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Life Insurance Crisis: Are We in the Clear?

Posted on | March 13, 2009 | 1 Comment

life_insuranceAt Subprime Blogger, we have exposed the possibility of a life insurance crisis in the last few weeks.  A crisis that could cause any life insurance amount over $100,000 to suddenly vanish if insurers start going under.  The probability of life insurance companies failing grows greater with each significant stock market decline.  Life insurers have a great deal invested in the United States economy, particularly the stock market.  The lower the market goes, the more likely your insurance policy is in danger.  With four consecutive positive days for the stock market, is the life insurance crisis an afterthought?

The S&P 500 Index rose over 10% for the week giving many a sense of hope that the final bottom has been carved out of the recent slide.  If this is the case, the life insurers have little to worry about, right?  Well, even with the broad based rally that we have seen in the past week, many stocks remain down over 50% in the last year.  Many life insurers are still down over 50% year to date even after a week in which their stocks soared 65%.

Before we are completely in the clear, the stock market needs to  show that this trend is sustainable.  Too many times in the past year, we have seen bear market rallies that fall apart and lead to stepper losses.  With insurers trusting that the markets will return to normalcy, we need to hope that markets grind sideways or start an uptrend very soon.  If we see another 20-30% decline, it is likely than many insurers will not be able to operate in their current business model.

What happens if these life insurers go under?  It is likely that the government will not let that happen as there is just too much money entrusted in these companies.  If the market can find some footing and show steady gains, the life insurers will have nothing to worry about.  The biggest issue is that unemployment rates continue to rise, so is the economy and the stock market really going to get much better?

Category: Life Insurance Crisis

Comments

One Response to “Life Insurance Crisis: Are We in the Clear?”

  1. Ollie Clemons
    March 14th, 2009 @ 1:51 am

    Very interesting. The whole insurance thing is something that is easy to ignore and then to be surprised when you need it and it is not there. Do not neglect to get good insurance and also make sure you really read the policy for example know the limits and deductibles. The problem is that you really get to use that insurance you buy after long time and in bad circumstances as opposed to any other product you buy. Educate yourself by reading news about insurance like for example on sites like http://http://www.insurancelog.info and keep your policies fresh go over them eveyr now and then to make sure they are current and nothing has changed that needs to be reflected in the policy for example maybe you get another car or bought some expensive furniture that need to be added to your home insurance.

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