Life insurance companies try to hedge the risks inherent in whole-life insurance policies by investing in ________.

Question

Quizplus · Accepted Answer

Life insurance companies invest in long-term bonds to hedge the risks inherent in whole-life insurance policies. This is because the premiums paid by policyholders are typically invested by the insurance company and held for long periods of time in order to pay out the benefits of the policy when the policyholder passes away. Investing in long-term bonds allows the insurance company to earn a reliable stream of income over time to ensure that they can meet their obligations to policyholders. Money market mutual funds, savings accounts, and short-term commercial paper do not provide the same level of long-term stability and reliability as long-term bonds.

Life Insurance Companies Try to Hedge the Risks Inherent in Whole-Life