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Is Your Life Insurance Policy an Orphan?

Do you know, when your life insurance policy becomes an orphan?

When your agent discontinues his agency or his licence is terminated, there is no one to service your policy. This, in insurance jargon, is known as an orphan policy.

Both, the insurance company and Insurance Regulatory and Development Authority of India (IRDAI), naturally want that
a) proper post-sale policy services should continue unaffected,
b) you should persist with your policy and it shouldn't lapse midway.

Accordingly, IRDAI has laid down certain guidelines on servicing of orphan policies.

Salient aspects of the same are enumerated below.

1. Definitions
- Orphan Life Insurance Policy : Where the agent, who initially effected the policy, is no longer on the rolls of the insurance company. (Note: Policies where the effecting agent is eligible to receive the renewal commissions, are excluded from these guidelines).

- Allottee Agent : To whom the policy is allotted for further servicing. S/he should have been an agent of the insurance company for a minimum of 2 years.

- Lapsed Life Insurance Policy: Where the premium has not been paid, even after 6 months from the due date.

2. An insurance company can allot only the orphan lapsed policy to another agent, whose licence is in force.

3. Policies on which no further premium is payable (e.g. limited premium payment policies where the premium payment term is over) or the Single Premium life insurance policies cannot be allotted. Also, the policies wherein no commission is payable (e.g. online policies) too cannot be allotted.

Is your agent gone, leaving you with an orphan life insurance policy?

4. Insurance companies will inform the policyholder about the allottee agent's particulars.

5. The allotted agent should undertake, not to disclose the details of such policyholders to any third party, nor use it for any other business

6. Allottee agent can canvass new business with such policyholders only after the orphan policy has been revived / reinstated.

7. If the allotted policy is surrendered before reinstatement, insurance company will not accept any new business by the agent from the same policyholder till 6 months (from the date of surrender of orphan lapsed policy).

8. Insurers will direct the allotted agents to service these policies, in the same manner as if the policies were effected by them.

9. As regards remuneration payable to the allottee agent
- It shall be equal to the commission rate applicable to the said policy
- It shall be payable on the arrears of the premium received to revive the policy
- It shall also be payable on the subsequent renewal premiums paid every year thereafter
- There will no upfront or advance payment on such policies
- As and when the allottee agent quits, the commissions too shall cease

By the way, do you know how much commission your insurance agent earns?

10. Such allotted policies shall not be considered in calculating the "persistency" of the allottee agent.

11. Insurance company must judiciously allot the orphan policies, based on the agent's ability and feasibility in servicing these additional policies. Moreover, total number of policies allotted to an agent should not be more than 20% of all the policies introduced by the agent and in force.

12. While allotting the orphan policies, insurers should take into account the track record of the agents.

13. All insurance companies should lay down the rules on the orphan lapsed policies, which are in compliance with these guidelines, and duly approved by their Board.

14. Insurers should take an undertaking from the allotted agents, to the effect that they are willing to accept the orphan lapsed policy, and will duly service the same.

15. When the orphan lapsed policy is not revived, even after 6 months of the allotment, the same can be re-allotted and the previous allotment cancelled.

By the way, do you know Four Forbidden Rules Of Life Insurance?

16. Revived and reinstated allotted policies, which subsequently lapse again, may be re-allotted; even if the allottee agent is still active.

17. To ensure that the objectives of these guidelines are duly met, insurance companies should have suitable procedures to keep track of the allotted orphan lapsed policies and the allottee agents.

18. Allotted agents shall have to comply with the Code of Conduct as laid down by IRDA in its notification IRDA (Licensing of Individual Agents) Regulations, 2000. 

19. Allotment of orphan lapsed policies is only an option.

20. For servicing the policies, that do not fall within the purview of these guidelines, all life insurance companies should put in place appropriate internal guidelines.

Are you having any orphan and lapsed life insurance policies in your portfolio?

Before you go, here's an interesting take on the future of life insurance — Where Life Insurance Meets Technology

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