Non-Bank Financial

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April 20th, 2005

Debt borrowing from non-bank financial institutions (companies such as insurance companies, pension funds, and trust and mortgage loan companies) has increased in recent years. Non-bank finance companies are not subject to the same federal and state lending regulations as traditional banks. This flexibility allows them to observe different lending patterns and often makes them ideal partners for borrowers requiring unique or customized advance formulas or lending arrangements. Specialized non-bank lenders have emerged, focusing on specific industries or loan needs. However, the services of specialized lenders and financial institutions come at a price, and their benefits must be carefully weighed against their overall cost in the capital structure.

Insurance

The insurance industry is regulated by the Law on Insurance. The Ministry of Finance and Economy is responsible for supervision of the insurance industry and for regulating it.

In order to protect ourselves we purchase insurance coverage that will pay an amount of money in case something catastrophic happens to occur. Life Insurance is purchased in order to protect in case of a death, illness, or retirement. Property Insurance and causality insurance protects and pay for losses in result of a fire, theft, or accidents.

There are two main types of life insurance: individual Life Insurance and Group Life Insurance. Individual Life Insurance is an insurance policy which is sold on at a time; where as, Group Life Insurance is sold to a group of people with the same policy.

There are two ways in which Individual Life Insurance maybe be purchased, one is Permanent Like Insurance also known as Whole Life Insurance, and the second is Temporary Life Insurance which is also knows as Term Insurance. With Permanent Life Insurance there is a continuous premium throughout the entire time the policy is active. As the policy is purchased the premiums are at a lower amount for the reason that the probability of death is lower; therefore, the money accumulates more in the begging of the policy then in the later years of the policy the premiums decline below what the amount that is needed to insure against death. Because the risk of death has at that point increased, the person who owns this policy is able to borrow against the cash value, or it can also be claimed by having the policy cancelled. It is for this reason that Permanent Life Insurance can also be known as Endowment Insurance.

Property and Casualty Insurance Companies cover against losses of real property and legal liability exposures, such as, theft, fire, and accidents. Property and Casualty Insurance Companies are similar to Life Insurance; they receive funds through premiums for the policies. Property and Casualty Insurance Companies have a greater possibility of loss due to major disasters. They hold more liquid assets than Life Insurance.

Pension Funds

Pension Funds is another way the public is provided with a protection: income payments on retirement. Individuals and companies can invest into pension plans which will obtain funds through contributions paid by the individual or the company.

Pension funds are invested in long term securities because they are highly predictable. Pension fundsÐŽ¦ major assets are bonds, stocks, and long-term mortgages. Federal tax policy has increased the growth of pension funds because of the employer contributions to employee pension plans are tax-deductible.

Defined-contribution plan is when the benefits are resolute by the contributions into the plan and their earnings. Defined-benefit plan is when the future income payments are place in advance.

Trust and Mortgage Loan Companies

A Trust Company has been referred to as a near-bank; while technically it differs from a bank in mandate and services offered. It also provides banking services such as chequing accounts, savings and loans, investments and credit cards.

Services