The persistency ratio (PR) is the percentage of all the policies renewed annually by consumers. According to the latest data provided by the IRDAI, the persistency ratio of the Indian life insurance industry leaves a lot to be desired. In 2015-16, the PR for India’s life insurance industry stood at a paltry 61% in the 13th month. In a layman’s terms, this means that out of 100 policy holders, only 61 choose to renew their life policies after one year. The 61st month PR is worse: here, nearly two-thirds of all policy holders drop off. This is a concern because life insurance tend to be long-term financial commitments. persistency ratio discarding them in the short and medium term reveals that purchase of insurance products is not being given the adequate thought it needs.
Why is persistency important?
A healthy PR is critical to the insurance industry from profitability and customer retention points of view. It’s also critical to the policy buyer, due to the forward-looking, long-term nature of the product. Continued coverage means that consumers get higher levels of utility and returns from their insurance products. According to the Insurance Laws Amendment Act from 2015, all claims shall be honoured if a policy has been active for three years or longer, without any breaks.
What you need to keep in mind
To reap the best benefits of your life insurance product, you must maintain them for the long term. Buying life insurance repeatedly at different stages of your life by discarding existing coverage may not be a good idea. Make an informed policy purchase decision. Ensure that the policy documents have been read well both before and after the purchase. Do not get into a long-term contractual obligation without fully knowing what you’re getting into.
You must ensure that the product you’re buying is the best for you, even if it’s been pushed on you by an agent or recommended to you by a friend. Do not be floored by a hard sell. Recognise your fiscal goals and choose a policy that fits your distinct needs. This would increase your chances of sticking to your policy in the long run.
Ensure adequate life cover. The primary objective of any life policy is to provide life coverage. Often, life policies are abandoned since the coverage isn’t adequate. As a thumb rule, get a sum assured that’s 10 to 20 times your current annual income. The total sum assured of all your life policies should adequately cover your dependents in the long run, should something happen to you. You must take the time out to calculate these long-term needs of your family: think paying off the home loan, helping your child complete college, and ensuring a retirement pension for your spouse.
The writer is CEO, BankBazaar.com