What India can learn from other countries in term insurance adoption

Mint

3 days ago

What's common between Japan's 2011 tsunami, the 9/11 terror attacks in the US, and the covid-19 pandemic? Apart from being mass-scale tragedies that shook the world, these moments also serve as a reminder that when everything fell apart, insurance stepped in to help piece lives back together.
But tragedies don't always make global headlines, do they? Sometimes, they strike quietly, in the form of a sole breadwinner's untimely death, setting the entire household's standard of living backwards.
India has made commendable progress in lifting millions out of poverty. As per the UNDP Multidimensional Poverty Index, India pulled 415 million people out of poverty between 2005 and 2021. However, the low penetration of financial protection mechanisms like term insurance continues to leave many vulnerable to falling right back into it. A Niti Aayog discussion paper highlights that the death of a primary earner is a critical poverty trigger that often goes under-addressed.
At a unit level, term insurance is the most cost-effective and responsible step to prevent intergenerational poverty. It protects not just income, but also preserves a family's future aspirations in the face of loss. Let's explore how term insurance in conjunction with other efforts can play a major role in protecting household wealth and standard of living.
From resilience to risk: Insurance is a universal solution
Across the world, term insurance serves as a financial lifeline for families when an unfortunate event strikes unexpectedly. In many countries, particularly those without generous welfare systems, term life cover fills the cracks left by the absence of a breadwinner. And in countries that do have strong public welfare, term insurance still plays a vital role, helping families preserve their standard of living in the wake of a tragedy.
Let's look at Singapore. The country, well known for efficiency and foresight, does not have a traditional welfare system like the western world. Yet, its people are among the most financially protected globally.
In Singapore, life insurance is the dominant form of insurance, accounting for approximately 72% of the nation's total insurance premiums in 2023. According to the 2022 LIA Protection Gap Study, the average life coverage per policyholder was around S$331,200, while critical illness coverage averaged S$193,300, typically across different policies.
Similarly, South Korea, often seen as a welfare-light economy, has one of the highest insurance densities in the world. More than 85% of Korean households are covered by life insurance, and the average insured amount per person is over KRW 50 million. When Covid-19 struck, government initiatives played their part, but on top of that, life insurance payouts helped citizens navigate job losses and medical emergencies.
Life insurers reported a notable spike in claims, covering not just covid deaths but income protection and hospitalisation benefits. Adequate private coverage, layered on top of public welfare, gave families the financial bandwidth to navigate the crisis without sliding into poverty.
The coexistence of public welfare and private insurance
Japan combines universal healthcare and pension systems with one of the most developed private insurance markets in the world. Japan's insurance penetration is the third-highest in the world and according to the Japan Institute of Life Insurance, more than 90% of households own at least one life insurance policy.
In terms of scale, Japan's life insurance share dominates the insurance industry with over 74% share in terms of gross written premiums. This proved invaluable in 2011, when Japan was devastated by the Great East Japan Earthquake and tsunami. Within months, Japanese life insurers had paid out billions in life claims alone. Life insurance, in that moment, acted as a bridge between grief and recovery.
Why India needs to take notice?
India, by contrast, remains deeply underinsured and unaware of term insurance. Despite being the world's most populous country, the total insurance penetration lingers at ~4% of GDP, which is far below the global average. Term insurance, the purest and most affordable form of coverage, has a particularly low uptake. In a nation of over 1.4 billion, only 6-7 million have term insurance, which means that the death of a breadwinner in a household can trigger immediate financial distress.
India's protection gap (needed insurance cover - actual insurance cover) at nearly 80% remains one of the highest in the world. The economic impact of this underinsurance is severe. Global and Indian case studies show that underinsurance correlates with poorer outcomes in education, health and economic mobility. Clearly, the need of the hour is to increase term insurance penetration on a war footing. The good news is that the government has recognised this reality and several steps like reducing GST on Term Insurance are being contemplated.
Term insurance is a public good
Term insurance is more than a financial product. It is a public good, a stabiliser and an enabler of inter-generational progress. Countries with high life insurance penetration aren't just better prepared for personal loss; they are also economically more resilient.
India's challenge, then, is not just to grow economically but to build resilience at the household level. Beyond covering mortality risk, it extends to preserving a country's education, healthcare and opportunity backbone for the next generation. That, in essence, is the real value of a term policy for an individual and for a nation.
Sarbvir Singh is the joint group CEO, PB Fintech. Views are personal.