With Union Budget 2026 around the corner, expectations from the insurance sector are being shaped by the sweeping reforms announced last year. The government’s decision to allow 100% foreign direct investment (FDI) in insurance under the Sabka Bima Sabki Raksha framework marked a major structural shift, improving capital availability, global competitiveness, and product diversity.

However, industry leaders caution that capital infusion alone will not address the sector’s long-standing challenges.

“The reform momentum of 2025 was significant, but the real test now is whether it translates into wider and more effective protection for citizens,” said Prantik Mitra, Director, Client Advisory Group at Alliance Insurance Brokers.

Focus Needed on Affordability and Trust

Experts point out that despite regulatory progress, insurance penetration in India remains low, largely due to affordability issues, complex product structures, and persistent mis-selling. Trust deficits continue to discourage first-time buyers, especially in life and health insurance.

Mitra noted that measures such as GST exemptions on individual life and health insurance premiums could significantly improve access while also enhancing transparency and regulatory efficiency.

Call for Protection-Led Tax Incentives

One of the key expectations from Budget 2026 is the introduction of higher and clearly defined tax incentives for pure protection products, particularly term life insurance. According to industry voices, separating protection from investment-linked policies could help close India’s widening protection gap and encourage households to prioritise risk cover over savings-oriented insurance products.

Such reforms could also attract new policyholders and expand coverage among underinsured segments of the population.

Structural Reforms Beyond Taxation

Beyond tax incentives, the industry is also pushing for progress on composite licensing, which would allow insurers to offer life, health, and general insurance under a single regulatory framework. This could reduce operational costs, improve efficiency, and enable insurers to design simpler, bundled products that are easier for customers to understand and afford.

The Road Ahead

For policymakers, the message is clear: while FDI reforms have created momentum, Budget 2026 must focus on affordability, trust, and access to translate reforms into real protection for citizens.

A budget that builds on last year’s ownership reforms while correcting product incentives and distribution gaps could help India move closer to its long-term goal of Insurance for All by 2047—a milestone that cannot be achieved through capital reforms alone.