Jun 18, 2008
How To Buy Life Insurance
Do You Really Need a Life Insurance?
People say that insurance is always sold, nobody likes to buy it. Because, some of us hesitate to even discuss it. May be due to fear of death, we do not want to accept the greatest fact of life. If you have some dependents or someone relies on your income, you definitely need a life insurance cover. One of the most important benefits of life insurance is that in case of your death, you are able to protect your loved ones against financial consequences.
On the other hand if you spend your time at home and extending services like cooking, child care etc to your family, you also need a life insurance. If you are old you need life insurance to face the unexpected medical or other type unforeseen expenses.
In case of an early death of spouse kids in particular suffers a lot. Funds are always required during a period when it is hard for the surviving spouse to go out for regular job due to small kids. Funds are also required for early grooming, education and other necessities of kids.
If one can afford life insurance, it is beneficial even for minors. It can protect their future in case one of the parents expires or face disability.
What Type of Insurance?
Term Insurance:
If you are under 50 and earn an average income, Term Insurance may suit you being less expensive form of life insurance. It is written for a specific time period, mostly 1 to 10 years. It is always renewable at the end of each term with some increase in the premium amount. This policy has no cash value, it benefits only if you die during the term.
Declining Balance Term Insurance:
It is mostly used as mortgage insurance where premium amount remains unchanged over the term but face value declines steadily. Policy gets expired automatically when mortgage is paid off. It is a pure insurance without any investment. Whenever you decide to buy a term insurance, always go for a policy that is renewable up to the age of 70. It should also be convertible to a permanent insurance without a medical examination.
Whole life Insurance
It gives you a permanent protection with good savings. It goes on and on as long as you are paying premiums. With the passage of time you can also borrow up to 90% amount of your policy’s cash value without paying any tax.
Savings Aspect:
These days’ policies are so flexible in terms of premiums and face value that one can easily increase, decrease or deferred the premiums and can withdraw or change the cash value as well. Companies also offer a confirm return on cash value, minimum 4%. They also send you an annual statement showing all the details.
On the other hand such type of insurance is very expensive in terms of administrative fees and interest rates.
Variable Life
It offers a fixed amount of premium and a control on cash value. Apart from death benefits ,you can invest cash value in stocks, money market or bonds as per your own choice. Ultimate benefit will be based on the performance of investments. Fee of these policies will also be on higher side but one can save some taxes.
Universal Variable Life
Take more risk get more benefit. It is for those who can afford a risk as there is no guarantee. Yes, you can always have a control over your investments in mutual funds.
Survivorship Life Insurance
It is a very unique type as it insures the lives of two. Upon the death of a person it provides benefit to the other. Naturally it is less expensive because it covers two instead of one.
First to Die Life Insurance
This policy insures the life of minimum two persons and benefit is to be paid upon the death of first person. It is also very useful to cover a debt obligation or a mortgage. One can also fund in a buy-sell agreement.
Group Life Insurance
This is an insurance cover which most of the companies offer to their employees as part of their payment package. It is a very good policy for below average class in particular. In the event of death of an employee, his family gets a reasonable support in addition to other benefits.
How Much Insurance Do You Need?
It always depends on your own approach. How you take the things in your life. What is your life style and what is the importance of your dependents for you. And most importantly, how much premium amount you can afford after paying taxes and daily life expenses. You need to determine your net earnings either at year end or on a month to month basis.
Keeping in mind return on investment, you also need to determine your expenses in the older age that include uninsured medical costs, housekeeping, taxes and even funeral costs. One must plan his / her future, not only their dreams but unforeseen as well. The way life is going on these days one can always meet an accident and face disability if not the death.
Final Words
If you want to make a good financial plan for yourself and your family, life insurance cover shall remain an undisputed part of it. You should consult a financial advisor who can workout every thing in a professional manner for you. You need to pick either a term life insurance or a policy with some saving features. An insurance policy with some cash value will be more beneficial instead of a term policy which can benefit in the event of death only.
You must select an insurance company with good repute and financial back ground, read all contents of policy before your final signature. Make sure that all the terms and conditions are clearly mentioned in it.
source: http://www.digimok.com/how-buy-life-insurance
Life Insurance is a Must
Who does not want financial independence? All of us do. We are different as human beings and have our own unique qualities. The same is with our challenges and to be precise financial challenges. True, we face unique financial challenges ranging form raising families, caring for aging parents all the way to managing our careers. These challenges can at times make some of us to forget our own financial affairs.
It is therefore critical that we take control of our finances. This would definitely involve setting goals, implementing a plan and monitoring our progress in the same. You could set specific goals like reducing our debts, retirement investments or saving for a new home. Most importantly always remember that life insurance is important. In fact, it is the foundation of all sound financial plans. You must get a life insurance.
We live in difficult times full of uncertainty and tragedies daily. We see these in the media read them everyday so, if your dependants know that there is a life insurance that you’ve provided for them they will draw comfort. Today most people fear to burden their people with debts, so they take the wisest step of buying life insurance.
Why then is life insurance a good decision? Besides the provided cash helping in paying funeral expenses, it can also pay mortgage and other household expenses. It can also supplement retirement savings, fund future education costs and even help in paying estate taxes. Imagine your family having to sell assets because they have to pay outstanding bills or taxes after your demise and you never bought life insurance!
