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Definition of 'Death Bond'
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.
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Investopedia explains 'Death Bond'
Death bonds provide investors with an unusual instrument that is less affected by standard financial risks. The only risk of holding a death bond lies with the underlying insured person. 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.
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