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The Indian insurance watchdog, Insurance Regulatory & Development Authority (IRDA) has recommended a uniform grace period of 30 days for policyholders to pay their premium, to resolve the issue of high policy lapses in the country, reports the Economic Times.
The grace period would apply to premium payments that are made every quarter, half-year or yearly. Most life insurers already give a grace period of 28 days to policyholders to pay their premium. IRDA has also suggested reinstatement of a policy if the premium is paid within the revival period of two to five years, depending on the internal practice of the insurer.
A year-on-year comparison shows that there has been a steady rise in the lapse rate. Between 2002-03 and 2006-07, policyholders forfeited premiums totalling Rs205 billion (US$4.18 billion) due to lapses, according to a recent IRDA research paper. The lapse rate was over 6%.
The highest rate of lapse was in term assurance products. Pension policies had the lowest lapse rate. Lapses were higher in Unit-Linked Insurance Plans (Ulips), compared to traditional insurance products.
However, companies that send renewal reminders to their intermediaries and have also built a commission structure to encourage renewals see higher persistency levels, according to the study by IRDA member, Mr R Kannan.
The study also finds that there is a need to make the agency force more professional because there is higher persistency among orphaned policyholders compared to accounts under active agents. One reason is that agents encourage customers to junk old policies in favour of new products.
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