Next month, the Indian economy will enter the last quarter of the current financial year 2017-18. The quarter is popularly known as JFM when all the financial institutions step up their activities to meet their respective targets by March 31. The scene of the previous financial year will be repeated and the show will go on till performance evaluation remains the year-end ritual. In the BFSI sector, intense competition and high voltage activities will mark the run up to the end of the fourth quarter. So far as life insurance is concerned, there will be intense competition with various other institutions offering different and even highly safe and attractive products. It is usually believed by the intelligentsia that it is the tax saving incentive that drives productivity in the last quarter. They also think that saving on income tax is the sole motivation to buy a life insurance policy.
Tax savings fund
It is, however, interesting to note that there are at least 10 other attractive financial tools to save income tax. Insurance is considered to be a push product but there are several pull products available in the market and the prospective customers have the liberty to embrace any of them if the motive is only tax saving. The equity linked savings scheme (ELSS) managed by several mutual funds offers tax incentive similar to life insurance and several other products. Investment up to Rs 1.5 lakh in ELSS qualify for tax relief. The lock-in period is three years only and the return for the investor is 12-15%. The ELSS fund managers generally invest upto 65% of the fund in equities and ensure a decent yield. Compared to this, the return on investment under the ULIP policies issued by the insurers is generally lower because the entire premium is not invested in the market. Only the balance amount after deducting the increasing mortality charges and the fund management charges are invested. Hence the net yield for a policyholder is below what is displayed as the yield of the fund on company’s website.
On the other hand, there are options such as the PPF, EPF, NSC, NPS and five-year fixed deposits of banks which offer distinctively higher returns and investor can save as much as Rs 45,000 of income tax otherwise payable on his income. These products are available on tap with far simpler procedure to transact with the providers. Almost all of them are available across the counters of banks or post offices. Compared to all these avenues to save on income tax under Section 80C of the I-T Act, buying a life insurance policy is generally a cumbersome process and 99.9% prospective customers avail themselves of the services of an intermediary. On the other hand, competition among tax saving products has intensified with the entry of Sukanya Samriddhi Yojana and Senior Citizen’s Saving Scheme. Tax rebate on the principal amount of housing loan repaid every year is another silent competitor to all other avenues as generally people would limit their investment in other products to the balance amount in hand after repaying principal portion of housing loan every year out of the Rs 1.5 lakh maximum eligible for tax rebate.
Selling life insurance
At the end of each financial year, however, the scenario is very different and worth comparison though some financial pundits may look at this exercise as odious. The life insurance industry sold 1.06 crore policies and collected Rs 58,604 crore during the last quarter of FY17. The mutual fund industry collected only Rs 8,216 crore through 7.40 lakh new folios under ELSS scheme even though the stock market had been registering healthy growth during the same period. Similarly, all other saving avenues remained far behind the life insurers and disproved the opinion that life insurance is the least attractive and rewarding of investment avenues. This trend year after year proves that life insurance is not bought for tax savings only. In India life insurance is being adopted by the vast majority of the people for its own intrinsic value as a hedge against unfortunate and unexpected events. The last quarter is always the most productive because during this quarter all concerned work hard to accomplish their respective targets and potential buyers see long-term advantage in the plans offered by the insurers. Life insurance is the ultimate winner in the final quarter of every financial year irrespective of whatever deficiency the critics may find in the product. Sale of insurance on such a vast scale proves that it is one of the finest financial products to protect dignity of people in the worst of the circumstances.
The writer is former MD & CEO, SUD Life