Life insurance is already the most popular financial product among Indians because of the tax benefits and income protection it offers in a country where there is no social security.

But with household earnings accelerating in the fast-growing economy, the life insurance income premiums market could double from 40 billion dollars to 80 billion or even 100 billion dollars by 2012, said McKinsey Co in a report.

"All factors are in place for the Indian life insurance industry to blossom into one of the fastest-growing financial services markets in the world," said report co-author Tilman Erhbeck.

"At the size of the market we're talking about and potential the only one with similar potential is China," he said. "The next five years will be very exciting."

Key to insurers' enthusiasm about India is its increasing affluence, aging population and low penetration of insurance coverage at a time when the market in industrialised countries is relatively saturated.

The potential in the country of 1.1 billion people can be seen from the fact the ratio of life insurance premiums to GDP -- a common measure for penetration -- is 4.1 per cent, far lower than developed market levels of 6-9 per cent.

"This will change as India sees strongly accelerating household income and a more favourable demographic profile over the next two decades," Erhbeck said.

Household disposable income is seen rising by 5.3 per cent annually, much more than the 3.6 per cent annual growth over the past two decades.

"With increased GDP growth there will be more income for consumers to put into life insurance," said Erhbeck.

"Our research suggests the life insurance industry could witness a rise in insurance sector premiums to between 5.1 and 6.2 per cent of GDP in 2012 from 4.1 per cent."

Demand for pension cover is also seen rising, with 113 million Indians expected to be over 60 by 2016, a figure seen swelling to 179 million by 2026.

"There is an untapped opportunity" in pensions where life insurance players have no meaningful presence, said the report.

Just 10 to 11 per cent of India's working population is covered by formal old-age social security schemes.

There are currently close to 30 public and private firms in India's insurance market with state-owned Life Insurance Corp of India (LIC) still holding a stranglehold of over 70 per cent.

But private players have moved aggressively, chasing for business after being allowed to compete with LIC in 2000. And overseas insurers have raced into the market despite rules limiting foreign direct investment in domestic insurers to 26 per cent.

Last week, global bank HSBC Holdings signed a deal for an insurance venture with two state-run Indian banks, gaining access to over 40 million customers.

HSBC will hold a 26-percent stake -- the maximum allowed to overseas insurance partners -- while India's Bangalore-based Canara Bank will take 51 percent. The rest will be held by Oriental Bank of Commerce.

Oriental Bank chairman Alok Mishra was upbeat about prospects, calling life insurance penetration rates in India "dismally low."