Liquidity crunch in BIFs leads to increase in policy surrender in Life Insurance

Kathmandu: The liquidity crunch of investable funds in the banks and financial institutions(BFIs) has adversely affected the life insurance business.

According to the Department of Policy Servicing, which provides insurance policy services to the insured of life insurance companies, the number of policy loan and surrender has skyrocketed in the last two months.
Untimely surrender is a loss-making deal not only for the insurers but for the insured too. According to insurance experts, surrendering an insurance policy before the completion of six years incurs a loss to the insurer due to operating expenses and also to the insured due to low surrender cost. Such surrender directly affects the insurance policy bonus distributed by the life insurer.

Even though the interest rate on insurance policy loans is cheaper now than the interest rate on bank loans, it is not compulsory to pay interest on a monthly basis like a bank. If the interest on the sum insured is not repaid within six months and the interest is calculated by adding the interest to the principal(compounding interest). The amount to be paid by the insured may exceed the amount to be received by the life assured.

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