New data reveals that premature surrenders and withdrawals of life insurance policies in India have now surpassed maturity payouts, highlighting a significant shift in policyholder behaviour and raising concerns about long-term financial planning and product suitability.
Key Points
- Premature surrenders and withdrawals of life insurance policies have exceeded maturity payouts in India over the last five years.
- The share of surrenders and withdrawals in total benefits paid by life insurers increased from 32% in FY22 to 39% in FY26.
- Maturity benefits as a proportion of total payouts decreased from 48% in FY22 to 37% in FY26.
- Factors contributing to early exits include unsuitable products, unaffordable premiums, mis-selling, and changes in policyholders' financial circumstances.
- IRDAI is actively monitoring these trends and implementing regulatory measures to enhance policyholder protection and product design.
Premature surrender and withdrawal of life insurance policies have overtaken maturity payouts over the past five years as more policyholders exit long-term policies before the completion of their tenure, according to data presented by Minister of State for Finance Pankaj Chaudhary in the Lok Sabha on Monday.
"Surrenders and withdrawals as a share of the total benefits paid by life insurers have increased from 32 per cent in FY22 to 39 per cent in FY26," Chaudhary said in a written reply to a question in the lower house of Parliament.
"The proportion of maturity benefits in total benefits paid by life insurers has decreased from 48 per cent in FY22 to 37 per cent in FY26," he added.
Rising Early Exits
In absolute terms, surrender and withdrawal payouts rose to Rs 2.80 trillion in FY26 from Rs 1.58 trillion in FY22, while maturity payouts increased to Rs 2.70 trillion from Rs 2.40 trillion over the same period.
"The insurance sector regulator, Insurance Regulatory and Development Authority of India (Irdai), has informed that policy surrenders and early exits are influenced by multiple factors, including lack of suitability of the product purchased, lack of affordability of premium, non-fulfilment of policyholder expectations, mis-selling, lack of policyholder awareness and understanding of insurance products, and changes in the financial circumstances of policyholders," the minister said.
Major Insurers Affected
State-run Life Insurance Corporation of India (LIC) accounted for Rs 1.57 trillion in surrenders in FY26, while other players such as SBI Life (Rs 29,294 crore), ICICI Prudential Life Insurance (Rs 27,340 crore), and HDFC Life Insurance (Rs 15,741 crore) also recorded high early-exit figures.
Regulatory Response
Irdai continuously monitors trends in policy surrenders, withdrawals, and persistency to assess their implications for insurers' financial soundness, policyholder protection, and the overall stability of the insurance sector, Chaudhary said.
"Based on such monitoring, appropriate supervisory and regulatory measures are undertaken, wherever considered necessary, to strengthen policyholder protection, improve product design and disclosures, promote sound risk management, governance practices, and policyholders' awareness," the minister said.
