STEP 1 In the first step, the company decides where it wants to position its market offering. The clearer the firm’s objective, easier it is to set the price.



STEP 2 Each price will lead to a different level of demand therefore has a different impact on company’s marketing strategy.

In case of insurance sector too, before fixing a price for a particular policy, the field officers are asked to find out the demand for various policies and on the basis of this demand, the price is fixed.


STEP 3 Demand sets the ceiling whereas costs set the floor on the price the company can charge for its product/service.

In case of insurance sector, it comprises of costs of recruiting, training, motivating agents along with other fixed and variable costs.

STEP 4 Within the range of possible prices determined by the market demand and

company costs, the firm must take the competitor’s costs, prices and possible price    reaction into account.  In order to win the market share, such products/ services, which have not yet been created by the competitors, should be created by the company.

LIC (India) offers a differentiated product in the form of Life Insurance Policies especially for landless laborers and rickshawallas.


STEP 5   In selecting the price in insurance sector, the company must consider life expectancy of the person as well as his financial position.

In case of Life Insurance, if the person while taking the policy is at a high risk of some terminal disease then he is charged a higher premium. At the same time, if a person who does not enjoy good financial condition cannot take a high price insurance policy. Thus, every customer taking a policy should disclose all his medical as well as financial details in utmost good faith to the insurance agent.

In case of Non Life Insurance, correct financial evaluation of the cost of the goods which have been insured should be done by the insurance agency because the customer may get the goods insured for a higher cost than they actually are and if the goods are damaged, then the insurance company will have to pay a higher price than the actual cost of goods destroyed.


Eg: Whole Life With Profits Plan


Plan Parameters:

Age at entry: Minimum – 18 years last birthday Maximum – 60 years

Sum Assured: Minimum – Rs.50, 000/- Maximum – No limit

Mode of payment: Yearly, half-yearly, quarterly, monthly


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