An insurance company provides financial risk cover to customers in exchange
for a stipulated monitory premium. Insurance companies can be classed into 2 groups:
- Life Insurance Companies: they
specialize in selling life insurance, retirement annuities and pensions products.
- Short-Term Insurance Companies: they sell general types of insurance.
The main difference between a life insurance company and a more general short-term
insurance company is the period of insurance being provided. Life insurance, pensions
and annuities are very long term in nature and can extend over many several decades.
Short term insurance as the name implies usually
spans over a few years.
The long term nature of life assurance requires a far greater need for the insurance
company to be and remain financially stable. Premiums paid currently are intended
to provide cover for losses that may occur far into the future. For this reason
the viability of the company is essential and in most countries life insurance companies
are subject to different regulations and taxes that short-term insurance companies.