What is Financial Service Market? Life Insurance Products, General Insurance

What is Financial Service Market?

The Financial Services Market refers to the vast and diverse sector of the economy that provides various financial products and services to individuals, businesses, and governments. It encompasses a wide range of institutions, businesses, and intermediaries that facilitate the management, investment, and transfer of money and financial assets. The financial services market plays a crucial role in the overall functioning of the economy by mobilizing savings, facilitating investments, and managing risks.

Evolution of Financial Service Market

After gaining knowledge about the role played by the financial services marketplace in the previous sections let us now learn the evolution of the financial service market.

The liberalization policies of the government that has initiated several reforms have greatly influenced the financial service market. They also affected the organized financial services sector that is being observed currently. In 1990, reforms in the financial sector were started wherein the strong base of liberalization and global economy took place.

With this inventiveness, the financial service sector had to face complex and intriguing after-effects of the financial markets across the globe. This is the reality of the financial system of other countries, its drawbacks, and at the same time trying to embrace the same in the Indian context.

To comprehend better, let us divide the evolution of the financial services marketplace into two phases.

The first phase commenced in 1985 when the economic reforms were started. This phase saw the focus on new technological innovations, targeted increased productivity, and the efficient use of human resources. It also aimed at generating increased productivity so that more and more revenue and thus profit can be achieved.

The next phase of the financial sector reforms came to the fore in 1990-92 wherein economic reforms were the major areas of focus. The government started a technique of reducing the fiscal deficit by bringing improvisations in the banking sector and also the advancement of the technology and the induction of the same in the industry like the banking industry etc. this phase completely transformed the financial services marketplace with the formation of a regulatory body, control measures in the form of IRDA, SEBI, etc.

All these practices were done to bring in transparency, organization, and other pivotal aspects to implant the confidence in the investor that their investments are safe and sound.

Foreign Exchange Market

A foreign exchange market is a centralized market where one currency can be converted into another. Mainly large international banks are involved in these transactions. This market is considered the biggest market on the globe where cash is traded

The forex market, also known as the foreign exchange market is the market where the buying and selling of foreign currencies take place. As the currency of several countries differs quickly it enables the dealers of the foreign exchange market to resort to hedging where hedging is a method that is performed to lessen the loss by balancing on the other entity in the future.

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Product Variants in the Financial Service Market

After apprehending the basic concept of the financial marketplace, let us now learn about different products of the financial market. The fact to be taken care of is that the financial products are subdivided based on technical facets and also based on the segmentation of the market. Securities are very important constituents of the financial service market. Normally, securities are traded on the stock exchanges.

We can classify securities into different forms such as debentures, bonds, and shares. While some of the securities enable the buyer to become the shareholder of the company whereas others enable the buyer the security to treat the money as a loan and to return the same with interest.

Following are some of the important products in the financial service market:

• Financial leasing
  
• Equipment leasing
  
• Hire purchase
  
• Credit card service
  
• Merchant banking service
  
• Securities and foreign exchange broking
  
• Asset management
  
• Fund management
  
• Pension fund management
  
• Advisory services
  
• Portfolio research and advice
  
• Corporate restructuring strategy

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What is Saving and Investing?

A financial marketplace is a place where individuals trade that is they purchase and sell organizations that are financial and which assure the investor that their money is safe and sound. Now while handling or working in the financial marketplace, the notion of saving and investing comes into the picture.

Let us now discuss the concept of saving and investing.

• Saving: In simple terms, saving is a method of setting aside some of the money usually in parts to attain the desired targets. The purpose of saving is to have some goal like saving for purchasing a car or a house or it may be saving to deal with emergencies.
  
  The meaning of saving is different for different people. For a few, putting money in the bank is equivalent to saving. For others, it may be purchasing stocks or investing in a pension plan. According to financial experts, saving means consuming less from a set amount of resources in the present to take away more in the future. Saving can be hence explained as the choice to reschedule consumption and to store this delayed consumption in some form of benefit.
  
  Saving and investment are not the same. For common people, purchases of stocks and bonds are an investment but economists mean additions to the real stock of capital, equipment, factories, plants, etc.
  
  

• Investing: In layman’s language, the investment is a process of putting a surplus amount of money over a product that will generate some more amount of money during a fixed period. An example of investing is the investment in real estate. Investors invest in the real estate market to ensure that the value of the property would appreciate.
  
  
  There is a basic differentiation between savings and investment. Where the risk of losing money is much less in saving which is more in any type of unconventional investment.

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What is Lending and Credit?

Two main directions come into the scene when it comes to a financial market. The vital aspects are the concepts of lending and credit.

Let us discuss these concepts as follows:

• Lending: Lending is a process where a creditor provides the debtor with the money required the debtor can be an individual or a company. That individual can be a person or a company. The repayment of the money can be done under some agreement which the two parties have come upon which can be done with a process of embarking interest over the debtor or can be some other process of the agreement.
  
  
  
• Credit: Credit can be of many types from bank credit to investment and public credit, etc. It should be noted that the amount of money available to be borrowed by an individual or a company is referred to as credit because it needs to be paid back to the lender at some point in the future. Credit Increases the account payable (liability) of a company.

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Banking and Money Transmission

In simple words, banking refers to a business activity involving accepting and safeguarding money owned by other individuals and entities and lending out the money to earn profit. However, with time, the businesses of the banks have widened and have become more sophisticated. Now, banks provide a plethora of services in addition to deposit and lending.

The important banking service of the present day is the issuance of debit and credit cards, providing safe custody of valuable items, lockers, ATM services, and online transfer of funds across the world. Therefore, we can safely say that banking plays a very crucial role in the day-to-day life of individuals and businesses. Banks play the important role of financial intermediation by pooling savings and channelizing them into investments through maturity and risk transformation, thereby keeping the engine of the economy running.

