Equity funding

Also found in: Wikipedia.

Equity funding

An investment consisting of a life insurance policy and a mutual fund. The insurance policy is paid by the collateral value of fund shares, giving the investor the advantages of insurance protection with the growth potential of a mutual fund.

Equity Funding

1. An insurance policy paid for by a mutual fund. That is, the value of the shares of the mutual fund pays the premiums of the insurance policy. Equity funding can be useful because it provides the risk reduction of an insurance policy while allowing the policyholder to keep any returns from the mutual fund over and above what is owed for the premium. It is most common with life insurance. However, the practice is controversial, as it has been associated with the Equity Funding Corporation of America, which offered this investment vehicle. This company perpetrated massive accounting fraud in the 1960s and 1970s. Perhaps because of this, equity funding is not very popular with investors.

2. See: Equity financing.
References in periodicals archive ?
Equity Funding Corporation of America, which Fortune once referred to as the fastest growing financial institution in America, actually grew on the basis of fictitious life insurance policyholders and fictitious underwriting files by obtaining hefty reinsurance allowances.
With 50% of the company's business in this category, the asset base of the company couldn't grow, but the Equity Funding reinsurance agreements gave first-year coinsurance allowances of 180%.
Equity Funding therefore dutifully decided to kill off some fictitious policyholders to collect the death claim benefits from the reinsurers.
But while the industry has made many advances since the Equity Funding scandal and some safeguards have been put in place, has it gone far enough in the area of underwriting audits?