High exit penalties on Ulips added to insurance companies’ profits, till they were capped. However, they still exist for traditional insurance plans. We asks the experts if exit loads on traditional plans too need to be capped.
Sanket Kawatkar, principal and consulting actuary, life insurance (India), Milliman India Pvt. Ltd
In the case of unit-linked insurance plans (Ulips) it’s true that surrender profits have come down after the surrender penalties were capped, but the lapse rates haven’t really come down in many insurance companies. So more than the high surrender penalties levied earlier (which were designed to recover the high up-front costs, and to deter policyholders from lapsing early), it was the high levels of lapses that contributed to high lapse profits in the past. And this is primarily related to how the business was sold (or missold). So, it’s not possible to address the issue of misselling by simply capping surrender penalties.
