Life insurance is considered the most reliable means of long-term financial security, but a large number of people in India are closing their policies before maturity. Data from the Financial Stability Report 2026 of the Reserve Bank of India (RBI) show that in the financial year 2025-26, insurance companies paid more amount in the form of policy surrender and withdrawal than what they paid on maturity. Experts believe that mis-selling of policies, unrealistic expectations of customers and changing economic conditions are the major reasons behind this.
What did the RBI report say?
According to the RBI report, policy surrenders and withdrawals accounted for 38.3% of the total payments of life insurance companies in FY26, while maturity benefits accounted for 36.9%. The central bank said that the consistently high surrender rate may be an indication that customers are not satisfied with the policy, they were not given correct information or they are turning to other investment options.
One in every two customers leaves the policy before five years
Figures from the Insurance Regulatory and Development Authority of India (IRDAI) also raise concerns. According to them, only about half of the life insurance policies in the country remain in force for five years. That means one out of every two policyholders stops paying premiums or surrenders the policy before the fifth anniversary.
ICICI Prudential Life led the 61st month persistence ratio among major private insurance companies in FY25 with 58.8%. This was followed by Bandhan Life (57.6%), Canara HSBC Life (57.1%), Tata AIA Life (56.7%) and Kotak Mahindra Life (55.3%).
After all, why do people leave the policy midway?
Experts say that there are many reasons behind this. While buying a policy, many customers consider it as an investment vehicle. They hope that they will get good returns in three-four years. But when this does not happen, they surrender the policy.
Shilpa Arora, COO of Insurance Samadhan, says that life insurance is often sold as an investment product rather than protection. Customers are over-emphasised on returns, without being told that this is a product designed for long-term financial security.
Manju Dhake, partner of 1 Finance, believes that the high surrender rate is a sign of lack of trust among customers. According to him, when a large number of people leave the policy in the initial years, it means that they did not get the product they expected.
What do the insurance companies say?
Insurance companies believe that mis-selling is not responsible in every case. According to Piyush Trivedi, Chief Distribution Officer, Kotak Life Insurance, sometimes people’s financial priorities change. People also close the policy in circumstances like medical emergency, job loss, children’s education, sudden need of money or turning to other investment options.
Atri Chakraborty, COO, IndiaFirst Life Insurance, also says that financial needs keep changing at different stages of life. Retirement, repayment of loan or change in family responsibilities can also be reasons for policy surrender.
Companies also suffer loss due to policy surrender
Experts say that due to early closure of the policy, not only the customers suffer losses, but it also affects the insurance companies. After the new rules, companies have to pay more commission to agents and banks. If the customer leaves the policy within a few years, companies also have to pay the surrender value, which increases their costs.
Keep these things in mind before buying a policy
Experts advise that while buying life insurance, do not take the decision based only on returns. First of all, understand that it is more of a means of financial security than investment. Understand the purpose of the policy, premium period, surrender rules and potential losses. Also, definitely check the persistence ratio of the insurance company, because it tells how many of its customers continue the policy for a long time.
Experts believe that the insurance industry will have to focus not only on selling new policies, but on providing correct advice and complete information to customers as per their needs. At the same time, customers should also avoid investing in any life insurance policy without understanding the complete terms.
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