Life Insurance In India: Who's Covered And Who's Not?

Life insurance is an important financial protection tool that provides peace of mind and financial security for individuals and their loved ones. However, the penetration of life insurance in India is relatively low, with only a small percentage of the population having a life insurance policy. This paragraph aims to introduce the topic of life insurance penetration in India and explore the reasons behind the low uptake of life insurance in the country.

Life insurance penetration in India is low

India has a population of 1.417 billion people, surpassing China as the world's most populous country. However, life insurance penetration in India remains low, with only 3% of the population having a life insurance policy as of 2022. This figure has seen a steady increase over the last decade, up from 2.82% in 2019 and 2.6% in 2014. Despite the growth, the current penetration rate lags behind the 2011 figure of 3.4%.

The low life insurance penetration in India can be attributed to several factors. One of the main reasons is a lack of awareness and understanding of the benefits of life insurance among the population. Many people may find life insurance too complicated or may not realize its importance in providing financial protection for their families in the event of their unexpected death. Additionally, life insurance can be expensive, especially for those with pre-existing health conditions or those considered high-risk, making it unaffordable for some.

The COVID-19 pandemic has acted as a wake-up call for both the authorities and the Indian population to take health and health insurance more seriously. During the pandemic, health insurance premium collections saw a growth of 40% in 2020, and the number of policies issued surpassed even the celebrated motor insurance sector. The introduction of low-cost, regulated health plans has also contributed to the increase in health insurance business.

Digital health insurance has gained traction during the pandemic, with people accepting the digital transformation and opting for online channels such as apps and websites instead of traditional methods like insurance agents. According to PWC's Health Insurance Consumer Pulse Survey, there has been a significant drop in offline channels, while digital insurers have experienced 20–30% growth in sales.

While the life insurance penetration rate in India is slowly increasing, there is still a long way to go. It is important for more Indians to educate themselves about the benefits of life insurance and to consider purchasing a policy that meets their needs and budget. By doing so, they can ensure their loved ones are financially protected in the event of their unexpected death.

The number of new life insurance policies in 2023

In 2023, India's Life Insurance Corporation (LIC) issued over 20.4 million new individual policies. Private insurers issued around eight million policies. Overall, there were over 28 million new individual policies issued across the country that year.

The year saw a host of new regulations for life insurance companies, including taxing high-value policies and raising surrender values. The Insurance Regulatory and Development Authority of India (Irdai) removed the segment-based limit for expenses and lifted the cap on commissions of companies, implementing an overall cap on the expenses of management (EoM). These changes gave greater flexibility to companies. The norms came into force in April 2023 and will remain effective for three years.

The life insurance penetration rate in India has been slowly increasing but still has a long way to go. As of 2020, the penetration for life insurance in India was 3.2%, with only 3 out of 100 people having a life insurance policy. This figure stood at 2.82 in 2019. However, the cumulative insurance coverage, including non-life insurance, was 4.2%.

Why so few Indians have life insurance

According to the latest Economic Survey released by the Ministry of Finance, only 3% of Indians have a life insurance policy. This is despite the fact that the number of new life insurance policies issued in India has been steadily increasing over the years. In the financial year 2023, the Life Insurance Corporation (LIC) of India issued over 20.4 million new individual policies, while private insurers issued around eight million. This brings the total number of new individual policies issued across the country that year to over 28 million. So, why do so few Indians have life insurance?

Lack of Awareness and Understanding

One of the main reasons is a lack of awareness and understanding about the benefits of life insurance. Many people don't realise the importance of life insurance and how it can provide financial protection for their families in the event of their unexpected death. They may also find it too complicated to purchase.

Cost

Another reason is cost. Life insurance can be expensive, especially for those with pre-existing health conditions or who are considered high-risk. Many people may feel they cannot afford the premiums and therefore do not pursue coverage. This is often due to a misconception about the actual cost, as over half of Americans also overestimate the price of life insurance.

Mortality

In addition, some people may be hesitant to buy life insurance because they do not want to think about their own mortality. Confronting one's mortality can be difficult, and some may avoid purchasing life insurance as a result.

