Investment Plan you can meet all your financial needs, without the tedium of managing multiple products
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1.2. COMPANY PROFILE
ABOUT MAX GROUP Founded in 1985, Max India limited is a public limited company listed in the NSE and BSE with over 37,000 shareholders. Prominent shareholders are Mr. Analjit Singh & family and private equity firm Warburg Pincus, while the remaining shares are held by institutional investors and the public. Max India limited is a multi-business corporate, driven by the spirit of enterprise, focused on knowledge, people and service-oriented businesses of healthcare and life insurance. Max also maintains interests in? Clinical research (neeman medical international) ? Specialty plastic products businesses (max specialty products) ? Healthcare staffing (max health staff) ? Telecom services (Hutchison max telecom ltd.)
Max New York life insurance, founded as a joint venture between Max India limited and New York life, a fortune 100 company, is one of the leading private life insurers in India. Max healthcare, a subsidiary of Max India limited is India's first provider of comprehensive, standardized, seamless, and integrated world-class healthcare services. Max India limited is a multi-business corporate, driven by the spirit of enterprise, focused on knowledge, people and service-oriented businesses of healthcare and life
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insurance. Max also maintains interests in clinical research, it and telecom services, and specialty plastic products businesses. Max is a young, modern Indian corporation, with a strong capability of recognizing opportunities ahead of their time. Max has been able to form and strengthen international alliances with global leaders across a wide spectrum of management activity. Max India is led by a skilled team of professional managers and is recognized for commercially successful manufacturing and service delivery businesses. Max has created enviable history marked by tremendous growth in various fields and has been ranked among the "top two hundred most valuable Indian companies" by business India (October 2000). Max's deep understanding of Indian consumer combined with a large pool of professionals and an enterprising spirit have helped complement its relationship with industry leaders of global stature like New York life International of USA. With a unique experience of growing through the 'jv route' max is proud of the excellent relations it has with each of its partners. Max India already has successful and enduring partnerships with some of the most respected specialist organizations in the world, some of which are gist brocades of the Netherlands, Deutschland, Germany, and Hutchinson telecommunications ltd., Hong Kong, Singapore general hospital, Harvard medical international inc., USA, Lockheed martin global telecommunications. ? Businesses ? Healthcare ? Primary care segments ? Secondary care segments ? Tertiary care segments
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? Life insurance ? Max New York life insurance co. Ltd. ? It and telecom services ? Comsat max ? Max Health scribe limited ? Max Mind Crossing
VISION To be one of India's most admired Corporate for service excellence and a successful multi-business enterprise for its stakeholders i.e. customers, shareholders, employees, JV partners, etc. MISSION Establish niche service business in 2 areas of healthcare, and life insurance. Rank in top 3 players in each niche. Partner with "best in class" world leaders. Maintain traditional business. PARTNERSHIPS Max has grown through the 'joint venture route’ and has a tradition of very enriching, enduring partnerships. We have extensive, in-depth experience in building businesses from the ground-up. And have created successful businesses in areas, which were either not traditionally considered as 'business' areas, or were new/emerging fields of business.
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Max India's business success and tradition of excellence have been made possible in very large measure by collaborating with international leaders. These partnerships are manifest across our diverse businesses, and are represented as equity partnerships, and/or technical collaborations. Max is proud of excellent relations it has with each of its partners. Not only have our partnerships stood the test of time, they have consistently grown, developed, and attained optimum stature. This has been made possible by our practiced belief that regardless of the ratio of collaboration and its attendant business mechanics, each partnership must be worked in the spirit of a 50:50 relationship. We recognize and respect the expertise our partners offer, and try to maximize it for mutual benefit NEW YORK LIFE THROUGH HISTORY New York life Insurance Company, has been ranked at fortune 68, in the 2005 fortune 500 listing of companies, is one of the largest providers of life insurance coverage in America. Founded in 1845, the company has over us$215 billion in assets under management. New York Life insurance company has been among the highest rated companies by leading independent rating agencies including - a.m. best company (a++), Fitch (formerly duff & Phelps) (AAA), Moody’s investors service (aa1) and standard & Poor’s (AA+) the company has its headquarters in new York city and has operations in the united states, Argentina, Hong Kong, soar, India, Indonesia, Mexico, the Philippines, south Korea, Thailand and Taiwan. The company maintains representative offices in the people's republic of china and Vietnam. For the last 47 years, New York life has had the highest number of agents who qualify as members of the 'million-dollar round table'. The mdrt is the world's most prestigious organization of insurance sales professionals.
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As a leader in the insurance industry, New York life continues to bring to its operations new management concepts, advanced technologies, new distribution and training systems and innovative insurance products.
ABOUT NEW YORK LIFE New York Life has been one of the world's leading providers of Life Insurance for over 160 years Trusted by millions across the globe, New York life is ranked at no. 68 in the 2005 fortune 500 lists of companies, with over us $215 billion in assets under management. New York life is a specialist in the business of life insurance since that's been their only business since 1845 Among the proud family of new York life policyholders have been many luminaries, including ten former us presidents. New York life is the largest life insurance provider for the Indian community in the US. So it understands the Indian consumer, their needs, their concerns and their aspirations. New York life has never failed in its commitment to deliver to its policyholders despite having gone through two world wars, famine, drought, the great depression, and numerous such catastrophes as pioneers of the industry, New York life has also been in the forefront of setting many path-breaking trends in the business of life insurance.
? First to offer cash dividends to policy owners in 1845. ? First to insure women at the same rate as men in 1894 ? First to introduce a disability benefit clause in 1920 ? First to offer unemployment insurance in 1992. ? First to offer complete customer care on the web in 1998
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Max New York life Insurance Company limited Max New York life insurance Company limited is a joint venture between max India limited, a multi-business corporation focusing on life insurance, health care and information technology, and New York life, a fortune 100 companies with over 150 years of experience in the life insurance business. In 2000, Max New York life became the first indo-American insurance joint venture registered and granted a license to conduct business in India. Since that time, Max New York life has acquired a national presence, establishing a wide distribution network with 35 offices located across 27 cities in India, which are staffed by over 1,500 employees and over 7,700 highly competent life insurance agent advisors. In 2003, Max New York life became the first life insurance company in India to receive the ISO 9001:9002 certification for its commitment to quality. All of max new York life’s offices are supported by state-of-the-art technology designed to enhance its goal of providing excellent service to customers. It has also set up a centre for operational excellence at its head office in Gurgaon, Haryana, just outside of new Delhi. Max New York life is one of the leaders in private life insurance in India. With its flexible products and benefit solutions, max new York life is driven by a strong set of customer-focused values that form the core of its business and exemplify its slogan, “your partner for life”. Max New York life insurance Company limited has been an imp associate insurer since 2002. KEY PRODUCTS LIFE ? Term life ? Employee deposit linked insurance ? Total and permanent disability (accidental) rider 27
? Accidental dismemberment rider ? Accidental death benefit rider ? Critical illness rider PENSIONS ? Retirement gratuity schemes ? Superannuating
VISION
Become the most admired life insurance company in India.
MISSION
? ? ? ? ? Become one of the top 3 new life insurance companies Become a national player - dominant in north India Be the brand of first choice among all stake holders Become the employer of choice Be the principal of choice for agents
VALUES Together, max India limited and New York life aim to become India’s preferred insurance brand. This vision will be realized through our unique set of values, which are as follows: Knowledge
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Together, Max India limited and New York life aim to become India’s preferred insurance brand. This vision will be realized through our unique set of values, which are as follows Caring Together, max India limited and new York life aim to become India’s preferred insurance brand. This vision will be realized through our unique set of values, which are as follows: Honesty Together, max India limited and New York life aim to become India’s preferred insurance brand. This vision will be realized through our unique set of values, which are as follows: Excellence Excellence at Max New York life implies the ability to perform at a consistently high level. Focused on the value of continuous improvement in people, processes and the organization, the company strives for the highest standards of quality in every aspect of its business. Achievements ? Max New York life is the first life insurance companies in India to be awarded the is0 9001:2000 certifications. ? Max New York life was among the top 25 companies to work with in India, according to 2003 business world magazine, "great workplaces in India", max new York life was ranked at the 20th position. This survey is the local version of the "great places to work" survey carried out every year in 22 countries.
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? We were among top five most respected private life insurance companies in India according to 2004' business world most respected survey. It makes it more special as that year insurance as a category was included for the first time. ? We have truly built an enviable sales force. With 126 agents becoming members of the mdrt in 2005, Max New York life has moved up in the 'Top 50 mdrt Global List’. The Way Max New York Life Works Max New York life is a young vibrant company proud of the excellent track record it has created for itself in a relatively short period of time. Mnyl has today become one of the most aggressive players in the insurance services domain. A key factor in our success has been our ability to attract some of the most talented people in any industry. Max New York Life Insurance in many ways is a lens to India. We represent rich diversity in our workforce and this is reflected in our open work environment. Within this diversity we have successfully created a strong emotional bond, which threads everyone together irrespective of his or her function, location, seniority or background. This identification with one organization and one purpose draws its strength from our simple and powerful vision statement, which is to become the "most admired life insurance Company in India". By developing structure, systems and a workplace culture that provides challenging jobs, rewards performance and delivers opportunities continuously, mnyl is striving to get the best out of its most valuable asset — its people. Our "In House Culture Recipe" has some of the finest ingredients going into its making. Some of the more prominent aspects of our culture are stated below: Customer comes first Do it right the first time 30
? ?
? ? ? ? ? ? ? ?
Bias for result oriented action Strength and discipline Clarity of purpose Financial International quality standards Inclusive meritocracy Learning opportunities Fun at work Commitment to published value system
At mnyl, we endeavor to create an environment where everyone can reach their full potential and to do their jobs effectively for our customers. We encourage learning at all levels and career stages which support personal and professional development. The organization provides all the right elements that you need to get to the top with ample fun and learning opportunities as added advantage. We believe that work is fun, when you enjoy it the most. To make-work more fun, we provide a dynamic, fast paced and flexible work environment to our people. We nurture the relationships through celebrating our people's happiness, hobbies, achievements, and festivals thoroughly fun club, which stands for life youth and fun. Finally it would be appropriate to say that the cornerstones for all our interactions and behaviors are the mnyl values and beliefs. These are non-negotiable behaviors that breathe life and vigor into the organization and its vision. Our values influence the way we work and interact with our colleagues; as well as the way we serve our clients and engage with all our stakeholders. Mnyl recognizes the need for appreciation for demonstrating our core values thru behaviors. 31
We provide a platform in the form of cultural ambassador to recognize employees demonstrating our values of caring, honesty, excellence, knowledge, integrity, and teamwork. Possibly then the best way to explain the mnyl culture would be to share our mnyl values and beliefs.
Max New York Life, one of India’s leading life insurance companies, announced signing up Rahul Dravid, Indian cricket’s most reliable batsman, as its brand ambassador. Max New York Life Insurance Company Limited is a joint venture that brings together two large forces - Max India Limited, a multi-business corporate, together with New York Life International, a global expert in life insurance. The very nature of our business makes us highly customer-sensitized at Max New York Life. We believe in building relationships with the people we serve, so that our customers enjoy the highest quality of service in life insurance. This fact comes alive from our defining qualities, all of which are outlined below. We are experts in life insurance: That's all we do. New York Life has over 160 years of experience in the life insurance business. It is a Fortune 100 company that has been trusted by millions worldwide, across generations. Our existence is rooted in our commitment to financial strength, integrity and responsibility. We have increased our capitalization requirement to Rs. 527 crore from the initial Rs.100 crore that has been stipulated by the Insurance Regulatory and Development Authority (IRDA). Our investments are confined only to debt instruments and we meet both Indian and US reporting norms. Max New York Life also deposits one per cent of the premium income with the RBI, towards Contingency Funds.
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So wish, within 15 days of receiving it We offer you multiple bonus options, which includes options such as annual bonus, bonus accumulated and paid on maturity, bonus used to offset premiums, bonus utilized to buy Paid up additions and bonus used to buy one-year term insurance. So, you can decide how you want to use your bonus payments. Life insurance is a financial resource for your loved ones in the event of your death. You enter into a contract with an insurance company that promises to provide your beneficiaries a certain amount of money upon your death. In return, you make periodic payments, known as premiums. The size of the premiums is generally based on factors such as your age, gender, medical history and the dollar amount of life insurance you select. Some policies may require a medical exam before premiums are established. Certain types of life insurance may also provide benefits for you and your family while you're still living. Policies such as whole life or universal life accumulate cash value on a tax-deferred basis, and that value can be used to supplement your retirement income or help provide for a child's education. Life insurance is an important part of anyone's financial portfolio. Financial advisors often recommend developing a financial plan that includes an appropriate amount of life insurance as part of a comprehensive strategy for financial security. Life Insurance. A Rs. 27,500 Crores industry today, expected to grow to an astronomical Rs. 115,000 crores by 2010. An industry poised for exciting change, as new companies will be allowed to offer insurance products to the Indian consumer. A transformation that will radically change the way we think about insurance and the way we buy insurance. Max New York Life is a dynamic partnership between New York Life, a globally respected insurance major and Max India, a business conglomerate driven by the spirit of enterprise.
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Max New York Life Insurance Company is one of the joint venture companies, which have got in-principle approval from IRDA to sell Life Insurance products in India. Max New York Life aspires to be the "life insurance brand of first choice" amongst Indian consumers. To achieve this company will draw on New York Life's demonstrated competence in developing and managing a superior personal sales network. For the last 46 years consecutively, the largest number of agents qualifying for membership to the Million Dollar Round Table (MDRT) have been from New York Life. The MDRT is the industry's most prestigious organization comprising the world's most successful insurance agents. Max New York Life, a merit oriented and equal opportunities employer, is looking for a few good men and women who will spearhead the effort to realize this vision.
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PRODUCT PROFILE UNIT LINKED INVESTMENT PLAN similarity towards mutual funds In structure, yes; in objective, no. Because of the high first-year charges, mutual funds are a better option if you have a five-year horizon. But if you have a horizon of 10 years or more, then UNIT LINKED INVESTMENT PLAN have an edge. To explain this further a UNIT LINKED INVESTMENT PLAN has high first-year charges towards acquisition (including agents’ commissions). As a result, they find it difficult to outperform mutual funds in the first five years. But in the long-term, UNIT LINKED INVESTMENT PLAN managers have several advantages over mutual fund managers. Since policyholder premiums come at regular intervals, investments can be planned out more evenly. Mutual fund managers cannot take a similar long-term view because they have bulk investors who can move money in and out of schemes at short notice.
Insurer’s preference of UNIT LINKED INVESTMENT PLAN Insurers love UNIT LINKED INVESTMENT PLAN for several reasons. Most important of all, insurers can sell these policies with less capital of their own than what would be required if they sold traditional policies.
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In traditional ‘with profits’ policies, the insurance company bears the investment risk to the extent of the assured amount. In UNIT LINKED INVESTMENT PLAN, the policyholder bears most of the investment risk. Since UNIT LINKED INVESTMENT PLAN is devised to mobilize savings, they give insurance companies an opportunity to get a large chunk of the asset management business, which has been traditionally dominated by mutual funds. Unit-linked insurance plans, UNIT LINKED INVESTMENT PLAN, are distinct from the more familiar ‘with profits’ policies sold for decades by the Life Insurance Corporation. ‘With profits’ policies are called so because investment gains (profits) are distributed to policyholders in the form of a bonus announced every year. UNIT LINKED INVESTMENT PLAN also serve the same function of providing insurance protection against death and provision of long-term savings, but they are structured differently. In ‘with profits’ policies, the insurance company credits the premium to a common pool called the ‘life fund,’ after setting aside funds for the risk premium on life insurance and management expenses. Every year, the insurer calculates how much has to be paid to settle death and maturity claims. The surplus in the life fund left after meeting these liabilities is credited to policyholders’ accounts in the form of a bonus. In a UNIT LINKED INVESTMENT PLAN too, the insurer deducts charges towards life insurance (mortality charges), administration charges and fund management charges.
