A Study on Lapsation of Insurance Polices of Select Insurance Companies

Abstract

Purpose: Lapsation is the discontinuation of payment of premia for reasons other than the death of a policy holder. A majority of insurance companies notice that half of their policyholders do not pay their insurance premia regularly leading to an increase in lapsation of policies. Increase in lapsation not only affects the policyholders’ welfare but also insurance companies’ business growth. So, the present study was carried out to determine where lapsation rate is high and to offer solutions to reduce the rate of lapsation. Design/Methodology/Approach: The present study is descriptive in nature. A carefully constructed questionnaire was used to gather the study's pertinent data. Data were collected from life insurance company employees in Tamilnadu using the convenience sampling method. The questionnaire includes inquiries about different policy kinds, distribution methods, agent information, and different commission structures. Findings: Result of cross tabulation discloses that high rate of lapsation rate is noticed with term and endowment insurance policies both at LIC and private insurance companies. High rate of lapsation is noticed under insurance policies distributed by direct sale teams of insurance companies. Further, it is noticed that lapsation rate is high in Private insurance companies, where insurance agents receive low commission. Lapsation rate is low at Public and Private Insurance companies, where insurance agents receive high and moderate level of commission. Practical Implications: The result of the study will be immensely useful to policyholders in particular and insurance companies in general. Reduction in policy lapsation rate will assist policyholder to reap the benefit of availing insurance policies and aids life insurance companies to expand their business volume to a greater extent. Social Implications: Life insurance companies not only safeguard interest of policyholders but also invests their excess amount of premium in corporate securities, thereby assists not only growth of industries but also Indian economy as well. Lapsation of insurance policies may affect transfer of excess premium towards industry investment. Thus, the present study assist to understand the reason for lapsation of policies and to offer suitable suggestions to reduce rate of lapsation and assist not only growth of insurance companies but also economy too. Originality/Value: Questionnaire is employed for collecting first hand data. By contacting the life insurance company employees in person data required for the study has been gathered.