finite risk insurance
An insurance contract that shifts the risk of loss from an insured to an
insurer during a stated number of years. Such contracts are subject to a specific
limit of liability and include a "commutation feature" (i.e., a refund
to the insured) if loss experience is better than expected. Part of the investment
income derived from the insured's premium payment is also rebated to the insured.
In lieu of an underwriting profit that an insurer seeks from a traditional insurance
policy, a finite risk insurance contract provides the insurer with an administrative
fee for writing and maintaining the contract plus a relatively stable investment
income, which is earned on the insured's premium payments.
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