While the number of policies remains steady, households are increasingly opting for higher coverage and premiums, revealing a shift in how India approaches life protection, despite a widening protection gap.
India’s life insurance market is showing a split picture: more people are buying broader protection, even as the sector’s share of the economy has slipped. An analysis of policy data compiled by the Insurance Information Bureau of India suggests that existing policyholders are steadily moving into higher cover brackets, with the value of protection rising across nearly all segments between FY2021 and FY2025.
The most pronounced change has been at the top end of the market. The number of policies with a sum assured above ₹50 lakh rose 68% over the period, from 4.4 million to 7.4 million, while the annual premium attached to that category reached ₹975 billion. At the same time, the share of policies with a sum assured of ₹2 lakh or less fell from 65.1% in FY2021 to 53.6% in FY2025, showing a clear move away from the smallest cover levels.
The shift has not come from a surge in policy counts. The total number of in-force life insurance policies stayed broadly flat at around 343 million over the five years. What changed was the amount people were willing to pay. Average annual premium per policy climbed 42.6%, from ₹15,567 to ₹22,195, indicating that households are treating life insurance less as a one-off purchase and more as an expanding financial safeguard.
Kamlesh Rao, chairperson of the Insurance Awareness Committee-Life, said the data shows policyholders are increasing cover as their lives and responsibilities change, and argued that starting early gives buyers more time to build protection. The committee, formed under the Life Insurance Council, says India still faces a large protection gap, particularly among younger adults, and plans to use the findings to shape awareness campaigns aimed at getting more people insured earlier.
The broader industry backdrop helps explain the tension between rising cover levels and weak penetration. According to industry data cited by IBEF, India’s overall insurance penetration stood at 3.7% in FY25, with life insurance contributing 2.7%. The Financial Express reported that life insurance penetration fell for a third straight year, even as overall insurance penetration was unchanged. At the same time, insurers are still expanding business: the Economic Times reported record new business premium in FY25, with individual policies accounting for much of the growth. Cafemutual also reported that agents remained the dominant channel for individual life insurance business, particularly for LIC, while banks were the main source of private-sector sales.
That combination points to an industry that is still under-owned by the wider population but increasingly valued by those already inside it. Rising incomes, inflation, post-pandemic caution and more tailored products are all helping to push customers towards higher cover, even if the national protection gap remains wide.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
