Contractual financial institutions
Life Insurance
Property casualty insurance companies
Pension funds
Life Insurance companies-they offer protection against the risk of earning losses that follow death, disability or retirement. In return, life insurance companies get policy premiums from their policyholders. Life Insurance companies require additional funds to meet policy holders' claims and operating expenses. Life Insurance companies are additional funds by mainly investments. There are various types of policies offered by Life Insurance companies:
whole Life Insurance policy- it covers the entire lifetime of the policyholders. The beneficiaries receive benefits after the death of policyholders.
Term life policies- it covers a certain number of periods. Beneficiaries receive benefit payments only if the death occurs within the period of coverage.
Endowment policies - benefits payable to living policyholder on a specified future date. These types of policy generally has higher premium than whole Life Insurance policy for the same amount of insurance, because more of the premium is devoted to build up cash value/fund. The endowment policy terminates and pays out the cash amount after a specified number of years at a specific age. For example - endowment at 60 or 65.
Group Life Insurance policy- it covers a group of people working for the same employer or member of same organizations.
Universal Life Insurance-it is a type of insurance policy renewed each year, and it has flexible premium policy. The flexibility of the policy allow the policyholder to change the amount of insurance and policy premium.
Variable Life Insurance policies-it is a form of whole Life Insurance. It allows policyholders to allocate a portion of the premium to invest in various instruments within the insurance company's portfolio. Such as stocks, bonds, money market instruments. The cash value and the death benefit of this policy is determined by the success of this investment S.
Health Insurance - it has the coverage of medical bills, the cost of hospitalization and the possible loss of income arising from accidents and diseases.
Investment by Life Insurance companies:
They pursue incomes certainty and safety of principal in their investment because they hold the public money. They invest majority of their funds in long-term corporate securities, especially they purcahse top brand corporate securities. Life Insurance companies can follow buy or hold strategy, there is little or no need of short term funds to meet the claims of the policy holders. Life insurance provides mortgage loans for residential and commercial structure such as rental stores, shopping centres, office buildings, apartments, buildings, hospitals. Life insurance companies purchase government securities. It serves as reserves of liquidity because it can be sold at little difficulty when funds are required. Life insurance provides loans to holders. The policy holders can borrow against their accumulated funds of that policy.
Life insurance businesses are founded upon the law of numbers: a risk that is not predictable for one person can be forecast accurately for a sufficiently large group of persons. For example - numbers of policyholders of 40 years of age of a life insurance company is 1 lakhs. Each policy holders' policy amount is tk. 1 lac. According to the mortality table, the expected death rate of 40 yeas old is 4 per 1000 person. So expected death is 400. Expected claims - 1lac * 400, that is 4 crores. Now, present value at 8% of this amount is
