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PART - I
INTRODUCTION
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Part 1: INTRODUCTIONSummary
1.1 THE INSURANCE INDUSTRY
1.1.1 India Opens its Doors
In 1956 the Indian life insurance industry was made up
of 154 domestic life insurers, 16 foreign life insurers and 75provident funds, and was still governed by the Insurance Act of1938. During 1956, however, the Indian government, unhappywith the behavior of some industry members, decided tonationalize all the companies. The result was the Life Insurance Corporation of India (LIC) Act of1956 and the formation of the national insurer, LIC.
Over time the LIC has become an insurance giant. It employs around 120 000 staff andmore than 600 000 sales agents, and has more than 2000 branch offices. At the end of the 2001fiscal year, the LIC's financial statements showed a total income of Rs 547.4bn ($11.4bn). Theindustry remained relatively unchanged until 1990 when the Indian government, under pressure todismantle the LIC's monopoly, decided to allow foreign investment. The market finally opened upwhen the Insurance Regulatory & Development Authority (IRDA) Act of 1999 was passed andforeign players entered the Indian insurance arena subject to various conditions. In the nearly 10years it took to deregulate, the Indian market became quite an attraction for many US andEuropean players due to its tremendous growth potential. India has a population of more than a
billion people. Of these, it is estimated that around 300 million make up the consuming class. Witha high savings rate (approximately 27%) and a very low insurance penetration rate (1.5% of thegross domestic product) the opportunities are enormous.
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1.1.2 Entry restrictions
Deregulation came with certain conditions. Firstly, all new foreign players entering theIndian market must set up a joint venture with a local company, with total capital of approximately$20m. Secondly, the maximum share the foreign player can hold is 26%, with the local company(or companies) holding the balance. The shareholding rule has been one of the bigger hurdles forthe foreign players as local companies have not always been able to see a launch through tocompletion. It has not been unusual for joint ventures to falter only to be restarted with different
players.
When a new company is Indian no joint venture is required and at least two Indiancompanies are in the process of being licensed. Regulators are currently reconsidering the
HDFC Standard Life Insurance Company Limited 2
This chapter consists of the introductory part of Insurance Industry, HDFC SLIC and
its partners HDFC and the Standard Life Assurance Company of Europe. It includes the
history and the background.
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foreign equity cap of 26%. Many foreign players hope it will be increased to at least 49% as theywould welcome the opportunity to increase their stake if this were allowed. In December 2000, thefirst new entrants' policies were sold when both ICICI Prudential and HDFC Standard Lifeannounced the milestone on the same day. As shown in the Table 1 on the next page, there are now12 new players selling insurance in India. Until now, all sales have been through agency
forces, which the new players are in the process of building. As a result of pressure from theindustry, however, amendments to the IRDA Act have recently been passed. The Insurance(Amendment) Act of 2002 allows, among other things, for alternative methods of distribution, withthe main two being banc assurance and brokers. All but one of the new insurers has set up agencyforces as their main method of distribution. Eg: - SBI Life intends to use the bank network to sellits products.
Table 1 : Indian life insurance joint ventures
Foreign Entity Local Company/Venture
AIG Tata
Allianz Bajaj
AMP Sanmar
Aviva Life Dabur
Cardiff State Bank of India Life
ING Life Vysya
Max New York Life Vysya
MetLife J & K Bank, Pallonji Group & others
Old Mutual Kotak Mahindra
Prudential ICICI
SLAC HDFC
Sun Life Birla
1.1.3 Bright Future
A bright future given that there were more than 150 insurance Companies operating inIndia in 1956 there seems no reason why, with many highly skilled, qualified Indian consumersand many people with an entrepreneurial spirit, the number of new players will not increasesubstantially from today's 12. Broker business will also increase to become the largest source of
premium income, although current legislation is slightly prohibitive. Banc assurance will also helpnew players capture a significant share of the market. Indian consumers are increasingly aware ofrisk and insurance. Combine this with the low penetration levels and the potential for reassuranceis clearly present. In addition, as regulations settle down, it is hoped that other forms of reinsurance
will be allowed.
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Regional officeRegional office
Branch officeBranch office
1992 26
1997 32
1998 41
1999 49
2000 67
2001 87
2002 1182003 142
Jun-03 151
No of Offices
HDFCs GEOGRAPHICALHDFCs GEOGRAPHICAL
SPREADSPREAD
An Analytical Report on Unit-Linked Products of HDFC SLIC LTD.
1.2 HDFC LTD. (Housing Development Finance Corporation Limited)
1.2.1 Background
HDFC was incorporated in 1977 with the primary objective of meeting a social need thatof promoting home ownership by providing long-term finance to households for their housingneeds. Its the first private sector retail housing finance company. HDFC was promoted with aninitial share capital of Rs. 100 million.
1.2.2 Business Objectives
The primary objective of HDFC is to enhance residential housing stock in the countrythrough the provision of housing finance in a systematic and professional manner, and to promotehome ownership. Another objective is to increase the flow of resources to the housing sector by
integrating the housing finance sector with the overall domestic financial markets..
1.2.3 Organizational Goals
HDFCs main goals are to a) develop close relationships with individual households, b)maintain its position as the premier housing finance institution in the country, c) transform ideasinto viable and creative solutions, d) provide consistently high returns to shareholders, and e) togrow through diversification by leveraging off the existing client base.
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INTEGRATED FINANCIAL SERVICESINTEGRATED FINANCIAL SERVICES
SECURITISATION
Future Activities
DISTRIBUTION
HDFC CHUBB GENERALINSURANCE CO. LTD.
