Industry insiders pointed out that slowdown in credit life policies, due to subdued credit demand in the system, has also contributed to the drop in sale of life insurance policies. In addition, the change in tax rebates by the Centre has also reduced the tax incentives for insurance, affecting the sale of the policies in the quarter.
Credit life insurance is a type of insurance policy designed to pay off outstanding loan balances if the borrower dies before the loan is fully repaid. It's essentially a safety net for lenders and borrowers, ensuring that the loan is settled without burdening the borrower's family with debt.
According to Life Insurance Council data, policies sold by LIC dropped by 14.80 per cent Y-o-Y to 3.04 million while those sold by private life insurers slipped 0.80 per cent Y-o-Y to 1.78 million.
Additionally, data shows, the sale of group single premium policies declined by 13.37 per cent to 583 policies while group non-single premium policies fell by 2.67 per cent to 940 policies. The sale of group yearly renewable premium policies also saw a sharp decline of 34.97 per cent to 4,629 policies. Meanwhile, the sale of individual single premium policies dropped by 3.10 per cent to 0.25 million, and individual non-single premium policies declined by 10.44 per cent to 4.57 million.
In FY25, the sale of life insurance policies was down by 7.39 per cent to 20.2 million.
Saurabh Bhalerao, associate director, CareEdge Ratings, said: “The first quarter is typically a slow period for the life insurance sector as it follows the financial year-end when most retail customers have already purchased policies in a last-minute rush.”
The decline can also be attributed to the implementation of new surrender value norms, analysts said.
“The significant decline in the number of policies sold can be attributed to the implementation of new surrender value norms, which took effect in October 2024. Private players appear to have adjusted more swiftly to the regulatory changes by increasing the average ticket size of individual non-single policies. Insurers have also shifted their focus toward higher-value policies, which has partially cushioned the impact on overall premium collections. However, this evolving policy mix is expected to weigh on margins going forward,” CareEdge said in its report.
Furthermore, in the Union Budget for FY26, the finance minister proposed an increase in tax rebate from ₹25,000 to ₹60,000 and no income tax payable on earnings up to ₹12 lakh, which is also likely to have impacted the sale of policies in the reported quarter.
“There was a surge in policy sales last year after the announcement of change in surrender value norms. But this year, after the changes in taxation, there is a lack of tax lucrativeness for insurance, which is also likely to have affected the sale of policies during the quarter,” a private sector life insurance official said.
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