Half of health cover buyers in 20s let their policy lapse in three years

MUMBAI: More than half of young Indians, in the age group 24 to 34, who buy health insurance drop out within the first three years, exposing a structural weakness in policy retention.

According to a Niva Bupa Health Insurance survey, 55% of policyholders in the age group who lapse do so within three years of purchase, indicating that early adoption is often tentative and lacks long-term commitment. This high churn suggests that buying decisions are frequently driven by short-term triggers rather than a sustained understanding of risk protection.

Health insurance premiums grew 9.12% to Rs 1.17 lakh crore in FY25; however, the number of lives covered rose only 1.36% to 58 crore.

“What is even more telling is that most of them are not moving from one insurer to another. They are actually leaving the category altogether,” said Nimish Agarwal of Niva Bupa.

Affordability is the most cited cause of lapsation with 46% of those who discontinued citing it as a cause. The pressure is amplified by competing financial obligations: 66% of lapsers had active loans, including 33% with personal loans and 17% with home loans.

In such cases, insurance premiums are among the first expenses to be cut when budgets tighten. Unlike life insurance policies, which are purchased for a level premium, health insurance policies are annual contracts and prices increase with age.

For insurers, roping in young people is crucial to spread risk and keep the business viable as claims increase with age.

“The biggest articulated reason is affordability. But when you double-click on that, it is really about value.

They are paying a premium of about Rs 20,000–25,000 every year, and because they have not claimed or used the policy, they do not see enough value in continuing. So it becomes the first thing to drop,” said Agarwal.

A significant share of young policyholders disengage because they do not perceive value in the product. Around 34% discontinued their policies as they believed they and their families were healthy, effectively treating insurance as unnecessary in the absence of immediate need.

“This cohort is very different in how it evaluates spends. If they are using something—like a smartphone or a subscription—they are happy to keep paying for it.

But health insurance is something they may not use for two or three years, and that creates a disconnect. So one of the large questions for us internally is: how do we make health insurance more ‘experienced’ and not just something that comes into play when you fall sick?” said Agarwal.

This perception feeds into a broader preference for return-generating instruments. Nearly 31% of lapsers said they would rather invest in products that offer visible returns, reflecting a tendency to view insurance premiums as a sunk cost unless claims are made. Another key finding was that while youngsters saw themselves as healthy, deeper questions on check-ups, lifestyles, or medical parameters showed their confidence dropping.

There are also signs of product-related dissatisfaction. About 17% cited limited disease coverage as a reason for exiting, suggesting that gaps in understanding or unmet expectations around coverage contribute to early drop-offs. Interestingly, in tier-3 markets, interest in health insurance is actually higher—up to 70%—because it is seen as a gateway to quality healthcare. But ownership is low because distribution is weak and the network effect is missing.

And finally, on distribution, one thing stood out very clearly: digital builds awareness, but purchase still happens through human interaction. Even younger consumers want to talk to someone before they buy. “So for us, that has implications on how we build last-mile distribution, especially beyond the top cities,” he said.

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