What Is LIC’s Persistency Ratio?

The persistency ratio is an important indicator of how the policy has been performing based on the renewal premiums paid by policyholders. Growing competition and the recent pandemic have caused LIC’s persistency ratio to go down.

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LIC has dominated the life insurance space in India for decades, creating one of the largest distribution networks over the last 65 years. It has continued to remain relevant amidst a lot of competition from private players. LIC reported a claim settlement ratio of 98.63% and a solvency ratio of 1.76, both equally important in assessing an insurer. Another important aspect to look at is the persistency ratio. Let’s look at this aspect in detail. 

What is persistency ratio in life insurance? 

In the simplest terms, the persistency ratio indicates the percentage of policyholders that have renewed their policies. A high ratio means that policyholders are satisfied and are choosing to continue their policies. A low ratio implies that not many people have paid renewal premiums to continue their policies at the end of the policy term. 

Persistency Ratio of LIC

The table below highlights LIC’s persistency ratios in the 13th month of a policy across different financial years. The 13th month is considered the baseline for measuring as it marks the end of the 1st policy year. Note that these ratios were calculated based on the annual renewal premium, and not the number of policies renewed. 

Financial Year Persistency Ratio
2019 77%
2020 72%
2021 79%

While the yearly trend in LIC’s persistency ratio may be increasing, it is reported to be lower than some of the leading life insurers in India. Lockdowns following the pandemic, newer products, and increasing competition in the insurance space may have contributed to this. Moreover, with several people losing their income during the pandemic, individuals may have chosen to discontinue payments for LIC insurance policies to pay for medical expenses. 

How is the persistency ratio calculated?

It is either calculated per the annualized premium or the number of policies renewed. Further, the ratio is calculated for a single financial year or a series of financial years. The persistency ratio of an LIC policy for the first year is calculated in the 13th month of the policy term. Similarly,  for 2 years, it will be calculated in the 25th month, for 5 years - it will be calculated in the 61st month, and so on. 

Why is the persistency ratio important?

Renewing a policy is very important if you want continued coverage against unforeseen circumstances. If you do not continue to pay premiums throughout the entire duration of the premium paying term, the policy lapses. Now people may have varying reasons to discontinue premium payments such as loss of income, low product performance in the case of ULIPs, better products, etc. Knowing the persistency ratio of an insurer will help you understand if other people are satisfied with its products and features. This information equips you to make an informed decision and choose the best life insurance policy for yourself and your family.

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