For the insurance sector, while the pandemic years were tough due to a massive surge in claims, on the positive side, we saw a significant increase in awareness, especially term and health insurance, as well as an acceleration of the digital journey of the entire industry. The pandemic made people realise that uncertainty in life is a reality and not just a sales pitch.
However, we see that India continues to have one of the lowest penetration rates for insurance in terms of GDP among developing countries and there is a huge protection gap.
The industry regular, IRDAI has announced a number of laudable initiatives and proposals this year, including the opening of e-Insurance Accounts for customers to enable dematerialisation of insurance policies, setting up of the Bima Sugam digital platform, and a composite license for insurers, among others. These proposed initiatives are aimed at further driving insurance penetration, enhancing customer centricity and leveraging the growing digitalisation of the industry.
So, while there have been many steps forward this year, there is much more that can be done in terms of awareness creation and insurance penetration in the country.
As we head towards the Union Budget for 2023-24, our Budget wish-list for the insurance industry continues to have many of the same recommendations from the last 4-5 years with the principal aim of driving insurance penetration in the country.
Firstly, to increase the penetration of pension and to make India a pension society, especially since we don’t have any social security cover, our request is to make pensions tax-free in the hands of the customer because the pension premium is already paid through taxable income. So, we recommend that the proceeds of the pension or annuity should be made tax-free in the hands of the customer or to allow deduction for the principal component.
Alternatively, if we could have a separate bucket for pensions in the range of Rs. 50,000-75,000/-, it would help to level the playing field with NPS.
The current limit of health premium (including preventive medical check-up costs) under Section 80D is only Rs. 25,000/-. The last two years of Covid have proven that the current limit is not enough, and there needs to be a significant increase in the limit. Whatever is said and done, people do buy life and health insurance for tax-saving purposes, so we do need to give them a hook of a higher deduction limit.
As per a Budget announcement a couple of years ago, for ULIPs with an aggregated premium amount of Rs. 2.5 lakh p.a or more, the maturity amount, which was earlier tax-free under Section 10(10D) of the Income Tax Act, became taxable. This should be reversed as it disincentivises big ticket investments.
Section 80C of the Income Tax Act is currently cluttered with several investment options such as life insurance premium, PPF, ELSS, NSC, NPS, and principal on home loan amongst others. If you are a salaried employee, most of it goes into EPF and PF. So, we would recommend a separate bucket for life insurance policies or an increase in the limit from Rs. 1.5 lakh to Rs. 2-2.5 lakh. Atleast a separate section for Term policies would be helpful given the huge protection gap in the country.
We also recommend zero-rated GST for protection products as 18 per cent GST makes the term plans costlier. To increase insurance penetration in the country, the basic protection plans should be made available under zero-rated GST.
Lastly, raising the TDS exemption limit on insurance commission (under section 194 D of the Income Tax Act) from the current level of Rs. 15,000/- would provide a greater impetus to insurance agents.
We hope that at least a few of these recommendations would be addressed in the upcoming Budget 2023 to give a further impetus to the growth of the insurance industry.
Views are personal. The author is MD & CEO, Ageas Federal Life Insurance
Also Read: Budget 2023: Strong global headwinds can threaten Indian economy; here’s what can be done
Also Read: India’s dream to become $5 trillion economy: Budget should focus on infrastructure push