A recent survey has showed that nearly half of Indians are unaware of term insurance and its benefits, highlighting a significant gap in financial literacy. This lack of awareness persists even as the term insurance sector experienced an impressive 18% growth in FY24.

The latest report by leading online insurance marketplace ‘Policybazaar’ highlights critical gaps in both health and term insurance adoption, financial preparedness, and risk perception.

The insurance marketplace has unveiled the 2nd edition of its highly acclaimed consumer insights report, “How India Buys Insurance 2.0”. The report uncovers several key insights, including the fact that 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.

Also read: Life insurers’ new biz premiums up 5% in FY25

Key findings of the survey

Health insurance now among top 3 ‘must-have’ financial products for 28.3% respondents

Indians continue to favor traditional financial investments such as gold, fixed deposits, insurance-linked savings schemes, and real estate, says the report. However, health insurance has now joined this list, it adds. However, health insurance has now joined this list. According to the survey, 28.3% of respondents ranked health insurance above equities, mutual funds, and government bonds.

Underestimating medical costs: A widespread concern

Despite the increasing importance of health insurance, a significant number of policyholders remain underinsured, the report shows. A staggering 75% of health insurance buyers in India have coverage of Rs 10 lakh or less. The issue is most pronounced in South India, where 66% of policyholders have coverage of Rs 5 lakh or less, it adds.

“Non-buyers also display a severe underestimation of medical costs. About 51% of them believe that critical illness treatments, such as cancer, kidney transplants, or cardiac procedures, cost less than Rs 5 lakh – which is far from the ground reality today.”

Nearly half of India still ignores term insurance

The awareness gap remains one of the biggest barriers to term insurance adoption in India. The survey found that 47.6% of Indians are unaware of term insurance and its benefits. “However, there are signs of improvement. Industry-wide, term insurance grew by 18% in FY24, compared to a CAGR of just 2% over the past five years. The survey found that 56% of respondents who are aware of term insurance have a positive attitude toward purchasing it.”

Also read: Tax on insurance likely to be cut to 5% at GST Council meet

87% of term insurance non-buyers underestimate their family’s financial needs

A key issue in term insurance adoption is not just a lack of awareness but also a limited understanding of personal finance, the Policybazaar report says. Many non-buyers fail to consider key financial factors such as child education, marriage, loan obligations, spousal retirement, and medical contingencies when evaluating their family’s long-term needs, it adds.

“Experts recommend a life insurance cover of 15-20 times one’s annual income to ensure that dependents can sustain themselves for at least 10 years. Only 13% of non-buyers accurately estimate their insurance needs in line with expert recommendations,” the report adds.

On the launch of the report, Sarbvir Singh, Joint Group CEO, PB Fintech, said, “We are delighted to release the second edition of How India Buys Insurance following the overwhelming response and industry discussions sparked by its first edition. This year’s report puts a spotlight on the awareness gap even more evidently than before.”

A large proportion of consumers plan to sell ancestral assets or borrow money during a crisis rather than opt for simple, accessible solutions like health and life insurance to protect their families, he said.

“As an industry, it’s imperative that we strengthen awareness and improve the overall customer experience to drive broader adoption and ensure financial security for all,” he further said.