Introduction
The main findings affirm the positive effect of the improvement of the life insurance market on economic growth. With the expanded model, the insurance-growth nexus varies across nations with different conditions. For example, the positive effect on economic growth is mitigated within the middle-income nations, but amplified within the low income nations. Moreover, both the development of stock market and the life insurance market are substitutes rather than complements. Several robustness tests are also shown.
Improvement of life insurance sector like all the financial intermediaries has significant training impacts on economy. Life insurance companies all as the contractual savings institutions, in expansion to offer a social protection to economic agents, are specialized in mobilization of domestic savings from many small investors; and to channel it to productive investment opportunities. In addition, the insurance companies all as mutual fund companies of investment and retirement are the largest institutional investors on the stock, bond and real estate markets. For example, life insurance companies as investment vehicle, incite to a higher level of specialization and professionalism of the part of financial market participants (enterprises and financial institutions). This permits to finance the projects that are more daring, to exploit the economies of scale by reducing the transaction costs and to encourage the financial innovation. In this context, it is interesting to know if the improvement of life insurance sector contributes to economic growth in developing nations.
Since first session in 1964, UNCTAD formally acknowledged that “a sound national insurance and reinsurance market is an essential characteristic of economic growth2”. The economic literature has shown that the economic growth and the improvement of insurance segment are interdependent and that an economy without insurance services would be much less developed and stable. Indeed, a segment of insurance more developed and in particular life insurance provides long and stable maturity funds for improvement of public infrastructure and at the same time, reinforces the country's financing capacity.
Understanding of Life Insurance
Life insurance is a contract between an insurer and a policyholder in which the insurer guarantees installment of a death benefit to named beneficiaries when the insured dies. The insurance company promises a death benefit in exchange for premiums paid by the policyholder. Depending on the contract, other events such as terminal illness or critical illness can also trigger installment. The policy holder typically pays a premium, either regularly or as one lump sum. Other expenses, such as funeral expenses, can also be included within the benefits.
Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Particular exclusions are often written into the contract to limit the liability of the insurer; common examples are claims relating to suicide, fraud, war, riot, and civil commotion.
A small business might provide life insurance to its workers as a tax-deductible employee benefit—like health insurance and retirement programs—in order to compete with larger companies in attracting and retaining qualified workers. In addition, there are a number of specialized life insurance plans that permit small business owners to decrease the affect of estate taxes on their heirs and protect their businesses against the loss of a key worker, partner, or stockholder. Group life insurance is generally inexpensive and is often packaged with health insurance for a small additional fee. Companies that provide life insurance for their workers can deduct the cost of the policies for tax purposes, except when the company itself is named as the beneficiary.
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Life insurance is important for individuals as well, particularly those who—like many entrepreneurs—are not covered by a company's group plan. Specialists suggest that every adult buy a minimum amount of life insurance, at least enough to cover their debts and burial expenses so that these costs don't fall upon their family members. The insurance industry employments a standard of five times annual income in estimating how much coverage an individual should purchase. The individual can also utilize a 'backwards' calculation to establish what survivors will need to cope: current debt, two a long time of income for the spouse to find work, college funds for children, balance on the house, and estimated funeral expenses.
Modern life insurance bears some similarity to the asset administration industry and life insurers have diversified their products into retirement products such as annuities.
Life insurance provides financial support to surviving dependents or other beneficiaries after the death of an insured. Here are some cases of individuals who may require life insurance:
- Parents with special-needs grown-up children – For children who require lifelong care and will never be self-sufficient, life insurance can make sure their needs will be met after their parents pass away. The death benefit can be utilized to fund a special needs trust that a fiduciary will manage for the grown-up child’s benefit.
- Parents with minor children – In the event that a parent dies, the loss of his or her income or care giving skills could create a financial hardship. Life insurance can make sure the kids will have the financial resources they need until they can support themselves.
- Young adults whose parents incurred private student loan debt or cosigned a loan for them – Young adults without dependents rarely need life insurance, but if a parent will be on the hook for a child’s debt after his or her death, the child may need to carry enough life insurance to pay off that debt.
- Elderly parents who need to leave money to adult children who provide their care – Many adult children sacrifice by taking time off work to care for an elderly parent who needs help. This help may also incorporate direct financial support. Life insurance can help reimburse the adult child’s costs when the parent passes away.
- Young adults who need to lock in low rates – The younger and healthier you're , the lower your insurance premiums. A 20-something adult might purchase a policy even without having dependents on the off chance that there's an expectation to have them within the future.
- Families who can’t afford afford burial and funeral expenses – A small life insurance approach can provide funds to honor a loved one’s passing.
- Businesses with key workers – On the off chance that the death of a key worker, such as a CEO, would create a severe financial hardship for a firm, that firm may have an insurable interest that will permit it to purchase a life insurance policy on that employee.
The cost of life insurance policies depends upon the sort of policy, the age and sex of the applicant, and the presence or absence of dangerous life-style habits. Insurance company actuaries utilize these statistics to determine an individual's mortality rate, or estimated number of a long time that individual can be anticipated to live. Policies for ladies usually cost less than those for men, since ladies tend to live longer on average. This means that the insurance company will receive premiums and earn interest on them longer before it has to make an installment. Experts suggest that companies or people looking for life insurance coverage select an insurance agent with a rating of A or better, and compare the costs of various options before settling on a policy.
Life-based contracts tend to fall into two major categories:
- Investment policies: the main objective of these policies is to facilitate the development of capital by regular or single premiums. Common forms (within the U.S.) are whole life, universal life, and variable life policies.
- Protection policies: designed to provide a advantage, typically a lump sum installment, within the event of a specified occurrence. A common form—more common in a long time past—of a protection policy design is term insurance.
The policyholder and the insured are usually the same individual, but some of the time they may be different. For case, a business might purchase key individual insurance on a crucial worker such as a CEO, or an insured might sell his or her own policy to a third party for cash in a life settlement.
Different sorts of life insurance are available; the most common are term insurance, whole life insurance, and universal life insurance. According to most term life insurance policies, the client starts by paying a small annual premium and gradually pays a higher rate as he or she gets older. Experts suggest term life insurance for young individuals in their early to mid-20s who don't receive some form of life insurance from their employers. Experts also suggest that these individuals obtain what is called a “guaranteed renewable policy,” since many life insurance companies retain the right to terminate the agreement if the condition of a policyholder’s life changes.
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