Other Factors

Other factors that may contribute to the low uptake of life insurance in India include a preference for other types of insurance, such as health insurance, and a lack of trust in the insurance industry or government schemes. Additionally, the decentralised nature of the Indian healthcare system, with a mix of public and private providers, may also play a role.

Life insurance plans in India

Life insurance plans are a form of financial protection for your loved ones in the event of your death. In India, only a small percentage of the population has life insurance, with figures suggesting that only around 3 out of 100 people have a life insurance policy. However, the number of people with life insurance in India has been steadily increasing over the years.

There are various types of life insurance plans available, each catering to different needs and requirements. Here is an overview of some common life insurance plans offered in India:

Term Insurance Plans

Term insurance plans are pure protection plans that provide a lump sum payment to your family in the event of your untimely death. These plans offer high life cover at low premium rates, making them an affordable option for individuals. The Life Insurance Corporation (LIC) of India is a popular provider of term insurance plans in the country.

Term Insurance with Return of Premiums (TROP)

TROP plans offer the same coverage as term insurance but with an added benefit. If you survive the policy term, all the premiums you paid will be refunded to you, excluding any applicable taxes. This feature makes TROP plans attractive to those who want the security of life insurance but also desire a potential refund of their premiums.

Unit-Linked Insurance Plans (ULIPs)

ULIPs are market-linked life insurance plans that provide both wealth creation and life insurance cover. A portion of the premium is invested in market funds, while the rest is dedicated to life cover. ULIPs generally offer life cover that is 10 times the premium amount.

Endowment Plans

Endowment plans offer a combination of death benefits and savings benefits. If the policyholder passes away during the policy term, a lump sum death benefit is paid to the nominee. If the policyholder survives the term, they receive a savings benefit along with bonuses or interest, depending on the plan.

Money-Back Plans

Money-back plans provide payments at regular intervals from the sum assured instead of a lump sum payment at the end of the policy term. These plans are particularly suitable for senior citizens who require a regular income source.

Whole Life Insurance

Whole life insurance provides coverage for the entire life of the policyholder, usually until the age of 99 or 100 years. This type of insurance ensures that your family is financially covered for a long period, leaving a legacy for your loved ones.

Group Life Insurance

Group life insurance covers a group of people, such as employees of a company or members of an organisation. It provides life cover for the entire group, which is then divided among the individuals.

Child Insurance Plans

Child insurance plans offer dual benefits to both parents and children. In the event of a parent's death during the policy term, a sum assured is paid to the surviving parent or nominee to support the child's future. If the parent survives the policy term, a lump sum maturity benefit is paid to the nominee upon the child's adulthood.

Retirement Plans

Retirement plans are designed to provide a hassle-free life after retirement, offering regular monthly income to maintain your standard of living. These plans also include life cover, ensuring that your loved ones receive a sum assured in case of your death.

When choosing a life insurance plan in India, it is important to consider your specific needs and requirements. Compare different plans based on premium rates, coverage amounts, and additional benefits to find the one that best suits your financial goals and budget.

Life insurance ownership by gender

Life insurance ownership in India is currently at 78%, according to a survey by Max Life Insurance in partnership with Kantar. This figure has increased steadily over the last decade, with only 2.82% of people having a life insurance policy in 2019.

When it comes to life insurance ownership by gender, there are some disparities. A recent survey by Max Life revealed that, for the first time, working women surpassed men in life insurance ownership. 79% of working women now own life insurance plans, compared to 76% of men. This shift in gender dynamics signifies a change in financial preparedness and responsibility.

The survey also found that urban Indian women are highly committed to protecting their families from life's uncertainties, gradually closing the gap with men. Urban Indian men lead in financial protection, with 46 points compared to the overall average of 45 points for urban India. The gap in financial protection between men and women in urban areas is driven by a disparity in life insurance awareness levels.

Another study by LIMRA showed that women are half as likely as men to feel confident that they understand how life insurance policies work. Only 20% of women own their life insurance policies, compared to 60% of men. Additionally, only 20% of women feel highly knowledgeable about life insurance policies, while 40% of men believe they have a good understanding.

Despite these differences, it is encouraging to see that life insurance penetration in India is slowly increasing. However, there is still a need to address the gender gap in financial awareness and empower women to take control of their financial state.

Frequently asked questions