Only 7% of Life Insurance Payouts Were Death Claims: What IRDAI Data Reveals About Indian Policyholders

Life insurance is generally understood as a financial safety net for families. The primary purpose is to provide money to nominees when the insured person dies. However, recent data cited from the Insurance Regulatory and Development Authority of India (IRDAI) paints a more complicated picture of how life insurance products are actually being used.

According to figures from an IRDAI consultation paper, Indian life insurers paid around ₹6.3 lakh crore in benefits in FY2025. Surprisingly, only about 7% of this amount, or roughly ₹47,000 crore, came from death claims. A much larger share was paid through policy surrenders and maturity benefits.

The numbers raise important questions about policy persistency, product design and how consumers choose life insurance.

Death Claims Accounted for Just 7% of Benefits

The distribution of life insurance payouts is striking.

Of the approximately ₹6.3 lakh crore paid by life insurers, 37% went towards surrender payouts, while 35% represented maturity benefits. An additional 20% was related to annuity and pension payments. Death claims accounted for only 7%.

In simple terms, insurers paid substantially more money to customers who exited their policies than to families receiving benefits following the death of the insured.

This does not mean that death protection is unimportant or that most life insurance policies fail to provide protection. Rather, it highlights that a large portion of India's life insurance business involves savings, investment and retirement-oriented products in addition to pure protection.

Why Are So Many Policies Being Surrendered?

One of the more significant findings concerns how long customers continue their policies.

The data cited from the IRDAI consultation paper indicates that industry-wide persistency at the 61st month was only 48%. That means fewer than half of policies remained active at the five-year point under the measure discussed in the report.

The situation also varies significantly depending on the distribution channel. Policies purchased online reportedly had much higher 61st-month persistency of around 71%, compared with the industry-wide figure of 48%.

This difference is important because persistency is closely connected to whether customers continue paying premiums long enough to receive the benefits they originally expected.

A policy that is surrendered early can produce a very different financial outcome from the one the buyer anticipated when purchasing it.

High Distribution Costs Can Influence Product Economics

Another issue highlighted by the discussion is the cost of selling certain savings-oriented insurance products.

According to the data cited in the report, first-year commissions on some savings-linked policies can range from 25% to 37% of the premium, while total first-year distribution costs at some insurers can be considerably higher. Renewal commissions are much smaller.

These figures help explain why regulators are examining the economics of insurance distribution.

For consumers, the broader lesson is that the cost of selling a financial product matters. A policy may combine insurance protection with savings, but its costs, surrender conditions and long-term returns need to be understood before purchase.

Surrendering Early Can Be Expensive

Policyholders should be particularly careful before surrendering a long-term insurance policy.

The report notes that people who leave certain policies around the five-year period generally may not recover all the premiums they have paid. This means the decision to surrender should not be based simply on how much money has already been invested.

Instead, a policyholder should examine the future value of keeping the policy versus the financial consequences of exiting it.

For an existing policy, useful questions include: How much premium remains? What benefits will actually be received if the policy continues? What surrender value is currently available? What insurance protection would be lost?

Only after comparing these figures can a policyholder determine whether continuing or exiting makes financial sense.

What This Means for People Buying Life Insurance

The data provides an important lesson for new buyers: insurance and investment are not necessarily the same financial objective.

Someone primarily looking for protection should first understand how much life cover their family needs and how long that protection is required. A savings-oriented insurance policy may serve a different purpose and therefore should be evaluated on its own terms.

Consumers should also examine policy charges, premium commitments, surrender rules, maturity benefits and exclusions rather than choosing a product solely because it promises a combination of insurance and savings.

Claim settlement information is also useful, but it should not be viewed in isolation. IRDAI data for FY2024-25 shows that 97.82% of individual death claims were paid by number across the life insurance industry, demonstrating that the 7% figure discussed above is about the composition of total benefits paid—not the percentage of death claims that insurers reject.

That distinction is crucial.

The Bigger Message From the IRDAI Data

The latest figures do not simply tell us that death claims form a small portion of insurance payouts. They reveal how India's life insurance industry has evolved into a combination of protection, savings and retirement products.

For consumers, the most important takeaway is to understand what they are actually buying.

A life insurance policy should not be purchased only because it is presented as a safe investment or because someone recommends it as a long-term savings instrument. Buyers should understand the protection provided, the total premium commitment, potential returns, surrender implications and alternatives available to them.

The IRDAI data therefore offers a useful reminder: before committing to a long-term financial product, consumers should look beyond the sales pitch and examine how the product works throughout its entire life cycle.