Yes, you can put insulation over LED downlights. However, not all LED downlights can be covered with insulation. Since LED downlights produce heat, LED downlights can still catch fire.
IC rating stands for Insulation Contact. An IC rating measures whether insulation can surround a downlight or not. Downlights that have an IC rating can be covered by home and building insulation. This allows the light fitting to come in contact with the insulation.
A non-IC rating is a downlight or other light fixture that cannot have direct contact with insulation. Most fixtures need about 3 inches between the fixture and the insulation to prevent overheating and a potential fire.
No, you do not need fire rated downlights. Whether you need them or not depends on the ceiling you are installing on. It is important to be aware of potential building regulations because many regions require the installation of fire-rated downlights. This is to prevent fire from spreading quickly in concealed places. Consult with your local housing authority to know the current code rules.