Presentation on Basics of Insurance Client Metlife

MetLife India Insurance Company Pvt. Ltd. ForInternal Use Only.
An Introduction to
Insurance

How often do I want to pay?
Annual. Semi-Annual, Quarterly,
Monthly and Payroll Savings Program
How often do I want to pay?
Annual. Semi-Annual, Quarterly,
Monthly and Payroll Savings Program
How long do I
want to pay?
Single
Limited PPT
Regular
How long do I
want to pay?
Single
Limited PPT
Regular
When do I need
the money?
5 years to legacy
(upto age 100)
When do I need
the money?
5 years to legacy
(upto age 100)
What are my
Needs?
Protection
Accumulation
Retirement
What are my
Needs?
Protection
Accumulation
Retirement
How much risk
can I take?
Conservative
Moderate
Aggressive
How much risk
can I take?
Conservative
Moderate
Aggressive
MetLife product
portfolio offers many
choices to create an
affordable &
customized solution
for the client
CUSTOMER

Objectives
 Understanding the concept of
 Insurance
 Risk
 Risk Sharing
 Applying law of large numbers to insurance
 Appreciating Role of Insurance

History Of Insurance
 Early insurance goes backto the Egyptian
times.
 Around 3000 BC, Chinese merchants
dispersed theirshipments among several
vessels to avoid the possibility of damage or
loss.
 Insurance in the modern formoriginated in
the Mediterranean during 13th
and the 14th
century.

Insurance in its Present Form
 Today, there is insurance formany aspects of
daily living:
 Business,
 Auto,
 Health,
 Life,
 Travel.
 Each of these categories include sub-categories,
branching off into numerous divisions.

Insurance & Assurance
 Insurance is a method of making good the loss
that might occurfroma mishap orsuch event.
 Assurance is a method of providing fora loss of
income that might occuras an outcome of
events such as premature death, disability,
disease and old age.

Classification of Insurance
Life Insurance
Insures Life of individuals
 Protection against
 Death
 Disability &
 Disease
Non – Life Insurance
Insures assets
 Protection against
 Theft
 Fire
 Loss In Transit
 Accidents
 Illness in case
of Live stock

Life Insurance – the role it plays.
 Life Insurance helps planning for:
 Protection in case of an eventuality
 Children’s education and future settlement
 Retirement Corpus Creation
 Estate Planning
 And in the process provides for
 Security & Stability
 Tax benefit
 Wealth Creation

Need of Life Insurance in Businesses
 A business generally proposes forlife insurance:
 To ensure financial stability in the event of
death of key person (employee of the Body
Corporate) , Partner (in case of a partnership
insurance)
 To provide benefits for its employees
(Employee Benefit Insurance Schemes or
Group Insurance)

Business of Insurance
 Insurance companies
 bring together people with common risks
 collect contributions (premium) from them
 compensate those who suffer from that group

Principles of Insurance
 Insurance is based on two principles
 A - Risk transference
 Also called ‘pooling’, involves the transfer of risk
from the individual to a pool of the insurance
company’s policyholders. The insurance company
charges a fee, the premium (or part thereof), for
accepting the risk and ‘pools’ the premiums from a
group of policyholders into a general fund, to pay off
the death/survival benefits under the contract.

Principles of Insurance
 Insurance is based on two principles
 B - The Law of Large Numbers
 Basically relies on the principle that the larger the
pool, the more predictable the amount of losses will
be in a given period. Since not all members of the
pool are of the same age or in the same health
condition, we can assume not all of them will be
making a claim at the same time.

Concept of Risk, Peril and Loss
 Riskis defined as the possibility of adverse
results flowing fromany occurrence.
 Riskexists when there is uncertainty about the
future.
 Riskis the chance of loss, and peril is the direct
cause of the loss. Fore.g.: if a house burns
down, then fire is the peril, the damage incurred
because of the peril (fire) is loss.

Types of Risk
 Pure Risk
 Pure risk involves no
possibility of gain,
either a loss occurs or
no loss occurs e.g.
disability and death
 Speculative Risk
 Speculative risk
involves three possible
outcomes – loss, gain,
no change e.g. stocks
Only pure risks can be insured

RiskManagement
 Identifying and assessing the financial risk
 Eliminating orreducing exposure by:
 Accepting the risk (Standard Policy Rates)
 Controlling the risk (Loading with extra premium)
 Avoiding the risk (Decline, Postponement of
policy)
 Transferring the risk (Reinsurance)
 Avoiding Anti-Selection by Robust Underwriting

Insurance and RiskManagement
Prospect proposes for
Insurance
Insurerassess degree of
risk
Prospect pays premiums
as perStandard Rates
Insureraccepts
riskand issues
policy
Insureraccepts risk
conditionally and issues policy
Prospect pays extra
premiums as per
assessed risk
Insureravoids riskby
declining or
postponing the policy
All Issued policies sent forReinsurance
as perthe Insurers reinsurance norms

Characteristics of Insurable Risk
 In orderfora riskto be considered as insurable,
it must have certain characteristics:
 The loss must occur by chance
 The loss must be definite
 The loss must be significant
 The loss rate must be predictable
 The loss must not be catastrophic to the insurer

Concept of indemnity
 Indemnity: To make good the loss
 Any insurance is designed to compensate a
policyholderfora loss suffered, by the payment
of money, repair, replacement, orreinstatement.

Life Insurance & Indemnity
 Human Life cannot be valued, therefore Life
insurance is not a contract of indemnity.
 On the otherhand, plans which provide medical
reimbursements fall underthe purview of
contract of indemnity.

Assessing Adequacy of Life Insurance Cover
 Two Schools of Thought
 Concept of Human Life Value (HLV)
 Temporary and Permanent Protection

 Concept of Human Life Value (HLV)
 HLV is the present value of the total income of the
individual, which is lost to the family in the event of
his untimely death.

 Temporary and Permanent Protection
 Temporary Protection as the word suggests is
protection for temporary obligations and liabilities.
For e.g.: a housing loan obligation of 20 lakhs for
20 years would require a temporary protection of
at least 20 lakhs for a term of 20 years.
 Permanent Protection as the word suggests is
protection for the individual from the present age to
100 years. This means that the individual is
covered all through his/ her life span. The extent of
permanent protection as a thumb rule is prescribed
at 36 times the monthly living expenses of the
household excluding rent and other fixed EMI
outgoes.

So, What is Insurance ?
 Nobody wakes up in the morning to buy
Insurance.
 It needs to be SOLD.
 There is latent need forInsurance in each
individual.
 It just needs to be unraveled forhim by GOOD
Financial Advice.

Presentation on Basics of Insurance Client Metlife

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