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The rest of the premium is used to invest in a fund that invests money in stocks or bonds. The policyholder’s share in the fund is represented by the number of units. The value of the unit is determined by the total value of all the investments made by the fund divided by the number of units. If the insurance company offers a range of funds, the insured can direct the company to invest in the fund of his choice. Insurers usually offer three choices — an equity (growth) fund, balanced fund and a fund, which invests in bonds. In both ‘with profits’ policies as well as unit-linked policies, a large part of the first year premium goes towards paying the agents’ commissions. Arguments about unit-linked or ‘with profits’ The two strong arguments in favor of unit-linked plans are that — the investor knows exactly what is happening to his money and two; it allows the investor to choose the assets into which he wants his funds invested. A traditional ‘with profits,’ on the other hand, is a black box and a policyholder has little knowledge of what is happening. An investor in a UNIT LINKED INVESTMENT PLAN knows how much he is paying towards mortality, management and administration charges. He also knows where the insurance company has invested the money. The investor gets exactly the same returns that the fund earns, but he also bears the investment risk.
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Life Maker™ Unit Linked Investment Plan In the Life Maker™ unit linked plan; the premiums you pay are invested in funds offered by us. The appropriate ratio of investments into these funds will be determined by you in consultation with your Agent Advisor. These funds are invested in assets such as equities, money market instruments, investment grade corporate bonds, and government securities. These funds offer a wide range of returns. You can choose to invest your premiums in one or more of these funds, basis your risk taking ability In turn, we issue units, which represent the value of your policy i.e. you can "see" the value of your policy on any day by multiplying the number of your units by the value of units on that day. The value of these units is called the Net Asset Value (or NAV) and is normally published in newspapers on a daily basis. The NAV is based on the market value of the underlying investments in that fund i.e. equities, company bonds, government securities, etc Flexible Protection Choice of two insurance covers ? You have the flexibility to choose from two insurance covers - as per your need ? Level insurance cover: In the unfortunate event of death the nominee shall receive higher of the insurance cover or value of units. ? Increasing insurance cover: In the unfortunate event of death the nominee shall receive the sum of insurance cover and the value of units in the plan. You can
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change your type of cover from increasing insurance cover to level insurance cover during the plan tenor
Change your Sum Assured The plan allows you to change the level of your insurance cover to vary the ratio of protection and investment
FLEXIBLE INVESTMENT Choice of four attractive fund options You have the option of investing your money in any ratio in four attractive funds. The choice of your funds is derived from your investor risk profile which looks at factors such as age, ability to invest & risk appetite
TYPES OF FUNDS
Conservative Fund Invests largely in high quality fixed income securities issued by the Government of India or companies or other bodies corporate with a high credit rating. A small portion of the fund, not exceeding 15%, may be invested in high quality Indian equity stocks. This fund will have a low to moderate level of risk and return Balanced Fund Invests in both high quality fixed income securities issued by the Government of India or companies or other bodies corporate with high credit rating, as well as in high
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quality Indian equity stocks. However, the investment in equities will not exceed 40% of the size of the fund. This fund will have a moderate level of risk and return
Growth Fund Invests largely in high quality Indian equity stocks. A small portion of the fund may be invested in high quality fixed income securities issued by the Government of India or companies or other bodies corporate with high credit rating. This fund will have a moderate to high level of risk and return In addition, a small portion of each fund may be invested in cash or cash equivalents to facilitate day-to-day running of the fund.
Asset Types
Secure %
Conservative % 50-80 0-50
Balanced % 20-50 20-30
Growth % 0-30 0-30
Govt. Securities Corporate Bond (Investment Grade) Money Market Instrument/Cash Equities
50-100 0-50
0-20
0-20
0-20
0-20
Nil
0-15
10-40
20-70
You can make partial or full withdrawals to meet your monetary needs. Partial withdrawals can be made after 3 policy years. If you have chosen level insurance cover, your sum assured may reduce on partial withdrawal.
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Full surrender can be made anytime. However, in the first 2 policy years, there is a surrender charge of one year's premium, and of half of one year’s premium if surrendered in the 3rd policy year. There are no surrender charges after 3 policy years. We understand your need to adjust your investment portfolio based on factors like changing interest rates or the volatility in the equities market or a change in your life stage. The Life Maker™ plan allows you to switch between funds in any ratio without any tax liability. The switch allows you to change your risk return profile of your existing investments. In every policy year, the first two switches are free. The switch option we offer is one of the most powerful and flexible ones in the market where money from one fund can be switched to multiple funds in a single switch. Re-direct future premium Life Maker™ allows you to re-direct your future premiums. You can invest your future premiums in a fund different from your earlier fund, or to multiple funds in a ratio different from your earlier ratio (provided the amount paid into each fund meets our minimum in-force requirement). Re-directing helps you change the risk - return profile of your future investments. In every policy year, the first re-direction is free. INVEST MORE THROUGH FUND TOP-UPS TO MATCH YOUR CASH FLOWS Planned top-ups At inception, or from any premium due date, you can choose to invest extra money in your plan through top-ups. You may also choose to discontinue paying the top-ups anytime you want.
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Occasional top-ups: You can also invest extra money in your plan through occasional top-ups of any amount, at any time (except in the first policy year).
Add-on Riders Customize your policy benefits by adding Personal Accident Benefit or Dread Disease riders to your policy at inception or on any policy anniversary. Personal Accident Benefit (PAB) rider - if you opt for this rider, we will pay the rider sum assured on accidental death or accidental disability. Dread Disease (DD) rider - if you opt for this rider, we will pay the rider sum assured on contracting any of the ten diseases covered under this rider. Please refer to the Riders' brochure for details. Guaranteed free units as loyalty bonus In the last policy year, you can get free additional units, known as persistency units. These are equal to 2.5% of your annual target premium multiplied by the policy term, but not exceeding one annual target premium.
1. All premiums (including all top-ups) paid are eligible for a tax rebate under Section 80C of the Income Tax Act of 1961. 2. All premiums on the Dread Disease rider are eligible for a tax rebate under Section 80D of the Income Tax Act of 1961. 3. All maturity benefits are tax free under Section 10 (10D) of the Income Tax Act of 1961. 4. All switches are tax-free.
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Handpicked, highly trained agent advisors, with a team of certified, and highly trained agent advisors, supported by a team of specialists; we are fully equipped to help you meet your unique financial goals.
GLOBAL LIFE INSURANCE EXPERIENCE Benefit from our access to over 150 years of global life insurance experience. New York Life Insurance Company, a Fortune 100 company founded in 1845, is the largest mutual life insurance company in the United States and one of the largest life insurers in the world. Sample Illustration of Plan If you are 30 years old, and buy Life Maker™ of tenor 30 years, and annual premium of Rs. 20,000 for level insurance cover, you will pay Rs. 6 lacs to the company over the plan tenor. The graph alongside illustrates the maturity values (in Rs lacs) you are likely to receive, if the rate of return on investments of funds are 6% and 10%. If you choose to add top-up premiums to your policy, the maturity values will significantly improve
Entry Age (age as at last birthday) Tenor Maximum Maturity Age Minimum Sum Assured Minimum Annual Premium
12 to 60 years 10 to 58 years 70 years Rs. 100,000 Rs. 15, 000
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Premium Allocation
Entry Age (age as at last birthday) 12 to 60 years Tenor 10 to 58 years Maximum Maturity Age 70 years Minimum Sum Assured Rs. 100,000 Minimum Annual Premium Rs. 15, 000 Premium Allocation
Policy Year 1st year 2nd year 3rd year onwards
Allocation % of Annual Premium 75 80 100
Allocation percentage indicates the proportion of premiums, invested in the funds: All Top-Up Premiums are allocated @ 101% of the Top-Up Premium you have paid. For example, if you give a top-up Premium of Rs. 10,000/-, we will invest Rs. 10,100/- in your chosen fund(s). Expenses Nominal fund management expense to professionally manage your investments. This varies from 0.90% to 1.25% of net assets in the fund. 44
A monthly administration fee of Rs. 50/-. This will be periodically reviewed to cover inflation and administrative costs, but will never be more than 15% of the charge over the previous year. Initial set up monthly expense (in the first year only). This will vary from 0.15% to 0.25% of sum assured, depending on the plan tenor.
Mortality charge to provide insurance cover under the Life Maker™ plan and riders, if any. Bid-Offer expense of 5%, with 1% for rounding of the premium on its allocation to the funds Standard exclusions & other exceptions Not withstanding anything stated to the contrary in the Policy, if the Life Insured under the Policy dies by suicide, whether sane or insane, within one year from the Effective Date of this Policy, the Policy coverage shall come to an end simultaneously. In such an event, we will only refund the value of your units. Additional exclusions are as per rider chosen. Option to increase or decrease the sum assured is subject to our prior approval, minimum stipulated limits and certain other conditions.
Please note that top-ups will not increase the sum assured. Top-up will be accepted only after the annual target premium (i.e. the regular premium payable in a policy year) due has been paid. We reserve the right to add, close, combine or alter any Fund. All transactions in units shall be on a forward pricing basis. We will determine the date of valuation of assets of funds, the frequency of which shall not be less than once per week. Life Maker™ is only the name of the policy and in no way indicates the quality of the plan or its future returns or prospects.
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The investments in the units of any our funds are subject to market and other risks, and the value of the units can increase or reduce depending on the factors affecting the debt and equity markets from time to time.
CHAPTER 2: INTRODUCTION ABOUT STUDY
COST BENEFIT ANALYSIS
MEANING OF COST BENEFIT ANALYSIS The cost benefit analysis helps in finding out the relationship of costs and revenues to output. It enables the financial manager to study the general effect of the level of output upon income and expenses and therefore upon profits.
COST BENEFIT ANALYSIS Cost-Benefit Analysis (CBA) estimates and totals up the equivalent money value of the benefits and costs to the community of projects to establish whether they are worthwhile. These projects may be dams and highways or can be training programs and health care systems. The idea of this economic accounting originated with Jules Dupuit, a French engineer whose 1848 article is still worth reading. The British economist, Alfred Marshall, formulated some of the formal concepts that are at the foundation of CBA. But the practical development of CBA came as a result of the impetus provided by the Federal Navigation Act of 1936. This act required that the U.S. Corps of Engineers carry out projects for the improvement of the waterway system when the total benefits of a project to whomsoever they accrue
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exceed the costs of that project. Thus, the Corps of Engineers had created systematic methods for measuring such benefits and costs. The engineers of the Corps did this with out much, if any, assistance from the economics profession. It wasn't until about twenty years later in the 1950's that economists tried to provide a rigorous, consistent set of methods for measuring benefits and costs and deciding whether a project is worthwhile. Some technical issues of CBA have not been wholly resolved even now but the fundamental presented in the following are well established.
Principles of Cost Benefit Analysis
One of the problems of CBA is that the computation of many components of benefits and costs is intuitively obvious but that there are others for which intuition fails to suggest methods of measurement. Therefore some basic principles are needed as a guide.
There Must Be a Common Unit of Measurement
In order to reach a conclusion as to the desirability of a project all aspects of the project, positive and negative, must be expressed in terms of a common unit; i.e., there must be a "bottom line." The most convenient common unit is money. This means that all benefits and costs of a project should be measured in terms of their equivalent money value. A program may provide benefits which are not directly expressed in terms of dollars but there is some amount of money the recipients of the benefits would consider just as good as the project's benefits. For example, a project may provide for the elderly in an area a free monthly visit to a doctor. The value of that benefit to an elderly recipient is the minimum amount of money that that recipient would take instead of the medical care. This could be less than the market
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value of the medical care provided. It is assumed that more esoteric benefits such as from preserving open space or historic sites have a finite equivalent money value to the public. Not only do the benefits and costs of a project have to be expressed in terms of equivalent money value, but they have to be expressed in terms of dollars of a particular time. This is not just due to the differences in the value of dollars at different times because of inflation. A dollar available five years from now is not as good as a dollar available now. This is because a dollar available now can be invested and earn interest for five years and would be worth more than a dollar in five years. If the interest rate is r then a dollar invested for t years will grow to be (1+r) t. Therefore the amount of money that would have to be deposited now so that it would grow to be one dollar t years in the future is (1+r)-t. This called the discounted value or present value of a dollar available t years in the future. When the dollar value of benefits at some time in the future is multiplied by the discounted value of one dollar at that time in the future the result is discounted present value of that benefit of the project. The same thing applies to costs. The net benefit of the projects is just the sum of the present value of the benefits less the present value of the costs. The choice of the appropriate interest rate to use for the discounting is a separate issue that will be treated later in this paper.
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Valuations Should Represent Consumers or Producers Valuations As Revealed by Their Actual Behavior
The valuation of benefits and costs should reflect preferences revealed by choices which have been made. For example, improvements in transportation frequently involve saving time. The question is how to measure the money value of that time saved. The value should not be merely what transportation planners think time should be worth or even what people say their time is worth. The value of time should be that which the public reveals their time is worth through choices involving tradeoffs between time and money. If people have a choice of parking close to their destination for a fee of 50 cents or parking farther away and spending 5 minutes more walking and they always choose to spend the money and save the time and effort then they have revealed that their time is more valuable to them than 10 cents per minute. If they were indifferent between the two choices they would have revealed that the value of their time to them was exactly 10 cents per minute. The most challenging part of CBA is finding past choices which reveal the tradeoffs and equivalencies in preferences. For example, the valuation of the benefit of cleaner air could be established by finding how much less people paid for housing in more polluted areas which otherwise was identical in characteristics and location to housing in less polluted areas. Generally the value of cleaner air to people as revealed by the hard market choices seems to be less than their rhetorical valuation of clean air.
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Benefits Are Usually Measured by Market Choices When consumers make purchases at market prices they reveal that the things they buy are at least as beneficial to them as the money they relinquish. Consumers will increase their consumption of any commodity up to the point where the benefit of an additional unit (marginal benefit) is equal to the marginal cost to them of that unit, the market price. Therefore for any consumer buying some of a commodity, the marginal benefit is equal to the market price. The marginal benefit will decline with the amount consumed just as the market price has to decline to get consumers to consume a greater quantity of the commodity. The relationship between the market price and the quantity consumed is called the demand schedule. Thus the demand schedule provides the information about marginal benefit that is needed to place a money value on an increase in consumption.
The cost benefit analysis is used to answer many of the questions faced by management. As profits are affected by the interplay of costs, volume and selling prices, management must have at its disposal analyses that can allow reasonably accurate presentation of the effect a change in any one of these factors would have on the profit performance. When plans are formulated for a given period certain questions of the following type have to be answered should emphasis be placed on increasing sales volume? If so, to which of the many products marketed should it be applied? Would an increase in selling price even though accompanied by a decrease volume, result in more profitable operations? Should efforts be made to reduce costs instead of increasing g volume or selling price as a step toward increased profits? If cost reduction is the answer should pressure be exerted to reduce variable or fixed costs? Not all of these questions would be asked by management in every industrial
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enterprise since the elastic ting of demand and the extent of and nature of competition would have a varying impact in different industries. Cost benefits analysis furnishes complete picture of the profit structure, which enables management to distinguish between the effect of sales volume flections and the results of price or cost changes upon profits. ADVANTAGES OF COST BENEFITS ANALYSIS Cost benefits analysis is an important tool of profit planning it provide information about the following matters. 1. The behavior of cost in relation to volume 2. Volume of production or sales, where the businesses will break even. 3. Sensitivity of profits due to variation in output. 4. Amount of profit for a projected sales volume. 5. Quantity of production and sales for a target profit level.
Cost benefit analysis may therefore be defined as a managerial tool showing the relationship between various ingredients of profit planning cost (both fixed and variables) selling price and volume of activity etc. Such and analysis is useful to the finance manager in the following respects. 1. It helps him in forecasting the profit fairly accurately. 2. It is helpful in setting up flexible budget, since on the basis of the relationship, it can ascertain the cost, sales and profits at different levels of activity. 3. It also assists him in performance evolution for purposes of management control.
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4. It helps in formulating price policy projecting the effect which different price structures will have n cost and profits. 5. It helps determining the amount of overhead cost to be charged at various levels of operations, since overhead rates are generally pre-determined n the basis of a selected volume of production. Thus, cost-benefit analysis is an important media through which the management can have an insight into effects on profit on account of variations in costs and sales and take appropriate decisions.
