Life Insurance - Lapsed policies being lapped up
18-Aug-2003
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Whoever said insurance policies should not be looked at as an investment avenue should think twice. Of late the demand for lapsed insurance policies has spurted considering the amount of guaranteed tax-free income these could fetch in the long run if bought at a discount from the original policyholder.
Lucrative business: Undertaken by life-settlement firms in the west, the practise of buying lapsed risk covers particularly long term policies from the elderly after paying up the unpaid premiums has turned out to be a lucrative business for many. And in India such policies that have lapsed are being identified and the original policyholders are being approached, to gain the maximum out of this novel idea that makes good business sense.
Benefits all: For life insurance companies, revival of lapsed policies brings in business, and so does it benefit the original policyholder and the assignee to whom the cover has been newly assigned financially benefiting all those who are party to it.
A booming business in the US, a number of senior citizens are many a times unable to pay up the premiums on their policies and are only too glad to sell it to someone who can pay about three times the amount that the insurance company would have offered on maturity or on death.
Secondary market: As a result a secondary market in insurance policies is slowly, beginning to come up with such policies constituting a huge chunk. While the legality of the matter is still not clear, industry officials state that since no one is complaining there does not seem to be any issue coming up.
Long term consequences: Though it seems to be a financial gain for all those involved including the insurance company a number of foreign insurers are not very pleased with the idea and are apprehensive of the long-term consequences that it may bring. They fear that while the number of lapsed policies may go down they may have to fork out more later on maturity that could affect their bottomlines majorly.
