Life insurance now about retirement, savings, not just death cover, says Kamlesh Rao of IAC-Life

Life insurance in India is increasingly being used for retirement income, savings and financial security rather than only death protection, with over 92% of payouts now going to policyholders during their lifetime, according to Kamlesh Rao, Chairperson of the Insurance Awareness Committee (IAC-Life).

In an interaction with Business Today, Rao spoke about changing consumer behaviour, low term-insurance penetration, rising maturity payouts, and the need to reposition life insurance as a long-term financial planning tool. He said the industry is seeing a structural shift towards savings-linked and income-generating products, even as awareness about pure protection plans remains low compared to global standards. Rao added that higher survival benefits, strong persistency ratios, and growing demand for annuity and pension products show that households are increasingly using life insurance as a long-term wealth and stability instrument rather than only a risk cover.

Q. With over 92% of payouts going toward living benefits, is life insurance still being positioned incorrectly as primarily a death product?

Kamlesh Rao: Yes, that perception is outdated. Data shows life insurance has evolved into a living-benefits engine, with most payouts happening during the policyholder’s lifetime. The narrative should shift to financial security, retirement preparedness and predictable cash flows, not just death protection. Through our awareness campaign, we are trying to position life insurance as a long-term financial planning tool that includes child plans, retirement plans and protection products.

Q. If life insurance is increasingly used for retirement income, how does it compete with NPS, mutual funds and annuities?

Rao: Life insurance complements rather than replaces these products. Insurance contracts combine savings, protection and guaranteed benefits in one structure. Unlike pure investment products, insurance offers predictable cash flows along with risk cover, which makes it suitable for long-term financial planning.

Q. Is the dominance of maturity and survival payouts a sign of strong wealth creation, or simply old policies maturing?

Rao: It is partly because policies sold 15–25 years ago are now reaching maturity, but the trend is structural. Even during Covid years, living benefits accounted for nearly 90% of payouts. With rising demand for annuity and pension products and better persistency, this trend should continue over the next decade.

Q. ₹2.33 lakh crore was paid in surrenders and withdrawals in FY25. Does this reflect financial stress among policyholders?

Rao: Not necessarily. Much of this reflects planned lifecycle withdrawals for education, housing or retirement. Life insurance often acts as a household wealth reservoir that provides both liquidity and long-term stability. Persistency ratios remain strong, which indicates financial planning rather than distress.

Q. With death claims below 8% of payouts, is India underinsured on pure protection products?

Rao: Yes, that is a concern. India is still tilted toward savings-linked policies while term insurance penetration remains low compared with global levels. Cultural hesitation to discuss death-related financial planning also plays a role. There is a need to increase awareness so households maintain a better balance between protection and savings.

Q. Can insurers sustain high payout levels, with total benefits touching ₹6.3 lakh crore in FY25?

Rao: The industry maintains strong solvency margins and follows strict asset-liability matching. All insurers remain above the regulatory solvency requirement, and high claim-settlement ratios show the system is stable. Large payouts reflect scale and maturity of the industry, not weakness.

Q. What is the biggest challenge for the life insurance sector going forward?

Rao: The key challenge is improving protection coverage while continuing to build long-term savings habits. India’s life insurance penetration remains below the global average, and increasing awareness about term insurance alongside retirement and savings products will be critical for long-term financial security.