Risk and uncertainty In common parlance the terms “risk” and “Uncertainty” have synonymous meaning. However they differ from each other as given below. Risk Risk maybe defined as “the chance of future loss that can be fore seen”. In other words in case of risk an estimate can be made about the degree of happening of the loss. This is usually done by assigning probabilities to the risk on the basis of past data and the probable trends. Uncertainty Uncertainty may defined as “the unforeseen chance for future loss or damages”. In case of uncertainty since the firm cannot anticipate the future loss and hence it cannot directly deal with it in its planning process, as is possible in the case of risk. For example, a firm investing money in a foreign country cannot possibly foresee a coup and taking over of the government by on unfriendly group similarly, a firm cannot foresee the loss which may be due to destruction of its plant on account of earth quake of 52
course, in those cases where occurrence of such earthquakes is quite frequent the firm can possibly estimate the likelihood of the loss and such loss can be taken care of by the firm in its planning process. Such loss will not therefore fall in the purview of uncertainty, but will fall in the purview of risk. Thus, there is a very thin line of distinction between the terms “uncertainty” and “Risk”. In this project, I have studied costs and benefits enjoyed by the customer of unit linked investment plan (UNIT LINKED INVESTMENT PLAN) in Max New York Life Insurance Company Limited. I have also studied the risk and returns they are deriving under the unit linked investment plan by taking in to consideration of the portfolio of companies’ investment in different periods of time.
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2.1. OBJECTIVES
The main aim of the present study is to accomplishing the following objectives.
1. To identify the Max New York Life’s investment allocation for UNIT LINKED INVESTMENT PLAN Plan. 2. To know about how much percent of returns promised by Max New York Life and also analyze what they are giving as returns to the investors. 3. To find out the disparities between the actual and promised rate of returns. 4. To analyses the range of customers invested in UNIT LINKED INVESTMENT PLAN Plan. 5. To analyses the risk and return pattern of Max New York Life.
2.2. NEED FOR THE STUDY
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In the present world, each and every thing is marked by competition. Entry into the financial market or the management of portfolio dealings is very risky and challengeable. As a precaution the researcher aims at studying the nature of different financial assets in the money and capital markets. By the proper study of cost benefit analysis, the company as well as different investors can assess about different investments
2.3. LIMITATIONS
Limitations make the work dissatisfied every work has its own limitations. Likely, my project is also having its own limitations ? Three months time is insufficient to have a detailed study and analysis about the various aspects of cost benefit analysis. ? A detailed assistance tools to know and undertake analysis about the benefit was lacked. ? Any study cannot be 100% accurate at the times. This is because of the inherent limitations that could be present in such a study. One of the limitations is since it’s a Private insurance company the financial data are not supposed to be disclosed. ? Due to resource and time constraints, only percentage of different cost components has been considered and it is difficult to express in numerical values because it varies based on the age of the individual.
2.4. RESEARCH METHODOLOGY
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PRIMARY DATA Primary sources enables the researcher to get as close as possible to what actually happened during an historical event or time. A primary source reflects the individual’s viewpoint of a participant or observer. Data collected from the company guide. SECONDARY DATA Companies existing investment portfolio’s quarterly review report, available statistics, journals and magazines and Internet etc
CHAPTER 3: ANALYSIS AND INTERPRETAIONS
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COST BENEFIT ANALYSIS Table 1: Cost deduction components of Unit Linked Investment plan
Components Nominal fund management expenses Monthly administration fees Initial set up monthly expense Bid offers expense Rounding of premium on its allocation to the funds
Charges 0.90% to 1.25 % Rs. 50 0.15 % to 0.25% 5%
1%
Mortality charges
Depends on the age of the individuals and the sum assured.
These charges will be detected from the customer’s premium for the first 3years by our Max New York Life Insurance Company. So after fourth year onwards entire premium will be invested in different portfolio of funds preferred by the customers. So there will be a hundred percentage allocations of funds after 3 years made in fortune 100 companies which in turn fetch more returns to the customers.
Table 2:
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GROWTH FUND RETURNS
Period
Returns
31st December 2008
47.1%
30th April 2009
49.9%
Growth Fund Returns
50.50% 50.00% 49.50% 49.00% Percentage 48.50% 48.00% 47.50% 47.00% 46.50% 46.00% 45.50% 31st December 2005 Period 30th April 2006 47.10% 49.90%
INFERENCE From the Period 31st Dec. 05 to 30th April. 2006 the growth fund returns return has increased from 47.10 % to 49.9 % at a 2.8 % Growth in returns.
Table 3:
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GROWTH FUND ASSETS ALLOCATION
GROWTH FUND INVESTMENT PORTFOLIO AS ON 31ST DECEMBER 2008
Asset allocation Government securities Corporate bonds Equities Cash and cash equivalents Percentage 14% 16% 57% 14%
Growth Fund - 31st Dec. 05
14% 14% 16%
56% Government securities Equities Corporate bonds Cash and Cash Equivalents
Table 4:
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GROWTH FUND INVESTMENT PORTFOLIO AS ON 30TH APRIL 2009
Asset allocation Government securities Corporate bonds Equities Cash and cash equivalents
Percentage 7% 28% 57% 8%
Growth Fund - 30th April. 06
8% 7% 28%
57%
Government Securities Equities Corporate bonds Cash and cash equivalents
Inference
From the period 31st December 2005 to 30th April 2009, the growth fund percentage of returns has increased from 47.1% to 49.9%. So there was a increase of 2.8% returns in Growth fund. This is because of the change in government securities allocation from 14% to 7% change in corporate bonds allocation from 16% to 28% and change in cash and cash equivalents allocation from 14 to 8%.
Table 5:
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BALANCED FUND RETURNS
Period 31st December 2005 30th April 2009
Returns 26.4% 29.3%
Balanced Fund - Returns
30.00% 29.00% Percentage 28.00% 27.00% 26.00% 25.00% 24.00% 31st December 2005 Period 30th April 2006 26.40% 29.30%
INFERENCE From the Period 31st Dec. 05 to 30th April. 2009 the growth fund returns return has increased from 47.10 % to 49.9 % at a 2.8 % Growth in returns.
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Table 6: BALANCED FUND ASSET ALLOCATION BALANCED FUND INVESTMENT PORTFOLIO AS ON 31ST DEC 2008.
Asset allocation Government securities Corporate bonds Equities Cash and cash equivalents
Percentage 21% 32% 32% 15%
Balanced Fund - 31st Mar. 06
15%
21%
32% 32%
Government securities Equities
Corporate bonds Cash and cash equivalents
Table 7:
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BALANCE FUND INVESTMENT PORTFOLIO AS ON 30TH APRIL 2009
Asset allocation Government securities Corporate bonds Equities Cash and cash equivalents
Percentage 24% 35% 35% 6%
Balanced Fund - 30th April. 06
6% 35%
Government securities 24% Corporate bonds Equities 35% Cash and cash equivalents
Inference
From the period 31st December 2005 to 30th April 2009, the balance fund percentage of returns has increased from 26.4%to 29.3%. So there was the increase of 2.9% returns in the balanced fund. This is because of the increase in government securities allocation from 21% to 24%, corporate bonds and equities increase in allocation from 32% to 35% and cash and cash equivalents has decreased from 15% to 6%.
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ABOUT GROWTH FUND
As compared to the investments made in growth fund for the period ended 31 st Dec 2008 & 30th April 2009. The company decided to take more risk and to earn more returns by investing in corporate bonds and equities. There was a small percentage of investment in government sector as they were not performing well when compared to private players in the market place.
Table 8: GROWTH FUND EQUITY BREAKS UP IN DIFFERENT INDUSTRIES
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Percentage of Industry fund as on 31st Dec 2008
Percentage of fund as on 30th April 2009
Percentage of increase in fund allocation
Percentage of decrease in fund allocation
Cement Banking and financial services IT Consultancy & services Crude oil & natural gas Automobiles Dairy products Diversified Drugs & pharmaceuticals Metals
3.1%
3.4%
0.3%
-
7.5%
6.6%
-
0.9%
8.1%
9.8%
1.7%
-
2.7%
-
-
-
4.1% 1.6% 5.2%
3.9% 1.6% 5.6%
0.4%
0.2% -
2.8%
3.1%
0.3%
-
3.1%
2.7%
-
0.3%
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Paints &varnishes Prime movers Refinery Textiles Media Other equities Telecom
1.4%
1.2%
-
0.2%
3% 5% 0.8% 1.1% 7.2% -
3.3% 5.9% 0.7% 0.6% 6.9% 2%
0.3% 0.9% 2%
0.1% 0.5% 0.3% -
PERCENTAGE OF INCREASE IN GROWTH FUND ALLOCATION
? ? ? ? 0.3% increase in fund investment to Cement industries. 1.7% increase in fund investment to IT Consultancy & services industries. 0.4% increase in fund investment to Diversified industries. 0.3% increase in fund investment to Drugs & pharmaceuticals industries. 66
? ? ?
0.9% increase in fund investment to Refinery industries. 0.3 % increase in fund investment to Prime movers industries. 2% increase in fund investment to Telecom industries.
PERCENTAGE OF DECREASE IN GROWTH FUND ALLOCATION
? ? ? 0.9% decrease in fund investment to Banking and financial services. 0.3% decrease in fund investment to Metal industries. 0.2% decrease in fund investment to Automobiles industries.
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? ? ? ?
0.2% decrease in fund investment to Paints &varnishes industries. 0.1% decrease in fund investment to Textiles industries 0.5% decrease in fund investment to Media industries 0.3% decrease in fund investment to Other equities industries
INFERENCE Table-1 shows how changes in the investment allocation portfolio of different industries brought changes in the returns. Growth fund returns has increased from 47.1% to 49.9% that is by 2.8% extra growth in returns. From this it is also noted that 31st Dec 2008, there was a 2.7% investment allocation in crude oil and natural gas industries became turned to no investment in the period 30 th April 2009. It is also found that there was a investment of 2% allocation to telecom sector which is not at all made anything during the period 31st December 2005.
Table 9: ABOUT THE BALANCED FUND
As compared to the investment made in balanced fund for the period ended 31st 2005 and 30th April 2009 the company decided t reduce the investment allocation for cash and cash
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equivalents and increased the some proportion of investments in government securities corporate bonds and equities
BALANCED FUND EQUITY BREAK UP IN DIFFERENT INDUSTRIES
Percentage of Industry fund as on 31 Dec 2008
st
Percentage of Percentage of Percentage of fund as on 30th April 2009
2.1%
increase in fund allocation
0.3%
decrease in fund allocation
-
Cement Banking and financial services IT Consultancy & services Crude oil & natural gas Automobiles Dairy products Diversified Drugs &
1.8%
4.3%
3.8%
-
0.5%
4.7%
6.3%
1.6%
-
1.5%
-
-
1.5%
2.2% 0.9% 2.8% 1.7%
2.1% 1.0% 3.9% 1.8%
0.1% 1.1% 0.1%
0.1% 69
pharmaceuticals Metals Paints &varnishes Prime movers Refinery Textiles Media Telecom 1.7% 1.7% -
0.7%
0.7%
-
-
1.6% 2.9% 0.4% 0.6% -
1.9% 3.7% 0.4% 0.7% 1.3%
0.3% 0.8% 0.1 -
0.9%
PERCENTAGE OF INCREASE IN BALANCED FUND ALLOCATION
? ? ? ?
0.3% increase in fund investment to Cement industries. 1.6% increase in fund investment to IT Consultancy & services. 0.1% increase in fund investment to Dairy products. 1.1% increase in fund investment to Diversified industries.
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? ? ? ?
0.1% increase in fund investment to Drugs & pharmaceuticals industries. 0.3% increase in fund investment to prime movers industries. 0.8% increase in fund investment to Refinery industries. 0.1% increase in fund investment to media industries.
PERCENTAGE OF DECREASE IN BALANCED FUND ALLOCATION
? ? ? ? 0.5% decrease in fund investment to Banking and financial services. 1.5% decrease in fund investment to Crude oil & natural gas industries. 0.1% decrease in fund investment to Automobiles industries. 0.9% decrease in fund investment to Telecom industries.
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INFERENCE: Table-2 shows how the changes in investment allocation of balanced fund portfolio to different industries brought changes in its returns. With this it is implied that The balanced fund returns of Max New York Life has increased from26.4% to 29.3% that is by 2.9% growth in balanced fund returns. It is found that crude oil & gas investment was given up during 30th April 2009 and was replaced by telecom sector.
CHAPTER 4: FINDINGS AND SUGGESTIONS
FINDINGS
LIFE INSURANCE
In the Indian financial market the most common reason to buy life insurance policy is to protect the financial interest of the owner of the policy in the event of the insured’s demise. Most of the Indian people consider the life insurance as device for getting tax benefits instead of its other long-term financial benefits. With the entry of private sector players backed by foreign expertise, Indian insurance market has become more vibrant. UNIT LINKED INVESTMENT PLAN is the
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highlighted plan in the Indian insurance market. More than 75% of the total premium is contributed by UNIT LINKED INVESTMENT PLAN. TAX BENEFITS Tax is an important factor when an investor taking decision in connection with his portfolio. It has more vibrant role in the field of life insurance investment options. In the Indian insurance market, most of the investors treat the life insurance investment as device for getting tax benefits. UNIT LINKED INVESTMENT PLAN is the most highlighted products in the life insurance investment market. Since UNIT LINKED INVESTMENT PLAN is an insurance policy, incomes of profits arising form the investment are tax-free. Even the top-up investments can be redeemed without any fear of the taxman. However this is only if the life covers is at least five times the annual premium.
LIQUIDITY In life insurance investment, liquidity is also a limiting factor but it is solvable up to a certain limit. Most of the all-insurance investments in life insurance carried out a paid up value after the payment of the premium in mandatory period. That will give you a surrender value for your policy if you decide to terminate the policy. And in order to highlight the liquidity in life insurance, loan option is also available on the security of your policy. So by using the policy, an investor can raise money whenever he/she wants on affordable schemes. SAFETY
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Like any other investment plans, life insurance business is also an investment option Associated with risk. But the difference is, we can monitor the flow of fund on a regular interval basis because all of the most insurance businesses offer UNIT LINKED INSURANCE PLANS as their long-term investment products. Unit-linked plans have emerged as the most popular form of insurance in the past few years. In the present world, more than 75% of the total premium is collected through UNIT LINKED INVESTMENT PLAN products. So the risk from the part of an investor is also low and is safer.
DISUSSIONS
Plan that offers one’s family both security and growth of his/her hard-earned savings. These plans look after one’s financial stability in future. If the marriage funding, educational funding or the family protection is your need, then this flexible plan will cover the loved ones if anything happens to the income earner. And at the same time ensures that his/her money grows. One can opt for the term that suits his/her needs best and pay premiums annually, semi-annually or quarterly. Emergency loan facility is available under this plan from 3rd year onwards. For one with a age of 27, ‘Assure 30 years security and growth plan’ offers an impressive investment return of as high as 10.9%approximately on total investment for a
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policy of Rs.5,00,000 lakh where the bonus amount is calculated on 5 percent of the Basic sum assured. This return of investment comes with an Accident Death Benefit and Waiver of premium facility. This is important to mention, this bonus amount is likely to be higher after 30 years as private insurance players are expected to enjoy a good market share then and thus, customer may enjoy more than 10.9 percent return on investment.
SUGGESTIONS
ABOUT EQUITY FUNDS Equity funds seek to provide maximum growth of capital with secondary emphasis on dividend or interest income. They invest in common stocks with a high potential for rapid growth and capital appreciation. An equity fund gives an exposure to the stock market. The fund world has long-term growth potential but provides low current income. They are not suitable for investors who are risk averse and are focused on maximizing current income or conserving principal.
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If high growth is customer’s priority this is the plan for them. They can enjoy long term capital appreciation form a portfolio that is invested primarily in equity and equity-related securities.
ABOUT BALANCED FUNDS Balanced funds are more evenly invested in equities and income securities. Balanced and equity-income funds are suitable conservative investors who want high current t yield with some growth. If you seek to generate long-term capital appreciation and current income, an investment in the balanced fund would be ideal. It gives customs an exposure to the stock market without the entire risk of the stock market. If customers prefer a balance of growth and steady returns, they can choose our balanced fund Unit Linked Investment Plan. This would ensure that their portfolio is invested in equity and equity-linked securities as well as in fixed income securities.
