DEFINITION of 'Act Of God Bond'

A bond issued by an insurance company, linking principal and interest to a company's losses due to natural disasters. Act of God bonds are issued by insurers to protect against unforeseen events.

BREAKING DOWN 'Act Of God Bond'

Such bonds create flexibility for insurance companies if an unforeseen natural disaster occurs. Because principal and interest depend directly on losses resulting from natural disasters, the insurance company can soften the financial strain by delaying, reducing or eliminating payment of the bond.

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