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Navigating the Increased FDI in Life Insurance: What Policyholders Need to Know

Finance Minister Nirmala Sitharaman presented her 8th consecutive budget which had major reform announcements for the insurance sector. An increase in the Foreign Direct Investment (FDI) limit from 74% to 100% indicates a massive transformation for the insurance industry in the coming decade. [1] Read More

The revised limit, however, will only be available to those global insurers who will invest the entire premium in India. To put this in force, there will have to be amendments made to the Insurance Act 1938, the Life Insurance Corporation Act 1956, and the Insurance Regulatory and Development Authority Act 1999 [1] .

With this move, the Government is looking to liberalise the sector and allow stable capital inflow, exchange of technology, expanding outreach and better-quality products for Indian consumers. Read Less

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Written ByShruti gujarathi
AboutShruti gujarathi
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Shruti gujarathi has 5 years of experience in the BFSI sector, and as Manager- Digital Marketing at Bajaj Allianz Life Insurance, manages digital and content marketing. She has had hands-on experience in content strategy, performance marketing and Strategic Alliances over a career spanning 10 years.
Reviewed ByRituraj Singh
AboutRituraj Singh
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Rituraj Singh,With over 6.5 years of experience in the insurance industry, Rituraj Singh, Manager- Product & Brand Marketing at Bajaj Allianz Life Insurance overlooks new product launches, compliance, and brand projects, leveraging artificial intelligence and technology to enhance outcomes.
Written on: 31st March 2025
Modified on: 1st April 2025
Reading Time: 13 Mins
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What is Foreign Direct Investment or FDI?

When a company takes controlling ownership in a business in a different country, it is known as foreign direct investment (FDI). By entering a new market via FDI, the foreign company can be directly engaged with the day-to-day business operations in the other country[2] .

Usually, FDI comes into being when a company sets up foreign business operations or acquires foreign business assets. Along with the money, these companies also bring with them their knowledge, skills and technology for transfer. FDI is a huge factor to set up stable and long-lasting relationships between world economies for global economic integration[3] .

FDI in India

Liberalisation of the Indian economy began in 1991 and has since attracted FDI inflows into the country. At present, India ranks number 1 in the greenfield FDI ranking and is part of the top 100 nations for ‘ease of doing business’.A country that receives a substantial amount of funds from foreign investors regularly has more chances to build a vibrant economy [4] .

In the case of India, FDI inflows have shot up by 20 times from 2000-2024. As per data given by the Department for Promotion of Industry and Internal Trade (DPIIT), cumulative FDI inflow for India is at US$ 1.03 trillion between April 2000-September 2024. This can be attributed to the government’s efforts at enhancing ease of doing business and reworking FDI norms. The total FDI inflow into India in the period from July 2024-September 2024 is $19.8 billion [5] .

How Does FDI work in India

There are two routes through which India processes FDI - Automatic and Government.

Automatic: The automatic route is for non-resident or Indian companies that are not obligated to need a prior permit from the Reserve Bank of India or Government for FDI. Sectors such as Agriculture, Automobile, Pharmaceuticals, Airports, among others operate in the ‘100% automatic route’ category.

Government: For companies coming via the government route, approval is compulsory. The firm will be required to file out an application via Foreign Investment Facilitation Portal, which is then forwarded to the relevant ministry to approve or reject the application. The concerned ministry consults with the Ministry of Commerce and Department for Promotion of Industry and Internal Trade (DPIIT) to decide if the application goes forward. Sectors which come under the ‘100% government route’ include banking and public sector and broadcasting content services [2] .

100% FDI in Insurance

In an effort to achieve the Insurance Regulatory and Development Authority of India's (IRDAI) goal of achieving "Insurance for All" by 2047, the Union budget 2025* has increased the FDI limit in insurance to 100%. This move will allow complete foreign ownership and is expected to garner more long-term capital and enhance insurance penetration in the country. The existing rules and conditions pertaining to foreign investment , Finance Minister Sitharaman clarified, will be reviewed and simplified. [6] .

Potential Benefits to Policyholders

  1. Improved Products and Customer Service

    By having more global entrants into the Indian insurance landscape, there is bound to be intense competition. When there are more players, it leaves more options for policyholders to choose from. This situation prompts players to offer better quality products to consumers. This also means that there will be more customer outreach helping in resolving the issue of low insurance penetration in India [7] .

