Life insurance |
Commercial bank |
Assets are premiums to be received from policy holders + future
recoverables |
Assets are loans and advances |
Liabilities are already realised losses (policies claimed)+
future unrealised losses |
Liabilities are deposits from customers |
Not very much impaced by systemic contagions |
Banks are part of the wider financial system and can cause
systemic contagions |
Liquidity is used for their own growth and not for economy's
liquidity or growth |
They Pass on liquidity into the system and help economic
growth |
subjected to interest rate risks |
They are also subjected to interest rate risks |
Also regulations on both the bodies are different.
2. Risks on life insurance companies:
- Actuarial risks: If the statistics, probabilities and methods
are not correct, then speculated amounts (future claims, prob of
events etc) will not be correct. Will result in sudden
unprecedented losses
- Liquidity risks: sudden unforeseen events if not properly
captured, will raise to liquidity crisis as more claims will be
claimed. Even In the events of sudden rise in surrender of
policies, liquidity crisis will take place.
- Mortality risk: if mortality numbers and their probabilities
are not correctly estimated, more number of unprecedented
mortailities will cause increase in claims and thereby losses.
3.
- Whole life: Complete life insurance till death. Cash value
component offered increases by time. Loans can be taken on this
product.
- Term life: Not covered on entire life, money will be given to
beneficiaries if death occurs only in a specific time period. This
is more affordable as premiums paid are less. It has options of
increasing term or decreasing term life insurance
- Endowment life insurance. Final amount will be paid to the
cleint if he is alive or else to his beneficiaries. Acts as
protection giver and savings provider. Premiums are higher but if
the client dies then the nominees get promised amount + additional
bonus