A security backed by life insurance which is derived by pooling together a number of transferable life insurance policies. Similar to mortgage-backed securities, the life insurance policies are pooled together and then repackaged into bonds to be sold to investors.
If the person lives longer than expected, the bond's yield will begin declining. However, because the death bonds are created from an underlying pool of assets, the individual risk associated with one policy is spread out, making the instruments more stable.
If the person lives longer than expected, the bond's yield will begin declining. However, because the death bonds are created from an underlying pool of assets, the individual risk associated with one policy is spread out, making the instruments more stable.
Courtesy: Investopedia (Original Post @ http://www.investopedia.com/terms/d/death_bond.asp)
