What Is the Interest Coverage Ratio? The interest coverage ratio is a debt and profitability ratio used to determine how easily a company can pay interest on its outstanding debt. The interest coverage ratio is calculated by dividing a company’s earnings before interest and taxes (EBIT) by its interest expense during a given period. The
What Are Interest-Crediting Methods? An interest-crediting method determines how interest changes to a fixed index annuity (FIA) are measured. The interest-crediting method chosen measures the amount of interest that the annuity holder can receive over a specific time period. Annuity contracts have a number of provisions that affect how interest is treated. Most contacts include a
What Is an Instrumentality? An instrumentality is a non-governmental agency that acts independently but whose obligations are backed by the government because of its role in providing a public service. In the U.S., the Federal National Mortgage Association, known as Fannie Mae, is an example of an instrumentality. Created during the Great Depression to enable
What Is Insurable Interest? Insurable interest is a type of investment that protects anything subject to a financial loss. A person or entity has an insurable interest in an item, event, or action when the damage or loss of the object would cause a financial loss or other hardships. To have an insurable interest a
What Is Insurance? Most people have some kind of insurance: for their car, their house, or even their life. Yet most of us don’t stop to think too much about what insurance is or how it works. Put simply, insurance is a contract, represented by a policy, in which a policyholder receives financial protection or
What Is an Insurance Claim? An insurance claim is a formal request by a policyholder to an insurance company for coverage or compensation for a covered loss or policy event. The insurance company validates the claim (or denies the claim). If it is approved, the insurance company will issue payment to the insured or an
What Is Insurance Derivative? An insurance derivative is a financial instrument that derives its value from an underlying insurance index or the characteristics of an event related to insurance. Insurance derivatives are useful for insurance companies that want to hedge their exposure to catastrophic losses due to exceptional events, such as earthquakes or hurricanes. Understanding
What Is an Insurance Trust (ILIT)? An insurance trust is an irrevocable trust set up with a life insurance policy as the asset, allowing the grantor of the policy to exempt assets away from their taxable estate. Once the life insurance policy is placed in the trust, the insured person no longer owns the policy, which
What is an Insurance Bond? An insurance bond, also known as an investment bond, is an insurance-related investment vehicle used primarily in the United Kingdom and Australia. The insurance bond is an investment instrument offered by life insurance companies in the form of a whole life or term life insurance policy. Insurance bonds best suit investors who use
What Is Insurance Coverage? Insurance coverage is the amount of risk or liability that is covered for an individual or entity by way of insurance services. Insurance coverage, such as auto insurance, life insurance—or more exotic forms, such as hole-in-one insurance—is issued by an insurer in the event of unforeseen occurrences. Key Takeaways Insurance coverage
