PROJECT REPORT ON

RISK ANALYIS & RISK MANAGEMENT

IN INVESTING IN INSURANCE
POLICIES

RAGHAV SINGLA

BATCH – 9

COLLEGE- JIMS VASANT KUNJ

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 Index
1. CHAPTER 1: Introduction ......................................................................
1.1.Introduction on Risk Analysis and Risk Management ............................. 3-6
1.2.Background ............................................................................................ 7-18
1.2.1. What is Insurance?
1.2.2. Benefits of Insurance
1.2.3. Types of Insurance Policies
1.2.4. Insurance sector in India
2. CHAPTER 2: Literature Review............................................................. 19-21

3. CHAPTER 3: Research Objective ..........................................................

3.1.Objective and Scope of Study............................................................... 22

4. CHAPTER 4: Research Methodology .................................................... 23

5. CHAPTER 5: Data Analysis ...................................................................

5.1.Human life value approach ................................................................... 24
5.2.Need approach ..................................................................................... 25
5.3.Capital retention approach ................................................................... 27-30

6. CHAPTER 6: Suggestions ...................................................................... 31

7. CHAPTER 7: Conclusion ....................................................................... 32

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RISK ANALYSIS AND RISK MANGEMENT
Life is full of risks for example risk is involved in simple things like turning on
the gas at home or when dealing with life threatening medical emergency
decisions. Risk plays an important role in the way we manage our economy,
organization or our family. Risk can be rather complex when household
money is involved. The types of risks involved influence decisions on how to
manage or invest money in shares, bonds or property. When faced with
risks, the challenge is how well prepared are we to overcome risks. Risk
awareness may be limited in which case there is a high likelihood of risk
turning into hazard -leading to disastrous outcomes.

Investment risk may be divided into two primary categories: systematic risk
and non-systematic risk. Systematic risk is the risk associated with the
overall market and non-systematic risk is the risk associated with an
individual company or industry.

NON SYSTEMATIC RISK

Non-systematic risk can be broken down into business and industry risk. This
is the risk which applies to an individual company. For example, if you buy
ABC common stock, you assume the risk associated with that specific
company as well as the risk of the industry in which the company resides.
The risk associated with the company involves such things as decisions made
by management and the financial structure of the company. For example, if
management tends to make poor decisions, the company's stock price will
likely suffer. Also, if the company assumes too much debt, investors would
be concerned and a lower stock price could result. Business risk
encompasses a multitude of issues, all of which could spell trouble for an
unsuspecting investor.

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Industry risk is another risk assumed when purchasing a company's stock. As
implied, industry risk is the risk associated with a particular industry. For
example, if the company invests in oil and gas, they would likely be affected
by the energy sector. Therefore, if oil prices fell, the company's stock price
would likely decline. In any event, non-systematic risk (i.e. business and
industry risk) can be eliminated. How? If you buy enough individual
companies, in different sectors, you can eliminate the risk associated with
one specific company or industry. This is easily accomplished through the
purchase of a mutual fund or an ETF.

SYSTEMATIC RISK

Although you may eliminate non-systematic risk, there is another risk which
cannot be erased. This type of risk is the risk associated with a particular
type of investment. For instance, if you invest in the stock market, you will
be subject to the risk associated with stocks. If you invest in bonds, you will
be subject to the risk of rising interest rates. In general, systematic risk
cannot be eliminated, but it can be properly managed. There are many types
of risk in this category. The following table contains each one of these risks
and provides a brief description of each.

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As you can see, the investment world contains many risks. As a general rule,
the greater the return you seek, the greater the risk you must assume. And,
if you seek a higher return you must also be willing to accept a longer time
horizon. An investor will often become nervous when an investment loses
value. This frequently leads to a premature sale.

