Flashcards in Insurance Co. Deck (7)
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.