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1.3 SLAC (Standard Life Assurance Company)
1.3.1 Background
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Table 2 : Standard Life - Founded 1825,
Head Office Edinburgh, Scotland (UK) PresenceUnited Kingdom 31 branches
Canada 11 "
Ireland 7 "
Germany 1 "
Austria 1 sales office
Spain 31 branches
Hong Kong 1 representative office
China 2 representative office
Founded in 1825Mutual Life Insurance Company since 1925Largest mutual life insurance company in EuropeAA2 rated by Moodys in December 2002AA rated by Standard & Poors in January 2003Assets under management 83.3 bn as on 15.11.2002Largest life and pension provider in the UK
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Table 3 : Unrivaled reputation For qualityYear Award
2002 company of the year
2001 company of the year
2000 company of the year
1999 company of the decade
1998 company of the year
1997 company of the year
1996 company of the year
1995 4 star service award
1994 overall best company
1993 overall best company
1992 overall best company
1991 3 star service award
1990 best mortgage services
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1.4 HDFC SLIC (HDFC Standard Life Insurance Company)
1.4.1 Background
The Partnership
HDFC and Standard Life first came together for a possible joint venture, to enter the LifeInsurance market, in January 1995. It was clear from the outset that both companies shared similarvalues and beliefs and a strong relationship quickly formed. In October 1995 the companies signeda 3 year joint venture agreement. Around this time Standard Life purchased a 5% stake in HDFC,further strengthening the relationship.
The next three years were filled with uncertainty, due to changes in government andongoing delays in getting the IRDA (Insurance Regulatory and Development authority) Act passedin parliament. Despite this both companies remained firmly committed to the venture.
In October 1998, the joint venture agreement was renewed and additional resource madeavailable. Around this time Standard Life purchased 2% of Infrastructure Development FinanceCompany Ltd. (IDFC). Standard Life also started to use the services of the HDFC Treasurydepartment to advise them upon their investments in India. Towards the end of 1999, the openingof the market looked very promising and both companies agreed the time was right to move theoperation to the next level. Therefore, in January 2000 an expert team from the UK joined a hand
picked team from HDFC to form the core project team, based in Mumbai. Around this timeStandard Life purchased a further 5% stake in HDFC and a 5% stake in HDFC Bank.
In a further development Standard Life agreed to participate in the Asset Management Company
promoted by HDFC to enter the mutual fund market. The Mutual Fund was launched on 20th July2000.
The Incorporation
The company was incorporated on 14th August, 2000 under the name of HDFC StandardLife Insurance Company Limited. Their ambition from as far back as October 1995 was to be thefirst private company to re-enter the life insurance market in India. On the 23rd of October 2000,this ambition was realized when HDFC Standard Life was the only life company to be granted acertificate of registration. HDFC are the main shareholders in HDFC Standard Life, with 81.4%,while Standard Life owns 18.6%. Given Standard Life's existing investment in the HDFC Group,this is the maximum investment allowed under current regulations. HDFC and Standard Life havea long and close relationship built upon shared values and trust. The ambition of HDFC StandardLife is to mirror the success of the parent companies and be the yardstick by which all otherinsurance company's in India are measured.
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1.4.2 Presence in India
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1.4.3 Features
First private life insurance company First company to declare bonus (third bonus declared on 29.4.2003) Presence in more than 50 locations
Outlook money award for the best new insurance company (refer annexure)
1.4.4 Mission
They aim to be the top new life insurance company in the market. This does not just meanbeing the largest or the most productive company in the market, rather it is a combination ofseveral things like-
Customer service of the highest order
Value for money for customers
Professionalism in carrying out business
Innovative products to cater to different needs of different customers
Use of technology to improve service standards
Increasing market share
1.4.5 Values
SECURITY: Providing long term financial security to our policy holders will be ourconstant endeavor. They will be doing this by offering life insurance and
pension products.
TRUST: They appreciate the trust placed by their policy holders in them. Hence, they aimto manage their investments very carefully and live up to the trust.
INNOVATION: Recognizing the different needs of their customers, they are offering arange of innovative products to meet those needs.
Their mission is to be the best new life insurance company in India and these are the valuesthat will guide us in this.
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PART - II
THE CURRENTSCENARIO
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Part 2: THE CURRENT SCENARIOSummary
2.1 The Insurance Industry
3 types of platforms are used the world over to design life insurance products : Traditional Life (Past)
Universal Life (Present)
Variable Life (Future)
In past, the products had been designed using the Traditional Life platform. Though stillthis platform is used, but now the Insurers have turned towards the 2nd platform i.e. UniversalLife. Future does expect the entry of the Variable Life plat-formed products.
HDFC Standard Life Insurance Company Limited 13
PAST
CURRENT
FUTURE
This chapter explains the basics of designing the insurance products as well as the
current scenario of the insurance products and HDFC Standard Life Insurance
Company Ltd.
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2.1.1 Traditional Life
The most basic form of insurance based on concept of sharing
Everybody contributes to the common pool
Policyholder contributes premium and gets values on happening of specified event
Company plays active role managing the pool and is responsible for the policy values Smoothening
Bonuses
2.1.2 Universal Life ( for detail refer section Product Description)
An insurance policy with mutual fund like operation
Concept of individual policy account and sub accounts in this account
Liquidity and access to cash values built up under the policy
Transparency and Flexibility in premium payments as well as other policy terms
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Table 4 : Pros & Cons
Advantages Disadvantages
Simplicity Not so very transparent
Company playing active role Lack of Asset choice
Bonuses and guarantees Inflexibility as compared to other forms
Smoothening Low Liquidity
Various plans to suit different end objectives
Table 5 : Pros & Cons
Advantages Disadvantages
Transparent & flexible Risk of NAV fluctuations
Policyholder playing active role Continuous Monitoring
Liquidity Fund charges
Interest guarantees Illustrations
No Lapsation / Grace Cost of features
Investment choices
Returns
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2.1.3 Variable Life
The most flexible form of insurance yet to come in India.
Very active role of policyholder. Investments determined by him.
Company more in advisory role.
Possible combination with Universal life to offer greatest flexibility.
2.1.4 Finally
Product development requires proper selection of platforms. Selection of platforms is adecision that a company takes after careful study of number of factors. Similarly a company isat the liberty to introduce different products that are designed using different platforms at thesame time.
While deciding on the key question Which policy to be chosen? one has to take intoconsideration not only just the flexibilities or the features that a platform offers but even moreimportant point that Whether it satisfies the need or not? These features look very attractive
but they have their own costs and implications on the policy values.
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Table 6 : Pros & Cons
Advantages Disadvantages
Transparent & flexible Only for learned investors
Policyholder playing major role Risk of Investment
Liquidity Continuous Monitoring
Investment choices Fund charges
Returns Cost of features
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2.2 HDFC SLIC
The company generated new business premium of Rs. 232.5 crore in 2003-04 on annualpremium income (API) basis. It registered a year-on-year growth of 76% and its corporate agencychannel, including its bancassurance business grew by 150% to Rs 50 Cr. The recently launched
unit linked business received good market response and contributed 27% of business generatedsince its launch.
