\n\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\u00a0<\/p>\n
\t\u00a0<\/p>\n
\u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"\u00a0
Why policyholders exit early \u00a0
Most premature exits occur from traditional insurance policies. “Policyholders sometimes…\n","protected":false},"author":2,"featured_media":580476,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[177],"tags":[246828,79,18,3596,19,246823,16886,17,29928,246826,234,235,246821,246822,246827,230155,246825,246824],"class_list":["post-580475","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-annuity-plans","tag-business","tag-eire","tag-financial-planning","tag-ie","tag-insurance-mis-selling","tag-insurance-premiums","tag-ireland","tag-life-insurance","tag-life-insurance-claims","tag-personal-finance","tag-personalfinance","tag-policy-surrender","tag-rbi-financial-stability-report","tag-surrender-value","tag-term-insurance","tag-traditional-insurance-plans","tag-ulip"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@ie\/116901737026873453","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/580475","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/comments?post=580475"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/posts\/580475\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media\/580476"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/media?parent=580475"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/categories?post=580475"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/ie\/wp-json\/wp\/v2\/tags?post=580475"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\n\tWhy policyholders exit early<\/strong><\/p>\n
\n\tMost premature exits occur from traditional insurance policies. “Policyholders sometimes conclude after purchase that these policies offer little value,” says Renu Maheshwari, Sebi-registered investment adviser, co-founder and principal adviser, Finscholarz Wealth Managers.<\/p>\n
\n\tMis-selling is another important cause. Some buyers realise only later that the product does not match what they were promised. “Many insurance products are mis-sold as investments instead of being presented as insurance or risk-management products. Increased awareness of insurance mis-selling nowadays encourages policyholders to drop unsuitable policies,” says Maheshwari.<\/p>\n
\n\tAgents may misrepresent a multi-year premium policy as a single-premium product. “A buyer may be told that they need to pay a large premium only once. When asked to pay the same amount again the following year, they may surrender the policy,” says Deepesh Raghaw, Sebi-registered investment adviser, PersonalFinancePlan.<\/p>\n
\n\tAffordability problems can also force an exit. “A buyer may commit to a large annual premium during the tax-saving season but be unable to pay the same amount every year,” says Raghaw.<\/p>\n
\n\tPoor product performance can further prompt policyholders to reconsider their purchase. “This is particularly relevant in the case of unit-linked insurance plans (Ulips),” says Raghaw.<\/p>\n
\n\tEarly exits are costly<\/strong><\/p>\n
\n\tA policyholder may receive nothing if a traditional policy lapses before two premiums have been paid. Even after several years, the surrender proceeds may remain substantially below the premiums paid. “A policyholder may receive only a proportion of the premiums paid even after holding a traditional policy for five or seven years, let alone earn a meaningful return on them,” says Raghaw.<\/p>\n
\n\tUlips generally have a five-year lock-in period. “If a policyholder exits a Ulip before the lock-in ends, the proceeds are usually transferred to a low-return fund (the discontinued policy fund, which pays a minimum guaranteed return of 4 per cent per annum). The policyholder can redeem the Ulip proceeds after completing five years,” says Maheshwari. Ulips generally offer a less painful exit than traditional insurance plans.<\/p>\n
\n\tMatch product to your needs<\/strong><\/p>\n
\n\tBuyers should first ensure that the policy suits their needs. They can also avoid many problems by using life insurance mainly to cover risk rather than to seek investment returns.<\/p>\n
\n\tUnderstanding the product is essential. “A buyer who understands the product and finds it suitable is more likely to stay invested,” says Raghaw.<\/p>\n
\n\tTerm insurance is the principal life insurance product that most people need. “People whose dependants rely on their earning capacity should buy term insurance,” says Maheshwari.<\/p>\n
