₹10-15 Lakh covers surge, 6 in 10 health policies come from smaller cities

 Over the last five years, Tier-2 and Tier-3 cities have gone from being secondary markets to becoming the dominant force for India’s health insurance market —now accounting for 62% of all new health insurance policies sold, shows a five-year analysis of Policybazaar’s data.

 

Premium affordability barriers are dissolving as over 40% of Tier-3 users pay via monthly EMIs, while protection depth is rising sharply with nearly half of all hinterland buyers choosing ₹10–15 lakh covers. 

 

Add-on adoption has surged—up 207% in Tier-2 and 179% in Tier-3—and modular plans now make up 96% of all policies sold nationwide. 

 

As renewals rise in parallel with new purchases and hospitalisation continues to drive over 80% of claims, the data makes one thing clear: India’s health insurance boom is no longer metro-led. It is being fuelled by Bharat’s growing awareness, rising incomes, and a decisive shift toward comprehensive financial protection.

 

1. Bharat Takes Over: 62% of New Policies Now Come from Tier-2 and Tier-3 Regions

 

Five years ago, metros dominated health insurance purchases. That story has flipped.

 

Share of policies sold (FY22 → FY26):

 

Tier-1: 46% → 38%

Tier-2: 23% → 24%

Tier-3: 31% → 38%

 

Together, Tier-2 and Tier-3 now contribute 62% of all health policies.

 

What this means for users:

 

• Insurance awareness is no longer metro-centric.
• Digital onboarding, WhatsApp-led servicing, and regional-language outreach are expanding access.
• A massive base of first-time buyers is emerging outside big cities.

 

2. Higher Covers Become the Norm: ₹10–15 Lakh Policies Surge

 

The most dramatic shift is not just in volume but in depth of coverage.

 

Tier-2 India:

Covers above ₹15 lakh: 1% (FY22) → 13% (FY26)

 

₹10–14 lakh covers: 27% → 47%

 

Tier-3 India:

 

Covers above ₹15 lakh: 3% → 14%

₹10–14 lakh covers: 24% → 49%

 

A ₹10 lakh+ cover is now mainstream even in smaller towns — a response to rising medical inflation, post-pandemic risk awareness, and the reality that ₹3–5 lakh policies no longer offer adequate protection.

 

3. Add-on Adoption Shows Families Want Better — Not Cheaper — Coverage

 

As users understand claim patterns and out-of-pocket risks better, they are upgrading protection through add-ons.

 

Add-on adoption (% increase) & share of policies with >₹10 lakh SI:

• Tier Add-on Adoption Policies with >₹10L SI
• Tier 1 228% 76%
• Tier 2 207% 60%
• Tier 3 179% 63%

 

On average:

 

• Tier-1 buyers choose 2.2 add-ons
• Tier-2 choose 2 add-ons
• Tier-3 choose 1.7 add-ons

 

Consumables cover, room-rent relaxation, OPD benefits and cumulative bonus top the adoption list.

 

What this signals:

 

Users in smaller towns are beginning to behave like evolved metro buyers—they want richer, holistic protection, not bare-minimum plans.

 

4. Modular Plans Now Dominate: 96% of All Sales Across India

 

Nearly all health plans sold today—across metros, Tier-2 and Tier-3—are modular.

 

These plans bundle:

 

• OPD
• Modern treatment benefits
• Consumables
• Maternity
• No-claim bonus enhancements

 

Why modular plans matter to smaller towns:

 

They dramatically reduce out-of-pocket spends for middle-income families, especially at private hospitals where OPD and consumables can significantly inflate bills.

 

5. EMIs Reshape Affordability: Over 40% of Tier-3 Users Pay Monthly

 

The EMI model, introduced in FY23, has become a gamechanger—especially outside metros.

 

For young parents, gig workers and small-business owners, monthly payments remove affordability barriers and make higher covers feasible.

 

6. What Families Buy: Tier-2 & 3 Prefer Family Floaters

 

Family structure heavily influences policy choice.

 

Smaller towns prefer family floaters, reflecting joint families and multi-generational coverage needs. 

Families in tier-2 and 3 regions prefer comprehensive floater covers over individual plans

 

7. Renewals & New Sales Rising Together — A Sign of Habit Formation

 

Earlier, Tier-2/3 growth came mainly from first-time buyers. Now, renewals are rising alongside new sales.

 

This indicates:

 

• Higher long-term awareness
• Lower churn
• Health insurance is entering the monthly household budget
• Users are seeing value and staying covered year after year

 

8. Claims Are Still Hospitalisation-Led: Inpatient Care Dominates at 80%

 

Claims data shows how customers use their insurance.

 

• Tier-2/3 hospital claim split:
• Hospitalisation: 80.70%
• OPD: 11.90%
• Day-care: 6.70%
• Maternity: 0.60%
• Diagnostics: 0.10%

 

What it reveals:

 

• Inpatient care continues to drive insurance use.
• But OPD + day-care now form nearly 20% of claims — showing gradual broadening of utilisation.
• Higher sum insured purchases align with rising hospitalisation costs in Tier-2/3 markets.

 

Siddharth Singhal, Head of Health Insurance at Policybazaar, sums up this transformation:

 

“India’s health insurance growth is increasingly being driven by Tier-2 and Tier-3 markets. What’s encouraging is not just the scale, but the shift in quality — customers are opting for higher covers, modular plans and EMIs. This reflects deeper understanding of healthcare costs and a more structured approach to long-term protection.” 

Key insights at a glance:

•  Non-metro India now leads health insurance growth: Tier-2 and Tier-3 regions contribute 62% of all new health policies, overtaking metros as the primary demand centres.
• Higher cover is no longer a metro phenomenon: Nearly 1 in 2 policies in Tier-2 and Tier-3 now have ₹10–15 lakh coverage.
• EMIs are reshaping affordability: Over 40% of Tier-3 customers now pay premiums monthly.
•  Coverage quality is improving: Strong adoption of add-ons and modular plans shows customers are upgrading protection.
• Health insurance is becoming habitual: Rising renewals alongside new sales indicate repeat behaviour and longer-term engagement.
•  Family protection dominates smaller towns: ~60% of policies in Tier-2 and Tier-3 are family Floaters
• Claims remain hospitalisation-heavy: Over 80% of claims originate from inpatient treatment.

•  

Health insurance in smaller towns is still predominantly used for inpatient care rather than routine medical expenses.

 OPD and day-care together account for nearly one-fifth of claims, indicating gradual expansion beyond only hospitalisation.

 The claims mix aligns with the rising preference for higher sum insured policies in hinterland markets.

Comprehensive hospitalisation cover remains central to protection planning in Tier-2 and Tier-3 regions.