Contractual savings institutions, such as insurance companies and pension funds, are financial intermediaries that acquire funds at periodic intervals on a contractual basis. Because they can predict with reasonable accuracy how much they will have to pay out in benefits in the coming years, they do not have to worry as much as depository institutions about losing funds. As a result, the liquidity of assets is not as important as consideration for them as it is for depository institutions, and they tend to invest their funds primarily in long-term securities such as corporate bonds, stocks, and mortgages.
Life Insurance Companies. Life insurance companies insure people against financial hazards following a death and sell annuities (annual income payments upon retirement). They acquire funds from the premiums that people pay to keep their policies in force and use them mainly to buy corporate bonds and mortgages. They also purchase stocks, but are restricted in the amount that they can hold. Currently, with $3.3 trillion in assets, they are among the largest of the contractual savings institutions.
Fire and Casualty Insurance Companies. These companies insure their policyholders against loss from theft, fire, and accidents. They are very much like life insurance companies, receiving funds through premiums for their policies, but they have a greater possibility of loss of funds if major disasters occur. For this reason, they use their funds to buy more liquid assets than life insurance companies do. Their largest holding of assets is municipal bonds; they also hold corporate bonds and stocks and U.S. government securities.
Pension Funds and Government Retirement Funds. Private pension funds and state and local retirement funds provide retirement income in the form of annuities to employees who are covered by a pension plan. Funds are acquired by contributions from employers or from employees, who either have a contribution automatically deducted from their paychecks or contribute voluntarily. The largest asset holdings of pension funds are corporate bonds and stocks. The establishment of pension funds has been actively encouraged by the federal government, both through legislation requiring pension plans and through tax incentives to encourage contributions.
Related Articles on Investing
- Investors win the race
by Saqib Ansari
You've heard the fable about the hare and the tortoise. The hare makes a snide remark to the tortois... - International Bond Market, Eurobonds, and Eurocurrencies
by Saqib Ansari
The growing internationalization of financial markets has become an important trend. Before the 1980... - Depository Institutions
by James
Depository institutions (for simplicity, we refer to these as banks throughout this text) are financ... - Investment Intermediaries
by James
This category of financial intermediaries includes finance companies, mutual funds, and money market... - Ensuring the Soundness of Financial Intermediaries
by James
Asymmetric information can also lead to widespread collapse of financial intermediaries, referred to... - Investment Tip
by James
For most people, investing in a stock is little more than watching the trail left by the stock symbo... - Investment Tip
by James
Only a handful of outsiders have been permitted to enter the inner sanctum of the Berkshire Hathaway... - The Hedger and Speculator
by James
A hedger buys or sells a futures contract in order to reduce the risk of loss through price variatio... - Planning Investment Strategy
by arsal
Everyone today appreciates the need to save whether for a house, for children’s education, a wedding... - Forms of Investment
by arsal
An average investor is faced with a completely new situation with regard to investment options. The ... - Financial Investments
by arsal
As opposed to physical assets, financial investments are generally a right or an entitlement to rece... - Avoid Putting all Eggs in one Basket
by arsal
The best way to minimize risk is to diversify your investments across various investment products. I... - Keeping an Eye on Stocks’ Performance
by arsal
In general terms, when you witness if the stock price and volume of a stock suddenly jumps, there ma... - How to Select a Broker
by arsal
• Before selecting a broker, visit the offices of a few to observe their business practices. Try to ... - Difference between online and offline stock trading?
by William King
This article tells us the prime differences between online and offline financial trading and discuss... - Tips on starting a new trading business
by William King
This article suggests guidelines to follow when starting a new trading business.... - The Most Important Lesson You Will Ever Learn about Forex Trading
by Staff Writer
Many people have faired poorly trading in the Foreign Exchange Market. Some of them, however, have m... - FOREX Fallacies: The Top Ten List
by Staff Writer
The Internet is replete with so-called "expert" advice on just about everything...and the Foreign Ex... - The Most Important Forex Expert You Will Never Meet: Who is He?
by Staff Writer
He has been dead for many years – centuries, in fact – but we feel his influence as mightily today a... - No Fib! This Leonardo is Great for the Forex Market
by Staff Writer
When you think of great Italians named Leonardo, the first name that comes to mind has to be Da Vinc...