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Risk analysis is the process of assessing the likelihood of an adverse
eventoccurring within the corporate, government, or environmental sector.
Risk analysis is the study of the underlying uncertainty of a given course of
action and refers to the uncertainty of forecasted cash flow streams, the
variance of portfolio or stock returns, the probability of a project's success
or failure, and possible future economic states. Risk analysts often work in
tandem with forecasting professionals to minimize future negative
unforeseen effects.

Risk management is the process of identification, analysis and

acceptance or mitigation of uncertainty in investment decisions. Risk is
inseparable from return in the investment world. A variety of tactics exist to
ascertain risk; one of the most common is standard deviation, a statistical
measure of dispersion around a central tendency. Beta, also known as
market risk, is a measure of the volatility, or systematic risk, of an individual
stock in comparison to the entire market. Alpha is a measure of excess
return; money managers who employ active strategies to beat the market
are subject to alpha risk.

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BACKGROUND
India is the second largest country in the world in the respect of population.
The GDP growth of India was 5.4% in year 2013.the insurance sector is
expected to grow at a very high rate in next 10-154 years and its
contribution in GDP is going to rise in ahuge manner as a large amount of
population is still uninsured especially in urban areas.

WHAT IS INSURANCE?

Insurance is a contract between the insurance company (insurer) and the

policyholder (insured). In return for a consideration (the premium), the
insurance company promises to pay a specified amount to the insured on
the happening of a specific event. We all need insurance because it not only
transfer the risk but also have other benefits like tax saving.

The first Indian insurance company was formed in the year 1818 which was
oriental life insurance company and the Indian life assurance companies act
1912 was the first statutory measure to regulate life business which was
finally amended in the year 1938. In the year 1999 Insurance Regulatory and
Development Authority (IRDA) was constituted as an autonomous body to
regulate all the insurance companies in India which came in power in the
year April 2000. Under the current regulation a foreign companies cannot
have more than 26% of stake in joint venture.

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BENEFITS OF INSURANCE

Investment option It is good investment option because insurer will not get
the insurance cover but also the in some amount of
return.

Tax benefits We can also save tax up to RS 150000.

Loan on insurance Customer can also take loan against insurance policies.

Habits of saving It also develops the habits of saving certain amount of

money

which can be helpful in future.

TYPES OF INSURANCE POLICIES

LIFE INSURANCE

Life Insurance refers to a policy or cover whereby the policyholder can

ensure financial freedom for his/her family members after death. Suppose
you are the sole earning member in your family, supporting your spouse and
children.

In such an event, your death would financially devastate the whole family.
Life insurance policies ensure that such a thing does not happen by
providing financial assistance to your family in the event of your passing.

Types of Life Insurance Policies

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There are primarily seven different types of insurance policies when it
comes to life insurance. These are:

Term Plan - The death benefit from a term plan is only available for a
specified period, for instance, 40 years from the date of policy purchase.

Endowment Plan - Endowment plans are life insurance policies where a

portion of your premiums go toward the death benefit, while the remaining
is invested by the insurance provider. Maturity benefits, death benefit and
periodic bonuses are some types of assistance from endowment policies.

Unit Linked Insurance Plans or ULIPs - Similar to endowment plans, a part of

your insurance premiums go toward mutual fund investments, while the
remaining goes toward the death benefit.

Whole Life Insurance - As the name suggests, such policies offer life cover
for the whole life of an individual, instead of a specified term. Some insurers
may restrict the whole life insurance tenure to 100 years.

Child’s Plan - Investment cum insurance policy, which provides financial aid
for your children throughout their lives. The death benefit is available as a
lump-sum payment after the death of parents.

Money-Back - Such policies pay a certain percentage of the plan’s sum

assured after regular intervals. This is known as survival benefit.

Retirement Plan - Also known as pension plans, these policies are a fusion of
investment and insurance. A portion of the premiums goes toward creating
a retirement corpus for the policyholder. This is available as a lump-sum or
monthly payment after the policyholder retires.

Benefits of Life Insurance

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If you possess a life insurance plan, you can enjoy the following advantages
from the policy.

