# The Insurance Fund

> The Insurance Fund is a reserve inside the protocol, not an insurance policy. It stands in front of lenders for bad debt.

Canonical: https://spout.finance/docs/insurance-fund/

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The Insurance Fund is a reserve inside the protocol, not an insurance policy. It stands in front of lenders for bad debt.

## How it is funded

**Half of every protocol fee**: The protocol fee is 20% of gross premium (10% while the fund is at target); half goes to the fund and half to the treasury.

**Liquidation penalties**: What remains of every penalty after any cost of closing calls.

**Anyone can add to it**: The program lets anyone deposit USDC into the fund.

## Its target

The fund targets 2% of the pool's value. While it holds at least that, the protocol fee drops from 20% to 10%, so lenders keep more of the premium. If it falls below target, the fee returns to 20% and the fund refills faster.

Illustration

## How it is used

- It absorbs bad debt after a liquidation, before Junior.
- It covers the cost of closing calls during a liquidation once the borrower's penalty is used up.

- It does not top up Senior's 7% priority in weak periods.
- It pays no yield.

- It can only be spent by the program's loss rules. Changing that would need a program upgrade approved by the governance multisig.

## Where to see it

The fund is an onchain account. Its balance can be checked at any time. See What You Can Verify Onchain.