India's life insurance sector is witnessing a shift as policies with a sum assured over ₹50 lakh grew by 68% between FY2021 and FY2025. While this move toward higher-value policies helps insurers, over half of all in-force policies still provide low cover of ₹2 lakh or less. Investors should monitor rising surrender rates, which currently exceed maturity payouts, as this impacts insurer cash flow and long-term stability.
Data from the Insurance Information Bureau (IIB) for the period between FY2021 and FY2025 shows a clear shift in India's life insurance market. The number of policies with a sum assured exceeding ₹50 lakh increased from 4.4 million to 7.4 million, marking a 68% rise. This trend suggests that a growing segment of the population is opting for higher financial protection as their income and responsibilities increase.
Impact on Insurer Revenue
This move toward larger policies has contributed to a rise in the average annual premium per policy, which climbed by 42.6% to ₹22,195 in FY2025, up from ₹15,567 in FY2021. For insurance companies, this is a positive development as it can lead to higher revenue per customer. However, the overall number of in-force policies has remained stable at approximately 343 million, indicating that this growth is primarily coming from existing customers increasing their coverage rather than a rapid expansion into new, untapped households.
The Challenge of Underinsurance
Despite the growth in high-value products, the sector continues to grapple with a large base of underinsured individuals. In FY2025, 53.6% of all active policies still provided a sum assured of ₹2 lakh or less. While this is an improvement from the 65.1% seen in FY2021, it highlights a persistent duality in the Indian market. Life insurance penetration remains low at 2.7% in FY2025, suggesting that a significant portion of the population relies on minimal coverage that may be insufficient to cover basic financial needs in the event of a tragedy.
Risks to Watch
While the shift to higher-value policies looks promising for revenue, investors should be aware of significant operational risks. A critical issue facing the sector is the high rate of policy surrenders and withdrawals. Recent trends show that payouts for surrenders—where customers cancel policies before maturity—have exceeded payouts for policy maturities for three consecutive years as of FY2026. This creates liquidity pressure for insurers and suggests that they are struggling to keep customers invested for the long term.
Investors monitoring the sector should look beyond new business growth. The key metrics to track include persistency ratios, which measure how well a company retains its customers, and the stability of the policy mix. Rising surrender rates can hurt the profitability and long-term financial health of insurers, regardless of how much they grow their new high-value business.