During any action in the course of the financial market, there is always a very important role of a bank and its transaction mechanism. Therefore, when there is a huge amount of money involved during any process of a financial market, a bank is always working as a financial institute working as a mediator between these transactions which are going to be done through these banks. Hence, all these transactions are to be done securely. There are various government rules and regulations for monitoring banking transactions and ensuring that the process is more legal and transparent.

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What is Life Insurance Products?

Life insurance products are a type of insurance that provides financial protection and support to beneficiaries in the event of the insured person’s death. Unlike general insurance, which covers non-life risks, life insurance focuses on the risk of death and its associated financial implications. Life insurance offers various products designed to meet different needs and goals of individuals and families.

In simple words, life insurance refers to a contract between an insured and an insurer in which the insurer promises to pay the insured a sum of money in exchange for premiums paid at regular intervals. Depending on the type of life insurance contract, events, such as terminal and critical illness may also trigger payment. It should be noted that in life insurance, the policyholder pays premiums either regularly or as a lump sum. In addition, some other expenses, such as funeral expenses are also included in benefits.

Life insurance policies are legal contracts; therefore, these describe the limitations of the insured events. Very often, some specific exclusion is written in the contract to limit the liability of the insurer. Some of the common examples of exclusions include suicide, fraud, war, riot, and civil commotion.

The primary objective of buying a life insurance policy is to give financial security to your family even after your death. Therefore a person should consider his/her financial condition and standard of living which his/her family should maintain even after this person’s death. For example, there should be a sufficient amount available for the family for day-to-day expenses and future goals such as children’s education/marriage, etc.

It is always advisable to evaluate one’s life insurance policy regularly to match up with events like marriage, and childbirth while taking any form of loan (home loan, personal loan, etc). We shall discuss this in detail while learning about Human Life Value.

Types of Life Insurance Products

Following are the three important types of life insurance products:

Term Insurance

This is a type of life insurance in which no cash is accumulated for the policyholder. In addition, in this type of life insurance, the insurance coverage is provided only for a limited time. This is also known as pure insurance because the premium buys the protection in case of death.

Some of the important factors that need to be considered in a term insurance plan are discussed as follows:

• Insured Amount (Sum Insured): It is the amount that a beneficiary gets in case of death.
  
  
• Premium Amount: It is the amount paid by the policyholder while purchasing the insurance.
  
  
• Term of the Insurance: It is the period for which the insurance amount is being purchased.

Endowment Plans

It is a combination of insurance and investment. In contrast to the term plan, which is pure insurance, there is a maturity benefit in Endowment Plans.

Unit Linked Insurance Plans (ULIPs)

A ULIP is a plan where investments are subject to risks associated with the capital markets. ULIPs give investors the benefits of both insurance and investment under a single united plan. However, the risk in the investment portfolio is borne by the policyholder.

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What is General Insurance?

General Insurance, also known as non-life insurance, is a type of insurance that provides financial protection to individuals and businesses against various risks and unforeseen events that may cause financial loss or damage to property. Unlike life insurance, which covers the risk of death, general insurance covers a wide range of risks related to assets, liabilities, and legal liabilities. General insurance is known as property and casualty insurance in the US and Canada and non-life insurance in Continental Europe.

The principle behind the practice of general insurance is the pooling of risk. What does this mean? It simply means that a group of people who want to protect themselves against a particular loss pay a consideration called a premium into a common pool. Usually, everyone does not suffer the loss at the same time and the number of people contributing to the pool is high. Hence, insurance companies can use statistical techniques to forecast the expected future losses within the group.

This also helps insurance companies to calculate the amount of contribution or premium required from each member so that they operate profitably and simultaneously pay for claims that may arise. For instance, many people may have health insurance but only a few get hospitalized for some illness.

Premium is paid for the probability of the loss and for the compensation that you will be paid for any loss that you incur. The main objective of any insurance contract is to give financial security and protection from unwarranted expenses to the insured from any future losses. Insured must never misuse this safe financial cover.

Types of General Insurance

These types of general insurance are explained as follows:

Fire Insurance

Fire insurance is a form of insurance that protects the properties of people from costs incurred by damage due to fire. When any kind of infrastructure or property is covered by fire insurance, the insurance policy will compensate for the loss if the property is damaged or destroyed by fire.

Health Insurance

Health insurance, like other forms of insurance, is a form of personal or group insurance using which people collectively pool their risk. In this case, the risk is of ailment or accident for which hospitalization may be required.

Marine Insurance

Marine insurance covers the loss or damage to ships, cargo, and terminals. It also covers the damage to any transport by which property is transferred, acquired, or held between the points of origin to the point of final destination.

Categories of Marine Insurance

There are two broad categories of marine insurance:

Ocean Marine Insurance

The ocean marine insurance may have:

• Hull: This covers physical damage to vessels, including their machinery and fuel but not their cargo.
  
  
• Cargo: This covers the loss, damage, or theft of commodities while in transit.
  
  
• Freight: This covers the policyholder against loss of the freight money in case the ship-owner cannot complete his contract of carriage because of unavoidable peril.

Inland Marine Insurance

This is a broad type of coverage for shipment that does not involve ocean transport. This type of insurance covers articles in transit by all forms of land and air transportation. In addition, it includes property held by bailees and floaters that covers expensive personal items such as fine art and jewellery.

Motor Vehicle Insurance

Motor insurance is also known as vehicle insurance. The main use of this insurance is protecting against losses incurred as a result of road traffic accidents and against liability that could be incurred by the owner of the vehicle in an accident.