Life insurance surrenders surge as financial stress and mis-selling rise

The number of policyholders exiting life insurance policies before maturity has been increasing over the past five years, according to data from the Insurance Regulatory and Development Authority (IRDAI). Surrender and withdrawal payouts as a share of total benefits paid to policyholders rose from around 30% in FY2022 to 38.3% in FY2026, indicating a growing trend of early exits.

In contrast, the share of policyholders who completed the full policy term declined from about 48% in FY2021-22 to 36.9% in FY2025-26. This means more policyholders are leaving their policies midway than those who see them through to maturity.

Industry officials attribute this trend to two main factors: financial stress among policyholders and instances of mis-selling by insurers. When policyholders exit early, they often do not receive the full benefits and may even incur losses. “This is not an ideal situation as policyholders won’t get the full benefit when they exit mid-way. They could even make losses,” said an insurance official who spoke on condition of anonymity.

The data highlights a shift in policyholder behaviour that raises concerns about both the affordability of insurance products and the ethical practices of some insurers. Regulators and consumer groups have previously flagged mis-selling, where customers are sold policies that do not match their needs or financial capacity, leading to early lapses.

While the increase in surrenders suggests a need for better financial literacy and stricter oversight of sales practices, it also reflects broader economic pressures on households. The IRDAI continues to monitor these trends, and industry experts recommend that policyholders carefully evaluate the long-term commitment required before purchasing a life insurance policy.