‘Only 48% of life policies are renewed for over 5 years’

A life insurance policy is renewed when the policyholder pays the required premium for another coverage period. This keeps the contract active instead of allowing it to lapse. Reaching the 61st month means the policy has continued past five years, assuming premiums were paid as required.

The 61st month is an important persistence measure. The article says only about 48% of life policies reach it. The remaining policies may have been surrendered, cancelled, or allowed to lapse. Reaching that point does not mean the policyholder has finished paying; it means coverage has continued into the sixth policy year.

This measure matters because a policy that ends early may not provide lasting protection. IRDAI’s proposed reforms aim to reward persistency and reduce incentives for unsuitable sales. Stronger renewal commissions could also help agents build longer-term customer relationships instead of focusing mainly on the first sale.

About 48% of life insurance policies reach the 61st month, according to the article. That means roughly 52% do not continue beyond five years. The figure is a measure of policy persistency, or how long customers keep their policies active.

The article links the low continuation rate to a high proportion of surrenders, although the 52% also represents policies that may have lapsed or ended in other ways. A surrender occurs when a customer voluntarily exits a policy before its planned duration. A lapse can happen when required premiums are not paid. Both reduce the period of protection.

The figure shows why IRDAI wants remuneration to reward persistency rather than only the initial sale. Longer-lasting policies can improve customer protection and make insurance distribution more sustainable. The proposed reforms also seek to reduce sales incentives that may lead customers to abandon policies early.

A high first-year commission gives an agent a large reward soon after a policy is sold. That can shift attention toward closing new business rather than checking whether the policy fits the customer’s needs, budget, and expected holding period. The article identifies this incentive as a contributor to mis-selling and early surrenders.

For example, an agent may recommend a policy with a large upfront premium because it produces a bigger first-year commission. If the customer cannot afford later premiums, or discovers that the product does not suit their needs, the policy may be surrendered or lapse. The customer loses continuity, while the initial sale has already generated remuneration.

IRDAI proposes linking remuneration to effort and persistency. Renewal-based rewards would encourage agents to support customers over time. Commission clawbacks, where mis-selling is established, would also make the seller share the financial consequences of improper advice.

Insurance mis-selling occurs when a product is sold through misleading information, inadequate explanation, pressure, or without checking suitability. The central problem is that the sale serves the distributor better than the customer. The article treats suitability as a real obligation and seeks greater transparency around every sale.

Compulsory bundling can worsen the problem. In credit life insurance, the article describes products that require little effort to sell and says single-premium commissions have ranged from 22% to 57%, often alongside compulsory loan bundling. A borrower may feel unable to obtain a loan without accepting the attached policy, even when the cover or price is unsuitable.

The proposed reforms would curb compulsory bundling and make each sale traceable to the person who solicited it. Public disclosure through the Public Insurance Registry would make conduct more visible. Commission clawbacks could recover remuneration when mis-selling is established.

The proposed reforms aim to improve outcomes by changing how insurance distribution is rewarded and monitored. Suitability would become a real obligation, so sellers must consider whether a product fits the customer. The package also seeks to remove compulsory bundling and improve transparency.

The mechanism is straightforward. Renewal-based rewards encourage agents to keep supporting customers after the first sale and reward policies that remain active. If mis-selling is established, a commission clawback can take back remuneration. Traceability links every sale to the person who solicited it, while the Public Insurance Registry makes conduct more visible. Together, these measures create accountability beyond the initial transaction.

The reforms are not presented as a single solution. IRDAI also proposes rationalising overall expenses, improving market infrastructure, and making insurers more efficient. Their broader goals include affordability, accessibility, coverage, employment, and better market conduct. The intended result is stronger trust and more lasting insurance relationships.

If fewer policies are surrendered, more customers would keep their insurance active for longer. That strengthens the chance that coverage is available when needed. It can also improve trust, because customers experience insurance as continuing protection rather than a short-lived purchase.

For insurers, longer policy persistence can create a more stable book of business and reduce the disruption caused by early exits. Agents could build lasting customer books instead of depending mainly on high first-year commissions. The article specifically proposes stronger renewal commissions, allowing agents in closed architecture to develop durable relationships. These effects are possible outcomes, not guaranteed results.

Policyholders may benefit from continued coverage and fewer unsuitable purchases. Insurers would still need to improve distribution and operational efficiency, since the reforms rationalise overall expenses. IRDAI’s wider aim is to make insurance more affordable, accessible, transparent, and valuable to policyholders while supporting sustainable livelihoods.

Life insurance is generally designed to provide financial support to beneficiaries after the insured person’s death, subject to the policy’s terms. It can help address the financial loss caused by the policyholder’s death. The protection exists only while the policy remains active and its conditions are met.

If premiums stop and the policy lapses, or if the customer surrenders it, the expected protection may end or change. A policy that is not active when the insured event occurs may not provide the intended benefit. This is why the article treats persistency as important and notes that only about 48% of life policies reach the 61st month.

The proposed reforms seek to reduce early exits by connecting remuneration to effort and persistency. Renewal-based rewards may encourage ongoing customer support, while suitability requirements can reduce unsuitable sales. Keeping appropriate coverage active for longer can make insurance more dependable as financial protection.