Budget 2021 should look at strengthening digital insurance

The Union budget 2021 is one of the most crucial budgets, as the government will focus on bringing the economy back to track. While India has been able to manage the Covid pandemic crisis and the economy is beginning to display budding confidence, the budget this year is vital for all sectors.

Insurance is one such sector that needs a lot of government support to bridge the demand-supply gap amongst consumers. 2020 witnessed various announcements and regulatory changes in the sector due to the on-going Covid pandemic. The need for Insurance coverage is critical in these times; the pandemic emphasized the need for financial protection for oneself and the family. While the insurance industry continues to play its part, the government should definitely look at strengthening the sector by building insurance accessibility for consumers. Tax saving impetus towards insurance under section 80C & 80D would help in increasing the insurance penetration in Tier 2 & 3 cities, where the insurance gap majorly lies and could give relief to consumers.

The sector aspires to see some positive tax benefits and regulatory frameworks. Life insurance and health insurance have become even more relevant than before. Thus, the government needs to infuse funds and increase tax benefits to boost the sector.

Raising limits of FDI fund infusion

Given the pandemic situation and increased significance of insurance amongst consumers, there is a need for government to increase FDI fund infusion. The government should look at raising the FDI limit from 49% to 74%, which will help in the reinforcement of insurance across the smaller towns and cities of the country. The sector needs funds to support the need-based requirements for insurance amongst consumers and strengthen infrastructure. Fund infusion will also help insurance intermediaries like InsurTech companies, insurance broker companies, agent eco-system.

Fund infusion to strengthen digital insurance: Digital is the way forward for the insurance sector, which is instrumental for bridging the demand-supply gap in today’s world. Insurance in underpenetrated in the country because of its physical and branch led distribution model. India is still not equipped with adequate infrastructure to support the physical insurance model; this goes specially for Tier 2 & 3 cities. The government should infuse funds to strengthen digital insurance infrastructure so that insurance can penetrate into the smallest town and city in the country.

Tax benefits for insurance products

Investment in NPS offers additional tax deductions of Rs 50,000 under section 80CCD. However, this benefit is not made available in the case of life insurance pension plan. The budget should look at measures to bring uniformity between pension products offered by life insurers and NPS.

Secondly, Section 80C of the Income Tax Act provides tax deduction of up to Rs 1.5 lakh on multiple investments, which also includes insurance policies. This section is cluttered with too many investment options, government should look at increasing tax exemption for insurance policies to break the clutter and encourage insurance.

Reduction of GST rates in Life Insurance 

Life insurance is one of the most need-based insurance covers which has gained more significance post-Covid. In order to make life insurance accessible to the masses as a social security product, the government should look at reducing the GST rates. This goes specially for term plans which will make life insurance more cost-effective.

Personal finance has been impacted majorly during the Covid pandemic in 2020 and hence budget 2021 holds critical importance for all personal finance segments which also includes insurance.

Source: Times Now News