Tax Benefits - If you pay life insurance premiums, you are eligible for tax
benefits in India, under Section 80(C) and 10(10D) of the Income Tax Act.
Thus, you can save a substantial sum of money as taxes by opting for a life
insurance plan.

Encourages Saving Habit - Since you need to pay policy premiums, buying
such an insurance policy promotes the habit of saving money.

Secures Family’s Financial Future - The policy ensures your family’s financial
independence is maintained even after your demise.

Helps Plan Your Retirement - Certain life insurance policies also act as
investment options. For instance, pension plans offer a lump-sum payout as
soon as you retire, helping you to fund your retirement.

MOTOR INSURANCE

Motor insurance refers to policies that offer financial assistance in the event
of accidents involving your car or bike. Motor insurance can be availed for
three categories of motorised vehicles, including:

Car Insurance - Personally owned four-wheeler vehicles are covered under

such a policy.

Two-wheeler Insurance - Personally owned two-wheeler vehicles, including

bikes and scooters, are covered under these plans.

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Commercial Vehicle Insurance - If you own a vehicle that is used
commercially, you need to avail insurance for the same. These policies
ensure that your business automobiles stay in the best of shapes, reducing
losses significantly.

Types of Motor Insurance Policies

Based on the extent of cover or protection offered, motor insurance policies

are of three types, namely:

Third-Party Liability - This is the most basic type of motor insurance cover in
India. It is the minimum mandatory requirement for all motorised vehicle
owners, as per the Motor Vehicles Act of 1988. Due to the limited financial
assistance, premiums for such policies also tend to be low. These insurance
plans only pay the financial liability to the third-party affected in the said
mishap, ensuring that you do not face legal hassle due to the accident. They,
however, do not offer any financial assistance to repair the policyholder’s
vehicle after accidents.

Comprehensive Cover - Compared to the third-party liability option,

comprehensive insurance plans offer better protection and security. Apart
from covering third party liabilities, these plans also cover the expenses
incurred for repairing the damages to the policyholder’s own vehicle due to
an accident. Additionally, comprehensive plans also offer a payout in case
your vehicle sustains damage due to fire, man-made and natural calamities,
riots and others such instances. Lastly, you can recover your bike’s cost if it
gets stolen, when you have a comprehensive cover in place. One can also
opt for several add-ons with their comprehensive motor insurance policy
that can make it better-rounded. Some of these add-ons include zero
depreciation cover, engine and gear-box protection cover, consumable
cover, breakdown assistance, etc.
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Own Damage Cover - This is a specialised form of motor insurance, which
insurance companies offer to consumers. Further, you are eligible to avail
such a plan only if you purchased the two-wheeler or car after September
2018. The vehicle must be brand new and not a second-hand one. You
should also remember that you can avail this standalone own damage
coveronly if you already have a third party liability motor insurance policy in
place. With own damage cover, you basically receive the same benefits as a
comprehensive policy without the third-party liability portion of the policy.

Benefits of Motor Insurance Policies

Cars and bikes are increasingly more expensive with each passing day. At
such a time, staying without proper insurance can lead to severe monetary
losses for the owner. Listed below are some advantages of purchasing such
a plan.

Prevents Legal Hassle - Helps you avoid any traffic fines and other legalities
that you would otherwise need to bear.

Meets All Third-Party Liability - If you injure a person or damage someone’s

property during a vehicular accident, the insurance policy helps you meet
the monetary losses, effectively.

Financial Assistance to Repair Your own Vehicle - After accidents, you need
to spend considerable sums on repairing your own vehicle. Insurance plans
limit such out of pocket expenses, allowing you to undertake repairs
immediately.

Theft/loss cover - If your vehicle is stolen, your insurance policy will help you
reclaim a portion of the car/bike’s on-road price. You can expect similar
assistance if your vehicle is damaged beyond repair due to accidents.

