As India prepares for the Union Budget 2026-27, the life insurance sector is advocating for key reforms to enhance retirement coverage and make insurance more affordable. Industry leaders are calling for a shift in how insurance is perceived, from a tax-saving tool to a fundamental component of long-term financial security.
The Push for Tax Parity
A primary request from life insurers is for more consistent and equitable tax treatment across different financial instruments. Tarun Chugh, MD & CEO of Bajaj Life Insurance, suggests aligning the taxation of insurance annuities with other pension products. This could eliminate distortions that currently influence customer choices, where individuals prioritize tax outcomes over suitability when selecting retirement solutions. Taxing only the returns on annuity payouts and extending comparable deductions would create a level playing field for insurance-based retirement options. The industry also seeks simplification of taxation across traditional and unit-linked life insurance policies to encourage informed decision-making.
Echoing this sentiment, Parag Raja, Managing Director and Chief Executive Officer, Bharti AXA Life Insurance, has said that the Budget 2026 is an opportunity to strengthen life insurance adoption by recognising the pivotal role of annuity payouts in a country without a formal social security system.
Affordability and Access
The insurance industry recognizes that affordability, trust, and access are critical challenges. With insurance penetration remaining low at around 3.7% of GDP, there is a significant opportunity to make insurance a foundational element of household security. Sumit Madan, chief executive of Axis Max Life Insurance, wants the Budget to take measures to strengthen households' financial security. He suggests that enhancing affordability through simpler, higher, and inflation-aligned tax incentives under Sections 80C, 80CCC, and 80CCD can play a critical role in reviving long-term savings and insurance adoption. Madan also advocates for a separate tax deduction for pure term insurance, outside the existing 80C framework, to address India's persistent protection gap and reinforce life insurance as a foundational pillar of a resilient economy.
Sajja Praveen Chowdary, director at Policybazaar, suggests offering GST relief on health insurance and other employee insurances to MSMEs, which employ a significant portion of the workforce at the lower end of the income spectrum.
Retirement and Long-Term Savings
The life insurance sector is emphasizing the importance of positioning insurance as a core retirement and savings instrument. This involves advocating for policy support to deepen insurance penetration among underserved segments. There are calls for tenure-linked tax incentives, with benefits linked to minimum policy holding periods to reinforce long-term savings behavior. Experts are also looking for stronger incentives to encourage more people to plan for retirement early, such as an increase in the additional NPS deduction under Section 80CCD(1B) to ₹1 lakh, availability of NPS benefits under the new tax regime, and simpler tax treatment on withdrawals.
Industry Growth and Projections
The Indian insurance sector is poised for strong growth in the coming years. Swiss Re forecasts that the Indian insurance market will grow at an annual rate of 6.9% between 2026 and 2030, outpacing major emerging and advanced markets. Life insurance is expected to grow by 6.8% annually over the next five years, driven by expanding distribution networks, increasing demand for retirement products, and credit growth. Gross written premium is anticipated to exceed $121 billion by 2026. This growth is supported by strong macroeconomic fundamentals, rising consumer demand, and regulatory reforms.
