Shocker: Max. Lapse in Insurance is for Term Insurance policies

October 4, 2011   ·   0 Comments

The lapsing of term insurance products tends to be the highest. This comes as a shocker which signifies how much strength the agents holds on their clients rather than financial advisors who constantly advocates for term insurance policies. One reason for this is policyholders’ feeling that they www.stockssavvy.comno longer need death protection. Over 20% of life insurance policies lapse after payment of the first year of premium. A recent study by IRDA (the Insurance Regulatory and Development Authority) categorizes some of the reasons for insurance policy lapsation. It is helpful to understand these reasons and avoid lapsation—unless there is a genuine reason to do so.

Reasons for the Policy to Lapse:

  • A surprisingly large number of people do not even realize that their policies have lapsed as most of them do not systematically keep track of their finances. Often, insurers send reminder notices or call consumers to remind them to renew their policy. If, for some reason, the insurer fails to remind customers of their obligations, the policy is likely to lapse.
  • In many instances, policyholders terminate a policy deliberately. Quite often, termination is instigated by the advisor, driven by his desire to earn first-year commission once again. This is called ‘replacement of policies’ and is illegal in many countries, including India. Then there are cases where the customer is mis-sold a policy. On becoming aware of this, s/he decides to terminate the policy. This is a serious breakdown of the solicitation process. It is not enough to say that all policy details were provided in the terms & conditions of the policy. Insurers and intermediaries have a responsibility to make sure that customers understand all conditions clearly.
  • Finally, customers let a product lapse if their financial needs change or new, improved products become available in the market. An improvement in prosperity or changed financial circumstances can lead to this. Often customers realise that significantly cheaper term products have become available. Lapses can also occur due to a financial emergency or a cash crunch. During a liquidity crunch, some policyholders may seek to cash out their policies. The immediate cash requirement supersedes the long-term benefits of keeping the policy active. Life insurance requires long-term discipline and rupee cost averaging of investments. A lapsed policy is not in the interest of the customer, in most cases.Don’t be enticed by new investment avenues at the cost of an existing policy.

Rajesh Singla

Rajesh is the founder & CEO of Stockssavvy, Stocks analyst,financial advisor by choice,software engineer by fate,biker,gamer,cricket lover n enthusiastic person. He believes in doing things not just to get by but to get Ahead...

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