Tier-II, Tier-III, and rural regions accounted for 62 per cent of all new health insurance policies sold by insurers so far in 2025-26 (FY26), according to a Policybazaar report.
These regions are also witnessing a rise in the sum assured opted by customers.
The share of people buying insurance cover between Rs 10–14 lakh in Tier-II cities has increased to 47 per cent in FY26 from 27 per cent in FY22, while Tier-III cities have seen an increase to 49 per cent from 24 per cent over the same period, the report said.
India’s Tier-II, Tier-III, and rural regions are now overtaking metros as the primary demand centres for health insurance.
Policybazaar data shows that the share of policies sold in Tier-II and Tier-III was 23 per cent and 31 per cent respectively in FY22, rising to 38 per cent so far in FY26.
Meanwhile, Tier-I’s share has declined to 38 per cent from 46 per cent in FY22.
The shift is driven by rising awareness, easier digital access, and increasing affordability.
The first-time buyer base is rapidly expanding outside metros, the insurance aggregator said.
Siddharth Singhal, Head of Health Insurance at Policybazaar, said, “India’s health insurance growth is increasingly being driven by Tier-II and Tier-III markets, which now account for a majority of new policy purchases.
"What is encouraging is not just the scale of adoption, but the shift in quality — customers in smaller towns are opting for higher sum insured covers, modular plans, and flexible payment options like EMIs.
"This reflects a deeper understanding of healthcare costs and a more structured approach to long-term health protection beyond metros.”
Customers in these regions are increasingly opting for higher sum insured plans.
In Tier 2 cities, the share of customers choosing Rs 10–14 lakh coverage has risen from 27 per cent in FY22 to 47 per cent so far in FY26.
In Tier 3 cities, the share has increased from 24 per cent to 49 per cent.
High-value covers of Rs 15 lakh and above, previously negligible, have also seen significant adoption.
“With GST no longer impacting premiums, families are not only buying protection products more confidently but are also opting for riders and add-ons that were previously avoided due to cost considerations.
"Add-ons such as consumables cover, cumulative bonus, room-rent relaxation, and OPD are being purchased at extraordinary rates across the country,” the aggregator said.
Affordability has improved due to the growing adoption of monthly premium payments.
The EMI model—launched in FY23—recorded 41 per cent growth in adoption in Tier 3 regions, 38 per cent in Tier 2 regions, and 29 per cent in Tier 1 cities.
Monthly instalments have enabled young earners, self-employed individuals, and families in smaller towns to access higher-value covers without straining their budgets.
