INSURANCE

Insurance is the business of protecting the economic value of an asset. An asset is defined as something which generates income to its owner.

An asset can be lost or destroyed due to various reasons: like floods, fire, riots, death, etc. They are called hazards or perils. More often than not, the loss of an asset will result in the complete ruination of the owner.

Even though Insurance cannot physically protect an asset, it can compensate the economic loss arising out of an unexpected occurance of an event. Perils are therefore unexpected occurences of events and risk is the possibility of damages arising out of peril. The damage may or may not occur, which means, when we use the word risk, there is an element of uncertainty. Insurance guards against such uncertainties, properties and people are exposed to. It therefore goes without saying that if there is no risk, there is no need for insurance. In other words, it is an element of uncertainty which creates the need for insurance. Risks cannot be prevented or avoided; so they are transferred to an insurance company. By availing insurance, the individual transfers his responsibility of continuous generation of income even in the event of his death to an insurance company.

Only economic consequence can be insured. Examples of non-economic losses are love and affection, sentimental attachment and creative abilities.

National Savings Organization

The history of National Savings Organization dates back to the year 1873 when the Government Savings Bank Act, 1873 was promulgated. During the first world war, the British Government introduced several Schemes for collection of funds to meet the expenditure. It was in this context that the Post Office Cash Certificates and, during the second world war, Post Office Defence Savings Certificates were floated. The need to setup a separate agency was felt and a National Savings Bureau was established in 1943- 44 as an attached department of the Ministry of Finance of the undivided Government of India. The department was headed by National Savings Commissioner with the status of a Joint Secretary. At that time the main functions of the Savings Department were to initiate all policy matters and issue directives for the execution of policy decisions of the Central Government, and to review the Savings Schemes from time to time. Gradually, Savings Organization were established in almost all the Provinces of the sub-continent with the objective of popularizing the Savings Schemes among the masses as well as to supervise, guide and control the working of authorized agents under their jurisdiction. The agents, who were appointed by the local authorities. They were paid commission @ 2 1/2 on the investment secured by them. These authorized agents were in those days the only agency for securing investment in terms of Savings Certificates from the general public. In nutshell the central agency viz. National Savings Bureau, Simla, was mainly concerned with the policy and planning matters of the Savings Schemes whereas the responsibility of execution of various Savings Schemes vested with Provincial authorities .

At the time of Independence there was no time for any sort of innovations in the field of administration. Thus an organization with the name of 'Pakistan savings Central Bureau' was created and the Savings work was entrusted to it by the Government of Pakistan, but this Bureau had its own peculiarities. The Pakistan Savings Central Bureau had no independent entity and was not given the same status as enjoyed by Savings Bureau, Simla. The head of the Pakistan Savings Central Bureau was then called Central National Savings Officer, a Junior Officer of the Ministry of Finance with the status of an Under Secretary to the Government of Pakistan. He was assisted by a Superintendent having some auxiliary staff. In 1953, the Pakistan Savings Control Bureau was re-named as Central Directorate of National Savings and it carried out the functions on the lines of National Savings Bureau Simla but as a part and parcel of the Finance Division, Central Directorate of National Savings was only responsible for publicity, and the operative agents were the Provincial Governments as well as Pakistan post Offices. However, the entire expenditure in this regard was borne by the Central Government. Such an arrangement created a large number of administrative difficulties and stunted the growth of savings. In view of these difficulties the Central Directorate of National Savings was given the status of an Attached Department in September, 1960, and was made responsible for all policy matters and execution of various National Savings Schemes.

Subsequently, it was also declared a Technical Department by the Government. The Director General, National Savings (BPS-20) now enjoys full powers of a Head of the Department.

Till December, 1971, the National Savings Organization functioned as a Publicity organization and its activities were merely promotional in nature. But in early 1972, the scope of its activities was enlarged as the Central Directorate started selling II-Rupee Prize Bonds, and subsequently engaged in the operations of other savings schemes. This resulted in considerable expansion of the National Savings Organization.

At present, this Organization has a total sanctioned strength of 3377 employees in various grades and its main component units are as under:

1. Central Directorate of National Savings, Islamabad.

2. Directorate of Inspection and Accounts, Islamabad.

3. Training Institute of National Savings, Islamabad alongwith a sub-Training Institute at Karachi.

4. 12 Regional Directorates (located at Peshawar, Abbottabad, Rawalpindi, Gujranwala, Lahore, Faisalabad, Multan, Bahawalpur, Sukkur, Hyderabad, Karachi, Quetta)

5. 367 National Savings Centres spread throughout the country.

Fund Switching in ULIPs

Investments in ULIPs are under the control of investors. Usually investments are made in equity funds. It is a good practice of investment provided that the investor takes care to switch the investment to debt funds before a huge market crash. It is the moral duty of the Financial Advisor to advice his clients about fund switching before a market crash. It is this failure that is resulting in huge loss of investors.

ULIP Health Plans

ULIP Health Plans offer health insurance as well as investment. In traditional Health investor plans there is very little or no chance for the investments to grow. In ULIP Health plans there is an opportunity for the Funds to grow. Fund swithching is important in this plan also.

ULIP as an investment

Unit Linked Insurance Plan (ULIP) is a product that offers life insurance as well as investment. Part of the premium goes towards sum assured (insurance cover) and the balance goes to investments.

Compared to Traditional Insurance Plans ULIPs are better if serviced properly. ULIPs are more transparent and flexible than the Traditional Insurance plans. ULIP gives the investors the flexibility of Fund Switching. Through the methods of fund switching, higher income can be generated. Insurance product service under ULIP is not limited to premium collection. Fund switching is absolutely essential in ULIPs.

Mutual Funds

Mutual Fund is an investment scheme that pools money from investors and invests it in stocks, bonds, money instruments and/or other securities. Units of these schemes reflects the share of investors. It's appreciation is judged by it's NAV.