Farmers Insurance Group
Farmers Insurance Group is a provider of insurance management services and a holding company . It is the third-largest writer of both private passenger automobile and homeowners insurance in the United States.[citation needed ]
The Farmers Insurance Group of Companies is based in Los Angeles, California , and operates in 41 states. The company is now a wholly owned subsidiary of Zurich Financial Services , Zurich, Switzerland .

Contents

1 Activity
2 History
3 Accolades
4 Criticism
4.1 Ratings
4.2 Complaints to state insurance departments
4.3 Lawsuits
4.4 Colossus

Activity
Farmers Group, acting under the "dba" Farmers Underwriters Association , and its wholly owned subsidiaries, Truck Underwriters Association and Fire Underwriters Association , acts as the attorney-in-fact for three reciprocals or inter-insurance exchanges - Farmers Insurance Exchange, Truck Insurance Exchange and Fire Insurance Exchange. A reciprocal or inter-insurance exchange consists of policyholders (subscribers) who exchange contracts with one another so that they can provide themselves with insurance against certain losses. In addition, Farmers Group, Inc., is a life insurance holding company of the Farmers New World Life Insurance Company .

History
In 1928, Thomas E. Leavey and John C. Tyler founded the first Farmers Company in California.
In 1988, British American Tobacco Industries attempted a takeover bid on the company, but the bid was rejected[2]. A year later, the Farmers Board and stockholders finally agreed to be acquired by BATUS for $5.2 billion. Farmers Group became part of the B.A.T. financial services group.
In September 1998, the Zurich Financial Services Group was created from the merger with the financial services business of B.A.T. Industries Through a dual holding structure, Zurich Financial Services was owned 57% by Swiss -quoted Zurich Allied AG, representing the former shareholders of Zurich Insurance Company, and 43% by London Stock Exchange Allied Zurich p.l.c., the de-merged financial services interests of B.A.T. Industries p.l.c.[citation needed ]
In October 2000, the Zurich structure was simplified and unified under a single Swiss holding company. Allied Zurich and Zurich Allied shares were replaced by shares of the newly incorporated Zurich Financial Services with a primary listing on SWX Swiss Exchange (ticker symbol : ZURN) and a secondary listing in London (LSE : ZURN ). Zurich Financial Services American Depositary Receipts (ADRs) are traded on the American Stock Exchange (AMEX : ZFSVY ).
In March 2000, the Farmers Insurance Group of Companies merged with Foremost Corporation (Foremost Insurance Company)[3], a leading writer of manufactured homes and a prominent insurer of recreational vehicles , boats and other specialty lines.

Accolades
Hurricane Rita struck an area of the Texas Gulf coast where Farmers had many policyholders. The mayor of Beaumont, Texas , who had a number of personal connections with Farmers,[4] thanked Farmers in a Leaders Magazine editorial on hurricane recovery, not only for their excellent service to his constituents, but for donating generators needed to get the city government back up and running.[4]
In 2005 and 2006, Farmer's Insurance Group won the J.D. Power award for Call Center Customer Service Excellence.
The 2006 American Customer Satisfaction Index conducted by the University of Michigan found that customer satisfaction with Farmers was at exactly the same level as the overall Property and Casualty Industry. In addition, Farmers satisfaction level was the most improved from 2005 to 2006 among the companies surveyed.[6]
During the October 2007 California wildfires , Farmers Insurance was one of only a few companies[7] to set up facilities to aid their customers. In addition to writing checks for evacuation costs, damage claims, lodging and meals, the company ran commercials urging their customers to take advantage of these facilities.[8] The company also has a bus where customers could file claims, be issued checks,[9] and receive meals.[7] This mobile claim center arrived at the Qualcomm Stadium only two days after the fires started.[10]

Criticism
Ratings
In 2003, Consumer Reports rated Farmers Insurance Homeowners "Worse" for both "Problems with Claim" and "Delayed Payments".[11] In March 2006, Consumer Reports considered Farmers Insurance one of the "poorest performers" amongst 27 insurance companies in terms of paying off (auto) claims in 30 days or less.[12] In the JD Powers 2007 Collision Repair Satisfaction Study, which covered customers surveyed between 2001 and 2004, Farmers Insurance received the lowest possible ratings in all four of the studied categories: "Overall Experience", "Claim Settlement", "Claim Representative" and "Claim Process and Procedures". Of the 26 companies surveyed, Farmers was tied for 20th place.[13]

Complaints to state insurance departments
In 2006, state insurance departments in Washington [14][15] and Oregon[16] received the most amount of complaints about Farmers Insurance.

Lawsuits
In Betty Jo Walker v. Farmers Insurance (2007), Farmers was fined 3 million dollars for not defending a pair of limited-income homeowners from a negligence claim.[17]
In Bell v. Farmers Insurance Exchange (2004), Farmers Insurance was sued for failing to pay overtime to its claims adjusters. The company settled and paid out over $200 million to its employees.[18] The company claimed that administrators were exempt from overtime.[18] At the time, this was the largest overtime class action suit in the United States.
In Ballard v. Farmers Insurance (2003), the company was sued for failing to cover repairs for a water leak which eventually led to toxic mold growing in the owner's home. The original settlement was for $32 million, but was reduced to $4 million.[19]
In 2005, the company refused to pay a claim on a car accident because the accident was allegedly caused on purpose.[20] Despite Farmers' claims, the state of Washington ordered the company to pay the claim.[21]

Colossus
The company was also sued by a woman who was involved in a car accident and was refused compensation despite her claims of being in pain, losing her career, and being unable to have another child. The suit claimed that Farmers used Colossus, a third party computer program, to evaluate her claim, and that the program served as a way to rip off their customers.[22] The company's use of Colossus was further questioned by two company whistleblowers who remarked that "there's so much pressure on you to settle for the least amount possible" using prizes such as $25 gift certificates or a pizza party for adjusters achieving lowest settlements.

Allstate
This is about the American insurance company:
The Allstate Corporation NYSE : ALL is the largest publicly held personal lines insurer in the United States and the second-largest of all personal lines insurers in the U.S. Allstate was founded in 1931 as part of Sears, Roebuck and Company .
The company slogan is "You're in good hands." The current advertising campaign, in use since 2004, asks, "Are you in good hands?" Their current spokesperson is Dennis Haysbert . Allstate sponsors various sporting events, including the Allstate Sugar Bowl , the Allstate 400 at the Brickyard NASCAR race, and the United States Olympic Committee .
Contents
1 Products Available
2 Accolades
3 Catastrophe Exposure Management
4 Competition
5 Criticism
5.1 Auto Insurance Claims
5.2 Home Owners Insurance
5.3 "From Good Hands to Boxing Gloves"
6 Business Process Outsource
Products Available
Allstate sells auto insurance , home insurance (in certain localities), life insurance , umbrella insurance , and commercial insurance , to name a few. Its advertising campaign is centered around its "Your Choice Auto" product, which offers accident forgiveness and lower deductibles for all drivers willing to pay an extra premium.[1]

Accolades
Allstate Insurance Company announced on November 12, 2007 the launch of a new eco-friendly insurance option, Allstate Green. Allstate has been recognized with numerous awards, including
The World's Leading Top 100 Companies- Forbes magazine, (2004-2005).
America's Most Admired Companies - Fortune
100 Best Companies for Working Mothers - Working Mother
Top 50 Companies for Diversity, DiversityInc[2]
Catastrophe Exposure Management
Allstate has stated intentions of reducing its exposure in hurricane -prone Florida . In November, Allstate began dropping 120,000 policies that were up for renewal at that time. Governor Charlie Crist and the Florida Cabinet passed a 90-day emergency order to temporarily prevent insurance companies from dropping policies.[3] On February 20 , 2007 , Florida Insurance Commissioner Kevin McCarty clarified the order, stating that insurance companies can drop policies if they satisfy certain conditions, including filing new, lower rates with the state and give customers 100 days notice.[4] Allstate is currently under investigation by the Florida Department of Insurance as to whether it conspired with other property insurers to artificially keep premiums high.[5]
On May 11th, 2007 Allstate announced it would no longer offer a homeowners insurance product in California , however, Pacific Specialty Insurance Company homeowners insurance is available in every California Allstate Agency.

Competition
Major insurance competitors include State Farm , Farmers Insurance Group , Nationwide , Infinity Insurance , Progressive , and GEICO .
Criticism

Auto Insurance Claims
An article published on May 2006 in Business Week details how Allstate routinely tries to deny its policy-holders their full legitimate benefits, often paying out less than they're entitled to. Quoting a critic of Allstate, Business Week writes that "Claimants in the 'good hands' category may get swift reimbursement, but they will end up with less than they're entitled to," he says. Those who hold out for more - and retain a lawyer to help them get it - face battering in the courts and potentially years of delay. "You can get your claims resolved promptly or fairly," he argues, "but not both." Also according to the article, "Allstate deploys a variety of systems...to make sure it pays the minimum necessary - and it plays hardball with those who seek more."[6] This last statement may carry negative implications, however, it should be noted that the purpose of insurance is to reinstate a policyholder to the condition he or she enjoyed before a loss, not a superior condition.
An investigative report in February 2007 by CNN found that major car insurance companies, Allstate Insurance, are increasingly fighting auto insurance claims from those who incurred soft-tissue injuries by their insured members.[7]

Home Owners Insurance
The PBS television program "Now",[8] in conjunction with Bloomberg Markets magazine, did an exposé regarding Allstate's home owners insurance policy change. The idea was to increase profit by not living up to the customers' policy expectations.
Allstate changed the terminology of the policy to "extended coverage", in order to convince the policy holders that coverage was still the same or even better. In reality the coverage was lowered.
Interviewed customers said insurance agents lied about what was covered with the policy change. When claims were filed, Allstate fought tooth and nail to avoid paying the full amount of the claims. Allstate used delay tactics in court, in order to make the customer give up.
The program also mentioned State Farm as having used the same consulting firm, McKinsey & Company , that came up with this idea. State Farm customers were complaining as well.
The unhappy insurance customers urged everyone to review their policies to make sure their coverage is adequate.

