Life insurers' 13th-month persistency ratios ranged from 59.68% to 83.22%, according to a recent reply in the Rajya Sabha by Minister of State for Finance Pankaj Chaudhary. However, by the 61st month, the range had dropped sharply to 22.20% to 58.80%, highlighting a significant deterioration in policy retention. As reported by Business Standard, the persistency ratio measures the proportion of policyholders who continue paying renewal premiums and keep their policies active. According to Venkatesh Naidu, director of Insurance Brokers Association of India, high persistency indicates that customers find value in their policies, while mis-selling and inadequate due diligence by buyers contribute to low persistency rates. Insurers typically track persistency at the 13th, 25th, 37th and 61st months to monitor policy retention trends.
Term insurance can provide substantially higher cover at a lower premium than savings-linked plans, making it relevant when family members depend on the buyer's income or when there are outstanding loans. According to Business Standard, customers should assess whether their family would face financial hardship if their income stopped, with term insurance especially relevant for people with young children and ageing parents. Alok Rungta, managing director and chief executive officer of Generali Central Life Insurance, emphasizes that "it is especially relevant for people with young children and ageing parents." Buyers should first ensure that the cover amount is adequate, sufficient to replace the policyholder's income, repay existing liabilities and fund major future goals. Shilpa Arora, co-founder and chief operating officer of Insurance Samadhan, recommends a minimum cover of 10 times annual income to help the family meet expenses for the next 10 years. The policy term should cover years during which the family will remain dependent on the policyholder's income, with limited-pay plans carrying higher premiums making regular premium plans advisable.
Endowment plans may suit customers who do not wish to take equity risk through mutual funds and can help ensure goals are met even if the policyholder is not around. As reported by Business Standard, buyers who would be satisfied with single-digit returns may opt for endowment plans, selected for financial discipline and certainty of outcome rather than to maximise returns. However, endowment plan premiums are much higher than term insurance premiums, requiring customers to assess whether they can comfortably pay throughout the policy term. Maneesh Mishra, chief product officer at Bandhan Life, recommends looking for features that support policy continuation during premium breaks caused by financial difficulties. Buyers should understand the plan's liquidity provisions and conditions attached to surrendering it, and calculate the policy's expected internal rate of return (IRR) to compare with other investments of the same duration.
Unit-linked insurance plans (ULIPs) suit customers who understand market risk and have a long investment horizon of 7 to 10 years. According to Business Standard, buyers must factor in the five-year lock-in period and ensure it matches their liquidity needs. The selection of underlying ULIP funds should reflect the customer's risk appetite, with premiums divided between equity and debt funds based on risk tolerance. Kumar recommends evaluating whether buyers have the risk appetite to withstand market volatility. Customers should examine the full cost structure including premium allocation charges, policy administration charges, fund management charges, and mortality charges before purchasing. Age affects both ULIPs and endowment plans, with older buyers paying higher premiums due to increased life cover costs. Before purchasing a ULIP, customers should decide whether they want to combine insurance and investment, comparing it with the alternative of keeping term insurance and mutual fund investments separate.
