Insurance Co. Flashcards Preview

Financial Markets & Institutions > Insurance Co. > Flashcards

Flashcards in Insurance Co. Deck (7)
Loading flashcards...

Why do people choose to buy insurance even if their expected loss is less than the payments they will make to the insurance company?

People are risk adverse and prefer to know that their wealth is certain


What is the purpose behind reinsurance?

Reinsurance allows a company to take a portion of the risk in exchange for a portion of the premium


What is information asymmetry, and how does it affect insurance companies?

Asymmetric information exists in a transaction when one person knows more than the other person.


Distinguish between defined benefit and defined contribution pension plans.

Defined benefit plan specifies what payment will be made to the beneficiary while defined contribution plan specifies what funds will be contributed but the benefit is based on its performance.


Why have private pension plans grown rapidly in recent years?

- Persons are more aware of the the benefits of retirement
- A lack of confidence in social security
- A more sophisticated public


What is a pay-as-you-go pension plan?

A pay-as-you-go pension plan is a plan where beneficiaries decide how much they want to contribute by having the specific amount regularly deducted from their paycheck or by contributing the desired amount in a lump sum.


Why is Social Security in the USA and National Insurance in Jamaica in danger of eventually going bankrupt?

Demographics suggest that in the there will be more people retiring than people entering the work force. Means that fewer people will be contributing and more people will be taking out