48% of policyholders opt for health insurance coverage of Rs 5 lakh or less: Policybazaar

Indians continue to severely underestimate healthcare costs—nearly 48% of policyholders opt for coverage of Rs 5 lakh or less. At the same time, 47.6% of Indians remain unaware of term insurance and its benefits, as per the second edition of 'How India Buys Insurance' report released by Policybazaar. 

The report also stated that Indians continue to favor traditional financial instruments such as gold, fixed deposits, insurance-linked savings schemes, and real estate. However, now health insurance is also joining this list of preferred investments, as 28.3% of respondents ranked health insurance above equities, mutual funds, and government bonds.

“This year’s report highlights the awareness gap more clearly than ever. A large number of consumers still plan to sell ancestral assets or take loans during medical emergencies, rather than opting for straightforward and accessible solutions like health and life insurance to safeguard their families,” said Sarbvir Singh, Joint Group CEO of PB Fintech. “As an industry, we must bridge this gap by raising awareness and enhancing the customer experience to drive broader adoption and ensure financial security for all.”

Despite its growing importance, a significant portion of health insurance policyholders in India remain underinsured. A staggering 75% of buyers have coverage of Rs 10 lakh or less. This trend is particularly pronounced in South India, where 66% of policyholders have coverage of Rs 5 lakh or less. Non-buyers also tend to severely underestimate the cost of medical treatments. Around 51% believe that critical illnesses—such as cancer, kidney transplants, or cardiac procedures—cost less than Rs 5 lakh, a figure that falls far short of current realities.

Nearly half of India still unaware of term insurance

The awareness gap continues to be one of the biggest hurdles in the adoption of term insurance across India. According to the survey, 47.6% of Indians are unaware of term insurance and its benefits. However, there are encouraging signs: term insurance witnessed an 18% growth in FY24, a significant jump compared to the 2% CAGR seen over the past five years. Among those aware of term insurance, 56% expressed a positive attitude toward buying it.

The challenge lies not only in awareness but also in a limited understanding of personal financial planning. Many non-buyers fail to consider crucial factors such as children's education, weddings, loan obligations, spousal retirement, and medical emergencies when assessing their family’s long-term needs.

Experts typically recommend life insurance coverage amounting to 15–20 times one’s annual income to ensure dependents can sustain themselves for at least a decade. However, only 13% of non-buyers correctly estimate their insurance requirements in line with this guidance.