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    P7

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    of 6

    safety instructions; installation of automatic sparkler or alarm systems, etc.

    Reduced rate of premiums stimulate more business to go for safety and


    security.

    ¬ Small capital to cover large risks Insurance relieves the businessmen from
    investment in securities by paying small amount of premium against larger
    risks and uncertainty.

    ¬ Contributes towards the development of large industries Insurance provides


    development opportunity to large industries having more risks. Even the
    financial institutions may be prepared to give credit to sick industrial units
    which have insured their assets including plant and machinery.

    ¬ Source of Earning Foreign Exchange Insurance is an international business.


    The country can earn foreign exchange by way of issue of insurance policies.

    ¬ Risk Free Trade Insurance promotes exports insurance, which makes the
    foreign trade risk free with the help of different types of policies under marine
    insurance cover.

    20
    1.6 SIGNIFICANCE
    There are very few events against the happening of which insurance is now
    days unable to provide protection. In the growing complexities of the modern
    economic and social system, man has ever been continuously planning to
    counteract the financial consequence of unfavourable event. It reduces the
    extent and the number of risks and uncertainties. Insurance has therefore,
    become an important face of a country's economy. It plays significant role in
    many ways to boost the economy in general and trade, commerce and industry
    in particular. In other words, the development of insurance industry has to go
    hand -in -hand with the general economic development of a country.

    Deduction under Section 80C:

    Tax deductions provide a means for individuals to reduce their tax burden.
    Among the various tax-saving options, most individuals prefer to claim tax
    deduction under Section 80C of the Income Tax Act, 1961. Section 80C
    allows individuals and HUFs to claim tax deduction of up to Rs. 1,50,000
    from their gross total income for certain investments and payments.

    Exemption under section 10(10D) on Maturity amount received

    Under Section 10 (10D), insurance policy maturity proceeds are exempted


    from income tax if sum assured in a life insurance policy is at least 10 times
    the annual premium. For policies issued before April 2012, the premium must
    be less than 20% of the sum assured to get the tax benefit on maturity.

    No exemption from income tax on the maturity of policies

    Taxation, where the premium paid, is more than 10% of the sum assured
    Any money received from a life insurance policy, where the premium is more
    than 10% or 20% of the sum assured as the case may be, is fully taxable.

    Other significance:

    1. Provide safety and security: Insurance provide financial support and


    reduce uncertainties in business and human life. It provides safety and
    security against particular event. There is always a fear of sudden loss.
    Insurance provides a cover against any sudden loss. For example, in
    case of life insurance financial assistance is provided to the family of

    21
    the insured on his death. In case of other insurance security is provided
    against the loss due to fire, marine, accidents etc.
    2. Generates financial resources: Insurance generate funds by collecting
    premium. These funds are invested in government securities and stock.
    These funds are gainfully employed in industrial development of a
    country for generating more funds and utilised for the economic
    development of the country. Employment opportunities are increased
    by big investments leading to capital formation.
    3. Life insurance encourages savings: Insurance does not only protect
    against risks and uncertainties, but also provides an investment channel
    too. Life insurance enables systematic savings due to payment of
    regular premium. Life insurance provides a mode of investment. It
    develops a habit of saving money by paying premium. The insured get
    the lump sum amount at the maturity of the contract. Thus life
    insurance encourages savings.

    4. Promotes economic growth: Insurance generates significant impact on


    the economy by mobilizing domestic savings. Insurance turn
    accumulated capital into productive investments. Insurance enables to
    mitigate loss, financial stability and promotes trade and commerce
    activities those results into economic growth and development. Thus,
    insurance plays a crucial role in sustainable growth of an economy.

    5. Medical support: A medical insurance considered essential in


    managing risk in health. Anyone can be a victim of critical illness
    unexpectedly. And rising medical expense is of great concern. Medical
    Insurance is one of the insurance policies that cater for different type of
    health risks. The insured gets a medical support in case of medical
    insurance policy.

    6. Insurance affords peace of mind: Insurance provides security which is


    the prime motivating factor. It tends to stimulate an individual do more
    work.

