Only four in ten life insurance policies are renewed after the fifth year, indicating low levels of persistence. Policyholders pay huge surrender costs in the first few years of the policy term. Low persistence means that policyholders do not adequately consider the needs of a life insurance policy for long-term protection.
The persistence rate for all life insurance companies is measured at month 13, month 25, month 37 and month 61. Data from the Insurance Regulatory and Development Authority of India (Irdai) Handbook of Indian Insurance Statistics shows that 61st month persistence for life insurers in 2019-2020 was 38% compared to 35% in 2016-2017. The persistence ratio is calculated on the basis of the number of policyholders paying the premium divided by the net active policyholders, multiplied by 100.
Cash surrender value by insurers
Life insurance companies have reported an increase in payments due to policy buyouts. In 2019-2020, insurers paid Rs 1.22 lakh crore for redemption compared to Rs lakh 1.11 crore in 2018-2019. The state-owned Life Insurance Corporation of India (LIC) accounted for 57.51% of total surrender payments. For private insurers, in 2019-2020, unit-linked insurance plan buybacks (Ulips) represented Rs 38,327 crore or approximately 74% for the amount of the buy-back paid compared to Rs 35,949 crore or 86% of the amount of the buyback paid by private life insurers in 2018-19.
Only products such as endowments and Ulips that have a savings component will partially reimburse the amount invested for life coverage. However, a term buyback plan expires and no money is paid to the policyholder.
Tax benefit canceled
Premiums paid for life insurance – first year or renewal – are eligible for a tax deduction under Article 80C of the IT Law for a maximum of Rs 1.5 lakh per year. However, if the individual surrenders the policy within two years, deductions claimed in previous years would become taxable in the year in which the policy is terminated. In addition to the tax expenditure for terminating a life contract, the insurance company will also deduct the total amount of the premium if it is interrupted after one year. If a person surrenders after the second and third year, the insurer will only reimburse 30% of the total premium.
Buying insurance coverage is about protecting your family in the long run. The sum insured of all life insurance policies put in place must adequately cover dependents in the long term, should anything happen to the breadwinner. Continuity of life insurance would allow a policyholder to reap the benefits of the policy, because according to the law amending the insurance law, all obligations will be honored if a policy has been active for three years without interruption.
Individuals should consider a term insurance plan that provides coverage for a defined period of time. A term plan is a protection product that anyone with assets and dependents must purchase to meet financial needs arising from unforeseen tragedies in life. If the policyholder dies during the term of the policy, the nominee receives the sum insured. A policyholder can customize the term plan to include, among other things, critical illness coverage, premium return option, whole life insurance coverage, and spousal and family education coverage. children.
End-of-term return of premiums (RoP) is gaining popularity in term plans. In such RoP plans, insurers pay a guaranteed amount at the end of the term, regardless of the insured’s state of life. A term plan with critical illness benefits pays a lump sum to the insured when they are diagnosed with serious illnesses such as cancer, stroke, heart attack or multiple organ failure. A critical illness plan can be purchased as a rider with the term plan for full protection. Temporary plans can protect the income of the insured in the event of disability due to a serious injury. So if you are planning on getting a life insurance policy, stick to a term plan with a critical illness rider to protect yourself and your family.