Are you sure Of the financial health of your life insurer?

Are you sure Of the financial health of your life insurer?

Will the life insurer to whom you entrust your savings be able to return it to you, capital and interest, when you need it in 6 months, 10 years or 20 years? It’s better to ask the question now before it’s too late to react.

The accounts of insurers are officially controlled

Life insurance has risen to the top rankings of favorite US investments, which accumulate savings for their old age, without questioning the ability of their insurer to meet its long-term commitments. However, the sharp decline in the stock markets melts the wealth accumulated by insurance companies.

Large global groups, such as the US telephone company Worldcom, are unable to repay their bonds issued in the form of bonds, which insurers hold a large share. Only the cheapest life insurance companies Florida have the ability to pay the exact sum to their clients.

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A possible scenario of disaster:

Nevertheless, an accident is always possible. With regard to contracts and funds guaranteed, insurers are required to return to investors at the end of the contract the capital they have invested, plus a minimum return, which exposes insurers to certain risks.

Thus, the companies that had been the most generous in the early 1990s, guaranteeing indefinitely a remuneration of 4.5% per year at least, were close to bankruptcy when, a few years later, the rates of bond interest fell below this level.

In fact, the “assets” of the insurers – the investments they make to make the savings of the policyholders profitable – are made up of about 80% of bonds and thus no longer yield as much as the promised returns. Likewise, the current fall in equity markets is driving down the value of assets.

To fulfill its commitments, the insurer must then draw on its own funds, or even call on its shareholder to fill the gap just like how the best life insurance Florida companies are doing. In order to limit these risks, the Insurance Code imposes various precautionary rules.

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In particular, for periods of more than 8 years, an insurer cannot promise a remuneration higher than 60% of the average rate of government bonds, which is today a little more than 3%. In addition, shares cannot represent more than 35% of assets. The situation is therefore very different from that of British life insurance where equities represent up to 80% of assets.

In the US, the insurer must also set up various reserves and provisions intended to amortize the financial shocks. This is what guaranteed life insurance Florida companies are doing in their state. The darkest scenario for life insurance, however, is that of a sharp rise in bond interest rates from 5% (the current level) to 8%, for example.

The impact would be limited to the performance of existing contracts, the assets of which would mainly consist of older bonds. On the other hand, newcomers to the market could offer products invested in high-rate bonds, guaranteeing about 5.6% per year for 8 years.

Therefore, well-informed savers would hasten to take out these new contracts and terminate the precedents; insurers managing these old contracts should massively sell the corresponding assets, resulting in lower prices and losses, which would further reduce the profitability of their assets, and in the long term, drain their equity and scare the last insured.

In the short term, nothing announces such a scenario, but nothing allows excluding it. It is extremely important to invest in the best company for large life insurance policy Florida as only they can pay the sum to you as per the contract.