You should be able to assess your situation and see if you need a life insurance or have enough coverage. For instance, if you are a sole breadwinner definitely your spouse and children depend heavily on your financial security. Life insurance can help cover child care and other costs as well as future needs such as college tuition.
Life insurance is a safety net for small families with low savings and a lot of responsibilities. Even with the death of one spouse, the insurance money can still help the surviving members to pay the bills and raise the children.
Even women, who are married to unemployed spouses, own their own business or have significant assets need life insurance. Make the move today. Get a life insurance, you need it.
source: http://www.digimok.com/life-insurance-must
How much life insurance do I need?
The answer is that it depends who you ask. Your life insurance agent will give you an answer to this, and again, this depends on how good an agent he is. Don’t forget that insurance agents make their living from selling insurance policies. So if you are only a casual acquaintance or a stranger to the agent, beware, he will try and sell you as much insurance as he possibly can and which you may not need.
There is also another answer to the question. Not everybody needs life insurance. Someone who has no family and no dependents probably does not need life insurance unless he or she wants to leave money to a friend or a charity.
A good life insurance sales representative may suggest that you apply some kind of formula. In the past you would have been told that that you need life insurance equal to four times your annual salary. So, if your annual salary was $50,000, you would have been told that you need at least a $200,000 policy. But times change and today the same agent may tell you that you need eight times your annual salary, or a $400,000 policy.
But in today’s world this is probably too simple an approach, as it assumes you are your family's sole provider. You are probably not. You have to take into account many factors: does your spouse works, are you a single parent, what is the age of your children, how long will your surviving spouse will be raising the kids and so one and so forth. There are many factors to be considered and included in the formula.
The matter of life insurance is a lot more complicated and convoluted than it used to be. Consider that you may be able to convert your life insurance policy to your own personal retirement fund at some future age. Now all the thinking changes. You will be using life insurance to stay alive by providing you with a monthly income. If that is the case then you should be thinking about buying a much larger life insurance policy. You will be very pleased you did so one day when you are eighty years old and the monthly payment from the insurance company is all that’s putting food on the table.
What all this means is that you need the advice of a good insurance agent or consultant. Don’t be in hurry with this – choose the right person.
source: http://www.digimok.com/how-much-life-insurance-do-i-need
Types of life insurance
There are two main types of life insurance policies available in today’s life insurance market. They are namely, term life and whole life. Each has its own unique purpose and fills a particular need in the market place. Knowing which is the best for your situation is the key to maximizing your life insurance dollar.
Term life insurance policies. A term life policy gives you protection for a specified time, usually until the age of seventy. Almost anyone can apply for a term life insurance policy. This policy is best suited and is meant for young adults. It is used to take of your short-term needs. These policies have a range of between 1 to 100 years. So if you decide to choose a two-year term then your coverage will increase over two years.
The premium on term life policies is used to purchase risk coverage after expenses are deducted from the premium. In spite of this, the annual premium has a low initial out of pocket expense.
The drawbacks of term life insurance are:
• Some of these policies may have re-entry provisions, such as requalifying after a set time period medically in order to keep your premium at a low level.
• Premiums increase at regular interval over time.
• Persons over the age of fifty-five will find it much more expensive to acquire a policy.
Whole life insurance policies. This kind of policy gives you coverage for your entire life and guarantees you a death benefit. There are some policies that will also pay you dividends. These dividends can be used to purchase more coverage. A portion of the premiums is normally used to pay, the cost of the insurance risk and part pays your insurers costs, and the rest goes into a reserve fund known as a cash value.
In the more popular whole life policy only one life is insured, and pays a death benefit to a beneficiary upon his/her death.
The drawbacks of whole life policies are:
• Premiums are higher than those for a term policy. Because some of the money goes towards cash value.
• They do not all pay dividends and even if they do it are not guaranteed.
When planning for life insurance it should relate to whatever your objectives are at certain time sin your life. So you are advised to speak to an insurance agent to get some guidance.
source: http://www.digimok.com/types-life-insurance
The Fundamentals of Life Insurance – A Caring and Smart Financial Decision
Life insurance is unique among financial instruments. It is one of, if not the only financial instrument that is based on caring and love. Even though there can be personal advantages to having life insurance, the real impetus is love for those one cares most about – to make sure they are taken care of. So, applaud yourself for taking the time to learn about this subject (and please follow up with action whether through us or the organization of your choice.)
Interestingly, while one is taking care of the financial needs and wants of a spouse or the next generations, life insurance can also develop and build one’s personal financial goals while living. For example, because you have sufficient life insurance, you might be able to use more of your assets to enjoy life in retirement. Why is that? Because if you know you have sufficient life insurance you won’t feel that you are lowering the inheritance by spending some of your principal. You may actually “pay down principal” to some degree to yourself, especially if you have lifetime permanent life insurance as a backup.
There are various types of life insurance but they all have some common attributes. You pay an insurance company what are called premiums. At your death, the life insurance company pays an amount to the people you named in your policy, called beneficiaries. Also it’s interesting that if you named a beneficiary(ies) they’d receive the insurance amount free of income tax.
