Contractual Financial Institutions

Life Insurance companies have been classified as "Contractual Financial Institutions "

Mutuality & Diversification

It is one of the most important ways to reduce risk in financial markets, the other being diversification

Diversification

• The  funds are spread out amount various assets (placing the eggs in different baskets)
• we have funds flowing from one source to many destinations

Mutuality 

• Under Mutuality or Pooling, the funds of various individuals are combined (Placing all eggs in one basket)
• we have funds flowing from many source to one