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Financial products can usually be traded for three purposes: speculation (or betting), hedging (or insurance) and arbitrage. The product is the same, the name o
by rjtavares 6y ago
Financial products can usually be traded for three purposes: speculation (or betting), hedging (or insurance) and arbitrage. The product is the same, the name of the action depends on what the buyer is trying to do.
- tomp 6y agoBut "insurance" isn't strictly a financial product (the kind that's traded on exchange). For example, if you buy life insurance, you can't then resell it (equivalently, I cannot buy insurance on your life) because that would cause some pretty unethical incentives.
- WJW 6y agoYou as a client may be unable to resell the insurance (for the unethical incentive reason you mentioned), but big bundles of life insurance policies are definitely traded on a secondary market by the insurance companies. This is called "reinsurance" and allows the insurance company to reduce volatility in cashflows, thereby decreasing capital requirements per policy written and this increasing the total amount of policies that can be written.
- namibj 6y agoActually, it seems like you can do that in Germany.
- ashtonkem 6y agoYou can buy life insurance for other people if there’s an insurable interest. You actually used to be able to purchase life insurance on any other people, although you’re correct on why that’s a bad idea. The darkest examples would be companies in high risk work buying life insurance for workers, which reduces the incentives to provide adequate safety equipment.