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The economics of Money, Banking and Financial Markets Part 6

Ch a p ter 12 Nonbank Finance. Banking is not the only type of financial intermediation you are likely to experience. You might decide to purchase insurance, take out an installment loan from a finance company, or buy a share of stock. | PREVIEW mg is not the only type of financial intermediation you are likely to experience. You might decide to purchase insurance take out an installment loan from a finance company or buy a share of stock. In each of these transactions you will be engaged in nonbank finance and will deal with nonbank financial institutions. In our economy nonbank finance also plays an important role in channeling funds from lender-savers to borrower-spenders. Furthermore the process of financial innovation we discussed in Chapter 10 has increased the importance of nonbank finance and is blurring the distinction between different financial institutons. This chapter examines in more detail how institutions engaged in nonbank finance operate how they are regulated and recent trends in nonbank finance. Insurance www.iii.org The Insurance Information Institute publishes facts and statistics about the insurance industry. Life Insurance Every day we face the possibility of the occurrence of certain catastrophic events that could lead to large financial losses. A spouses earnings might disappear due to death or illness a car accident might result in costly repair bills or payments to an injured party. Because financial losses from crises could be large relative to our financial resources we protect ourselves against them by purchasing insurance coverage that will pay a sum of money if catastrophic events occur. Life insurance companies sell policies that provide income if a person dies is incapacitated by illness or retires. Property and casualty companies specialize in policies that pay for losses incurred as a result of accidents fire or theft. The first life insurance company in the United States Presbyterian Ministers Fund in Philadelphia was established in 1759 and is still in existence. There are currently about 1 400 life insurance companies which are organized in two forms as stock companies or as mutuals. Stock companies are owned by stockholders mutuals are technically owned by .