  2. Innovation and Technology

    FDI inflow also means that foreign companies will be coming with their knowledge and technical prowess. There will be an exchange of technology and access to global best practices which will lead to advanced innovation that could lead to broader coverage in insurance products [8] .

  3. Drive down costs

    With more players in the fray, it can be expected that it will bring down policy costs and hence, make insurance affordable for many. It can also mean that there might be improvements in existing policy approval processes which means consumers can avail insurance in a more seamless way [8] .

Key Considerations

While allowing 100% FDI in insurance has been a long pending industry demand, it will come with its own set of challenges. There is a risk that local businesses could struggle to compete as larger corporations expand their presence in the market. [4] . However, the government has anticipated these concerns and IRDAI will be continuing to oversee the sector and ensure compliance with Indian laws. The focus of the move is to promote growth while ensuring interests of policyholders are met [7] .

Preparing for regulatory challenges will be crucial to ensure this liberalized announcement serves the purpose of growth. The government will also have to prepare for the spurt in business in the sector and develop an ideal physical and digital infrastructure to facilitate it. However, 100% FDI in the insurance sector is representative of the government’s vision to shift policy and transform the insurance landscape.

 

References:

 

[1]https://www.deccanherald.com/business/union-budget/union-budget-2025-govt-set-to-hike-fdi-limit-for-insurance-sector-to-100-3384223

[2]https://www.business-standard.com/about/what-is-fdi

[3]https://www.investopedia.com/terms/f/fdi.asp#citation-9

[4]https://groww.in/p/foreign-direct-investment

[5]https://www.ibef.org/economy/foreign-direct-investment

[6]https://www.ibef.org/news/the-government-allows-100-foreign-direct-investment-fdi-in-insurance-companies-in-a-move-that-could-attract-more-players-help-increase-penetration

[7]https://economictimes.indiatimes.com/news/budget-faqs/budget-2025-fm-announces-100-fdi-in-the-insurance-sector-all-you-need-to-know/articleshow/117833675.cms?from=mdr

[8]https://www.lexology.com/library/detail.aspx?g=7826f891-0c79-4977-a4b1-d304ae233efa

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The views stated in this article are not to be construed as investment advice and readers are suggested to seek independent financial advice before making any investment decisions. Bajaj Allianz Life Insurance Company Ltd., Regd. office Address: Bajaj Allianz House, Airport Road, Yerawada, Pune - 411006, Reg. No.: 116, CIN: U66010PN2001PLC015959, Call us on toll free No.: 1800 209 7272, Mail us: customercare@bajajallianz.co.in

* The above content is subject to the passing of the Finance Bill 2025 in the parliament.

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*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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%%Above illustration is for Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V03) considering Male aged 25 years | Non-Smoker | Policy Term (PT)– 30 years | Premium Payment Term (PPT) – 30 years | Sum Assured opted is Rs. 1,00,00,000 | Online Channel | Standard Life | 1st Year Premium is Rs. 6,238. 2nd Year onwards premium is Rs. 6,659. Total Premium Paid is Rs. 1,99,349 | Medical Rates | Yearly Premium Payment Mode | Death benefit opted is lumpsum payout and monthly installments (Lumpsum Payout Percentage : 45, Income Payout Percentage : 55) | Premium shown above is exclusive of Goods & Service Tax/any other applicable tax levied, subject to changes in tax laws, and any extra premium and is for illustrative purpose only. This is inclusive of all the discounts mentioned above.

##Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

@Term Insurance plan bought online directly from Bajaj Allianz Life Insurance has no commissions involved.

^^The Return of Premium amount is total of all the premiums received, exclusive of extra premium, rider premium and GST & /any other applicable tax levied, subject to changes in tax laws
Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116

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Disclaimer

Bajaj Allianz Life eTouch- A Non Linked, Non-Participating, Individual Life Insurance Term Plan (UIN: 116N172V04)

*Tax benefits as per prevailing Section 10(10D) and Section 80C of the Income Tax Act shall apply. You are requested to consult your tax consultant and obtain independent advice for eligibility before claiming any benefit under the policy.Above Tax benefit is calculated considering deduction of Rs. 150,000 and applicable tax rate of 31.20%.

~Individual Death Claim Settlement Ratio for FY 2023-2024

1Premium Holiday has to be selected at inception to avail this benefit and also depends on other policy terms & conditions


Bajaj Allianz Life Insurance Co. Ltd. | IRDAI Reg. No. 116


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