Some types of life insurance have cash benefits available while you’re living. In these types, a portion of your premium goes into a cash reserve and builds on a tax deferred basis. You can access this money, called cash value. Some people use it to help education costs, enhance retirement cash flow or for any reason. Two of the most common types of “permanent life insurance” are called whole life insurance and universal life insurance.
source: http://www.lifeinsure.com/lifeinsurance/index.asp
7 Ways to Avoid a Traffic Accident
Over 90 percent of automobile accidents are avoidable. The following are eight such instances where you can completely circumvent collisions with a little common-sense and precaution.
- Intersection Errors. According to the Federal Highway Administration, intersection and intersection-related crashes make up approximately 23 percent of all fatal crashes, and more than half of all fatal and injury crashes occur at intersections. Look around carefully and always proceed with caution into an intersection, even if you have the right of way.
- Inattention. Pay close attention on your own driving, other drivers, pedestrians, and driving conditions .
- Following too Close. Most rear-end accidents are caused by tailgating, according to the California Department of Motor Vehicles. Maintain a 3-second following distance from the car in front of you, except in hazardous weather conditions where you should maintain a 4- or 5-car following distance.
- Vehicle Malfunction. Have regular checkups, particularly of wiper fluid, brakes and tires, and replace wiper blades whenever they are worn.
- Dangerous Roads. Ice (which tends to develop more frequently on bridges, overpasses, shady spots, and intersections), snow, fog, and rain conditions require slower speeds and much greater caution.
- Unsafe Speeds. According to the National Highway Traffic Safety Administration, “the economic cost of speeding-related crashes is estimated to be $40.4 billion each year.” Excessive speed reduces reaction time and greatly increases impact and injuries.
- Improper Lane Changes. Before you change, check all mirrors, and signal long before you change. Also, watch for the other vehicles.
source: http://www.autoinsurancetips.com/7-ways-avoid-traffic-accident
Car Insurance Tips
Do some research - Try to find some brokers who specialise in policies appropriate to your age, gender, make of car or occupation. One example might be the NFU [National Farmers Union] who do car insurance specially for farmers and give very competitive quotes. If you know someone who's got a similar car or occupation to yours, why not simply ask then who insures them? - Chat forums, owners club magazines and garages are all good sources of this kind of anecdotal information.
Be aware - those companies who can afford to do the highest profile advertising are probably not the cheapest!
Get on the phone - Once you've got some companies in mind, get on the phone - Car insurance brokers [3rd parties who are simply giving you a quote and not actually 'underwriting' your policy] often change who supplies their policies and just because they might have given you the best insurance quote in the past does NOT necessarily mean they're actually in a position to give you a competitive quote this time round.
Never take the first quote - The first quotes you'll get back for your car are likely to be on the high side - insurance companies capitalise on the fact that until you've received a few quotes you won't know what's actually a realistic quote - Never take the first quote you get, no matter how competitive it might seem!
Play companies off against each other! - Make thorough notes about all aspects of each quote that comes back and play the companies off against each other. There's no point in lying as most companies are all too aware of the REAL cost of a car insurance quote! Quickly you'll realise that the phone operatives have the ability to negotiate on the price of their quote and most of them would rather drop their prices than lose the business to a competitor...
If you're serious about getting the cheapest possible car insurance quote, be sure to:
| :: | Ask for a higher 'excess'. Higher excesses usually reduce premiums! |
| :: | Mention any 'organisations' you are a member of - there might be a discount already arranged. |
| :: | Get Thatcham approved security devices fitted to your car. |
| :: | Consider how much mileage you're actually going to do - a 'limited mileage policy' is often the simplest way to get the best car insurance quote. |
| :: | Mention if the car's going to be kept off the road or is garaged. |
| :: | Mention if you have access to or drive a second car. |
| :: | Say if you are the member of an owners club - 'enthusiasts' represent a lower risk to insurance companies. |
Finally -
Buying insurance can be confusing. Be aware that lying will invalidate your policy and most companies record their calls to cover themselves in case of litigation. Declare ALL modifications you've made to your car and if someone else is going to be driving the car or you're going to use it for business - mention it up front!
Remember - insurance companies are going through hard times and are always going to look for ways of minimising how much they have to pay out in the event of a 'total loss' - If their inspector turns up to the breakers yard and discovers a flip-painted fire-breathing VR6 with 19 inch alloy wheels in place of the 1 litre they'd been insuring, you'll be in trouble, possibly seriously!
source: http://www.matey-matey.com/car-insurance-quote.shtml
Car Insurance Schemes: A Way To Be On The Safe Side
The car is undoubtedly a valuable possession. It is necessary to protect one's car from any mishap. The car insurance schemes make it possible for people to protect their much treasured car that people sometimes bring after a lifetime's investment. The insurance related to cars is of several types. They vary in forms such as bodily injury liability, personal injury protection, property damage liability, collision and comprehensive coverage.
The insurance schemes give a sense of reliability to car owners who can approach insurance companies incase they meet with an accident. The car companies offer insurance schemes while selling a car. These schemes are cheap and so customer get the confidence to buy costly cars. It leaves no option for bearing any losses if in case the car runs to meet with an accident. The whole system is very innovative and it takes into consideration the long term benefits of car insurance.
