Sops for paying insurance premium in advance
It meets dual objective of curbing policy lapses and customers avails discounts on premiums
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Guaranteed cover continuity – By being able to pay in advance, there is no stress of missing out on payments. Customers often miss out on payments due to the non-availability of funds on that specific day which may result in a premature policy lapse
Why does a customer wait to pay their insurance premium on the due date? Why not just pay premiums in advance? The key reason is the lack of benefits extended to policyholders for doing so. This automatically deters the customer from making advance payments. Probable changes in the customer's financial situation later – for example, the non-availability of funds during the due date deprioritises the premium payment and ultimately affects continuation of the life insurance policy
The regulator has also recognized the need of incentivizing customers when paying premiums in advance. Highlighting this gap, the Insurance Regulatory and Development Authority of India (IRDAI) recently issued draft guidelines allowing life insurance companies to offer discounts for renewal premium collected in advance. It meets the dual objective of allowing the regulator to curb policy lapses and customers to avail discounts on premiums.
Jumping on the bandwagon, IndiaFirst life has been one of the first few companies in the industry that has extended the benefit of discount on advance renewal premium payment to customers. This facility aims to boost an uptick of timely policy payments while extending the following benefits to customers: Guaranteed cover continuity – By being able to pay in advance, there is no stress of missing out on payments. Customers often miss out on payments due to the non-availability of funds on that specific day which may result in a premature policy lapse. Now, customers can pay basis their feasibility anytime within the year and ensure they are covered against risks. Timely/advance premium payment - Customers who pay their premiums in advance are in for a treat! They can avail discounts offered on advance premium payment. Leveraging this feature helps the customer pay in advance at their own convenience while benefitting.
Securing your loved ones in the future – Life insurance is a long term goal which makes it crucial to sustain the policy term for the customer to reap maximum benefits. Paying premiums in advance helps the customer plan and budget accordingly for this purpose. Setting aside premiums in advance ensures that the policy remains active due to the timely payment of premium. Any windfall income/gain post payment of the advance premiums can be parked for further financial planning.
Tax benefits – Policyholders can use this feature to their advantage while availing tax benefits. when the customer misses out on a payment within the same financial year, they no longer stay eligible for a tax rebate. However, this feature allows the customers to arrange funds and also invest without losing out on interest.
These benefits will also have a corresponding effect on the insurance industry. Firstly, advance premium payments will avoid the premature lapse of policy covers. It will automatically help reduce the cost of collections which are incurred during follow ups, by insurers. Further, these benefits can be passed back to customers in the form of bonuses etc.
The continual high rates of persistency will translate into increased profitability, reduced costs, optimal long-term income and overall growth and development for the organization. Whereas, the customer gets an incentive to pay it in advance giving them peace of mind and ensuring security. By rolling out this benefit to customers, we have come one step further in ensuring customer delight and organizational efficiency.
(The author is Chief Operating Officer (COO), IndiaFirst Life Insurance Company Ltd)