Another significant achievement for HDFC Standard Life was that the cumulativeinsurance coverage, i.e. the sum assured for the policyholders, crossed the Rs. 13,500 crore markduring the year. The company has covered over 450,000 lives so far.
The growth in business in the past twelve months had been driven by HDFC Standard Lifepartnering very closely with its bancassurance partners, consolidating its presence across locationsby increasing its sales force of trained financial consultants and introducing new insurance andpension solutions on the unit linked platform.
The company started the year with presence in 49 cities - one of the widest presencesamong all new life insurance companies. Over the year, it built greater depth in these markets andhad 17,100 financial consultants as on 31st March 04 compared to 10,500 financial consultants on31st March 03. All the new entrants have been trained to understand the needs of the consumer
provide the right advice and maintain high service standards. This quality of advice is reflected inthe healthy persistence ratio of the companys business - both on the individual and the group side.
In January 2004, the company launched its unit linked insurance and pension plans throughspecially trained and certified Financial Consultants.HDFC Standard Life sees its pre-sale advice
as a clear differentiator. In pursuance of this strategy, HDFC Standard Life is the only company tohave a special training followed by a test before allowing Financials Consultants to advisecustomers on its unit linked products.
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PART - III
ABOUT THE
PROJECT
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Part 3: THE PROJECTSummary
3.1 PROFILE
TO PROVIDE MARKET ANALYSIS FOR THE UNIT LINKED PRODUCTS, NEWLYLAUNCHED BY HDFC SLIC IN JANUARY 04.
THIS INCLUDED:-
ANALYSING MARKET POTENTIAL.
ANALYSING MARKETS VIEW OF THE PRODUCT.
PROVIDING SALES & COMPANY-LEADS.
PROMOTING THE PRODUCT ITSELF.
TO ACHIEVE THE ABOVE OBJECTIVES WE WERE REQUIRED TO PERFORMTHE FOLLOWING:-
UNDERGOING PRODUCT TRAINING ON THE UNIT LINKEDPRODUCTS.
BASED ON THE OBJECTIVES, DESIGNING A QUESTIONNAIRE FORTHE CLIENTS (Refer Annexure).
UNDERGOING TRAINING FOR MASS PRESENTATIONS USINGGADGETS LIKE LCD & LAPTOP.
GIVING POWERPOINT PRESENTATIONS AT PLACES LIKE SCHOOLS,COLLEGES & GOVERNMENT OFFICES.
HDFC Standard Life Insurance Company Limited 19
This chapter consists of the introductory part of the project. It includes the project
profile and the details of the products included in the project.
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3.2 THE PRODUCTS DESCRIPTION
The product given to us for this project was THE UNIT LINKED PRODUCTS. As theseproducts were designed using the Universal Life platform, it provides the investors with better
investment options. These products offered by the HDFC Standard Life Insurance is completelydifferent from the other conventional products. These products offer better risk cover, tax benefits,flexibility in premium payment, better investment options and thereby increase the chances of
better returns over the investment. Here the investment done is converted into units and so theproducts are named The UNIT LINKED PRODUCTS. The investment amount is divided by thenet asset value to arrive at the number of units.
With the conventional policies the role of the investor was limited. The investor hadabsolutely no idea where his invested money was being used by the company. The investor playeda passive role. The company itself had to decide where to invest the pool of money gathered. Sothe company played an active role. But with these new products, HDFC SLIC gave the investors
the freedom & liberty to make the decisions about their own investment.
3.3 THE UNIT LINKED PRODUCTS
3.3.1 Features
UnbundledSeparate identification of parts is possible i.e. investment element,
expense, administration charges and benefit charges are shown
separately.
Market LinkedValue of policy is linked to net assets. Investment risk and rewards are
transferred from the insurer to the client.
Explicit ChargesConsequence of unbundling results into charges which may or may not
be guaranteed.
TransparentRegular results are given to the clients and the client has the idea about
his investment.
The 2 Unit Linked Products are: The Endowment Plan
The Pension Plan
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3.3.2 THE ENDOWMENT PLAN
The Endowment Plan is a life insurance plan. Here a person can insure his/her life withthe company to cover the risk of his/her death over the family.
Features
1. Choice of Investment Funds2. Switching3. Redirection4. Premium Payment Flexibility5. Premium Topups6. Premium Holidays7. Choice of Risk Cover
8. Withdrawals9. Tax Benefits10. Death Benefits11. CI Benefits (if chosen)12. AD Benefits (if chosen)13. Surrender Benefits14. Paid Up Benefits15. Maturity Benefits16. Age and Term Limits17. Minimum Premium Payable
Features Detailed
1. Choice of Investment Funds (Compared)
The Endowment Plan offers the investor with the choice of five funds.Types of funds:
o Liquid Fund
o Secure Managed Fund
o Defensive Managed Fundo Balanced Managed Fund
o Growth Fund
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Liquid FundThe liquid fund invests in Bank Deposits and high quality short-
term money market instruments. The fund is designed to be cash secureand has a very low level of risk, however unit prices may occasionallygo down due to the use on short-term money market instruments.
Secure Managed FundThe secure managed fund will invest in Government Securities
and Bonds issued by companies or other bodies with a high creditstanding, however a small amount of working capital may be invested incash to facilitate the day-to-day running of the fund. The fund has a lowlevel of risk but unit prices may still go up or down.
Defensive Managed Fund
15% to 30% of the Defensive Managed fund will be invested inhigh quality Indian equities. The remainder will be invested inGovernment Securities and Bonds issued by companies or other bodieswith a high credit standing, though a small amount of working capitalmay be invested in cash to facilitate the day-to-day running of the fund.The fund has a moderate level of risk with the opportunity to earn higherreturns in the long term from some equity investment, unit prices may go up or down
Balanced Managed Fund30% to 50% of the Balanced Managed fund will be invested in
high quality Indian equities. The remainder will be invested inGovernment Securities and Bonds issued by companies or other bodieswith a high credit standing, though a small amount of working capitalmay be invested in cash to facilitate the day-to-day running of the fund.The fund has a higher level of risk with the opportunity to earn higherreturns in the long term from the higher proportion invested in equities,unit prices may go up or down
Growth FundThe Growth fund invests in high quality Indian equities. In
addition a small amount of working capital may be invested in cash tofacilitate the day-to-day running of the fund. The fund has higher levelof risk with the opportunity to earn higher returns in the long term fromthe investment in equities. Unit prices may go up or down
The investor here is given the liberty to choose between the types of funds. The investor isgiven the freedom to change his investment fund any working day. The investor can bifurcate hisinvestment into parts and make the investment accordingly.
