Most Indians Underestimate Their Life Cover Needs, Youngsters Buying Early: Survey

Buying life insurance is one of the key financial planning steps for many to secure their family’s future. But what if most people are not buying enough to cover the financial needs of their loved ones? A recent survey by Bajaj Allianz Life Insurance, conducted in collaboration with NielsenIQ, shows that 81 per cent of Indians believe they have adequate life insurance coverage, but their actual coverage falls far short of what’s needed.

The study, which surveyed 2,000 people across Metro, Tier 1, and Tier 2 cities, reveals that there’s a significant gap in the financial preparedness of many individuals. 

While experts recommend life insurance cover of at least 10 times one’s annual income, the average life cover held by Indians is just 3.1 times their income, the survey noted. This means that many people think they’re financially protected, but they may be leaving their loved ones vulnerable in the event of an unexpected crisis.

The Protection Gap

The data shows there is a gap between ‘perception’ and ‘reality’. The respondents of the survey believed their coverage amounts to 6.4 times their annual income. But when the actual numbers were analysed, it turned out to be only 3.1 times - a figure significantly lower than the recommended benchmark.

Even among the mass affluent and affluent categories, the coverage ratio was just 2.9 times.

Says Tarun Chugh, MD and CEO of Bajaj Allianz Life Insurance, “India is one of the fastest-growing economies, but our total sum assured is just 70 per cent of GDP. Compare that to countries like the US (251 per cent), Thailand (143 per cent), and Malaysia (153 per cent), and you see how far we need to go. This shortfall can leave families financially vulnerable, forcing them to dip into savings or liquidate assets in times of crisis, which can derail their life goals.”

Why Are People Reviewing Their Coverages?

Another troubling trend raised by the report is that nearly one in every three Indians never examined their life insurance cover. Critical milestones in life, such as marriage, childbearing, or rising incomes, should spur policyholders to revisit their coverage.

Yet, 43 per cent of self-employed and affluent individuals admitted they had never done so, putting them at even greater risk of underinsurance.

Despite these numbers, confidence remains high, 82 per cent of respondents believe their life insurance is enough to secure their family’s future. This reflects that many people might underestimate the life cover needs their dependents would require in terms of daily expenses, unpaid loans, or maintaining the standard of living in the absence of the primary breadwinner of the family.

Who is Buying Life Insurance and Why?

This report also points towards a change in the life insurance trends. The average age of age of first-time buyers has dropped from 33 to 28. The study takes this as a positive sign that younger Indians are recognising the importance of financial protection by buying life insurance early on in their lives.

When asked what are the key factors influencing their purchase? The respondents noted that family responsibilities, higher income, and health concerns are key reasons why they buy life insurance.

The study also finds that when it comes to researching life insurance policies, 46 per cent of Indians prefer personal research over consulting financial advisors. On one hand, this shows a growing awareness, but the report has highlighted this as a potential risk wherein many individuals may not fully understand the coverage they need or fail to reassess their policies after key life events.