The car insurance schemes have bodily injury reliability and are applicable to the policyholder. They cover the damages that are caused to other cars. The second category of insurance is the Personal Injury Protection. This scheme makes it possible for policy holders to claim for the medical expenses of a driver or the passenger who face an accident. It covers expenditures such as hospital bills, X-rays and cost of surgery. The third type is the Property damage liability. It helps to protect the policy holder if one damages some one else's car. However, the mode of accident also determines the policy that it attracts. If one undergoes collision then the user can claim for collision coverage. Then there is also the comprehensive coverage policy. Such coverage allows the policy holder to ask for comprehensive coverage from insurance companies in the form of natural calamity, hail, fire, tornado, floods and so on.
With many options in hand, it becomes safe to drive cars on road. The user can make use of insurance policies and be confident about driving without the fear of an accident. These unavoidable policies make one feel more secured about cars.
Do I Really Need Life Insurance?
Life insurance can be quite a complicated product, especially if it is attached to another product like a mortgage or loan. However, it can also be fundamental to the economic survival of a family in the sad event that the main breadwinner passes away.
Those who have dependents; a spouse and/or children, for example, that rely on a regular income to survive should seriously consider life insurance. Should the main provider die and they have not made provisions, then their family is left not only to cope with the grief of death but also with the worry of not being able to cope financially. Couples should also look into life insurance, because it is likely that their current lifestyle; the house they live in, the cars they drive etc are dependent on two incomes, and if something were to happen to either one, the other may not be able to keep up repayments on their mortgage or loans on one income alone.
Similarly, stay-at-home mums or dads should also be covered by life insurance because if they were to pass away, their other half would not only have to cope emotionally with the loss, but also somehow be both breadwinner and carer - an almost impossible task.
Life insurance is even more important for those with a mortgage and other debts. Many couples and families have life insurance policies tied to their mortgage so that should they die, the mortgage will be paid off and the person left behind will not have to worry about making the mortgage payments.
Those who are retired with grown up children and no mortgage to worry about often think that there is absolutely no need for life insurance. However, life insurance can be a good way of leaving some inheritance to grandchildren, as policies can be set up to pay out equally to all grandchildren, even those that are yet to be born!
And it is not just older people that often think life insurance is unnecessary; people who are young and healthy, living for the moment often wonder if there is any point in wasting money on life insurance. But it is exactly these people that should be thinking about life insurance because when you are fit and healthy, it is actually the best time to arrange a policy. Those who wait until they are actually ill either have to pay a very high premium, or, are refused altogether.
Life insurance is a morbid subject, but it does provide some peace of mind. Most policies include critical illness so that if the insured person were to develop a terminal illness, the insurance company will pay out a lump sum, helping the policy holder and their dependents cope with the costs involved in any treatment needed, and getting affairs in order. Others use the cash to fulfill any last minute dreams they want accomplish.
It is horrible to have to think about life insurance, but it is wise to have it in place so that those left behind are not burdened with financial worries as well as emotional ones, should the worst happen.
source: http://www.goarticles.com/cgi-bin/showa.cgi?C=971290
Size of global insurance industry
Global insurance premiums grew by 9.7 percent in 2004 to reach $3.3 trillion. This follows 11.7 percent growth in the previous year. Life insurance premiums grew by 9.8 percent during the year, thanks to rising demand for annuity and pension products. Non-life insurance premiums grew by 9.4 percent, as premium rates increased. Over the past decade, global insurance premiums rose by more than a half as annual growth fluctuated between 2 percent and 10 percent. [citation needed]
Types of Insurance
Insurance companies create insurance policies by grouping risks according to their focus. This provides a measure of uniformity in the risks that are covered by a type of policy, which in turn allows insurers to anticipate their potential losses and set premiums accordingly. The most common forms of insurance policies include life, health, automobile, homeowners' and renters', personal property, fire and casualty, marine, and inland marine policies.
Life insurance provides financial benefits to a designated person upon the death of the insured. Many different forms of life insurance are issued. Some provide for payment only upon the death of the insured; others allow an insured to collect proceeds before death.
A person may purchase life insurance on her or his own life for the benefit of a third person or persons. Individuals may even purchase life insurance on the life of another person. For example, a wife may purchase life insurance that will provide benefits to her upon the death of her husband. This kind of policy is commonly obtained by spouses and by parents insuring themselves against the death of a child. However, individuals may only purchase life insurance on the life of another person and name themselves beneficiary when there are reasonable grounds to believe that they can expect some benefit from the continued life of the insured. This means that some familial or financial relationship must unite the beneficiary and the insured. For example, a person cannot purchase life insurance on the life of a stranger in the hope that the stranger will suffer a fatal accident.
Health insurance policies cover only specified risks. Generally, they pay for the expenses incurred from bodily injury, disability, sickness, and accidental death. Health insurance can be purchased for one's self, and for others.
Allautomobile insurance policies contain liability insurance, which is insurance against injury to another person or against damage to another person's vehicle caused by the insured's vehicle. Auto insurance may also pay for the loss of, or damage to, the insured's motor vehicle. Most states require that all drivers carry, at a minimum, liability insurance under a no-fault scheme. In states recognizing no-fault insurance, damages resulting from an accident are paid for by the insurers, and the drivers do not have to go to court to settle the issue of damages. Drivers in these states may bring suit over an accident only in cases of egregious conduct, or where medical or repair costs exceed an amount defined by statute.