"From Good Hands to Boxing Gloves"
This is a book written by David Berardinelli, JD, Michael Freeman, Ph.D., D.C., MPH, Aaron DeShaw, D.C., J.D. with a Foreword by Eugene R. Anderson, Esq.,[9]
It is a legal textbook available to plaintiff lawyers who are representing clients who are suing Allstate.
It tells of profit-boosting strategies that consulting firm McKinsey & Company presented to Allstate to maximize profits and diminish the amount of money sent to clients who put in a claim. McKinsey specializes in redesigning product delivery systems for Fortune 100 companies (controversial clients included Enron ) to maximize profits. McKinsey’s recommendation to Allstate was to low-ball claims so that desperate customers in dire straits would be more likely to accept a settlement offer while Allstate continued to make a profit and collect interest on the insurance payment. Allstate would offer its "good hands" in the way of a low-ball claim and if the customer did not accept, to get out "boxing gloves." [10]

Business Process Outsource
In 2006, Allstate's HR department decided to outsource some of its major, transactional functions to IBM. This transformation was designed to improve the effectiveness and efficiency of HR services, while allowing HR’s retained services to concentrate on Allstate's overall talent strategy.
In the fall of 2006, Allstate signed an outsourcing contract with IBM to deliver some of the transactional HR work. IBM will provide Allstate with an integrated HR technology platform and improved HR processes, decommissioning much of the legacy HRIS system in place. This will lead to better data collection, tracking, and reporting and trend analysis - and, ultimately, better data-driven talent decisions, per the HR leadership.
The transition of work from Allstate to IBM began with a first wave on May 1, 2007. The second wave, initially due to occur on August 1, 2007, was postponed and is now due to take place on August 27, 2007. To date, it has not been announced how many HR employees will be affected by this outsource, but several HR groups have been identified. Some of the groups that will be affected by the outsource are the HR Service Center, Talent Acquisition, Payroll and Education. IBM will be utilizing their facilities in the United States as well as the Philippines to absorb these functions. Allstate will administer 60 day notices to those employees whose current job functions will be outsourced.

Allianz
Allianz (help ·info ) SE [1], (ISIN : DE0008404005; formerly AG ) (NYSE : AZ ) is a large financial service provider headquartered in Munich , Germany . By revenue, it is the largest FSP in the world.[citation needed ] However, it is much farther down on profit.[citation needed ]
Core and focus is on the insurance business. With €100 billion of revenue during 2004 Allianz is by far the biggest insurance company in Germany and one of the largest in the world.
Allianz is also the principal sponsor of the Swiss Open tennis tournament.
Contents
1 History
2 League table
3 Management
4 Allianz Australia
4.1 Products and Services
4.2 Key Facts
4.3 Specialist Brands and Services
4.4 History
4.5 Advertising
5 Belgium
6 United Kingdom
History
Allianz AG was founded in Berlin in 1890 and shifted its headquarters to Munich in 1949 . The first step to become an international company started with the opening of a branch office in London in the late 19th century. After World War II , global business activities were gradually resumed. Allianz opened an office in Paris in the late 1950s, and a management office for Italy in the 1960s. These expansions were followed in the 1970s by the establishment of business in Great Britain , the Netherlands , Spain , Brazil and the United States . In 1986 , Allianz acquired Cornhill Insurance PLC, London, and the purchase of a stake in Riunione Adriatica di Sicurità (RAS), Milan , strengthened its presence in Western and Southern Europe in the 1980s. Recently, in February 08, 2006, RAS Shareholders approved the mergers with Allianz. In 1990, Allianz started an expansion into eight Eastern European countries with establishing a presence in Hungary . In the same decade, Allianz also acquired Fireman’s Fund , an insurer in the United States, which was followed by the purchase of Assurances Generales de France (AGF), Paris. These acquisitions were followed by the expansion into Asia with several joint ventures and acquisitions in China and South Korea . Around this time Allianz expanded its asset management business as well by purchasing for example asset management companies in California .
In 2001, Allianz acquired Dresdner Bank , a large German bank. Allianz Group and Dresdner Bank combined their asset management activities by forming Allianz Dresdner Asset Management . In 2002 Michael Diekmann succeeded Henning Schulte-Noelle as CEO of Allianz AG. The Allianz Group was reincorporated under a European Company Statute and, as a result of the cross-border merger with RAS, Allianz converted into a European Company (SE - Societas Europaea) in October 13, 2006.
Allianz is now present in more than 70 countries with over 177,000 employees. At the top of the international group is the holding company, Allianz SE, with its head office in Munich. Allianz Group provides its more than 60 million customers worldwide with a comprehensive range of services in the areas of• property and casualty insurance,• life and health insurance,• asset management and banking.
Links with the Nazis & Third ReichGerald Feldman's book Allianz and the German Insurance Business is a look at the links between the Nazi party and big business in 1930s Germany concentrating on Allianz's relationship. According to Holocaust historians and legal experts, such as Professors Michael Bazyler and Gerald Feldman from the United States, Allianz insured the concentration camps at Auschwitz-Birkenau as well as other death camps.
Previous Board member Kurt Schmitt was a German economic leader and the Reich Economy Minister from June 1933 until January 1935.
Eduard Hilgard , a general director of Allianz AG and head of the Reich Association for Private Insurance during the entire National Socialist regime.
Allianz's leadership, represented by directors Kurt Schmitt and Eduard Hilgard, led a policy of drawing nearer to the Nazis, even before they seized power. Already in October 1930, ties were forged with Hermann Göring . These contacts were realized through company dinners and by providing private financial loans. Heinrich Brüning and Franz von Papen tried without success to get Schmitt a ministerial office.

League table
'World's Largest Annuity Company'. Allianz in the revenue league table
Allianz: $130 billion (2004)
AXA : $122.72B USD (2004)
AIG : $108.91B USD (2004)
Assicurazioni Generali : $107.45B USD (2006)

Management
CEOs to date:
2003 -- : Michael Diekmann
1991 -- 2003: Henning Schulte-Noelle
Allianz Australia
Allianz operate a general insurance business in Australia through Allianz Australia Insurance Limited (ABN 15 000 122 850, AFS Licence No. 234708).

Products and Services
- Personal coverage such as home & contents, motor, CTP, boat, travel (and since 2007) Life coverage such as Consumer Credit,Lifestyle Protection and Term Life- Industrial and Commercial coverage e.g. farms, businesses, transport, trades and services- Corporate coverage e.g. marine, construction, liability, professional indemnity, property, transport and machinery- Public and Products Liability- Workers’ Compensation- Loss Control and Risk Management strategies

Key Facts
- Operates throughout Australia and New Zealand- Employs approximately 3,000 staff- Has a combined premium income of over A$2.4 billion- Has investment assets of approximately A$5.3 billion (at 31/12/05)
The main subsidiary, Allianz Australia Insurance Limited (ABN 15 000 122 850):- Has over 2 million policyholders- Is Australia's fifth largest general insurance provider- Provides some form of insurance cover for more than half of Australia's top 50 BRW-listing companies (2004)- Is one of the leading private Workers' Compensation insurers in AustraliaProvides Workers' Compensation cover for approximately one in five Australian employees

Specialist Brands and Services
Club Marine - Australia's leading distributor of pleasure craft insuranceHunter Premium Funding - The leading Premium Funding company in Australia and New Zealand, providing"Easy Cash Flow Solutions" for today's business community

History
Allianz Australia's predecessor MMI began as the Manufacturers Mutual Accident Insurance Association Limited in 1914, targeting the Workers Compensation market. It was renamed as Manufacturers Mutual Insurance, abbrieviated MMI in 1920. It was well known for its subsidiary lines DirectDial Financial Services Limited, SafetyNet Pty Ltd and Combrook Pty Ltd. DirectDial and SafetyNet were later integrated into their mainline businesses, however Combrook could not be integrated as Workers Compensation legislation prohibits insurance companies from also being the rehabilitation provider due to conflict of interest. It was rebranded as Recovre in 2002 and sold off to Hawkesbury Private Equity in 2006. It acquired the Australian operation of Allianz in 1986 and was taken over by Allianz in 1998, before changing its name to Allianz Australia in 2000. In 2001, Allianz Australia took over HIH Insurance and its subsidiaries including FAI Insurance following the HIH collapse. In 2006, Allianz also began to sell life insurance products.

Advertising
Like its competitors, Allianz Australia has its own ads to promote the benefits of switching to Allianz using slogans like"Insurance solutions from A to Z", "Insurance solutions from Allianz" and "Switch and join over 2 million Australians". They were first introduced in 2005, then branded as "Allianz Cover Story". Allianz Business Insurance also runs similar ads, though with different lines and background music. Previously Allianz Australia used the same slogan as its international counterparts called "The Power on Your Side".

Belgium
Allianz operates through AGF Belgium Allianz Group

United Kingdom
Allianz owns British insurance company Cornhill Insurance plc, subsequently renamed Allianz Cornhill Insurance plc. This then simply became Allianz Insurance plc on 30 April 2007 to directly reflect its continental parentage.
Also owns Kleinwort Benson which it inherited when it bought Dresdner Bank . The investment bank has subsequently been merged with the corporate bank of Dresdner Bank and rebranded as Dresdner Kleinwort .

