A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium. An insurance contract can be looked upon as an option.

Similar financial terms

Whole life insurance
A contract with both insurance and investment components: (a) It pays off a stated amount upon the death of the insured, and (b) it accumulates a cash value that the policyholder can redeem or borrow against.

Variable life insurance policy
A whole life insurance policy that provides a death benefit dependent on the insured's portfolio market value at the time of death. Typically the company invests premiums in common stocks, and hence variable life policies are referred to as equity-linked policies.

Term insurance
Provides a death benefit only, no build-up of cash value.

Term life insurance
A contract that provides a death benefit but no cash build-up or investment component. The premium remains constant only for a specified term of years, and the policy is usually renewable at the end of each term.

Portfolio insurance
A strategy using a leveraged portfolio in the underlying stock to create a synthetic put option. The strategy's goal is to ensure that the value of the portfolio does not fall below a certain level.

Keyman Insurance
Companies often take out insurance policies on essential (i.e. key) managers or employees to protect them against the loss (accidents, death) of such talent. This is referred to as keyman insurance.

Coinsurance effect
Refers to the fact that the merger of two firms decreases the probability of default on either firm's debt.

An insurance policy under which the policyholder bears a percentage of the loss along with the insurance company.

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