Many people have this concern about taking policies from Private Insurance companies . Let us try to understand about the factors which takes care of financial stability and ability to repay back customers there money . In reality the only things differentiates one insurance company from other is the service the provide , there settlement track record .
Want to know why Insurance is Important ? Read this
Solvency Margin
It indicates how solvent a company is, or how prepared it is to meet unforeseen exigencies. It is the extra capital that an insurance company is required to hold to meet all the claims which arise .
In other words , Solvency margin refers to the excess amount of asset the insurance company has to maintain over its liabilities. Basically, it is the amount the insurer has to stash away in order to pay the claims during emergency. IRDA requires the insurance companies to maintain a particular level of solvency margin for their smooth functioning.
Why is Solvency Margin there ?
Companies have Assets and Liabilities . In some adverse situation , Assets are used to payoff all the Liabilities . Suppose there is company which has assets of 100 , and liabilities of 100 . In ideal case it would be able to payback the liabilities . But what if some adverse situation occurs and liability increases unexpectedly . In that case company will be declared Insolvent (Bankrupt) . This will be a bad situation which every customer does not want to experience .
Thats the reason , Solvency margin comes into picture , The excess margin maintained by the company provides that extra cover which may be required in case some thing totally unexpected happens .
by the way , i am now on twitter , so you can follow me and get updates on twitter .
What is the current Solvency Margin ?
Current Solvency Margin is at 150% for Life Insurance Companies . It means for every Rs 100 insured the Insurer should have 150 with them .
Does it mean customers are totally safe ?
You must have understood Solvency margin till now , but what if some bad event of High Magnitude happens and then Liabilities of company (the claims they have to settle) crosses there total assets + extra margin , in that case they will not be able to pay back , but the chances of this happening is very very small , and generally Solvency margin takes care of it .
Some bad unexpected event like Earthquake or some terrorist attack which kills say 1000′s of people can dramatically increase Insurer’s Liability , but in most of the cases its always taken care by choosing adequate Solvency margin . But there are always that small percentage chances of the Failure which you have to live with and we cant do anything .
So what does it mean for us common Investors while choosing Insurance Products ?
Solvency Margin has to be maintained by all the Insurance Companies in India whether its Private or Public sector . All the companies are at same level , Some of them are old , some are new , some are big and some are small , but its same for all and everything is under IRDA norms and scrutiny. So decisions based on How safe or unsafe a company is not relevant now . Risk is with every company and that is equal for all .
So for people who are going to take Term Insurance , the best thing is to go with the cheapest price and good record of claim settlement . There are many new players in this market who are so new that we don’t have any long track record . like for Religare Aegon (which is my favorite) . So for term Insurance , just break your cover into 2 parts and take insurance from 2 companies to diversify the risk further .
Read tips while taking Term Insurance
Summary
This is what many people never knew and they take there decisions based on just trust and how long company has been in existence . Huh , people trusted Satyam and Lehman Brothers also , so what !!
Source : https://www.insurancemall.in/ and http://www.irdaindia.org/ .
{ 67 comments… read them below or add one }
Thanks Manish for clearing my doubts .Can you also explain us the things one should consider while choosing retirement plans /pension plans.
-Rai
@Rai
Thanks , While choosing Pension plans , there are same set of things to choose like Insurance , The other thing you have to see is how is there pension plans , what are the rules and does it fit in your requirement . What kind of costs do they have etc etc.
Manish
Hiiiii Manish….
Hw r u???
Tomorrow a news came that LIC facing a loss of 14000 cr. in three of previous pension plan…
i am providing u a link……plz go through it
http://www.istockanalyst.com/article/viewiStockNews/articleid/4671249
and this also
http://www.moneycontrol.com/news/cnbc-tv18-comments/lic-to-bridge-rs-14k-cr-losssurplusother-plans_499715.html
One thing which many ppl don’t knw is
“Full sovereign guarantee on LIC policies”
Plz include this in ur article.
Rajni
Rajni
Yea . I had a look already yesterday ! .
Manish
Dear Manish,
Break the term insurance into two so as to diversify your liability of insuring in one company that too for a term plan!!! Well Said.