Development

Pre-formalization:
In the ancient world there was no room for the sick, suffering, disabled, aged, or the poor-it was not part of the cultural consciousness of societies (Perkins 1995). Early methods of protection involved charity ; religious organizations or neighbors would collect for the destitute and needy. By the middle of the third century, 1,500 suffering people were being supported by charitable operations in Rome (Perkins 1995). Charitable protection is still an active form of support to this very day (Tong 2006). However, receiving charity is uncertain and is often accompanied by social stigma . Elementary mutual aid agreements and pensions did arise in antiquity (Thucydides c. 431BCE). Early in the Roman empire , associations were formed to meet the expenses of burial, cremation, and monuments-precursors to burial insurance and friendly societies . A small sum was paid into a communal fund on a weekly basis, and upon the death of a member, the fund would cover the expenses of rites and burial. These societies sometimes sold shares in the building of columbaria , or burial vaults, owned by the fund-the precursor to mutual insurance companies (Johnston 1903, §475-§476). Other early examples of mutual surety and assurance pacts can be traced back to various forms of fellowship within the Saxon clans of England and their Germanic forbears, and to Celtic society (Loan 1992). However, many of these earlier forms of surety and aid would often fail due to lack of understanding and knowledge (Faculty and Institute of Actuaries 2004).

Initial development
The seventeenth century was a period of extraordinary advances in mathematics in Germany, France and England. At the same time there was a rapidly growing desire and need to place the valuation of personal risk on a more scientific basis. Independently from each other, compound interest was studied and probability theory emerged as a well understood mathematical discipline. Another important advance came in 1662 from a London draper named John Graunt , who showed that there were predictable patterns of longevity and death in a defined group, or cohort , of people, despite the uncertainty about the future longevity or mortality of any one individual person. This study became the basis for the original life table . It was now possible set up an insurance scheme to provide life insurance or pensions for a group of people, and to calculate with some degree of accuracy, how much each person in the group should contribute to a common fund assumed to earn a fixed rate of interest. The first person to demonstrate publicly how this could be done was Edmond Halley (of Halley's comet fame). In addition to constructing his own life table, Halley demonstrated a method of using his life table to calculate the premium or amount of money someone of a given age should pay to purchase a life-annuity (Halley 1693).

Early actuaries
James Dodson’s pioneering work on the level premium system led to the formation of the Society for Equitable Assurances on Lives and Survivorship (now commonly known as Equitable Life ) in London in 1762. The company still exists, though it has encountered difficulties recently. This was the first life insurance company to use premium rates which were calculated scientifically for long-term life policies. Many other life insurance companies and pension funds were created over the following 200 years. It was the Society for Equitable Assurances which first used the term ‘actuary’ for its chief executive officer in 1762. Previously, the use of the term had been restricted to an official who recorded the decisions, or ‘acts’, of ecclesiastical courts (Faculty and Institute of Actuaries 2004). Other companies which did not originally use such mathematical and scientific methods, most often failed, or were forced to adopt the methods pioneered by Equitable (Bühlmann 1997 p. 166).

Effects of technology
In the 18th century and nineteenth centuries, computational complexity was limited to manual calculations. The actual calculations required to compute fair insurance premiums are rather complex. The actuaries of that time developed methods to construct easily-used tables, using sophisticated approximations called commutation functions, to facilitate timely, accurate, manual calculations of premiums (Slud 2006). Over time, actuarial organizations were founded to support and further both actuaries and actuarial science, and to protect the public interest by ensuring competency and ethical standards (Hickman 2004 p. 4). However, calculations remained cumbersome, and actuarial shortcuts were commonplace. Non-life actuaries followed in the footsteps of their life compatriots in the early twentieth century . The 1920 revision to workers compensation rates took over two months of around-the-clock work by day and night teams of actuaries (Michelbacher 1920 p. 224, 230). In the 1930s and 1940s, however, the rigorous mathematical foundations for stochastic processes were developed (Bühlmann 1997 p. 168). Actuaries could now begin to forecast losses using models of random events, instead of the deterministic methods they had been constrained to in the past. The introduction and development of the computer industry further revolutionized the actuarial profession. From pencil-and-paper to punchcards to current high-speed devices, the modeling and forecasting ability of the actuary has grown exponentially, and actuaries needed to adjust to this new world (MacGinnitie 1980 p.50-51).

Actuarial science and modern financial economics
Some aspects of traditional actuarial science are not aligned with modern financial economics . Pension actuaries have been challenged by financial economists regarding funding and investment strategies. There are two reasons for the divergence of actuarial and financial economic practices. The first deals with the sheer complexity of calculations, and the second with the heavy burden of regulations resulting from the Armstrong investigation of 1905, the Glass-Steagal Act of 1932, the adoption of the Mandatory Security Valuation Reserve by the National Association of Insurance Commissioners ; the latter law cushioned market fluctuations. Finally pensions valuations and funding must comply with the Financial Accounting Standards Board , (FASB) in the USA and Canada. The regulatory burden led to a separation of powers regarding the management and valuation of assets and liabilities.
Historically, much of the foundation of actuarial theory predated modern financial theory. In the early twentieth century, actuaries were developing many techniques that can be found in modern financial theory, but for various historical reasons, these developments did not achieve much recognition (Whelan 2002). As a result, actuarial science developed along a different path, becoming more reliant on assumptions, as opposed to the arbitrage-free risk-neutral valuation concepts used in modern finance. The divergence is not related to the use of historical data and statistical projections of liability cash flows, but is instead caused by the manner in which traditional actuarial methods apply market data with those numbers. For example, one traditional actuarial method suggests that changing the asset allocation mix of investments can change the value of liabilities and assets (by changing the discount rate assumption). This concept is inconsistent with financial economics .
The potential of modern financial economics theory to complement existing actuarial science was recognized by actuaries in the mid-twentieth century (Bühlmann 1997 p. 169-171). In the late 1980s and early 1990s, there was a distinct effort for actuaries to combine financial theory and stochastic methods into their established models. (D’arcy 1989). Ideas from financial economics became increasingly influential in actuarial thinking, and actuarial science has started to embrace more sophisticated mathematical modelling of finance (The Economist 2006). Today, the profession, both in practice and in the educational syllabi of many actuarial organizations, is cognizant of the need to reflect the combined approach of tables, loss models, stochastic methods, and financial theory (Feldblum 2001 p. 8-9). However, assumption-dependent concepts are still widely used (such as the setting of the discount rate assumption as mentioned earlier), particularly in North America.
Product design adds another dimension to the debate. Financial economists argue that pension benefits are bond-like and should not be funded with equity investments without reflecting the risks of not achieving expected returns. But some pension products do reflect the risks of unexpected returns. In some cases, the pension beneficiary assumes the risk, or the employer assumes the risk. The current debate now seems to be focusing on four principles. 1. financial models should be free of arbitrage; 2. assets and liabilities with identical cash flows should have the same price. This, of course, is at odds with FASB . 3. The value of an asset is independent of its financing. 4. the final issue deals with how pension assets should be invested. Essentially, financial economics state that pension assets should not be invested in equities for a variety of theoretical and practical reasons. (Moriarty 2006).

Actuaries outside insurance
There is an increasing trend to recognise that actuarial skills can be applied to a range of applications outside the insurance industry. One notable example is the use in some US states of actuarial models to set criminal sentencing guidelines. These models attempt to predict the chance of re-offending according to rating factors which include the type of crime, age, educational background and ethnicity of the offender (Silver and Chow-Martin 2002). However, these models have been open to criticism as providing justification by law enforcement personnel on specific ethnic groups. Whether or not this is statistically correct or a self-fulfilling correlation remains under debate (Harcourt 2003).
Another example is the use of actuarial models to assess the risk of sex offense recidivism. Actuarial models and associated tables, such as the MnSOST-R, Static-99, and SORAG, have been used since the late 1990s to determine the likelihood that a sex offender will recidivate and thus whether he or she should be institutionalized or set free (Nieto and Jung 2006 pp. 28-33).

Actuarial science
Actuarial science applies mathematical and statistical methods to assess risk in the insurance and finance industries. Actuaries are professionals who are qualified in this field through examinations and experience.
Actuarial science includes a number of interrelating disciplines, including probability and statistics , finance , and economics . Historically, actuarial science used deterministic models in the construction of tables and premiums. The science has gone through revolutionary changes during the last 30 years due to the proliferation of high speed computers and the synergy of stochastic actuarial models with modern financial theory (Frees 1990).
Many universities have undergraduate and graduate degree programs in actuarial science. In 2002, a Wall Street Journal survey on the best jobs in the United States listed "actuary" as the second best job (Lee 2002).

Contents

1 Life insurance, pensions and healthcare
2 Actuarial science applied to other forms of insurance
3 Development
3.1 Pre-formalization
3.2 Initial development
3.3 Early actuaries
3.4 Effects of technology
3.5 Actuarial science and modern financial economics
3.6 Actuaries outside insurance

