What to Do If You are an ‘Orphan’ Life Insurance Policyholder?

Buying life insurance in present times is an unskippable investment. It ensures your dependent’s financial future is secured when you have a life insurance cover by your side.

A life insurance policy can be used to create a financial safety net securing your family’s future even when you are not around. Especially, when you are the sole breadwinner, these life insurance plans help sustain the lifestyle and meet future financial commitments like marriage, education, and more.

Among the different ways to buy a life insurance policy, approaching agents is the preferred choice for many. Ease of selecting a suitable plan by explaining the agent, simplifying technical terms, and personal service by way of reminders, and claim settlement, are some reasons why insurance agents are preferred even in a seemingly all-digital world. But, when insurance agents change their insurance company or switch their profession, the policyholders associated with them are left hanging. In some situations, these policies could lapse and may result in a delay in its claim settlement. These policyholders are known as orphan life insurance policyholders.

According to the 2020-21 annual report by the Insurance Regulatory and Development Authority of India (IRDAI), the insurance regulator, the number of agents appointed by the life insurance companies was 6.29 lakhs, whereas 4.52 lakh agents were terminated. In these situations, the policyholder should not be distressed, which is why the IRDAI has set up some guidelines.

This article elaborates on some of these scenarios and the recommended course of action –

Case 1: The insurance agent quits the insurance sector

In a situation where the concerned insurance agent quits the insurance sector entirely, the insurer is responsible for offering the necessary services to the policyholder. The insurer can even designate the policy to another agent based on the following guidelines:

• Only orphan policies that remain lapsed at the time of allotment are eligible for re-allotment to another agent. For a policy to be termed as lapsed, the premium should be unpaid after six months from when it is due.
• Insurance policies whose premiums are paid using a single instalment are called single premium policies. These policies are not eligible for re-appointment.
• The insurance company is responsible for communicating the details of the ‘Allottee agent’ to the concerned policyholders.
• In the event, a policyholder surrenders the policy after the re-allotment process, but before its revival, no new business shall be accepted by the insurance company from the same agent for the life of the same policyholder until the expiry of six months from the surrender of the orphan policy.
• The maximum number of policies allotted to an agent must not exceed 20% of the total number of active policies that are brought in by such an agent.

Case 2: The agent switches their insurance company from one to another

In a situation where the insurance agent changes their agency from one insurance company to another, the agent can continue to provide services to the policyholder. Further, if such an agent has serviced the policy for at least five years, the insurance companies even pay commission to such agents.

Case 3: The insurance agent bank and the insurer end their association

Nowadays, many banks act as insurance agents and promote insurance products in association with an insurance company. In a situation where such a bank and the insurance company’s association ends, it can be a worrisome situation for the policyholders of the erstwhile insurance company. For that, insurance companies set up call centre facilities to cater to such orphaned insurance policies.

Case 4: The policyholder is unhappy with the services of the agent

In a situation where you, the policyholder, are unhappy with the services of your agent, you can approach the insurance company directly to be serviced for your life cover.

Your responsibility as a policyholder

Even if you have purchased a policy via your preferred agent, you can approach the insurance company directly. Further, to prevent your policy from becoming an orphan, you can use all available channels that the insurance company has. For instance, online policies are becoming increasingly popular as they offer convenience in buying, and aid in comparing different plans, using tools like the life insurance calculator.

Further, as a policyholder, you must take responsibility for renewing your policy on time to avoid any lapse. Moreover, the insurance company also provides reminders over email and SMS. Lastly, ensure that the insurance is kept updated on your health condition to avoid any unfortunate rejection of the claim application.