The looming pandemic has made people realise that capitalising on life and health insurance is not optional anymore. With the heightened need for financial protection, the insurance industry is touted to grow at a robust pace in the coming years. Industry veterans urge the government to realise the significance and act on making financial protection more affordable for masses in recent times. They expect the finance minister to allow higher tax concessions to attract more people and ensure no one is left behind in protecting against uncertain events in life.
Currently, all financial purchases are clubbed under the same section 80C for deduction under the income tax, capped at ₹1,50,000. "We expect the budget to consider creating a separate section for tax deduction on the premium paid towards life insurance," says Subhrajit Mukhopadhyay, executive director, Edelweiss Tokio Life Insurance. Life insurance is a long-term solution, unlike other financial products which have a shorter investment horizon and are covered under the 80C provision. A separate section, says Mukhopadhyay, would enable a more logical segregation of customer’s funds into long-term and short-term kitties.
The rise in the cost of life insurance further supports the idea of a a separate tax deduction section for life insurance. High mortality rates due to the pandemic have led to a hike in term insurance premiums. As compared to Q12021, the average term insurance prices have risen by 9.75% in Q42021, shows Term Insurance Price Index by PolicyX.com.
As a big boost to the health insurance, Anup Rau, MD & CEO, Future Generali India Insurance, wishes the budget to allow a higher deduction for medical expenses of up to ₹1,50,000 under section 80C of the Income-tax Act. Currently, under Section 80D, an individual can claim a deduction on payment of health insurance premium of up to ₹25,000 for self and family.
"The rising medical costs and the increase in the incidence of critical illnesses make it an unmanageable expense for middle-income and lower-income groups. So, a higher tax deduction limit for health insurance plans is the need," says Rau.
Rau also urges for reduction of GST on health insurance from 18% to 5% slot. "A significant reduction in the GST on all personal lines of products — from the existing 18% to 5% will encourage more people to buy health insurance," he says. For senior citizens, it should be exempted, he adds.
Rau also recommends small ticket size insurance products like micro-insurance, sachet products, etc. to be exempted from GST. This will provide added boost, says Rau, to these products by making them affordable, thereby enabling the population to get exposed to low-cost insurance products and appreciate their value better.
Mukhopadhyay of Edelweiss Tokio Life Insurance expects the government to bring a similar GST rationalisation in life insurance products.
Considering the low single-digit penetration of life insurance in India, Mukhopadhyay suggests tax incentives can be expected to be focused on first-time life-insurers. "Special incentives may also be announced for women who currently account for barely more than one-third of the country’s life-insurance covers."