Life insurance, pensions and healthcare
Actuarial science became a formal mathematical discipline in the late 17th century with the increased demand for long-term insurance coverages such as Burial, Life insurance , and Annuities. These long term coverages required that money be set aside to pay future benefits, such as annuity and death benefits many years into the future. This requires estimating future contingent events, such as the rates of mortality by age, as well as the development of mathematical techniques for discounting the value of funds set aside and invested. This led to the development of an important actuarial concept, referred to as the Present value of a future sum. Pensions and healthcare emerged in the early 20th century as a result of collective bargaining . Certain aspects of the actuarial methods for discounting pension funds have come under criticism from modern financial economics .
In traditional life insurance, actuarial science focuses on the analysis of mortality , the production of life tables , and the application of compound interest to produce life insurance, annuities and endowment policies. Contemporary life insurance programs have been extended to include credit and mortgage insurance, key man insurance for small businesses, long term care insurance and health savings accounts (Hsiao 2001).
In health insurance, including insurance provided directly by employers, and social insurance, actuarial science focuses on the analyses of rates of disability, morbidity, mortality, fertility and other contingencies. The effects of consumer choice and the geographical distribution of the utilization of medical services and procedures, and the utilization of drugs and therapies, is also of great importance. These factors underlay the development of the Resource-Base Relative Value Scale (RBRVS ) at Harvard in a multi-disciplined study. (Hsiao 1988) Actuarial science also aids in the design of benefit structures, reimbursement standards, and the effects of proposed government standards on the cost of healthcare (cf. CHBRP 2004).
In the pension industry, actuarial methods are used to measure the costs of alternative strategies with regard to the design, maintenance or redesign of pension plans. The strategies are greatly influenced by collective bargaining ; the employer's old, new and foreign competitors; the changing demographics of the workforce; changes in the internal revenue code; changes in the attitude of the internal revenue service regarding the calculation of surpluses; and equally importantly, both the short and long term financial and economic trends. It is common with mergers and acquisitions that several pension plans have to be combined or at least administered on an equitable basis. When benefit changes occur, old and new benefit plans have to be blended, satisfying new social demands and various government discrimination test calculations, and providing employees and retirees with understandable choices and transition paths. Benefit plans liabilities have to be properly valued, reflecting both earned benefits for past service, and the benefits for future service. Finally, funding schemes have to be developed that are manageable and satisfy the Financial Accounting Standards Board (FASB).
In social welfare programs, the Office of the Chief Actuary (OCACT), Social Security Administration plans and directs a program of actuarial estimates and analyses relating to SSA-administered retirement, survivors and disability insurance programs and to proposed changes in those programs. It evaluates operations of the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund, conducts studies of program financing, performs actuarial and demographic research on social insurance and related program issues involving mortality, morbidity, utilization, retirement, disability, survivorship, marriage, unemployment, poverty, old age, families with children, etc., and projects future workloads. In addition, the Office is charged with conducting cost analyses relating to the Supplemental Security Income (SSI) program, a general-revenue financed, means-tested program for low-income aged, blind and disabled people. The Office provides technical and consultative services to the Commissioner, to the Board of Trustees of the Social Security Trust Funds, and its staff appears before Congressional Committees to provide expert testimony on the actuarial aspects of Social Security issues.

Actuarial science applied to other forms of insurance::
Actuarial science is also applied to short term forms of insurance, referred to as Property & Casualty or Liability insurance, or General insurance . In these forms of insurance, coverage is generally provided on a renewable annual period, (such as a yearly contract to provide homeowners insurance policy covering damage to a house and its contents for one year). Coverage can be cancelled at the end of the period by either party.
In the property & casualty insurance fields, companies tend to specialize because of the complexity and diversity of risks. A convenient division is to organize around personal and commercial lines of insurance. Personal lines of insurance include the familiar fire, auto, homeowners, theft and umbrella coverages. Commercial lines would include business continuation, product liability, fleet insurance, workers compensation, fidelity & surety, D&O insurance and a great variety of coverages required for businesses. Beyond these, the industry needs to provide catastrophe insurance for weather related risks, earthquakes, patent infringement and other forms of corporate espionage, terrorism and all its implications, and finally coverage for the most unusual risks sometimes associated with Lloyds of London . In all of these ventures, actuarial science has to bring data collection, measurement, estimating, forecasting, and valuation tools to provide financial and underwriting data for management to assess marketing opportunities and the degree of risk taking that is required. Actuarial science needs to operate at two levels: (i) at the product level to facilitate politically correct equitable pricing and reserving; and (ii) at the corporate level to assess the overall risk to the enterprise from catastrophic events in relation to its underwriting capacity or surplus. Actuaries, usually working in a multidisciplinary team must help answer management issues: (i) is the risk insurable; (ii) does the company have effective claims administration to determine damages; (iii) does the company have sufficient claims handling to cover catastrophic events; (iv) and the vulnerability of the enterprise to uncontrollable risks such as inflation, adverse political outcomes; unfavorable legal outcomes such as excess punitive damage awards, and international turmoil.
In the reinsurance fields, actuarial science is used to design and price reinsurance and retro-reinsurance schemes, and to establish reserve funds for known claims and future claims and catastrophes. Retro-reinsurance, also known as retrocession occurs when a reinsurance company reinsures risks with yet another reinsurance company. Reinsurance can be used to spread the risk, to smooth earnings and cash flow, to reduce reserve requirements and improve the quality of surplus, Reinsurance creates arbitrage situations, and retro-reinsurance arbitrage can create Spirals which can lead to financial instability and bankruptcies. A spiral occurs (as an example) when a reinsurer accepts a retrocession which unknowingly contains risks that were previously reinsured. Some reported cases of arbitrage and spirals have been found to be illegal. The Equity Funding scam was built on the abusive use of financial reinsurance to transfer capital funds from the reinsurance carrier to Equity Funding. In the broadest sense of the word, reinsurance takes many forms: (i) declining a risk; (ii) requiring the insured to self insure part of the contingent or investment risk; (iii) limiting the coverage through deductibles, coinsurance or exclusionary policy language; (iv) placing a policy in a risk pool with a cohort of competitors to achieve a social objective; (v) ceding or transferring a percentage of each policy to another insurance company (i.e. the reinsurer); (vi) ceding or transferring excess amounts or excess coverages to the reinsurer; (vii) ceding or transferring asset based policies to the reinsurer in exchange for capital; (viii) purchasing stop loss insurance; (ix) purchasing umbrella coverages for a basket of risks; (x) purchasing catastrophe insurance for specific contingent events. Reinsurance is complex. Company management and their actuaries need to deal with all the known insurable contingent events, as well as underwrite the quality of their cedant companies, and maintain the information tools and auditing practices to identify arbitrage and spirals.

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Primerica Financial Services
Primerica Financial Services, a wholly owned subsidiary of Citigroup , is a General Agency with a business model that includes some features of multi-level marketing [1]. Its company headquarters are in Duluth , Georgia . It is the largest financial services marketing organization in North America, with more than 100,000 licensed independent representatives , of which 26,000 agents are NASD securities licensed through PFS Investments, Inc., Primerica's securities broker-dealer affiliate .[2] The company provides financial products and services, including term life insurance , mutual funds , variable annuities , loans , long-term care insurance and pre-paid legal services , to over 6 million clients.[2] It is one of a few major mortgage providers to offer Simple Daily Interest mortages which reduce the cost of a mortgage for people who regularly pre-pay or pay bi-weekly. In August 2007 Primerica and Answer Financial introduced Primerica Secure , an auto and homeowner's insurance referral program. Primerica conducts business principally in the US and Canada . In 2000 the company expanded overseas to begin operating in Spain as CitiSoluciones http://www.citisoluciones.net/citisoluciones.html

Contents:

1 History
1.1 2007 Convention
2 Ratings and Awards
3 Criticism

History
Founded in 1977 by Arthur L. Williams, Jr. , the company, then named A. L. Williams , established a market niche by mass-marketing the concept of "Buy term and invest the difference ." With "BTID," the company advised its mostly middle-income client base to purchase sufficient protection with term life insurance and systematically save and invest in separate investment vehicles, such as mutual fund IRAs . A.L. Williams was initially established as privately held general agency, at first selling life insurance policies underwritten by Financial Assurance, Inc. (FIA).
The company expanded, outgrowing the capacity of FIA to process its business. In 1980, A.L. Williams entered into a contract with a larger underwriter of life insurance, The Massachusetts Indemnity and Life Insurance Company (MILICO), whose parent was PennCorp. To support A.L. Williams, headquartered in Atlanta , MILICO established a regional office in that city. In 1981, the company established First American National Corporation (later called The A.L. Williams Corporation) as a holding company for First American Life Insurance (later called A.L. Williams Life Insurance Company) and First American National Securities (later renamed PFS Investments, Inc). In 1982, The A.L. Williams Corporation (ALWC) underwrote a $27 million public stock offering, listed in the Over the Counter (OTC) market under the symbol ALWC. In 1983, the company became listed on the NASDAQ exchange under the same symbol. That same year Gerry Tsai, Chairman & CEO of cash cow American Can Company, acquired and merged with MILICO's parent company PennCorp. American Can later was renamed Primerica Corporation.
In 1985 ALWC begin the procedure to open business in Canada . After encountering legal and cultural roadblocks of expanding outside the United States, ALWC finally began selling insurance products of Pennsylvania Life Insurance Company, a Primerica subsidiary, in Canada in 1986.
On November 30 , 1988 ALWC acquired MILICO from Primerica Corporation through a stock merger acquisition for 44.58 million shares of ALWC stock , making Primerica Corporation the majority shareholder of ALWC. In December of 1988, Sandy Weill 's Commercial Credit acquired Primerica Corporation for $1.54 billion, retaining the Primerica name. At this time, the major businesses under Primerica Corporation included A.L. Williams, Smith Barney and Commercial Credit. On February 6 , 1989 Primerica Corporation began trading on the New York Stock Exchange .
In November of 1989, Primerica purchased the remaining 30% of ALWC that it did not previously own, and also purchased the privately held General Agent , A.L. Williams, Inc. In 1991, Primerica Corporation changed the name of A.L. Williams to Primerica Financial Services. The following year MILICO, Primerica's life insurance underwriter, changed its name to Primerica Life Insurance Company, and its broker-dealer FANS changed to PFS Investments, Inc.
Primerica Corporation, in December of 1993, acquired the remaining 73% of Travelers Insurance Corporation and adopted the name, Travelers Inc., which was changed to Travelers Group the following year. Travelers Group included Primerica Financial Services, Smith Barney , Travelers Life and Annuity, Travelers Property/Casualty, Commercial Credit and other financial businesses.
In December 1997, Primerica announced it was going to begin offering pre-paid legal through Pre-Paid Legal Services, Inc. , at the time both subsidiaries of Travelers Group, Inc .[4]
In 1998, the US Securities and Exchange Commission censured and fined PFS Investments Inc., the securities arm for Primerica, for failure to properly supervise a group of registered representatives in Dearborn, Michigan. PFS Investments Inc. failed to have in place effective policies and procedures to follow up adequately on three complaints received about the Dearborn registered representatives' "selling away" activities. Prior to the ruling of the SEC, PFS Investments Inc. voluntarily hired an independent consultant to review their supervisory, compliance, policies and procedures, to prevent and detect violations of the federal securities laws. By the date of the ruling, PFS Investments had complied with the final recommendations made by the independent consultant.[5]
In 1998, Travelers Group and banking giant Citicorp merged creating Citigroup (NYSE : ). Primerica and its affiliates continue to operate as subsidiaries of Citigroup, although the Travelers insurance business was spun off in 2002. Along with Primerica, other major brand names under Citigroup include Citibank , CitiFinancial , Smith Barney , and Banamex .
Long time veteran executives John Addison and Rick Williams, quoted by Art Williams in his book Coach as "two true sons of A.L. Williams,"[6] were appointed co-CEOs in 1999, with Glen Williams promoted to President in 2005.[7]