Homeowners' insurance protects homeowners from losses related to their dwelling, including damage to the dwelling; personal liability for injury to visitors; and loss of, or damage to, property in and around the dwelling. Renters' insurance covers many of the same risks for persons who live in rented dwellings.
Personal property insurance protects against the loss of, or damage to, certain items of personal property. It is useful when the liability limit on a homeowner's policy does not cover the value of a particular item or items. For example, the owner of an original painting by Pablo Picasso may wish to obtain, in addition to a homeowner's policy, a separate personal property policy to insure against loss of, or damage to, the painting.
Businesses can insure against damage and liability to others with fire and casualty insurance policies. Fire insurance policies cover damage caused by fire, explosion, earthquake, lightning, water, wind, rain, collision, and riot. Casualty insurance protects the insured against a variety of losses, including those related to legal liability, burglary and theft, accident, property damage, injury to workers, and insurance on credit extended to others. Fidelity and surety bonds are temporary, specialized forms of casualty insurance. A fidelity bond insures against losses related to the dishonesty of employees, and a surety bond provides protection to a business if it fails to fulfill its contractual obligations.
Marine insurance policies insure transporters and owners of cargo shipped on an ocean, a sea, or a navigable waterway. Marine risks include damage to cargo, damage to the vessel, and injuries to passengers.
Inland marine insurance is used for the transportation of goods on land and on landlocked lakes.
Many other types of insurance are also issued. Group health insurance plans are usually offered by employers to their employees. A person may purchase additional insurance to cover losses in excess of a stated amount or in excess of coverage provided by a particular insurance policy. Air travel insurance provides life insurance benefits to a named beneficiary if the insured dies as a result of the specified airplane flight. Flood insurance is not included in most homeowners' policies, but it can be purchased separately. Mortgage insurance requires the insurer to make mortgage payments when the insured is unable to do so because of death or disability.
source: www.answer.com
History of Insurance
The roots of insurance might be traced to Babylonia, where traders were encouraged to assume the risks of the caravan trade through loans that were repaid (with interest) only after the goods had arrived safely—a practice resembling bottomry and given legal force in the Code of Hammurabi (c.2100 B.C.). The Phoenicians and the Greeks applied a similar system to their seaborne commerce. The Romans used burial clubs as a form of life insurance, providing funeral expenses for members and later payments to the survivors.
With the growth of towns and trade in Europe, the medieval guilds undertook to protect their members from loss by fire and shipwreck, to ransom them from captivity by pirates, and to provide decent burial and support in sickness and poverty. By the middle of the 14th cent., as evidenced by the earliest known insurance contract (Genoa, 1347), marine insurance was practically universal among the maritime nations of Europe. In London, Lloyd's Coffee House (1688) was a place where merchants, shipowners, and underwriters met to transact business. By the end of the 18th cent. Lloyd's had progressed into one of the first modern insurance companies. In 1693 the astronomer Edmond Halley constructed the first mortality table, based on the statistical laws of mortality and compound interest. The table, corrected (1756) by Joseph Dodson, made it possible to scale the premium rate to age; previously the rate had been the same for all ages.
Insurance developed rapidly with the growth of British commerce in the 17th and 18th cent. Prior to the formation of corporations devoted solely to the business of writing insurance, policies were signed by a number of individuals, each of whom wrote his name and the amount of risk he was assuming underneath the insurance proposal, hence the term underwriter. The first stock companies to engage in insurance were chartered in England in 1720, and in 1735, the first insurance company in the American colonies was founded at Charleston, S.C. Fire insurance corporations were formed in New York City (1787) and in Philadelphia (1794). The Presbyterian Synod of Philadelphia sponsored (1759) the first life insurance corporation in America, for the benefit of Presbyterian ministers and their dependents. After 1840, with the decline of religious prejudice against the practice, life insurance entered a boom period. In the 1830s the practice of classifying risks was begun.
The New York fire of 1835 called attention to the need for adequate reserves to meet unexpectedly large losses; Massachusetts was the first state to require companies by law (1837) to maintain such reserves. The great Chicago fire (1871) emphasized the costly nature of fires in structurally dense modern cities. Reinsurance, whereby losses are distributed among many companies, was devised to meet such situations and is now common in other lines of insurance. The Workmen's Compensation Act of 1897 in Britain required employers to insure their employees against industrial accidents. Public liability insurance, fostered by legislation, made its appearance in the 1880s; it attained major importance with the advent of the automobile.
In the 19th cent. many friendly or benefit societies were founded to insure the life and health of their members, and many fraternal orders were created to provide low-cost, members-only insurance. Fraternal orders continue to provide insurance coverage, as do most labor organizations. Many employers sponsor group insurance policies for their employees; such policies generally include not only life insurance, but sickness and accident benefits and old-age pensions, and the employees usually contribute a certain percentage of the premium.