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100%SHORT TERM
MONEYMARKET
100%SHORT TERM
MONEYMARKET
70-85%LONGTERM
MONEYMARKET
15-30%EQUITYMARKET
50-70%LONGTERM
MONEYMARKET
30-50%EQUITYMARKET
100%EQUITYMARKET
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Example: Mr. X invests Rs. 1,00,000 . He wishes to invest Rs. 40,000 in Secure Fund,40,000 in Defensive Fund and the rest in the Growth Fund. After a week MR. X finds that theequity market is on a boom, so he changes the Growth Funds investment to Rs. 40,000 andreduces the balance of the Defensive Fund to Rs. 20,000. After 4 days the market falls. So againMR. X requests the company to transfer his full investment from Growth Fund to the SecureFund.
The person can plan his investment strategy according to his style and can make changestimely without any extra cost.
Market Comparison
Table 7Type
of FundLiquid Fund
SecureManaged
DefensiveManaged
BalancedManaged
Growth
Investment
Instrument
Bank Deposits
/Short-termmoney
Govt
Securities& Bonds
15-30%
in equities
30-50%
in equities Equities
HDFC SL Available Available Available Available Available
ICICI Pru Not Available Available Not Available Available Not Available
Birla Sun Life Not Available Available Available Not Available Not Available
Om Kotak Not Available Available Available Available Not Available
2. Switching
When a client has invested his money in different proportions among the variousinvestment funds, he can transfer those investments from one fund to another. This is called asSwitching. Switching is allowed any number of times during a year and has no charges for thesame. The changes are made on T+1 basis.
Example: MR. X chooses to invest his premium of Rs.10,000 in Short Term MoneyMarket. Suppose 4 months later he speculates a boom in the Equity Market, then he can transfer ofhis investment from Short Term Money Market to Equity Market, this is called Switching.
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3. Redirection
Every time a client pays premium, he is allowed to select the fund/s for investment. Eachtime he can select different investment strategy without using a Switch, this is called Redirection.
Example: MR. X chooses to invest his premium of Rs.10,000 in Short Term MoneyMarket. Suppose a year later he speculates a boom in the Equity Market and hence he pays the
premium but invests it into the Equity Market, thus he redirects his new money without switchinghis old money.
4. Premium Payment Flexibility (Compared)
Here the investor is allowed to change the premium amount any time after the completionof the first three years of regular premium payment. The premium can be altered to any extent i.e.
it can either be increased, decreased, reduced to zero. But the only compulsion is for the first threeyears. The investor can select the mode of payment i.e. yearly, half yearly, quarterly. Premiumamountcan be paid by cash, local cheque, demand draft or standing order. Outstation cheques and
post dated cheques not allowed
If a person skips the premium in between the term of first three years, his policy lapses andhe will be charged 25% on the due amount. The rest of the amount is returned to him and his
policy is closed. He on no terms can reopen this policy again.
Example 1: MR X has paid the premium of Rs. 10,000 each for the first two years. He didnot pay the premium for the third year. So the company will charge 25% on the 10,000 due as
lapsatation charge and cut it from the 20,000 paid by him. MR. X will receive the rest amount.
Example 2: MR X has paid the premium of Rs. 10,000 each for the first three years. Hedoes not wish to pay the premium for the fourth year. In that case his policy will continue with the
balance of Rs. 30,000 at the end of the fourth year instead of Rs. 40,000. Now for the fifth yearonwards, he wants to make more investment. So, MR. X increases his premium amount and paysRs. 15,000 as regular premium henceforth. He is even allowed to decrease the amount to minimumof Rs.5,000 or even increase it again.
Market Comparison
Table 8
OrganizationRegularPremium Increases
PremiumReduction
HDFC SL Allowed Allowed
ICICI Pru Not Allowed Not Allowed
Birla Not Allowed Not Allowed
Om Kotak Not Allowed Not Allowed
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5. Premium Topups:
Premium Topups refer to that amount paid in excess of the premium amount. This producteven offers the facility to the investor to invest more than his regular amount whenever he wishesto do so. Minimum Premium Topup is Rs. 5,000 and maximum is no limit.
Example: MR X has paid the premium of Rs. 10,000 each for the first three years. For thefourth year he wants to take the tax benefit and so he pays Rs. 10,000 as regular premium and paysRs. 10,000 extra as Premium Topup. He in future can even make a Topup, increase or decrease the
premium whenever required.
6. Premium Holidays:
After the completion of the first three years of regular premium payment the investor is freeto enjoy all the facilities provided to him. If an investor does not pay the premium, he is said to be
on a holiday referred to as Premium Holidays. An investor can go on the Premium Holiday for anynumber of years i.e. even for rest of the term after paying the three regular premiums.
7. Choice of Risk Cover:
Client can choose the level of risk cover by selecting one of the predetermined cover levelsdepending on the entry age.
Example: MR. X is of age 48 and has the option of low and medium risk cover of his 20years of policy term. He opts for medium risk. He pays regular premium of Rs. 20,000 for 5 years.After 5 years, he dies. In this case, his family will get Rs. 80,000 plus return on these 80,000 for 4years and Rs.2,00,000 as risk cover. If he had opted for low risk cover, his family would have gotRs. 1,00,000 only.
Choosing any risk cover, the investment is divided into respective proportions for riskcharge and investment. If a person offers high risk then his risk charge will be higher as comparedto medium and low risk cover options. This will in turn reflect as lesser investment proportions andresult into lesser investment returns. It depends upon the person to select the risk cover keeping inmind his life and lifestyle. If a person has to travel very often, there is a fear of accidental death. Inthat case he can opt for high risk cover.
