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What To Do If You Are an Orphan Life Insurance Policyholder

20 June 2022, 5:39 PM

When can We Say that an Insurance Policy has Become an ‘Orphan’?

If your life insurance policy had been taken through an agent for which he receives a commission every year when you pay your premium, but still you do not receive any service from him, your life insurance policy is said to become an “orphan”.

The agents who sell the policy to you is the primary link between you and the insurance company. The work of this agent does not stop at the moment the insurance is sold. Rather, collecting premium, delivering tax receipts, making switches between funds (in case of ULIP Plans) and all such post-sales service is the agent’s duty and responsibility. However, when for some reason the agent loses contact with the policyholder, then there could be service issues. Most of the time we see that the policyholder might lose track of the whereabouts of his policy. This steady distancing of the policyholder from the life insurance company at times might lead to the policy being lapsed, and then we can say that the insurance policy has been orphaned.

When the insured person fails to pay the premium even after the completion of 6 months from the due date of the premium then a policy goes into the lapsed status. And when this happens as a result of the severing of the contact between the insurer and the insured, mainly because the agent for the policy could not have been reached by the insured, then the policy is said to have been orphaned.

Rules for the Orphaned Policies

Trust me when I say this is a common affair in the insurance industry. 

In fact the IRDAI has been actively terminating some agents over the last few years for not being able to meet the minimum business guarantee. So, if your agent has been terminated, your policy is automatically “orphaned”

This would obviously lead to the problems of a great number of policies being orphaned every year. Thus, in order to cater to this problem Insurance Regulatory and Development Authority of India (IRDAI) has set up certain rules and regulations that need to be followed. There are different circumstances that lead to the problem of a policy being an orphan and the guidelines to solve those problems are also provided by IRDAI as per the circumstances.

1. When the Agent Leaves Insurance Sector 

When an insurance agent leaves the insurance sector altogether then it becomes the responsibility of the insurer to provide service to the insured. That is generally done by assigning the policy to some other agent. The assigning of the policy is done as per the following condition:

a. If an orphan policy remains in the lapsed status even after 6 months from the due date then it is eligible to be allotted to another agent.

b. The insured person / the policyholder should be immediately intimated about the re-allotment along with the details of the new agent for further communication. This intimation should be initiated by the insurance company. But the insurance company should always keep the policyholder informed about the contacts details of the company in case the policyholder wants to get in touch with the insurer directly.

c. In order to prevent a policy from being surrendered and a new policy is issued in its place, in which case it is a loss-making proposition for the insurance company there is a specific rule of new policy issuance. The rule is that, after a new agent is allotted to an orphan policy if the policyholder surrenders his policy then no new policy application would be accepted for 6 months post surrender, from the same policyholder where the agent is the newly allotted one.

d. The allotment of the number of orphan policy to an agent should not exceed 20% of the total fresh policies brought in by the agent.

e. If the policy is a single premium policy and the respective agent has quit the insurance sector then the company does not allow the policy to a new agent.

2. Agents Quit the Present Insurance Company 

In the case where the agent of a particular policy terminates his agency with the present insurance company he was working for but continues to be an agent of some other company in the insurance sector, then the policy cannot be termed as an orphan policy. This cannot be done as he would still be holding his license from IRDAI which regulates all insurance companies and thus would be allowed to keep serving the policyholder.

In fact, if the policy has been in the enforced status for more or equal to 5 years with the particular person as its agent and regular premiums have been paid then the insurance company keeps paying commission to the agent for any further renewal received by the company for the policies introduced by that particular agent.

3. Tie Up Between the Insurance Company and the Agent Bank is Broken 

The bancassurance channel is a steadily growing source of business for the insurance company and the quantum of business is also quite high. The tie-ups with such banks where the banks become the agents of the insurance company are highly profitable to the insurance companies also. But the problem arises when the tie-up is broken as it leads to the orphaning of a huge number of policies. These policies enter the lapsed status due to the lack of contact and thus can be termed as orphan policies.
To handle such issues the insurance company generally sets up call centers. These call centers then provide service to the customers.

4. Customer not Satisfied with the Service Provided by the Agent

If you as a policyholder are not satisfied with the service provided by the agent then you can approach the insurance company directly to serve you and in turn terminate the service of the agent. In such a case, the insurance company would provide ways to directly serve the customer

What Responsibility do You Bear as a Policyholder to Prevent Your Policy from becoming an Orphan Policy?

When you buy a policy then the primary responsibility to keep the policy alive, i.e. in the enforced status primarily lies on you, as if the policy goes to the paid-up status then the maturity benefit as well as the death benefit hampers which is a loss mainly for you. Thus, you should use all possible means to keep your policy enforces even when your agent severs off contacts with you.

Ways that can Help You Keep the Policy Enforces

  1. Keep a record of the renewal dates and a regular track of the policy status, so that the premium due date is not missed by you in any way.
  2. Try and get in touch with the insurance company in case of any discrepancy or if the premium due dates have passed and as the agent has not turned up in time your premium has not been paid. This can be done by calling up their helpline numbers provided by the company, or by visiting their registered office. Such details are easily available in the policy bond.
  3. Make sure that the details that were provided by you in the policy at the time of issuance were perfectly accurate. This helps the insurance company to communicate to the customer on a regular basis as the insurance company surely sends renewal notice and lapse notice (in case of policy lapsation) or any updates in terms of the change of their official address or phone number. Thus, if the details are correct then the contact is generally not severed.
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