New Delhi, Aug 3: An increasing number of life insurance policyholders are surrendering or withdrawing from their policies before maturity.
Such payouts accounted for 39 per cent of the total benefits paid by life insurers in the last financial year 2025-26, up from 32 per cent in the financial year 2021-22.
The share of maturity benefits has declined from 48 per cent to 37 per cent over the same period, according to information furnished by the government to Parliament.
Replying to an unstarred question in the Lok Sabha, Minister of State for Finance Pankaj Chaudhary said the increase in premature exits reflects multiple factors identified by the Insurance Regulatory and Development Authority of India (IRDAI).
According to data provided by IRDAI, life insurers paid Rs 2,80,130 crore towards surrender and withdrawal claims during FY26 (provisional), compared with Rs 1,58,285 crore in FY22.
During the same period, maturity benefits stood at Rs 2,69,706 crore, indicating that surrender and withdrawal payouts exceeded maturity payouts for the first time in recent years.
The government said surrender and withdrawal claims accounted for 39 per cent of the Rs 7,23,158 crore in total benefits paid by life insurers during FY26, while maturity benefits accounted for 37 per cent.
The trend has become more pronounced over the past five years, the government said.
Quoting IRDAI, the minister said premature policy exits are influenced by a combination of economic and behavioural factors rather than a single reason.
These include inability to continue paying premiums, changes in financial circumstances, policyholders’ expectations not being met, mis-selling by intermediaries and limited awareness or understanding of insurance products.
The government, however, said IRDAI has not undertaken any specific assessment of how rising surrender rates are affecting household savings, long-term financial security or insurance penetration in the country.
The regulator continues to monitor surrender, withdrawal and policy persistency trends to assess their impact on insurers’ financial soundness, policyholder protection and the stability of the insurance sector.
The government said IRDAI has strengthened consumer safeguards through the IRDAI (Insurance Products) Regulations, 2024 and the Master Circular on Life Insurance Products, 2024.
Under the revised framework, non-linked life insurance savings products acquire surrender value after payment of one full year’s premium. Insurers are also required to ensure surrender values remain reasonable.
Insurers must also provide approved product literature, disclose product features and authorised distribution channels on their websites, and furnish a signed customised benefit illustration before a policy is sold.
The benefit illustration is required to disclose year-wise guaranteed surrender value, special surrender value and the surrender amount payable.
A customer information sheet has also been made mandatory for all life insurance policies.
As part of post-sale safeguards, all life insurance policyholders are now entitled to a 30-day free-look period, allowing them to cancel a policy and receive a refund after specified deductions.
IRDAI has also mandated policy loan facilities for non-linked individual life insurance savings products, enabling policyholders to access funds without surrendering their policies.
The government added that pension products now permit partial withdrawals for specified life events such as education, housing and medical treatment, reducing the need for complete policy exits.
Flexible premium payment options have also been introduced to improve affordability and enhance policy persistency.
IRDAI has tightened advertising norms while requiring life insurers to maintain board-approved policies for assessing product suitability.
The framework also mandates that insurance plans be recommended based on customers’ financial needs.
Insurers and intermediaries are responsible for preventing mis-selling by conducting regular training for sales personnel, obtaining customer feedback and assessing whether prospective policyholders can sustain premium payments throughout the policy term.
Policyholders also have access to grievance redressal mechanisms through insurers and the insurance ombudsman. (BVI)
