Portfolio Insurance

1. A method of hedging a portfolio of stocks against the market risk by short selling stock index futures.

2. Brokerage insurance such as the Securities Investor Protection Corporation (SIPC).

Investopedia Says:
1. This hedging technique is frequently used by institutional investors when the market direction is uncertain or volatile. By short selling index futures they offset any downturns, but they also hinder any gains.

2. SIPC is an insurance that provides brokerage customers up to $500,000 coverage for cash and securities held by a firm.

Related Links:
For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them. Futures Fundamentals
Learn how investors use strategies to reduce the impact of negative events on investments. A Beginner's Guide To Hedging

The use, by a Portfolio Manager, of Stock Index Futures to protect stock portfolios against market declines. Instead of selling actual stocks as they lose value, managers sell the index futures; if the drop continues, they repurchase the futures at a lower price, using the profit to offset losses in the stock portfolio. The inability of the markets on Black Monday to process such massive quantities of stock efficiently and the subsequent instituting of Circuit Breakers all but eliminated portfolio insurance. See also Program Trading.