Life insurance in India is growing. Are the policies staying in force?

India’s life insurers collected about ₹8.86 lakh crore in premium in FY 2024-25. That sounds encouraging. But premium growth tells only part of the story, a more revealing question is this: how many policies are still being renewed years after they were sold?

That is what persistency measures.

What is persistency?

Persistency is the share of policies that stay active as premiums fall due. IRDAI tracks it at the 13th, 25th, 37th, 49th and 61st months. If an insurer’s 13th-month persistency is 75%, then roughly 75 of every 100 policies it sold are still being paid at the first renewal.

The FY 2024-25 figures show a wide range across insurers:

Measurement point Range across insurers
13th month 59.68% to 83.22%
61st month 22.20% to 58.80%

Depending on the insurer, only about 22 to 59 of every 100 policies were still running at five years. These are insurer-level ratios. They are not a single national lapse rate. But they do show that five-year continuation is far weaker than first-year continuation for some insurers.

The Government’s reply lists the factors behind this:

• Affordability of premiums
• Changes in the policyholder’s finances
• Product suitability
• Quality of advice at the point of sale
• Insurer servicing
• Distribution characteristics

A lapse is not proof of mis-selling. But persistency is a useful warning signal.

Surrender and withdrawal payouts were larger than maturity payouts.

Of the ₹2.33 lakh crore, public-sector insurers paid ₹1,30,905 crore and private insurers paid ₹1,02,394 crore. This figure needs care. It includes partial withdrawals from ULIPs, not just full surrenders. It is also not the same as lapses. People exit for many reasons: a job loss, a change in goals, a need for cash, or a product that never fit.

So the honest conclusion is not “₹2.33 lakh crore was lost to mis-selling.” It is that these early exits are now one of the largest outflows in the life insurance industry. Then there is commissions: Life insurers paid ₹60,799.91 crore in commission in FY 2024-25. The commission expense ratio rose from 6.21% to 6.86%. Premium grew about 6.73%. That means commission grew roughly 18%, far faster than premium. Of that total:

₹40,824.94 crore was for new business
₹19,974.97 crore was for renewals

The first year is where the money sits. Insurers paid about ₹33,579 crore in first-year commission on ₹1,25,037 crore of first-year premium. That is roughly ₹27 of every ₹100 a customer pays in year one. It goes to whoever sold the policy, whether an agent, a bank or a broker. That ₹27 figure is my calculation from IRDAI Annual Report Table I.10 and Handbook Table 12. IRDAI does not publish it as a ratio. It varies a lot by insurer, product and channel. It is not what any one agent keeps.

Does commission mean mis-selling?

No.

Commission is a legitimate cost. Someone has to find the customer, explain the product, handle the paperwork and service the policy. The problem starts when what a product pays the seller matters more than whether it suits the buyer. So looking at the indicators together, not one at a time:

High commission is not proof of mis-selling.
Low persistency is not proof of mis-selling.
High surrender payouts are not proof of mis-selling.

But when all three point the same way, the pattern deserves a closer look. The channel matters too. Insurance reaches customers through agents, banks, corporate agents, brokers, direct channels and digital platforms. With bancassurance, the chain can look like this:

Customer → bank → insurer

Banks offer reach and convenience. That does not make a bank-sold policy unsuitable. But a buyer should be able to tell “this product suits you” apart from “this product is worth selling.”

Two policies can both cost ₹1 lakh a year and be completely different. Before committing, ask:

What need is this solving?
What is the sum assured?
How long does my family need cover?
What happens if I stop paying?
What do I get back if I surrender, and in which year?
What is guaranteed?
What is only illustrated?
What are the charges?
What happens if my income changes?
How is the seller paid for this product?

People rarely ask the last one. They should. Start with the right question, most people ask, “What return will I get?”

A better first question is, “What problem is this policy solving?”

If it is protection, the adequacy of cover comes first.
If it is retirement, judge it inside the whole retirement plan.
If it is wealth, compare it with the alternatives on risk, liquidity, cost and tax.

Bundling insurance, savings and investment into one product does not automatically make a plan better.