Since the late 19th cent. there has been a growing tendency for the state to enter the field of insurance, especially with respect to safeguarding workers against sickness and disability, either temporary or permanent, destitute old age, and unemployment (see social security). The U.S. government has also experimented with various types of crop insurance, a landmark in this field being the Federal Crop Insurance Act of 1938. In World War II the government provided life insurance for members of the armed forces; since then it has provided other forms of insurance such as pensions for veterans and for government employees.
After 1944 the supervision and regulation of insurance companies, previously an exclusive responsibility of the states, became subject to regulation by Congress under the interstate commerce clause of the U.S. Constitution. Until the 1950s, most insurance companies in the United States were restricted to providing only one type of insurance, but then legislation was passed to permit fire and casualty companies to underwrite several classes of insurance. Many firms have since expanded, many mergers have occurred, and multiple-line companies now dominate the field. In 1999, Congress repealed banking laws that had prohibited commercial banks from being in the insurance business; this measure was expected to result in expansion by major banks into the insurance arena.
In recent years insurance premiums (particularly for liability policies) have increased rapidly, leaving unprecedented numbers of Americans uninsured. Many blame the insurance conglomerates, contending that U.S. citizens are paying for bad risks made by the companies. Insurance companies place the burden of guilt on law firms and their clients, who they say have brought unreasonably large civil suits to court, a trend that has become so common in the United States that legislation has been proposed to limit lawsuit awards. Catastrophic earthquakes, hurricanes, and wildfires in late 1980s and the 90s have also strained many insurance company's reserves.
source : www.answer.com
Insurance
Insurance is vital to a free enterprise economy. It protects society from the consequences of financial loss from death, accidents, sicknesses, damage to property, and injury caused to others. The person seeking to transfer risk, the insured (policyholder), pays a relatively small amount, the premium, to an insurance company, the insurer, which issues an insurance policy in which the insurer agrees to reimburse the insured for any losses covered by the policy. Insurance is the process of spreading the risk of economic loss among as many as possible subject to the same kind of risk and is based on the laws of probability (chance of a given outcome happening) and large numbers (enables the laws of probability to work).There are many perils (causes of loss) that society faces, some natural (e.g., earthquakes, hurricanes, tornados, flood, drought), some human (e.g., arson, theft, fraud, vandalism, contamination, pollution, terrorism), and some economic(e.g.,expropriation, inflation, obsolescence, depressions/recessions). Insurers are able to provide coverage for virtually any predictable loss.
Early History
Concepts of insurance evolved thousands of years ago. The Chinese, for example, divided their cargoes among many boats to reduce the severity of loss from the perils of the seas, while the biblical story of Joseph and the famine in Egypt illustrates the storing of grain during the seven good years to relieve shortages during the seven years of famine. Marine insurance emerged in London when ships sailed for the New World. Fire insurance arose from the great fire of London in 1666, in which 14,000 buildings were destroyed. In 1752 Benjamin Franklin founded the first mutual fire insurance company in the United States, the Philadelphia Contributorship for the Insurance of Houses from Loss by Fire. In 1759, he helped establish the first life insurance company, now known as the Presbyterian Ministers Fund. In 1887 the first auto-liability policy was written. Advancing technologies and a dynamic marketplace constantly change society's insurance needs. The insurance industry's goal is to respond to those needs with available and affordable insurance.
U.S. Insurance Industry
The U.S. insurance industry is comprised of approximately 1600 life (life/health) and 3000 nonlife (property/casualty) insurance and reinsurance companies; it is the world's largest insurance market, accounting for $736 billion or 34 percent of 1998's worldwide premiums of $2.2 trillion. Insurance is sold either directly by insurers (direct insurers)orthroughthe independent agency system, exclusive agencies, and brokers.
Based on the 1997 U.S. Bureau of Labor Statistics, the life and health insurance industry employed 909,000 persons and the property/casualty insurance industry, 635,000; 706,000 persons were engaged in agency or brokerage activities and in insurance service organizations.
Life/Health Insurance
Life/health insurance in the United States in 1998 represented 27.6 percent of the worldwide market, second to Japan's 28.6 percent and well ahead of the United Kingdom's 9.8 percent, which ranked third. A variety of life insurance (which provides income for a beneficiary at the insured's death), annuities (provides income for life for the annuitant), and health care products are offered. In 1997 Americans purchased $1.97 trillion of new life insurance; the average new policy totaled $97,358. Term policies and ordinary/whole life policies account for virtually all of the total life insurance in-force of $13.2 trillion. At the end of 1997, 373 million policies were inforce with an average size of $165,800 per insured household. Term policies provide "pure insurance" (no cash value) and maximally cost-effective protection to growing families.
Ordinary/whole life policies provide protection as well as building up cash values (investment component), which the policyholder can either borrow on or obtain by surrendering the policy. Life/health policies are sold on an individual or group basis—(the employer or association receives the master policy and the insured members receive certificates of insurance). Annuities-fixed (predetermined amount) and variable (varies with investment returns) can be purchased by making a single payment or a series of payments. The annuity income can start immediately or at some future date. Different types of annuity contracts meet different needs. Today there is a strong demand for individual annuity products, driven by the movement of the baby boomers through the preretirement phase, increased life expectancy and the fear of outliving savings, and concerns about the long-term viability of Social Security. Health (medical, disability, long-term care) insurance plans are offered by insurance companies, managed health care organizations, and medical prepayment organizations. Long term care products provide for reimbursement for covered nursing home and home health care expenses incurred due to physical or mental disability. The top ten U.S. life insurance companies are shown in Table 1.
