Tipping Point: How should buyers use persistency ratio?

Persistency ratio should be one of the key criteria customers should look at when choosing an insurer. A high persistency ratio indicates that past buyers have liked the company's products and hence stuck to it. On the other hand, a low persistency ratio is often an indicator of mis-selling.

In life insurance, a key problem is that many buyers pay the premium for a couple of years and then abandon the policy. Persistency ratio tells you what proportion of policyholders have stuck to a company's products. Higher the number of policyholders who have stuck to a company's products, higher is the persistency ratio. Data is available on persistency ratio for the 13th, 25th, 37th, 49th and 61st month. When a customer abandons a product after just a couple of years, he suffers a loss.