New Delhi, Sep 11 : India's life insurance industry is expected to clock a compound annual growth rate (CAGR) of 14.5 per cent over FY23'35, making it one of the most promising segments in India's financial services space, a report said on Thursday.

The Indian life insurance industry has grown at a CAGR of 11 per cent over the past two decades (FY05-25) to Rs 1,203bn in FY25, PL Capital, a financial services organisation, said in a report.

The recently announced GST exemption will improve affordability, enhance persistency, and deepen penetration, driving stronger long-term growth.

However, it may create short-term profitability challenges, as insurers lose access to input tax credits.

Despite steady expansion in recent decades, India's life insurance penetration remains significantly below global benchmarks.

At 2.8 per cent of GDP in FY24, it trails the developed market average of 5.6 per cent. Similarly, insurance density in India stood at just $70 per capita, compared with $3,182 in advanced economies.

This gap highlights a multi-decade opportunity for the industry, particularly as households increasingly allocate savings towards financial instruments.

With nominal GDP projected to grow at 10.5 per cent annually, coupled with rising financial awareness, life insurance is set to emerge as a critical pillar of India's household balance sheets, the report highlighted.

According to the report, the structural factors'such as the absence of social security nets, a growing middle class, and increasing life expectancy'will fuel demand for protection and annuity products.

These segments, currently underpenetrated, are expected to contribute significantly to the sector's long-term growth.

The report highlighted that historically, Unit Linked Insurance Plans (ULIPs) have dominated the product mix, aided by buoyant equity markets and attractive tax benefits.

However, the report anticipates ULIP shares to moderate as customers gravitate towards non-linked offerings.

Listed insurers have seen an increase in the share of ULIP (35-65 per cent in FY25 against 16-55 per cent in FY23), according to the report.

The sector has navigated several regulatory changes over the past few years, including new surrender value guidelines for expense-of-management (EoM).

/IANS