Property/Casualty (P&C) Insurance
The United States dominates the world in P&C insurance (also known as general insurance). In 1998 the U.S. generated 43.4 percent of worldwide P&C premiums, Japan was next with 10.3 percent and Germany third with 8.8 percent. P&C insurance is broken down into personal lines (auto/private passenger and homeowners) and commercial lines (farm, commercial auto, aviation, marine/ocean/inland, crime, surety, boiler and machinery, glass, commercial credit, workers' compensation, public liability (including environmental pollution), professional liability (directors and officers, errors and omissions), product liability, commercial multiple-line, nuclear, title, and surplus and excess lines insurance). The top ten U.S. P&C insurers are shown in Table 2.
Organization
Insurers primarily operate as stock (owned by stockholders) or mutual (owned by policyholders) companies. Today, many mutual companies are changing to stock companies (demutualizing) to facilitate the raising of capital. Other forms of structure are pools and associations
Top Ten U.S. Life Insurers Ranked by Life Insurance In-Force 1998
(IN MILLIONS)
| Metropolitan Life Insurance | $1,545,453 |
| Prudential Insurance Company of America | 1,013,109 |
| Connecticut General Life Insurance | 543,369 |
| Northwestern Mutual Life Insurance | 536,379 |
| Transamerica Occidental Life | 498,247 |
| New York Life Insurance | 440,527 |
| Aetna Life Insurance | 385,525 |
| RGA Reinsurance | 381,634 |
| Lincoln National Life Insurance | 367,155 |
| State Farm Life Insurance | 347,430 |
(groups of insurers), risk retention groups, purchasing groups, and fraternal organizations (primarily life and health insurance). An insurer within a given state is classified domestic, if formed under that state, foreign, if incorporated in another state, or alien, if incorporated in another country.
Functions
The key functions of an insurer are marketing, underwriting, claims (investigation and payment of legitimate claims as well as defending against illegitimate claims), loss control, reinsurance, actuarial, collection of premiums, drafting of insurance contracts to conform with statutory law, and the investing of funds. Underwriters are expert in identifying, understanding, evaluating, and selecting risks. Actuaries play a unique and critical role in the insurance process; they price the product (the premium) and establish the reserves.
The primary goal of an insurer is to underwrite profitably. Disciplined underwriting combined with sound investing and asset/liability management enables an insurer to meet its obligations to both policyholders and stockholders. Underwriting combines many skills— investigative, accounting, financial, psychological. While some lines of business (e.g homeowners, auto) are underwritten manually or class rated, many large commercial property and casualty
Top Ten U.S. Property/Casualty Insurers Ranked by Net Premiums Written (NPW) 1998
| NPW* (in millions) | Combined Ratio** | |
| * Net premiums written includes only premiums written by domestic companies. | ||
| **A combined ratio of less than 100.0 indicates an underwriting profit. | ||
| State Farm Group | $34,755.3 | 108.2 |
| Allstate Insurance Group | 19,072.1 | 95.5 |
| American International Group | 10,727.9 | 99.5 |
| Farmers Insurance Group | 10,316.4 | 101.7 |
| CNA Insurance Group | 10,044.0 | 115.2 |
| Nationwide Group | 8,494.9 | 108.9 |
| Travelers Property Casualty Group | 8,209.8 | 102.3 |
| Berkshire Hathaway Insurance Group | 7,731.8 | 95.7 |
| Liberty Mutual Insurance Group | 7,197.2 | 117.0 |
| The Hartford Insurance Group | 6,028.4 | 105.9 |
risks are judgment rated, relying on the underwriter's skill, experience and intuition.
Product and Ratings
The Insurance Policy varies among states and class of business; however, there are common features.
- Declaration Page: names the policyholder, de scribes the property or liability to be insured, type of coverage, and policy limits.
- Insuring Agreement: describes parties' responsibilities during the policy term.
- Conditions of the Policy: details coverage and requirements in event of a loss.
- The Exclusions: describes types of property and losses not covered. The states and insurers continually work together to make the policy more readable.
A. M. Best is the key rating organization of the industry. The Best's Ratings range from the excellent category (A++ and A+) to the lowest categories—E (under regulatory supervision), F (in liquidation), and S (rating suspended). Other important rating organizations are Moody's and Standard and Poor's.
Role of Government
Federal and state governments play important roles in managing large social insurance programs, such as social security, medicare, unemployment compensation, federal deposit insurance, and pension benefit guaranty. In these areas the government acts either as a partner or competitor to the insurance industry, or as an exclusive provider. Federal and state governments also manage property and casualty programs, such as "all-risk" crop, crime, flood, and workers' compensation.
