📉 The Decline in Policy Sales – What’s Happening?
The Indian life insurance market, usually resilient and stable, has witnessed a surprising drop in policy sales in Q1 FY26, declining by 10.11% year-on-year to 4.8 million policies. This dip follows a stellar 23% growth in FY25, and experts are pointing fingers at two key reasons:
1. A High Base Effect – FY25’s huge growth makes Q1 FY26 look weaker in comparison.
2. New Surrender Value Norms – Effective October 1, 2024, these rules are reshaping how policyholders view long-term commitment.
🔍 What Are the New Surrender Value Norms?
Surrendering a life insurance policy means terminating it before maturity. Until now, many policyholders would exit early, losing significant money.
But from October 1, 2024, IRDAI’s revised surrender value norms aim to:
Increase guaranteed surrender value, especially after the 2nd policy year.
Discourage premature policy termination by aligning values more closely with paid premiums.
Protect long-term savers by offering better residual value on surrender.
Key Changes in Surrender Rules:
Policy Year Previous Surrender Value New Surrender Value (Oct 2024)
2nd Year 30% of Premiums Paid 35% or more
3rd Year 35% – 50% 50% or more
After 4th Yr 50% – 70% 60% to 90%
These norms offer better financial security for those forced to exit early – a positive shift. However, it also creates pricing and planning challenges for insurers.
💭 Why Are People Still Surrendering Policies?
Despite improved surrender values, people are still surrendering life insurance policies because:
Mismatch between expectations and returns
Short-term financial pressure
Lack of awareness about long-term benefits
Misselling and poor advice
🔗 Read next: Mid-Life Insurance Review – Are You Still Covered Enough?
🧠 How to Choose Policies with Better Long-Term Value
1. Opt for Term Plans First
Pure term insurance gives maximum coverage for minimum premium. It has no surrender value, but it ensures your family is financially protected.
2. Understand Surrender Clauses Before Buying
Don’t ignore the fine print. Ask:
What’s the guaranteed surrender value year-wise?
What are the penalties for early termination?
Is there a lock-in period?
3. Invest in Participating or Non-Participating Endowment Plans Only If…
You’re sure about long-term commitment (10–20 years)
You can pay premiums consistently
You understand the returns are conservative
4. Use Online Calculators
Tools on insurer websites can simulate your surrender value, maturity amount, and premium benefits.
🔗 External Resource: IRDAI Official Guidelines on Surrender Values
✅ Tips to Avoid Surrendering Policies Prematurely
1. Budget Wisely
Set aside premiums as non-negotiable. Treat it like an EMI for your family’s security.
2. Choose Smaller, Sustainable Premiums
Many people over-commit. Start with a smaller policy and top-up later as your income grows.
3. Review Annually
Sit down with your insurance agent or advisor yearly to ensure your policy still aligns with your life goals.
4. Consider Partial Withdrawals Instead (if allowed)
Some ULIPs or investment-linked plans allow partial withdrawals instead of full surrender.
💬 Insurer Challenges – Balancing Guarantees with Profitability
With higher guaranteed surrender values, insurers are now:
Repricing their policies
Becoming more selective with underwriting
Focusing on customer education
They now face tighter margins, especially for endowment and savings-linked policies.
📣 What This Means for You – Final Thoughts
The life insurance surrender value norms are designed to empower policyholders. You now have more to gain if you stay invested – and slightly less to lose if you must surrender.
But the real win lies in making informed choices from Day 1.
If you treat life insurance as protection, not just an investment, you’ll rarely need to worry about surrendering it at all.
🔁 Summary
Life insurance sales dropped 10.11% YoY in Q1 FY26.
New surrender norms from Oct 1, 2024, improve early exit values.
Policyholders should focus on sustainable plans and long-term goals.
Avoid surrendering policies unless absolutely necessary.
Insurers are adjusting pricing and strategies due to new regulations.