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
Fidelity bond provided under a blanket position bond (in which each position is covered on an individual basis) or a commercial blanket bond (in which a loss is covered on a blanket basis ...
Insurance company representative who sells debit life insurance (industrial life insurance). This agent is usually more of a collector of small premium payments on a weekly, biweekly, or ...
Insured's age at the date a term life insurance policy is issued. An original age or retroactive conversion option permits the insured to convert the term policy to a cash value policy as ...
Policy not designed to pay the policyowner a dividend. ...
Amount that a policyowner can borrow from a cash value of a permanent life insurance policy. ...
Gain when the underlying asset that moves in one direction is significantly different from the loss when the underlying asset moves in the opposite direction; for example, when gains and ...
Duration of a policy. Property and casualty coverages are usually written for one year, although a personal automobile policy can be for six months. Life insurance can be written on a term ...
Plan administered through a primary private life insurer and reinsured through other private life insurers, providing a death benefit equal to: one year's salary for active employees at ...
Deductible, applied to every loss, expressed as a percentage of that loss. As the loss increases, the deductible amount increases. ...
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