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DUNAV OSIGURANJE

WIENER STADTISCHE

4-2008

Life insurance contracts and their influence on investment policy

 

This work analyzes different life insurance contracts and their influence on the investment policy of life insurance companies. Fact is that every contract closed on life insurance contributes to the growth of total funds of life insurers, which should be used in investing. However, not every contract contributes the same amount of growth to these funds.

The greatest contribution to the accumulation comes from the contracts that contain saving element (whole life, universal life). Contracts that provide only risk insurance and do not contain saving element (term life insurance) are of least importance. The insurer will make the safest inflow through the whole life insurance contract and the other contracts that explicitly define the height of premiums that the insured pays, because that is the best way to predict inflow, as well as the projection of their investments. The insurer will have more difficulties to evaluate inflows of funds and the possibility of their investing at the contracts with greater freedom for the insured considering the payment of more flexible premium.

       In order to establish the effects of closed contracts on life insurance to the accumulation of funds of life insurance companies, the author of this work viewed the relation between costs, on one side, and life insurance contracts, on the other. With the assumption that nature of insurers obligations in contracts closed on insurance defines costs of insurers, the author made these conclusions:

  1. Insurer’s costs get bigger, as the insurance period gets longer, because the insurer is exposed to risks;
  2. As the time goes by, the cost of endowment insurance fall down;
  3. Whole life insurance is the most expensive variant of term life insurance, but also the cheaper variant of endowment insurance. The reason for this lies in the fact that with life insurance, the insurer is obliged to pay the insured amount at any time of death. Contrary to this, with term life insurance, the insurer is obliged to pay the insured amount only if the insured dies in the period of the contract. If the insured outlives that period, all the paid rates stay to insurer. On the other hand, whole life insurance is cheaper than endowment insurance because with endowment insurance the insurer is obliged to pay the insured amount not only in the case of death of the insured, but even after that period.

Finally, in order to meet all the requirements of the competition, life insurers must offer different types of life insurance contracts, because various life insurance policies have important role in forming investment funds. This is important not only because of “defense” compared to alternative ways of savings (savings in banks), but also because of mutual competition among insurers.

Jasmina Labudović Stanković

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