OTA - Office of Technology Assessment

  • 1984 - OTA - Effects of Information Technology on Financial Services Systems, Office of Technology Assessment, OTA-CIT-202 - 279p
    • (p98) - Insurance companies offer universal life policies that share many properties with self-directed investment accounts offered by others. 
    • (p106) - Insurance
      • In today’s competitive environment, commercial banks, savings and loan associations, and savings banks not only vie with one another to attract new deposits, but also compete with many nondepository organizations. One of the largest providers of financial services is the insurance industry. It has a sizable customer base (insurance products are used in almost every household or business) and is a major lender of funds to businesses. The insurance industry has access to an enormous amount of capital. Insurance companies are enormous financial intermediaries in that they collect and invest vast amounts of premiums on policies. Life insurance companies collect premiums from policyholders, invest the receipts until needed, pay death benefits to heirs of those who die, and make payments to those who redeem policies and/or take out loans against their cash value.
      • Insurance companies channel funds into various investment outlets and qualify as significant allocators of financial resources in the economy. Their investments are made in almost every sector of the capital market and in a wide array of investment outlets. Their investment decisions are based on a philosophy of maximizing their rate of return within
        the bounds of State investment laws and on the principle of safeguarding the security of the funds invested.
      • Life insurance saving differs fundamentally from saving through deposit-type institutions for at least three reasons: first, it is long-term and contractual in nature and is therefore more stable; second, it is motivated primarily by the desire for family financial protection
        in the event of death; and third, it is ordinarily expected to be left intact until the death of the insured rather than withdrawn for some consumer expenditure. 
      • (p106) - Another instrument of the insurance industry is universal life insurance, which is an investment vehicle. It functions like a depository instrument and is a flexible investment vehicle with access to mutual funds. It offers the policyholder flexibility because the cash value buildup or funding phase—-which makes it appear to be a savings instrument-and the pure life insurance phase of the traditional whole-life insurance policy are separated. A company can declare competitive interest rates on the funding phase, and the policyholder can vary the amount and frequency of premium payments and the amount of death benefits.