2007 Convention
Primerica held its 30th Anniversary Convention August 1 , 2007 through August 4 , 2007 in Atlanta , Georgia in the Georgia Dome and the Georgia World Congress Center .[8] An estimated 60,000 representatives attended.[9][10] Primerica Secure was introduced at the event, as well as the newest term life insurance product Custom Advantage. Notable speakers included former Chairman & CEO of Citigroup Charles Prince , founder of Pre-Paid Legal Services, Inc. Harland Stonecipher , as well as Georgia Governor Sonny Perdue .[11]

Ratings and Awards

Primerica's life insurance underwriter Primerica Life Insurance Company and its subsidiary National Benefit Life, based in the state of New York , have been rated A+ as "Superior" by A. M. Best as of November 2006 .[12] Standard & Poor's has the company rated AA as "Very Strong."[13] Recently the Insurance Marketplace Standards Association , a non-profit organization based out of Bethesda, MD with the intent to create ethical standards for the insurance industry, has renewed qualification for Primerica Life and National Benefit Life for high standards and quality business, "continuing dedication to ethical business practices."[14]
In 2005[15] Primerica representatives were able to begin submitting life insurance applications electronically through the TurboApps[16] application developed by the Primerica Field Technology team via Palm handheld devices.[17] Clients have the opportunity to get insurance quotes on the spot and complete the life application paperless. This effectively sped up the underwriting process for Primerica Life and increased the amount of policies processed and insurance face amount put into force on a monthly basis.[18] In 2007 that electronic application process was extended to include the $.M.A.R.T. loan program offered through Primerica's sister company CitiCorp Trust Bank.
For the fourth time in a row in 2007, Primerica has been awarded the Dalbar Service Award by Dalbar, Inc., a client service rating organization focused on raising the standards of customer satisfaction and quality in the financial services industry, for Primerica's excellent customer service in mutual funds.[19]

Criticism

There have been complaints that some representatives and their respective office branches have hired new members through deceptive job interviews. Recently a few consumer complaint websites, notably Ripoff Report , have reversed their former negative stance on the company's business practice and given the company a positive rating after verifying claims that were speculative.

What is Life Insurance?
At the most basic level, life insurance is a type of insurance that will pay a one time cash payment to one or more designed people at the time of the insured's death.
Like any other insurance, in exchange for manageable period payments (called a premium) life insurance is designed to compensate in the event of a financial loss in the future. Just as car insurance protects your family from financial loss in the event of an accident and homeowner's insurance protects your family from financial loss in the event your house is damaged, life insurance protects your family from financial loss in the event that a family provider (whether of wages, childcare, eldercare or other means) dies

When Do I Need it?
You need life insurance when others depend on you financially or otherwise. So, if no one depends on your income or labor to support them, you probably don't need life insurance. However, if there is someone that depends on you to support them (financially or otherwise), you need life insurance to provide for that some in the event of your death.
We find that in most families, both parents (or caretakers) will need life insurance because each parent (or caretaker) is either providing income or vital services that the family depends on. However, as your children (or dependents) mature and become financially independent, there is less need for life insurance to protect them. Of course, special considerations are needed for families with long-term needs.
On the other hand, if you family's wealth is great enough that the death wouldn't effect your family's financial security (or if no one is depending on your income or other labor for their support), then life insurance may not be needed. Likewise, few minor children need life insurance because they usually are not providing income or vital services that the family depends on.

How Much Do I Need?

The answer to this important question is different for every family. To help you figure out how much life insurance you need the Inheritance Network simplified the process and created our Life Insurance Calculator. Just enter the amount of money that you estimate is needed for each category and click Calculate

What Type Should I Buy?
There are two broad categories of life insurance, term and permanent.
Term insurance <../life-insurance/term-insurance.php> is simple and straight forward life insurance that is for a certain period of time (usually 1 year, 10 years, 20 years or 30 years). Term insurance is called "term insurance" because it is active for only a certain period of time (much like a United States President is elected for a certain "term" of four years). Term insurance typically only costs a fraction of permanent insurance.
Permanent insurance <../life-insurance/permanent-insurance.php>, on the other hand is more complicated life insurance because it combines insurance with investments. Permanent insurance is called "permanent" because even "permanent" policies last for the entire life of the insured person ("permanent" is a bit of a misnomer because even "permanent" policies expire when the insured dies). Permanent insurance typically costs much more than term insurance because of its investment component and lifelong coverage. Keeping these two main distinctions in mind is very important. Determining if you want term or permanent insurance is the most important step in determining what type of life insurance you should buy.

Term Insurance

Term insurance is simple and straight forward life insurance that is for a certain period of time (usually 1 year, 10 years, 20 years or 30 years). So that if the insured dies while the insurance is in effect, the beneficiary receives payment of the value of the insurance. If the insured person outlives the term of the insurance, the insurance will expire unless the insurance is renewed.
Term insurance does not have an investment component and only protects your family during the term of the policy. This is how most insurance works (car, medical, homeowners) and means that unless there is a cash payout during the coverage period, the insurance company keeps the premiums.
Types of Term Life Insurance
There are three main types of term insurance: level term, renewable term and declining term.
Level Term Insurance is the most popular type of life insurance. It enables the purchaser to lock in a level premium and amount of coverage for the specified length of term. For example, a premium of $100 per year for ten years purchasing $100,000 of coverage for ten years.
Renewable Term Insurance automatically renews at the end of each term (usually one year), regardless of any changes in health or insurability. At renewal, the premium changes to reflect the insured's probability of death. In nearly all cases, this means that the premium rises at renewal.
Decreasing Term Insurance is relatively rare. It has a level premium and a gradually shrinking amount of coverage. These policies are utilized to fund obligations for which the principal decreases over time, like a mortgage.
Permanent Insurance
Permanent insurance, including whole life insurance and universal life insurance, has two key features. First, permanent insurance provides coverage throughout the life of the insured person. Second, permanent life insurance provides insurance combined with savings and investment components. This allows permanent life insurance policies to build a cash value that can be borrowed against to help fund future goals, such as a child's college education.
Types of Permanent Insurance
There are two main types of permanent life insurance, whole life and universal life.
Whole Life Insurance offers permanent life insurance with a fixed annual premium. Whole life policies accumulate cash values and the death benefits gradually increase with time.
Universal Life Insurance is permanent life insurance with a flexible annual premium and flexible death benefit. In a universal policy, you generally have a minimum payment equal to the cost of term insurance, plus administrative costs. Any payments made above the minimum are credited to the cash value component of the policy.
In both whole life and universal life, the investing abilities of the insurance company that issues the policy is extremely important, as the cash value and death benefit that accumulate will depend, in large part, on the success of the investment decisions that the insurance company makes with your money.
If you would like some additional control over the accumulation of wealth in your permanent insurance policy, "variable" insurance may be appropriate for you. Variable insurance allows the insured to choose from a number of investment choices for the cash-value of the permanent policy. This selection process works much like a company 401-K plan. There is variable whole life insurance and variable universal life insurance..

Life insurance
Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insured individual's or individuals' death. In return, the policy owner (or policy payer) agrees to pay a stipulated amount called a premium at regular intervals or in lump sums (so-called "paid up" insurance). There may be designs in some countries where: (Assets, Bills, and death expenses plus catering for after funeral expenses should be included in Policy Premium. Anyone whose assets equal more than the value of their primary residence should not be compensated beyond that value in case they cannot sell their house. In the case of those whose lost their spouse should be compensated also for one full year the wages of their spouse which would or should be included to avoid lawsuits.) However in the United States, the predominant form simply specifies a lump sum to be paid on the insured's demise.
As with most insurance policies, life insurance is a contract between the insurer and the policy owner (policyholder) whereby a benefit is paid to the designated Beneficiary (or Beneficiaries) if an insured event occurs which is covered by the policy. To be a life policy the insured event must be based upon life (or lives) of the people named in the policy.
Insured events that may be covered include:
death
accidental death
Sickness
Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; for example claims relating to suicide (after 2 years suicide has to be paid in full)(in India after one year Suicide is covered), fraud, war, riot and civil commotion.
Life based contracts tend to fall into two major categories:
Protection policies - designed to provide a benefit in the event of specified event, typically a lump sum payment. A common form of this design is term insurance.
Investment policies - where the main objective is to facilitate the growth of capital by regular or single premiums. Common forms (in the US anyway) are whole life, universal life and variable life policies.
Contents [hide ] 1 Parties to contract 2 Contract terms 3 Costs, insurability, and underwriting 4 Death proceeds 5 Insurance vs. assurance 6 Types of life insurance 6.1 Temporary (Term) 6.2 Permanent 6.2.1 Whole life coverage 6.2.2 Universal life coverage 6.2.3 Limited-pay 6.2.4 Endowments 6.3 Accidental death 7 Related life insurance products 7.1 Senior and preneed products 8 Investment policies 8.1 With-profits policies 8.2 Insurance/Investment Bonds 8.3 Pensions 9 Annuities 10 Tax and life insurance 10.1 Taxation of life insurance in the United States 10.2 Taxation of life assurance in the United Kingdom 10.2.1 Pension Term Assurance 11 History 11.1 Market trends 12 Criticism 13 See also 14 References 15 External links

