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In: Finance

Is hedging an insurance policy ?

Is hedging an insurance policy ?

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Expert Solution

No, Hedging is different from insurance although both are done for covering risk.

Insurance and hedging both reduce your exposure to financial risk, but they do so in different ways. Insurance typically involves paying someone else to bear risk, while hedging involves making an investment that offsets risk.

Insurance is basically passing risk to the other party who is willing to bear the risk when the unexpected event occurs on insurable interest. its basically protection on uncertain loss while hedging is protection of loss against price movement of the underlying asset due to factors like inflation or interest rate changes

jeff jeffy answered 2 years ago
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