2.1. negative relationship was expected. They were

2.1. INTRODUCTION:

In this chapter I
highlights the research works conducted in Pakistan as well as in some other developed
countries on the determinants of life insurance demand and i discuss the
summary of all literatures reviews in last.

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Yaari (1965) was the first to give a theoretical
framework to analyze the demand for life insurance.  Problem of uncertainty in the life insurance
demand was firstly explained by him. He introduced the model of life-cycle
utility of a customer combined with removing the optimal consumption and
optimal saving plans of a customer and according to his study’s outcome person
enhances his estimated utility by purchasing the insurance. In his research
study, he highlighted the lifetime uncertainty of a consumer in his model,
ignored all other uncertainties which a customer ought to face (like an
uncertainty of future income). His study results showed the uncertainty of a
life expectancy determines the life insurance consumption.

Mantise & Famer (1968) examined the demand for
life insurance in U.S in 1967.They used the U.C.L.A. Biomedical 03R-Multiple
Regression technique to analyze the life insurance demand by taking dependent
variables: the relative price of life insurance; number of marriages; number of
births; personal income; population and employment in their study. They found
that marriages and life insurance demand are positively related while the
negative relationship was expected. They were expecting that married men demand
more life insurance than single men because they want to secure the death risks
of their dependents family breadwinner. The empirical results might be explained
that unmarried people have disposable income more and thus have more resource
to purchase life insurance than those married. They recommended once this forecast
completed less than one man day of skilled man will can judge that either this study
will be good estimate for companies or not.

Fortune (1973) examined the Unified States
Insurance market for the seven years starting from 1964 to 1971.The variables
which are examined by him in his study were income level and real rate of
interest. The investigation discovered that there is high level of relationship
between the consumption of life insurance, income and the real rate of interest.
His work analyzed the expected utility theory of choice under uncertainty for
demand of life insurance. His investigation came with conclusion that the
consumption of life insurance is determined by income, non-human assets and the
interest rate.

Karni & Zilcha (1986) analyzed risk aversion in the theory of life insurance
by the Fisherian model in Jerusalem and made the use of the measure of
risk aversion in their model. They used that model which was developed by Yaari
(1965). They found that the person is free in gathering debt, its main role was
to improve the opportunities for borrowing and hence to increase the possible
consumption set. They discussed the suggestions of differences in the degree of
risk aversion for the optimal choice of life insurance and lifetime
consumption.

Lewis (1989) analyzed the life insurance demand by
using the life insurance background already introduced by Yaari in 1965, he
makes the addition of the preferences of other members of the household in his
model. According to his study, decision making about insurance depends on the
dependent members of the family. Therefore, the aggregate sum of life insurance
demand by the policyholder (assuming a spouse is an essential worker) depends
on expansion of the consumption of wife and off-springs (beneficiaries). Thus,
they can boost their utility of the satisfaction by making the maximum level of
spending on life insurance. His results indicated that purchases of life
insurance can maximize with the current value of consumption of policyholders,
risk aversion and probability of insured’s (husband’s) death.

Truett & Truett (1990) analyzed social
and demographic determinants of life insurance demand in Croatia which was a comparative
study of life insurance demand in two countries Mexico and the United States
for time-period of twenty year. They collected their data from a sample of 95
people. They came out with outcome that the variables such as age, education,
and level of income determined the demand for life insurance in both countries while
gender, marial status and number of family members do not affect the life
insurance demand and found that in Mexico the income elasticity of demand for
life insurance is much higher than in the United States. These results had
recommendations on decision makers on level of both macroeconomic and insurance
companies. On the level macroeconomic, decision makers ought to make that
policies which rise the employment and encourage the education to increase life
insurance demand especially in case of having lower pensions and less other
social welfare provisions. on the other hand, life insurance companies should
mainly focus on planning their distribution channels i.e., should utilize banc
assurance more in distributing their products. The future researchers are
suggested to broad the elements of social and demographic factors for expected
lifetime, urbanization, and social welfare system.

Browne and Kim (1993) did the examination
on the uptake of life insurance in six Islamic countries for time-period of 1980-1987.
The main variables which taken in their model were income, anticipated
inflation rate, education level, dependency ratio, life expectancy, religion,
policy loading charge, price of life insurance and social security to find the
main factors which influence life insurance consumption. The study found that
there is a direct relationship between life insurance and Gross Domestic
Product (GDP) and social security and an inverse relationship with inflation
and price of life insurance.  

Gandolfi et al. (1996) examined
Gender-Based Differences in Life Insurance Ownership To find the association
between macroeconomic variables and studied the general viewpoint of life
insurances in the US for the year of 1984. They found that income is the most
essential determinant of extra security utilization. The other which were found
to have influence on demand for life insurance were age, instruction, home proprietorship,
and size of family. They also found that life insurance consumption can be
affect by contributions to household production.

Rubayah et al. (2000) examined the
stability of relative efficiency in demand of life insurers and takaful
operators in Malaysia to studied the life insurance demand for a time-period of
twenty-six years from 1971 to 1997, by making use of the set of policies as
dependent variable and set of macroeconomic indicators as independent
variables. They found that income and life insurance demand had a direct
relationship and there was statistically positive association between inflation
and the consumption of life insurance. While personal savings, short-term
interest rate were indirectly related with demand for life insurance, but current
interest rate had no strong influence on life insurance consumption. They
suggested that government should force these factors to increase the life
insurance demand.

Bernheim
et al. (2001) analyzed the issue of the linkage between the life insurance
demand and financial vulnerability of the households of an older age with the
topic: are life insurance holdings related to
financial vulnerabilities?  Vulnerability demonstrates the level of
family affectability to the salary lost after death of a companion. They
utilized 1995 survey of consumer finances already developed life-cycle models
and concluded with different results: Bernheim et al. (2001) came with
conclusion that demands for life insurance does not affect the financial
vulnerability. They