    7. Insurance protects mortgaged property: At the death of the owner of


    the mortgaged property, the property is taken over by the lender of
    money and the family is deprived of the use of the property. On the
    other hand, the mortgagee wishes to get the property insured because at
    the damage or destruction of the property he may lose his right.
    Insurance provides adequate amount to the dependents at the early

    22
    death and the property-owner to pay off the unpaid loans. Similarly,
    the mortgagee gets adequate amount at the loss of the property.
    8. Business efficiency is increased with insurance: When the owner of a
    business is free from botheration of losses, he was certainly devote
    much time to the business. The carefree owner can work better for the
    maximization of the profit. The new as well as old businessmen are
    guaranteed payment of certain amount with the insurance policies at
    the death of the person; at the damage, destruction or disappearance of
    the property or goods. The uncertainty of loss may affect the mind of
    the businessman adversely. Insurance removes the uncertainty and
    stimulates the businessman to work hard.

    9. Enhancement of Credit : Business can obtain loan by pledging the


    policy as collateral for the loan. A person can avail more loans due to
    certainty of payment at their deaths. The insurance properties are the
    best collateral and adequate loans are granted by the lenders.

    10. Business continuation: In partnership, business may discontinue at the


    death of any partner although the surviving partners can re-start the
    businesses, but in both the cases the business and the partners was
    suffer economically. Insurance policies provide adequate fund at the
    time of death. Each partner may be insured for the amount of his
    interest in the partnership and his dependents may get that amount at
    the death of partner. With the help of property insurance, the property
    of the business is protected against disasters and the chance of closure
    of the business is reduced.

    23
    1.6.1 Government Guidelines on Insurance:

    Indian Insurance Companies (Foreign Investment) Amendment Rules,


    2019
    Foreign Investment Rules, has been amended. Rule 9 now states that there shall
    be no cap on foreign equity investment for intermediaries or insurance
    intermediaries. However, where an entity whose primary business is outside
    insurance, is allowed by the IRDAI to function as an insurance intermediary,
    the foreign equity investment caps applicable in that sector shall continue to
    apply to such intermediary, subject to the condition that the revenues of such
    entities from the primary (non-insurance related) business remain above 50% of
    their total revenues in any financial year.

    Insurance Ombudsman Rules, 2017


    Any person who has a grievance against an insurer, may himself or through his
    legal heirs, nominee or assignee, make a complaint in writing to the Insurance
    Ombudsman within whose territorial jurisdiction the branch or office of the
    insurer complained against or the residential address or place of residence of the
    complainant is located.

    Indian Insurance Companies (Foreign Investment) Amendment Rules,


    2016
    The intention of the government to further liberalize foreign investment into
    certain sectors, including the insurance sector. The drafts of the changes
    included permitting foreign investment up to 49% under the automatic route in
    the insurance sector. In this relation, the finance minister notified the indian
    insurance companies (foreign investment) amendment rules, 2016 on march 16,

    investment to 49% under the automatic route.

    IRDA Salary and Allowances payable to and other Terms and


    Conditions of Services of Chairperson and other Members Amendment
    Rules, 2012
    In the Insurance Regulatory and Development Authority (Salary and
    Allowances payable to and other Terms and Conditions of Services of

    24
    Chairperson and other Members) Rules, 2000, in rule 3, for the letters, figures

    be substituted.

    LIC rules 1956


    An Act to provide for the nationalisation of life insurance business in India by
    transferring all such business to a Corporation established for the purpose and
    to provide for the regulation and control of the business of the Corporation and
    for matters connected therewith or incidental thereto.

    Insurance Rules, 1939


    An act to consolidate and amend the law relating to the business of insurance.

    1.7 Status of Insurance penetration in India


    Insurance penetration is defined as ratio of premium underwritten in a given
    year to the Gross Domestic Product (GDP). The insurance density is the ratio
    of premium underwritten in a given year to the total number of population. the
    life insurance penetration was at 4.6% in 2009 but visibly showed a downward
    trend after that. Overall insurance penetration (premiums as % of GDP)
    in India reached 3.69 per cent in 2017 from 2.71 per cent in 2001. The market
    share of private sector companies in the non-life insurance market rose from
    13.12 per cent in FY03 to 54.32 per cent in FY19 (up to December 2018).

    3
    4.00% .69%

    2.00% 2017
    0.77% 0.93%
    2018
    0.00%

    Life Insurance
    Non Life insurance

    25

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