New Delhi: Premature surrender of life insurance policies is on the rise, with payouts on surrendered and withdrawn policies now overtaking maturity benefits, according to data tabled in Parliament Monday, underscoring a rise in early exits from long-term insurance savings products.
In a written response to a question by Lok Sabha MPs Sougata Ray and Kishori Lal, Minister of State for Finance Pankaj Chaudhary informed the House that surrender and withdrawal payouts as a share of total benefits paid by life insurers increased from 32 percent in FY 2021-22 to 39 percent in FY 2025-26.
“Surrender and withdrawals as a share of the total benefits paid by life insurers have increased from 32 percent in FY2021-22 to 39 percent in FY2025-26, indicating an increase in surrender and withdrawal behaviour over the last five years,” the reply stated.
During the same period, the share of maturity benefits fell from 48 percent to 37 percent, marking the second consecutive year in which surrender and withdrawal payouts exceeded maturity benefits.
Among others benefits paid by insurers include death claims at 7 percent, annuities and pension at 4 percent and ‘others’ at 13 percent.
In absolute terms, surrender and withdrawal payouts rose from Rs 1.58 lakh-crore in FY2021-22 to Rs 2.80 lakh-crore in FY2025-26 (provisional), while maturity payouts stood at Rs 2.70 lakh crore in FY2025-26.
According to the government, the Insurance Regulatory and Development Authority of India (IRDAI) has identified several factors driving the trend, including unsuitable product purchases, affordability of premiums, non-fulfilment of policyholder expectations, mis-selling, inadequate awareness of insurance products and changes in the financial circumstances of policyholders.
“IRDAI continuously monitors trends relating to policy surrenders, withdrawals and persistence to assess their implications for insurers’ financial soundness, policyholder protection and the overall stability of the insurance sector,” the minister stated in the reply.
He added that, based on such monitoring, the regulator undertakes supervisory and regulatory measures to strengthen policyholder protection, improve product design and disclosures, promote sound risk management, governance practices and policyholder awareness.
The insurer-wise data showed that Life Insurance Corporation (LIC) alone accounted for Rs 1.57 lakh-crore in surrender and withdrawal payouts in FY2025-26, up from Rs 1.31 lakh crore in the previous financial year. Its maturity payouts stood at Rs 2.19 lakh crore during the year.
The data assumes significance as the Centre is planning to sell a 6.5 percent stake in LIC through an offer for sale (OFS) to raise up to Rs 31,000 crore. The government currently holds a 96.5 percent stake in the country’s largest life insurer.
Among others, SBI Life reported the highest surrender and withdrawal payouts at Rs 29,294 crore, followed by private insurers ICICI Prudential Life at Rs 27,340 crore and HDFC Life at Rs 15,741 crore.
The ministry, however, said IRDAI has not undertaken any specific assessment of the impact of rising surrender rates on household savings, long-term financial security or insurance penetration in the country.
According to the minister, the regulator has strengthened policyholder safeguards through the IRDAI (Insurance Products) Regulations, 2024 and related master circulars. These include mandatory disclosure of guaranteed and special surrender values, a 30-day free-look period, policy loan facilities for eligible savings products, partial withdrawals under pension products and stricter norms to curb mis-selling.
Insurers are also required to assess product suitability, improve customer disclosures and maintain effective grievance redressal mechanisms to reduce policy lapses and premature surrenders, the government stated in the reply.
(Edited by Ajeet Tiwari)