The Concept of Life Insurance and the Overview of Practices in Switzerland and Turkey

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Economic and Social Science Faculty of University of Bern Department of Business Administration Institute of Finance Management

THE CONCEPT OF LIFE INSURANCE AND THE OVERVIEW OF PRACTICES IN SWITZERLAND AND TURKEY TERM PAPER Submitted to Prof. Dr. Christopher Culp Assistant: Jonas Zeller Authors: Matriculation No: Address: Arzu Nihal Arslan 10-133-502 Centralstrasse 95, 2540 Grenchen/ SO Mobile: Mail-address: 078 684 18 20 arzu.nihal@students.unibe.ch Bern, 27.02.2012 Ayse Saracoglu 10-127-454 Waldmannstrasse 15 Zi.1902 3027 Bern 076 767 23 62 ayse.saracoglu@students.unibe.ch

TABLE OF CONTENT ABSTRACT CHAPTER I: THE CONCEPT OF LIFE INSURANCE 1. 1.GENERAL OVERVIEW ON LIFE INSURANCE 1.2.DEFINITIONS OF LIFE INSURANCE 1.3. TYPES OF LIFE INSURANCES 1.3.1. LIFE INSURANCE FOR THE PROBABILITY OF DYING 1.3.2. LIFE INSURANCE FOR THE PROBABILITY OF LIVING 1.3.3. ENDOWMENT LIFE INSURANCE 1.4.THE MOTIVES AND GENERAL ASSUMPTIONS OF CHOOSING A LIFE INSURANCE POLICY 3 4 4 5 6 6 8 9 10

CHAPTER II: THE OVERVIEW OF PRACTICES IN SWITZERLAND AND TURKEY 13 2.1.PRACTICES AND COVERAGE OF LIFE INSURANCES IN SWITZERLAND 2.1.1. REGULATIONS OF INSURANCE POLICIES IN SWITZERLAND 2.1.2. SWISS INSURANCE MARKET & MARKET STRUCTURE 2.1.3. MORTALITY (LIFE TABLES) IN SWITZERLAND 2.2. PRACTICES AND COVERAGE OF LIFE INSURANCES IN TURKEY 2.2.1. REGULATIONS OF LIFE INSURANCE IN TURKEY 2.2.2. TURKISH INSURANCE MARKET & MARKET STRUCTURE 2.2.3. MORTALITY (LIFE TABLES) IN TURKEY 13 14 16 16 17 19 19 20

CHAPTER III: ADVERSE SELECTION AND MORAL HAZARD IN LIFE INSURANCE 22 3.1. ADVERSE SELECTION AND MORAL HAZARD IN LIFE INSURANCE CONTRACTS CONCLUSION REFERENCES APPENDIX 22 23 25 29

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ABSTRACT

“Risk, uncertainty, insecurity” these words are broadly used for insurance and insurance related themes. What do they mean? The natural weakness of the human frame, and the obvious insecurity and brevity of life, it is clear that people want to compensate this situation with insurance, thus they could ensure the welfare of their relatives or intimates after they died. From this point of view, the term of life insurance expresses basically the compensation or hedges against risk, uncertainty, and insecurity of life. In this paper, the concept of life insurance is widely explained with various definitions. Adding that, the types of life insurance and the motives and the general assumptions when choosing a life insurance are discussed with multiple aspects. Hence, a view is given to the readers who are not interested in insurance before as well as to have knowledge about insurance in general. Besides insurance theory, the overview of practices in Switzerland and Turkey is explained in order to understand the life insurance concept comprehensively. Furthermore, according to some empirical studies, the adverse selection and moral hazard in life insurance contracts are mentioned.

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CHAPTER I: THE CONCEPT OF LIFE INSURANCE 1. 1.GENERAL OVERVIEW ON LIFE INSURANCE To understand the comprehensive concept of life insurance, first to know is what the insurance means and why it is used for. Basically, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. It is also defined as a promise of compensation for specific potential future losses in exchange for a periodic payment, which is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss.1 According to the design insurance products are classified into the insurance categories such as insurance products for individuals, household, commercial. Under these categories there are insurance types. For instance; Under insurance products for individuals there are basically three types of insurance which are called life insurance, health insurance and travel insurance.2 An insurer is a term used to define company selling the insurance products or policies3, which generally involves four parties to sign an...
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