Billionaire Warren Buffett on Sunday criticized some life insurers for taking on crazy financial risks by selling variable annuities, or retirement products that promised unrealistic guarantees to buyers.

The products are tied to stock market performance and in some cases guaranteed a certain periodic return, while principal could not be eroded by investment losses.

I always thought they were crazy when they were doing it, said Buffett, at a press conference in Omaha, his hometown, because of the financial risks to the insurer.

Insurers such as Hartford Financial have been badly burned by over-selling these products, which performed badly as the credit crisis sent markets plummeting.

Buffett, the chairman and CEO of Berkshire Hathaway , is considered by many to be the world's best investor.

Insurance makes up about half of Berkshire's operations, including auto insurer Geico, property-catastrophe units and a bond insurer formed a little over a year ago. Life insurance is not a major component of the business.

Of the guaranteed variable annuities, Buffett said: If you buy a policy, you the policyholder get some of the upside, and they guarantee you always get your premium back. From a company's perspective, that's poison.

He said Berkshire had been approached to reinsure, or take some of the risk from insurers, on this business, and had declined.

For some life insurers the situation has been made worse by loading up on risky investments, such as asset-backed securities linked to commercial mortgages, he added.

Life companies had those two temptations, one on the asset side, one on the liability side, and those that succumbed are in real trouble, said Buffett.

The Dow Jones U.S. life insurance index <.DJUSIL> has fallen nearly 65 percent since the beginning of 2008, as investment losses and rising costs to cover variable annuity guarantees has shaken investors confidence.

About a dozen life insurers have appealed to the U.S. government for federal funds already being supplied to the battered U.S. banking industry. Applications are still pending.

Buffett said on Sunday he thought the government would step in with assistance if a major life insurer were to be on the brink of collapse.

(Reporting by Jonathan Stempel and Lilla Zuill; Editing by Richard Chang)