India's Life Insurance Sales Plummet Amid Regulatory and Tax Overhauls

India's Life Insurance Sales Plummet Amid Regulatory and Tax Overhauls

India's life insurance policy sales dropped significantly in the first quarter of the 2025–26 fiscal year (Q1FY26), falling 10.11% year-on-year to 4.8 million policies. This decline, primarily driven by regulatory changes and revised tax norms, disproportionately affected the state-owned Life Insurance Corporation of India (LIC).

LIC recorded a steep 14.80% drop in policy sales, while private insurers saw a marginal decline of 0.80%. Despite the sharp fall in policy volume, the industry’s new business premium (NBP) grew by 4.25% to ₹93,544.54 crore. This rise indicates a shift toward selling higher-value policies to compensate for fewer sales

Key Drivers of the Decline

Several factors contributed to the downturn:

• New Surrender Value Norms: The Insurance Regulatory and Development Authority of India (IRDAI) implemented new norms requiring insurers to pay higher surrender values to policyholders who exit early. This forced companies, particularly LIC, to revamp product offerings and focus on higher-value policies.
• Tax Rebate Changes: Adjustments in the Union Budget for FY26 increased the tax rebate and raised the income tax exemption limit. This reduced the appeal of life insurance as a primary tax-saving tool. Additionally, a 2023–24 rule taxing proceeds from policies with premiums over ₹5 lakh continued to dampen demand for high-value plans.
• Subdued Credit Demand: A slowdown in credit life policies, linked to reduced overall credit demand in the economy, also contributed to the decline.

LIC, which holds a dominant market share, was hit hardest due to its reliance on traditional distribution and slower adaptation to regulatory shifts. In contrast, private insurers adapted more quickly by increasing the average ticket size of non-single premium policies, cushioning the impact on premiums.

Despite the short-term challenges, the industry's long-term outlook remains positive. Analysts project a compound annual growth rate (CAGR) of over 9% from 2024 to 2028, supported by increased awareness and ongoing digitalization efforts like the Bima Sugam platform. LIC expects premium collections to recover as product adjustments take effect, while private insurers are poised to maintain steady growth.