Its this cautious attitude which people like me find very attractive in you.
You are the man Manish.
@Amarnath
Thanks for the wise words . Its the readers like you who know the importance of such things and you value it .
These small things make your Insurance Planning Exceptional . Everyone knows Term Insurance is best , and knowing that is wonderful , but these tips and tricks make your Insurance Planning "Best" from "Good" .
Manish
Whether they are safe or not, the matter of fact is its very difficult to get an Insurance Claim from them.. Getting cliam from LIC is still easy..
After all the private player is also working to earn money rather than do charity… Your claim is a loss to the pvt player which it always tries to minimize
Thanks for sharing the light.
That was awesome explanation.
Insurance is a long term commitment so do a due deligence and THEN take a policy.
Also read/take advise from people like manish, experts, etc.
Not so good idea to trust the suggestions from family members and friends because they are really not experts!!! and especially from agents and employees from Insurance companies cos they never tell the truth, they only bother about their comission amount.
- Sekhar
@Karan Batra
I am sure if the claim amount should be seen as Losses to Insurance company , Cliams more than expected will be loss . Insurance business depends on probability . They already have a good idea of how many people will die and will claim besed on historical data .
If there are more than expected claims, i would say its a loss then .
@Sekar
Yes , When it comes to money , dont beleive anyone other than a knowledgable and qualified person .
Manish
Dear Manish
If I have a term insurance policy for around 50 lakhs.. And I die tomorrow..:-(
Which company will settle the claim with the minimum hassle..
Which company will create the minimum of harassment for my wife..
Public sector or Private.. ?
which company will refuse to pay because of some obscure fine print clause…
Overall, which company will be very aggressive in trying to refuse the claim..
Public sector or Private.. ?
This is more important than the cost of the insurance premium
Please Manish enlighten us on this..
Dr Khan
@Siraj
Insurance is just another Business , You might be taking it in a different way , you are thinking that Companies deliberately try to reject the claim just to save money . thats not the case .
If there are issues , like Suspicion about the wrong data given about Health , or any fast which demands inspection , Every company will do their part of doing investigation and at the end , It will reject the claim . It does matter at that time if its LIC or some other Company .
Even LIC has big number of claims rejected . LIC is not a fullproof Solution . No one can ever be.
from our side . We can do this
- Diversigy the risk by spliting the cover
, ok kidding 
).
- Make sure you give 100% correct data .
- Make sure you die in the best possible and transparent way
Manish
Manish, I can’t stop laughing like at your comment – “Make sure you die in the best possible and transparent way.”
Deep Chand
yea .. I thought a lot before putting that .. some humour while financial planning is must
manish
LIC SETTEL CLAIM FASTER THEN PRIVATE .IN BOMBAY BOMBLAST LIC PAID 100 CR IN JUST 11 DAYS AND SEE WHAT CLAIM PAID BY PRIVATE .MEANS MORE ND MORE PEOPLE BUY LIC WHO TRAVEL IN FIRST CLASS .
LAST YR CASE PRIVATE INSURNCE REJECTED CLAIM SAYING THIS IS PRE PLAN MURDER . LIC PAID NR 10 LAK CLAIM TO SAME PERSON
10 YR PASED WHAT BONUS THIS PRIVATE CO HAD DECLARED ,THEY SELLING MOSTLY ULIPS WHICH IS CREAMY INCOME FOR THIS CO DUE TO HEVY HIDDEN CHARGES .
I agree that claim settlement is one area where pvt companies have to improve , however i would say most of the rejection happens because of customer wrong data and lack of action against insurance claim . One has to take it forward . but i agree that LIC is best in claim settlement
Manish
lic is best lic claim settlement ratio is 97% in google search type lic top in claim settlement and read the article
lic is the safest bet,its a matter of life insuring and incase of another reccession you might see your money wiped out,so dont run with risk
@Dinesh
Please give us the reasons for saying “LIC is the safest bet” … why ?
Its nothing against LIC , its against the statement , I would still question if you say that for SBI , Kotak or whatever ..
Apart from that , Also give reasons for not trusting other companies and reasons you think they will fail . What do you think about IRDA specifications and How it can fail in making sure that all companies are safe .
