​The Union Budget 2025 introduced several reforms aimed at benefiting individual tax payers and corporations across various sectors. Among these, the reforms in the insurance sector stand out to be significant.

So, what exactly are the reforms introduced for insurance companies in the 2025 budget? How will it impact the insurance sector as a whole? Most importantly, how will it affect consumers like us? Let us explore India's Budget 2025 in this regard.

Union Budget 2025 - The FDI Move on Insurance Companies​

One of Budget 2025 highlights is the announcement on the FDI limit for the insurance sector raised from 74% to 100%.

Conditions Applicable to this Reform of Budget 2025 in India​​

This increased FDI limit will be applicable only to insurance companies that invest their entire premium in India. The conditions currently applicable will be simplified after reviewing it in detail.

Why was this Enhanced FDI Limit introduced to the Insurance Sector​​?

• Lower Insurance Penetration- Insurance penetration, calculated as the percentage of insurance premium to GDP, has decreased from 4% to 3.7% in FY 2023-24. It is also lower compared to the global average of 7%.
• Lower Insurance Density- Insurance density, calculated as the ratio of premium to population, has increased from $92 to $95 in FY 2023-24. However, it is lower than the global average of $889.
• Lack of Significant Improvement- The reduced insurance penetration and density shows that the insurance coverage relative to the population and economy size in India is not significant.
• Need for Growth- The relatively low penetration level in India is mainly because of a lack of awareness and financial constraints. This compels the need for strategic growth and development in the insurance industry.

How does this Budget announcement 2025 help insurance compa​nies?

• Boosts Capital Inflow- The increase in the FDI limit will attract foreign investors to the insurance sector. This will increase the financial inflow for the insurance companies, strengthening their financial stability. It will also support the growth of their operational activities.
• Improves the Insurance Industry - The 2025 Budget reform will also create opportunities for greater competition among the insurance companies. This will further drive them to adapt better technology, introduce innovative products and improve customer service.
• IRDAI Regulatory Framework- Although FDI inflows can change insurance offerings and technological advancements, IRDAI will ensure that it is in the best interest of the policyholders.
• Inclusive Growth- We have seen that Budget 2025 in India aims to introduce development initiatives that target inclusive growth. So, these reforms will also ensure inclusive growth to benefit the Indian society at large.

Union Budget 2025 - How Does it Affect Insurance Buyers?​

• More Insurance Products- With the increase in the FDI limit and foreign inflow, insurance companies will bring in more products, introduce enhanced features to stay competent in the industry. So, you will have the option to compare and choose from a host of products that aligns with your requirements.
• Attractive and Affordable Price- With the increase in competition, insurance companies will offer products with competitive prices. You can compare products, calculate premiums and choose the most affordable product.

New Tax Rule 2025 for ULIPs​​

Another key announcement from the 2025 Budget states that gains from Unit Linked Insurance Plans (ULIPs) that do not qualify for exemption under Section 10(10D) will now be subject to capital gains tax. This change puts ULIPs on par with equity-oriented mutual funds in terms of taxation.

While this does not change the premium amount, it may influence investment decisions, as policyholders may consider their ULIP contributions based on the revised tax implications.

How to Choose the Most Affordable Insurance Plan?​​

• Assess your Requirements- Whether you are planning to purchase car insurance, health insuranceor a travel insurance policy, ensure that you analyse your needs.
• Compare Products- Look out for the various products available in the market and compare them based on their features, benefits, and premiums.
• Examine Additional Coverage- Optional add-ons offer enhanced coverage for specific needs. Insurers like Reliance General Insurance offer various add-ons at affordable prices.
• Compare Claim Settlement Ratio- Determine the claim settlement process and the claim settlement ratio to ensure you go through a seamless claim process.
• Review Customer Feedback- Check customer support services and review customer feedback to make sure you have a hassle-free insurance experience.
• Look for Digital Processes- Many insurance providers now offer app-based services to help manage all your insurance needs with just a few clicks. For example, with Reliance Self-i App you can renew your policy, initiate claims, find network hospitals and garages and much more, any time, anywhere.
• Determine Premium- Calculate the premium, considering these factors, using online tools offered by insurers to decide on the most affordable product.

Wrapping Up​​

Under the Union Budget 2025, the FDI limit applicable to the insurance sector is increased from 74% to 100%. This move will increase the foreign financial inflow to the Indian insurance industry.

With this move, insurance companies will get access to foreign financial investments that can boost their performance and growth in the industry. They will be able to introduce more products, adapt to new technologies and offer better services.

This introduces competition among insurance companies and encourages them to offer a variety of products at affordable premiums. Finally, it will bring opportunities for policyholders to seek insurance products with affordable premiums.