CONCLUSION
Life insurance is performing well and it acceptable for the investors for satisfying the return needs of the investors. More over the additional comparative benefits like service of investment professionals, ability to diversify price volatility risk, and ability to match with risk taking ability etc. are the some of high-lighted points of life insurance. And there is a roof for improvement in the forms of increasing the number of investors by undergoing changes in UNIT LINKED INVESTMENT PLAN schemes. Max New York life shows only illustrative returns of 6% and 10% under the guidelines of IRDA but it pays the actual returns of 49.9% in growth fund and 29.3% in balanced fund respectively. And the returns will vary from period to period based on market 76
fluctuations. As it is a market linked product, the stable returns cannot be expected by the customers. As Max New York Life has 160 years of experience in the insurance business, it invests in such a fortune company which will fetch more returns as well as safety of funds to the customers.
BIBLIOGRAPHY
BOOKS
? Financial Management – ICFAI National College. ? Investment Management by VK Bhalla. ? SECURITIES AND EXCHANGE BOARD OF INDIA (Reading material on Empowering Investors Through Education)
WEBSITES
? www.maxnewyorklife.co 77
? www.investopedia.com ? www.bamboo.com
APPENDICES
Quarterly review of Max New York Life Insurance Company limited.
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ON THE JOB TRAINING
OBJECTIVES OF OJT
? ? ? ? ? To find the real aspect of marketing in the growth of an organization. To get a real time experience with the working atmosphere in an organization. To be more familiar with the insurance industry. To study insurance products. To study the real art of convincing people.
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?
To accomplish the task assigned i.e., generating loyal customers.
TASKS
The target/ tasks of the training are to do marketing and generate loyal customers to the company. The target, which the SIP COMPANY has specified, is to generate minimum premium of Rs 1, 25,000 and to recruit 2 agents for our company. This task focus on one real aspect ‘How to Market Insurance Products’. Since insurance is a service it is quite difficult to market. The new players in the industry make the competition worse. So marketing needs special importance. It needs special skills.
STRATEGY
The strategies adopted in order to achieve the set target are by direct contacts and explaining them about the products that are available and by answering to the doubts and questions raised and through tee marketing.
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EXPERIENCE
Selling of product is a very nice experience. Meeting with different people of different attitudes, opinion, etc helped me in understanding the nature of people. Convincing people was very difficult task and it requires special skills and abilities.
ACHEIVEMENTS
? Contacted about 100 people and explained them about the products and answered to the doubts raised by them. ? Convinced nine people and logged in 85,000 Rupees as yearly premium.
LIMITATIONS OF OJT
? Busy nature of people. ? The time period for the work was limited. ? The unwillingness of people to take the policy. ? Lack of knowledge of Unit Linked products. ? Annual premium was not encouraged.
LEARNINGS THROUGH SUMMER INTERNSHIP PROGRAM
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Four months Summer Internship Program (SIP) is a wonderful opportunity where as a student provided me a chance to apply the possessed business knowledge and gain the valuable business experience and training in the social sector. It helped me to build a culture of teamwork and a culture of loyalty
On-the –job-training helped me to gain of experience. It also helped me to learn how to behave in a corporate world. SIP enabled me a get an exposure to the competitive business world.
It also helped me in shaping me young mind and to develop the necessary communication skills, increased the confidence level, way of approaching the management and so. It also motivated and groomed me to possess the various skills, which the present business world is looking for. Training also helped me in building good relationship among the employees.
AWARDS AND REWARDS RECEIVED
Till now I have earned a commission of Rs. 15, 861 and a stipend of Rs. 4000 by selling nine policies and collected Rs. 85,000 as annual first year premium. This motivated me to work hard for the company in the near future.
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doc_916624502.doc
Cost benefit analysis (CBA), sometimes called benefit–cost analysis (BCA), is a systematic process for calculating and comparing benefits and costs of a project, decision or government policy (hereafter, "project").
1.1. INDUSTRY PROFILE
DEFINITION OF INSURANCE Promise of reimbursement in case of loss; paid to people or companies who are concerned about hazards and for that they make prepayments to an insurance company Policy: This may be as written contract or certificate of insurance. Indemnity: Protection against future loss ORIGIN OF INSURANCE The idea of insurance was born out of a desire of the people that many should share the losses suffered by an individual. Originally it was restricted to forms other than life assurance. It started with marine insurance, where the losses on account of perils of the sea like piracy, sinking or damage to cargo were shared by all who were engaged in sea trade. As regards life insurance, in early days mutual societies were formed to render service to the member in the event of sickness, unemployment and premature death. ‘ Decent funeral’ was considered as the immediate financial need. Gradually, the financial loss following death of the breadwinner was extended to include the future earning power. In India, the word ‘yogakshema’ is used in Rig Veda suggesting that some form of community insurance was practiced by the Aryans over 3000 years ago. During Buddhist period, burial societies existed which were mutual in their character and used to help a family by building house, protecting the widow and marrying the girls. Reference to some forms of insurance is also found in the codes of Hammurabi, manu (Manav Dharam Shastra).
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The first policy providing life assurance cover for a period of 12 months was issued as 1583 A.D. in England. The Amicable society started granting fluctuating sum on death since 1705 and a fixed sum since 1757. With the development of mortality table, life assurance acquired a scientific character. The Equitable society founded in 1762 was the first to be established on scientific basis. In India, Bombay Mutual Assurance society Ltd. was the first insurance company to be formed in 1870. Oriental Life Assurance Company Limited followed it in 1874.
INSURANCE HISTORY The roots of insurance might be traced to Babylonia, where traders were encouraged to assume the risks of the caravan trade through loans that were repaid (with interest) only after the goods had arrived safely: a practice resembling bottomry and given legal force in the Code of Hammurabi (c.2100 B.C.). The Phoenicians and the Greeks applied a similar system to their seaborne commerce. The Romans used burial clubs as a form of life insurance, providing funeral expenses for members and later payments to the survivors. With the growth of towns and trade in Europe, the medieval guilds undertook to protect their members from loss by fire and shipwreck, to ransom them from captivity by pirates, and to provide decent burial and support in sickness and poverty. By the middle of the 14th cent., as evidenced by the earliest known insurance contract (Genoa, 1347), marine insurance was practically universal among the maritime nations of Europe. In London, Lloyd's Coffee House (1688) was a place where merchants, ship owners, and underwriters met to transact business. By the end of the 18th cent. Lloyd's had progressed into one of the first modern insurance companies. In 1693 the astronomer Edmond Halley constructed the first mortality table, based on the statistical laws of mortality and compound interest. The table, corrected (1756) by Joseph Dodson, made it
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possible to scale the premium rate to age; previously the rate had been the same for all ages. Insurance developed rapidly with the growth of British commerce in the 17th and 18th cent. Prior to the formation of corporations devoted solely to the business of writing insurance, policies were signed by a number of individuals, each of whom wrote his name and the amount of risk he was assuming underneath the insurance proposal, hence the term underwriter. The first stock companies to engage in insurance were chartered in England in 1720, and in 1735, the first insurance company in the American colonies was founded at Charleston, S.C. Fire insurance corporations were formed in New York City (1787) and in Philadelphia (1794). The Presbyterian Synod of Philadelphia sponsored (1759) the first life insurance corporation in America, for the benefit of Presbyterian ministers and their dependents. After 1840, with the decline of religious prejudice against the practice, life insurance entered a boom period. In the 1830s the practice of classifying risks was begun. The New York fire of 1835 called attention to the need for adequate reserves to meet unexpectedly large losses; Massachusetts was the first state to require companies by law (1837) to maintain such reserves. The great Chicago fire (1871) emphasized the costly nature of fires in structurally dense modern cities. Reinsurance, whereby losses are distributed among many companies, was devised to meet such situations and is now common in other lines of insurance. The Workmen's Compensation Act of 1897 in Britain required employers to insure their employees against industrial accidents. Public liability insurance, fostered by legislation, made its appearance in the 1880s; it attained major importance with the advent of the automobile.
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In the 19th cent. Many friendly or benefit societies were founded to insure the life and health of their members, and many fraternal orders were created to provide low-cost, members-only insurance. Fraternal orders continue to provide insurance coverage, as do most labor organizations. Many employers sponsor group insurance policies for their employees; such policies generally include not only life insurance, but sickness and accident benefits and old-age pensions, and the employees usually contribute a certain percentage of the premium. Since the late 19th cent. There has been a growing tendency for the state to enter the field of insurance, especially with respect to safeguarding workers against sickness and disability, either temporary or permanent, destitute old age, and unemployment. The U.S. government has also experimented with various types of crop insurance, a landmark in this field being the Federal Crop Insurance Act of 1938. In World War II the government provided life insurance for members of the armed forces; since then it has provided other forms of insurance such as pensions for veterans and for government employees. After 1944 the supervision and regulation of insurance companies, previously an exclusive responsibility of the states, became subject to regulation by Congress under the interstate commerce clause of the U.S. Constitution. Until the 1950s, most insurance companies in the United States were restricted to providing only one type of insurance, but then legislation was passed to permit fire and casualty companies to underwrite several classes of insurance. Many firms have since expanded, many mergers have occurred, and multiple-line companies now dominate the field. In 1999, Congress repealed banking laws that had prohibited commercial banks from being in the insurance business; this measure was expected to result in expansion by major banks into the insurance arena. In recent years insurance premiums (particularly for liability policies) have increased rapidly, leaving unprecedented numbers of Americans uninsured. Many blame the insurance conglomerates, contending that U.S. citizens are paying for bad risks made
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by the companies. Insurance companies place the burden of guilt on law firms and their clients, who they say have brought unreasonably large civil suits to court, a trend that has become so common in the United States that legislation has been proposed to limit lawsuit awards. Catastrophic earthquakes, hurricanes, and wildfires in late 1980s and the 90s have also strained many insurance company's reserves. How to really buy insurance When faced with prospects of figuring out how much insurance to buy ,most people pluck a figure out of the air -something that just seems adequate .this is obviously not the way to make this important decision . The only reasonable way of making this decision is to unemotionally create a financial plan that your family should follow if you die suddenly. Families also have to consider the impact of the both parents passing away in the accident .The impact of such a tragedy could be greater then just a sum of the two deaths occurring separately heads to consider. LOAN AND DEBTS As far as possible, take debtors’ insurance so that your debts can be paid off straight away, if you have you have a housing loan, the lender has probably made sure that you already have such insurance for a loan. Other loans need to be considered, while you can add these to your main term insurance, taking a policy where the insurance company will directly pay off lenders has the advantage that your survivors will not be temped to carry the loans. Do not waste money in insuring unsecured personal debt like credit card debt .The card issuer cannot make your family pay so there’s no need to cover that, unlike say, vehicle loans where u wouldn’t want the family car repossessed by the lender.
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FUTURE EXPENSES The hardest part of living for the future expenses is estimating and allowing for the inflation. Take a reasonable (at least 7 percent) inflation rate in account. EDUCATION Insurance companies are making some attempts at designing policies that will ensure that your children’s education is paid for. What you ideally need is a policy that is conceptually term insurance, that is, which does not have any payout if your children get educate during your life time. LIVING EXPENSES Estimate what living expenses are going to be end estimate the investment needed to yield that much return. Your term insurance should be for this account. Make a realistic financial plan and not an idealized one. Perhaps your spouse will need to start working if she doesn’t do so now. Take into account the investment needed if she would start a small business. This kind of unemotional, careful and realistic thinking is really the heart of making a sudden-death financial plan. Don’t shy away from it . The fact is that Indians have a deep-set cultural antipathy against planning for their deaths. A minuscule number of Indians make a will. Even the country’s most successful and richest entrepreneur, who organized every thing else about his business so carefully (and whose death was not sudden), died without making a will and left his two sons to fight public battles for the inheritance.
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INSURANCE COMPANY Over a ten-year policy, 7 percent of your money is given away to the agent. Given what safe investment earns these days, commission alone received by the agents are a scandal. The commissions are enormous, generally around 25 per cent of first year premia and 5 per cent a year subsequently. For a financial product that is supposed to be an investment, this is shocking level. At the end of the day, these commission are probably the strongest against investing with an ensure that this ‘investment’ is an incredibly bad deal.Sure insurance is necessary but at these commission levels .it is a necessary evil. The only way to go about insuring oneself is to calculate how much cover you need and then find a good, low cost, term insurance that covers you for that amount. Investment and insurance just don’t mix NEED FOR INSURANCE When we consider some form of general insurance contract like fire insurance contract need for insurance protection becomes obvious, the insurable interest is easily identified, and extent of loss can easily be determined by a fair degree of accuracy. In general insurance, the principle of indemnity is applied to compensate for the financial loss suffered by the insured. But financial loss following loss of human life is not very easy to define. In life insurance, the concept of indemnity is applied with some modifications. The concept of Human Life Value (HLV) helps us in determining the sum for which a person needs life insurance. We will study this concept in the later part of this chapter.
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SHARING PF RISK Life is full of risks. For property, there are fire risks; for shipment of goods, there are perils of seas; for human life, there are risks of death or disability; so on and so forth. The risks are uncertain. They may or may not occur. People facing common risks come together and make their small contributions to the common fund. While it may not be possible to tell beforehand, which person will suffer, it is possible to tell how many persons on an average out of the group, may suffer losses. When risk occurs, the loss is made good out of the common fund. In this way, the risk id shared by all. The following example explains the above concept of insurance. EXAMPLE In a village, there are 400 houses, each valued at Rs20, 000/-. Every year four houses get burnt, resulting into a total loss of Rs. 80,000/-. If all the 400 owners come together and contribute Rs. 200/- each, the common fund would be Rs. 80,000/-. This is enough to pay Rs.20, 000/- to each of the 4 owners whose houses got burnt. Thus the risk of 4owners is spread over 400 house-owners of the village. ADVANTAGES OF LIFE INSURANCE It is superior to ordinary saving plan. The risk of death is covered under insurance scheme but not under ordinary saving plans. In case of death, insurer pays full sum assured, which would be several times larger than the total of the premiums paid. Under ordinary saving plans, only accumulated amount is payable. Insurance encourages compulsory saving and forces thrift. After taking insurance, if the premium is not paid, the policy lapses. Therefore, the insured is forced to go on paying premium.
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Easy settlement and protection against creditors. Once nomination or assignment is made, a claim under life insurance can be settled in a simple way. Under M.W.P. Act, the policy moneys become a kind of trust that cannot be taken away, even by the creditors. It helps to achieve the purpose of the Life Assured. If a lump sum amount is received in the hands of anybody, it is quite likely that the amount might be spent in speculative way. To overcome this risk, the life assured can provide that the claim amount be given in installments. Ready marketability and suitability for quick borrowing. If a policyholder is not in a position to pay the premium, he can surrender the policy for a cash sum. He can also take loan for a short period to tide over the difficulty. Sometimes, a life insurance policy is acceptable as security for a commercial loan. Tax relief. By paying the insurance premium, the life assured obtains significant relies in income tax and wealth tax. CLASSFICATION OF INSURANCE NEEDS The nature of needs for life assurance would vary to a great extent according to the circumstances of the person insuring his life. Classification of persons according to their circumstances: Young single Young married : saving. : basic need will be protection.
If with children, education of children also Need will also vary according to the type of income derived – wage earner, salaried person, employer. Attitude towards life assurance is determined by a person’s character, level of intelligence and outlook.
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Old single Old married
: Pension for life. : Joint life pension for the annuitant and spouse for life.
Careful study of prospect is essential to identify his life assurance needs.
COMMON NEEDS THAT CAN BE PROVIDED BY THE APPLICARION OF LIFE ASSURANCE 1. Cash Needs Death may be by accident or after prolonged illness. In case of prolonged illness, medical / grocer’s bills will have to be paid. Liquid cash is required to meet such liabilities. (Clean up fund). 2. Family Income Needs Incase of death of the bread-winner, a sudden and drastic cut in the standard of living of the family would have devastating effect on the morale of the family. It will be difficult for the young widow with children to work to replace loss of income, in which case children would loose both the parents. There would be a period of readjustment during which the family settles down to a lower standard of living. Family income policy under which readjustment income is provided, could meet the needs of the situation.
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3. Income needs of a widow on the death of her husband. Readjustment income. Continuous income on a reduced scale To supplement income she is earning. To partly replace income that is lost. In case she remarries, this need will cease completely. Capital death benefit should be utilized to provide for immediate cash needs and lifetime income for the widow. 4. Income needs of a husband on the death of his wife. EARNED INCOME LOST Earned income saved by wife who undertakes household duties. Housekeeper to look after the house and children. Additional expenses during readjustment period. Incase of working ladies, there is loss of income, which has to provide for.