Reinsurance
Reinsurance is critical to the insurance process; it brings capacity, stability, and financial strength to insurers. The purpose of reinsurance is to spread large risks and catastrophes over as large a base as possible. It is the assumption by one insurance company (the reinsurer) of all or part of a risk undertaken by another insurance company (the cedent). It enables an insured with a sizablefacultative reinsurance; if the reinsurer agrees to share losses arising from more than one risk, usually a whole line or book of business, the agreement is known as treaty reinsurance. Western Europe is the largest provider of worldwide reinsurance. The Caribbean, including Bermuda, is the largest foreign supplier of reinsurance to the United States. The financial strength of the reinsurer is most important, since the direct writer is always primarily responsible for payment of losses. risk exposure to deal with and receive coverage from one insurer, rather than dealing with a number of insurers. The portion of the risk that exceeds the primary insurer's retention level is layed-off (ceded) to a reinsurer. The reinsurer can further reinsure a part of the risk assumed; this is called retroceding. If the reinsurer agrees to share losses arising from only one risk, the agreement is known as
Regulation
Under the McCarran-Ferguson Act of 1945, state insurance departments bear the primary responsibility to oversee insurance companies' operations to protect policyholders from insurer insolvency and unfair treatment. In doing so, they license insurers, agents, and brokers; enforce statutory accounting requirements; and conduct examinations of the financial position and market conduct of insurers. The examination is assisted by the Insurance Regulatory Information System (IRIS) Ratios, which test insurers' overall profitability, liquidity, and reserve strength. State insurance departments work with the National Association of Insurance Commissioners (NAIC) to develop and promote laws and regulations that serve as model laws, with the state legislatures, which pass the laws and set the budgets; with the courts, which interpret insurance regulations and policy wording; with Congress and the U.S. General Accounting Office, which periodically evaluate state insurance regulation; and with professional, trade, and consumer groups.
Competition
Because the insurance market has many sellers and buyers, little product differentiation, and freedom of entry and exit, it is highly competitive. This is especially true in the P&C segment, where the leading company accounts for only 12 percent of the market and the top ten companies combined comprise only 44 percent. While demand for insurance grows steadily over time, with the increase in exposures and legal requirements, the supply of insurance, because it is financial and flexible, can be easily shifted in and out of the market. This attracts capital during periods of high interest and stock market strength because of high profit expectations from investing underwriting cash flows.
This excess capacity in the insurance industry has led to consolidation and convergence with capital markets and financial service institutions. Insurance companies seek to operate more efficiently and improve their communication and distribution systems. Combining insurance with other financial products and services is perceived to provide better sources for customers.
An Industry in Transformation Securitization
With population growing in coastal, as well as hurricane, and earthquake-prone areas in the United States and scientists predicting a 100 percent chance of a major earthquake in the century before 2010, the insurance industry is faced with a potential mega disaster earthquake or hurricane that could produce insured losses in the $75,000,000,000 to $100,000,000,000 range. Losses of that magnitude would wreak havoc to the industry (see Table 3 for a list of the ten largest catastrophes as of 1999). In 1996, the industry started to securitize its catastrophe risk by packaging insurance risk as securities that could be traded in the capital markets, whose combined $26 trillion is 80 times greater than the capital of the insurance industry. To date, the industry has been successful in selling more than $4 billion worth of catastrophe-linked securities; it plans to build on these successes and continue to spread catastrophe risks to the capital markets through the issuance of catastrophe securities. As the insurance industry continues to converge with the capital markets and the financial services industry, other lines of business are likely to be securitized.
Globalization
While reinsurers have always had an international presence and brokers have moved in that direction, primary insurers, with one notable exception, have been reluctant to expand internationally. The rapid growth of computer technology, however, has transformed the world into one global economy, in which U.S. and foreign insurers must, along with all other businesses, compete.
Distribution Channels
The insurance industry continues to explore new distribution systems, including the Internet and formation of alliances with banks and other financial services organizations in an effort to become more efficient and focused on the customer, who today places as much importance on service and convenience, as on price.
(See also: Personal Financial Planning)
Bibliography
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Best's Aggregate & Averages-Property/Casualty, (Oldwick, N.J., A. M. Best Company), 1999.
Best's Insurance Reports-Life/Health, (Oldwick, N.J., A. M. Best Company), 1999, p. A87.
"Chasing the Markets," Board Member-Special Supplement (Brentwood, TN: Board Member Inc), 1998, p. 4-9.
"Convergence 101," Special Report, The Insurance Tax Review, November 1998.
"Disaster Relief," Best's Review Property/Casualty, (Oldwick, N.J., A. M. Best Company), April 2000.
Insurance Operations, Volumes I and II, (Malvern, Pennsylvania, American Institute For Chartered Property Casualty Underwriters (CPCU), First Edition, 1992.
Let the Trumpet Resound, Lawrence G. Bandon, CPCU (Malvern, Pennsylvania, CPCU-Harry J. Loman Foundation) 1996.
Life Insurance Fact Book, (Washington, D.C., American Council of Life Insurance), 1998.
"Securitization Frontierland," Best's Review Property/Casualty, (Oldwick, N.J., A. M. Best Company), July 1999.
Sharing the Risk, (New York: Insurance Information Institute), Revised, Second Edition, 1985.
Statistical Abstract of the United States, (Washington, D.C., U.S. Census Bureau), 1999, p. 515, 540, 541.
Swiss Re. sigma No.2/2000, sigma No. 7/1999 (Zurich, Swiss Reinsurance Company).
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