[edit ] Parties to contract
There is a difference between the insured and the policy owner (policy holder), although the owner and the insured are often the same person. For example, if Joe buys a policy on his own life, he is both the owner and the insured. But if Jane, his wife, buys a policy on Joe's life, she is the owner and he is the insured. The policy owner is the guarantee and he or she will be the person who will pay for the policy. The insured is a participant in the contract, but not necessarily a party to it.
The beneficiary receives policy proceeds upon the insured's death. The owner designates the beneficiary, but the beneficiary is not a party to the policy. The owner may change the beneficiary unless the policy has an irrevocable beneficiary designation. With an irrevocable beneficiary, that beneficiary must agree to any beneficiary changes, policy assignments, or cash value borrowing.
In cases where the policy owner is not the insured (also referred to as the cestui qui vit or CQV), insurance companies have sought to limit policy purchases to those with an "insurable interest" in the CQV. For life insurance policies, close family members and business partners will usually be found to have an insurable interest. The "insurable interest" requirement usually demonstrates that the purchaser will actually suffer some kind of loss if the CQV dies. Such a requirement prevents people from benefiting from the purchase of purely speculative policies on people they expect to die. With no insurable interest requirement, the risk that a purchaser would murder the CQV for insurance proceeds would be great. In at least one case, an insurance company which sold a policy to a purchaser with no insurable interest (who later murdered the CQV for the proceeds), was found liable in court for contributing to the wrongful death of the victim (Liberty National Life v. Weldon, 267 Ala.171 (1957)).

[edit ] Contract terms
Special provisions may apply, such as suicide clauses wherein the policy becomes null if the insured commits suicide within a specified time (usually two years after the purchase date; some states provide a statutory one-year suicide clause). Any misrepresentations by the insured on the application is also grounds for nullification. Most US states specify that the contestability period cannot be longer than two years; only if the insured dies within this period will the insurer have a legal right to contest the claim on the basis of misrepresentation and request additional information before deciding to pay or deny the claim.
The face amount on the policy is the initial amount that the policy will pay at the death of the insured or when the policy matures, although the actual death benefit can provide for greater or lesser than the face amount. The policy matures when the insured dies or reaches a specified age (such as 100 years old).

[edit ] Costs, insurability, and underwriting
The insurer (the life insurance company) calculates the policy prices with an intent to fund claims to be paid and administrative costs, and to make a profit. The cost of insurance is determined using mortality tables calculated by actuaries . Actuaries are professionals who employ actuarial science, which is based in mathematics (primarily probability and statistics). Mortality tables are statistically-based tables showing expected annual mortality rates. It is possible to derive life expectancy estimates from these mortality assumptions. Such estimates can be important in taxation regulation.[1] [2]
The three main variables in a mortality table have been age, gender, and use of tobacco. More recently in the US, preferred class specific tables were introduced. The mortality tables provide a baseline for the cost of insurance. In practice, these mortality tables are used in conjunction with the health and family history of the individual applying for a policy in order to determine premiums and insurability. Mortality tables currently in use by life insurance companies in the United States are individually modified by each company using pooled industry experience studies as a starting point. In the 1980s and 90's the SOA 1975-80 Basic Select & Ultimate tables were the typical reference points, while the 2001 VBT and 2001 CSO tables were published more recently. The newer tables include separate mortality tables for smokers and non-smokers and the CSO tables include separate tables for preferred classes. [3]
Recent US select mortality tables predict that roughly 0.35 in 1,000 non-smoking males aged 25 will die during the first year of coverage after underwriting.[4] Mortality approximately doubles for every extra ten years of age so that the mortality rate in the first year for underwritten non-smoking men is about 2.5 in 1,000 people at age 65.[5] Compare this with the US population male mortality rates of 1.3 per 1,000 at age 25 and 19.3 at age 65 (without regard to health or smoking status).[6]
The mortality of underwritten persons rises much more quickly that the general population. At the end of 10 years the mortality of that 25 year-old, non-smoking male is 0.66/1000/year. Consequently, in a group of one thousand 25 year old males with a $100,000 policy, all of average health, a life insurance company would have to collect approximately $50 a year from each of a large group to cover the relatively few expected claims. (0.35 to 0.66 expected deaths in each year x $100,000 payout per death = $35 per policy). Administrative and sales commissions need to be accounted for in order for this to make business sense. A 10 year policy for a 25 year old non-smoking male person with preferred medical history may get offers as low as $90 per year for a $100,000 policy in the competitive US life insurance market.
The insurance company receives the premiums from the policy owner and invests them to create a pool of money from which it can pay claims and finance the insurance company's operations. Contrary to popular belief, the majority of the money that insurance companies make comes directly from premiums paid, as money gained through investment of premiums can never, in even the most ideal market conditions, vest enough money per year to pay out claims.[citation needed ] Rates charged for life insurance increase with the insured's age because, statistically, people are more likely to die as they get older.
Given that adverse selection can have a negative impact on the insurer's financial situation, the insurer investigates each proposed insured individual unless the policy is below a company-established minimum amount, beginning with the application process. Group Insurance policies are an exception.
This investigation and resulting evaluation of the risk is termed underwriting . Health and lifestyle questions are asked. Certain responses or information received may merit further investigation. Life insurance companies in the United States support the Medical Information Bureau(MIB) [7] , which is a clearinghouse of information on persons who have applied for life insurance with participating companies in the last seven years. As part of the application, the insurer receives permission to obtain information from the proposed insured's physicians.[8]
Underwriters will determine the purpose of insurance. The most common is to protect the owner's family or financial interests in the event of the insured's demise. Other purposes include estate planning or, in the case of cash-value contracts, investment for retirement planning. Bank loans or buy-sell provisions of business agreements are another acceptable purpose.
Life insurance companies are never required by law to underwrite or to provide coverage to anyone, with the exception of Civil Rights Act compliance requirements. Insurance companies alone determine insurability, and some people, for their own health or lifestyle reasons, are deemed uninsurable. The policy can be declined (turned down) or rated.[citation needed ] Rating increases the premiums to provide for additional risks relative to the particular insured.[citation needed ]
Many companies use four general health categories for those evaluated for a life insurance policy. These categories are Preferred Best, Preferred, Standard, and Tobacco.[citation needed ] Preferred Best is reserved only for the healthiest individuals in the general population. This means, for instance, that the proposed insured has no adverse medical history, is not under medication for any condition, and his family (immediate and extended) have no history of early cancer, diabetes, or other conditions.[citation needed ] Preferred means that the proposed insured is currently under medication for a medical condition and has a family history of particular illnesses.[citation needed ] Most people are in the Standard category.[citation needed ] Profession, travel, and lifestyle factor into whether the proposed insured will be granted a policy, and which category the insured falls. For example, a person who would otherwise be classified as Preferred Best may be denied a policy if he or she travels to a high risk country.[citation needed ] Underwriting practices can vary from insurer to insurer which provide for more competitive offers in certain circumstances.
Life insurance contracts are written on the basis of utmost good faith. That is, the proposer and the insurer both accept that the other is acting in good faith. This means that the proposer can assume the contract offers what it represents without having to fine comb the small print and the insurer assumes the proposer is being honest when providing details to underwriter.[citation needed ]

[edit ] Death proceeds
Upon the insured's death, the insurer requires acceptable proof of death before it pays the claim. The normal minimum proof required is a death certificate and the insurer's claim form completed, signed (and typically notarized).[citation needed ] If the insured's death is suspicious and the policy amount is large, the insurer may investigate the circumstances surrounding the death before deciding whether it has an obligation to pay the claim.
Proceeds from the policy may be paid as a lump sum or as an annuity, which is paid over time in regular recurring payments for either a specified period or for a beneficiary's lifetime.[citation needed ]

[edit ] Insurance vs. assurance
Outside the United States , the specific uses of the terms "insurance" and "assurance" are sometimes confused. In general, in these jurisdictions "insurance" refers to providing cover for an event that might happen, while "assurance" is the provision of cover for an event that is certain to happen. However, in the United States both forms of coverage are called "insurance".
When a person insures the contents of their home they do so because of events that might happen (fire, theft, flood, etc.) They hope their home will never be burglarized, or burn down, but they want to ensure that they are financially protected if the worst happens. This example of Insurance shows how it is a way of spending a little money to protect against the risk of having to spend a lot of money.
When a person insures their life they do so knowing that one day they will die. Therefore a policy that covers death is assured to make a payment. The policy offers assurance on death; even if the policy has a prescribed termination date the policy is still assured to pay on death and therefore is an assurance policy. Examples include Term Assurance and Whole Life Assurance . An accidental death policy is not assured to pay on death as the life insured may not die through an accident, therefore it is an insurance policy.
A policy might also be assured for other reasons. For example an endowment policy is designed to provide a lump sum on maturity. Under certain types of policy the lump sum is guaranteed. Therefore, this may also be called an assurance policy.
The test of whether a policy is assurance or insurance is that with an assurance policy the insured event will definitely occur (at some point) whereas with an insurance policy there is a risk the insured event might occur.
With regard to Whole Life policies, the question is not whether the insured event (in this case death) will occur, but simply when. If the policy has nonforfeiture values (or cash values ) then the policy is assured to pay.
During recent years, the distinction between the two terms has become largely blurred. This is principally due to many companies offering both types of policy, and rather than refer to themselves using both insurance and assurance titles, they instead use just one.

[edit ] Types of life insurance
Life insurance may be divided into two basic classes - temporary and permanent or following subclasses - term, universal, whole life, variable, variable universal and endowment life insurance.