? ? ? ? ? ?
? ? ? ?
5. Retirement income needs. In advanced countries, there is ? ? Old age pension under social security scheme; Pension scheme set up by the employer to supplement old age pension under social security scheme. ? ? Individual endowment plan with annuity option or retirement annuity policy. Need for regular income in old age is very much present and it will be increasingly recognized on account of improvement in longevity. ? Joint family system has disintegrated.
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All the above-mentioned schemes for old age security are not there. Liquid cash received at the time of retirement in respect of Gratuity, PF etc. often gets consumed by unwise investment or conspicuous investment. Immediate annuity, deferred annuity, immediate annuity certain, deferred annuity certain, immediate annuity with return of purchase price, deferred annuity with return of notional cash option and `Jeevan Suraksha` policy of LICI provide solution to various retirement income needs. 6. Educational Needs. These days education is very costly and higher education requires lot of money. It may not be possible for widow to finance cost of higher education after the death of the bread-winner. Education Annuity and Marriage Endowment policy is suitable for such s situation. 7. Business Needs Circumstances under which a businessman may find it necessary to go for life insurance cover for one or more of the following purposes: To protect and of his own one-man concern. To preserve continuity in a partnership in the event of death of a partner. To safeguard against loss this would result from the death of key employees. To provide life assurance benefits during service and pension after service for employees and their dependents. ? To provide annuity to highly placed executives under deferred compensation plan.
? ? ? ?
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IN INDIA… Insurance in India can be traced back to the Vedas. For instance, yogakshema, the name of Life Insurance Corporation of India’s corporate headquarters, is derived from the Rig Veda. The term suggests that a form of “community insurance” was prevalent around 1000 BC the Aryans. Burial societies of the kind found in ancient Rome were formed in the Buddhist period to help families build houses, protect widows and children. Bombay Mutual Assurance Society, the first Indian life assurance society, was formed in 1870. Other companies like Oriental, Bharat and Empire of India were also set up in the 1870-90s. It was during the swadeshi movement in the early 20 th century that insurance witnessed a big boom in India with several more companies being set up. As these companies grew, the government began to exercise control on them. The Insurance Act was passed in 1912, followed by a detailed and amended insurance Act of 1938 that looked into investments, expenditure and management of these companies’ funds. By the mid-1950s, there were around 170 insurance companies and 80 provident fund societies in the country’s life insurance scene. However, in the absence of regulatory systems, scams and irregularities were almost a way of life at most of these companies. As a result, the government’ decided nationalize the life assurance business in India. The Life Insurance Corporation of India was set up in 1956 to take over around 250 life companies.
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For years, insurance remained a monopoly if the public sector. It was only after seven years of deliberation and debate – after the RN Malhotra Committee report of 1994 became the first serious document calling for the re- opening up of the insurance sector to private players – that the sector was finally opened up to private players in 2001. The Insurance Regulatory & Development Authority, and autonomous insurance regulator set up in 2000, has extensive powers to oversee the insurance business and regulate in a manner that will safeguard the interest of the insured.
MARKET SHARE OF INSURANCE INDUSTRY
NAME OF THE PLAYER LIC ICICI PRUDENTIAL BIRLA SUNLIFE BAJAJ ALLIANZ SBI LIFE HDFC STANDARD TATA AIG MAX NEWYORK AVIVA OM KOTAK MAHINDRA ING VYSYA AMP SANMAR MET LIFE
MARKET SHARE ( IN % ) 82.3 5.63 2.56 2.03 1.80 1.36 1.29 0.90 0.79 0.51 0.37 0.26 0.21
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Variety is the spice of life, unless you’re in the insurance business. Traditionally, the most successful insurance firs generally take on the least risk. However, factors such as deregulation, globalization, the Internet, and the events of September 11 are shaking up the industry. The life insurance industry (about 60% f worldwide premiums) has changed the most profoundly in the products it sells. Over the last quarter of a century, life insures such as A XA, ING Group, Nippon Life, and Assicurazioni Generali, have seen their business sift from life insurance coverage to annuity products. This fundamentally changes the way life insurance firms do business, as they concentrate on managing investment risk, rather than the mortality risk of an individual. As a result, insurance firms now compete more directly with financial services firms. The Gramm-Lleach-Biley Act in the US and “Big Bang” financial deregulation in Japan opened the door for banks and insurance firms to combine their businesses. In Europe, global financial service titans already exist, notably Ge5rman insurance company Allianz (with stakes in deutshe Bank, HVB Griup, and Dresdner Bank), and Swiss bank Credit Suisse (parent of insurance firm Winterhur). Foreign firms seeking inroads to the US and Japan finds them freed from regulatory shackles, tll. As regulatory barriers fall, consolidation among insurance groups, particularly non-life insurers, is on the rise. The top 10-property/casualty companies (including State Farm, Aviva, American International Group, and Zurich Financial Services) already account for almost half of all premiums written. A dwindling number of local firms are left to fight for the remaining scraps of market share. The Internet has changed the way insurers are doing business. Companies are continuing to offer more products via the virtual highway, thus increasing the competitive marketplace. With the insurance markets in the US and Japan becoming saturated, growth in other markets (Particularly South America) is imperative for a company’s success, as well.
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The attacks on the world trade center have changed the face of the insurance industry; issues such as asbestos claims and liability suits have taken a backseat to the mad scramble of how to cover terrorism. As a result of September 11, and to a lesser degree the Enron scandal, premiums are rising and underwriting standards are tightening. A slew of new ventures have started up (primarily in Bermuda), as insurers see the possibility of lucrative business. In 2004 the insurance industry came under scrutiny when New York Attorney general Eliot Spitzer sued marsh & McLennan, the world’s largest insurance brokerage, for price fixing and for accepting kickbacks. As a result, Jeffrey Greenberg was forced to resign as CEO of Marsh & McLennan, along with five other executives who admitted to rigging bids. The probes continue as Spitzer and other officials look to clean up the industry.
KEYMAN INSURANCE With the IRDA stipulating in end April that key man policy should be sold only with a life cover element and without maturity benefits, premium collections from such plans are likely to slacken. Signs of an incipient slowdown are evident from the numbers for the first two months of this fiscal, with group premiums down 23 percent on a single-premium adjusted basis. Though premium collections may dip, this may not have a detrimental impact on companies as such group plans score low on the profitability front.
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LIFE
INSURANCE
AT
THE
CROSSROADS
–
CHALLENGES
AND
OPPORTUNITIES Life insurance, in its pristine form, evolved out of a sense of co-operation within the community that was present even at the dawn of history. The Sanskrit term yogakshema, which means "well-being”, is present in the Rig Veda and it is used in the context of some form of insurance in vogue during the Aryan times. There are references in Kautilya’s Arthashastra to some kind of social security system for the welfare of the subjects. Later on, the Indian joint family system too fulfilled the need for security. In the Western world, life insurance evolved mainly from the maritime industry. Shakespeare speaks of ‘putters out of five’ in some of his plays – an oblique reference to private financiers who used to gamble on the lives of sea-farers by offering five times the money deposited with them in case of certain contingencies. In its present form, life insurance had its origin in England and made its debut in India in the year 1818. Initially, Indians were not considered on par with Europeans as far as their insurability was concerned. There were also many other failures. It was in the early part of the 20th century that some kind of legislation was made to regulate the industry. From then on, life insurance made great strides in the country. At the time of Independence and thereafter, there were more than 200 companies operating in India and not all of them on sound ethical principles. Many factors combined together to prompt the then Government to nationalize the life insurance industry in 1956 to form the Life Insurance Corporation of India The years from 1956 to 1999 saw the Life Insurance Corporation of India emerge as a giant financial institution and the lone organization purveying life insurance, if we ignore the minimal presence of postal life insurance.
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The institution succeeded in penetrating many areas and segments of the population and in garnering public money for public welfare. Winds of Change It was in the 1990’s that the winds of change started sweeping over India and brought in their wake many changes in the economy. Liberalization ensured competition in many fields and there was a clamour that the insurance industry too be opened up to private Indian and foreign players to provide the customer with a choice. The Malhotra Committee, appointed in 1993 was given the mandate to study the industry and to suggest the changes that were necessary to make it modern and in tune with people’s aspirations. The report submitted by the committee was the precursor of the IRDA bill, which was recently passed by the Parliament. Life insurance industry is poised for a big growth as many Indian and foreign companies are waiting in the wings for the green signal to start their operations. The Indian consumer will be presented with a bewildering array of products, different in price, features, benefits and procedures. How he is going to make his choice will determine the future of the industry. With the market thrown open, the industry is at the crossroads again with reference to the course of its future direction and the opportunities and the challenges it faces for itself, the regulator, and the society as a whole.
Challenges The biggest challenge faced by the Government today is that of a regulator with the prospect of about 30 or 40 players, each represented by thousands of agents, brokers and intermediaries. To evolve a free and fair method of assessing the companies, to ensure fair play between the competitors and to safeguard the interests of the largely uninformed customers are the main tasks ahead. 18
The other and equally serious aspect is to ensure that the vast amounts collected by the insurance and pension funds are utilized for the welfare of the people. Though the Government itself would not be the guarantor of the policy monies, nevertheless, it is accountable through its regulatory mechanism, to put in place prudential norms of investment and accounting, revenue recognition, fair valuation of assets and liabilities, determining necessary margins towards any contingencies and proper reserves for shrinkage of investments will have to be made. Nevertheless, care has to be taken to see that there is not too much of control and regulation. A certain degree of autonomy in the functioning of insurance companies has to be allowed so that they get necessary freedom and space to perform and excel. The IRDA, along with the advisory committee constituted recently, is eminently qualified to undertake these tasks. In addition, a proposal has also been mooted to constitute a federation of insurance companies analogous to the Indian Banks’ Association. Such an institution will provide guiding principles, lay down a code of insurance ethics and generally act as a facilitator for both the life and non-life industry. As for the existing player, the public sector giant, the Life Insurance Corporation of India, the challenge is one of sustaining the huge growths it has shown in the recent times. It has to face competition for the first time in its history, particularly in the urban centres. It has to manage its huge operations more efficiently than at any other time in the past. It has to think of equipping its personnel (staff and agents) to face competitors and it may have to think of diversifying its activities to achieve economies in some areas. As far as the prospective entrants are concerned, the greatest challenge is to establish their presence in the minds of the public. Insurance, particularly life insurance, it is said, is never bought but sold. To convince a large population, which is comparatively not well informed about the intangible benefits of life insurance is indeed an onerous task. 19
On top of that, to establish the brand equity of a new name in a new field is quite a challenge. The second most important challenge facing a new entrant is that of setting up infrastructure and to reach out to as many areas as possible, since life insurance is based on probability and the wider the spread, the greater are the chances of success in maintaining the expense ratios at a reasonable level. Modern life perhaps offers challenges that will be common to all the above. Improvements in health and longevity, the recent breakthroughs in the mapping of the human genome and the frequent changes in the economy may have far-reaching effects on life and health insurance. Devising products that match the changing needs of the people and managing the funds in a volatile scenario are two problems that will have to be tackled by every player in the days to come.
Opportunities Recent experience has shown that wherever an industry has been thrown open to competition, the size of the market has grown and the existing players have retained nearly 80% of the market share. The size of the insurable population in India is indeed vast and the existing player has managed to cover about one-fourth of it. The opportunities before the players are therefore aplenty in terms of target audience. The falling interest rates, the collapse of many small-time financial institutions, the scope for entering related areas like banking and pensions in a bid for synergy and the promise of e-commerce are some of the other opportunities knocking at the doors of the insurance majors. There is a probability of a spurt in employment opportunities. A number of websites are coming up on insurance, a few financial magazines exclusively devoted to insurance and also a few training institutes being set up hurriedly. Many of the universities and management institutes have already started or are contemplating new courses in insurance.
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It also augurs well for greater development of professionalism of the trade and expansion of opportunities for everyone concerned. The pension market, which perhaps has not been very vibrant in the country, is also likely to witness a sea change with huge expansion in terms of premium and number of policies. Health insurance, which is still in its infancy, is also likely to get a major boost, ultimately leading to improvement in the quality of medical treatment and facilities in the country. The opening of the insurance sector will throw open a huge array of opportunities, many of which will be in unrelated fields and may give a bigger push to the development of the national economy as a whole. Life insurance has today become a mainstay of any market economy since it offers plenty of scope for garnering large sums of money for long periods of time. A well-regulated life insurance industry which moves with the times by offering its customers tailor-made products to satisfy their financial needs is, therefore, essential if we desire to progress towards a worry-free future. The journey of life is full of wonderful dreams. To make them come true, your need for protection, investment, and financial liquidity keeps changing at different stages of life. The birth of a child will require you to increase your insurance cover; a marriage in the family will require additional money. Similarly on a promotion you may want to increase your investments, to create a large kitty for future expenses. Usually you would require multiple financial products to meet all your needs and would have to actively manage them. However with the Life Maker™ Unit Linked Investment Plan you can meet all your financial needs, without the tedium of managing multiple products
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1.2. COMPANY PROFILE
ABOUT MAX GROUP Founded in 1985, Max India limited is a public limited company listed in the NSE and BSE with over 37,000 shareholders. Prominent shareholders are Mr. Analjit Singh & family and private equity firm Warburg Pincus, while the remaining shares are held by institutional investors and the public. Max India limited is a multi-business corporate, driven by the spirit of enterprise, focused on knowledge, people and service-oriented businesses of healthcare and life insurance. Max also maintains interests in? Clinical research (neeman medical international) ? Specialty plastic products businesses (max specialty products) ? Healthcare staffing (max health staff) ? Telecom services (Hutchison max telecom ltd.)
Max New York life insurance, founded as a joint venture between Max India limited and New York life, a fortune 100 company, is one of the leading private life insurers in India. Max healthcare, a subsidiary of Max India limited is India's first provider of comprehensive, standardized, seamless, and integrated world-class healthcare services. Max India limited is a multi-business corporate, driven by the spirit of enterprise, focused on knowledge, people and service-oriented businesses of healthcare and life
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insurance. Max also maintains interests in clinical research, it and telecom services, and specialty plastic products businesses. Max is a young, modern Indian corporation, with a strong capability of recognizing opportunities ahead of their time. Max has been able to form and strengthen international alliances with global leaders across a wide spectrum of management activity. Max India is led by a skilled team of professional managers and is recognized for commercially successful manufacturing and service delivery businesses. Max has created enviable history marked by tremendous growth in various fields and has been ranked among the "top two hundred most valuable Indian companies" by business India (October 2000). Max's deep understanding of Indian consumer combined with a large pool of professionals and an enterprising spirit have helped complement its relationship with industry leaders of global stature like New York life International of USA. With a unique experience of growing through the 'jv route' max is proud of the excellent relations it has with each of its partners. Max India already has successful and enduring partnerships with some of the most respected specialist organizations in the world, some of which are gist brocades of the Netherlands, Deutschland, Germany, and Hutchinson telecommunications ltd., Hong Kong, Singapore general hospital, Harvard medical international inc., USA, Lockheed martin global telecommunications. ? Businesses ? Healthcare ? Primary care segments ? Secondary care segments ? Tertiary care segments
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? Life insurance ? Max New York life insurance co. Ltd. ? It and telecom services ? Comsat max ? Max Health scribe limited ? Max Mind Crossing
VISION To be one of India's most admired Corporate for service excellence and a successful multi-business enterprise for its stakeholders i.e. customers, shareholders, employees, JV partners, etc. MISSION Establish niche service business in 2 areas of healthcare, and life insurance. Rank in top 3 players in each niche. Partner with "best in class" world leaders. Maintain traditional business. PARTNERSHIPS Max has grown through the 'joint venture route’ and has a tradition of very enriching, enduring partnerships. We have extensive, in-depth experience in building businesses from the ground-up. And have created successful businesses in areas, which were either not traditionally considered as 'business' areas, or were new/emerging fields of business.
