Locked Funds Insurance

Locked Funds Insurance

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Locked Funds Insurance
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...

is a little known hybrid insurance policy jointly issued by governments and banks. It is used to protect public funds from tamper by unauthorised parties. In special cases, a government may authorise its use in protecting semi-private funds which are liable to tamper. Terms of this type of insurance are usually very strict. As such it is only used in extreme cases where maximum security of funds is required.

Locked Funds Insurance policies are not exactly insurance policies in the real sense. They possess characteristics similar to both ordinary types of insurance covers and International protectorate
Protectorate
In history, the term protectorate has two different meanings. In its earliest inception, which has been adopted by modern international law, it is an autonomous territory that is protected diplomatically or militarily against third parties by a stronger state or entity...

 documents therefore they are more correctly known as hybrid
Hybrid security
Hybrid securities are a broad group of securities that combine the elements of the two broader groups of securities, debt and equity.Hybrid securities pay a predictable rate of return or dividend until a certain date, at which point the holder has a number of options including converting the...

 policies.

They exist in 4 main classes: Class A, B, C and D (in decreasing order of strictness of terms). Additionally, these could either be "Interferral" or "Non-Interferral". The Interferral category allows its terms to be modified by special authority of the issuing government
Government
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...

 while the terms of the Non-Interferral category can only be modified by clauses present within the policy itself.

Locked Funds Insurance policies provide the highest level of security
Security
Security is the degree of protection against danger, damage, loss, and crime. Security as a form of protection are structures and processes that provide or improve security as a condition. The Institute for Security and Open Methodologies in the OSSTMM 3 defines security as "a form of protection...

 for funds and are rarely used because of the amount of protocol involved in its issue. Any amount of money protected by this type of cover is virtually impossible to tamper with, except the terms with which the insurance was drawn permits for such.

In effect, it eliminates unauthorised tamper for funds usually in excess of US$1,000,000 (One million United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 Dollars).