Insurance policies are widely considered to be financial instruments. Pension funds may contain many different types of financial instruments, although they are not always classified as such. Most tax regimes, including those in the United States, offer special treatment for the value of insurance instruments or pension funds.

One common definition of a financial instrument is a written, legally binding obligation by one party to conditionally transfer something of value, including money, to another party on a future date. All financial instruments should be able to serve as a store of value and a means of payment.

Most financial instruments are classified as debt or equity. Insurance reserves and pension fund investments possess elements of both debt and equity, so most regulatory agencies place them in a separate category. The International Monetary Fund (IMF), for instance, simply classifies them as "other." 

Treatment of Insurance Policies

Insurance, in its simplest form, is a written protection against uncertain risk for money. Even though basic insurance is not a security, it does promise the potential for financial transfer from one party to another.

There are other types of insurance contracts which develop cash value or provide other financial benefits. Some policies allow the holder to take out loans against the value of the policy. All of these are also financial instruments.

Treatment of Pension Funds

Pension funds are not like insurance policies; they are more analogous to insurance companies. The products offered by and contained within pension funds are financial instruments.

Pension funds exist outside of the U.S., but they are often called superannuation funds in Europe. Traditionally, pensions are vehicles of long-term risk capital allocation between issuers and retirement horizon investments. Low interest rate regimes across the globe threaten this relationship, as more households are assuming investment risks.