The life insurers on Thursday welcomed the hike in foreign direct investment cap to 49 per cent from the present 26 per cent but were apprehensive of the service tax on life insurance.

"Increase in the FDI limit by the government is a welcome move. Raising the cap will not only bring more money but also help in expanding the industry," Aviva managing director Stuart Purdy said in a statement.

He pointed out that, at present, of the Rs 3,179 crore (Rs 31.79 billion) capitalisation of private life insurers in the country, only Rs 827 crore (Rs 8.27 billion) was through FDI.

Aviva said the increase in FDI cap would further expand the market and bring in more products and services to the customers.

ING Vysya CEO Frank Koster said higher FDI limit was "eminently" sensible in a venture that requires a lot of capital, deep insurance expertise and takes a long time to turn profitable and promised that it would take initiatives to develop the life market to next level.

Welcoming the hike in FDI cap for insurance sector, AMP Samnar vice-chairman S V Mony said it would encourage more players who were waiting to come in the market, adding it would pump in more resources.

However, the insurers apprehended the proposal to levy service tax on risk premium portion of life insurance premiums.

"While we support the widening of tax base in principle, the implementation of this proposal (on service tax) may have certain practical difficulties as calculation of risk premium in a saving-cum-protection policy," Koster said.