Average annual premiums for Indian life insurance policies grew 43% to ₹22,195 by FY2025, even as the total number of policies remained largely flat. While insurers are benefiting from this shift toward larger, high-sum-assured plans, they simultaneously face financial pressure from record-high policy surrender and withdrawal rates.
Life insurance policyholders in India are choosing significantly higher levels of financial protection, according to latest data from the Insurance Information Bureau. Between FY2021 and FY2025, the average annual premium per in-force policy increased by approximately 43%, rising from ₹15,567 to ₹22,195. This shift indicates that individuals are prioritizing larger coverage amounts rather than simply increasing the number of policies they hold, as the total number of active policies in the system remained steady at nearly 343 million.
The most notable change in the market is the rise in high-value plans. The number of policies with a sum assured exceeding ₹50 lakh grew by 68%, reaching 7.4 million by FY2025. Conversely, the market share of smaller policies with a sum assured of ₹2 lakh or less declined significantly, falling from 65.1% in FY2021 to 53.6% in FY2025. This migration toward higher-value products suggests that the industry is successfully moving up the value chain, which typically supports higher premium income for insurance companies.
However, this growth in premium size comes with significant challenges. While income from new, larger policies is rising, the industry is grappling with a concerning trend of early policy surrenders. In FY2026, total payouts for policy surrenders and withdrawals reached ₹2.80 trillion, surpassing the amount paid out for policy maturities for the third consecutive year. This trend of early exits creates liquidity pressure for insurers. When policyholders withdraw early, companies must liquidate long-term assets to meet these immediate cash demands, a situation known as asset-liability management stress.
For investors, this dual reality is important to track. The growth in average premiums signals improved product demand and potential revenue gains from existing customers. However, the high rate of surrenders acts as a direct counter-pressure, as it can hurt profitability and force companies to keep higher levels of cash, potentially impacting their return on capital. The misalignment between sold products and the long-term financial goals of policyholders remains a core issue driving these exits.
Going forward, the financial stability of the sector will rely on whether insurers can improve persistency ratios—the measure of how many customers keep their policies active. Investors monitoring the sector should track not just the premium growth or new business margins, but also the surrender rates reported in quarterly results, as these directly reflect the company's ability to retain business over the long term.