Kathmandu. Life insurance plans have a provision that the insurance can be surrendered after 3 years from the date of commencement of the insurance after paying the insurance premium in 3 installments. Similarly, if you cancel the insurance by paying the insurance premium in 2 installments, the insurance policy is converted into a paid-up insurance policy and the paid-up value is received at the end of the insurance period or death. However, if you cancel the insurance by paying only 1 installment, the insured does not get anything.
Insureds often complain about the life insurance rules that do not allow you to get anything. Moreover, some insureds only learn later that there is such a rule. In such a situation, the insured says, ‘The life insurance company ate my money, I was cheated.’ But, did the insurance company really eat the insured’s money? After all, why don’t insurance companies bear any liability when the insurance is terminated by paying the insurance premium in the first year only? Why did the regulatory body decide to impose such a rule?
Insurance companies have already spent most of the first premium to bring in life insurance business. Insurance agents receive a certain amount of commission according to the insurance period. Which is up to 25 percent of the first premium. Similarly, for bringing in the first installment of business, the insurance company gives up to 18 percent of the premium as an incentive to the insurance agent. In addition, an amount of 5 percent of the premium is spent on the management of the insurance policy.
Nowadays, since there is a rule that any insurance policy must be re-insured, some amount also has to be paid to the reinsurer. When issuing an insurance policy in this way, the insurance company may receive less than 50 percent of the first premium paid by the insured.
The remaining 50 percent of the outstanding amount cannot cover the insured’s liability in the initial year, so the insurance company has to add money to the premium paid by the insured and keep a reserve. Moreover, even if the insurance has been paid (the situation where the insured has paid one installment of the premium and left the insurance policy), the rule that allows the insured to renew the insurance at any time means that the insurance company has to set aside money for possible renewals in the future, and in the end, only a few percent of the premium paid by the insured is left.
The insurance company does not receive the full amount. Since the profit from the insurance fund is shared between the insured and the insurance company in a ratio of 90-10, the other insureds get 90 percent of that amount as a bonus, while the insurance companies get a maximum of 10 percent.
Finally, terminating the insurance by paying 1 installment of insurance premium in life insurance does not benefit either the insurance company or the insured. The benefit is only to the insurance agent who gets 43% by paying 25 percent commission and 18 percent incentive. Therefore, before taking out life insurance, you should understand all the terms and conditions and insure only the amount of insurance premium that you can afford, considering not only your current but also your future income. So that you do not get into a situation where you cannot pay the insurance premium in the second installment.
