Which of the following accurately describes the investment strategy of life insurance companies?

Which of the following accurately describes the investment strategy of life insurance companies?

• A. Invest primarily in government securities
• B. Focus on short-term market trends
• C. Invest in bonds, stocks, and mortgages
• D. Engage only in real estate investments

Answer: (C)

Life insurance companies typically adopt a diverse investment strategy in order to meet their long-term financial obligations and manage risk effectively. Choosing to invest in bonds, stocks, and mortgages allows these companies to create a balanced portfolio that can provide steady returns over time. Bonds are a primary component of their investment portfolios because they are generally considered safer investments, offering fixed returns that align well with the long-term payout obligations of life insurance policies. Stocks provide the potential for higher returns, while investments in mortgages enable them to capitalize on real estate markets, further diversifying their assets. In contrast, focusing solely on government securities would limit the potential for returns and may not adequately address the company's investment needs. Similarly, an emphasis on short-term market trends could expose the company to increased volatility and risk, which is typically counterproductive for the long-term financial stability required in the insurance sector. Finally, engaging only in real estate investments would restrict their investment strategy, compromising the diversification that is crucial for mitigating risk. The investment strategy of life insurance companies is, therefore, characterized by a well-rounded approach, making the option that includes bonds, stocks, and mortgages the most accurate depiction of their operational investment strategy.

Life insurance companies typically adopt a diverse investment strategy in order to meet their long-term financial obligations and manage risk effectively. Choosing to invest in bonds, stocks, and mortgages allows these companies to create a balanced portfolio that can provide steady returns over time.

Bonds are a primary component of their investment portfolios because they are generally considered safer investments, offering fixed returns that align well with the long-term payout obligations of life insurance policies. Stocks provide the potential for higher returns, while investments in mortgages enable them to capitalize on real estate markets, further diversifying their assets.

In contrast, focusing solely on government securities would limit the potential for returns and may not adequately address the company's investment needs. Similarly, an emphasis on short-term market trends could expose the company to increased volatility and risk, which is typically counterproductive for the long-term financial stability required in the insurance sector. Finally, engaging only in real estate investments would restrict their investment strategy, compromising the diversification that is crucial for mitigating risk.

The investment strategy of life insurance companies is, therefore, characterized by a well-rounded approach, making the option that includes bonds, stocks, and mortgages the most accurate depiction of their operational investment strategy.