Derivatives
Definition of "Derivatives"
Securities that derive their value from other financial instruments that are used by the insurance company to hedge its bets on which direction the market is moving. For example, cattle futures are a simple derivative in that the cattle futures contract increases or decreases in value as future prices change for cows on the hoof. When insurance companies use derivatives, they are more likely to use them in association with currency and interest rate transactions as a means of protecting themselves against adverse moves in interest rates or foreign currency exchanges. This instrument provides a mechanism for hedging against the interest rate risks that are inherent within insurance products by pricing in that risk in advance and protecting against future negative occurrences.
Popular Insurance Terms
Pricing of the insurance product below the necessary premium rate to reflect the costs of expected losses. The thesis of this pricing strategy is to obtain large sums of money to invest and ...
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Transfer of rights under an insurance policy to another person or business. For example, to secure a debt, it is not uncommon for the policyowner to transfer to the creditor his rights to ...
Investment strategy that advocates the transfer of amounts from one category of investment to another category according to a perception of how each of these categories of investments will ...
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Evidence of a temporary contract obliging a life or health insurance company to provide coverage as long as a premium accompanies an acceptable application. This gives the company time to ...
Coverage that can be converted into permanent insurance regardless of an insured's physical condition and without a medical examination. The individual cannot be denied coverage or charged ...
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