Private Insurance vs. Public. Insurance
Many people have more this concerned about taking policies whether they should go for Private Insurance companies or Public Insurance companies like LIC, SBI Life etc. They have always doubt in their mind, whether their policy will be safe with private insurers or not. They have misconception that LIC or public sector insurance companies are safer than private insurance companies. People have the plenty of reasons, not to invest in private insurance companies. Would get back their money after maturity or not, what happens if the company winds up and leaves the country before the policy matures?, will they get their claim easily on death of the life insured or maturity of the policy? And many more doubts.
Let us understand all private insurance companies, investing with them in as safe as investing in public insurance companies. Here, I am not trying to sell private insurance companies to you all but an attempt to clear doubts….
1. Since all these companies are regulated by the Insurance Regulatory and Development Authority (IRDA) and the policies launched and issued by them are also under the guidelines of the IRDA, there is indeed no need to be worried about the safety. The IRDA is a very strict regulator and all insurance company including LIC operating in India has to abide by their guidelines.
Solvency Margin has to be maintained by all the Insurance Companies in India whether it’s 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 it’s 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. Current Solvency Margin is at 150% for all Life Insurance
Companies. It means for every Rs 100 insured the Insurer should have Rs 150 with them.
3. Also, each Insurance company is attached with a Re-Insurance company who takes up the liability of repayment to customers in case of a very large claim if the Insurer is unable to pay.
4. Also if there is any dispute with any insurer, policyholders can approach the Insurance Ombudsman. The Ombudsman is a non-judicial authority which settles disputes between the policyholder and the insurer up to a certain limit and within a limited timeframe.
Considering the above factors, it doesn’t matter whether you go for insurance from a public insurance company or a private insurance company. However, this doesn’t mean that there is no risk involved but this would be the same for almost all companies. However, if one still wants to play it safe and diversify one’s risk then one can go to the extent of splitting one’s required cover and taking policies from two totally different insurance companies.
So, for people who are going to take Insurance, the best thing is to go with the cheapest price, good track record of claim settlement ratio and good quality of service irrespective of fact that the company is private or public.
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Suresh K Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning
articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner's Guild, India. He is also a member of Financial Planner's Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at firstname.lastname@example.org