India’s life insurance sector continues to face a significant challenge in addressing unclaimed life insurance amounts, a situation that has been brought to light by the Insurance Regulatory and Development Authority of India (IRDAI) in its annual report. In FY2023-24, the unclaimed amounts at the beginning of the year stood at a staggering ₹22,237 Crore. Despite efforts to reduce this figure, the unclaimed sums remain substantial, highlighting the need for greater awareness and more efficient processes.
IRDAI’s Special Drive to Address Unclaimed Amounts
To tackle the issue, the IRDAI initiated a special drive from June 2023 to November 2023. The objective was clear: to reduce the unclaimed amounts, expedite refunds to consumers, and prevent further accumulation of unclaimed funds. The progress of the clearance was carefully monitored on a monthly basis, with insurers required to take active steps in tracing policyholders and their nominees.
The efforts of this six-month initiative resulted in a net reduction of ₹1,018.23 Crore, bringing the total unclaimed amount at the end of the fiscal year down to ₹20,062 Crore. While this represents progress, the substantial remaining figure underscores the importance of continued vigilance and proactive steps by both policyholders and insurers.
The Role of Non-Relatives and Estate Planning
One of the key issues highlighted by the IRDAI is the need for policyholders who bequeath benefits to non-relatives to engage in proper estate planning. Insurers are particularly cautious about registering non-immediate family members as nominees, which can lead to complications in the payout process. The practice of nominating individuals who are not closely related to the policyholder often leads to difficulties in tracing beneficiaries, particularly when these individuals are not easily accessible or are unaware of the policies.
The regulator’s recommendations call for a more structured approach to nominations, encouraging policyholders to consider their immediate family members as beneficiaries and ensuring clear communication about the policies held.
Rising Benefits Paid Out by Life Insurers
Despite the ongoing issue of unclaimed amounts, the life insurance industry has demonstrated its commitment to paying out claims. In FY2023-24, the life insurance sector disbursed a total of ₹5.77 Lakh Crore in benefits, which constitutes 70.22% of the net premium. A significant portion of these payments, ₹2.29 Lakh Crore, was related to surrenders and withdrawals, marking a 15.29% increase from the previous year. Public sector insurers were responsible for 58.36% of these payments. Furthermore, the total death claims paid during the year stood at ₹48,512 Crore, a slight increase from ₹46,380 Crore in the previous fiscal year.
Reasons Behind Unclaimed Life Insurance Amounts
The reasons for unclaimed life insurance funds are varied and often complex. A few key contributors include:
Outdated Information: Insurers often struggle to locate policyholders or their nominees due to outdated contact details, closed bank accounts, or unregistered mobile numbers.
Family Unawareness: Many families remain unaware of existing life insurance policies, especially when policyholders do not inform their loved ones about these plans.
Forgotten Policies: Policies, particularly long-term ones, can easily be forgotten, especially if premiums are paid over long periods with no immediate payout. This is common in cases where policies mature decades after they are taken out.
Nominee Issues: In cases where policyholders nominate non-beneficial nominees, such as non-blood relations like a girlfriend or a distant relative, the money is often not directly transferable to the nominee. Legal heirs, such as the spouse or children, retain ownership of the funds. This creates complications, especially in scenarios involving same-sex couples or individuals without immediate family members.
The Importance of Proper Nomination
The issue of proper nominee designation cannot be overstated. While some people opt to nominate non-relatives or partners outside their immediate family, insurance companies, including LIC, have advised policyholders to nominate family members. The rationale is that nominations made in favor of a stranger may not be valid due to a lack of insurable interest, which could complicate the payout process.
Edelweiss Life also highlights that in cases where a non-beneficial nominee is appointed, the funds do not automatically go to the nominee. For instance, if a policyholder nominates their partner, the funds are legally required to be passed on to the policyholder’s legal heirs, such as their spouse or children.
Best Practices for Policyholders
To prevent the accumulation of unclaimed amounts, policyholders should take several important steps:
Informing Nominees: Let your nominees know about the policies you hold, including the details of your insurance plan.
Keeping Documents Secure: Store all insurance policy documents in a central, secure location with other important financial papers to ensure they are easily accessible when needed.
Regular Updates: Update your contact, bank, and nominee details regularly to ensure that insurers can reach you or your nominee without delays.
Consider E-Insurance: Opening an e-insurance account through the Central Depository Services Limited (CDSL) or the National Securities Depository Limited (NSDL) can make it easier to track and manage your policies.
Manbilas Singh is a talented writer and journalist who focuses on the finer details in every story and values integrity above everything. A self-proclaimed sleuth, he strives to expose the fine print behind seemingly mundane activities and aims to uncover the truth that is hidden from the general public. In his time away from work, he is a music aficionado and a nerd who revels in video & board games, books and Formula 1.
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