A growing number of life insurance policyholders are surrendering or withdrawing from their policies before maturity, with such payouts now exceeding maturity benefits for the first time in recent years, according to information shared by the Centre in the Lok Sabha.
Replying to an unstarred question raised by Lok Sabha members professor Sougata Ray and Kishori Lal, Union minister of state for finance Pankaj Chaudhary said surrender and withdrawal payouts as a share of the total benefits paid by life insurers increased from 32% in FY21-22 to 39% in FY25-26, reflecting a steady rise in premature exits from life insurance policies.
“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.
Over the same period, the share of maturity benefits in total payouts declined from 48% to 37%.
Data provided by the IRDAI showed that life insurers paid ₹280,130 crore towards surrender and withdrawal claims during FY25-26 (provisional), up from ₹158,285 crore in FY21-22.
In comparison, maturity benefits stood at ₹269,706 crore in FY25-26, indicating that surrender and withdrawal payouts had overtaken maturity payouts across the life insurance sector.
The trend has become more pronounced over the past five years.
The government said surrender and withdrawal payouts accounted for 39% of the total ₹723,158 crore in benefits paid by life insurers during FY25-26, while maturity benefits accounted for 37%.
Why Are Policyholders Exiting Early?
Quoting IRDAI, the minister said multiple factors are contributing to the increase in premature policy surrenders.
These include products that are unsuitable for customers' needs, inability to continue paying premiums, changes in financial circumstances, policyholders' expectations not being met, mis-selling by intermediaries and inadequate awareness or understanding of insurance products.
The regulator said early exits are influenced by a combination of economic and behavioural factors rather than any single reason.
Despite the rising trend, the government said IRDAI has not undertaken any specific assessment of how increasing policy surrender rates are affecting household savings, long-term financial security or insurance penetration in the country.
However, the regulator said it continuously monitors surrender, withdrawal and policy persistency trends to assess their implications for insurers' financial soundness, policyholder protection and the stability of the insurance sector.
Based on such monitoring, supervisory and regulatory interventions are undertaken whenever necessary to improve product design, disclosures, governance standards and consumer awareness.
Measures To Reduce Premature Exits
The government said IRDAI has strengthened regulations to safeguard policyholders 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 a surrender value after payment of one full year's premium, with insurers required to ensure that surrender values are reasonable.
To help consumers make informed decisions, insurers must 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 must clearly disclose year-wise guaranteed surrender value (GSV), special surrender value (SSV) and the surrender amount payable. A customer information sheet (CIS) has also been made mandatory for all life insurance policies.
Longer Free-look Period and Policy Loans
As part of post-sale safeguards, the government said all life insurance policyholders are entitled to a 30-day free-look period, allowing them to cancel the policy and receive a refund after specified deductions.
IRDAI has also mandated that non-linked individual life insurance savings products offer policy loan facilities, enabling customers to access funds without surrendering their policies.
In addition, pension products allow partial withdrawals for major life events such as education, housing and medical treatment, reducing the need for complete policy exits, Mr Choudhary said.
Flexible premium payment options have also been introduced to improve affordability and enhance policy persistency, he added.
Focus on Curbing Mis-selling
The government said IRDAI has also tightened norms governing advertisements to ensure insurance product promotions are fair, accurate and not misleading.
Life insurers are required to maintain board-approved policies to assess product suitability and recommend insurance plans based on customers' financial needs.
Insurers and intermediaries are responsible for preventing mis-selling, conducting regular training for sales personnel, obtaining customer feedback and assessing whether prospective policyholders can sustain premium payments over the policy term.
Policyholders also have access to grievance redressal mechanisms through insurers and the insurance ombudsman, the government said.