8. Withdrawals
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Table 9
Age Bands LOW MEDIUM HIGH
18-40 5 times annual premium 10 times annual premium 20 times annual premium
41-50 5 times annual premium 10 times annual premium Not available
51 and above 5 times annual premium Not available Not available
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The Policy Value in excess of the Sum Assured can be withdrawn without any cost. Thusindirectly the policyholder can treat its account as a savings account. Currently there are nowithdrawal charges.
Example:
Table 10
Policy Value Sum AssuredAmount ofWithdrawal
Comments
500000 200000 25000 Allowed
200000 500000 10000 Not allowed
500000 500000 10000 Not allowed
600000 500000 5000 Not allowed
9. Tax Benefit.
Premium paid is eligible for section 88 benefits No capital gains tax on switching Section 10 10D benefit allowed subject to some conditions
Keeping in mind the above provisions, The Endowment Plan investors are given theprivilege of all the above tax provisions. As mentioned above premium of any sort is eligible for
tax exemption under section 88. Any sum received under a life insurance policy gets benefit undersection 10 10D, including any sum allocated by way on bonus on such a policy other than :
any sum received under a key-man policy any sum received under an insurance policy in respect of which the premium paid
in any of the years during the term of the policy exceeds twenty per cent of theactual sum assured
Provided that the terms of this section shall not apply to death claims.
Below is given a table which shows how much of tax can be saved.
Table 11INCOME TAX
SECTION
GROSS ANNUAL SALARY HOW MUCH TAX CAN YOU SAVE?
Sec. 88
< Rs. 1.5 Lakh Rs. 12,000 on investment of Rs. 60,000.
Rs. 1.5 Lakh - Rs. 5 Lakh Rs. 10,500 on Investment of 70,000.
> Rs. 5 Lakh Nil
10. Death Benefits:
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It is the benefit that is received by the policyholders family after his death. Under thisbenefit the family receives greater of the Policy Value and the Sum Assured.
Example:
Table 11
Policy Value Sum Assured Death Benefit15000 150000 150000
45000 150000 150000
75000 150000 150000
105000 150000 150000
135000 150000 150000
165000 150000 165000
195000 150000 195000
225000 150000 225000
11. CI Benefits (if chosen):
It is the benefit that is received by the policyholder on diagnosis of a Critical Illness. Underthis benefit he receives greater of the Policy Value and the Sum Assured. Diseases covered hereare:
Cancer,
Coronary Artery By-pass Graft surgery (CABG),
Heart Attack,
Kidney Failure,
Major Organ Transplant, Stroke
Example:
Table 12
Policy Value Sum Assured Death Benefit
15000 150000 150000
45000 150000 150000
75000 150000 150000
105000 150000 150000
135000 150000 150000
165000 150000 165000
195000 150000 195000
225000 150000 225000
12. AD Benefits (if chosen):
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It is the benefit that is received by the policyholders family on the Clients AccidentalDeath. Under this benefit the family receives additional amount equal to the sum assured inaddition to the death benefit.
Example:
Table 13Policy Value Sum Assured Accidental death Benefit
15000 150000 300000
45000 150000 300000
75000 150000 300000
105000 150000 300000
135000 150000 300000
165000 150000 315000
195000 150000 345000
225000 150000 375000
13. Surrender Benefits:
policyholder can surrender the policy at any time
policy value less the surrender charge would be payable surrender charge is 25% of 3 years outstanding premium policy surrendered after payment of 3 years premium will bear no charges complete policy value will be returned under that condition.
Examples:
Table 14
Premiumamount
ModeAnnualPremium
No of Premium
paid
Amountpaid till
surrender
3 yearspremium
Balanceof 3
years
SurrenderCharge
10000 Yearly 10000 1 10000 30000 20000 5000
5000 Half yearly 10000 3 15000 30000 15000 3750
3000 Quarterly 12000 8 24000 36000 12000 3000
8000 Half yearly 16000 6 48000 48000 0 0
7000 Quarterly 28000 13 91000 84000 0 0
14. Paid Up Benefits:
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Policyholder can make the policy paid up, provided Three years premium have been paid, and The policy has acquired sufficient value (Rs 15,000 at present)
In other cases the policy will lapse and the policy value less charges would bereturned to the policyholder
Paid up policy can be reinstated at any time without collecting arrears of premium
Examples:
Table 15UnitisedFund
Sum AssuredNo of yearspremium paid
Comments
500000 200000 5 Allowed
200000 500000 3 Allowed
500000 500000 2 Not allowed
600000 500000 1 Not allowed
10000 500000 5 Not allowed
15. Maturity Benefits:
At Maturity, the Policy Value (value of units in the policyholders account) wouldbe paid regardless of the Sum Assured.
Examples:
Table 16
Policy Value Sum Assured Maturity Benefit
15000 150000 15000
45000 150000 45000
75000 150000 75000
105000 150000 105000
135000 150000 135000
165000 150000 165000
195000 150000 195000
225000 150000 225000
16. Age and Term Limits:
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17. Minimum Premium Payable (Compared)
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Table 18
Minimum Premium HDFCSL ICICI Pru Birla Sun Life Om Kotak
Regular Premium 10000 p.a 18000 p.a. Min S.A 50000 10000 p.a.
Regular premium increase 5000 p.a. N.A. N.A N.A
Single Premium Top Ups 5000 10000 N.A. N.A
The age and term limits under ULEP are as follows:
Table 17Deathcover
Accelerated critical
illness cover (ACI)
Accidental death
benefit cover (ADB)
Minimum Term 10 10 10
Maximum Term 30 30 30
Maximum Maturity Age 75 65 70
Minimum Age at Entry 18 18 18
Maximum Age at Entry 60 55 55
If any of the ACI or ADB covers are chosen, the common age and term limits will apply.
The age of the life assured is calculated as age last birthday.
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3.3.3 THE PENSION PLAN
The Pension Plan is a Retirement Plan. Here a person can cover the risk of living toolate. It is to secure the income after retirement.
