Policy Surrender Surge Amid Liquidity Crunch and Inflation

Kathmandu: The liquidity crunch in the bank and financial institutions(BFIs) and high inflation has forced policyholders to quit their life insurance policies. The life insurance industry has witnessed a surge in the value and volume of policy surrender in the first two months of current fiscal year.

According to the Insurance Board, 19 life insurance companies have paid Rs. 2.66 billion against their surrender value. In the first month(Sawan) Rs. 1.51 billion has been withdrawn by policyholders against policy surrender. A total of 8,422 policies have been surrendered before the life insurers. In the month of Bhadra, Rs.1.14 billion has been paid against the surrender of 8,052 policies.

LIC Nepal, which collected insurance premiums(TPI) of Rs. 18 billion 22 crore 33 lakh had paid Rs. 2 billion 93 crore 69 lakh for policy surrender in last FY 2078/79. Which account 16.12 percent of the TPI. Similarly, Nepal Life had paid Rs. 5 billion 1 crore 56 lakh against policy surrender while collecting Rs. 35 billion 35 crore 3 lakh premiums. Which is 14.19 percent of the TPI.

Despite the provision of delayed period for surrender value eligibility, the trend of policy surrender has been on the rise. Insurance experts also mention the forceful sale of life insurance products as one of the major cause for policy surrender. The minimum waiting period for policy surrender is 3 years from the date of commencement where the payment of at least three annual installment is mandatory.

In the period of first two months, Nepal Life Insurance has paid Rs. 1.5 billion against surrender value which is highest in the industry. Interestingly, it’s first premium income(FPI) was Rs.93.64 crore only. It means income from new business is lower in comparison to the cash outflow against surrender value. Similarly, LIC Nepal has paid a total of Rs.. 61.47 crore surrender value within first two months. National Life has paid Rs. 42.72 crore while Asian Life’s policyholders have withdrawn above Rs. 10 crore surrender value within two months. State-owned Rastriya Beema Sansthan too has paid above Rs. 10 crore. Sanima Life has the lowest surrender value payment of Rs. 66 lakh only.

Industry experts opine that the industry could witness higher number of policy surrender amid ongoing liquidity crunch and inflation.

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