How Budget 2025 can increase the number of insured Indians and fund infra goals

Insurance regulator IRDAI has set a target of ‘insurance for all’ by 2047, in which every citizen has appropriate life, health and property cover and every enterprise is supported by appropriate insurance solutions. To achieve this goal, IRDAI has introduced various initiatives, creating a supportive and a forward-looking regulatory architecture, leading to wider choice, accessibility and affordability for policyholders.

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In the upcoming Union Budget 2025-26, the government could look at giving a fillip to this mission by accelerating its support to the insurance sector with some key announcements.

• Buying health insurance early on: The government could look at incentivising first-time health insurance buyers, especially those below the age of 30. This would nudge more Indians to buy health insurance early on. The government could look at offering a multiplier-based tax deduction (for example: 150% of premium paid) to everyone below the age of 30. A similar incentive could be extended to first-time insurance buyers, but only as a one-time tax benefit.
• Protecting the golden years: India confronts a significant retirement challenge as many individuals don’t make adequate financial preparations for their later years. Pension or annuity proceeds are currently taxed at the slab rate. Considering retirees have little or no income, and high medical costs, the government could look at making income from such retirement plans tax-free. Making pension payouts tax-free would give them EEE status (exempt exempt exempt), in line with the Public Provident Fund (PPF).The government could also look at aligning life insurance annuities or pension products with the National Pension Scheme (NPS), allowing an additional income-tax deduction of ₹50,000 or more for these products. This would encourage more people to secure their post-retirement financial needs through life insurance annuities or pension products.

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• Worry-free travel: The government is promoting domestic tourism through its ‘Dekho Apna Desh’ initiative. As people travel more, they will also have to be encouraged to buy travel insurance. The Budget could thus make premiums paid towards travel insurance exempt under the Leave Travel Allowance.
• Insuring more vehicles: than half of vehicles in India are still uninsured even though third-party motor insurance is compulsory. There could be various reasons for this, including costs, negligence or simply a misguided belief that insurance is not required. The government could incentivise owners of such vehicles to buy insurance with a one-time tax exemption for renewing their insurance policies.
• Protecting homes: The world is seeing a staggering rise in natural calamities such as earthquakes, landslides and floods. India has seen many catastrophes in the past few years, ranging from floods in Assam and Uttarakhand to cyclones in Gujarat, Maharashtra, Odisha and other states.Catastrophic events can cause severe hardships in various dimensions of life, impacting individuals financially, physically and socially. To address this issue, the government could provide a separate limit for deduction up to ₹25,000 paid for property insurance. Alternatively, it could consider directing the Real Estate Regulatory Authority (RERA) to make home insurance compulsory for homeowners when buying the property.
• Parity in non-par products: To incentivise long-term financial savings and use these savings to fund the growing need for infrastructure development, the government could look at changing the taxation of non-par products.Currently, for policies with premiums beyond ₹5 lakh, the maturity proceeds are treated as part of the individual’s income and taxed at the applicable rate. The government could look at changing this by introducing long-term capital gains taxability for all high-value traditional life insurance plans (with an annual premium of more than ₹5 lakh).

  This would bring in uniformity and tax efficiency for insurance customers, making life insurance products competitive with other financial products and providing a reliable source of capital to fund India’s infrastructure needs.

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• Relief measures: The government could also look at providing relief to insurance companies or intermediaries. It could consider increasing the threshold limit for TDS on commissions paid to agents (under Section 194D of the act) from ₹15,000 to ₹1 lakh. This would not only reduce the administrative burden on the tax department from processing refunds, but also increase the disposable income of agents. The government could increase the carry-forward and set-off of losses from eight years to 12 years since it takes time for insurance companies to break even.
• Raising awareness: The government could also look providing budgetary support for nationwide campaigns to promote insurance literacy and spread awareness about the benefits of insurance, particularly in semi-urban and rural areas. The government could also mandate microinsurance coverage to all beneficiaries of government flagship programs such as PM Kisan or MGNREGA.

By addressing these expectations, the government could accelerate the insurance sector’s contribution to financial inclusion, economic growth and societal resilience. These measures align with the vision of ‘insurance for all’ by 2047 and support India’s journey in becoming a global economic powerhouse.

Parimal Heda is chief investment officer, Go Digit General Insurance. The views expressed are his own.