Manish
Because in today’s day and age, you don’t want to be tensed as to where your money is going.
With LIC ,I feel its more secure and at th time of maturity claim they come forward openly and give you the returns.
The rules of IRDA for debt ratios n margins has been met by all he companies but at bad times for companies these margins will be met obviously by loans.
It is just a precaution just te way taking LIFE INSURANCE is.
Dinesh
Are you happy with the returns from those polices . If yes , then its fine to invest in them . I feel anyone can achieve more returns with same safety (long term MF + PPF) using other instruments . Safe is not always the best .
What do you think is the return from LIC , its well known that the returns from Polices (any endowment) hardly beats inflation .
How do you define Safety? If you invest your money somewhere and get more than what you invest , Is it called safe ? I do not agree with this . Your Thought ?
Please reply.
Manish
In PPF the returns are safe i agree, MF 60:40, but none of these instruments provide the same tax free return as well as an high insurance cover during the complete period.
The return from your two said intruments cannot fulfil the needs of a family at a time of unfortunate demise.
The safety part is not only the return that you get, its the amount recieavable at time of demise which lets the dependants fulfill their needs and maintain the same standard of living
Unless your saying to take a long term MF + PPF and an insurance poicy.
hmm.. Acutally I was talking about investment part only . Definately life cover should also be taken through a pure term cover .
So what I mean to say at the end is take PPF + MF for invest ment and take Pure term cover for Insurance needs and a good Family Floater for Health Insurance . This will anytime beat Endowment polices or any other instrument .
manish
Pay LIC only 10,000/~ monthly for 25 yrs & get 1 crore , life cover of 50 lacs , 90 lacs in case of accident
Manish don’t you think a return like this is meeting inflation,return and cover.
thanks
Dinesh
Dinesh
What policy are you talking about ? Also please let us know the return generated on this policy , IRR of the policy
Manish
The IRR is 7.75%
Thanks
Dinesh
Which policy is this and how does it compare with Term Insurance + MF (equity diversified funds) for long term .
Do you think 7.75% return from long term policies is what investors should aim for ? What are your views ?
Manish
jan 18 2010,
According to the Insurance Regulatory and Development Authority (Irda), around 9.1 million policies lapsed in 2009 and some private sector insurers have shown a lapse ratio as high as 50% or even more
ICICI-53%
RELIANCE-40%
AVIVA-59%
BHARTI AXA-46%
SHRIRAM-41%
KOTAK-19%
LIC OF INDIA-4%
Thanks
Dinesh.
The settlement rate in LIC is good/higher than other private sector insurance companies. These private companies has their new rules for settlement. At the same time, LIC is old trusted name. IRDA should come up with new set of rules for claim settlements. After all its long commitment. what do you say?
Yes , i think there should be some common ground rules framed by IRDA for settle ment process . nice idea .
Manish
Hi manish,
One area where LIC scores over its peers is that it offers term policy(jeevan amulya) for 35 years while the rest offer a max of 25 years.
.
Given that the age 50-70 is a very high risk age(try taking an insurance at the age of 50 and see how much premium they charge), that one will be covered during this age at a very minimal premium itself is an added attraction. Though I have to add that the coverage itself will be reduced by a huge margin due to inflation but then so will be the premium.
If one takes insurance at an age of 25 yrs and again at 35 yrs, each will mature at the age of 60 and 70. Considering the average life expectancy in india is 60-62, there is a very high chance atleast one will produce returns with a little grace from god
hmm.. I would consider that by the age of 50-55 one will create enough wealth through strong investment planning , so the requirement of Insurance will be lesser that time compared to what one needs in 25-30 age .
LIC offers the cover for 35 yrs , yes , thats the best part .
Manish
Manish,
Can you explain how the policies can be diversified in more detail with examples.
Keep up the good work.
Regards,
Joel
calculate your insurance requriement , split it in 60:40 or 50:50 and choose 2 good insurance providors . that easy .
what part you are confused with ?
manish
Hi Manish,
Good job man !!
Yes, I am also the strongest believer in the MF+Term Plan against ULIP.
