Economic survey: Insurance penetration improves, but most buy savings-linked

The Economic Survey noted that insurance penetration in India increased steadily from 2.7 per cent around 2000 to 4.2 per cent in 2020 and 2021.

The Economic Survey 2022-23 acknowledges the growth of India's insurance sector, but lamented that most policyholders in India buy savings-linked products, instead of protection-based.

The Survey noted that life insurance penetration has gone up to 4.2 percent in 2021 almost similar to what it was a year before that, but significantly higher than 2.7 percent growth registered in around the year of 2000. Insurance penetration is marked by two parameters; insurance penetration, which measures the ratio of tetra insurance premiums to Gross Domestic Product (GDP) and insurance density which is the ratio of insurance premium to population.

In India, due to low awareness and mis-selling by a section of the insurance industry, most policyholders typically buy policies that return money back to policyholders at the end of their tenures. These policies are popularly known as endowment and money-back policies as well as Unit-Linked Insurance Policies (ULIP). A ULIPs works just like a mutual fund, but which has an insurance wrapper built around it.

The Economic Survey's observations assumes significance on the eve of the Union Budget 2023 because this could nudge the Finance Minister Nirmala Sitharaman to give more tax sops to those who buy life insurance policies. If you buy a life insurance policy, you are entitled to an income-tax deduction under Section 80C, up to a limit of Rs 1.5 lakh. Experts in the Indian insurance sector have wished for a higher deduction limit for Section 80C instruments or a seperate deduction limit for life insurance companies.