Topic 1: The benefits of renewing your insurance plans
Last month I was reviewing a life insurance claim. The policyholder had died after paying premiums for several years. Unfortunately, as things turned out, the last premium was unpaid and the claim was denied. I was disappointed because the lost benefit ran into lakhs.
Often, insurers and intermediaries are seen pursuing policyholders at the time of renewal. However, for most insurance policies, the worst impact of lapsation is on the policyholder, not the insurer. There is a loss of cover but also a loss of many key benefits linked to renewal.
Lapsation has the most obvious negative impact on health insurance as discontinuity results in both waiting period and pre-existing disease exclusion period being reset. This is a setback because most claim rejections are during the waiting period and the sooner one gets past these two to four years the better. Last year the regulator added another reason for timely renewal—that insurers cannot reject a claim after it has been renewed for eight years. That in itself is sufficient reason to renew.
Life insurance products should also be renewed. The life insurance equivalent of the eight-year “look-back" in health insurance is three years. After this, claims cannot be rejected. In traditional life insurance, there is another major disincentive which is that surrender or lapse penalties are high and the relatively modest returns are further lowered.
An issue common to health and life insurance is that if there is a lapse then the insurer can decide not to issue the policy anymore. They will do this if your health has deteriorated since you first bought the insurance or if you have made a claim. But if you renew on time, the insurer can’t refuse.
Motor insurance, a large market segment, has no-claim bonuses (NCB) that reduce your premium after every claim-free year, provided there is no break in insurance. Buyers should be possessive about this NCB. The amounts can go to 65% of own-damage premium and is, typically, several thousand rupees in most mid-sized cars. You lose your NCB if there is a break in renewal: an expensive proposition.
Professionals, such as doctors, who buy liability insurance lose the retroactive date benefit if there is a break. This is the date after which claims get covered. It is when the insurance was first bought, provided you renew the insurance without a break.
The only two individual policies that do not have benefits accumulating over time are home and personal accident. In fact, in home insurance, you should increase the sum assured every few years as reconstruction costs increase. Simply renewing your policy without making a sum assured adjustment is not a good idea. In personal accident insurance, continuity does not impact any accumulated benefits. This does not mean that you should freely stop and restart these insurance policies. You are not covered for the primary risk when premiums have not been paid. Insurance policies lapse for many avoidable reasons. You could have bought the wrong product. Ideally, this research should be completed before the initial purchase. In fact, even after buying, you have a free-look period when you can go through the documentation and return the insurance if you want. Another frequent issue is that insurers cannot contact you. To prevent this, make sure you give insurers a permanent email, home address and phone number. Finally, you could lose track of renewals if the insurer or intermediary does not send a reminder. This is also commonplace and we are all guilty of such memory lapses despite having access to elaborate reminders. For several insurance policies, it is now possible to instruct your bank or credit card for automatic renewal. Select those options. A suggestion for insurers is to allow a change in renewal dates so that all our insurance policies renew at the same time. A friend has 10 different insurance policies renewing across the year and wanted to reset them all to one day, something we couldn’t do within the current framework.
So, the next time an insurer or intermediary chases you to renew, don’t procrastinate but make the payment.
Often, insurers and intermediaries are seen pursuing policyholders at the time of renewal. However, for most insurance policies, the worst impact of lapsation is on the policyholder, not the insurer. There is a loss of cover but also a loss of many key benefits linked to renewal.
Lapsation has the most obvious negative impact on health insurance as discontinuity results in both waiting period and pre-existing disease exclusion period being reset. This is a setback because most claim rejections are during the waiting period and the sooner one gets past these two to four years the better. Last year the regulator added another reason for timely renewal—that insurers cannot reject a claim after it has been renewed for eight years. That in itself is sufficient reason to renew.
Life insurance products should also be renewed. The life insurance equivalent of the eight-year “look-back" in health insurance is three years. After this, claims cannot be rejected. In traditional life insurance, there is another major disincentive which is that surrender or lapse penalties are high and the relatively modest returns are further lowered.
An issue common to health and life insurance is that if there is a lapse then the insurer can decide not to issue the policy anymore. They will do this if your health has deteriorated since you first bought the insurance or if you have made a claim. But if you renew on time, the insurer can’t refuse.
Motor insurance, a large market segment, has no-claim bonuses (NCB) that reduce your premium after every claim-free year, provided there is no break in insurance. Buyers should be possessive about this NCB. The amounts can go to 65% of own-damage premium and is, typically, several thousand rupees in most mid-sized cars. You lose your NCB if there is a break in renewal: an expensive proposition.
Professionals, such as doctors, who buy liability insurance lose the retroactive date benefit if there is a break. This is the date after which claims get covered. It is when the insurance was first bought, provided you renew the insurance without a break.
The only two individual policies that do not have benefits accumulating over time are home and personal accident. In fact, in home insurance, you should increase the sum assured every few years as reconstruction costs increase. Simply renewing your policy without making a sum assured adjustment is not a good idea. In personal accident insurance, continuity does not impact any accumulated benefits. This does not mean that you should freely stop and restart these insurance policies. You are not covered for the primary risk when premiums have not been paid. Insurance policies lapse for many avoidable reasons. You could have bought the wrong product. Ideally, this research should be completed before the initial purchase. In fact, even after buying, you have a free-look period when you can go through the documentation and return the insurance if you want. Another frequent issue is that insurers cannot contact you. To prevent this, make sure you give insurers a permanent email, home address and phone number. Finally, you could lose track of renewals if the insurer or intermediary does not send a reminder. This is also commonplace and we are all guilty of such memory lapses despite having access to elaborate reminders. For several insurance policies, it is now possible to instruct your bank or credit card for automatic renewal. Select those options. A suggestion for insurers is to allow a change in renewal dates so that all our insurance policies renew at the same time. A friend has 10 different insurance policies renewing across the year and wanted to reset them all to one day, something we couldn’t do within the current framework.
So, the next time an insurer or intermediary chases you to renew, don’t procrastinate but make the payment.