100% FDI in Insurance: What rule says? What will be its impact?

The Finance Ministry last week notified 100% foreign direct investment (FDI) in the insurance sector under the automatic route.

What the bill says?

While 100% foreign investment will be allowed in insurance companies and intermediaries, including brokers, under the automatic route, the cap is 20% for Life Insurance Corporation (LIC), said the Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2026.

What will be its impact?

"The government's decision to allow 100% FDI in insurance through the automatic route is a structural reform that directly benefits Indian consumers. While FDI at 74% invited global insurers for a majority stake, this step will make all the difference in terms of enhancing technology, product design and long-term commitment in the market. It matters the most for the insurance penetration gap that we are trying to bridge in India. The awareness is rising and so is the demand, Amit Chhabra, CBO - General Insurance, Policybazaar

A 100% FDI permit will now ensure the right kind of supply-side investment to meet both. With greater foreign participation, we can now expect sharper products, better affordability and deeper distribution.

The Parliament had passed the Sabka Bima Sabki Raksha (amendment of insurance laws) Bill, 2025, in December, 2025, paving the way for hiking the FDI cap in the insurance sector to 100 per cent under the automatic route, from 74 per cent earlier.

Subsequently, after the President's assent, the Bill became law.

Thereafter in February, 2026, the Department for Promotion of Industry and Internal Trade (DPIIT) under the Commerce and Industry Ministry had notified 100 per cent FDI in the insurance sector.

‘Tax benefit removal under new tax regime hits life insurance sales’

The issuance of new life insurance policies in India has declined following the removal of tax deduction benefits, said Deepak Parekh, Former Chairman of HDFC Bank, noting how policy changes under the new tax regime have impacted consumer behaviour.

Parekh said that life insurance earlier saw strong growth largely because premiums qualified for tax deductions. "Insurance was growing rapidly because the amount of premium you paid was allowed as a deduction from your income... But now that benefit is removed, new insurance policies have come down because of the tax benefit being removed," he said.

The change is linked to the introduction and expansion of the new tax regime, which became the default option from April 1, 2023. Under this system, key deductions such as Section 80C -- which allowed tax benefits on life insurance premiums and certain bank deposits -- and Section 80D -- for health insurance -- are no longer available.

Additionally, for policies issued after April 1, 2023, maturity proceeds are taxable if annual premiums exceed ₹5 lakh, although death benefits remain tax-free.