Life Insurance Coverage in India Expands Sharply, but Protection Gap Persists

Why in News:
India’s life insurance coverage has expanded significantly over the last decade, driven mainly by the growth of group and credit-linked insurance products, according to a recent CareEdge Ratings report.

Key Findings

• Insured population: Increased from ~15 crore in FY15 to ~40 crore in FY25
• Sector growth: Life insurance sector recorded a CAGR of ~13% over the last 20 years
• Economic linkage: Growth broadly tracked India’s GDP at market prices, which grew at an average ~12.4% over the same period

Penetration and Density: Still Low

Despite expansion, India remains underpenetrated in insurance:

• Life insurance penetration (2023): 2.8% of GDP compared to ~5.6% in developed economies
• Insurance density (2023): $70 per capita, far below global peers

Concept clarity:

• Insurance penetration: Ratio of insurance premiums to GDP
• Insurance density: Per capita insurance premium (premiums ÷ population)

Structural Concerns

• While coverage has widened, sum assured per policy remains low
• This limits:
  • Effective financial protection against death
  • Adequate income security during retirement
• Indicates a shift toward quantity of coverage rather than quality of protection

Significance

• Highlights progress in financial inclusion via insurance
• Underscores the need to:
  • Enhance depth of coverage
  • Promote adequate life cover and pension-oriented products
• Relevant in the context of demographic transition and ageing population