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HEALTH INSURANCE

Health insurance refers to a type of general insurance, which provides

financial assistance to policyholders when they are admitted to hospitals for
treatment. Additionally, some plans also cover the cost of treatment
undertaken at home, prior to a hospitalisation or after discharge from the
same.

With the rising medical inflation in India, buying health insurance has
become a necessity. However, before proceeding with your purchase,
consider the various types of health insurance plans available in India.

Types of Health Insurance policies

There are eight main types of health insurance policies available in India.
They are:

Individual Health Insurance - These are healthcare plans that offer medical
cover to just one policyholder.

Family Floater Insurance - These policies allow you to avail health insurance
for your entire family without needing to buy separate plans for each
member. Generally, husband, wife and two of their children are allowed
health cover under one such family floater policy.

Critical Illness Cover - These are specialised health plans that provide
extensive financial assistance when the policyholder is diagnosed with
specific, chronic illnesses. These plans provide a lump-sum payout after such
a diagnosis, unlike typical health insurance policies.

Senior Citizen Health Insurance - As the name suggests, these policies

specifically cater to individuals aged 60 years and beyond.
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Group Health Insurance - Such policies are generally offered to employees
of an organisation or company. They are designed in such a way that older
beneficiaries can be removed, and fresh beneficiaries can be added, as per
the company’s employee retention capability.

Maternity Health Insurance - These policies cover medical expenses during

pre-natal, post-natal and delivery stages. It covers both the mother as well
as her newborn.

Personal Accident Insurance - These medical insurance policies only cover

financial liability from injuries, disability or death arising due to accidents.

Preventive Healthcare Plan - Such policies cover the cost of treatment

concerned with preventing a severe disease or condition.

Benefits of Health Insurance

After assessing the various kinds of health insurance available, you must be
wondering why availing such a plan is essential for you and your loved ones.
Look at the reasons listed below to understand why.

Medical Cover - The primary benefit of such insurance is that it offers

financial coverage against medical expenditure.

Cashless Claim - If you seek treatment at one of the hospitals that have tie-
ups with your insurance provider, you can avail cashless claim benefit. This
feature ensures that all medical bills are directly settled between your
insurer and hospital.

Tax Benefits - Those who pay health insurance premiums can enjoy income
tax benefits. Under Section 80D of the Income Tax Act one can avail a tax
benefit of up to Rs.1 Lakh on the premium payment of their health
insurance policies.
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INSURANCE SECTOR IN INDIA

The insurance industry of India consists of 57 insurance companies of which

24 are in life insurance business and 33 are non-life insurers. Among the life
insurers, Life Insurance Corporation (LIC) is the sole public sector company.

Market Size

Government's policy of insuring the uninsured has gradually

pushed insurance penetration in the country and proliferation
of insurance schemes.

Gross direct premiums of non-life insurers in India reached US$ 20.33 billion
in FY20 (up to December 2019), gross direct premiums reached Rs 410.71
billion (US$ 5.87 billion), showing a year-on-year growth rate of 14.47 per
cent. Overall insurance penetration (premiums as per cent of GDP) in India
reached 3.69 per cent in 2017 from 2.71 per cent in 2001.

In FY19, premium from new life insurance business increased 10.73 per cent
year-on-year to Rs 2.15 trillion (US$ 30.7 billion). In FY20 (till February 2020),
gross direct premiums of non-life insurers reached US$ 24.82 billion,
showing a year-on-year growth rate of 14.03 per cent. Private sector
insurers saw a 17 per cent growth in premium collection, the state-owned
non-life insurers registered a nine per cent growth in the same period.

The market share of private sector companies in the non-life insurance

market rose from 13.12 per cent in FY03 to 55.70 per cent in FY20 (up to
April 2019).

Investments and Recent Developments

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The following are some of the major investments and developments in the
Indian insurance sector.

The non-life insurance companies witnessed a rise of 14 per cent in their

collective premium for April-February 2019-20.

In November 2019, Airtel partnered with Bharti AXA Life to launch prepaid
bundle with insurance cover.

