The Fund or reserve is the liability of the company towards the policy holders and the company
invests it to earn the assumed interest . The Fund
is not an extra amount to meet contingencies , but it represent the
accumulated liabilities of the insurer to wards policy holder
and it is a to be a kept as trust money. The supreme consideration
in the investment of life Fund is
to preserve the interests of the policy
holder. It is a basic that in handling
trust funds, the trustee shall in
no way profit personally there from. Every effort should be made to protect the
assets of life insurance
assurance from any element of
fluctuations, wide swings in market value, losses growing out of the sale of
security on an u unfavourable market and speculation for profits. Great care
has to be taken in selecting suitable channels of investments and supervising
them. Life insurance companies keep
organized departments to handle the
tremendous volume of business occasioned
by the investment of reserve funds.
Experts are constantly the market outlet
for funds and, through an analysis of economy and financial condition
are able to forecast investment trends. However
the life insurance company officers must observe complete good faith and
should formulate an investment plan in
conformity with the following canons of investment.
(1) SAFETY AND SECURITY: The investment
should comprise the permanent integrity
of the capital so as to avoid so as to avoid the violent and frequent in the value of securities. Accordingly every insurer carrying on the business of
life insurance is required to invest the life fund in the following
manner: At least 25% in Govt.
securities. Another 25% either in Govt. securities or other approved
securities. Another 35% in the approved securities such as a immovable property preference, equity shares,
etc., Another 15% investment in other invested
in such a way that they may be readily convertible whenever claims are
payable. To ensure that they are may the proper degree of liquidity , investments,
are so made that the maturities will occur at intervals adjusted to meet the
needs of a maturing policies. As a provision against sudden to demand for surrender values or policy loans, the
insurer may keep a part of the fund in cash or in a such securities which can
be realized quickly and without loss. This could be used to meet a sudden
contingency or to avail of an exceptional investment opportunity.
3.
PROFITABILITY: The insurer must earn at least the assumed rate of a
interest other wise there will be a
loss. The investments should be a made in a such securities which can be yield the highest return but not at the cost of the safety. It has been realized that safety and
profitability are opposed to each other and so a fair and a true balanced policy of the investment should be a observed. 4. DIVERSIFICATION: The investment of the
funds should be diversified . It means spreading over investment among different
classes of securities so that risks and return are adjustments . The diversification can be according to time factor . It
provides maximum security and yields and
an efficient rate of return. So the principle of “ not” having all the eggs in one basket:
should be adopted. 5. AID TO LIFE BUSINESS: The funds should be
invested in those projects or activities which may provide more
employments opportunities and may also
increase the standard of living of the people so that the insurer can get the benefits of the lower mortality
rate and increase in new business
