New Delhi, Sep 11 (NationPress) The life insurance sector in India is projected to achieve a compound annual growth rate (CAGR) of 14.5 percent from FY23 to FY35, establishing itself as one of the most lucrative areas within India's financial services industry, according to a report released on Thursday.

Over the last two decades (FY05-25), the Indian life insurance market has experienced a CAGR of 11 percent, reaching a value of Rs 1,203 billion by FY25, as noted by PL Capital, a financial services firm.

The recent implementation of GST exemptions is expected to enhance affordability, increase policy persistency, and improve penetration rates, thus fostering robust long-term growth.

However, this may pose short-term profitability challenges for insurers due to the loss of access to input tax credits.

Despite consistent growth in recent years, India’s life insurance penetration remains significantly lower than global standards.

As of FY24, it stands at 2.8 percent of GDP, lagging behind the developed market average of 5.6 percent. Additionally, the insurance density in India is only $70 per capita, in stark contrast to $3,182 in advanced economies.

This disparity indicates a multi-decade opportunity for the industry, especially as households progressively channel savings into financial products.

With nominal GDP anticipated to grow at 10.5 percent annually and increasing financial literacy, life insurance is poised to become a pivotal component of household financial planning, as highlighted in the report.

The report also points out that structural factors—such as the lack of social safety nets, the rise of the middle class, and lengthening life expectancy—will drive demand for protection and annuity products.

These currently underutilized segments are expected to significantly bolster the sector's long-term growth.

Historically, Unit Linked Insurance Plans (ULIPs) have dominated the product landscape, supported by vibrant equity markets and appealing tax incentives.

Nonetheless, the report predicts that the share of ULIPs will decrease as consumers shift towards non-linked products.

According to the report, listed insurers have seen an increase in ULIP shares (ranging from 35-65 percent in FY25 compared to 16-55 percent in FY23).

The sector has successfully navigated multiple regulatory changes in recent years, including new surrender value guidelines for expense-of-management (EoM).