03-02-2020

Life, health covers may lose lure as sops turn optional

Insurance Alertss
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03-02-2020
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Life, health covers may lose lure as sops turn optional

Sales of life and health insurance policies, which qualify for income tax breaks, are expected to take a big hit because of the new simplified income tax regime announced in the Union Budget. Tax savings, which was the biggest driver for life insurance, has lost relevance for many as the budget allows taxpayers to pay tax at a much lower rate if they forego exemptions.

“Most middle-class taxpayers will see this as -- lower tax slab, less paperwork. These will become the key motivations. Very few people take life insurance purely for protection - most view it as a savings or investment instrument. Now with that clear incentive gone, there will be a dip,” said a CGM from LIC.

Insurers feel that this a major setback because insurance penetration in India is low compared to other countries. Stocks on insurance companies fell following the budget announcement. Every March 31st, it was common for staff members to work late into the night at LIC offices across India. Insurance agents would scurry around pressing LIC officers to take their last-minute proposals - as thousands of Indians tried to file for tax exemptions just before the deadline. But this might change this year, said sources.

IRDAI officials said they were completely taken aback by the Union Finance Minister’s budget announcement. “We were certainly not consulted on this. And it will have a negative impact on the sector,” said an IRDAI member. “But it is still early days. But, I have hope as the FM had a press conference following the budget announcement - and there she did mention the savings aspect.”

“Life insurance and health insurance will take a massive hit. Now that the tax benefit has become optional. While we will retain our older clientele, youngsters might decide to trade in financial security for more cash in hand,” said the LIC CGM.

Insurers say insurance was always a push product and now with the key incentive “tax” being removed not many might think of financial protection and fiscal prudence. “In India, the construct has always nudged future savings and risk management by encouraging conscious investment towards the same aided by tax relief. We have not seen announcements that will encourage risk management practices, ” said RM Vishakha, MD & CEO, IndiaFirst Life Insurance.

Institutions also say higher spending income should not have come at the cost of savings. “The option to individuals to opt for a lower tax slab structure with no deductions or to continue with the earlier higher slabs with deductions for home loan EMIs, investments in insurance etc seems slightly confusing. In a country like India with a young population with poor social security it is imperative to incentive young India to save for the future and own a house as well,” said Krishna Kumar Karwa, managing director, Emkay Global Financial Services.

Source: The Times of India