A life insurance company purchases $1 billion of corporate bonds from premiums c

Question

A life insurance company purchases $1 billion of corporate bonds from premiums collected on its life insurance policies. Therefore,

A) The corporate bonds are direct securitiesand the life insurance policies are direct securities.

B) The corporate bonds are direct securities and the life insurance policies are indirect securities.

C) The corporate bonds are indirect securities and the life insurance policies are indirect securities.

D) The corporate bonds are indirect securities and the life insurance policies are direct securities.

Explanation / Answer

Observe that the life insurance company purchases $1billion corporate bonds from the premium collected on the life insurance policies.

In this case the corporate bonds are the direct securities as the company is in the direct ownership of them and the life insurance policies are the indirect securities as the company transfers them to other individual who purchases them.

Therefore, the answer is part b).

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