In September 2019, Competition Commission of India (CCI) approved

acquisition of shares in SBI General Insurance by Napean Opportunities LLP
and Honey Wheat.

As of November 2018, HDFC Ergo is in advanced talks to acquire Apollo

Munich Health Insurance at a valuation of around Rs 2,600 crore (US$
370.05 million).

In October 2018, Indian e-commerce major Flipkart entered the insurance

space in partnership with Bajaj Allianz to offer mobile insurance.

In August 2018, a consortium of WestBridge Capital, billionaire investor Mr

Rakesh Jhunjunwala announced that it would acquire India’s largest health
insurer Star Health and Allied Insurance in a deal estimated at around US$ 1
billion.

India's leading bourse Bombay Stock Exchange (BSE) will set up a joint
venture with Ebix Inc to build a robust insurance distribution network in the
country through a new distribution exchange platform.

Government Initiatives

The Government of India has taken a number of initiatives to boost the

insurance industry. Some of them are as follows:

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As per Union Budget 2019-20, 100 per cent foreign direct investment (FDI)
permitted for insurance intermediaries.

In September 2018, National Health Protection Scheme was launched under

Ayushman Bharat to provide coverage of up to Rs 500,000 (US$ 7,723) to
more than 100 million vulnerable families. The scheme is expected to
increase penetration of health insurance in India from 34 per cent to 50 per
cent.

Over 47.9 million famers were benefitted under Pradhan Mantri Fasal Bima
Yojana (PMFBY) in 2017-18.

The Insurance Regulatory and Development Authority of India (IRDAI) plans

to issue redesigned initial public offering (IPO) guidelines for insurance
companies in India, which are to looking to divest equity through the IPO
route.

IRDAI has allowed insurers to invest up to 10 per cent in additional tier 1

(AT1) bonds that are issued by banks to augment their tier 1 capital, in order
to expand the pool of eligible investors for the banks.

Road Ahead

The future looks promising for the life insurance industry with several
changes in regulatory framework which will lead to further change in the
way the industry conducts its business and engages with its customers.

The overall insurance industry is expected to reach US$ 280 billion by 2020.
Life insurance industry in the country is expected grow by 14-15 per cent
annually for the next three to five years.

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Demographic factors such as growing middle class, young insurable
population and growing awareness of the need for protection and
retirement planning will support the growth of Indian life insurance.

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LITERATURE REVIEW
Green (1976) distinguished three kinds of bet or gamble. A consumer is said
to display risk aversion if he rejects a fair bet and to display risk preference if
he accepts a fair bet. He may not accept or reject the bet.

Cain (1981) in his study observed the potential importance of

environmentally and socially determined risk as a source of derived demand
for children in poor agrarian settings has been largely overlooked. Using
frequency of distress sale of land as an indicator of the adequacy of
insurance mechanisms, the author compares sources of risk and means of
insurance in two regions of South Asia--rural Bangladesh and a semi-arid
area of South Central India. While both regions are characterized by harsh
environments of risk, but Indian provides efficient adjustment mechanisms
have evolved-particularly, capital markets and public relief employment--
that have partially neutralized risk, prevented the distress sale of land, and
greatly reduced the need for the insurance that children could otherwise
provide. No comparable mechanisms have evolved in the Bangladesh setting
and thus the value of children as risk insurance remains high. The author
suggested that regional differences in environments of risk and sources of
insurance within South Asia may go far to explain regional differences in
recent fertility trends.

Howells and Bain(2000) argue that the level of premium paid to insure
against an event depends obviously upon the likelihood or risk of the event
occurring at all and the level of compensation or benefit to be paid when it
does.

Beim and Calomiris(2000) mention that financial institution cannot avoid

risk; rather ,they must take on the risks that they have a comparative

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advantage in managing, and be sure that those risks are well priced and well
managed.

