Life insurance & economic development: The growth nexus
Life insurance & economic development: The growth nexus
By Sandeep Bakhshi The author is managing director & CEO of ICICI Prudential Life Insurance Co.
Since its privatisation, the life insurance industry in the country has made rapid strides as a key contributor for economic development of the nation. Investments in core areas are crucial and these investments are generated out of longterm savings of the people, specifically the middle and lower income groups. Life insurance is one of the preferred routes for long-term wealth creation and building a safety net for family and dependents. Pension offerings by insurers have found tremendous acceptance by consumers as these enabled them to build a nest egg for their retirement years, especially in India where the social security system is non-existent.
Under the existing tax norms, benefits are offered for deduction of premia paid by policyholders and tax exemptions on maturity proceeds. Today, insurance penetration stands at 3-4 % and the latent potential is immense . Several industry players have been attempting to enhance financial literacy levels in order to increase penetration levels and mobilise savings. Given the significant progress made by the industry, we believe that it is only fair for the government to support the nascent life insurance industry through budgetary measures.
Premium deductions: Prospective policyholders purchase life insurance products with a view to provide for financial security of their family and dependents as well as to create a corpus for specific events in life, besides getting the tax deduction on premium paid. It would, therefore, be beneficial if premiums paid for keeping in force the life insurance policies are made eligible for a specific deduction on a standalone basis up to a limit of Rs 50,000.
The specific deduction limit for life insurance premiums would help in building a significant corpus for policyholders to secure their future. Health insurance is another area in which the government can lend a helping hand. Given the ever-rising healthcare costs, a distinct and specific deduction for health insurance premiums paid up to Rs 50,000 would also go a long way in ensuring that the policyholders have their unforeseen health-related expenses adequately covered.
Maturity proceeds: With regard to the tax on maturity proceeds of a life insurance policy, the current legislation provides that these will be tax-free in the policyholder's hands, in case the premium paid does not exceed 20% of the sum assured. The Insurance Regulatory and Development Authority (IRDA) anyway mandates regulations covering minimum sum assured under unit-linked insurance plans ( Ulips). Also, all products require prior approval of the Irda to ensure these meet policyholders' interests.
The government could, in consultation with the IRDA, decide on the ratio that would determine the eventual taxfree status of the maturity proceeds, instead of codifying the same in the Income-Tax Act.
Pension and annuities: Importantly, the pension and annuity products of life insurance companies gained high acceptance amongst consumers as it allowed them to productively channelise their current savings to plan for a steady income stream post-retirement . In such a scenario, subjecting the pension and annuities to tax at the time of receipt would burden the policyholders at an age when every rupee saved would count. Exempting all annuity income streams from taxation would help in mitigating the hardships of pensioners and annuitants, especially in a country like India where there is no social security system.
Direct Taxes Code: There is a pressing need to support the policyholders as well as the life insurance industry at large with adequate support by way of budgetary amendments in the existing Income-Tax Act. We are hopeful that the forthcoming Budget would address these issues of the life insurance industry as well as the policyholders. While it is envisaged that the forthcoming fiscal budget would address all the concerns, the future legislation in the form of Direct Taxes Code that is on the anvil, we hope, would also adequately protect the interests of the policyholders and life insurance industry, considering the socio-economic importance of the sector and the overall contribution in nation-building by the life insurance industry. The Secret to Unleashing The Infinite, Creative, and Limitless Power of Spirit In Your Life Best Ways to Sell Life Insurance Policy Getting Licensed To Sell Life Insurance Policy How to Sell Life insurance Policy Successfully? The Natural Flow of Life… and Death How Important is Long Term Care Insurance for Retirement? Comparing Various Long Term Care Insurance Policies Note The Life Insurance Quotes Online In A Few Seconds Instant Term Life Insurance Quotes Will Save Lot Of Your Time Life Insurance Options In Life Insurance No Exam is Simply Superb Stay Convinced About Insurance With Life Insurance No Exam Life Can Be Made Simpler With Affordable Life Insurance Rates Quick and Effective Instant Term Life Insurance Quotes