RBI Financial Stability Report 2026: Big crisis in Indian insurance sector! More people are surrendering life insurance policies midway through maturity; Know the surprising reasons

Life insurance in India has always been considered the most reliable and safe means of future financial security. But in recent times, a very surprising and worrying trend has emerged in the insurance sector of the country. A large number of people are surrendering their insurance policies before their maturity.

Data from the latest Financial Stability Report 2026 (FSR 2026) of the Reserve Bank of India (RBI) show that in the financial year 2025-26, people withdrew more money from the companies by surrendering the policy midway and in the form of partial withdrawal, than the total amount paid by the insurance companies on maturity. According to experts, this situation is a direct result of customer dissatisfaction, mis-selling of policies and unrealistic expectations.

Shocking figures of RBI report (FY 2025-26)

According to the central bank report, the mathematics of total claim settlements and payments made by life insurance companies in the financial year 2025-26 (FY26) has completely changed:

Expressing deep concern over this trend, RBI has said that the continuously increasing surrender rate is a clear indication that either customers are not satisfied with their insurance product, or they were not given correct and transparent information while selling the policy, or they are increasingly turning towards other attractive investment options available in the market (such as mutual funds or equity).

One in two clients dies before age 5; IRDAI report

insurance regulator IRDAI These figures further increase the seriousness of this crisis. According to the report, only about half of the life insurance policies in India are in their 5 years (60 months) Are able to complete the journey. This means that every second policyholder in the country either stops paying the premium or surrenders the policy after incurring huge losses even before the fifth anniversary of his policy arrives.

In the financial year 2024-25 (FY25) of the 61st month of the country’s major private insurance companies Persistency Ratio – Customer retention rate The figures were as follows:

After all, why are policies dying before maturity? (main reason)

1. Greed for ‘returns’ in exchange for security (Mis-selling): According to Shilpa Arora, COO of ‘Insurance Solutions’, life insurance is often sold aggressively as a pure investment product rather than a protection product. Customers are made to dream of huge returns on maturity without explaining to them that it is basically an instrument designed for long-term financial security.

2. Huge loss in customer confidence: Manju Dhake, partner, ‘1 Finance’, believes that such a high surrender rate directly reflects the lack of customer confidence. When people leave the policy within the first 2-3 years, it is clear that they did not get the product that the agent had expected.

3. Changing economic priorities and emergencies: According to Piyush Trivedi, Chief Distribution Officer, Kotak Life Insurance, mis-selling is not responsible in every case. Many times, due to sudden changes in life circumstances like medical emergency, loss of job, higher education of children, sudden need of cash or repayment of huge loan, people are forced to stop the policy.

Double blow to companies: Due to early closure of the policy, not only the customers lose their money, but the insurance companies also suffer huge financial losses. Under the new regulatory rules, companies have to pay higher initial commission to agents and banks. In such a situation, if the customer leaves the policy within a few years, the operational cost of the companies increases significantly.

Keep these 4 things in mind before buying a new policy

If you are also thinking of taking a new life insurance policy for yourself or your family, then keep these things in mind as suggested by experts:

• Keep the objective clear: First of all, understand that insurance is not an investment but a means of protection from risk. Options like mutual funds or PPF are better for investment.

• Must check persistence ratio: Before taking a policy, definitely check the persistence ratio of that company. The higher this ratio is, it means that the longer the customers of that company remain engaged and are satisfied.

• Read the terms and conditions: Read the document carefully regarding the total premium payment period, lock-in period and rules regarding ‘surrender value’ for surrendering the policy midway instead of leaving it to the agent.

• Avoid Unrealistic Returns: If any agent claims to double your money in 3 to 4 years or gives guaranteed extraordinary returns, be alert immediately.

Insurance industry experts believe that now the time has come when insurance companies, instead of just chasing new targets and selling policies, will have to focus on giving right advice to customers as per their actual need and maintaining complete transparency.