Rejda(2001) opines that loss control is an important part of risk

management, and a typical property and liability insurer provides numerous
loss-control services. These services include advice on alarm systems,
automotive sprinkler systems, fire prevention, occupational safety and
health, prevention of boiler explosions and other loss prevention activities.

Asaf (2004) comments that multinationals have developed in size and have
increasing resources at their disposal, they have realized that ‘self –
insurance’-the setting up of an internal fund or provision, for loss can be a
far more efficient way of financing risk. He also commented that by self-
insuring, some organizations have reported savings of millions of dollars in
insurance premium.

According to Kevin(2004) expected return is the uncertain future return

that an investor expects to get from his investment. The realized return, on
the contrary, is the return that an investor actually obtained from his
investment.

Choudhuri (2004) comments that insurance deals in risks i.e. the probability
of happening of an unforeseen event or contingency which is never desired.
He also argued that it is the degree of danger involved in the subject matter
of insurance which may accelerate the causation of the insured event, or a
situation or state of mind of the insured which may help in bringing about
the insured event.

Azam(2005) argues that the growth of insurance industry and the economic
development is interdependent. Economic development of a country is
partly depends on the development of insurance industry.

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Harrington and Nichaus (2006) argue that the main reason why the
Government sometimes makes business insurance compulsory is to reduce
the likelihood that firms will be unable to fulfill their legal obligations to
individuals or other firms. To ensure that firms are financially capable of
paying workers’ compensation benefits, firms must either purchase
insurance or qualify as self insurer.

Barua(2007) finds that the insurance brokers are mostly affected by non
availability of marketing personnel, professional indemnity norm ,license fee
etc. He also observes that the broker channel is cheaper than traditional
channel and costlier than bancassurance channel, and it is better in terms of
number of policy sold and amount of sum assured.

Husain (2007) argued that for banks in emerging markets one of the risks to
take seriously is the growing importance of private equity, hedge funds and
derivatives in their financial transactions. Complex financial products serve
an important function by distributing risks but the inability to fully
understand these products and their risk distribution may lead to structuring
schemes that may ultimately magnify rather than mitigate risks.

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RESEARCH OBJECTIVE
 To make people aware about the steps they should consider before
buying insurance policies.
 To know about various analytical tools that can value an insurance
policy.
 To find whether need analysis is compulsory before buying an
insurance police.

SCOPE OF THE STUDY

The scope of the study is limited to only insurance & no other financial
instruments were considered .The study will help us to know the perception
of customers about insurance policies. The various risks involves in buying
an insurance policy and how to tackle it. It will also help us to get a basic
knowledge about need analysis calculation and its requirement.

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RESEARCH METHODOLOGY
Secondary data:

It refers to the statistical material which is not originated by the

investigator himself but obtained from someone else's records,
or when Primary data is utilized for any other purpose at some
subsequent enquiry it is termed as Secondary data. However, it
plays a significant role in the project. For this study the
secondary data was collected from the following sources.

 Books related to risk management and insurance

 Websites related to risk management and insurance
 Research reports
 Journals

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DATA ANALYSIS
As a customer you should always know your value in the market so that you
can take a police according to your exact value. Three various approaches
are used to determine the amount of life insurance to own:

 Human life value approach

 Needs approach
 Capital retention approach

Human life value approach

HLV can be defined as the present value of the family’s share of the
deceased breadwinner’s future earnings. It can be calculated by the
following steps:

Estimate the individual’s average annual earnings over his or her productive
lifetime.

Deduct federal and state income taxes, social security taxes, life and health
insurance premiums and cost of self maintenance.

Determine the number of years from person’s present age to the

contemplated age of retirement.

Using a reasonable discount rate, determine the present value of the

family’s share of earnings for the period in the previous step.

Examples: Assume that Raj, age 25 is married and has two children. He earns
Rs25000 annually and plans to retire at age of 65. Of this amount Rs10000 is
use for federal and state taxes, life and health insurance and his personal
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needs. The remaining 15000 is used to support his family. What should be
value of insurance if discount rate is 6%?

