Everything You Need to Know About Orphan Life Insurance Policy

What is an orphaned life insurance policy?

Consider this scenario. You are working, paying bills, setting up a savings plan, including the quarterly premiums towards a 15-year, ₹20 Lakh life insurance plan suggested by the local life insurance agent. You have a whole life policy, basically a savings policy. Your agent keeps in touch with you, regularly reminding you of premium payment due dates, alternative life cover policies, such as the one from Tata AIA Life Insurance, and others. One day you realize that you haven’t heard from the man in months. Much more concerning is that you realize you depended on him for premium reminders. As a result, your policy has lapsed because you haven’t paid the last three premiums.

What you have now is an orphaned life insurance policy – a life insurance policy that you have abandoned (unintentionally), and your agent has too (intentionally or otherwise). Your insurance savings plan is in jeopardy because neither you nor your agent gave it enough attention.

This article will cover various aspects of such orphaned policies, their reasons, what to do in such cases, and how to avoid orphaning policies.

 

Orphaned Policies – Role of Agent

If you are an urban dweller with reliable access to online insurance marketplaces, you might not find yourself in the scenario described above. When you purchase insurance from these marketplaces, they make sure you know about insurance payment deadlines, sending you multiple alerts for them. In some cases, they might even provide discounts to get you to pay the premiums early or pay multiple-year premiums at one go. Any instance of a policy being orphaned in such cases is therefore because of the insured, not the agent or the insurer.

This is not the case in the country’s hinterland, its rural areas. Orphaned policies are on the rise in these parts, where the agent is still the main connection between the insured and the insurer. These agents collect the premiums, deposit them with the insurer, and issue premium receipts. They are key in keeping the policies active.

Most orphaned policies in rural areas happen because an agent has quit the company or the company has terminated an agent, often with no intimation to the many insured persons under their care. This leaves the insured person without any guidance on premium payments. The insurer eventually replaces the former agent. However, many policies have already become orphaned by that time.

 

IRDA’s Role in Ensuring Policy Continuation

The Insurance Regulatory and Development Authority of India (IRDA) is the insurance sector regulator in the country. It has recognized the issue of orphaned policies and has taken multiple steps towards reducing their instances.

When an agent leaves the company or is fired from the company, the insurance company has to appoint an “allottee agent.” The allottee agent is then assigned the orphan policy to help conserve the policy and provide all policy services subsequently. This allottee agent should have completed at least two years of service as an agent on the insurer’s rolls.

 

Orphaned Policies: IRDA Guidelines for Insurers/Allottee Agents

 

• Once an allottee agent has been assigned to an orphaned policy, the insurer must notify the policyholders of all relevant details of the new agent.

• The allottee agent is responsible for servicing the holders of all the currently orphaned policies. The agent is provided with all relevant details of the policyholders, including their addresses. The agent is not allowed to pass on servicing these policies to a third party. However, it does not bar the allottee agent from canvassing for new business from these policyholders.

• There is a chance that the allottee agent will recommend surrendering such allotted policies after allotment but before revival/reinstatement. In such cases, the insurer will not accept any new business from those policyholders and the allottee agent until six months have passed from the date of surrender of the orphaned life policy.

• The allottee agent is eligible for commissions on the lapsed policies. They will become eligible for these payments only on the complete revival of these policies – payment of all arrears in premiums as well as subsequent premium payments.

• In cases where an allotted policy lapses after it is revived, the insurer can re-allot them to another allottee, even if the previous allottee agent is still on the insurer’s rolls.

• Single premium life insurance policies or life insurance policies with no more premiums to be paid cannot be allotted as mentioned above.

• The IRDA guidelines help revive orphaned policies. As the insured, it is also our responsibility to maintain the policy. Our insurance policy is our security blanket. It is in our interest to safeguard it. There are simple ways to do this.

• Note down the main details of the policy, in a book, on a spreadsheet, or in an online document. The details must include the premium amount to be paid, the payment deadline, and important phone numbers, including the nearest office of the insurer.

• Use the online complaints forum to record any complaints. For this, you will need the email ID of the insurer and/or the ID of the local office of the insurer. Write to them listing your issues and questions. This has two advantages – it makes sure that your complaints are heard, and you have a record of the interaction. This could prove useful if the insurer decides to contest your claim.

• Insurance ombudsman: The IRDA takes a severe stand on a lack of service from an insurer, especially if the insured is at a disadvantage. Every insurer is required by law to list the email ID of the insurance ombudsman prominently. If you have a legitimate issue with an insurer, writing to the insurance ombudsman while marking the mail to the insurer is an effective way of receiving help and clarifications.