Final answer:
Life insurance companies predominantly hold government bonds as assets due to their low-risk profile and high liquidity, which is crucial for meeting potential claim payouts.
Step-by-step explanation:
Life insurance companies primarily hold a significant amount of bonds as part of their assets. These are typically government bonds, which are favored due to their low-risk nature, as the government is almost certain to fulfill its obligations, ensuring a steady stream of payments back to the company. Moreover, bonds issued by the U.S. government are considered highly liquid, making them desirable for insurance companies that need to be prepared to pay out in case of unforeseen major disasters.