Categorized | Life Insurance

Could Your Life Insurance Company Fail?

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Life insurance policies provide your family the much needed financial stability in case of your sudden demise. This becomes all the more essential when the breadwinner of the family is gone suddenly. Your family can still meet their vital needs and maintain the same standard of living that was available that they had earlier. However, what if the insurance company goes bust?

Like in case of a bank, your insurance company could also go bankrupt. However, this does not mean that all your hard earned money is gone forever and you are left penniless. This is because every Insurer is monitored by IRDA (Insurance Regulatory and Development Authority) on a regular basis. The insurer is also supposed to maintain a solvency margin for recovery in case of an unfortunate incident.  

What are the Safety Measures


There are various measures and regulations undertaken by the government and IRDA so that your money is always safe, even if the insurer goes bust. There are various strict guidelines and regulations that ensure that one or two serious incidents or financial loss doesn’t result in the company going down. The two main acts that cover all these regulations and are the foundations of various activities that are carried out in the field of insurance are:

•The Insurance Act 1938 

•The Insurance Regulatory and Development Act 1999 

The various guidelines and regulations are the following:

•Every insurance company has to be registered and needs a license from the relevant authorities. This will prevent fraud companies from carrying out their illegal operations and duping investors.

•The process of registration and renewal has to be strictly followed by every insurance company. 

•A solvency amount of Rs 150 crores has to be submitted with RBI, under IRDA. This is safety deposit money that is kept for compensation to customers in case the company goes bankrupt.
 
•Every insurance company is required to be attached to a re-insurance company. The re-insurance company will take up the legal responsibility of Reimbursement of insurance claims of customers, in case the insurer goes bankrupt.

•There are strict regulations regarding the minimum capital requirements, funds, accounts and management of the companies. 
 
•There are also strict guidelines regarding the amount of cash companies can invest in stock markets, individual stocks etc.

What Else Can You Do?

On the other hand, to be doubly sure, you might invest your money with different insurers in different policies. This reduces the Risk of losing all your insurance cover in case one of the insurers goes bust. However, it has a downside that you will be paying a Policy fee for multiple policies to different insurers. Also, you will be missing out on the discounts and other benefits that one insurer gives on a single bulk policy. Also, when you get life insurance, you must go for online life insurance that will enable you to choose the best and most reliable insurance company.

With the strict guidelines and regulations, it is almost impossible for any insurance company to go bankrupt in India. You can therefore be confident and fully Assured that your hard earned money will be safe with the insurance companies. If at all anything unfortunate happens, IRDA and the Finance ministry in the Central government will ensure that your and other customers’ issues are addressed and your money recovered.