Pre-budget expectations: Increase Insurance Awareness

The government could encourage customers to buy insurance by providing higher risk covers and tax exemptions.

Tuesday, February 9, 2016

    he role that the insurance industry plays in the economic development of nations and society is under appreciated. Insurance allows individuals and institutions to undertake economic activities that they would have normally not undertaken in the absence of risk management tools. Unfortunately, in India, the growth of life insurance has not kept pace with other markets.Due to the long-term nature of the liabilities and stable stream of premiums, life insurers act as institutional investors that provide capital to infrastructure as well as professional oversight to these investments on behalf of policyholders.

During the first decade of the sectorâ??s liberalisation, it reported a consistent increase in insurance penetration from 2.71 per cent in 2001 to 5.2 per cent in 2009. However, since then, the level of penetration has been declining, reaching 3.3 per cent in 2014.The government has taken several steps during the past 18 months to promote the concept of insurance and to attract long-term foreign direct investment into the sector.

Through Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Fasal Bima Yojana & Atal Pension Yojana, the awareness and penetration of insurance and pension plans should surely improve, especially among the marginalised sections of the society.A natural next step could be that customers be given options of higher risk covers. For example, instead of just Rs 2 lakh, risk cover options of five, seven and 10 lakhs could be given under the PMJJBY.Today, specific tax exemptions are available for two of the three key risks that an individual faces: risk of ill health [through exemption on health insurance] and risk of living longer [through exemption on national pension system or NPS].

However, a critical risk that does not have a specific tax exemption bucket is the risk of a person dying early. Hence, a separate deduction for term insurance premiums can be provided to take care of this. This would encourage individuals to have appropriate life cover in line with their age and risk profiles.The government should also exempt NPS withdrawals from tax, bringing it on par with the employee provident fund (EPF) scheme, to provide a level-playing field. This has also been recommended by the 7th Pay Commission. Pension premiums should have a separate limit for deduction from total income, rather than being clubbed with other savings schemes.

This will encourage people to invest in pension products and provide them social security. Pension/ annuity payments need to be exempt from income tax, which can provide relief to senior citizens. Also, the present system of taxing the superannuation contributions in excess of Rs 1 lakh needs to be done away with, to help increase the superannuation corpus, thereby facilitating a viable pension scheme.The government should keep aside a greater corpus for the promotion of insurance coverage. Life insurance companies offer substantial direct and indirect employment across the country, in addition to channelising savings.

Any growth in life insurance penetration will have a multiplier effect on youth employability and also provide the much-needed insurance cover for individuals. bodyquote1Pension premiums should have a separate limit for deduction from total income, rather than being clubbed with other savings schemes. This will encourage pension savings and provide people social securityquote1kickerThe government could encourage customers to buy insurance by providing higher risk covers and tax exemptions.

 Written by AMITABH CHAUDHRY, MD & CEO, HDFC Life

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