Insurance Futures
Futures contracts (legally binding contract that stipulates that delivery of an asset will be taken or delivery of an asset will be made at a future time at an agreed upon price at the current moment) on insurance lines to include catastrophic insurance futures, automobile insurance futures, homeowners insurance futures, and so forth, traded on the Chicago Board of Trade (CBOT). Traditionally, precious metals such as gold and silver; agriculture commodities such as cattle, corn, and soy beans; and United States Treasury issues such as bonds and bills, have all been traded on the CBOT. The aim of the transaction with these futures is to cancel the contract with a gain before the delivery of the commodity. (Who would want cattle delivered to their house?) On the other hand, the insurance futures contract concerns itself with the dollar value the market attaches to an index. In turn, this index is an expectation of how much of the premium income generated by a particular line of insurance will have to be allocated to pay off incurred losses. For example, if the automobile insurance line generates an income of $5,000,000 and the market has an expectation that 90% of that income will have to be allocated to paying off incurred losses, the market will value that futures contract at a price somewhat less than $450,000. This is because of such factors that have to be accounted for as incurred but not reported losses (IBNR).
Popular Insurance Terms
Coverage when business records are destroyed by an insured peril and the business cannot collect money owed. The policy covers these uncollectible sums plus the expense of record ...
Type of loan that has been insured by the Federal Housing Administration or a private mortgage insurance company. ...
Instrument that guarantees compliance with various city, county, and state laws that govern the issuance of a particular license to conduct business. ...
Health plans established by associations of hospitals and physicians to provide hospital service and care, and medical and surgical care. ...
Same as term Unallocated Funding Instrument: pension funding agreement under which funds paid into a retirement plan are not currently allocated to purchase retirement benefits. The funds ...
Resident patient of a medical installation. Previously, health insurance benefits were limited to in-patient care. Today health insurance policies provide an extensive list of out-patient ...
Tax advantages of investing in life insurance fall into two main areas: tax deferral on untaxed buildup of earnings in such cash value policies as whole life insurance and annuities, and ...
Intentional damage or destruction of another person or business's property. Insurance can be purchased by the owner of the property to protect against this exposure. ...
Time, in health insurance, from the first day of a disability, illness, or accident during which no benefits are payable. The longer the probationary period, the lower the premium. ...
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