Life insurance is a service that provides many values, ensuring the health, life, and well-being of participants, partially mitigating risks, and also serving as a means of accumulating assets for the future. However, currently, many types of insurance services are causing issues that can lead to unforeseen debts for customers. In the following analysis, TNTP lawyers will examine the risks of bad debt that customers may encounter when entering into life insurance contracts.
1. Lack of understanding of the entire contract content by the policyholder
When insurance agents advise on insurance packages, policyholders often choose packages based on the agents’ recommendations without thoroughly examining the contract’s content. In doing so, policyholders put themselves at risk because they easily sign a contract without fully understanding its content, including binding terms and penalty clauses in case they wish to terminate the contract.
In reality, life insurance contracts often contain a large amount of content, ranging from tens to hundreds of pages, making it impossible for customers to have enough time and patience to read every clause and provision. This lack of understanding about the contract’s content can lead to various risks in the future, especially when customers rely solely on the advice of insurance agents when choosing a policy.
2. Insurance sales staff causing customer misunderstandings
Due to the lengthy nature of insurance contracts, customers can only rely on insurance agents, who are professionally trained and can accurately determine their requirements to select the most suitable insurance package. However, in Bancassurance (insurance distribution through banks) operations, many bank employees have limited expertise as they only receive rapid training through a few courses when introducing insurance packages. As a result, they may provide incomplete advice, leading to customer misunderstandings about the benefits they receive and the monthly insurance premiums. This can result in customers entering into inappropriate insurance contracts with unnecessary provisions that incur significant costs. Overall, this situation puts customers at a disadvantage, unexpectedly burdening them with high insurance fees compared to the contents they were advised by the staff.
Furthermore, in reality, due to increasing pressure to meet insurance sales targets, many bank employees involved in Bancassurance activities only present terms and content that are beneficial to customers while intentionally concealing unfavorable information and risks associated with the contracts. The purpose is to induce customers to enter into agreements. In such cases, customers become the most vulnerable to the risks of the advised recommendations of insurance sales staff. This erodes the trust of customers in both banks and insurance companies, significantly reducing their confidence.
3. Customers no longer can participate in insurance premium payments
Due to various reasons, during their participation in life insurance, customers may no longer have the financial capacity to pay insurance premiums. This leads to customers becoming debtors and potentially facing penalties or interest charges under the insurance contract. When customers fall into a situation of bad insurance debt, the insurance company will take measures to recover the debt, significantly impacting the customer’s quality of life.
However, according to the new provisions in Article 26 and Article 27 of the Insurance Business Law 2022, effective from January 1, 2023, in cases where customers no longer have the ability to pay insurance premiums, they can unilaterally terminate the insurance contract. In such cases, the life insurance company is responsible for reimbursing the insurance money to the customer before the unilateral termination of the insurance contract and has the right to deduct the insurance premiums up to the point of termination. Therefore, these regulations have limited the risks for customers in cases where they can no longer participate in insurance premium payments. However, if the customer’s insurance contract was entered into before the effective date of the Insurance Business Law 2022, they still need to fulfill the payment obligations as previously committed.
The above is an article by TNTP’s lawyer on the topic: “Risk of bad debt of customers when entering into life insurance contract” We hoped that this article provides value to readers.