Which of the following statements are true regarding life insurance company funding? Check all that apply. Life insurance companies do not hold mortgages and purchase real estate because of their lack of liquidity. Corporate bonds are a popular asset for life insurance companies because of their low credit risk. Life insurance companies invest in mortgage loans and also earn interest on policy loans to whole life policy holders.
Added by Ji S.
Step 1
"Life insurance companies do not hold mortgages and purchase real estate because of their lack of liquidity." - This statement is not entirely true. While it's true that real estate and mortgages are less liquid than other assets, many life insurance companies do Show more…
Show all steps
Close
Your feedback will help us improve your experience
Donna Densmore and 85 other Algebra educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Key Concepts
Recommended Videos
a. Briefly explain the basic characteristics of ordinary life policies. b. Why does an ordinary life insurance policy develop a legal reserve? c. Explain the situations that justify the purchase of ordinary life insurance. d. What is the major limitation of ordinary life insurance?
Rachel G.
Which of the following statements is false? Real estate firms are likely to have low costs of financial distress, as much of their value derives from assets that can be sold relatively easily. For low levels of debt, the risk of default remains low and the main effect of an increase in leverage is an increase in the interest tax shield. There is little incentive to increase debt levels so most firms should pay down debt to avoid potential bankruptcy. The probability of financial distress depends on the likelihood that a firm will be unable to meet its debt commitments and therefore default.
Jennifer S.
Life insurance companies tend to invest in long-term assets such as loans to manufacturing firms to build factories or to real estate developers to build shopping malls and skyscrapers. Auto insurers tend to invest in short-term assets such as Treasury bills. What accounts for these differences? ___ generally need to have funds readily available when a policyholder makes a claim, and Treasury bills are highly liquid. ___ have liabilities with a much longer horizon. ___ is expected to pay off in 30 years, say, so that assets with ___ horizons correspond to their ___ liabilities. In general, insurers can limit their risks by matching the terms of their liabilities with the terms of their assets. automobile insurers life insurance companies a life insurance policy longer longer-term automobile insurers life insurance companies a life insurance policy longer longer-term
Crystal W.
Recommended Textbooks
Elementary and Intermediate Algebra
Algebra and Trigonometry
Transcript
Watch the video solution with this free unlock.
EMAIL
PASSWORD