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Max India's business success and tradition of excellence have been made possible in very large measure by collaborating with international leaders. These partnerships are manifest across our diverse businesses, and are represented as equity partnerships, and/or technical collaborations. Max is proud of excellent relations it has with each of its partners. Not only have our partnerships stood the test of time, they have consistently grown, developed, and attained optimum stature. This has been made possible by our practiced belief that regardless of the ratio of collaboration and its attendant business mechanics, each partnership must be worked in the spirit of a 50:50 relationship. We recognize and respect the expertise our partners offer, and try to maximize it for mutual benefit NEW YORK LIFE THROUGH HISTORY New York life Insurance Company, has been ranked at fortune 68, in the 2005 fortune 500 listing of companies, is one of the largest providers of life insurance coverage in America. Founded in 1845, the company has over us$215 billion in assets under management. New York Life insurance company has been among the highest rated companies by leading independent rating agencies including - a.m. best company (a++), Fitch (formerly duff & Phelps) (AAA), Moody’s investors service (aa1) and standard & Poor’s (AA+) the company has its headquarters in new York city and has operations in the united states, Argentina, Hong Kong, soar, India, Indonesia, Mexico, the Philippines, south Korea, Thailand and Taiwan. The company maintains representative offices in the people's republic of china and Vietnam. For the last 47 years, New York life has had the highest number of agents who qualify as members of the 'million-dollar round table'. The mdrt is the world's most prestigious organization of insurance sales professionals.
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As a leader in the insurance industry, New York life continues to bring to its operations new management concepts, advanced technologies, new distribution and training systems and innovative insurance products.
ABOUT NEW YORK LIFE New York Life has been one of the world's leading providers of Life Insurance for over 160 years Trusted by millions across the globe, New York life is ranked at no. 68 in the 2005 fortune 500 lists of companies, with over us $215 billion in assets under management. New York life is a specialist in the business of life insurance since that's been their only business since 1845 Among the proud family of new York life policyholders have been many luminaries, including ten former us presidents. New York life is the largest life insurance provider for the Indian community in the US. So it understands the Indian consumer, their needs, their concerns and their aspirations. New York life has never failed in its commitment to deliver to its policyholders despite having gone through two world wars, famine, drought, the great depression, and numerous such catastrophes as pioneers of the industry, New York life has also been in the forefront of setting many path-breaking trends in the business of life insurance.
? First to offer cash dividends to policy owners in 1845. ? First to insure women at the same rate as men in 1894 ? First to introduce a disability benefit clause in 1920 ? First to offer unemployment insurance in 1992. ? First to offer complete customer care on the web in 1998
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Max New York life Insurance Company limited Max New York life insurance Company limited is a joint venture between max India limited, a multi-business corporation focusing on life insurance, health care and information technology, and New York life, a fortune 100 companies with over 150 years of experience in the life insurance business. In 2000, Max New York life became the first indo-American insurance joint venture registered and granted a license to conduct business in India. Since that time, Max New York life has acquired a national presence, establishing a wide distribution network with 35 offices located across 27 cities in India, which are staffed by over 1,500 employees and over 7,700 highly competent life insurance agent advisors. In 2003, Max New York life became the first life insurance company in India to receive the ISO 9001:9002 certification for its commitment to quality. All of max new York life’s offices are supported by state-of-the-art technology designed to enhance its goal of providing excellent service to customers. It has also set up a centre for operational excellence at its head office in Gurgaon, Haryana, just outside of new Delhi. Max New York life is one of the leaders in private life insurance in India. With its flexible products and benefit solutions, max new York life is driven by a strong set of customer-focused values that form the core of its business and exemplify its slogan, “your partner for life”. Max New York life insurance Company limited has been an imp associate insurer since 2002. KEY PRODUCTS LIFE ? Term life ? Employee deposit linked insurance ? Total and permanent disability (accidental) rider 27
? Accidental dismemberment rider ? Accidental death benefit rider ? Critical illness rider PENSIONS ? Retirement gratuity schemes ? Superannuating
VISION
Become the most admired life insurance company in India.
MISSION
? ? ? ? ? Become one of the top 3 new life insurance companies Become a national player - dominant in north India Be the brand of first choice among all stake holders Become the employer of choice Be the principal of choice for agents
VALUES Together, max India limited and New York life aim to become India’s preferred insurance brand. This vision will be realized through our unique set of values, which are as follows: Knowledge
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Together, Max India limited and New York life aim to become India’s preferred insurance brand. This vision will be realized through our unique set of values, which are as follows Caring Together, max India limited and new York life aim to become India’s preferred insurance brand. This vision will be realized through our unique set of values, which are as follows: Honesty Together, max India limited and New York life aim to become India’s preferred insurance brand. This vision will be realized through our unique set of values, which are as follows: Excellence Excellence at Max New York life implies the ability to perform at a consistently high level. Focused on the value of continuous improvement in people, processes and the organization, the company strives for the highest standards of quality in every aspect of its business. Achievements ? Max New York life is the first life insurance companies in India to be awarded the is0 9001:2000 certifications. ? Max New York life was among the top 25 companies to work with in India, according to 2003 business world magazine, "great workplaces in India", max new York life was ranked at the 20th position. This survey is the local version of the "great places to work" survey carried out every year in 22 countries.
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? We were among top five most respected private life insurance companies in India according to 2004' business world most respected survey. It makes it more special as that year insurance as a category was included for the first time. ? We have truly built an enviable sales force. With 126 agents becoming members of the mdrt in 2005, Max New York life has moved up in the 'Top 50 mdrt Global List’. The Way Max New York Life Works Max New York life is a young vibrant company proud of the excellent track record it has created for itself in a relatively short period of time. Mnyl has today become one of the most aggressive players in the insurance services domain. A key factor in our success has been our ability to attract some of the most talented people in any industry. Max New York Life Insurance in many ways is a lens to India. We represent rich diversity in our workforce and this is reflected in our open work environment. Within this diversity we have successfully created a strong emotional bond, which threads everyone together irrespective of his or her function, location, seniority or background. This identification with one organization and one purpose draws its strength from our simple and powerful vision statement, which is to become the "most admired life insurance Company in India". By developing structure, systems and a workplace culture that provides challenging jobs, rewards performance and delivers opportunities continuously, mnyl is striving to get the best out of its most valuable asset — its people. Our "In House Culture Recipe" has some of the finest ingredients going into its making. Some of the more prominent aspects of our culture are stated below: Customer comes first Do it right the first time 30
? ?
? ? ? ? ? ? ? ?
Bias for result oriented action Strength and discipline Clarity of purpose Financial International quality standards Inclusive meritocracy Learning opportunities Fun at work Commitment to published value system
At mnyl, we endeavor to create an environment where everyone can reach their full potential and to do their jobs effectively for our customers. We encourage learning at all levels and career stages which support personal and professional development. The organization provides all the right elements that you need to get to the top with ample fun and learning opportunities as added advantage. We believe that work is fun, when you enjoy it the most. To make-work more fun, we provide a dynamic, fast paced and flexible work environment to our people. We nurture the relationships through celebrating our people's happiness, hobbies, achievements, and festivals thoroughly fun club, which stands for life youth and fun. Finally it would be appropriate to say that the cornerstones for all our interactions and behaviors are the mnyl values and beliefs. These are non-negotiable behaviors that breathe life and vigor into the organization and its vision. Our values influence the way we work and interact with our colleagues; as well as the way we serve our clients and engage with all our stakeholders. Mnyl recognizes the need for appreciation for demonstrating our core values thru behaviors. 31
We provide a platform in the form of cultural ambassador to recognize employees demonstrating our values of caring, honesty, excellence, knowledge, integrity, and teamwork. Possibly then the best way to explain the mnyl culture would be to share our mnyl values and beliefs.
Max New York Life, one of India’s leading life insurance companies, announced signing up Rahul Dravid, Indian cricket’s most reliable batsman, as its brand ambassador. Max New York Life Insurance Company Limited is a joint venture that brings together two large forces - Max India Limited, a multi-business corporate, together with New York Life International, a global expert in life insurance. The very nature of our business makes us highly customer-sensitized at Max New York Life. We believe in building relationships with the people we serve, so that our customers enjoy the highest quality of service in life insurance. This fact comes alive from our defining qualities, all of which are outlined below. We are experts in life insurance: That's all we do. New York Life has over 160 years of experience in the life insurance business. It is a Fortune 100 company that has been trusted by millions worldwide, across generations. Our existence is rooted in our commitment to financial strength, integrity and responsibility. We have increased our capitalization requirement to Rs. 527 crore from the initial Rs.100 crore that has been stipulated by the Insurance Regulatory and Development Authority (IRDA). Our investments are confined only to debt instruments and we meet both Indian and US reporting norms. Max New York Life also deposits one per cent of the premium income with the RBI, towards Contingency Funds.
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So wish, within 15 days of receiving it We offer you multiple bonus options, which includes options such as annual bonus, bonus accumulated and paid on maturity, bonus used to offset premiums, bonus utilized to buy Paid up additions and bonus used to buy one-year term insurance. So, you can decide how you want to use your bonus payments. Life insurance is a financial resource for your loved ones in the event of your death. You enter into a contract with an insurance company that promises to provide your beneficiaries a certain amount of money upon your death. In return, you make periodic payments, known as premiums. The size of the premiums is generally based on factors such as your age, gender, medical history and the dollar amount of life insurance you select. Some policies may require a medical exam before premiums are established. Certain types of life insurance may also provide benefits for you and your family while you're still living. Policies such as whole life or universal life accumulate cash value on a tax-deferred basis, and that value can be used to supplement your retirement income or help provide for a child's education. Life insurance is an important part of anyone's financial portfolio. Financial advisors often recommend developing a financial plan that includes an appropriate amount of life insurance as part of a comprehensive strategy for financial security. Life Insurance. A Rs. 27,500 Crores industry today, expected to grow to an astronomical Rs. 115,000 crores by 2010. An industry poised for exciting change, as new companies will be allowed to offer insurance products to the Indian consumer. A transformation that will radically change the way we think about insurance and the way we buy insurance. Max New York Life is a dynamic partnership between New York Life, a globally respected insurance major and Max India, a business conglomerate driven by the spirit of enterprise.
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Max New York Life Insurance Company is one of the joint venture companies, which have got in-principle approval from IRDA to sell Life Insurance products in India. Max New York Life aspires to be the "life insurance brand of first choice" amongst Indian consumers. To achieve this company will draw on New York Life's demonstrated competence in developing and managing a superior personal sales network. For the last 46 years consecutively, the largest number of agents qualifying for membership to the Million Dollar Round Table (MDRT) have been from New York Life. The MDRT is the industry's most prestigious organization comprising the world's most successful insurance agents. Max New York Life, a merit oriented and equal opportunities employer, is looking for a few good men and women who will spearhead the effort to realize this vision.
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PRODUCT PROFILE UNIT LINKED INVESTMENT PLAN similarity towards mutual funds In structure, yes; in objective, no. Because of the high first-year charges, mutual funds are a better option if you have a five-year horizon. But if you have a horizon of 10 years or more, then UNIT LINKED INVESTMENT PLAN have an edge. To explain this further a UNIT LINKED INVESTMENT PLAN has high first-year charges towards acquisition (including agents’ commissions). As a result, they find it difficult to outperform mutual funds in the first five years. But in the long-term, UNIT LINKED INVESTMENT PLAN managers have several advantages over mutual fund managers. Since policyholder premiums come at regular intervals, investments can be planned out more evenly. Mutual fund managers cannot take a similar long-term view because they have bulk investors who can move money in and out of schemes at short notice.
Insurer’s preference of UNIT LINKED INVESTMENT PLAN Insurers love UNIT LINKED INVESTMENT PLAN for several reasons. Most important of all, insurers can sell these policies with less capital of their own than what would be required if they sold traditional policies.
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In traditional ‘with profits’ policies, the insurance company bears the investment risk to the extent of the assured amount. In UNIT LINKED INVESTMENT PLAN, the policyholder bears most of the investment risk. Since UNIT LINKED INVESTMENT PLAN is devised to mobilize savings, they give insurance companies an opportunity to get a large chunk of the asset management business, which has been traditionally dominated by mutual funds. Unit-linked insurance plans, UNIT LINKED INVESTMENT PLAN, are distinct from the more familiar ‘with profits’ policies sold for decades by the Life Insurance Corporation. ‘With profits’ policies are called so because investment gains (profits) are distributed to policyholders in the form of a bonus announced every year. UNIT LINKED INVESTMENT PLAN also serve the same function of providing insurance protection against death and provision of long-term savings, but they are structured differently. In ‘with profits’ policies, the insurance company credits the premium to a common pool called the ‘life fund,’ after setting aside funds for the risk premium on life insurance and management expenses. Every year, the insurer calculates how much has to be paid to settle death and maturity claims. The surplus in the life fund left after meeting these liabilities is credited to policyholders’ accounts in the form of a bonus. In a UNIT LINKED INVESTMENT PLAN too, the insurer deducts charges towards life insurance (mortality charges), administration charges and fund management charges.
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The rest of the premium is used to invest in a fund that invests money in stocks or bonds. The policyholder’s share in the fund is represented by the number of units. The value of the unit is determined by the total value of all the investments made by the fund divided by the number of units. If the insurance company offers a range of funds, the insured can direct the company to invest in the fund of his choice. Insurers usually offer three choices — an equity (growth) fund, balanced fund and a fund, which invests in bonds. In both ‘with profits’ policies as well as unit-linked policies, a large part of the first year premium goes towards paying the agents’ commissions. Arguments about unit-linked or ‘with profits’ The two strong arguments in favor of unit-linked plans are that — the investor knows exactly what is happening to his money and two; it allows the investor to choose the assets into which he wants his funds invested. A traditional ‘with profits,’ on the other hand, is a black box and a policyholder has little knowledge of what is happening. An investor in a UNIT LINKED INVESTMENT PLAN knows how much he is paying towards mortality, management and administration charges. He also knows where the insurance company has invested the money. The investor gets exactly the same returns that the fund earns, but he also bears the investment risk.
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Life Maker™ Unit Linked Investment Plan In the Life Maker™ unit linked plan; the premiums you pay are invested in funds offered by us. The appropriate ratio of investments into these funds will be determined by you in consultation with your Agent Advisor. These funds are invested in assets such as equities, money market instruments, investment grade corporate bonds, and government securities. These funds offer a wide range of returns. You can choose to invest your premiums in one or more of these funds, basis your risk taking ability In turn, we issue units, which represent the value of your policy i.e. you can "see" the value of your policy on any day by multiplying the number of your units by the value of units on that day. The value of these units is called the Net Asset Value (or NAV) and is normally published in newspapers on a daily basis. The NAV is based on the market value of the underlying investments in that fund i.e. equities, company bonds, government securities, etc Flexible Protection Choice of two insurance covers ? You have the flexibility to choose from two insurance covers - as per your need ? Level insurance cover: In the unfortunate event of death the nominee shall receive higher of the insurance cover or value of units. ? Increasing insurance cover: In the unfortunate event of death the nominee shall receive the sum of insurance cover and the value of units in the plan. You can
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change your type of cover from increasing insurance cover to level insurance cover during the plan tenor
Change your Sum Assured The plan allows you to change the level of your insurance cover to vary the ratio of protection and investment
FLEXIBLE INVESTMENT Choice of four attractive fund options You have the option of investing your money in any ratio in four attractive funds. The choice of your funds is derived from your investor risk profile which looks at factors such as age, ability to invest & risk appetite
TYPES OF FUNDS
Conservative Fund Invests largely in high quality fixed income securities issued by the Government of India or companies or other bodies corporate with a high credit rating. A small portion of the fund, not exceeding 15%, may be invested in high quality Indian equity stocks. This fund will have a low to moderate level of risk and return Balanced Fund Invests in both high quality fixed income securities issued by the Government of India or companies or other bodies corporate with high credit rating, as well as in high
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quality Indian equity stocks. However, the investment in equities will not exceed 40% of the size of the fund. This fund will have a moderate level of risk and return
Growth Fund Invests largely in high quality Indian equity stocks. A small portion of the fund may be invested in high quality fixed income securities issued by the Government of India or companies or other bodies corporate with high credit rating. This fund will have a moderate to high level of risk and return In addition, a small portion of each fund may be invested in cash or cash equivalents to facilitate day-to-day running of the fund.
Asset Types
Secure %
Conservative % 50-80 0-50
Balanced % 20-50 20-30
Growth % 0-30 0-30
Govt. Securities Corporate Bond (Investment Grade) Money Market Instrument/Cash Equities
50-100 0-50
0-20
0-20
0-20
0-20
Nil
0-15
10-40
20-70
You can make partial or full withdrawals to meet your monetary needs. Partial withdrawals can be made after 3 policy years. If you have chosen level insurance cover, your sum assured may reduce on partial withdrawal.
