In the upcoming budget, life insurance companies are demanding a few alterations in the regulatory system that can play a major role in the immediate growth of the life insurance sector.
In over a week from now, Finance Minister Arun Jaitley would present the annual Union Budget 2019 which will be an Interim Budget before the general elections 2019. This year’s budget holds great significance as it will be current government’s last budget to be presented just before the Lok Sabha elections and the government in power will try to give maximum benefits to the people in order to win their trust.
On the heels of the current scenario, the life insurance industry of India is seeking higher tax exemptions, separate section under the Income Tax Act, GST waiver for Pure Protection Plans, Lock-in period of ULIPs to be reduced to 3 years, and a lot more in the upcoming Interim Budget as it will help in increasing insurance penetration in India.
Life insurance industry experts believe that the required awareness about the true purpose of life insurance in India is comparatively low among the people. A recent report states that with a population of over 133 crore, the country’s life insurance penetration rate is even less than 3% of the entire GDP. Moreover, the premium recovered from term insurance is currently even less than 1% of the total premium received from the entire life insurance industry. This disparity is equally responsible for bridging a wide gap in the Sum Assured value that exists in the country. In the upcoming budget, life insurance companies are demanding a few alterations in the regulatory system that can play a major role in immediate growth of the life insurance sector.
First, the insurers are demanding that a separate section must be created under the Income Tax Act (over and above 80C) that gives tax rebate to the people on premium paid towards Pure Life Insurance policies. Second, a GST waiver must be approved for Pure Protection Plans that includes both Term Life and Health. Most insurers firmly believe that it is in the government’s interest to promote such protection plans (Term Life and Health) by making GST zero so that more and more people personally prefer taking protection plans for a secured future. Currently, the GST of 18% implied by the government is pretty high from a customer’s point of view.
Another major change that insurers are demanding is in the Unit Linked Insurance Plans that are gaining quick popularity among people who are looking for long-term investment-cum-insurance products. People have finally started feeling excited to invest into ULIPs that give dual benefits of insurance cover and market-linked returns and are available as zero-commission products coupled with loyalty bonus and additional allocation opportunities. Though the fund management charges have been brought down to as low as 1.35%, the market penetration of these plans still remains a major challenge. Some smart initiatives expected from the government in this year’s budget which can help the consumers significantly include reduction of the lock-in period to 3 years from 5 years (comparable to ELSS) and a GST waiver of charges which is currently 18%.
Some new regulations are also expected around retirement solutions through Life Insurance Plans. Industry experts believe that life insurance products in India are not preferred as the primary choice of consumers in terms of investment into a retirement corpus. Most of the Life Insurance Retirement plans that the insurers are offering to the consumers have to somewhere compete with the National Pension System (NPS). In order to stay in the competition, the insurers are expecting a couple of recommendations in the Interim Budget 2019. The most important recommendation expected is to make the pension received from pension products tax-free. Moreover, they must be brought at par with NPS by making the pension plans eligible for tax exemption under a special section (much like Sec 80ccd created for NPS).
(By Santosh Agarwal, Associate Director and Cluster Head-Life Insurance, Policybazaar.com)