Features
1. Single Premium Contract2. Choice of Investment Funds3. Premium Payment Flexibility4. Premium Topups5. Premium Holidays6. Choice of Pension7. Switching8. Redirection
9. Tax Benefits10. Death Benefits11. Surrender Benefits12. Paid Up Benefits13. Vesting Benefits-14. Age and Term Limits
Features Detailed
1. Single Premium Contract
The Pension Plan can be started as a Single Premium Contract i.e. the investor can pay thefull amount at the starting of the contract for a single time only. In future, not paying any premiumwill cause no trouble on his investment. Using the Single Premium Contract, the policy can besurrendered after six months. The minimum amount that is required to start the contract as a SinglePremium is Rs. 25,000.
2. Choice of Investment Funds (Compared)
The Endowment Plan offers the investor with the choice of five funds.Types of funds:
o Liquid Fund
o Secure Managed Fund
o Defensive Managed Fund
o Balanced Managed Fund
o Growth Fund
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Liquid FundThe liquid fund invests in Bank Deposits and high quality short-
term money market instruments. The fund is designed to be cash secureand has a very low level of risk, however unit prices may occasionallygo down due to the use on short-term money market instruments.
Secure Managed FundThe secure managed fund will invest in Government Securities
and Bonds issued by companies or other bodies with a high creditstanding, however a small amount of working capital may be invested incash to facilitate the day-to-day running of the fund. The fund has a lowlevel of risk but unit prices may still go up or down.
Defensive Managed Fund
15% to 30% of the Defensive Managed fund will be invested in high quality Indianequities. The remainder will be invested in Government Securities and Bonds issued bycompanies or other bodies with a high credit standing, though a small amount of workingcapital may be invested in cash to facilitate the day-to-day running of the fund. The fundhas a moderate level of risk with the opportunity to earn higher returns in the long termfrom some equity investment, unit prices may go up or down
Balanced Managed Fund30% to 50% of the Balanced Managed fund will be invested in high quality Indian
equities. The remainder will be invested in Government Securities and Bonds issued by
companies or other bodies with a high credit standing, though a small amount of workingcapital may be invested in cash to facilitate the day-to-day running of the fund. The fundhas a higher level of risk with the opportunity to earn higher returns in the long term fromthe higher proportion invested in equities, unit prices may go up or down
The investor here is given the liberty to choose between the types of funds. The investor isgiven the freedom to change his investment fund any working day. The investor can spread hisinvestment into parts and make the investment accordingly.
Example: MR. X invests Rs. 1,00,000 . He wishes to invest Rs. 40,000 in Secure Fund,
40,000 in Defensive Fund and the rest in the Balanced Fund. After a week MR. X finds that theequity market is on a boom, so he changes the Balanced Funds investment to Rs. 40,000 andreduces the balance of the Defensive Fund to Rs. 20,000. After 4 days the market falls. So againMR. X requests the company to transfer his full investment from Balanced Fund to the SecureFund. The person can plan his investment strategy according to his choice and can make changesin that strategy without any extra cost.
Market Comparison
Table 19Typeof Fund
Liquid Fund Secure ManagedDefensiveManaged
BalancedManaged
HDFC Standard Life Insurance Company Limited 32
100%SHORT TERM
MONEYMARKET
100%SHORT TERM
MONEYMARKET
100%EQUITYMARKET
15-30%EQUITYMARKET
70-85%LONGTERM
MONEYMARKET
30-50%
EQUITYMARKET
50-70%LONG
TERMMONEY
MARKET
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Investment
Instrument
BankDeposits /Short-term money
Govt Securitiesand Bonds
15-30%in equities
30-50%in equities
HDFC SL Available Available Available Available
ICICI Pru Not Available Available Not Available Available
Birla
Sun LifeNot Available Available Available Not Available
Om Kotak Not Available Available Available Available
3. Premium Payment Flexibility (Compared)
Here the investor is allowed to change the premium amount any time after the completionof the first three years of regular premium payment. The premium can be altered to any extent i.e.it can either be increased, decreased, reduced to zero. But the only compulsion is for the first three
years. The investor can select the mode of payment i.e. yearly, half yearly, quarterly. Premiumamountcan be paid by cash, local cheque, demand draft or standing order. Outstation cheques andpost dated cheques not allowed
If a person skips the premium in between the term of first three years, his policy lapses andhe will be charged 25% on the due amount. The rest of the amount is returned to him and his
policy is closed. He on no terms can reopen this policy again.
Example 1: MR X has paid the premium of Rs. 10,000 each for the first two years. He didnot pay the premium for the third year. So the company will charge 25% on the 10,000 due aslapsatation charge and cut it from the 20,000 paid by him. MR. X will receive the rest amount.
Example 2: MR X has paid the premium of Rs. 10,000 each for the first three years. Hedoes not wish to pay the premium for the fourth year. In that case his policy will continue with the
balance of Rs. 30,000 at the end of the fourth year instead of Rs. 40,000. Now for the fifth yearonwards, he wants to make more investment. So, MR. X increases his premium amount and paysRs. 15,000 as regular premium henceforth. He is even allowed to decrease the amount to minimumof Rs.5,000 or even increase it again.
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Market Comparison
Table 20
OrganizationRegularPremium Increases
PremiumReduction
HDFC SL Allowed Allowed
ICICI Pru Not Allowed Not Allowed
Birla Not Allowed Not Allowed
Om Kotak Not Allowed Not Allowed
4. Premium Topups:
Premium Topups refer to that amount paid in excess of the premium amount. This producteven offers the facility to the investor to invest more than his regular amount whenever he wishesto do so. Minimum Premium Topup is Rs. 5,000 and maximum is no limit.
Example: MR X has paid the premium of Rs. 10,000 each for the first three years. For thefourth year he wants to take the tax benefit and so he pays Rs. 10,000 as regular premium and paysRs. 10,000 extra as Premium Topup. He in future can even make a Topup, increase or decrease the
premium whenever required.
5. Premium Holidays:
After the completion of the first three years of regular premium payment the investor is freeto enjoy all the facilities provided to him. If an investor does not pay the premium, he is said to beon a holiday referred to as Premium Holidays. An investor can go on the Premium Holiday for anynumber of years i.e. even for rest of the term after paying the three regular premiums.
6. Choice of Pension
Here, the liberty is given to the investors of the Pension Plan that if in future they find thatany other company is offering better pension compared to HDFC SLIC, with their request thecompany will transfer their Pension Plan to the company name they mentioned, without anycharges. The option remains with the investor to continue their Pension Plan with the company orto go to some other company which might offer better Pension options.
