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Contractual Savings Institutions

The contract savings institutions receive funds through long-term contracts and invest them in capital markets including the best forex trading app for beginners markets. These firms include insurance companies and retirement funds. This category of institutions is characterized by an inflowing flow of funds that comes from the contractual obligations they have with their pension fund participants and policy holders.

So, liquidity is not an issue for these institutions. In fact, many of them are capable to make long-term investments in stocks and bonds.

One example of a contract savings institution is the life insurance industry. A life insurance company can obtain money by selling insurance plans that cover income loss due to early death or retirement. Insurance benefits are received by the beneficiary of the death policyholder, and in retirement the benefit is obtained by the policyholder. Some life insurance plans also offer savings. As life insurance firms have a consistent and predictable inflow of funds as well as predictable outflows Contractual Savings Institutions Articles, they can focus on investing in high-yielding long term assets like corporate bonds or stocks. Life insurance companies, like deposit-type financial institutions, are regulated in the state where they are located.

A casualty company is another kind of contractual savings institution. Casualty Insurance Companies sell property protection from loss caused by fire, theft or accident. Premiums on insurance are the main source of funding for these companies. The policies of casualty insurance are pure policies that protect against risk. Due to this, they don’t have any cash value. This means that the policyholders are left with no liquidity. It is not surprising that cash flow from policies claims does not follow the same pattern as life insurance. Depending on what you need, either a savings or contractual institution can provide it. This is one of the reasons they are so important to our economy.