Insurance I Opener

Indian Insurance Explained – Lapse of a Policy

News and Reviews : We take our Insurance Policy based on Informed decision. All most. Like our House and Car Finance EMI (monthly payments), we are very careful and prompt for our monthly or yearly Insurance Premium obligations too so that we don’t lapse our Policy. However, in the current financial trying times, if thing turn sour further, many may miss the all important Insurance Payment on time and that will lead exposure or gap in Cover. It is advisable to avoid it at any cost but for tough reasons, the same is not happening for you then make sure you talk your Insurance Broker or Insurance Company immediately. Can they help? Not much but sure your Broker can help you consolidate and come out with One or 2 Policy essentially needed by you and your family including Life & Health Insurance. There are no laws yet in INDIA where you can have your cover continued on credit but the present time calls for innovative thinking on part of every stake holder of great Indian Insurance Industry. Sadly that is lacking on every count. Also, it is long over due that Govt. of India / Ministry of Finance, should come out with laws and direction for un-employment Insurance for working Indians. America has this safety net for Green Card holders and Citizens. Interestingly, there is a debate going on the laws for Lapse Policy in India with IRDA pushing for uniform grace period. Click to read on …

 

An insurance policy lapses when the subscriber does not pay the premium within the grace period. IRDA has recommended re-instatement of a policy, if the premium is paid within the revival period of two-to-five years, as per the internal practice of the insurer.

At present, companies have varying definitions on lapsation of policies and this creates a lot of confusion. The suggestion for life insurers to adopt a uniform grace period and lapse definition has been made in IRDA’s first occasional paper on ‘Lapsation of insurance policies and its impact on the domestic industry’. Lapsation of insurance policies is a global concern and impacts all stakeholders.

IRDA chairman J Hari Narayan reckons that results thrown up in research studies can help stimulate a policy debate and make corrections as per needs. The paper has been authored by a team led by R Kannan, member-actuary, IRDA.

The study reveals that the lapse rate — in terms of the number of policies — increased to 6.64% in 2006-07 from 5.62% in 2002-03. The lapse rate by premium rose to 6.95% from 4.4% during the period under review. The lapse rate in Ulips — 18% in terms of number of policies and 10% by premium — was also higher compared to most traditional plans.

ULIPs are popular savings instruments that offer flexibility to policyholders in terms of investment and also a life cover. A part of the premium is invested in equities or government bonds, depending on the choice of the policyholder. Term assurance products showed the highest rate of lapse, while pension policies had the lowest lapse rate. The lapse rate for non-medical policies was, however, higher than that of medical covers.

When a policy lapses, the holder forfeits the premium paid and the insurance cover. The agent loses the renewal commission. It also impacts the growth of the insurance business and solvency margins of the insurer.

Solvency margins refer to the excess of assets over liabilities that an insurer maintains as a prudential measure in the interest of policyholders. According to IRDA, revival campaigns seemed to have lowered the lapsation rate. Low commissions in the first year and special incentives to intermediaries helped check lapsation.

Source : ET