Saying that, I would also mention that I have a ULIP from TATA-AIG (Jeevan Lakshya) with a yearly premium of 20k for 20 years. (Had to take that as the agent was my childhood friend…), but since its for quite a long term, am ok with that.
I am 24, and have invested around 1 lakh in MFs in the last couple of years.
Planning to take Jeevan Amulya Term plan from LIC for 35 yrs for S.A of 25 lakhs.
Manish, any other Term plan that I can look into ?
Though I know its grossly unjust, but I am a little wary of buying term plan from any pvt firm. Dont know why…..
Any suggestions is welcome.
Suman
Can you share IRR of your Policy with 10% return consideration . It would be a good exercise to find that .
Regarding Term plan , you can go with LIC. may be you want to look at other companies like SBI , HDFC & Aegon religare . Regarding private companies read : http://www.jagoinvestor.com/2009/02/are-private-insurance-companies-safe.html
Manish
Considering 10% IRR, my return would be 5,11,017/- after 15 years from the policy, hoping that I get more……!!! Dont have the exact details for 20 years….
Aegon Religare iTerm plan is really cheap, immediately raises a question in my mind, how can they provide insurance so cheap !!!!
For a 50 lakh SA for 25 years, my premium would be 4400/-…….unimaginable !!!!!
1 crore- 8200/-, my vision seems to be blurred, am i reading correctly !!!!
How do you get the figure of 10% IRR . As per 10% illustration the best ULIP (AR) has the IRR of around 8.5% .. ask your company to give you IRR .
Regarding 4400 as premium for 50 lacs , yes thats correct .. thats mainly because of no middlemen and no sales cost in between .. as per the info given to me by AR representative .
manish
I think Aegon’s iTerm is just a way to earn Money by Aegon Religare. They know that cheap insurance will attract people to buy them and hence they end up buying a policy that have premiums by no claim amount if it arises. Just a Total waste of Money in Favor of Aegon’s Pocket. Best insurance is Term insurance by LIC with no Claims pending Record. In LIC you can at least expect that you will get the claim amount.
pankaj
What is the basis of your comment ? There are many companies which have less premiums than LIC . Is the same things not applicable to them ? Why is this comment for Aegon Religare iTerm plan ? Do you have any insider information for this ? Do you think IRDA has nothing to control here ? Please share your views .
Manish
First of all i want to clarify that i have just given an example of Aegon because it has the cheapest premiuims. I have no personal problem with Aegon. Now my View is simply that the premiuim amounts set by companies are based on their past experiences ( based on the number of claims they get i.e mortatlity rate) but some new companies just for competetion are putting cheaper prices for the policies. This is just like marketing a Cheap SIM Card Plan. But Human Life is a Crutial Asset and the prices of premiuims should be as per the mortality rate. Problem comes when due to minor issues Claims are not settled.
Pankaj
The premium of Iterm is cheapest or the least because the other costs have been avoided like marketing cost and middleman cost like agent . thats why the premium is lowest here .
Manish
Manish,
You are living in India…where anything and everything can be manipulated….how much contol does IRDA really have…Indian Courts are full of Pending cases…Thoughts ??
Term insurance, the differentiating factors should clearly be :
1. Settlement claim – Most critical factor. If a company rejects claims on flimsy grounds, no point in taking its policy. Due diligence needs to be done
2. Cost – After the settlement claim factor is settled, go for the cheapest option.
lic wealthplus plan similar to the reliace ,birla and bajaj but has the cheapest fund management charges n allocation charges
dinesh
Dinesh
Please refrain from leaving your contact id or contact number in comments. its against the comment policy on jagoinvestor unless i allow explicitely . Thanks for understanding
manish
ohh ok sorry will keep that in mind the next time i comment
Dear Manish,
To be or not to be!!! A situation through which we all have to pass while selecting Type of insurance policy and companies from whom we will buy.
Brainstorming about private or LIC on your site is worth reading.
How one can find settlement record of the companies? for all policy, term, endowment, ULIP? Is IRDA provide this data?
As we need to have pakka data on which we can take important decisions like insurance.
