COST OF LAPSATION TO POLICYHOLDERS IN INDIAN LIFE INSURANCE INDUSTRY
Dr. K. Vidyavathi
Life insurance is a long-term contract in which company is committed to paying a specified death or maturity benefit provided that the premiums are paid by the insured. However, a policyholder can terminate the policy either through lapse or surrender at any point in time. When a policy holder voluntarily cancels the contract by not paying the premium within the grace period policy gets lapsed. When a policy lapses before it acquires the surrender value it becomes extremely costly to the policyholder regarding the loss of premiums paid and insurance coverage. An effort is made to calculate the cost of lapsation to policyholders regarding the loss of premiums paid. This loss of premium is estimated and analysed across the broad product category of both private as well public insurers and also in the industry as a whole. The renewal premium method is used to estimate the loss premium taking the data from the annual reports of IRDAI.
KEY WORDS: Insurance, linked, non linked, premium, Lapsation