Whenever we try to buy an insurance product from a private insurer, then all of us have a huge concern like “What if my insurance company goes bankrupt in India?”. Because since long we believe in LIC and not in private insurers. Let us see this what IF.
There is a huge crowd of LIC agents or believers who strongly propagate the idea that LIC is SECURE. Because it is backed by the Government of India. Therefore, no cause of any such default or bankruptcy. Hence, if we want to invest in any insurance product then it must be with LIC only.
However, there are some other people, who propagate the idea that private insurance companies are as safe as LIC. So whom to believe?
Let us see some rules and regulations attached to regulating insurance companies in India.
Who can start Insurance business in India?
It is not you or I can start a business by registering the company. The company needs IRDA approval. However, there are some strict rules attached to it and will be monitored by IRDA. The company must have proven track record of at least 5 years with profit in each quarter of a financial year. Capital required to start a business is Rs.100 Cr. IRDA can suspend the license of a company in case it found to be-
What is the solvency margin of an insurance company?
It is nothing but a cash reserve the insurer has to keep in order to pay the claims during an emergency. IRDA requires the insurance companies to maintain a particular level of solvency margin for their smooth functioning. In other words, it is a size of capital relative to the risk it has. If an insurance company insured Rs.1, 000, then they have to keep aside Rs.1, 500 with IRDA as a solvency margin.
Let us say due to earthquake or any unforeseen accidents, an insurance company faced the huge cash requirement to settle the claim. In such situation, this solvency margin is utilized for any such emergencies of company need. As per IRDA rule, this solvency margin must be 150%. Higher the solvency margin indicates company better equipped to pay off its debt and can sustain in the long run.
You can check the latest solvency ratio of all insurers in the IRDA Annual Report. LIC manages the LOWEST SOLVENCY RATIO!!! Why so? Because, for LIC if it is managing less than mandatory solvency and if any such emergency arises then the Government will back and infuse the fund to manage it. Then who is using this money (by keeping the lowest solvency ratio)? It may be either Government or LIC. If they both are using it and actually generating better returns on it, then why can’t pass the same to all LIC customers?? No data on how it is utilized and in what way Government or LIC benefitting to customers.
Below is the list of companies with their solvency margin as per IRDA Annual Report 2013-14.
Even if a company decided to close or wind up the business then what?
If any private company willing to wind up its business, then they can’t do as and when they wish. There are some regulations to it also. If any company willing to wind up an insurance business then it has to merge with a new company and then bail it out of this business. In this way, an insurance company can’t close business and run away from the responsibility towards an insured person. The detailed guidelines are available HERE (You can read if you are interested).
Therefore, when it comes to insurance regulation, including LIC all companies are equal and have to adhere to rules of IRDA. Hence, without any hesitation, you can buy an insurance product with private insurers too.
Hope with these strict regulations it is hard for any company to wind up its business overnight. Any suggestions, points or doubts??
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Thanks a lot for the information. Is this applicable for health insurance as well?. What if the existing company goes bankrupt and our policy getting transferred to a different insurer, do the T&C of the original policy change? Will there be any impact on our claim made during the transfer process or it will remain as such for us?...I'm specifically asking this because a medical emergency can happen any time and during that period these type of formalities should not come our way. In that case is dealing through a TPA better than direct insurance company as they handle different companies?
Dear Sanju,
It applies to health insurance companies too. When you move to a new insurer, the policy conditions and features will continue as usual.
Thanks for the clarity. I was looking for exactly something like this to clear my doubts regarding private firms. But seeing Sahara there in the list with high solvency actually puts some doubts again. What is the reason that so many people are still waiting for the payback from Sahara, even when it has such high solvency?
Dear Saurabh,
Sahara insurance issue is different than Sahara depositors. Sahara Life Insurance was taken over by ICICI Life Insruance.
Thanks for the article, its atleast clear most of the doubts we have while opting insurance from pvt company. So is the understanding is correct that your term insurance is always remain safe and even if the pvt bank is bankrupt, bcoz other bank would collabrate and take the responsibility of the insurance taken by each individual, even if they have to pay the insurd amount to thr nominee.
Dear Surya,
Yes, but insurance company not the bank.
ARE AEGON RELIGARE INSURANCE COMPANY GOINT ON LIQUIDATION OR ANY PROBLEM THEREIN ?
Dear Ravi,
I am not sure about this nor wish to comment and create speculation.
If I buy bajaj Allianz pos gosl plan. Maturity benefit will be after 15 years so if meanwhile company gets bankrupt or closes down then what will happen to the premium i paid and my maturity amount?
Dear Anand,
Refer above post.
How about taking a term insurance policy with Aegon life as they are owned by the tata group? Are they secure?
Dear Lynton,
Yes, you can.
sir can u please tell me about Indiafirst life insurance company is it stable this company is not so much famous in the market buying any term plan upto 85 years of age with my present age of 25 years can this company be stable upto this time period
another question
what if a life insurance company goes bankrupt and it have to merge with another companies according to rules
but but another company does not want to acquire it??????? hen what will be the position of policyholders
Dear Harsimranjeet,
If you feel risky, then why to go??
I have bought bajaj Allianz pos gosl plan. Maturity benefit will be after 15 years so if meanwhile company gets bankrupt or closes down then what will happen to the premium i paid and my maturity amount?
Dear Krishna,
How come this RESEARCH after buying the policy?
While buying a term plan, shall I buy directly or through the agent?
Dear Milind,
Better directly.
Hello,
For my safety if i purchase term plan from two different companies out of which one is LIC . After that if LIC settles the claim then another PVT company has to settle claim or it can deny the same even if LIC had settled.As both are working under IRDA rules, What will happen in this case . Kindly revert .
Dear Viraj,
There is no obligation or such rule that if one company (whether LIC or someone) settles the claim means another company has to settle it.