We should not make private VS LIC thinking. After all LIC also is an for profit company. If LIC is & was so concern about our insurance and not commission then why we don’t get call back from our agent when we ask about term insurance?
We should impartially do analysis and think to arrive on our choice of insurance company.
IRDA should promote term insurance as a concept and should also provide, communicate surety they provide to customer while they buy insurance products from private insurance companies. Then only we will be able to take benefits of liberalization of insurance sector.
If some one share data for % of term insurance to other polices, private vs LIC, what they sell will give much needed light .
Thanks for thought provoking blog. I thank you for such good service of disseminating, simplifying simple looking but highly complex world of insurance, that too with admirable speed and style.
Keep it up.
Bhavesh Desai
Bhavesh
Annual reports from IRDA is available for public at . It might not contain all the date you want .
I agree with you that IRDA should take a lead in educating investors about the Term insurance .
Thanks for your comments
Manish
Hi Manish,
I would like to go for preferred term plan from Kotak.
Sum assured is 40lakhs.
How safe kotak term paln.
ravi kanth
Ravikanth
Its as safe as others .. What are you looking in safety ?
Manish
Hi,
Pls any one can suggest for SBI SHEILD Term Insurance Plan (Increasing Option) its best thing I have seen in the Term Plans over the Net.
And its SBI too……
Is it worth or sum more research had to be done in this regard. ?
-Vinay Sarda
Vinay
You can go for it , What exactly do you want to hear to get convinced , any thing specific ?
Manish
Hi,
Manish I had taken SBI Sheild Term Plan Increasing cover with (TPD & AD Rider) 2 months back . And now ICICI Pru Life had come with there Online Term Plan named iProtect which is around 50 % cheaper then what I taken ? So what to do now ?
And also new Mortality Rates are coming in couple of months acccording to IRDA which might be 15-20 % lower then existing ones ? Will this benefit been transfered to exisitng customers if they wanted to ?
Vinay
You have paid one premium already , so this year is gone , but from next year ,they will pass on the benefit , if they do not, stop your policy that time and take the new one
. no big deal
Manish
Hi,
I’m holding a 40L term insurnce with HDFC. It is about to be renewed. Could you please let me know if it is a good one to go with(w.r.t claims) or i should choose a different provider.
Thanks,
Sathiya
Sathiya
The claim figures you can get from IRDA report . as per my understanding the claim figures are ok .
Manish
im 45 years old and planning to take a term plan worth 35lacs..the LIC premium for my age is 27000…while other private companies like kotak(18000 Rs.)offer much less premiums…should i go for private players….are there any settlement issues with them as they provide such a less premium…or simply go for the trusted LIC
abhi
As far as your provide right info in the form while taking up the policy , there should not be an issue , however for the best case you can take 20 lacs from LIC and rest from kotak or SBI (SBI recently came up with a new term plan which is cheaper)
Manish
thanks…i am going forward n taking the all new and enhanced sbi smart shield….a great term plan from SBI…cheapest in its category…n has some handsome riders as wel…is suppose manish shud let everyone know about this plan…it simply awesome…and from SBI…so no issues…
Abhi
Is it cheaper than Kotak ?
Manish
for higher sum assured….yes….2-5% cheaper than KOTAK…
hmm .. nice to hear that , can you tell exact premiums and from where did you compare them ?
Manish
when they say, new entrant into private life insurance industry has to invest necessarily 100 crores as equity paid up., where do they nirmally invest? cd you pls.expalin on the above?
rana.p
Sadagopal
Who says that ?
Manish
I also heard that in case of bankruptcy, the IRDA norms says that a set of other few insurance companies need to come together and buy the bankrupt company. They need to do it and its a part of a process while granting the insurance license to them
Do you have any idea. BTW the information was given to me by AG executive
Parag
Yes , other insurnace companies will be buying the insurance company which will go bankrupt , but IRDA norms are very strict in mmaking sure companies are always above the water level . so its very very rare
Manish
Thanks for the Info .
I think it is because of the faith in LIC that people keep continuing the policies . Can you also divide this info in Term Insurance / ULIP / Endowment plans . What ratio of this is what .
Can you also share the source of info . thanks
Manish