It wouldn’t be surprising if most of us hold at least one of the above mentioned Insurance policies- and keep holding them just because we do not know what to do with them.
To start with, an explanation of the above terms-
Unwanted policies – Taken under obligation, as a relative or a close friend is an insurance agent who has not met his annual targets and it is your duty to bail him out.
Orphaned policy – The agent who sold you the policy either isn’t interested in servicing you any more and doesn’t answer your calls, or he has quit this business and moved on to something else.
Mis-sold policy – Some official from your bank or an insurance company approaches you, presents a very attractive picture of a scheme which you invest in, but later realize that the returns and the features are not what was told to you.
Lapsed policy– This is a policy which either your dad took for you when you were studying, or you took it a long time ago, have lost track of it and have forgotten to pay the last one or two premiums.
To protect the policy holders’ interests, the IRDA ( Insurance Regulatory Development Authority) has framed a set of rules on how such policies should be handled and it is important that we all are aware of them.
A policy lapses when a person fails to pay the premium even after reminders from the company asking him/her to renew the policy within the grace period. The reason could be anything from just forgetfulness to a financial crisis. When a policy lapses, the person also loses the life cover. But, with effect from 1 September 2010, IRDA has provided more breathing space to the policy holders and now one can revive the policy till 2 years from the premium due date.
To safeguard the investors’ interest, IRDA has issued guidelines on servicing of such policies. Life insurance companies would now be allowed to re-allot any such orphan policies, where the premium has remained unpaid for at least six months, to other agents still active with them. If such an allotted policy is surrendered, no new business shall be accepted by the insurer from the same agent on the life of this policy holder until at least six months have gone by from the date of such surrender.
If you have just paid one or two premiums, discontinuing the policy may be a good idea, as there is no point continuing paying the premiums for a policy which you don’t need. You can invest this money at a better place. If one does not pay the mandatory premiums, the policy lapses, the funds are transferred to a discontinued policy fund with a minimum guaranteed return, which is the savings bank rate. The funds remain locked in till the 5th year of the policy after which the policy holder receives the money.
Unfortunately, Insurance policies operate on the “caveat emptor” or “let the buyer beware” concept, putting the entire onus of the decision to have taken the policy on the subscriber. There is not much help from IRDA or the insurance ombudsman on cases of mis-selling even though in some special cases which were escalated to the Insurance company’s top management or the grievance redressal cell, the investors have been returned the invested premium. Another option is to approach the consumer court or forums, but they too may not be very effective in helping one get his or her money back. So, it is best do your homework and know the pros and cons before buying an insurance policy for yourself.