Sunday, May 10, 2009

Insurance Companies

Insurance Companies protect individuals against risk.Life insurance companies accept regular payments from individuals in exchange for contracted payments in the event of the insureds' death. By insuring a large pool of individuals,life insurance companies can consult actuarial tables and predict very accurately what percentage of the insured individuals will die each year.Because of this ,life insurance companies old long-term assets,including long-term bonds. They also old substantial quantities of commercial real estate. Loans make up only about 24 percent of assets,and the majority,roughly 20 percent,are mortgage and other real estate loans. The bulk of life insurance company assets,around 76 percent,are not in loans. This is in sharp contrast to both commercial banks and savings and loans. Furthermore,the assets insurance companies hold are purchased with insurance premiums rather than deposits. Thus,it is not possible to write a check against an insurance policy.
Other insurance companies,called fire and casualty insurance companies,insure against loss from fire,theft,and accident.If you own a car or a house,you probably have purchased this type of insurance.Insurance claims on these policies are somewhat less easy to predict. More important,the duration of the liability (e.g.,the"life expectancy" of your car)is lower than for life insurance,so these companies usually invest in more liquid, shorter-term assets.

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