Its been a long time since I wrote.. may be 3 months or so. Should I worry for this? is 3 months a long time? i realise the feeling is due to the global meltdown that is sweeping the financial sector perse. Life insurance is not an exception infact it is one of the member to the party. Its big brother, the banking sector has taken a big hit in the meltdown... is your insurance comapny safe?
The safety of the insurance company can only be measured by the exposure it has to the various investment avenues. world over regulatary practices for insurers mandate a definite risk minimization, though not below a level. Prudence lies with the insurers in self regulation. The affairs at the insurance behemoth AIG is a saga that reveals the otherside of the company. The government has to come for its rescue by infusing funds.
your insurance problems can stem from two ends in this scenario. first is the above situation where the asset or life fund management problems by the insurer. For want of higher returns the insurer would have taken higher exposure to say a madoff hedge fund or a much cursed mortgage funds. This is going to imapact not only the company and the policyholders but also other associates. The wrong decisions of a group of people can give you a sleep less night.
the other side of the problem is your unit linked policies. ULIPs have become increasingly popular during the bullish markets. For example in India, some of the insurers do not have the traditional products and only offer ULIPs. with the stock markets falling across the world (ex: tokyo nikkie 42%, Dow 36%; sensex more than 50%) the NAV of most of the ULIPs are hovering below the par price. A random check of all the indian life insurance companies NAVs reveal the drastic fall in the values.
Do you need to worry?
As I mentioned in earlier articles, if you are putting all your pension in ULIPs, think twice. The present problems may only be short lived. May be after a year or two things may be bright, up and running. your NAV may again go up bringing cheer to you.. but, what if your funds mature during this period and you are forced to have your benefit, which would have fallen more than 50% than what you expect. some of the companies do offer a spread period. i.e. say your policy is maturing in 2010. if the market is not good and the NAV is too low then you have an option to choose a spread period. You will have option to encash it in next 5 years. You may have to check if this provision exists in your policy or not.
The global slowdown has made our indian life insurers to go back to the old school.. the guaranteed return policies are back. LIC's Jeevan Astha has some good features. Also IDBI fortis, AEGON Religere have come with guranteed returns on a 7 and 10 years horizon.
If you observe, the bank FD returns are peaking at 9-11%. The stock market returns are now very poor and mutual funds are having their worst phase. If you are getting your life insurance at a return around 9% taking the tax benefits into consideration, this can prove to be a wise investment in these guraranteed return products.
The safety of the insurance company can only be measured by the exposure it has to the various investment avenues. world over regulatary practices for insurers mandate a definite risk minimization, though not below a level. Prudence lies with the insurers in self regulation. The affairs at the insurance behemoth AIG is a saga that reveals the otherside of the company. The government has to come for its rescue by infusing funds.
your insurance problems can stem from two ends in this scenario. first is the above situation where the asset or life fund management problems by the insurer. For want of higher returns the insurer would have taken higher exposure to say a madoff hedge fund or a much cursed mortgage funds. This is going to imapact not only the company and the policyholders but also other associates. The wrong decisions of a group of people can give you a sleep less night.
the other side of the problem is your unit linked policies. ULIPs have become increasingly popular during the bullish markets. For example in India, some of the insurers do not have the traditional products and only offer ULIPs. with the stock markets falling across the world (ex: tokyo nikkie 42%, Dow 36%; sensex more than 50%) the NAV of most of the ULIPs are hovering below the par price. A random check of all the indian life insurance companies NAVs reveal the drastic fall in the values.
Do you need to worry?
As I mentioned in earlier articles, if you are putting all your pension in ULIPs, think twice. The present problems may only be short lived. May be after a year or two things may be bright, up and running. your NAV may again go up bringing cheer to you.. but, what if your funds mature during this period and you are forced to have your benefit, which would have fallen more than 50% than what you expect. some of the companies do offer a spread period. i.e. say your policy is maturing in 2010. if the market is not good and the NAV is too low then you have an option to choose a spread period. You will have option to encash it in next 5 years. You may have to check if this provision exists in your policy or not.
The global slowdown has made our indian life insurers to go back to the old school.. the guaranteed return policies are back. LIC's Jeevan Astha has some good features. Also IDBI fortis, AEGON Religere have come with guranteed returns on a 7 and 10 years horizon.
If you observe, the bank FD returns are peaking at 9-11%. The stock market returns are now very poor and mutual funds are having their worst phase. If you are getting your life insurance at a return around 9% taking the tax benefits into consideration, this can prove to be a wise investment in these guraranteed return products.
