The Insurance Regulatory and Development Authority of India (IRDAI) is reportedly working on a proposal to help people avoid premature surrenders of their life insurances. For this, the insurance regulator is exploring ways to finance life insurance premiums.
At the Samvaad 2026 event, organised by Sahamati, the self-regulatory organisation for account aggregators, IRDAI chairman Ajay Seth said: “A significant number of policyholders surrender their policies because they need money. Another situation arises when income varies, particularly among people who are not salaried…”
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“Financing those final installments could be useful. If the premiums are paid over time, the policyholder can realise better value, while the lender has an embedded value to rely on,” he explained.
Speaking at the event, the IRDAI chief also highlighted how a grey market had emerged for policy assignments, which he said were not permitted under the Insurance Act.
"We could develop a formal channel for premium financing instead," he said, noting that IRDAI wants to help people continue their insurance policies.
As a result, the regulator is exploring if policyholders can borrow money to pay their life insurance premiums, using the policy's surrender value as security.
How Policy Surrender Value Works?
Policy Surrender Value is basically the amount an insurance company pays when a policyholder terminates an eligible life insurance policy before maturity. Usually, a minimum number of premiums need to be paid to qualify for this benefit. Still, the policy surrender value is often significantly lower compared to the premiums already paid by the policyholder. In the absence of any other alternatives, people in urgent need of money tend to surrender their policy, taking a loss on the premiums already paid.
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As a result, the IRDAI is looking at ways to help such policyholders finance the final premiums instead of surrendering them, so that they can receive the policy benefits at maturity.The catch is that for this set up to work, the loan must come with low interest rates to benefit policyholders. If the loan interest rate is too high, the borrower may end up paying a large amount in interest, reducing the financial benefit of keeping the insurance policy.
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