You make a wise decision by investing in an insurance policy. You invest in a plan to safeguard for the future and cover the uncertainties in life. You pay your hard-earned money to the insurance company to remain secure in the future. Hence, the thought of an insurance company going bankrupt and a life insurance policy being of no use is quite scary and it can make anyone nervous.
Is it possible for an insurance company to go bankrupt?
You need to have detailed information about life insurance to find an answer to the aforementioned question. A company has to adhere to the norms of the Insurance Regulatory and Development Authority of India [IRDAI], the regulator of the Indian insurance industry to function in the industry.
According to the IRDAI, an insurance company needs to be registered and requires approvals to start a business in India. Any company cannot simply start an insurance business. It is important to meet the capital requirement in the country. For a company to sell insurance policy in India, the capital should be INR 100 crore and the IRDA has a right to cancel the license if the insurer does not abide by the guidelines.
Once the company starts operations in the market, the ‘Solvency Margin’ will help check its financial standing. This margin is the cash reserve, which is kept by the company to pay claims in an emergency. A company has to maintain an average solvency margin of 150%. When the solvency margin is high, the company is safe. Different companies in India have different solvency margins but they cannot go below this benchmark.
The best thing about the guidelines is that they apply to both, government-run insurance companies and private insurers. This means nobody can close the business and abscond. If an insurance company intends to close the business, it needs to merge the business with another organization. In this scenario, the other organization will take control of the particular insurer’s operations, as well as its assets and liabilities.
IRDAI aims to protect the interest of the policyholders and is responsible for bringing the insurance company into operations by establishing the rules and regulations and ensuring that they are met. IRDAI has the right to cancel the license of an insurance company and this will help prevent insurance company bankruptcies.
In case a customer has a complaint against an insurer, he can approach the grievance cell of IRDAI and remain assured that a resolution will be provided. Given the regulations and strict rules, life insurance bankruptcy cannot happen.
Hence, remain rest assured that your money will be safe and stop worrying about the solvency of the company.