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Insurance Companies

Insurance Companies

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Published by ClassOf1.com
Insurance companies play an important role in an economy in that they are risk bearers or the underwriters of risk for a wide range of insurable events. Moreover, beyond their risk bearer role, insurance companies are major participants in the financial market as investors. To understand why, we will explain the basic economics of the insurance industry. As compensation for insurance companies selling protection against the occurrence of future events, they receive one or more payments over the life of the policy.
Insurance companies play an important role in an economy in that they are risk bearers or the underwriters of risk for a wide range of insurable events. Moreover, beyond their risk bearer role, insurance companies are major participants in the financial market as investors. To understand why, we will explain the basic economics of the insurance industry. As compensation for insurance companies selling protection against the occurrence of future events, they receive one or more payments over the life of the policy.

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Categories:Types, School Work
Published by: ClassOf1.com on Apr 16, 2013
Copyright:Attribution Non-commercial

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Finance
LEARN TO EXCEL
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Experienced TutorsDetailed Explanationwww.classof1.com/homework-help/financeToll Free: 1-877-252-7763
 
 
Sub: Finance Topic: Insurance
*
Insurance Companies
Insurance companies
play an important role in an economy in that they are risk bearers or theunderwriters of risk for a wide range of insurable events. Moreover, beyond their risk bearer role,insurance companies are major participants in the financial market as investors. To understand why,we will explain the basic economics of the insurance industry. As compensation for insurancecompanies selling protection against the occurrence of future events, they receive one or morepayments over the life of the policy. The payment that they receive is called a premium. Between thetime that the premium is made by the policy holder to the insurance company and a claim on theinsurance company is paid out, the insurance company can invest those proceeds in the financialmarket. The insurance products sold by insurance companies include:
Life insurance
. Policies insure against death with the insurance company paying thebeneficiary of the policy in the event of the death of the insured. Life policies can be for purelife insurance coverage (e.g., term life insurance) or can have an investment component (e.g.,cash value life insurance).
Health insurance
. The risk insured is the cost of medical treatment for the insured.
Property and casualty insurance
. The risk insured against financial loss resulting from thedamage, destruction, or loss to property of the insured property attributable to an identifiableevent that is sudden, unexpected, or unusual. The major types of such insurance are (1) aresidential property house and its contents and (2) automobiles.
Liability insurance
. The risk insured against is litigation, the risk of lawsuits against the insuredresulting from the actions by the insured or others.
Disability insurance
. This product insures against the inability of an employed person to earn
an income in either the insured’s own occupation
or any occupation.
 
 
Sub: Finance Topic: Insurance
*
Long-term care insurance
. This product provides long-term coverage for custodial care forthose no longer able to care for themselves.
Structured settlements
. These policies provide for fixed guaranteed periodic payments over along period of time, typically resulting from a settlement on a disability or other type of policy.
Investment-oriented products
. The products have a major investment component. Theyinclude a
guaranteed investment contract
(GIC) and annuities. In the case of a GIC, a lifeinsurance company agrees that upon the payment of a single premium, it will repay thatpremium plus a predetermined interest rate earned on that premium over the life of thepolicy. While there are many forms of annuities, they all have two fundamental features: (1)whether the periodic payments begin immediately or are deferred to some future date and (2)whether the dollar amount is fixed (i.e., guaranteed dollar amount) or variable depending onthe investment performance realized by the insurer.
Financial guarantee insurance
. The risk insured by this product is the credit risk that the issuerof an insured bond or other financial contract will fail to make timely payment of interest andprincipal. A bond or other financial obligation that has such a guarantee is said to have an
insurance “wrap.” At one time, a large percentage of bonds issued by
municipal governmentswere insured bonds, as well as asset-backed securities.

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