[edit ] Temporary (Term)
Term life insurance (term assurance in British English) provides for life insurance coverage for a specified term of years for a specified premium . The policy does not accumulate cash value. Term is generally considered "pure" insurance, where the premium buys protection in the event of death and nothing else. (See Theory of Decreasing Responsibility and buy term and invest the difference .) Term insurance premiums are typically low because both the insurer and the policy owner agree that the death of the insured is unlikely during the term of coverage.
The three key factors to be considered in term insurance are: face amount (protection or death benefit), premium to be paid (cost to the insured), and length of coverage (term).
Various (U.S. ) insurance companies sell term insurance with many different combinations of these three parameters. The face amount can remain constant or decline. The term can be for one or more years. The premium can remain level or increase. A common type of term is called annual renewable term. It is a one year policy but the insurance company guarantees it will issue a policy of equal or lesser amount without regard to the insurability of the insured and with a premium set for the insured's age at that time. Another common type of term insurance is mortgage insurance, which is usually a level premium, declining face value policy. The face amount is intended to equal the amount of the mortgage on the policy owner’s residence so the mortgage will be paid if the insured dies.
A policy holder insures his life for a specified term. If he dies before that specified term is up, his estate or named beneficiary(ies) receive(s) a payout. If he does not die before the term is up, he receives nothing. In the past these policies would almost always exclude suicide. However, after a number of court judgments against the industry, payouts do occur on death by suicide (presumably except for in the unlikely case that it can be shown that the suicide was just to benefit from the policy). Generally, if an insured person commits suicide within the first two policy years, the insurer will return the premiums paid. However, a death benefit will usually be paid if the suicide occurs after the two year period.

[edit ] Permanent
Permanent life insurance is life insurance that remains in force (in-line) until the policy matures (pays out), unless the owner fails to pay the premium when due (the policy expires). The policy cannot be canceled by the insurer for any reason except fraud in the application, and that cancellation must occur within a period of time defined by law (usually two years). Permanent insurance builds a cash value that reduces the amount at risk to the insurance company and thus the insurance expense over time. This means that a policy with a million dollars face value can be relatively inexpensive to a 70 year old because the actual amount of insurance purchased is much less than one million dollars. The owner can access the money in the cash value by withdrawing money, borrowing the cash value, or surrendering the policy and receiving the surrender value.
The three basic types of permanent insurance are whole life, universal life, and endowment.

[edit ] Whole life coverage
Whole life insurance provides for a level premium, and a cash value table included in the policy guaranteed by the company. The primary advantages of whole life are guaranteed death benefits, guaranteed cash values, fixed and known annual premiums, and mortality and expense charges will not reduce the cash value shown in the policy. The primary disadvantages of whole life are premium inflexibility, and the internal rate of return in the policy may not be competitive with other savings alternatives. Riders are available that can allow one to increase the death benefit by paying additional premium. The death benefit can also be increased through the use of policy dividends. Dividends cannot be guaranteed and may be higher or lower than historical rates over time. Premiums are much higher than term insurance in the short-term, but cumulative premiums are roughly equal if policies are kept in force until average life expectancy.
Cash value can be accessed at any time through policy "loans". Since these loans decrease the death benefit if not paid back, payback is optional. Cash values are not paid to the beneficiary upon the death of the insured; the beneficiary receives the death benefit only. In many policies, however, the cash value has been automatically used to purchase additional death benefit, meaning that the beneficiary is likely to receive more than base death benefit plus cash value.

[edit ] Universal life coverage
Universal life insurance (UL) is a relatively new insurance product intended to provide permanent insurance coverage with greater flexibility in premium payment and the potential for a higher internal rate of return. A universal life policy includes a cash account. Premiums increase the cash account. Interest is paid within the policy (credited) on the account at a rate specified by the company. This rate has a guaranteed minimum but usually is higher than that minimum. Mortality charges and administrative costs are charged against (reduce) the cash account. The surrender value of the policy is the amount remaining in the cash account less applicable surrender charges, if any.
With all life insurance, there are basically two functions that make it work. There's a mortality function and a cash function. The mortality function would be the classical notion of pooling risk where the premiums paid by everybody else would cover the death benefit for the one or two who will die for a given period of time. The cash function inherent in all life insurance says that if a person is to reach age 95 to 100 (the age varies depending on state and company), then the policy matures and endows the face value of the policy.
Actuarially, it is reasoned that out of a group of 1000 people, if even 10 of them live to age 95, then the mortality function alone will not be able to cover the cash function. So in order to cover the cash function, a minimum rate of investment return on the premiums will be required in the event that a policy matures.
Universal life policies guarantee, to some extent, the death proceeds, but not the cash function - thus the flexible premiums and interest returns. If interest rates are high, then the dividends help reduce premiums. If interest rates are low, then the customer would have to pay additional premiums in order to keep the policy in force. When interest rates are above the minimum required, then the customer has the flexibility to pay less as investment returns cover the remainder to keep the policy in force.
The universal life policy addresses the perceived disadvantages of whole life. Premiums are flexible. The internal rate of return is usually higher because it moves with the financial markets. Mortality costs and administrative charges are known. And cash value may be considered more easily attainable because the owner can discontinue premiums if the cash value allows it. And universal life has a more flexible death benefit because the owner can select one of two death benefit options, Option A and Option B.
Option A pays the face amount at death as it's designed to have the cash value equal the death benefit at age 95. Option B pays the face amount plus the cash value, as it's designed to increase the net death benefit as cash values accumulate. Option B does carry with it a caveat. This caveat is that in order for the policy to keep its tax favored life insurance status, it must stay within a corridor specified by state and federal laws that prevent abuses such as attaching a million dollars in cash value to a two dollar insurance policy. The interesting part about this corridor is that for those people who can make it to age 95-100, this corridor requirement goes away and your cash value can equal exactly the face amount of insurance. If this corridor is ever violated, then the universal life policy will be treated as, and in effect turn into, a Modified Endowment Contract (or more commonly referred to as a MEC).
But universal life has its own disadvantages which stem primarily from this flexibility. The policy lacks the fundamental guarantee that the policy will be in force unless sufficient premiums have been paid and cash values are not guaranteed.
Universal life policies are sometimes erroneously referred to as self-sustaining policies. In the 1980s, when interest rates were high, the cash value accumulated at a more accelerated rate, and universal life coverage was often sold by agents as a policy that could be self-paying. Many policies did sustain themselves for a prolonged period, but the combination of lower interest rates and an increasing cost of insurance as the insured ages meant that for many policies, the cash option was diminished or depleted.
Variable universal life Insurance (VUL) is not the same as universal life, even though they both have cash values attached to them. These differences are in how the cash accounts are managed; thus having a great effect on how they are treated for taxation. The cash account within a VUL is held in the insurer's "separate account" (generally in mutual funds, managed by a fund manager).

[edit ] Limited-pay
Another type of permanent insurance is Limited-pay life insurance , in which all the premiums are paid over a specified period after which no additional premiums are due to keep the policy in force. Common limited pay periods include 10-year, 20-year, and paid-up at age 65.

[edit ] Endowments
Main article: Endowment policy
Endowments are policies in which the cash value built up inside the policy, equals the death benefit (face amount) at a certain age. The age this commences is known as the endowment age. Endowments are considerably more expensive (in terms of annual premiums) than either whole life or universal life because the premium paying period is shortened and the endowment date is earlier.
In the United States, the Technical Corrections Act of 1988 tightened the rules on tax shelters (creating modified endowments ). These follow tax rules as annuities and IRAs do.
Endowment Insurance is paid out whether the insured lives or dies, after a specific period (e.g. 15 years) or a specific age (e.g. 65).

[edit ] Accidental death
Accidental death is a limited life insurance that is designed to cover the insured when they pass away due to an accident. Accidents include anything from an injury, but do not typically cover any deaths resulting from health problems or suicide. Because they only cover accidents, these policies are much less expensive than other life insurances.
It is also very commonly offered as "accidental death and dismemberment insurance ", also known as an AD&D policy. In an AD&D policy, benefits are available not only for accidental death, but also for loss of limbs or bodily functions such as sight and hearing, etc.
Accidental death and AD&D policies very rarely pay a benefit; either the cause of death is not covered, or the coverage is not maintained after the accident until death occurs. To be aware of what coverage they have, an insured should always review their policy for what it covers and what it excludes. Often, it does not cover an insured who puts themselves at risk in activities such as: parachuting, flying an airplane, professional sports, or involvement in a war (military or not). Also, some insurers will exclude death and injury caused by proximate causes due to (but not limited to) racing on wheels and mountaineering.
Accidental death benefits can also be added to a standard life insurance policy as a rider. If this rider is purchased, the policy will generally pay double the face amount if the insured dies due to an accident. This used to be commonly referred to as a double indemnity coverage. In some cases, some companies may even offer a triple indemnity cover.

[edit ] Related life insurance products
Riders are modifications to the insurance policy added at the same time the policy is issued. These riders change the basic policy to provide some feature desired by the policy owner. A common rider is accidental death, which used to be commonly referred to as "double indemnity", which pays twice the amount of the policy face value if death results from accidental causes, as if both a full coverage policy and an accidental death policy were in effect on the insured. Another common rider is premium waiver, which waives future premiums if the insured becomes disabled.
Joint life insurance is either a term or permanent policy insuring two or more lives with the proceeds payable on the first death.
Survivorship life or second-to-die life is a whole life policy insuring two lives with the proceeds payable on the second (later) death.
Single premium whole life is a policy with only one premium which is payable at the time the policy is issued.
Modified whole life is a whole life policy that charges smaller premiums for a specified period of time after which the premiums increase for the remainder of the policy.
Group life insurance is term insurance covering a group of people, usually employees of a company or members of a union or association. Individual proof of insurability is not normally a consideration in the underwriting. Rather, the underwriter considers the size and turnover of the group, and the financial strength of the group. Contract provisions will attempt to exclude the possibility of adverse selection. Group life insurance often has a provision that a member exiting the group has the right to buy individual insurance coverage.

