Life insurance remains a critical tool for financial protection and savings in India, but coverage levels are still far below what is considered adequate for earning individuals, according to insights shared by Mithil Sejpal, Co-Founder of SLiQ (Smart LIQuidity) by ValuEnable.
Life insurance provides essential mortality risk cover, shielding individuals against the financial impact of premature death. It also acts as a popular savings instrument and, in a country that has largely moved to a defined contribution retirement system, is a primary source of lifetime pension.
However, Sejpal noted that traditional measures such as insurance penetration (premiums relative to GDP) and insurance density (premium per capita) fail to fully capture the extent of risk protection, as they focus on premiums rather than actual coverage.
Instead, he highlighted the Life Insurance Coverage Factor (LICF), which compares total Sum Assured in force to GDP, as a more accurate measure of protection adequacy.
According to SLiQ’s analysis, India’s LICF stood at 1.03 as of March 31, 2023, down slightly from 1.07 the previous year. Experts suggest that a benchmark of 10 times GDP would be necessary to adequately cover future income and outstanding liabilities for earning individuals.
Several factors contribute to the low coverage:
1) Savings-oriented policies dominate: Around 95% of retail premiums go toward policies with a limited insurance component.
2) Group and single-premium policies: About 23% of new Sum Assured in FY23 came from such policies, which may not reflect long-term coverage.
3) Awareness and accessibility challenges: Many potential policyholders lack knowledge about coverage needs, and term insurance remains unavailable to certain customer segments.
Potential solutions include expanding government schemes such as PMJJBY, promoting voluntary top-up coverage through employers, and offering granular pricing and smart underwriting to make term insurance accessible to a broader population.
While retail Sum Assured has grown at a 9.8% CAGR between 2018 and 2023, India’s nominal GDP grew at 12.2% over the same period. To meet the recommended coverage target by 2047, Sum Assured would need to grow at 23% CAGR, indicating a need for faster adoption and targeted policy interventions.
“India has made progress in life insurance adoption, but current coverage levels are insufficient given the population and economic realities,” Sejpal said. “Addressing these gaps will require coordinated efforts across public policy, employers, and the insurance industry.”
