Are Private Insurance Companies Safe?
You are interested in buying a term insurance, however, are not ready to cough up the high premiums most of the public insurance companies charge. Even among the private insurance companies, you don't see a great reduction within the brand names. So you want to experiment a bit and try one of those lesser known private insurance companies, but should you totally throw caution to the winds? Would that private insurance company be safe? Worry not, for you don't have to contemplate a lot.
Basically an insurance company (public or private) needs to be proven mainly on two main factors – their solvency margin and settlement track record. And most of the insurance companies do meet these criteria since they have to fulfil IRDA norms to be in business. The only thing which sets an insurance company apart from the other is the quality of service that they provide.
The solvency ratio is the amount of assets that a company holds that can be quickly liquidated as opposed to their pending liabilities. Thus, a company should have enough money to pay to customers when they file their claims. IRDA norms enforce that insurance companies have a minimum solvency ratio of 150%, which means that for every Rs 100 policy that the company insures they should have Rs 150 worth of capital or asset that can be liquidated to meet customer payouts.
Since this is met by almost all insurance companies, it doesn't matter if you opt for a term 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. Thus, as long as you get a nominal price on your policy, good services and a company that comes with a proven good track record of settling their claims fairly, one need not worry if the insurance company is public or private. 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.