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Letting your policy lapse could be costlier than you think

Imagine you're planning the perfect road trip. You've got your route mapped out, your playlist  set, and you've even packed your favorite snacks

Author:Naman Gupta | Date:24 Nov 2023 | Time:14:53:00

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Imagine you're planning the perfect road trip. You've got your route mapped out, your playlist  set, and you've even packed your favorite snacks. But halfway through, you realize you forgot to refuel your car. Stranded miles away from the nearest gas station, all your planning and investment for the trip is laid to waste. This is exactly what happens when you let your insurance policy lapse. You invest in insurance to secure your family’s future, but a failure to renew it – or a lapse in persistency -- can jeopardize everything. 

The Importance of Persistency

Persistency is more than just an industry term, it's a commitment to your future and a promise to your loved ones. Letting your policy lapse can have grave consequences, as I can tell you from my own personal experience. I lost my father at age 18 and although I was lucky to have supportive family and friends who helped us tide over those difficult days till I began earning a living, being dependent on others is not a fate I would wish on anyone. 

Most consumers like to believe that unfortunate events happen to other people. This is the biggest reason – apart from financial constraints – why they let their policies lapse. They fail to realise that surrendering their policy before maturity can prove to be too costly.  

For one, you could lose a considerable portion of your invested sum and also forfeit any accrued benefits or bonuses. Two, you’d have to forego those certainties of life – or your financial goals -- such as a retirement income or funds to educate your child abroad. Worst of all, by losing the life cover, you would have pulled the financial safety rug from under your family’s feet. This triple whammy could cause unimaginable emotional and financial turmoil and change the trajectory of your and your family’s life. 

In Real Terms

Let’s explain this with a real-life case. Suppose you invested in a Unit Linked Insurance Plan like the Radiance Smart Investment Plan (RSIP) and chose a 10-year policy with a sum assured of Rs 10 lakh. After paying Rs 1 lakh annual premium for three years, you decide to stop paying premiums for the policy. The top fund for RSIP i.e., the Equity 1 fund has a track record of paying around 14.40% returns annually over 3 years. So, at 14.4%, your investment kitty would have grown to 3.95 lakh 

Once the grace period for your policy expires, the money moves to the discontinuance fund and the life cover ceases to exist. You also lose out on the potential earnings from being invested in the Equity 1 fund, along with having your invested money locked up for 5 years (as per the rules for ULIPs) from the date of inception. If you paid the premium, however, you would have taken your kitty to Rs 5.6 lakh. 

Thus, surrendering the policy before time would be like leaving a job half-done and not getting paid for the work you've already completed. 

Most customers let their policies lapse because they have either not understood or not been informed of the policy’s benefits. Nor do they realise the opportunity cost of non-renewal. At IndiaFirst Life, being #CustomerFirst means that we ensure that our customers don’t miss out on their policy benefits but meet their financial goals. 

Tips to Maintain Persistency  

  1. 1) Understand Your Policy 
    Take the time to understand your policy’s features before investing in it. 

  1. 2) Set Reminders 
    Life gets busy, and it's easy to forget due dates. Use calendar apps to set reminders for premium payments. 

  1. 3) Consult Your Advisor 
    If you're facing financial difficulties, don't just let your policy lapse. Consult your advisor for flexible payment options to maintain your policy. 

  1. 4) Be Aware of Unique Benefits  
    Many insurance firms offer grace periods for delayed premium payments. For instance, IndiaFirst Life offers a loan facility on some policies that a policyholder can avail to pay a premium. Since they continue to earn the accrued bonus, it helps offset their net borrowing.  

Renewing your insurance policy is not just a responsibility; it's a commitment to your future and the well-being of your loved ones. So, the next time you think about skipping a premium payment, remember the road trip analogy. Don't let your journey come to an abrupt halt; keep the tank full and enjoy the ride. 

BY

Naman Gupta

Naman Gupta is SVP & Head - Branch Ops, Persistency and Financial Ops at IndiaFirst Life. His role encompasses ensuring customer continuity, managing branch operations and ensuring timely payouts to customers throughout their policy life cycle. He also manages the operational risk and quality teams for robust and strong control of operational processes.As a founding member of IndiaFirst Life, he has played a significant role in setting up and defining the company’s operations and service departments. Passionate about delivering customer delight, Naman is a proponent of our #CustomerFirst philosophy.Naman began his journey at IndiaFirst Life as a business analyst and then went on to head the New Business Operations department. Prior to his current role, he was Head - Customer Service and Channel Services.His breadth of experience includes stints at the Stock Holding Corporation of India, ICICI Prudential Life Insurance and Reliance Retail, where he not only played a key role in setting up multiple branches, bu

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