Opting to invest hard-earned cash is a risky business at the best of times but given the current global instability, having an overseas portfolio is not for the faint hearted. However, there is a way to reduce the chances of losses and that is with the help of overseas investment insurance, also known as political risk insurance.
Investing money in foreign projects can bring significant returns but with a different economic climate and with some countries more volatile than at home, the chances of incurring losses from causes such as civil unrest or corruption are far greater than you may have been used to.
However, overseas investment insurance is there to cover exactly this risk. It is designed to cover any kind of investment project where the risks are different to those usually faced. The more run of the mill risks such as the insolvency of a trading partner or lack of profits generated are not covered; only the risks associated with the political climate or economic turbulence are included.
A typical policy will cover events such as political violence, damages as a result of war and the withdrawal of the rights to convert currency or remove it from the host country. There is also the risk that equipment, goods or money may be seized by the host government as part of a nationalization drive. Only financial losses which are incurred as a result of one of the events described in the policy terms are covered; other events such as a poor investment are not included as standard.
This type of insurance has grown as investors increasingly seek to take advantage of overseas markets but fear the instability that this type of trading exposes them to. Recent events in the Gulf have made the economic climate even more volatile, making investment insurance a much needed reassurance for those wanting to diversify.
Investment insurance is generally available for a number of different projects. This includes not just investment into stocks, shares or forex, but also export or supporting firms` ventures abroad. In these cases, the equipment and goods are also covered by the insurance.
It is not always possible to obtain investment insurance as some countries are deemed just too high risk to offer cover. This will usually be the case where civil war has already broken out, or where there has been serious levels of instability in the country.
Some countries that are classed as high risk can still be covered by an investment insurance policy but the premium will be substantial. Other than the country where the investment is based, the other factors an insurer will take into account when pricing a policy are things such as the length the policy is required for, what risks are included in the cover, the region within the country and the type of investment.
Some types of investment carry more risk than others. For example, putting money into a venture where the equipment or premises could be seized by government forces and `nationalized` is a far greater risk than simply investing in stocks, shares or forex. It is therefore essential to get a quote for the insurance and compare this to the potential gains before deciding whether to pursue the overseas investment.
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