Reading Between The Lines: Illusion Of Protection? Why High Premiums Leave Indians Underinsured

Every month, India's insurance regulator, IRDAI, publishes how much new life insurance the country has bought. I have been following it for many months now. And month after month, the data tells the same story. A story of two halves. Premiums are growing rapidly (and this is what makes the headlines). And the second half that is often glossed over: protection (or life cover) is not.

In the first two months of the financial year, new premium income grew at a healthy clip again, well into double digits. Yet the average policy LIC sold in these two months would hand a family that lost its earning member just about Rs 3.78 lakh. This is not a one-month quirk, so it is worth looking at the full year just gone, where the pattern is impossible to miss.

The average new individual policy LIC sold across all of 2025-26 carried a death cover of about Rs 3.55 lakh. LIC writes roughly two of every three new individual policies in the country, so this is not a figure you can ignore. It is the most common life insurance policy sold in India.

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Let's mull over the number for a moment. Would it cover even a year of a modest household's expenses? Would it clear a home loan, see a child through college or replace the earning member's salary? 

Savings wearing an insurance label

The reason the cover is so thin is that most life insurance sold in India is not really insurance. It is savings in an insurance costume. Investment- and savings-led plans set aside a small amount to cover the risk of death (mortality charge) and invest the rest to return to you on maturity. Across all individual new business in 2025-26, a rupee of annual premium bought roughly Rs 24 of cover. A pure term plan, without a savings component, buys many times that, ten times or more for a healthy young buyer.

The average LIC policyholder pays about Rs 19,400 a year for the Rs 3.55 lakh cover on a typical savings policy. The same Rs 19,400, spent on term, would cover a healthy thirty-year-old for Rs 1.5 crore. (This example is merely illustrative as not all LIC policyholders will be healthy 30-year-olds). So why don't more people buy term if the math is so overwhelmingly in favour of term plans? 

There are two reasons. First, if you outlive the policy, you get back nothing in a term plan. A savings or investment plan covers you for a small amount but pays you back a lumpsum on maturity (albeit at low rates of return, usually in the 4-6% range). 
The other reason is the economics of selling. A savings policy carries a far larger premium than a term plan, so the commission on it is larger too. The product that protects you the least is the one that pays the intermediary the most.

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LIC's biggest line isn't insurance

There is a second, separate reason the protection numbers look this way. LIC collects more than half of all new life insurance premium in the country. Yet its largest single chunk of money is not protection, and not even individual savings. It is institutional fund management.

In 2025-26, about Rs 1.85 lakh crore of LIC's new premium, roughly 71%, came from group business booked as a one-time lump sum: superannuation funds, gratuity funds and annuities that employers and institutions place with LIC to manage. The death cover on all of it was Rs 491 crore. Not even a paisa of cover for every rupee of premium.

And it holds for the whole book, not just the year. Of all the premium LIC collected in 2024-25, around 95 paise in every rupee went into participating savings, pension and group schemes, and unit-linked plans. Pure protection was a rounding error. By the numbers in its own accounts, LIC is an asset manager that also sells life cover.

So where does all the premium go?

India bought more than Rs 4.5 lakh crore of new life insurance premium in 2025-26, a record, and insurers advertise sums assured running into lakhs of crore. If all that cover exists, who is it protecting? Mostly lenders and employers. The largest share of the industry's death cover is in group insurance. These are the policies a bank sells you to cover your home loan, or the cover your office provides while you are on its rolls. These are genuinely useful, but they offer limited protection.

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Loan cover shrinks as you repay and vanishes the day the loan closes; workplace cover ends the day you leave the job. If you discount the loans and employer insurance, and look only at the regular-premium policies people buy for themselves, the all-India average cover bought works out to around Rs 16 lakh. This is better than LIC's number, because private insurers sell more term; but still nowhere near what would truly cover a family.

What a new retail policy covers:

India is not under-buying life insurance, it is simply over-buying the wrong kind. We have turned a protection product into a savings habit.

What can you do about this?

Start by reading what your policies would pay your family on death, not what you pay the insurer each year. The two numbers are often surprisingly far apart. The thumb rule financial planners use is that your life cover should be ten or fifteen times your annual income. Most people who feel comfortably insured are nowhere close.

The cheapest way to shut that gap is term insurance, which provides much greater sum assured per rupee than any other plan. A plan that leaves your family with Rs 3.55 lakh is not doing that job, however reassuring the annual receipt looks.

Ashok Hegde is the founder of Gyansurance.com, a term insurance education platform.

Disclaimer: The views expressed in this article are solely those of the author and do not necessarily reflect the opinion of NDTV Profit or its affiliates. Readers are advised to conduct their own research or consult a qualified professional before making any investment or business decisions. NDTV Profit does not guarantee the accuracy, completeness, or reliability of the information presented in this article.

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