POSTED BY November 26, 2013 8:11 pm COMMENTS (2)ON
I am a regular reader of ur articles. i liked d present article and new term of SQ (Security Quotient) also.
I have a question about d private companies in the insurance sector. are they really trustworthy ? is there any guarantee of our money or our policy with them if they go bankrupt or some other mishap happened to the company? has IRDA any provision for security of d policyholders if no other company comes forward to take over such a company ? why do these companies have very less premium compared to that of LIC ?
plz answer these questions.
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2 replies on this article “Are Life Insurance Companies really trustworthy ?”
Why are premiums different?
Every insurance company assesses the risk differently and accordingly decides the premium. So if Company A assesses your risk to be low, they will offer you lower premiums. But if Company B considers you to belong to a high risk profile, then they will offer you high premium amount.
There are some other factors also which determine the premiums. Much like any other product, competition is also a factor. Just as affordable prices for a product attracts more customers, here too more affordable premiums for the same benefits will attract more customers. So some company may charge a lower premium to attract more customers while some companies will continue with their premium pricing.
Indian insurance market was opened up only in the year 2000. Before that there was only LIC with no competition. So you will now find a lot of aggressive products and pricing being launched by different companies to reach out to a larger number of customers.
Yes Jagoinvestor is a great website for financial awareness and his article on Security Quotient is great
Coming to your question – an interetsing question – Can private insurance company go bankrupt?
Solvency Margin is the amount the insurer has to stash away in order to pay the claims during emergency.What if an Earthquake happens in some part of India and hundreds or thousands of innocent people are hurt or killed? Will the company have enough funds to pay all of the insured people? This is exactly why we have a Solvency Margin
IRDA Mandates that Insurance Co.’s operating out of India maintain a Solvency Margin of 150%. It means that, for every Rs. 1000/- insured by XYZ Insurance Co in India, they have to keep Rs. 1500/- with IRDA.
So an insurance company cannot become bankrupt