5-year persistency of LIC’s retail policyholders declines

The insurer‘s 61st-month persistency ratio, based on the number of individual policies, fell to a five-year low of 46.88% in FY26 from around 50% in FY22. In simple terms, fewer than five out of 10 policyholders who had bought an individual policy stayed invested through the fifth policy year.

Fifth-year premium continuation slips

The trend is similar when measured by premium value. The 61st-month persistency ratio, based on individual regular premium, declined to 59.31% in FY26 from over 63% in FY25 and around 61% in FY21, indicating that only about six out of 10 policyholders continued paying premiums through the fifth policy year.

In life insurance, the 13th-month and 61st-month persistency ratios measure the proportion of policies that remain in force after one year and five years, respectively.

While most policyholders continue paying premiums through the first year, the 61st-month persistency ratio is a more meaningful way of measuring of customer stickiness because life insurance policies typically run for 20-30 years.

LIC did not respond to FE’s detailed email seeking the reasons behind the decline in persistency and the measures being taken to curb policy surrenders. However, the corporation acknowledged the challenge in its latest annual report. LIC said it has been taking “decisive and corrective measures” to arrest policy lapses through customer outreach and loyalty programmes, while educating policyholders on the importance of maintaining an insurance cover.

“To institutionalise this focus, persistency metrics have been integrated into the key performance indicators (KPIs) and performance-linked incentives across all levels, thereby ensuring alignment throughout the corporation,” the insurer said in its annual report.

Why five-year persistency fell

During the company’s Q4FY26 earnings call, Managing Director and CEO R. Doraiswamy attributed the decline in five-year persistency to changes in the product mix, including a greater focus on higher-ticket policies and the run-off of certain Covid-era life insurance products.

“Product mix differences and the kind of policies sold during the Covid period have also resulted in the 61st-month persistency being lower. We will be looking at increasing it across all cohorts,” Doraiswamy said in the earnings call.

The weakening persistency is also reflected in LIC’s in-force business. The number of individual policies in force has barely grown over the past five years, and in fact has declined to about 254 million at the end of FY26 from around 280 million in FY21, suggesting that policy exits outpaced new additions in several cohorts.

“LIC’s growing focus on non-participating products may also be weighing on customer stickiness and, in turn, persistence,” said an industry executive.

LIC’s total annualised premium equivalent (APE) stood at ₹66,961 crore in FY26. Individual non-participating APE rose 44% year-on-year to ₹15,214 crore, reflecting the insurer’s increasing emphasis on the segment.

Non-participating products typically generate higher margins than participating policies because insurers are not required to distribute surplus to policyholders through bonuses. However, certain non-par categories, such as unit-linked insurance plans (ULIPs), tend to have persistency that is more sensitive to equity market performance and investor sentiment than traditional savings products.

There was, however, one positive trend. LIC’s 13th-month persistency ratio, based on the number of policies, improved to 64.87% in FY26 from over 60% in FY21. In other words, nearly seven out of every 10 policyholders continued with their policies after the first year, compared with just over six out of 10 five years ago. The improvement suggests that early-year retention has strengthened, even as the insurer continues to face challenges in keeping customers invested over the longer term.