Act of God Bond

Act of God Bond

A high yield debt security backed by insurance premiums. Insurance companies issue act of God bonds in order to raise funds for hypothetical insurance payouts resulting from one or more stated events, such as floods or fires. The bondholder receives coupons from what the insurance company collects in premiums. However, if the insurance company suffers a loss from a payout of one of stated events, the obligation to repay the bond is either relaxed for forgiven. The main advantage to an act of God bond, despite the stated risk, is the fact that it offers a high yield without much regard for the performance of the broader economy because people as institutions will almost always set money aside for insurance premiums.