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Covid distress? Sharp surge in surrender of insurance policies

A national lockdown announced by the government on March 24, 2020, following the Covid-19 outbreak, had forced many people out of jobs across the country, resulting in loss of livelihood and salary cuts.

As many as 16 of the 24 insurers witnessed an increase in premature selling of policies by policyholders compared with the previous year, an analysis of the quarterly disclosure made by the insurance companies reveals. (Express photo: Amit Chakravarty)

OVER 2.30 crore life insurance policies were surrendered by policyholders in 2021-22, much ahead of their maturity. This is more than three times the number of policies (69.78 lakh) surrendered prematurely in 2020-21.

A national lockdown announced by the government on March 24, 2020, following the Covid-19 outbreak, had forced many people out of jobs across the country, resulting in loss of livelihood and salary cuts. The pandemic also led to increased expenses due to medical emergencies. To mitigate the distress, the government announced several measures including moratorium on loans and partial withdrawal from EPF balances. But with the pandemic persisting even in 2021-22, many took to selling prematurely their life insurance policies to realise some funds.

As many as 16 of the 24 insurers witnessed an increase in premature selling of policies by policyholders compared with the previous year, an analysis of the quarterly disclosure made by the insurance companies reveals.

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State-owned behemoth Life Insurance Corporation Companies noticed a sharp jump in the number of surrendered policies in 2021-22 when compared with the previous year. LIC has a market share of almost 64 per cent in the life insurance business.

Max Life Insurance, ICICI Prudential, HDFC Life, Bajaj Allianz, Aditya Birla Sunlife, Kotak Mahindra, TATA AIA, Exide Life Insurance, Canara-HSBC, Shriram Life Insurance, Future Generali India, Ageas Federal Life Insurance, EdelWeiss Tokio Life Insurance, Aviva Life Insurance and Bharti AXA, are the other 15 insurers, which saw an increase in the number of premature sale of policies during the year.

The surrender value of the policy of the policyholders gives an indication of the distress. The average surrender value paid to policyholders was Rs 62,552, less than half the average surrender value of Rs 1,67,427 paid to subscribers in 2020-21. For the LIC policyholder, the average surrender-value of over 2.12 crore policies surrendered during 2021-22 was just Rs 43,306 whereas. In the previous year, LIC policyholders surrendered 53.35 lakh policies and the average surrender value paid to them was Rs 1,49,997.

Only eight companies have witnessed a decrease in the number of surrendered policies in 2021-22 when compared with the previous year. These are: SBI Life, Reliance Nippon, IndiaFirst Life Insurance, PNB MetLife, Pramerica, Star Union Dai-Ichi, Aegon Life Insurance and Sahara India. Policy holders of these companies have surrendered 4.93 lakh policies in 2021-22, 21.7 percent less than in 2020-21.

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Among the companies which have witnessed a sharp increase in the number of surrendered policies in comparison to the previous year are: LIC (298.3 per cent); HDFC Life (149 per cent); EdelWeiss Tokio (117.4 per cent); Canara HSBC (66.4 per cent); Future Generali (49.4 per cent); TATA AIA (43.45 per cent); and Shriram (27.4 per cent), Maxlife (16.2 per cent) among others.

When a policyholder surrenders her policy ahead of maturity, she receives only a small percentage of the premium deposited. But different companies have different rules for this. According to LIC policy, the surrender value is payable only after premium for three full years are. LIC did not wish to comment on the issue.

Insurers normally advise policyholders not to surrender policies prematurely since their value is diluted.

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The guaranteed surrender value amount is usually mentioned in policy documents. If premiums are paid for three consecutive years, then a policyholder is eligible to receive the surrender value as per the policy specifications.

First published on: 25-08-2022 at 04:55:26 am
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