1. Life-cycle finance - is concerned with helping investors achieve their goals, including an adequate retirement income, by taking a holistic view of the individuals financial situation as he or she moves through life.
2. Risk management for individuals is distinct from risk management for corporations given the distinctive characterstics of households, which include the finite and unknown lifespan of individuals, the frequent spending among individuals, and th edesire to pass on wealth to heirs.
3. Personal assets are consumed, whereas investment assets are held for the potential to increase in value and fund future consumption. Some assets, such as real estate, can be described as “mixed assets” because they can act as both personal assets (shelter) and investment assets (to help fund retirement).
4. Financial Capital
- Financial capital would include the vested portion but not the unvested portion of an employer pension plan.
5. Life Insurance Pricing
- Mortality expectations: The insurer is concerned about the probability that the insured will die within the term of the policy. Actuaries evaluate mortality expectations based on historical experience, considering such factors as age and gender, the logevity of parents, blood pressure, cholestrol, whether the insured is a smoker, and whether the insured has had any diseases or injuries that are likey to lead during the policy term.
- Discount rate: A discount rate, or interest factor, representing an assumption of the insurance company's return on its portfolio, is applied to the expected outflow.
- Loading: After calculating the net permium for a policy, which may be considered the pure price of the insurance, the insurance company adjusts the premium upward to allow for expenses and profit. This adjustment is the the load, and the process is called loading.
6. Annunities
- All else the same, annunity payouts for females are lower (not greater) because females have a longer life expectancy and will receive more payouts.
7. Life Insurance
- Financial Wealth and the demand for life insurane have negative relationship which means if a person has a lot of financial wealth their need for life insurance is small and vice versa
- Life insurance is the most commonly employed hedge against mortality risk
- Insurance can be used to reduce non-market risk
- As either risk aversion or probability of death increase, so does the demand for life insurance. Human capital volatility and financial wealth are both negatively correlated with the demand for life insurance
- Term Insurance - policy primarily reflects the mortality risk to the individual for short, usually one year, period.
- Permanent life Insurance
- Whole life insurance - in force for an insured's entire life. Regular, ongoing fixed premiums, which are typically paid annually.
- Universal life insurance - is constructed to provide more flexibility than whole life insurance. The policy owner, generally
8. A key pricing component of life insurance is the expected mortality. The chances of death for females across the age spectrum is less than it is for males of the same age. Therefore, all else being equal, females should expect to pay less than males for the equivalent life insurance.
9. Life insurers can be divided into two groups - stock companies and mutal companies. Stock companies are similar to other corporations in that they are owned by shareholders, have a profit motive and are expected to provide a return to those shareholders.
In contrast, mutual companines are owner by the policy owners themselves and ther