\n\tMost buyers should avoid traditional plans if their primary objective is to earn attractive long-term investment returns. These plans may also provide inadequate protection compared with a term plan.<\/p>\n
\n\t“The investment component goes primarily into fixed-income products. As a result, buyers may find themselves locked into low returns over a long tenure,” says Maheshwari.<\/p>\n
\n\tBuyers may be able to meet their protection and investment needs more effectively through a combination of term insurance and mutual funds.<\/p>\n
\n\tUlips allow investors to switch between debt and equity without incurring tax at the time of the switch. “Tax-efficient switching between debt and equity is the principal advantage of a Ulip,” says Maheshwari.<\/p>\n
\n\tThis product also has limitations. Investors cannot withdraw their money during the first five years, even in the event of poor performance by the underlying funds.<\/p>\n
\n\tA buyer who does not require life cover may have to bear mortality charges. “A Ulip can be unsuitable for an elderly buyer because mortality charges may absorb a substantial part of their premium,” says Raghaw.<\/p>\n
\n\tDeferred annuities are generally unsuitable for investors seeking to grow their corpus rapidly over the long term for retirement.<\/p>\n
\n\tImmediate annuities can be useful by providing retirees with a regular income for life. “An immediate annuity may be useful if purchased during a high-interest-rate period,” says Maheshwari.<\/p>\n
\n\tCheck premium affordability<\/strong><\/p>\n
\n\tBefore purchasing a policy, buyers should assess whether they can pay the premiums throughout its term. “Buyers should evaluate the recurring premium against their regular cash flow,” says Raghaw.<\/p>\n
\n\tThey should not commit to a large premium in a rush during the tax-saving season. “Do not purchase a policy merely because of tax benefits or a persuasive sales pitch,” says Aditya Mall, appointed actuary, Generali Central Life Insurance.<\/p>\n
\n\tExisting policyholders who face affordability problems should get a policy-specific cost-benefit analysis done. “The analysis should compare continuing the policy with reinvesting the surrender value and future premiums,” says Maheshwari.<\/p>\n
\n\tVerify premium structure<\/strong><\/p>\n
\n\tBuyers should confirm whether a policy requires a single premium or recurring payments. “A buyer may be told that a large premium needs to be paid only once. The buyer may discover in the following year that the same premium is payable again,” says Raghaw.<\/p>\n
\n\tHigher commissions on regular-premium plans create an incentive to mislead. “Buyers should read the policy document before committing. The single- or regular-premium status is usually stated on the first couple of pages of the policy document,” says Raghaw.<\/p>\n
\n\tUnderstand liquidity restrictions<\/strong><\/p>\n
\n\tUnderstand the lock-in period before purchasing a policy and match its tenure to a genuine long-term goal.<\/p>\n
\n\t“Maintain a separate emergency fund for short-term liquidity needs. Do not treat insurance as a liquidity tool,” says Mall.<\/p>\n
\n\tPolicyholders should not assume that they will be able to access their money whenever required.<\/p>\n
\n\tProtect yourself from mis-selling<\/strong><\/p>\n
\n\tBuyers should not purchase a policy in a rush. “Do not purchase a policy under pressure or merely to meet a tax deadline,” says Mall.<\/p>\n
\n\tUnderstanding the product before purchase can prevent most problems. Those who cannot evaluate it independently should obtain professional advice.<\/p>\n
\n\t“A fee-charging adviser is preferable to an adviser who earns product commissions,” says Maheshwari.<\/p>\n
\n\t“Buyers should read the policy document and verify the premium structure, whether the policy is linked or non-linked, and whether it is participating or non-participating,” says Raghaw.<\/p>\n
\n\t\tUtilise the free-look period<\/strong><\/p>\n
\n\t\t\u2022 Use the free-look period to confirm that the policy suits your financial needs and long-term goals.\u00a0<\/p>\n
\n\t\t\u2022 Review the benefits and exclusions.\u00a0<\/p>\n
\n\t\t\u2022 Understand premium commitments, tenure and surrender provisions.\u00a0<\/p>\n
\n\t\t\u2022 Cancel within the free-look period if the policy does not meet your requirements.<\/p>\n