Expiry date

Calcutta, Nov. 25: Life insurance policy-holders, paying monthly premium, may not get more than 15 days’ grace period to keep their scheme in force. The grace period now is about a month.

A panel set up by the Insurance Regulatory and Development Authority (Irda) has recommended a grace period of 15 days for monthly premiums and 30 days for yearly, half-yearly and quarterly premiums.

The panel, led by Irda member R. Kannan, has suggested that a policy should be considered lapsed if the premium is not paid within the grace period. “Policies, for which premiums are paid after the grace period may be treated as reinstatements,” it said.

For a yearly payment, the reinstatements must be within 24 months of the due date of the premium.

The panel is studying policy lapses and its impact on the domestic life insurance industry.

At present, insurers provide information on their policy lapses based on their own definition of a lapse.

A lapsed policy may be revived by paying the unpaid premiums with interest. “But the proportion of such revivals is less than 3 per cent and hence majority of the lapses are permanent in nature,” the panel said.

Between 2002-03 and 2006-07, the value of lapsed premiums is around Rs 20,521 crore.

The triple-digit growth that life insurers had been reporting during the last few years did not give a true picture of the industry because it failed to take into account the lapses.

The industry lapse rate — the percentage of lapsed policies to the total number of policies — increased to 7.8 per cent in 2004-05 from 5.62 per cent in 2002-03 but came down to 6.64 per cent in 2006-07.

“However, lapse rate in terms of premium increased to 6.95 per cent from 4.40 per cent,” the panel said.

The study showed that the lapse rate for unit-linked policies in the last three years was higher than traditional policies. Pension plans showed the least lapse rates among all the categories.

Policy lapses in the case of both unit-linked and non-Ulip policies are the highest in the first year of the commencement of the policy.