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7. Switching
When a client has invested his money in different proportions among the variousinvestment funds, he can transfer those investments from one fund to another. This is called asSwitching. Switching is allowed any number of times during a year and has no charges for thesame. The changes are made on T+1 basis.
Example: MR. X chooses to invest his premium of Rs.10,000 in Short Term MoneyMarket. Suppose 4 months later he speculates a boom in the Equity Market, then he can transfer ofhis investment from Short Term Money Market to Equity Market, this is called Switching.
8. Redirection
Every time a client pays premium, he is allowed to select the fund/s for investment. Each
time he can select different investment strategy without using a Switch, this is called Redirection.Clients can choice to redirect any renewal premium in any proportion across all funds
Example: MR. X chooses to invest his premium of Rs.10,000 in Short Term MoneyMarket. Suppose a year later he speculates a boom in the Equity Market and hence he pays the
premium but invests it into the Equity Market, thus he redirects his new money without switchinghis old money.
9. Tax Benefit.
Premium paid is eligible for section 88 benefits No capital gains tax on switching Section 10 10D benefit allowed subject to some conditions Section 80CCC benefit allowed under ULPP
Table 20INCOME TAX
SECTION
GROSS ANNUAL
SALARY
HOW MUCH TAX CAN YOU SAVE?
Sec. 88
< Rs. 1.5 Lakh Rs. 12,000 on investment of Rs.
Rs. 1.5 Lakh Rs. 5 Rs. 10,500 on Investment of
> Rs. 5 Lakh Nil
Sec. 80 CCC Across all income Upto Rs. 3,000 saved on
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10. Death Benefit
The policy value and the sum assured of Rs 1000 would be paid. Here Rs. 1000 is paidover and above the policy value.
Table 21Policy Value Sum Assured Death Benefit
15000 1000 16000
45000 1000 46000
75000 1000 76000
105000 1000 106000
135000 1000 136000
165000 1000 166000
195000 1000 196000
225000 1000 226000
11. Surrender Benefits
policyholder can surrender the policy at any time under regular premium contract
and after six months under single premium contract policy value less the surrender charge would be payable surrender charge is 20% of 3 years outstanding premium under regular premiumpolicies currently no surrender charge for single premium policies but we reserve the rightto charge in future
surrender charge calculation under regular premium policies is shown below
Table 22
Premiumamount Mode
AnnualPremium
No of
Premiumpaid
Amount
paid tillsurrender
3 yearspremium
Balance
of 3years
SurrenderCharge
10000 Yearly 10000 1 10000 30000 20000 4000
5000 Half 10000 3 15000 30000 15000 3000
3000 Quarterly 12000 8 24000 36000 12000 2400
8000 Half 16000 6 48000 48000 0 0
7000 Quarterly 28000 13 91000 84000 0 0
surrender charge is 20% of 3 years outstanding premium under regular premiumpolicies
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no surrender charge under single premium policies at present. However we reserve theright to charge in future
12. Paid Up Benefits:
Policyholder can make the policy paid up, provided Three years premium have been paid, and The policy has acquired sufficient value (Rs 15,000 at present)
In other cases the policy will lapse and the policy value less charges would bereturned to the policyholder
Paid up policy can be reinstated at any time without collecting arrears of premium
Examples:
Table 23UnitisedFund
Sum AssuredNo of yearspremium paid
Comments
500000 200000 5 Allowed
200000 500000 3 Allowed
500000 500000 2 Not allowed
600000 500000 1 Not allowed
10000 500000 5 Not allowed
13. Vesting Benefits
The investor has to mention the date from which his pension should start. The date selectedby the investor is known as the vesting date from which he will get regular pension as annuity. Theway in which the investor wants his pension, is his choice. Once the vesting date is crossed, theinvestor will get regular pension, by the already set terms and conditions.
14. Age and Term Limits
HDFC Standard Life Insurance Company Limited 37
The age and term limits under ULP P are as follows:
Table 24
Regular Premium Single Premium
Minimum Term 10 5
Maximum Term 40 40
Minimum Vesting Age 50 50
Maximum Vesting Age 70 70
Minimum Age at Entry 18 18
Maximum Age at Entry 60 65
The age of the life assured is calculated as age last birthday.
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PART - IV
THE ANALYSIS
36
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Part 4: THE ANALYSISSummary
4.1 HYPOTHESIS TESTING
For the purpose of hypothesis testing the attribute we have measured is the respondents
intention to buy the Unit Linked Products from HDFC SLIC. We have used Z test for the
same.
The Null Hypothesis Ho = THE MARKET POTENTIAL OF THE UNIT LINKED
PRODUCTS IS HIGH (approx. 65%).
The Alternate Hypothesis H1 = THE MARKET POTENTIAL OF THE UNIT
LINKED PRODUCTS IS NOT HIGH (>60%).
HDFC Standard Life Insurance Company Limited 40
This chapter consists of the details about the analysis and the interpretation of the data
collected during the project. It includes the hypothesis testing, sample size calculation,
product analysis and the market analysis in detail.
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4.2 SAMPLING
4.2.1 The Pilot Study
We had done a pilot survey of 15 respondents out of which we had got 12 respondentsinterested in the product. This gave us the ratio of .8 (p) interested respondents to .2 (q) non-interested respondents.
4.2.2 The Sample Size
No. of samples (pilot survey) =20
The probability of success (Ph0) = 20/13 = 0.65
(Qh0) = (1-.65) = 0.35
Desired Confidence level = 90% (Z=1.64)
Desired Interval Range = 0.10
Standard error of the Proportion (S) = 0.10/1.64 = 0.061
Sample size = p*q/S2
= 0.65*0.35/0.00372= 65 (rounded)
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4.3 THE TEST RESULT
The Critical Test Value = +1.64
Standard Deviation (S) = ((Pho*Qho)/n)1/2 where
Sample Size (n) = 65
Hypothesized P (Pho) = .65
Hypothesized Q (Qho) = .35
S = .061
P = .63 (refer pg.48)
Z = (P -Pho)/Sp
Z = (.63 - .65)/.051 = -.39
As Z calculated -.39 falls between +1.64, hence the Null Hypothesis Ho is accepted.
Thus with 95% confidence level we can say that the Market Potential of the Unit Linked Productsis high around 65%.
