First-time health insurance buyers surge, with Tier 2 and 3 cities driving growth

India’s health insurance ecosystem is seeing a steady influx of first-time buyers, with smaller cities emerging as the biggest growth engine and consumers opting for significantly higher insurance covers, according to a data by Policybazar.

The number of people buying health insurance for the first time grew 277% between FY22 and FY26, with Tier 2 and 3 cities recording even faster growth of 351% during the period. The trend underlines the growing acceptance of health insurance and the increasing comfort among consumers in smaller cities with buying policies online.

Tier 2 and 3 cities accounted for 67% of first-time health insurance buyers in FY26, up from 56% in FY22. About seven in 10 additional first-time buyers added to the ecosystem between FY22 and FY26 came from these cities.

The growth in smaller cities outpaced the overall growth in first-time buyers every year. In FY23, first-time buyers from Tier 2 and 3 cities grew 7%, compared with 5% overall, while in FY24, their growth stood at 43%, against 40% for first-time buyers as a whole.

The share of smaller cities in the first-time buyer base initially rose gradually—from 56% to 58% over two years—but climbed sharply to 67% over the following two years as growth accelerated. This is changing the profile of consumers entering India’s health insurance ecosystem, with the next phase of expansion increasingly moving beyond the metros.

Young families dominate the first-time buyer base

The largest group of first-time health insurance buyers comprises people aged between 26 and 35. In 27.66% of policies, the eldest member covered falls in this age group.

Another 21.98% of policies have their eldest member aged between 36 and 45, taking the combined share of buyers in the 26-45 age group to nearly half, or 49.64%.

These are typically the years when consumers begin their careers, get married, buy homes, raise children and take on greater financial responsibility for their families and parents. Buying health insurance at this stage can help protect earnings and savings from the financial impact of hospitalisation. At the other end of the spectrum, only 7.36% of first-time policies have an eldest member above the age of 65.

The first-time buyer base, however, continues to be overwhelmingly male. Men account for 82.81% of first-time buyers, compared with 17.19% for women.

While insurers have introduced a range of products targeted at women, the low share of women among first-time buyers suggests a significant untapped market. Women could form an important part of the next phase of growth as awareness and access to health insurance expand.

First-time buyers opting for larger covers

The profile of first-time buyers is also changing in terms of the amount of insurance they are purchasing.

The average first health insurance cover more than doubled from ₹6.3 lakh in FY22 to ₹13.1 lakh in FY26. In FY26, 68% of first policies had a cover of ₹10 lakh or more, compared with just 32% in FY22. ₹10 lakh has now emerged as the most common first cover, accounting for 51% of first-time policies.

The shift suggests that consumers are becoming more aware of the rising cost of hospitalisation and are increasingly opting for insurance covers that can absorb a substantial medical bill.

The trend has become more pronounced following the removal of GST on health insurance in September 2025, with more consumers opting for higher coverage. The momentum is expected to continue into FY27.

‘First policy is the start of a long relationship’

Sarbvir Singh, Joint Group CEO, PB Fintech, said the expansion of insurance penetration depends on bringing people who have remained outside the system into the formal insurance ecosystem. “Insurance penetration moves only when someone who was outside the system comes in. Over the last four years, a growing number of people have taken that step by buying their first health policy, and more of them each year are in Tier 2 and 3 cities,” Singh said.

He said these consumers are largely in their late twenties and thirties, have families to protect and are starting with larger covers than first-time buyers did in FY22.

“That is where the next stretch of growth for health insurance sits. It is also where the work is hardest, because a first-time buyer has no experience to lean on. Our job is to take them to a policy they understand, and then stand by them at the time of claim,” he said.

According to Singh, the consumers entering the health insurance ecosystem today will remain insured for decades, making their experience critical to the industry’s long-term growth. “The new entrants into the health insurance ecosystem are the ones who will stay insured for the decades to come. Their experience will shape the insurance industry’s future,” he added.