[edit ] Senior and preneed products
Insurance companies have in recent years developed products to offer to niche markets, most notably targeting the senior market to address needs of an aging population. Many companies offer policies tailored to the needs of senior applicants. These are often low to moderate face value whole life insurance policies, to allow a senior citizen purchasing insurance at an older issue age an opportunity to buy affordable insurance. This may also be marketed as final expense insurance, and an agent or company may suggest (but not require) that the policy proceeds could be used for end-of-life expenses.
Preneed (or prepaid) insurance policies are whole life policies that, although available at any age, are usually offered to older applicants as well. This type of insurance is designed specifically to cover funeral expenses when the insured person dies. In many cases, the applicant signs a prefunded funeral arrangement with a funeral home at the time the policy is applied for. The death proceeds are then guaranteed to be directed first to the funeral services provider for payment of services rendered. Most contracts dictate that any excess proceeds will go either to the insured's estate or a designated beneficiary.
These products are sometimes assigned into a trust at the time of issue, or shortly after issue. The policies are irrevocably assigned to the trust, and the trust becomes the owner. Since a whole life policy has a cash value component, and a loan provision, it may be considered an asset; assigning the policy to a trust means that it can no longer be considered an asset for that individual. This can impact an individual's ability to qualify for Medicare or Medicaid.

[edit ] Investment policies

[edit ] With-profits policies
Main article: With-profits policy
Some policies allow the policyholder to participate in the profits of the insurance company these are with-profits policies . Other policies have no rights to participate in the profits of the company, these are non-profit policies.
With-profits policies are used as a form of collective investment to achieve capital growth. Other policies offer a guaranteed return not dependent on the company's underlying investment performance; these are often referred to as without-profit policies which may be construed as a misnomer.

[edit ] Insurance/Investment Bonds
Main article: Insurance bond

[edit ] Pensions
Pensions are a form of life assurance. However, whilst basic life assurance, permanent health insurance and non-pensions annuity business includes an amount of mortality or morbidity risk for the insurer, for pensions there is a longevity risk .
A pension fund will be built up throughout a person's working life. When the person retires, the pension will become in payment, and at some stage the pensioner will buy an annuity contract, which will guarantee a certain pay-out each month until death.

[edit ] Annuities
An annuity is a contract with an insurance company whereby the purchaser pays an initial premium or premiums into a tax-deferred account, which pays out a sum at pre-determined intervals. There are two periods: the accumulation (when payments are paid into the account) and the annuitization (when the insurance company pays out). For example, a policy holder may pay £10,000, and in return receive £150 each month until he dies; or £1,000 for each of 14 years or death benefits if he dies before the full term of the annuity has elapsed. Tax penalties and insurance company surrender charges may apply to premature withdrawals (if indeed these are allowed; in most markets outside the U.S. the policy owner has no right to end the contract prematurely).

[edit ] Tax and life insurance

[edit ] Taxation of life insurance in the United States
Premiums paid by the policy owner are normally not deductible for federal and state income tax purposes.
Proceeds paid by the insurer upon death of the insured are not includible in taxable income for federal and state income tax purposes; however, if the proceeds are included in the "estate" of the deceased, it is likely they will be subject to federal and state estate and inheritance tax .
Cash value increases within the policy are not subject to income taxes unless certain events occur. For this reason, insurance policies can be a legal and legitimate tax shelter wherein savings can increase without taxation until the owner withdraws the money from the policy. On flexible-premium policies, large deposits of premium could cause the contract to be considered a "Modified Endowment Contract" by the IRS, which negates many of the tax advantages associated with life insurance. The insurance company, in most cases, will inform the policy owner of this danger before applying their premium.
Tax deferred benefit from a life insurance policy may be offset by its low return or high cost in some cases. This depends upon the insuring company, type of policy and other variables (mortality, market return, etc.). Also, other income tax saving vehicles (i.e. IRA, 401K or Roth IRA) appear to be better alternatives for value accumulation, at least for more sophisticated investors who can keep track of multiple financial vehicles. The combination of low-cost term life insurance and higher return tax-efficient retirement accounts can achieve better performance, assuming that the insurance itself is only needed for a limited amount of time.
The tax ramifications of life insurance are complex. The policy owner would be well advised to carefully consider them. As always, Congress or the state legislatures can change the tax laws at any time.

[edit ] Taxation of life assurance in the United Kingdom
Premiums are not usually allowable against income tax or corporation tax , however qualifying policies issued prior to 14 March 1984 do still attract LAPR (Life Assurance Premium Relief) at 15% (with the net premium being collected from the policyholder).
Non-investment life policies do not normally attract either income tax or capital gains tax on claim. If the policy has as investment element such as an endowment policy, whole of life policy or an investment bond then the tax treatment is determined by the qualifying status of the policy.
Qualifying status is determined at the outset of the policy if the contract meets certain criteria. Essentially, long term contracts (10 years plus) tend to be qualifying policies and the proceeds are free from income tax and capital gains tax. Single premium contracts and those run for a short term are subject to income tax depending upon your marginal rate in the year you make a gain. All (UK) insurers pay a special rate of corporation tax on the profits from their life book; this is deemed as meeting the lower rate (20% in 2005-06) liability for policyholders. Therefore if you are a higher rate taxpayer (40% in 2005-06), or become one through the transaction, you must pay tax on the gain at the difference between the higher and the lower rate. This gain may be reduced by applying a complicated calculation called top-slicing based on the number of years you have held the policy.
Although this is complicated, the taxation of life assurance based investment contracts may be beneficial compared to alternative equity based collective investment schemes (unit trusts, investment trusts and OEICs). One feature which especially favors investment bonds is the ability to draw 5% of the original investment amount each policy year without being subject to any taxation on the amount withdrawn. The withdrawal is deemed by HMRC (Her Majesty's Revenue and Customs) to be a payment of capital and therefore the tax calculation is deferred until further encashment above the 5% limit. This is an especially useful tax planning tool for higher rate taxpayers who expect to become basic rate taxpayers at some predictable point in the future (e.g. retirement).
The proceeds of a life policy will be included in the estate for inheritance tax (IHT) purposes. Policies written in trust may fall outside the estate for IHT purposes but it's not always that simple. If in doubt you should seek profession advice from an IFA (Independent Financial Adviser) who is registered with the government regulator: the Financial Services Authority .

[edit ] Pension Term Assurance
Although available before April 2006, from this date pension term assurance became widely available in the UK. Most UK product providers adopted the name "life insurance with tax relief" for the product. Pension term assurance is effectively normal term life assurance with tax relief on the premiums. All premiums are paid net of basic rate tax at 22%, and higher rate tax payers can gain an extra 18% tax relief via their tax return. Although not suitable for all, PTA briefly became one of the most common forms of life assurance sold in the UK until the Chancellor, Gordon Brown, announced the withdrawal of the scheme in his pre-budget announcement on 6 December 2006. The tax relief ceased to be available to new policies transacted after 6 December 2006, however, existing policies have been allowed to continue to enjoy tax relief so far.

[edit ] History
Insurance began as a way of reducing the risk of traders, as early as 5000 BC in China and 4500 BC in Babylon . Life insurance dates only to ancient Rome; "burial clubs" covered the cost of members' funeral expenses and helped survivors monetarily. Modern life insurance started in late 17th century England , originally as insurance for traders: merchants, ship owners and underwriters met to discuss deals at Lloyd's Coffee House, predecessor to the famous Lloyd's of London .
The first insurance company in the United States was formed in Charleston, South Carolina in 1732, but it provided only fire insurance. The sale of life insurance in the U.S. began in the late 1760s. The Presbyterian Synods in Philadelphia and New York created the Corporation for Relief of Poor and Distressed Widows and Children of Presbyterian Ministers in 1759; Episcopalian priests organized a similar fund in 1769. Between 1787 and 1837 more than two dozen life insurance companies were started, but fewer than half a dozen survived.
Prior to the American Civil War , many insurance companies in the United States insured the lives of slaves for their owners. In response to bills passed in California in 2001 and in Illinois in 2003, the companies have been required to search their records for such policies. New York Life for example reported that Nautilus sold 485 slaveholder life insurance policies during a two-year period in the 1840s; they added that their trustees voted to end the sale of such policies 15 years before the Emancipation Proclamation .

[edit ] Market trends

Life insurance premiums written in 2005
According to a study by Swiss Re , EU was the largest market for life insurance premiums written in 2005 followed by the USA and Japan.
Criticism
Although some aspects of the application process (such as underwriting and insurable interest provisions) make it difficult, life insurance policies have been used in cases of exploitation and fraud. In the case of life insurance, there is a motivation to purchase a life insurance policy, particularly if the face value is substantial, and then kill the insured.
The television series Forensic Files has included episodes that feature this scenario. There was also a documented case in 2006, where two elderly women are accused of taking in homeless men and assisting them. As part of their assistance, they took out life insurance on the men. After the contestability period ended on the policies (most life contracts have a standard contestability period of two years), the women are alleged to have had the men killed via hit-and-run car crashes. [9]
Recently, viatical settlements have thrown the life insurance industry into turmoil. A viatical settlement involves the purchase of a life insurance policy from an elderly or terminally ill policy holder. The policy holder sells the policy (including the right to name the beneficiary) to a purchaser for a price discounted from the policy value. The seller has cash in hand, and the purchaser will realize a profit when the seller dies and the proceeds are delivered to the purchaser. In the meantime, the purchaser continues to pay the premiums. Although both parties have reached an agreeable settlement, insurers are troubled by this trend. Insurers calculate their rates with the assumption that a certain portion of policy holders will seek to redeem the cash value of their insurance policies before death. They also expect that a certain portion will stop paying premiums and forfeit their policies. However, viatical settlements ensure that such policies will with absolute certainty be paid out. Some purchasers, in order to take advantage of the potentially large profits, have even actively sought to collude with uninsured elderly and terminally ill patients, and created policies that would have not otherwise been purchased. Likewise, these policies are guaranteed losses from the insurers' perspective. Thus, insurers will need to raise rates in order to protect