RBI Flags Rising Life Insurance Surrenders as Sign of Policyholder Dissatisfaction
Rising life insurance policy surrenders have overtaken maturity pay-outs, prompting the RBI to warn of growing policyholder dissatisfaction, potential mis-selling, and emerging risks for insurers.
The RBI has flagged rising life insurance policy surrenders as a potential sign of policyholder dissatisfaction and emerging risks for the insurance sector.
Life insurance policies: The Reserve Bank of India (RBI) has flagged the sharp rise in life insurance policy surrenders and withdrawals during FY2025-26 as a potential indicator of growing policyholder dissatisfaction, product mis-selling, and increasing competition from alternative investment options.
In its Financial Stability Report (FSR) 2026, released on 30 June 2026, the RBI noted that surrenders and withdrawals accounted for 38.3% of total life insurance pay-outs in FY2025-26, surpassing maturity benefits, which stood at 36.9%.
“The near parity between surrenders and maturity pay-outs indicates that policyholders are increasingly exiting policies prematurely. Persistently elevated surrender rates could signal policyholder dissatisfaction, product mis-selling or competitive pressure from alternative financial instruments,” the central bank said.
The RBI warned that rising early exits have significant implications for asset-liability management (ALM). Since life insurers invest with long-term liabilities in mind, an increase in premature policy exits can disrupt investment assumptions and force insurers to liquidate assets earlier than planned.
Despite these concerns, the report highlighted an improvement in customer grievances in the life insurance sector. Complaints declined from a peak of more than 150,000 in FY2021-22 to around 120,000 in FY2025-26, indicating better market conduct, improved product suitability, and stronger post-sale service.
However, the outlook for the general insurance sector was less encouraging. Customer grievances nearly tripled to around 178,000 in FY2025-26, reflecting persistent challenges in claims handling, customer service, and product communication.
The RBI also noted that death claims have normalised to around 8.1%, following the elevated levels witnessed during the pandemic years.
Warning of the broader implications, the central bank said that unresolved conduct-related issues could weaken policyholder trust, reduce policy renewals, and, over time, pose risks to financial stability.
