If you panic sell your shares, will your insurance premiums rise?

You may have heard in the media various panicked commentators urging you or implicitly urging you to sell your shares. There have been dark hints of a recession or even a depression. If that’s coming, the theory goes, you should “get out now” to avoid stock losses.

There are several problems with that sort of thinking, though.

Personal losses: If you sell into a falling market, you will probably, by definition, incur a loss on your shares.

Forgoing gains: Over the last 100 years, the trend for both British and global bourses has been up. If you sell now, you may miss out on these gains. If you buy back when the markets rise again, you will have to do so at a higher price.

Effects on insurance premiums (1): You are not the only person in the stock market. Your insurers also heavily invest in it. In fact, many British insurers rely on investment income to offset underwriting losses.

Effects on other insurance premiums (2): When you sell your shares, you contribute to a falling stock market. When stock markets fall in the face of underwriting losses, insurers are pressured to increase premiums to survive.

Lose-lose situation: If you sell your shares, you will probably take a loss on them, and forego potential gains. You may also contribute, in the aggregate, to investment losses for insurers, who may then seek to offset their investment losses through increases in premiums. Here, everyone loses.

A caveat here is that this is a financial model, not a crystal ball. Like any other prices, both shares and premiums are based on innumerable factors and events. However, the fact remains that insurers are taking big losses on investments and when you sell your shares you contribute to those losses. The combined selling of millions of small investors like you could, at least theoretically, have the result of increasing premiums.

Remember, media entities grow and/or profit by attracting viewers or readers. The more sensational the news, the more attraction they gain. Educate yourself as much as you can on critical terms such as “recession” or “credit crunch” and such. They do not mean financial collapse or mass poverty. For every economist who says that the financial roof is falling in, there are often 2-3 who say that the current situation is a great investment opportunity.

The decision to buy or sell shares is a tremendously complex one, and involves your own investment goals, current financial situation, and expectations. Consider the broader and long-term implications of your decision on your overall financial situation and all the financial products, including insurance, that you have. Consider, too the strong performance the London bourse has put in over the last few decades (often beating out New York), before you sell all the shares you have under media influence.

Contact Information

Michael Beverley

Mr

NoClaimsDiscount.co.uk

Contact via E-mail