Financial Institutions, Markets, and Money, Eleventh Edition

CHAPTER SEVENTEEN

Insurance Companies and Pension Funds

INSURANCE HAS BEEN DESCRIBED AS “the product everyone buys, but no one wants to use.” In the same vein, insurance contracts are often described as “leastread best sellers.” Everybody buys insurance, but few people ever take the time to read the contract unless, of course, a loss occurs.

Although insurance is often taken for granted, try to imagine a world without it. The death of the family bread-winner might condemn a family to poverty without life insurance proceeds to replace the lost income. Want to buy a new car or a home? Then you had better have enough cash to pay the full purchase price because there's no property insurance available to insure the car or home, which usually serves as collateral for the loan. What about the risk of being sued? Are you willing to operate a motor vehicle knowing that if you are negligent and injure or kill someone you don't have liability insurance to protect against a lawsuit?

Insurance is a necessity for individuals, small businesses, and large corporations. Insurance has had a prominent impact on some major recent events that occurred in the United States. The 9/11 terrorist attacks and Hurricane Katrina created the largest insured losses for human-made and natural disasters in history. The Insurance Information Institute estimates that insurers paid $39.4 billion and $41.1 billion (in 2009 dollars), respectively, in claims following these events. The financial crisis of 2007–2009 ...