Life insurance companies in Nepal are grappling with a sharp rise in policy lapses, as over 98,000 policyholders surrendered their policies mid-term in the past 11 months alone. This trend has raised concerns among industry experts and regulators about the sustainability of the sector and the financial protection of citizens.
According to the Insurance Reflection report published by the Nepal Insurance Authority (NIA), policy renewals have declined significantly, resulting in life insurance policies worth Rs 36.51 billion becoming inactive as of mid-June. This figure represents a 10.54 percent increase in the value of lapsed policies compared to the same period in the previous fiscal year.
In total, 1.24 million life insurance policies were not renewed this year, up from 1.14 million last year—an increase of 8.77 percent. Although the number of surrendered policies slightly decreased, the total payout surged to Rs 13.54 billion, indicating an 11 percent rise in the financial burden on insurers.
Industry officials attribute this concerning trend to several factors: poor follow-up by insurance agents, limited awareness among policyholders regarding policy terms and benefits, and growing financial difficulties faced by clients. Most life insurance policies in Nepal span five to fifteen years, requiring annual premium payments. If these premiums are not paid on time, the policies become inactive, leaving the insured without coverage unless arrears are settled.
While policyholders do have the option to revive lapsed policies or surrender them for partial returns after three years, a lack of information often leads them to abandon their coverage without exploring these alternatives. This confusion has left many policyholders financially exposed and disillusioned with the insurance process.
Despite the NIA’s directive urging insurance companies and their agents to maintain consistent communication with clients, implementation remains weak. Inadequate engagement with customers is exacerbating policy lapses and eroding public trust in the life insurance system.
As the industry faces growing criticism for its failure to uphold transparency and client service standards, the surge in lapsed policies serves as a wake-up call for insurers to prioritize policyholder education, follow-up services, and financial inclusivity.
