Over 2.30 crore life insurance policies were surrendered by policyholders in 2021-22, well before their maturity. This is more than triple the number of policies (69.78 lakh) surrendered early in 2020-21.
A national lockdown announced by the government on March 24, 2020, following the outbreak of Covid-19, had forced many people out of work across the country, resulting in loss of livelihoods and wage cuts. The pandemic also led to increased spending due to medical emergencies. To allay the concern, the government announced several measures, including a loan moratorium and partial withdrawal from EPF balances. But with the continuation of the pandemic in the years 2021-2022, many acted to sell their life insurance policies ahead of time to realize some funds.
As many as 16 out of 24 insurers witnessed an increase in early policy sales by policyholders compared to last year, an analysis of quarterly disclosures made by insurance companies reveals.
State-owned giant Life Insurance Corporation saw a sharp increase in the number of policies delivered in 2021-22 compared to the previous year. LIC has a market share of almost 64 percent in the life insurance business.
Max Life Insurance, ICICI Prudential, HDFC Life, Bajaj Allianz, Aditya Birla Sunlife, Kotak Mahindra, TATA AIA, Exide Life Insurance, Canara-HSBC, Shriram Life Insurance, Future Generali India, Ageas Federal Life Insurance, EdelWeiss Tokio Avii Insurance, Life Insurance and Bharti AXA, are the other 15 insurers, which saw an increase in the number of premature policy sales during the year.
The policy surrender value of the policy holders gives an indication of the concern. The average surrender value paid to policyholders was Rs 62,552, less than half of the average surrender value of Rs 1,67,427 paid to subscribers in 2020-21. For the LIC policy holder, the average surrender value of over 2.12 crore policies surrendered during 2021-22 was just Rs 43,306 whereas. In the previous year, LIC policyholders surrendered 53.35 lakh policies and the average surrender value paid to them was Rs 1,49,997.
Only eight companies have seen a decrease in the number of policies delivered in 2021-2022 compared to the previous year. These are: SBI Life, Reliance Nippon, IndiaFirst Life Insurance, PNB MetLife, Pramerica, Star Union Dai-Ichi, Aegon Life Insurance and Sahara India. Policyholders of these companies surrendered 4.93 lakh policies in 2021-22, 21.7 percent less than in 2020-21.
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Among the companies that have witnessed a sharp increase in the number of policies delivered compared to a year ago are: LIC (298.3 percent); HDFC Life (149 percent); EdelWeiss Tokyo (117.4 percent); Canara HSBC (66.4 percent); Future Generali (49.4 percent); TATA AIA (43.45 percent); and Shriram (27.4 percent), Maxlife (16.2 percent) among others.
When a policyholder surrenders her policy before maturity, she receives only a small percentage of the deposited premium. But different companies have different rules for this. As per LIC policy, surrender value is payable only after premium for three full years. LIC did not wish to comment on the matter.
Insurers usually advise policyholders not to surrender policies early as their value has diminished.
The surrender value sum assured is usually mentioned in the policy documents. If premiums are paid for three consecutive years, then a policyholder is entitled to receive the surrender value as per policy specifications.