The Budget has proposed that insurance will be eligible for tax exemption when the premium paid is at least 10% of the sum assured. “We are assessing our products. Estimate is that some 25% to 30% products will have to be re-filed,” said Amitabh Chaudhry, managing director and CEO, HDFC Life.
At present, premium paid on life insurance policies allow tax deduction if the sum assured is at least five times the annual premium; maturity proceeds, too, are tax-free. Therefore, deduction of up to Rs1 lakh under section 80C will be available to policies with a life cover of 10 times the annual premium.
“The same eligibility criterion (10% of sum assured) is proposed to be applied on exemption under Section 10 (10D) on any sum received from life insurance policy,” said Vivek Mathur, chief financial officer, Tata AIG Life Insurance.
“It is in line with expectations and products will continue to be designed in line with the tax benefit to policyholders,” he said. The changes in guidelines have come at a time when insurers are banking on traditional products for growth.
There is already a vacuum in the system as there are no pension products available on the unit-linked platform. Also, the commission paid on traditional products is as high as 35% of the premium amount, while Ulips offer hardly 7% to 8%.
Rajesh Sud, managing director and CEO, Max New York Life, said, “While this is consistent with the life insurance industry thought, it is a substantial change to be implemented in such a short time frame.” Volatility in the stock markets and slowdown in the economy have hit sales of life insurance policies.
During April-January, the industry had reported a 14.21% decline in new business premium income. According to the latest data from Insurance Regulatory and Development Authority, the industry collected new business of Rs81,496 crore in the 10 months to January. State-owned Life Insurance Corporation saw a 12% drop in new life business. Private sector industry saw a 19.7% drop in income during the period.