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Full surrender can be made anytime. However, in the first 2 policy years, there is a surrender charge of one year's premium, and of half of one year’s premium if surrendered in the 3rd policy year. There are no surrender charges after 3 policy years. We understand your need to adjust your investment portfolio based on factors like changing interest rates or the volatility in the equities market or a change in your life stage. The Life Maker™ plan allows you to switch between funds in any ratio without any tax liability. The switch allows you to change your risk return profile of your existing investments. In every policy year, the first two switches are free. The switch option we offer is one of the most powerful and flexible ones in the market where money from one fund can be switched to multiple funds in a single switch. Re-direct future premium Life Maker™ allows you to re-direct your future premiums. You can invest your future premiums in a fund different from your earlier fund, or to multiple funds in a ratio different from your earlier ratio (provided the amount paid into each fund meets our minimum in-force requirement). Re-directing helps you change the risk - return profile of your future investments. In every policy year, the first re-direction is free. INVEST MORE THROUGH FUND TOP-UPS TO MATCH YOUR CASH FLOWS Planned top-ups At inception, or from any premium due date, you can choose to invest extra money in your plan through top-ups. You may also choose to discontinue paying the top-ups anytime you want.
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Occasional top-ups: You can also invest extra money in your plan through occasional top-ups of any amount, at any time (except in the first policy year).
Add-on Riders Customize your policy benefits by adding Personal Accident Benefit or Dread Disease riders to your policy at inception or on any policy anniversary. Personal Accident Benefit (PAB) rider - if you opt for this rider, we will pay the rider sum assured on accidental death or accidental disability. Dread Disease (DD) rider - if you opt for this rider, we will pay the rider sum assured on contracting any of the ten diseases covered under this rider. Please refer to the Riders' brochure for details. Guaranteed free units as loyalty bonus In the last policy year, you can get free additional units, known as persistency units. These are equal to 2.5% of your annual target premium multiplied by the policy term, but not exceeding one annual target premium.
1. All premiums (including all top-ups) paid are eligible for a tax rebate under Section 80C of the Income Tax Act of 1961. 2. All premiums on the Dread Disease rider are eligible for a tax rebate under Section 80D of the Income Tax Act of 1961. 3. All maturity benefits are tax free under Section 10 (10D) of the Income Tax Act of 1961. 4. All switches are tax-free.
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Handpicked, highly trained agent advisors, with a team of certified, and highly trained agent advisors, supported by a team of specialists; we are fully equipped to help you meet your unique financial goals.
GLOBAL LIFE INSURANCE EXPERIENCE Benefit from our access to over 150 years of global life insurance experience. New York Life Insurance Company, a Fortune 100 company founded in 1845, is the largest mutual life insurance company in the United States and one of the largest life insurers in the world. Sample Illustration of Plan If you are 30 years old, and buy Life Maker™ of tenor 30 years, and annual premium of Rs. 20,000 for level insurance cover, you will pay Rs. 6 lacs to the company over the plan tenor. The graph alongside illustrates the maturity values (in Rs lacs) you are likely to receive, if the rate of return on investments of funds are 6% and 10%. If you choose to add top-up premiums to your policy, the maturity values will significantly improve
Entry Age (age as at last birthday) Tenor Maximum Maturity Age Minimum Sum Assured Minimum Annual Premium
12 to 60 years 10 to 58 years 70 years Rs. 100,000 Rs. 15, 000
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Premium Allocation
Entry Age (age as at last birthday) 12 to 60 years Tenor 10 to 58 years Maximum Maturity Age 70 years Minimum Sum Assured Rs. 100,000 Minimum Annual Premium Rs. 15, 000 Premium Allocation
Policy Year 1st year 2nd year 3rd year onwards
Allocation % of Annual Premium 75 80 100
Allocation percentage indicates the proportion of premiums, invested in the funds: All Top-Up Premiums are allocated @ 101% of the Top-Up Premium you have paid. For example, if you give a top-up Premium of Rs. 10,000/-, we will invest Rs. 10,100/- in your chosen fund(s). Expenses Nominal fund management expense to professionally manage your investments. This varies from 0.90% to 1.25% of net assets in the fund. 44
A monthly administration fee of Rs. 50/-. This will be periodically reviewed to cover inflation and administrative costs, but will never be more than 15% of the charge over the previous year. Initial set up monthly expense (in the first year only). This will vary from 0.15% to 0.25% of sum assured, depending on the plan tenor.
Mortality charge to provide insurance cover under the Life Maker™ plan and riders, if any. Bid-Offer expense of 5%, with 1% for rounding of the premium on its allocation to the funds Standard exclusions & other exceptions Not withstanding anything stated to the contrary in the Policy, if the Life Insured under the Policy dies by suicide, whether sane or insane, within one year from the Effective Date of this Policy, the Policy coverage shall come to an end simultaneously. In such an event, we will only refund the value of your units. Additional exclusions are as per rider chosen. Option to increase or decrease the sum assured is subject to our prior approval, minimum stipulated limits and certain other conditions.
Please note that top-ups will not increase the sum assured. Top-up will be accepted only after the annual target premium (i.e. the regular premium payable in a policy year) due has been paid. We reserve the right to add, close, combine or alter any Fund. All transactions in units shall be on a forward pricing basis. We will determine the date of valuation of assets of funds, the frequency of which shall not be less than once per week. Life Maker™ is only the name of the policy and in no way indicates the quality of the plan or its future returns or prospects.
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The investments in the units of any our funds are subject to market and other risks, and the value of the units can increase or reduce depending on the factors affecting the debt and equity markets from time to time.
CHAPTER 2: INTRODUCTION ABOUT STUDY
COST BENEFIT ANALYSIS
MEANING OF COST BENEFIT ANALYSIS The cost benefit analysis helps in finding out the relationship of costs and revenues to output. It enables the financial manager to study the general effect of the level of output upon income and expenses and therefore upon profits.
COST BENEFIT ANALYSIS Cost-Benefit Analysis (CBA) estimates and totals up the equivalent money value of the benefits and costs to the community of projects to establish whether they are worthwhile. These projects may be dams and highways or can be training programs and health care systems. The idea of this economic accounting originated with Jules Dupuit, a French engineer whose 1848 article is still worth reading. The British economist, Alfred Marshall, formulated some of the formal concepts that are at the foundation of CBA. But the practical development of CBA came as a result of the impetus provided by the Federal Navigation Act of 1936. This act required that the U.S. Corps of Engineers carry out projects for the improvement of the waterway system when the total benefits of a project to whomsoever they accrue
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exceed the costs of that project. Thus, the Corps of Engineers had created systematic methods for measuring such benefits and costs. The engineers of the Corps did this with out much, if any, assistance from the economics profession. It wasn't until about twenty years later in the 1950's that economists tried to provide a rigorous, consistent set of methods for measuring benefits and costs and deciding whether a project is worthwhile. Some technical issues of CBA have not been wholly resolved even now but the fundamental presented in the following are well established.
Principles of Cost Benefit Analysis
One of the problems of CBA is that the computation of many components of benefits and costs is intuitively obvious but that there are others for which intuition fails to suggest methods of measurement. Therefore some basic principles are needed as a guide.
There Must Be a Common Unit of Measurement
In order to reach a conclusion as to the desirability of a project all aspects of the project, positive and negative, must be expressed in terms of a common unit; i.e., there must be a "bottom line." The most convenient common unit is money. This means that all benefits and costs of a project should be measured in terms of their equivalent money value. A program may provide benefits which are not directly expressed in terms of dollars but there is some amount of money the recipients of the benefits would consider just as good as the project's benefits. For example, a project may provide for the elderly in an area a free monthly visit to a doctor. The value of that benefit to an elderly recipient is the minimum amount of money that that recipient would take instead of the medical care. This could be less than the market
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value of the medical care provided. It is assumed that more esoteric benefits such as from preserving open space or historic sites have a finite equivalent money value to the public. Not only do the benefits and costs of a project have to be expressed in terms of equivalent money value, but they have to be expressed in terms of dollars of a particular time. This is not just due to the differences in the value of dollars at different times because of inflation. A dollar available five years from now is not as good as a dollar available now. This is because a dollar available now can be invested and earn interest for five years and would be worth more than a dollar in five years. If the interest rate is r then a dollar invested for t years will grow to be (1+r) t. Therefore the amount of money that would have to be deposited now so that it would grow to be one dollar t years in the future is (1+r)-t. This called the discounted value or present value of a dollar available t years in the future. When the dollar value of benefits at some time in the future is multiplied by the discounted value of one dollar at that time in the future the result is discounted present value of that benefit of the project. The same thing applies to costs. The net benefit of the projects is just the sum of the present value of the benefits less the present value of the costs. The choice of the appropriate interest rate to use for the discounting is a separate issue that will be treated later in this paper.
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Valuations Should Represent Consumers or Producers Valuations As Revealed by Their Actual Behavior
The valuation of benefits and costs should reflect preferences revealed by choices which have been made. For example, improvements in transportation frequently involve saving time. The question is how to measure the money value of that time saved. The value should not be merely what transportation planners think time should be worth or even what people say their time is worth. The value of time should be that which the public reveals their time is worth through choices involving tradeoffs between time and money. If people have a choice of parking close to their destination for a fee of 50 cents or parking farther away and spending 5 minutes more walking and they always choose to spend the money and save the time and effort then they have revealed that their time is more valuable to them than 10 cents per minute. If they were indifferent between the two choices they would have revealed that the value of their time to them was exactly 10 cents per minute. The most challenging part of CBA is finding past choices which reveal the tradeoffs and equivalencies in preferences. For example, the valuation of the benefit of cleaner air could be established by finding how much less people paid for housing in more polluted areas which otherwise was identical in characteristics and location to housing in less polluted areas. Generally the value of cleaner air to people as revealed by the hard market choices seems to be less than their rhetorical valuation of clean air.
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Benefits Are Usually Measured by Market Choices When consumers make purchases at market prices they reveal that the things they buy are at least as beneficial to them as the money they relinquish. Consumers will increase their consumption of any commodity up to the point where the benefit of an additional unit (marginal benefit) is equal to the marginal cost to them of that unit, the market price. Therefore for any consumer buying some of a commodity, the marginal benefit is equal to the market price. The marginal benefit will decline with the amount consumed just as the market price has to decline to get consumers to consume a greater quantity of the commodity. The relationship between the market price and the quantity consumed is called the demand schedule. Thus the demand schedule provides the information about marginal benefit that is needed to place a money value on an increase in consumption.
The cost benefit analysis is used to answer many of the questions faced by management. As profits are affected by the interplay of costs, volume and selling prices, management must have at its disposal analyses that can allow reasonably accurate presentation of the effect a change in any one of these factors would have on the profit performance. When plans are formulated for a given period certain questions of the following type have to be answered should emphasis be placed on increasing sales volume? If so, to which of the many products marketed should it be applied? Would an increase in selling price even though accompanied by a decrease volume, result in more profitable operations? Should efforts be made to reduce costs instead of increasing g volume or selling price as a step toward increased profits? If cost reduction is the answer should pressure be exerted to reduce variable or fixed costs? Not all of these questions would be asked by management in every industrial
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enterprise since the elastic ting of demand and the extent of and nature of competition would have a varying impact in different industries. Cost benefits analysis furnishes complete picture of the profit structure, which enables management to distinguish between the effect of sales volume flections and the results of price or cost changes upon profits. ADVANTAGES OF COST BENEFITS ANALYSIS Cost benefits analysis is an important tool of profit planning it provide information about the following matters. 1. The behavior of cost in relation to volume 2. Volume of production or sales, where the businesses will break even. 3. Sensitivity of profits due to variation in output. 4. Amount of profit for a projected sales volume. 5. Quantity of production and sales for a target profit level.
Cost benefit analysis may therefore be defined as a managerial tool showing the relationship between various ingredients of profit planning cost (both fixed and variables) selling price and volume of activity etc. Such and analysis is useful to the finance manager in the following respects. 1. It helps him in forecasting the profit fairly accurately. 2. It is helpful in setting up flexible budget, since on the basis of the relationship, it can ascertain the cost, sales and profits at different levels of activity. 3. It also assists him in performance evolution for purposes of management control.
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4. It helps in formulating price policy projecting the effect which different price structures will have n cost and profits. 5. It helps determining the amount of overhead cost to be charged at various levels of operations, since overhead rates are generally pre-determined n the basis of a selected volume of production. Thus, cost-benefit analysis is an important media through which the management can have an insight into effects on profit on account of variations in costs and sales and take appropriate decisions.
Risk and uncertainty In common parlance the terms “risk” and “Uncertainty” have synonymous meaning. However they differ from each other as given below. Risk Risk maybe defined as “the chance of future loss that can be fore seen”. In other words in case of risk an estimate can be made about the degree of happening of the loss. This is usually done by assigning probabilities to the risk on the basis of past data and the probable trends. Uncertainty Uncertainty may defined as “the unforeseen chance for future loss or damages”. In case of uncertainty since the firm cannot anticipate the future loss and hence it cannot directly deal with it in its planning process, as is possible in the case of risk. For example, a firm investing money in a foreign country cannot possibly foresee a coup and taking over of the government by on unfriendly group similarly, a firm cannot foresee the loss which may be due to destruction of its plant on account of earth quake of 52
course, in those cases where occurrence of such earthquakes is quite frequent the firm can possibly estimate the likelihood of the loss and such loss can be taken care of by the firm in its planning process. Such loss will not therefore fall in the purview of uncertainty, but will fall in the purview of risk. Thus, there is a very thin line of distinction between the terms “uncertainty” and “Risk”. In this project, I have studied costs and benefits enjoyed by the customer of unit linked investment plan (UNIT LINKED INVESTMENT PLAN) in Max New York Life Insurance Company Limited. I have also studied the risk and returns they are deriving under the unit linked investment plan by taking in to consideration of the portfolio of companies’ investment in different periods of time.
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2.1. OBJECTIVES
The main aim of the present study is to accomplishing the following objectives.
1. To identify the Max New York Life’s investment allocation for UNIT LINKED INVESTMENT PLAN Plan. 2. To know about how much percent of returns promised by Max New York Life and also analyze what they are giving as returns to the investors. 3. To find out the disparities between the actual and promised rate of returns. 4. To analyses the range of customers invested in UNIT LINKED INVESTMENT PLAN Plan. 5. To analyses the risk and return pattern of Max New York Life.
2.2. NEED FOR THE STUDY
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In the present world, each and every thing is marked by competition. Entry into the financial market or the management of portfolio dealings is very risky and challengeable. As a precaution the researcher aims at studying the nature of different financial assets in the money and capital markets. By the proper study of cost benefit analysis, the company as well as different investors can assess about different investments
2.3. LIMITATIONS
Limitations make the work dissatisfied every work has its own limitations. Likely, my project is also having its own limitations ? Three months time is insufficient to have a detailed study and analysis about the various aspects of cost benefit analysis. ? A detailed assistance tools to know and undertake analysis about the benefit was lacked. ? Any study cannot be 100% accurate at the times. This is because of the inherent limitations that could be present in such a study. One of the limitations is since it’s a Private insurance company the financial data are not supposed to be disclosed. ? Due to resource and time constraints, only percentage of different cost components has been considered and it is difficult to express in numerical values because it varies based on the age of the individual.
2.4. RESEARCH METHODOLOGY
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PRIMARY DATA Primary sources enables the researcher to get as close as possible to what actually happened during an historical event or time. A primary source reflects the individual’s viewpoint of a participant or observer. Data collected from the company guide. SECONDARY DATA Companies existing investment portfolio’s quarterly review report, available statistics, journals and magazines and Internet etc
CHAPTER 3: ANALYSIS AND INTERPRETAIONS
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COST BENEFIT ANALYSIS Table 1: Cost deduction components of Unit Linked Investment plan
Components Nominal fund management expenses Monthly administration fees Initial set up monthly expense Bid offers expense Rounding of premium on its allocation to the funds
Charges 0.90% to 1.25 % Rs. 50 0.15 % to 0.25% 5%
1%
Mortality charges
Depends on the age of the individuals and the sum assured.
