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Union Budget 2026 aims to boost India’s insurance sector with tax parity, micro-insurance for rural masses, cyber security upgrades, and higher senior citizen health cover.
Thus, budget measures can significantly boost insurance and micro-insurance uptake in India by reducing costs and enhancing accessibility for low-income groups.
India’s insurance sector comes into the Union Budget 2026 with strong tailwinds from the wide-ranging reforms of 2025, but low penetration still demands more decisive actions. While premiums showed growth of 7.7% at Rs 11.2 lakh crore in FY24, all stakeholders are asking for policy measures to lift penetration from 3.7% closer to global 7% standards by targeting the under-penetrated ‘Missing middle’ and the rural masses.
Thus, budget measures can significantly boost insurance and micro-insurance uptake in India by reducing costs and enhancing accessibility for low-income groups. The expectations from Union Budget 2026 are:
Tax Parity for Annuities: Parity in the tax treatment of annuities is a key Budget 2026 ask. Aligning annuities with NPS by exempting TDS on retirement payouts can help create a uniform tax regime and boost demand, especially as India’s senior population is expected to reach 20% by 2050. Bringing high-value traditional insurance products and ULIPs under a common premium framework will simplify investment choices, reduce tax arbitrage, and encourage more household savings to move into long-term protection.
Higher premium deductions and incentives will also ease claims for home and MSME insurance, supporting the need for adequately priced coverage. Together, these measures can drive sustainable growth in the insurance sector and for consumers.
Micro-Insurance Push: A focused push for micro-insurance in Budget 2026 should include exemption from stamp duty and related charges for rural insurance products priced below ₹500 per year, on the lines of PMJJBY. This can help extend coverage to nearly 40 crore underserved citizens. In addition to this, enabling partnerships with microfinance institutions, NGOs, and Common Service Centres (CSCs), along with easy-to-use IRDAI-approved product templates, will also accelerate distribution.
Improving cyber security infrastructure for insurance: The budget should look at funding AI surveillance, data analytics, and Insurance Information Bureau integration to combat fraud and mis-selling. By increasing hiring by 20-30% for trained staff in risk-based capital and governance, there can be more data protection and right insurance outreach for customers across the industry.
Higher Tax Relief for Senior Citizens Health Insurance: In Union Budget 2026, strong expectations remain around increasing income-tax deduction limits for senior citizens’ health insurance under Section 80D. Rising healthcare costs and medical inflation have made the current ₹50,000 cap inadequate. Stakeholders are urging the government to enhance the limit to ₹1 lakh, extend benefits under the new tax regime, and encourage wider insurance coverage for India’s ageing population.
Budget 2026 should also support parametric insurance models with co-funding and flood/heating data pools to provide quick claims to vulnerable farmers and MSMEs without screening. On the other hand, making employer group hospital covers mandatory in MSMEs, setting up new motor claims tribunals to deal with 4.81 lakh accidents each year, and enhancing bancassurance sum insured limits will make access easy, reduce disputes, and scale up coverage to support Indian MSMEs.
Looking ahead to Budget 2026, the insurance sector expects policies that build on strong reform momentum of 2025 and translate into wider and more effective protection for citizens. Separating tax benefits for protection from savings-linked insurance would help close India’s protection gap, attract first-time buyers, and encourage people to prioritise risk cover over investment-oriented policies. The industry also looks forward to progress on composite licensing, which would allow insurers to offer life, health and general insurance under a single framework and can improve efficiency, reduce operational costs, and support the development of simpler, bundled products that are easier for customers to understand and afford. A Budget focused on affordability, trust and access can help advance the vision of Insurance for All by 2047.
The views expressed in this article are those of the author and do not represent the stand of this publication.
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January 28, 2026, 16:51 IST
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