How Safe Are Insurance Policies During Financial Crisis?

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The world is facing another financial crisis as a result of the coronavirus pandemic. People are worried that the lockdown will continue and will further affect the economy. The pandemic is raising concerns from all angles including the insurance industry.

 

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The financial crisis is also leaving its mark on life insurers. Yields are falling, but bankruptcies are unlikely. The financial world is upside down. In the US, banks are on their knees in rows, the insurance giant AIG can only survive with the help of the state, and the central banks pump billions into the market every day to prevent a collapse of the financial system. The financial crisis demands new victims almost every day. Concerns among insurance policyholders are rising. The question now is how safe are our life insurance policies?

 

Insurance industry will be impacted by coronavirus

 

 

What does the financial crisis have to do with my insurance?

 

Insurance companies have heaped up billions of dollars in investments with their customers’ money. The money is invested worldwide. However, there are strict regulations for the plant. The majority of the amount is invested in secure investments, such as fixed-income securities and covered bonds. A maximum of 35 percent of the investment amount may be invested in venture capital – for example in shares, company investments, or hedge funds.

 

What influence do the stock exchanges have on my life insurance?

 

At the beginning of the year, the Dax was still over 8000 points, on Friday it was around 2000 points less. This naturally reduces the value of the shares that the insurance companies have in their custody accounts. However, their share of the total capital investment is much lower today than it used to be. The equity quota in the industry is now only around ten percent, half the level of the stock market crash in 2002. In addition, the investment strategy of individual insurance companies is very different.

 

The financial crisis is also reducing bond yields, and this affects insurers much harder than write-downs on subprime stocks or falling stock prices. As more and more investors worldwide take refuge in safe investments, the price of the securities rises.

 

Will profit-sharing decrease?

 

In the boardrooms of insurers, it is traditionally not until the end of the year that the companies will credit their customers for the coming year. And if gloomy forecasts are right, the insured must expect falling earnings in the future. However, the profit-sharing in recent years remains unaffected.

 

What about unit-linked policies?

 

Unit-linked policies have significantly higher equity quota than conventional life insurance policies. Therefore, they are significantly more affected by the stock market crash. Nevertheless, customers should not now quit head over heels, but wait and see what comes. Anyone who now quits can expect considerable financial losses because the insurers first deduct their costs and the commissions paid by the agent.

 

However, recent developments should be a lesson for consumers. Many have been lured at the sales talk with the prospect of high returns that they have not questioned. This is taking revenge now. Experience has shown that the supposedly high opportunities are also associated with higher risks. Those who want a secure pension should stay away from unit-linked life insurance.

 

Can my insurance go bankrupt?

 

If an insurance company comes into serious financial distress, the state rescue fund – protector – intervenes, into which all insurers pay. Protektor takes over and continues the insurance contracts of the customers in the worst case. However, only the guaranteed interest rate of 2.25 percent is then paid.

Primary Business Insurances You Should Get For Your Company

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Building a business empire is a challenging yet fulfilling task. While financing is important (https://www.forafinancial.com/blog/working-capital/pros-cons-unsecured-business-loans/), protecting the business and its assets is also a key factor. It is in this regard that business owners should look into business insurances.

 

What is business insurance? Business insurance is an insurance contract that would cover your business from all types of risks that your business may face.

 

What are the common business risks? The primary business risk that you should be looking at is the following – loss of profits, loss of manpower, loss of assets, and liability cancellation. In line with these primary risks comes the types of business insurance.

 

Types of Business Insurance

 

1. Loss of Profit Insurance. When any business owner is conducting a business, their biggest fear is loss of profit that could happen due to business continuity risk. This means not being able to continue the business activity and therefore there would be a loss of profit.

 

Example. If a warehouse caught fire, you as the business owner will have lost two things – Asset (the warehouse and the stock) and Profit. So if a warehouse caught fire, the businessman may not be able to continue doing business activities that leads to loss of profit.

 

2. Loss of Asset Insurance. Loss of asset is similar to a loss of profit. Much like the example above, the business owner whose warehouse caught fire lost his warehouse which is considered his asset. Therefore loss of asset goes together with loss of profit.

 

3. Loss of Human Resources Insurance. If a business owner lose the Human Capital which is also an investment, you would also get compensated for that in this type of business insurance.

 

Example: A business has a very important CEO. The CEO is taking a lot of business activities. What happens if the business loses that CEO? So let’s say your CEO is traveling on the company’s car and suddenly met an accident that led to the CEO’s untimely death. In this scenario, the company lost two assets – the CEO and the car.

 

This raises questions for your business insurance – Which is the bigger loss? The CEO or the company car? Which is actually insured? So while these questions are raised in this scenario, all these questions can actually be covered with what is called the Key Person Insurance.

 

What Is Key Person Insurance? If there are certain key persons in your company that would affect company from operating in the future, you need to ensure these people from two primary factors – sickness and death.

 

It’s easy to replace physical assets which are easy to insure but sometimes you can lose intangible assets like Human Resources, Human Capital, and Key People. Therefore, it is important to get what is called Key Man Insurance or Key Person Insurance.

 

4. Liability Insurance. The most common type of Business Insurance. If the company has a liability like for example if a customer walks into a showroom and suddenly slipped and fell and caused the customer a back injury all because of water on the floor in the showroom. The customer can sue the company for physical damages because there was no “wet floor” sign and there was negligence on the part of the building owner. Liability insurance protects your business in situations like this.

 

Bottom line

 

As a business owner, there are four primary insurances that you have to look at – Liability Insurance, Asset Insurance, Key Person Insurance, and Loss of Profit Insurance. When you have these four types of business insurances, you are saving your business from future risk that may cause damage or halt your business.

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