The insurance industry in the United States is one of the largest of all financial services. In 1994, Prudential's revenues (the largest of the American insurers) exceeded $313 billion, with a number of other companies having revenues in excess of $100 billion (Vogel 3). In addition to the premiums that these companies collect to pay for their policies, they have large financial resources in the form of pension funds and other instruments that make them a powerful component of the financial services network within the United States. The concept of insurance is not unique to the American economy, but Americans have come to the point where insurance is issued for a variety of events and potential events unrivaled by other countries. This research examines one area of insurance, life insurance, and considers the fundamental aspects of the industry as well as considerations to be evaluated when purchasing life insurance.
In its most basic form, life insurance provides cash or cash payments to survivors of the deceased. In this fundamental analysis, life insurance is a form of savings where the premiums are paid toward the worth of the policy; the insurance company invests those premiums and receives enough of a return to pay the policy amount to the beneficiary. There are a number of reasons why someone might want to make this provision, including family needs, estate needs, business needs and qualified plans (Crenshaw H11). When calculating the amount of life insurance that should be carried on an individual, it is necessary to take each of these different needs into account and develop an estimate based on a realistic estimate of the various components.
Family needs for life insurance include immediate cash needs, readjustment income, family income or dependency period income, emergency funds, education funds, mortgage redemption, life income for a spouse, retirement income, spouse insurance and other needs (Rosen 18). When...