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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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