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4.4 MARKET ANALYSIS
4.4.1 The Market Share
LIC has been dominating the Market since a long time. Though the private players havestarted giving tough competition to LIC and also decreased its Market Share, LIC still holds a big
piece of the cake. As shown in the chart belowLIC still holds around 90%of the Market while therest is distributed among the private players.
In all, LIC alone holds 81% of the market while the Private Players alone holds only 2%.Private Players also share 15% market with LIC. Thus the outline is that LIC holds 96% of themarket and Private Players have 17% of the market. But still 2% of the market is untapped.
M AR K E T S H A
81%
15%2%2%
LIC
BOTH
PRIVAT
NONE
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4.4.2 The Driving Factor
There were four factors that were given to the respondents along with a choice ofmentioning any other factor that has driven them to buy the policy that they already had.They were as follows:
1. Credibility/Familiarity of the company.2. Relation with the Agent.3. Rebates4. No other company was available
The results were:
Th e D riving Fac
52%
24%
11%
13%
credibility
pe rsonal relatino other co .
rebates
We can clearly say from the above chart that Credibility/Familiarity of the Company hasbeen the driving factor of the Industry. Though people are loosing faith in LIC, but still there is lotto be fought for gaining the market share for Private Players. To win that share companies willhave to increase their Credibility and win peoples faith.
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4.4.3 The Products Share
The products share here means the Market share of different types of Policies.The three basic types of policies mentioned here are:
1. Savings1.1 Money Back1.2 Long Term
2. Protection3. Retirement
The result was as follows:
Product Shares
31%
16%
9%
44% savingsmoney back
savings long
term
Protection
Retirement
Savings Money Back policy was preferred by 32 (44%) out of 65 people surveyed. For theSavings Long Term policy, preference was 23 out 65 respondents. Clearly Savings policies hereconstitute 75% of the Market.
Whereas for the Protection and the Retirement policies the preferences were 12 and 7
respondents respectively.
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4.5 PRODUCT ANALYSIS
4.5.1 Features
Ranking
On the basis of the ratings given to the Features of the Unit Linked Products by therespondents, here is the ranking of the features.
1. Transparency2. Wide Investment Option3. Flexibility in Premium Payment4. Safety5. Premium Holiday6. Overall Facility (withdrawals, switching, etc.)
Individual Ratings
The ratings for the individual features are as follows:
1. Transparency
TRANSPARENCY
43%
46%
11%
VERY IMP
IMP
NOT IMP
Transparency was the best liked feature by the people. 28 respondents found it to be veryimportant and 30 respondents felt it was important. Only 7 people out of 65 felt that this featurewas not important. Hence we could say that this feature has potential to attract people.
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2. Wide Investment Option
WIDE INVESTMENT OPTIONS
40%
49%
11%
VERY IMP
IMP
NOT IMP
Wide Investment Options was the second best liked feature by people. 26 respondents
found it to be very important and 32 respondents felt it was important. Only 7 people out of 65 feltthat this feature was not important.
So 89% of the respondents were attracted with this feature of the product. Hence we couldsay that this feature also has a potential to attract clients.
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3. Flexibility in Premium Payment
PREMIUM PAYMENT FLEXIBILITY
43%
42%
15%
VERY IMP
IMP
NOT IMP
Premium Payment Flexibility was also liked by the people. 28 respondents found it to bevery important and 27 respondents felt it was important. Only 10 people out of 65 felt that thisfeature was not important. Thus we could say that this feature has potential to attract people.
4. Safety
SAFETY
37%
48%
15%
VERY IMP
IMP
NOT IMP
Safety was also preferred by the people. 24 respondents found it to be very important and31 respondents felt it was important. Only 10 people out of 65 felt that this feature was notimportant. Thus we could say that this feature has potential to attract people.
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5. Premium Holiday
PREMIUM HOLIDAYS
37%
41%
22%
VERY IMP
IMP
NOT IMP
Premium Holidays was not so much preferred by the people. 24 respondents found it to bevery important and 27 respondents felt it was important. 14 people out of 65 felt that this featurewas not important. Thus we could say that this feature has little potential to attract people. Thereason could be because people by policy to invest and not to enjoy premium holidays.
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6. Overall Facility (withdrawals, switching, etc.)
OVERALL FACILITY
22%
55%
23%
VERY IMP
IMP
NOT IMP
Amazingly there were 15 people out of 65 who felt that the overall facilities of Switching,
Withdrawals, Redirection, etc were not at all important. Only 14 respondents found it to be veryimportant but still 36 respondents felt it was important. Thus we could still say that this feature haslittle potential to attract people.
Hence all the features of the Unit Linked Products were generally liked by people andfound to be important and required. So through this analysis we could conclude that all the featuresof the products are necessary and none of them are unattractive.
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4.5.2 The Potential Market
MARK ET POTENTI
63%
37%
Potential
Non Potentia
As already stated in the hypothesis testing, there is high Market Potential for the UnitLinked Products. 41 respondents out of 65 were interested in the product. Whereas only 24respondents showed no interest in the product. Clearly the market potential of this product is very
high.
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4.6 THE FINDINGS
The Unit Linked Products has a high Market Potential.
The product unawareness ratio is still high in the market.
People are choosing insurance products by their needs but
company by its Credibility.
The market is into a constant fear of closing down of
schemes after the Government closing some of its schemes
like UTI.
Due to VRS (Voluntary Retirement Scheme) scheme, there
is a huge market for the Pension Plan. But again the
market is requiring immediate Pension Plans.
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4.7 RECOMMENDATIONS
The Company could focus on increasing the Market
Awareness about the Unit Linked Products.
The Company could win the markets faith with increased
credibility in peoples mind.
The Company could provide immediate Pension Plan to
the market using the VRS schemes.
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4.8 BIBLIOGRAPHY
BOOKS
COOPER, D.R. and SCHINDLER, P.S., BUSINESS RESEARCH METHODS, TATAMcGRAW-HILL, New Delhi, 2003.
LEVIN, R.I. and RUBIN, D.S., STATISTICS FOR MANAGEMENT, PEARSON EDUCATION,Delhi, 2002
WEBSITES
WWW.HDFCINSURANCE.COM
WWW.IRDA.ORG
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