What are orphaned life insurance policies?

Most of the young earners these days often think of buying a life insurance policy as it gives them the assurance that their dependents would receive the assured amount from the insurer in case they witness any unforeseen event like death, disability due to an accident, etc. Out of these insurance seekers, many, instead of directly buying the life insurance cover from the insurer, usually prefer approaching life insurance agents as they help facilitate and update all information regarding the policy instantly at the request of the policyholder.

While opting for life insurance, agents do have their own set of benefits in form of speedy updates etc., in case they change jobs or get terminated from work, their customers are the ones to face the highest level of setback. As many agents often leave their job without intimating their existing customers, all such policies get addressed by the term ‘orphan’. In simpler words, after the exit of the agent, the policyholder would receive no constant update regarding policy renewals, etc., thus, their insurance policy would lapse, which would leave them with zero life cover.

Despite the policyholder being a regular premium payer, once their policy gets placed into the orphan category, they require going from pillar to post to avail all details about their insurance.

What can be done to avoid an ‘orphan policy’?

Even if you have a long-term cordial relationship with your insurance agent instead of just trusting them blindly, make note of your premium due date, sum insured, the number of years, and so on. Although people living in urban areas can buy policies directly through online platforms, orphaned life insurance policies are of greater concern to people who buy policies only through agents. It is because agents, instead of handing over all the policy details of their customers to another agent, just leave their job making their customers orphans. To avoid the situation of orphaned policies, the Insurance Regulatory and Development Authority of India (IRDAI), a regulatory body that manages the insurance industry, has come up with proper guidelines wherein it states to allot the lapsed orphan life insurance policy to a new agent.

Note that nowadays, banks in partnership with insurance companies offer life cover too. However, in this case also, if the bank decides to end their tie-up with the insurance firm, their customers will end up becoming orphans. Thus, both the banks and the insurance companies in such cases should ensure to properly inform their policyholders about these crucial changes.

What is the role played by the insurance agent?

The major goal of the insurance agent is to develop a cordial relationship with the insurance seekers to make them purchase policies by luring them through life insurance offers and discounts on premiums. To attract them more, they consider using a life insurance calculator to show them the difference between the premium that they would bear now and years later if they consider purchasing insurance. Agents act as facilitators, helping individuals buy policies, so in case of any mishap or uncertainty, their family members do not need to struggle financially to meet their daily mandatory expenses and crucial financial goals.

While the agents put their bets on the right points, they fail to mention the drawback it will have on the policyholder if they take the exit route. Thus, all those agents who are terminated or switch their job should ensure to make it a point to convey this to all their policyholders and hand over all the related documents to the new agent.

Sometimes, if both insurance firms and agents are not able to follow up with the policyholders, the latter should ensure that they pay premiums properly and inquire about the number of years, the policy amount, and so on. In this way, policyholders would be able to keep their policy benefits intact and continue with their policy at the same time. Also, remember, all the policyholders have the right to demand proper information about their policies. In case of any grievances, they can always write to the insurance ombudsman and get their issues sorted out as soon as possible.