When we say Insurance, what comes first in your mind? answer would be, LIC.
And if I further probe, what LIC means? answer would be, money back plan or some investment plan.
I was reading an article today in Mint, “Life insurance policies continue to die early”, prompted me to write this blog. As per the article, which is based on data analysis from IRDA (persistency ratios), it states that 2nd year renewal on Insurance policy stands below 80%, and 6th year renewal stands below 50%. Which means, every 2nd customer, is not renewing insurance policy after the 5th year. Why?
The surrender value for most of the polices, post 5th year is not attractive, as has big penalty by the insurance companies to discourage same. But still customers are not renewing.
My understanding & working with our customers, Insurance is pushed in India, mainly based on investment philosophy, with a massive pay-out as a carrot to the agent for the first year. First year pay-out can go as high as 50% of the premium in some cases & in the range of 2% to 5% for the subsequent years.
Insurance agents, I must say, are doing the job very well. To earn this handsome reward, they are going the extra mile to push, whether in the form of tax saving, or some goal based plans, or some other incentive offered. I still remember my father being very happy one day, as Insurance agent has given him Rs.5000/- in cash back, for signing the policy.
Customers, like any of us, first are hard wired that Insurance means money back, saves tax & safe avenue (may be some incentive, like my father) and 2nd agent is related in some ways (relation, friend, known RM, favours or gifts), that they cannot go wrong or do wrong 😉.
2nd year onwards or later, either thru some other advisory talk, or reading the policy fine prints, or doing basic calculation, comes the blooper. Now what to do? Surrender or continue? And that is what is happening, as per this article.
My advice to everyone, please & please read the policy document before investing.
Insurance is a subject matter of solicitation, you should consider the Investment objectives, risks, charges and expenses carefully before investing. And above all ask questions.