Miss one insurance premium, lose more than the benefits

In India, most people buy insurance with the right intentions such as protecting their family, saving tax and building long-term savings via ULIPs. But we were genuinely surprised by how many policyholders don’t know this: even after paying premiums for years, missing just one instalment can materially change the outcome.

A single missed premium can push the policy into lapse or reduced-benefit status, and if you then try to exit, penalties and charges can significantly erode what you’ve already paid, and steep value erosion sometimes costs you up to 70% of what you’ve already paid.

A primary survey conducted by Fingrowth Media with Upstox covering 750 life insurance consumers and agents across 20+ cities in India, found that 54% of customers did not know that a default in renewal premiums may lead to a write-down of their principal investments.

SWDL ratio in life insurance

Life insurers routinely report benefits paid, the money that goes back to policyholders via death claims, maturity payouts, annuities and also through early exits like surrender/withdrawal.

The SWDL (Surrender / Withdrawal / Discontinuation / Lapse) ratio is a practical way to quantify how much of an insurer’s payouts are being driven by Surrender / Withdrawal / Discontinuation / Lapse outcomes (i.e., customers exiting early or policies collapsing before the intended maturity).

A high SWDL ratio can be a red flag because it can often signal that a large portion of customers are not staying the course, either due to product design that penalises early exit, affordability stress, or mis-selling/churning at the distribution layer.

What exactly counts as SWDL?

• Surrender/Withdrawal: Customer exits a policy early and receives surrender value or withdrawal proceeds (commonly seen in savings plans and ULIPs).

• Discontinuation/Lapse: Premiums stop and the policy terminates (or moves to a reduced/paid-up status depending on the product). In many cases, outcomes are poor versus what the customer expected at purchase.

The industry picture: surrender/withdrawal payouts have become a much larger slice of benefits paid.

Benefits Paid for Overall Industry in ₹ crore

Source: IRDAI Annual Report 2023-24

Now convert that into a ratio view: Surrender/Withdrawal as % of total benefits paid

• FY2024-25: 37.02%
• FY2023-24: 39.73%
• FY2022-23: 40.02%

When 40% of all payouts are already being driven by early exits, it suggests that a large slice of policies are not delivering the intended long-term outcomes.

But why is this happening?

To most of us, it seems straightforward: miss an insurance premium and you lose benefits. So what’s new?

Our Upstox survey surfaced a more consequential blind spot that 54% of customers were unaware that a renewal default can also lead to a write-down of their principal investment, not just the loss of future benefits.

So whose gap is it really?

It’s shared. Some agents struggle to translate product mechanics such as lock-ins, premium schedules and discontinuance rules into clear, practical implications, while many consumers also approach insurance as a one-time purchase and do not engage with the product as a long-term commitment.

Why are renewal defaults a serious cause of concern?

A missed premium isn’t just a late payment; it triggers a cascade of contract terms: lapse, paid-up conversion, reduced sum assured, or surrender value realisation. But in most cases, none of this is explained adequately. Policyholders discover these details only after their renewal payments are due.

The shock isn’t only financial, but it’s emotional, undermining trust in the agent-insured relationship meant to provide security. In markets where financial literacy is low, the burden of explanation falls on agents. But when agents themselves lack clarity, the system collapses from within, not because of intent, but because of ignorance.

In summary

The real risk in life insurance is not just mis-selling but misunderstanding. Where a policyholder believes protection and savings are automatic, while the policy depends on renewals and defined clauses.

If customers don’t know how lapse, paid-up status, surrender value, revival windows and bonus adjustments work, they cannot make informed choices, and the long-term savings product can turn into long-term principal erosion.