These charges will be detected from the customer’s premium for the first 3years by our Max New York Life Insurance Company. So after fourth year onwards entire premium will be invested in different portfolio of funds preferred by the customers. So there will be a hundred percentage allocations of funds after 3 years made in fortune 100 companies which in turn fetch more returns to the customers.
Table 2:
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GROWTH FUND RETURNS
Period
Returns
31st December 2008
47.1%
30th April 2009
49.9%
Growth Fund Returns
50.50% 50.00% 49.50% 49.00% Percentage 48.50% 48.00% 47.50% 47.00% 46.50% 46.00% 45.50% 31st December 2005 Period 30th April 2006 47.10% 49.90%
INFERENCE From the Period 31st Dec. 05 to 30th April. 2006 the growth fund returns return has increased from 47.10 % to 49.9 % at a 2.8 % Growth in returns.
Table 3:
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GROWTH FUND ASSETS ALLOCATION
GROWTH FUND INVESTMENT PORTFOLIO AS ON 31ST DECEMBER 2008
Asset allocation Government securities Corporate bonds Equities Cash and cash equivalents Percentage 14% 16% 57% 14%
Growth Fund - 31st Dec. 05
14% 14% 16%
56% Government securities Equities Corporate bonds Cash and Cash Equivalents
Table 4:
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GROWTH FUND INVESTMENT PORTFOLIO AS ON 30TH APRIL 2009
Asset allocation Government securities Corporate bonds Equities Cash and cash equivalents
Percentage 7% 28% 57% 8%
Growth Fund - 30th April. 06
8% 7% 28%
57%
Government Securities Equities Corporate bonds Cash and cash equivalents
Inference
From the period 31st December 2005 to 30th April 2009, the growth fund percentage of returns has increased from 47.1% to 49.9%. So there was a increase of 2.8% returns in Growth fund. This is because of the change in government securities allocation from 14% to 7% change in corporate bonds allocation from 16% to 28% and change in cash and cash equivalents allocation from 14 to 8%.
Table 5:
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BALANCED FUND RETURNS
Period 31st December 2005 30th April 2009
Returns 26.4% 29.3%
Balanced Fund - Returns
30.00% 29.00% Percentage 28.00% 27.00% 26.00% 25.00% 24.00% 31st December 2005 Period 30th April 2006 26.40% 29.30%
INFERENCE From the Period 31st Dec. 05 to 30th April. 2009 the growth fund returns return has increased from 47.10 % to 49.9 % at a 2.8 % Growth in returns.
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Table 6: BALANCED FUND ASSET ALLOCATION BALANCED FUND INVESTMENT PORTFOLIO AS ON 31ST DEC 2008.
Asset allocation Government securities Corporate bonds Equities Cash and cash equivalents
Percentage 21% 32% 32% 15%
Balanced Fund - 31st Mar. 06
15%
21%
32% 32%
Government securities Equities
Corporate bonds Cash and cash equivalents
Table 7:
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BALANCE FUND INVESTMENT PORTFOLIO AS ON 30TH APRIL 2009
Asset allocation Government securities Corporate bonds Equities Cash and cash equivalents
Percentage 24% 35% 35% 6%
Balanced Fund - 30th April. 06
6% 35%
Government securities 24% Corporate bonds Equities 35% Cash and cash equivalents
Inference
From the period 31st December 2005 to 30th April 2009, the balance fund percentage of returns has increased from 26.4%to 29.3%. So there was the increase of 2.9% returns in the balanced fund. This is because of the increase in government securities allocation from 21% to 24%, corporate bonds and equities increase in allocation from 32% to 35% and cash and cash equivalents has decreased from 15% to 6%.
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ABOUT GROWTH FUND
As compared to the investments made in growth fund for the period ended 31 st Dec 2008 & 30th April 2009. The company decided to take more risk and to earn more returns by investing in corporate bonds and equities. There was a small percentage of investment in government sector as they were not performing well when compared to private players in the market place.
Table 8: GROWTH FUND EQUITY BREAKS UP IN DIFFERENT INDUSTRIES
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Percentage of Industry fund as on 31st Dec 2008
Percentage of fund as on 30th April 2009
Percentage of increase in fund allocation
Percentage of decrease in fund allocation
Cement Banking and financial services IT Consultancy & services Crude oil & natural gas Automobiles Dairy products Diversified Drugs & pharmaceuticals Metals
3.1%
3.4%
0.3%
-
7.5%
6.6%
-
0.9%
8.1%
9.8%
1.7%
-
2.7%
-
-
-
4.1% 1.6% 5.2%
3.9% 1.6% 5.6%
0.4%
0.2% -
2.8%
3.1%
0.3%
-
3.1%
2.7%
-
0.3%
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Paints &varnishes Prime movers Refinery Textiles Media Other equities Telecom
1.4%
1.2%
-
0.2%
3% 5% 0.8% 1.1% 7.2% -
3.3% 5.9% 0.7% 0.6% 6.9% 2%
0.3% 0.9% 2%
0.1% 0.5% 0.3% -
PERCENTAGE OF INCREASE IN GROWTH FUND ALLOCATION
? ? ? ? 0.3% increase in fund investment to Cement industries. 1.7% increase in fund investment to IT Consultancy & services industries. 0.4% increase in fund investment to Diversified industries. 0.3% increase in fund investment to Drugs & pharmaceuticals industries. 66
? ? ?
0.9% increase in fund investment to Refinery industries. 0.3 % increase in fund investment to Prime movers industries. 2% increase in fund investment to Telecom industries.
PERCENTAGE OF DECREASE IN GROWTH FUND ALLOCATION
? ? ? 0.9% decrease in fund investment to Banking and financial services. 0.3% decrease in fund investment to Metal industries. 0.2% decrease in fund investment to Automobiles industries.
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? ? ? ?
0.2% decrease in fund investment to Paints &varnishes industries. 0.1% decrease in fund investment to Textiles industries 0.5% decrease in fund investment to Media industries 0.3% decrease in fund investment to Other equities industries
INFERENCE Table-1 shows how changes in the investment allocation portfolio of different industries brought changes in the returns. Growth fund returns has increased from 47.1% to 49.9% that is by 2.8% extra growth in returns. From this it is also noted that 31st Dec 2008, there was a 2.7% investment allocation in crude oil and natural gas industries became turned to no investment in the period 30 th April 2009. It is also found that there was a investment of 2% allocation to telecom sector which is not at all made anything during the period 31st December 2005.
Table 9: ABOUT THE BALANCED FUND
As compared to the investment made in balanced fund for the period ended 31st 2005 and 30th April 2009 the company decided t reduce the investment allocation for cash and cash
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equivalents and increased the some proportion of investments in government securities corporate bonds and equities
BALANCED FUND EQUITY BREAK UP IN DIFFERENT INDUSTRIES
Percentage of Industry fund as on 31 Dec 2008
st
Percentage of Percentage of Percentage of fund as on 30th April 2009
2.1%
increase in fund allocation
0.3%
decrease in fund allocation
-
Cement Banking and financial services IT Consultancy & services Crude oil & natural gas Automobiles Dairy products Diversified Drugs &
1.8%
4.3%
3.8%
-
0.5%
4.7%
6.3%
1.6%
-
1.5%
-
-
1.5%
2.2% 0.9% 2.8% 1.7%
2.1% 1.0% 3.9% 1.8%
0.1% 1.1% 0.1%
0.1% 69
pharmaceuticals Metals Paints &varnishes Prime movers Refinery Textiles Media Telecom 1.7% 1.7% -
0.7%
0.7%
-
-
1.6% 2.9% 0.4% 0.6% -
1.9% 3.7% 0.4% 0.7% 1.3%
0.3% 0.8% 0.1 -
0.9%
PERCENTAGE OF INCREASE IN BALANCED FUND ALLOCATION
? ? ? ?
0.3% increase in fund investment to Cement industries. 1.6% increase in fund investment to IT Consultancy & services. 0.1% increase in fund investment to Dairy products. 1.1% increase in fund investment to Diversified industries.
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? ? ? ?
0.1% increase in fund investment to Drugs & pharmaceuticals industries. 0.3% increase in fund investment to prime movers industries. 0.8% increase in fund investment to Refinery industries. 0.1% increase in fund investment to media industries.
PERCENTAGE OF DECREASE IN BALANCED FUND ALLOCATION
? ? ? ? 0.5% decrease in fund investment to Banking and financial services. 1.5% decrease in fund investment to Crude oil & natural gas industries. 0.1% decrease in fund investment to Automobiles industries. 0.9% decrease in fund investment to Telecom industries.
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INFERENCE: Table-2 shows how the changes in investment allocation of balanced fund portfolio to different industries brought changes in its returns. With this it is implied that The balanced fund returns of Max New York Life has increased from26.4% to 29.3% that is by 2.9% growth in balanced fund returns. It is found that crude oil & gas investment was given up during 30th April 2009 and was replaced by telecom sector.
CHAPTER 4: FINDINGS AND SUGGESTIONS
FINDINGS
LIFE INSURANCE
In the Indian financial market the most common reason to buy life insurance policy is to protect the financial interest of the owner of the policy in the event of the insured’s demise. Most of the Indian people consider the life insurance as device for getting tax benefits instead of its other long-term financial benefits. With the entry of private sector players backed by foreign expertise, Indian insurance market has become more vibrant. UNIT LINKED INVESTMENT PLAN is the
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highlighted plan in the Indian insurance market. More than 75% of the total premium is contributed by UNIT LINKED INVESTMENT PLAN. TAX BENEFITS Tax is an important factor when an investor taking decision in connection with his portfolio. It has more vibrant role in the field of life insurance investment options. In the Indian insurance market, most of the investors treat the life insurance investment as device for getting tax benefits. UNIT LINKED INVESTMENT PLAN is the most highlighted products in the life insurance investment market. Since UNIT LINKED INVESTMENT PLAN is an insurance policy, incomes of profits arising form the investment are tax-free. Even the top-up investments can be redeemed without any fear of the taxman. However this is only if the life covers is at least five times the annual premium.
LIQUIDITY In life insurance investment, liquidity is also a limiting factor but it is solvable up to a certain limit. Most of the all-insurance investments in life insurance carried out a paid up value after the payment of the premium in mandatory period. That will give you a surrender value for your policy if you decide to terminate the policy. And in order to highlight the liquidity in life insurance, loan option is also available on the security of your policy. So by using the policy, an investor can raise money whenever he/she wants on affordable schemes. SAFETY
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Like any other investment plans, life insurance business is also an investment option Associated with risk. But the difference is, we can monitor the flow of fund on a regular interval basis because all of the most insurance businesses offer UNIT LINKED INSURANCE PLANS as their long-term investment products. Unit-linked plans have emerged as the most popular form of insurance in the past few years. In the present world, more than 75% of the total premium is collected through UNIT LINKED INVESTMENT PLAN products. So the risk from the part of an investor is also low and is safer.
DISUSSIONS
Plan that offers one’s family both security and growth of his/her hard-earned savings. These plans look after one’s financial stability in future. If the marriage funding, educational funding or the family protection is your need, then this flexible plan will cover the loved ones if anything happens to the income earner. And at the same time ensures that his/her money grows. One can opt for the term that suits his/her needs best and pay premiums annually, semi-annually or quarterly. Emergency loan facility is available under this plan from 3rd year onwards. For one with a age of 27, ‘Assure 30 years security and growth plan’ offers an impressive investment return of as high as 10.9%approximately on total investment for a
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policy of Rs.5,00,000 lakh where the bonus amount is calculated on 5 percent of the Basic sum assured. This return of investment comes with an Accident Death Benefit and Waiver of premium facility. This is important to mention, this bonus amount is likely to be higher after 30 years as private insurance players are expected to enjoy a good market share then and thus, customer may enjoy more than 10.9 percent return on investment.
SUGGESTIONS
ABOUT EQUITY FUNDS Equity funds seek to provide maximum growth of capital with secondary emphasis on dividend or interest income. They invest in common stocks with a high potential for rapid growth and capital appreciation. An equity fund gives an exposure to the stock market. The fund world has long-term growth potential but provides low current income. They are not suitable for investors who are risk averse and are focused on maximizing current income or conserving principal.
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If high growth is customer’s priority this is the plan for them. They can enjoy long term capital appreciation form a portfolio that is invested primarily in equity and equity-related securities.
ABOUT BALANCED FUNDS Balanced funds are more evenly invested in equities and income securities. Balanced and equity-income funds are suitable conservative investors who want high current t yield with some growth. If you seek to generate long-term capital appreciation and current income, an investment in the balanced fund would be ideal. It gives customs an exposure to the stock market without the entire risk of the stock market. If customers prefer a balance of growth and steady returns, they can choose our balanced fund Unit Linked Investment Plan. This would ensure that their portfolio is invested in equity and equity-linked securities as well as in fixed income securities.
CONCLUSION
Life insurance is performing well and it acceptable for the investors for satisfying the return needs of the investors. More over the additional comparative benefits like service of investment professionals, ability to diversify price volatility risk, and ability to match with risk taking ability etc. are the some of high-lighted points of life insurance. And there is a roof for improvement in the forms of increasing the number of investors by undergoing changes in UNIT LINKED INVESTMENT PLAN schemes. Max New York life shows only illustrative returns of 6% and 10% under the guidelines of IRDA but it pays the actual returns of 49.9% in growth fund and 29.3% in balanced fund respectively. And the returns will vary from period to period based on market 76
fluctuations. As it is a market linked product, the stable returns cannot be expected by the customers. As Max New York Life has 160 years of experience in the insurance business, it invests in such a fortune company which will fetch more returns as well as safety of funds to the customers.
BIBLIOGRAPHY
BOOKS
? Financial Management – ICFAI National College. ? Investment Management by VK Bhalla. ? SECURITIES AND EXCHANGE BOARD OF INDIA (Reading material on Empowering Investors Through Education)
WEBSITES
? www.maxnewyorklife.co 77
? www.investopedia.com ? www.bamboo.com
APPENDICES
Quarterly review of Max New York Life Insurance Company limited.
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ON THE JOB TRAINING
OBJECTIVES OF OJT
? ? ? ? ? To find the real aspect of marketing in the growth of an organization. To get a real time experience with the working atmosphere in an organization. To be more familiar with the insurance industry. To study insurance products. To study the real art of convincing people.
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?
To accomplish the task assigned i.e., generating loyal customers.
TASKS
The target/ tasks of the training are to do marketing and generate loyal customers to the company. The target, which the SIP COMPANY has specified, is to generate minimum premium of Rs 1, 25,000 and to recruit 2 agents for our company. This task focus on one real aspect ‘How to Market Insurance Products’. Since insurance is a service it is quite difficult to market. The new players in the industry make the competition worse. So marketing needs special importance. It needs special skills.
STRATEGY
The strategies adopted in order to achieve the set target are by direct contacts and explaining them about the products that are available and by answering to the doubts and questions raised and through tee marketing.
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EXPERIENCE
Selling of product is a very nice experience. Meeting with different people of different attitudes, opinion, etc helped me in understanding the nature of people. Convincing people was very difficult task and it requires special skills and abilities.
ACHEIVEMENTS
? Contacted about 100 people and explained them about the products and answered to the doubts raised by them. ? Convinced nine people and logged in 85,000 Rupees as yearly premium.
LIMITATIONS OF OJT
? Busy nature of people. ? The time period for the work was limited. ? The unwillingness of people to take the policy. ? Lack of knowledge of Unit Linked products. ? Annual premium was not encouraged.
LEARNINGS THROUGH SUMMER INTERNSHIP PROGRAM
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Four months Summer Internship Program (SIP) is a wonderful opportunity where as a student provided me a chance to apply the possessed business knowledge and gain the valuable business experience and training in the social sector. It helped me to build a culture of teamwork and a culture of loyalty
On-the –job-training helped me to gain of experience. It also helped me to learn how to behave in a corporate world. SIP enabled me a get an exposure to the competitive business world.
It also helped me in shaping me young mind and to develop the necessary communication skills, increased the confidence level, way of approaching the management and so. It also motivated and groomed me to possess the various skills, which the present business world is looking for. Training also helped me in building good relationship among the employees.
AWARDS AND REWARDS RECEIVED
Till now I have earned a commission of Rs. 15, 861 and a stipend of Rs. 4000 by selling nine policies and collected Rs. 85,000 as annual first year premium. This motivated me to work hard for the company in the near future.
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