Solution: Using the give discount rate the present value of Rs1 payable
annual for 40 years is Rs15.05

So Raj has a human life value of (15000*15.05)= Rs225750

Needs approach

The second method for estimating the amount of life insurance to own is
the needs approach. The various family needs that must be met if the family
head will die are analysed. The most important family needs are following:-

Estate clearance fun

Income during the readjustment period Income during the

dependency period Life income to the surviving purpose Special
needs

Retirement needs

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By the help of need analysis chart we can know the amount of insurance we
need in the following ways-
Cash needs
Funeral cost 10000
Uninsured medical bills 3000
Instalment debts 12000
Probate cost 3000
Total estate 28000
clearance fund
Income needs
Readjustment period 14400
Dependency period 108000
Total income needs 122,400
Special needs
Mortgage redemption
fund
Emergency Fund
College education fund
Total special need 235000
Total need 385400
Checking account and 10000
savings
Mutual fund and 25,000
Securities
IRAS PLAN 4200
Employer saving plan 4500
Private pension death 10000
plan
Current life insurance 50000
Total assets 103400

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 Additional life insurance
needed
Total needs 385400
Less total assets 103700
Additional life insurance 281700
needed

The first part of worksheet shows the amount needed to meet various cash
needs, income needs and special needs. The second part analyse your
present financial assets for meeting these needs and the final part
determine the amount of life insurance needed.

Capital retention approach

This method preserves the capital needed to provide income to the family.
This methods works in following step:

Prepare a personal balance sheet

Determine the amount of income producing capital
Determine the amount of additional capital needed.

The first step is to prepare a personal balance sheet that lists all assets and
liabilities .Example

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 ASSETS
House 125000
Automobiles 15000
Personal and household property 45000
Securities and investment 28000
Checking account 2000
Individual and group life insurance 200000
Private pension death plan 20000
Total 435000

LIABILITIES

Mortgage 100000

Auto loan 10000

Charge a/c and other bills 5000

Total 115000

Determining the Amount of income-Producing Capital

The next step is to determine the amount of income producing assets that
can provide income to the family. This step is performed as follows:

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 Total assets 435000
Less:
Mortgage payoff 100000
Auto loan and credit
Credit card 15000
Final expenses 10000
Emergency fund 10000
Educational fund 60000
Non income producing capital 185000
Total deduction 380000
Capital income now available 550000

Determining the amount of capital needed

The final step involves a comparison of the income objective with other
sources of income such as Social security survivor benefits.Example
Income objective for family 30000
Less:
Capital now available for income -33000
(55000*6%)
Social security survivor benefits -12000
Income shortage 147000
Total new capital 245000
Required(14700/00.6)

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So these three analysis tools can be used by the customer to determine the
exact value of a life insurance required customer to support their family. It
will also help them to decide on which type of polices they should invest
according to their requirements.It will also help in determining amount of
risk in that policy.

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SUGGESTIONS
 Customers should be made more aware of need analysis as there is
low awareness level among them.
 Insurance companies should take more effort in spreading awareness
about need analysis calculation.
 Insurance companies should also give training to their advisors to
explain about need analysis calculation to customer properly as
customer how do need analysis are more satisfied with their policies.
 Insurance companies should have a reasonable premium rate as most
of the customers prefer so.

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CONCLUSION
Insurance sector in India is growing at a very high rate and it is expected to
grow more in future. This study had made an attempt to understand to
understand the various risk involves in investing in insurance an how to
manage those risk. I observed that most of the people buy an insurance
police under someone’s influence and not according to their requirement.
Also there is a very low awareness about need analysis calculation. Many
people do not pay their premium as they did not purchase their policies
according to their requirement.

Customer satisfaction plays a very important role in increasing the market

share of the company and it is very hard to get. So insurance companies
should sell their insurance policies according to needs of customers in this
way they can easily acquire customer’s loyalty.

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