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The last-minute rush to buy an insurance policy to save tax just before the end of the fiscal year could ease significantly. But this will likely impact the sector where penetration continues to be rather low, at 2.74 per cent in 2018.
The Budget has proposed doing away with all tax exemptions and deductions for those opting for the lower personal I-T rates. Accordingly, taxpayers opting for the lower slab will no longer have the benefit of claiming deduction of up to ₹1.5 lakh under Section 80C for life insurance premium as well as Section 80D for health insurance premium payments.
Rethink product mix
Life insurers who were hoping for a separate investment window for life insurance premium have been left disappointed. Many may need to review their product mix as well as communication strategies.
“Traditionally, January, February and March were the busiest months for premium payments but now it is throughout the year. Not many wait till the last minute,” said an executive with a life insurance company, adding that the companies will now have to talk more about the investment benefits of insurance, rather than just pointing out the tax savings.
Amit Maheshwari, Partner, Ashok Maheshwary and Associates, said: “The option to avail reduced income-tax rates specifically disallows the deduction for insurance payments under 80C. The incentive to take the insurance is somewhat reduced and considering that the penetration of insurance in India is considerably lower, an exception should have been made in this regard.”
“Insurance is a critical part of nation-building and helps bring long-term funds to sectors like infrastructure. The industry was hoping to get a separate section for long-term savings but that fillip is missing in the Budget,” said RM Vishakha, MD and CEO, IndiaFirst Life Insurance.
The other take
However, others had a more pragmatic take. “Taxation is just one of the reasons why people buy life insurance. The Budget announcement is not positive from the taxation perspective. But other dominant reasons for buying insurance are long-term benefits for the family and death benefits, which still remain strong,” noted Ashish Vohra, Executive Director and CEO, Reliance Nippon Life Insurance Company.
Shares of most life insurance companies remained under pressure on Saturday after the Budget announcements. The stock of ICICI Prudential Life Insurance closed 10.93 per cent lower, while those of HDFC Life Insurance ended 6.06 per cent lower.
Noting that life insurers came under selling pressure after the Budget move to remove personal tax exemptions, Gaurav Dua, Sr VP, Head – Capital Market and Investments, Sharekhan by BNP Paribas, said: “The move is in line with the regulatory push towards term plans rather than the focus on investment-linked products. The investment-linked products tend to have high expense ratios and could result in sub-optimal life cover. Many companies have already readjusted their business models and changed their business mix over the past few years.”
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