Evolution Of Life Insurance Policy: A Historical Perspective


Have you ever wondered about the history of life insurance and how people safeguarded their families? Well, insurance is not new; it goes back to ancient India. In those times, people had a strong sense of community support. Texts like Manusmriti, Dharmasastra, and Arthasastra also talked about pooling resources. When disasters like wars or famines struck, they shared these resources among community members. It was a way of helping each other in tough times.

From community support to having 26 insurance companies, let’s see how insurance—which is now a financial need—came into being in India and evolved further.

The Colonial Era of Life Insurance

The first life insurance policy company in India was established by the Europeans in Calcutta in 1818. It mainly catered to the needs of the European community living in India. This company did not insure the Indian natives, as they were considered sub-standard lives. This discriminatory practice continued until 1870 when the first Indian life insurance company came into existence. This marked the beginning of life insurance in India.

The British Insurance Act of 1870 was another important event that influenced the growth of life insurance in India. This act regulated the operations of life insurance companies. As per the act, the companies were required to submit their premium rates and valuation reports to the government. The act also encouraged the establishment of more Indian life insurance companies.

By 1912, there were 44 life insurance companies operating in India. However, there was no legislation to regulate the quality and standards of these companies. Many were financially unsound and failed to fulfill their obligations to their policyholders. Then, the Indian Life Assurance Companies Act was passed in 1912 to address this issue. This act made it mandatory for life insurance companies to get premium rates and valuations certified by an actuary. Unfortunately, this act also discriminated between foreign and Indian companies on various grounds, putting the Indian companies at a disadvantage.

The Nationalisation of Life Insurance

The early 20th century saw a rapid expansion of the life insurance business in India. By 1938, 176 life insurance companies were operating in India. However, the industry faced many problems and challenges—mismanagement, fraud, malpractices, low penetration, high mortality rates, and lack of awareness. World War II also affected the performance and stability of these companies.

In 1956, the government safeguarded policyholders and made the insurance sector stable and growing. They did this by creating a state-owned company called the Life Insurance Corporation of India (LIC). It became India’s only life insurance provider for over four decades. All the existing insurance companies merged with the LIC, and their assets and liabilities were transferred to it.

The Liberalisation of Life Insurance

The liberalization changed the life insurance meaning. In 1991, India began making economic changes, allowing private and foreign investment in different areas. They also saw the need for change in the insurance sector. In 1993, a committee led by R.N. Malhotra, a former RBI governor, was set up. This committee looked at how insurance worked and suggested ways to make it better.

The Malhotra Committee submitted its report in 1994, which recommended the following changes:

  • Allowing private and foreign companies with up to 26% foreign ownership in the insurance sector.
  • Establish an independent and statutory regulator, the IRDA, to oversee the insurance industry.
  • The tariff structure for non-life insurance products should be abolished, and market-based pricing should be introduced.

The government accepted the recommendations of the Malhotra Committee and passed the Insurance Regulatory and Development Authority of India (IRDAI) Act in 1999, which paved the way for the entry of private and foreign players into the insurance sector. The IRDA was set up in 2000 as the regulatory body for the insurance industry. It issued licenses to several private life insurance companies.


The Modern Era of Life Insurance

Today, India has a dynamic life insurance industry. As of October 2023, in India, 26 life insurance companies are operating in the market. The private players have also gained significant market share.

Some factors that are driving the growth of life insurance in India are:

  • The increasing awareness and demand for life insurance due to the COVID-19 pandemic. COVID-19 has highlighted the importance of financial protection and security.
  • The rising income levels and aspirations of the middle class. People want long-term savings and investment options.
  • The growing digitalization and innovation in the life insurance sector. Digitalization has enabled easier access, distribution, and servicing of life insurance products.
  • The supportive regulatory environment and initiatives by the IRDA, such as introducing standard products, promoting micro-insurance, and enhancing customer protection.


The life insurance industry in India is poised for further growth and expansion in the coming years. Although challenges like low persistency rates and high operating costs are unavoidable, the industry is expected to benefit from various factors such as rising income levels, growing awareness, increasing urbanization, changing demographics, and favorable government policies.

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