Causes and Costs of Lapsation of Life Insurance Policies in India

To face the economic consequence of risk or uncertainty, individuals need financial support in times of need. Life insurance enables to meet such uncertainties or risks. Individuals are helpless in timing of death and it has to be faced by all mortals. But they can handle the financial consequences of death, irrespective of the timing; they can make decisions to reduce these conditions of large uncertainty of financial consequences by certain costs known as premium through life insurance contracts. The functioning of life insurance is the pooling of fortuitous losses by transfer of such risks to insurers, who agree to provide benefits on occurrence of the event for a consideration, called the “premium”. In a competitive environment, while the rate of mortality and the rate of interest are common to all insurance companies only through efficient management they can survive and progress in the market. In that scenario, lapsation of life insurance policies is a main hurdle to the efficient management of insurance companies. This thesis focused on the causes and costs of lapsation of life insurance policies.