Chapter 13 - Nondepository financial institutions. In this chapter you will learn to understand the broad range and function of nondepository financial institutions, describe the tools of insurance companies, define the types and obligations of pension funds. | Chapter 13 Nondepository Financial Institutions Copyright © 2009 Pearson Addison-Wesley. All rights reserved. Learning Objectives • Understand thee broad range and function of nondepository financial institutions • Describe the tools of insurance companies • Define the types and obligations of pension funds • Distinguish finance companies and alternative financing institutions such as venture capital funds, hedge funds, and mezzanine debt funds Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 13-2 Life Insurance Companies • The first life insurance company in the . was established before the Revolutionary War and is still in existence • Structured as either stock companies (owned and controlled by shareholders) or mutual associations (ownership and control rests with the policyholders) • Supervised and regulated almost entirely by the states in which they operate Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 13-3 1 Life Insurance Companies (Cont.) • Regulation of life insurance companies includes: – Sales practices – Premium rates – Allowable investments • Usually overseen by a state insurance commissioner, who might also be the state banking commissioner Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 13-4 Life Insurance Companies (Cont.) • Types of life insurance policies: – Whole Life Insurance • Constant premium that is paid through entire life of policy • Build up cash reserves or savings which can be withdrawn as borrowing or outright by canceling the policy • Savings component pays a money market rate of interest that changes with market conditions Copyright © 2009 Pearson Addison-Wesley. All rights reserved. 13-5 Life Insurance Companies (Cont.) • Types of life insurance policies: (Cont.) – Term Life Insurance • Pure insurance with no cash reserve or savings element • Premiums are relatively low at first but increase with the age of the insured individual – Universal (variable) Life • Variation
