Test 3- Chapter 25 Insurance and Pension Funds Flashcards
protection against uncertainty of loss; offer investment products
risk management
Prudential, AIG, and MetLife were all declared Systemically important financial institutions by the Financial Stability Oversight Council in 2013-2014. Metlife sued the Financial Stability oversight council. why?
they didn’t want to be declared systemically important because it entailed they are more heavily regulated by the FED and have higher capital requirements than their non-SIFI competitors
the regulation of insurance and pension funds are mostly regulated by who?
state agencies
the National Association of Insurance Commissioners (NAIC) coordinates what?
regulation among state agencies regarding national issues
SIFI designate insurance firms fall under?
federal regulation in addition to state
Insurance Holding Companies (IHC) that own banks are subject to?
federal regulation
what is the ownership structure for insurance companies?
95% are stock owned, but some are mutually owned (owned by the policy holders)
what are the four types of life insurance policies?
whole life
term life
variable life
universal life
when should one get life insurance?
when they have people depending upon them
which type of life insurance policy does this describe:
combination of insurance and investment products, designed to offer protection over clients entire life
builds cash value, has some flexibility, but very expensive (fees added to premium)
possibly advantageous for investors who max out other investment contributions, such as 401(k) or IRAs
Money is given to your beneficiary when you die, so you pay a high premium
has value-building component, and you can get your money back eventually
tax deferred
whole life
describe term life insurance?
temporary insurance, cheapest to purchase, and best for most people
describe variable life insurance
benefits are based on some underlying assets of policy. usually somewhat complex and expensive compared wit other options. based on stock index, bond index or combination
describe universal life insurance
combines whole life and term: builds cash value over a limited life
possibly advantageous for wealthy investors
which type of life insurance is the most suggested?
term life
what kinds of things does property and casualty insurance cover?
primarily auto, home, and commercial buildings
but it covers fire, theft, liability, business, auto, buildings, boats, and jewelry
insurance purchased by insurance companies to offset risk; reallocates portion of risk and returns to other firms
reinsurance
this is an example of ______________:
an insurance company thinks they’re going to get in financial trouble if there’s a big earthquake and they have a lot of liabilities to pay out, so they give another company some of the premiums, and the other company helps pay out if anything happens
reinsurance
What are the biggest sources and uses of insurance companies funds?
source: annuities are biggest
uses: bonds are biggest
Insurance companies are smart and tend to manage money well and not take on too many risks, therefore liquidity risk is ______ for life insurance but _______ for property at times.
low
high
what are interest rate and credit risk like for insurance companies?
interest rate- moderate
credit risk- (low-moderate)
Pooled money for retirement income; employer created (most employers outsource)
Pension Funds
what are the two kinds of pension funds?
public and private fund
which kind of pension fund does this describe:
created/backed by government entity (state, local, federal, CALPERS)
public fund
describe a private pension fund
created/backed by firms and non-government entities
describe a defined-benefit plan
payout is set by formula, not investment returns
few offered today, but based on salary and years of service
employer funded
the longer you work the higher the payout
in a defined contribution plan the benefit is __________ and is based on _________ ___________
unknown
investment returns
what kind of plan does this describe:
employer always contributes and employer usually contributes
investment grows tax-free, employer contributions are tax deductible, account is portable (account is fully funded if firm fails or employee leaves that firm)
defined-contribution plan
which kind of IRA is this:
contributions are tax deductible and grow tax-free. funds are taxed upon withdrawal.
traditional IRA
which kind of IRA is this:
after tax contributions grow tax-free, never taxed
Roth IRA
pension benefit guaranty corporation (PBGC) was established by the government, but is funded by the industry, and provides _________ in case of defined benefit failure
insurance
