Question

Explain why insurance sectors are considered as financial intermediary. Discuss any four types of insurance plans that are available in the market.

Answer 1

Solution:

Meaning of Financial intermediary: Financial intermediary is financial institution that offers services to help individual firm to save or borrow money.

Insurance Sector are considered as financial intermediary is explained below:

Insurance involves pooling funds from many insured entities to pay for the losses that some may incur.. In order to be an insurable risk, the risk insured against must meet certain characteristics. Insurance as a financial intermediary is a commercial enterprise and a major part of the financial services industry.

If u have risky investment You might wish to insure, against the risk of default. Rather than trying to find a particular individual to insure you, it is easier to go to an insurance company who can offer insurance and help spread the risk of default.

Insurance companies sell policies and then invest part of the proceeds in corporate bonds and stocks and in direct loans to corporations. The returns from these investments help pay for losses incurred by policyholders. Thats why insurance sector as financial intermediary.

Four types of Insurance plans:

1. Life insurance: a)This type of plan is more important if you are married or have children but even single people can benefit.

b).Life insurance not only ensures the well-being of your family, it also brings tax benefits

c)The amount you pay as premium can be deducted from your total taxable income.

d) Supoose person pass before time, especially if he have children or if he or she  has a spouse that’s not working. Life insurance will help your family financially cope when you pass, and with it, you can ensure your family will be able to move on financially even when you’re gone. So its first and imporant insurance plan.

2. Health Insurance:

a)Health insurance covers your necessary medical costs, from doctor’s appointments to surgeries. Along with coverage for illnesses and injuries, health insurance covers preventative care, such as monthly check-ins and tests

b)If an person  face a serious illness or have an accident without being insured, he/she might find himself unable to receive treatment or even find yourself in debt to the hospital So health insurance is must in this case.

3. Auto Insurance: a)The most common reason to have auto insurance is to cover the replacement of an expensive asset like car.

b)Auto insurance premiums vary depending on age, gender, years of driving experience, accident and moving violation history, and other factors.

c) An auto insurance policy will cover you and other family members on the policy, whether driving your car or someone else’s car (with their permission).

4)Property insurance: a) If you borrow money from the bank to purchase a home, they will require the asset to be insured

b) Property insurance policies normally exclude damage that results from a variety of events, including tsunamis, floods, drain and sewer backups, seeping groundwater, standing water, and a number of other sources of water

c) Property insurance policies normally exclude damage that results from a variety of events, including tsunamis, floods, drain and sewer backups, seeping groundwater, standing water, and a number of other sources of water