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Budget 2016: Un-tax my insurance, requests the average insurance buyer

Feb 12, 2016

“Unbreak my heart”, crooned Toni Braxton in a clever play on words. Unfortunately there is nothing too clever about the tax regime on insurance in India. World over, insurance and pension funds are the long term drivers of the economy, bringing in capital for the core sectors of the economy. Insurance and pension funds are long term in nature, and these industries promote thrift and sound financial ideals in a population.

Consider the following two facts:

1. Today India needs massive and consistent funds in the infrastructure space to promote growth and reduce poverty. While banks play an important role in extending credit lines, it is insurance and pension funds that fund government initiatives and invest in long tenure instruments, providing a powerful source for government outlays.

2. India has no social safety net. Most of the population is left to the vagaries of employment and the weather. Rising health costs have bankrupted homes and loss of loved ones has destroyed families. The insurance and pension industries attempt to fill this gap, a gap appreciated by the prime minister himself in the recently rolled out Bima Yojanas.

It therefore follows that the government must be doing everything in its capacity to encourage this inflow into insurance and pension funds. Sadly, this does not appear to be true. While on the one hand the government encourages investment in the insurance sector, on the other hand it taxes the products so heavily as to make the business difficult to do. Let us consider the issues one by one.

Service Tax: By its very definition this tax must be applied if a service is offered. To apply service tax on annuity or pension premiums and protection premiums (term life, health and so on), is a travesty of the tax. The cover provided is a product: why should that be taxed, pushing up the cost of ownership by almost 15 percentage points? One can understand tax being applied, if a service is sought on the policy, like an address change or the like and the company charges a fee for effecting the change. Pushing up the cost of ownership of a protection product, especially in a country that has virtually no state-sponsored safety net is illogical. By the same logic, one should be paying service tax on the entire amount invested in a mutual fund rather than (as is currently done) on the management and advisory fees!

Taxing Policy Returns on Maturity: For long, insurance policy maturity returns were not taxed. A few years back, these were bought into the tax net for short duration policies. The ostensible reason was to prevent money laundering – although it defeats me as to why a smart person would launder money through an insurance policy. Insurance policy returns are lesser that what a savings bank account will offer you, primarily because most (up to 80%) of the premiums are invested in government securities offering guaranteed but fairly low returns. On the one hand the returns to the policyholder are low and he has already indirectly contributed to the economy through his premiums being invested. To add insult to injury, he is taxed on the meagre outcomes as well! Should we not at least consider bringing it on par with long term mutual funds (which have no taxes) or bonds, where after three years there are no taxes?

Income Tax on Annuity and Pension Payouts: To me this represents the abdication of reason. Differential tax treatment on pension payouts is a critical need both to encourage long term savings and to provide an inflation-protected means of living to senior citizens. If revenue is the sole consideration, exemptions up to specified amounts must be provided. We can introduce an age cut-off, say 60 years by which most Indians retire, before which proceeds will be taxable. After the age of 60, proceeds should be tax exempt. The benefits to the government in terms of long term funds collected and to the citizenry in terms of alleviation of post retirement penury are immense. Some wisdom in this aspect will actually increase investments providing long term investible funds for the nation and also provide a much needed fillip to the insurance industry that is currently suffering from a prolonged bout of distress in terms of business performance.

Rationality in taxation can encourage behaviour changes and even lead to an increase in savings rates. Lack of vision and the inability to go beyond immediate revenue considerations is almost always a dangerous combination. A combination of service tax and income tax is a double whammy that will have long term repercussions on an industry that is the life blood of long term finance needs.


Irdai recommends waiver of service tax on insurance premium

Feb 10, 2016

Insurance sector regulator Irdai has recommended waiver of service tax on the premium amount being paid by policyholders in order to have a level playing field with other financial products, a top official said today. It has also suggested extension of tax-break on pension products of life insurance companies on lines of that introduced by the Centre for additional investment of Rs 50,000 under National Pension System (NPS) last year.

"Every year, government asks us to submit our recommendations before the Budget. So this year too we have submitted our recommendations before the government. "We want that there should not be any service tax imposed on the premium investors pay for the insurance policies," Irdai Member (Life) Nilesh Sathe told reporters here on the sidelines of an event organised by Association of Insurance Claims Management (AiCM).

"There is a service tax on maturity where along with bonus, sum assured is also taxed. This is in contrast with the banking system where only interest is taxed, not the principal amount," he said.

Speaking on Irdai's suggestion for extension of tax-break on pension products of life insurers, he said, "We also want that like NPS, for which the government has permitted tax-break on additional amount of Rs 50,000 investment, the same tax-break should be extended to the insurance sector too."

"Life insurers also have pension plans and if they get the tax-break facility on the lines of NPS, then there would be level playing field to the sector," he added.

In Budget 2015-16, the government had announced income tax relief on additional investment of Rs 50,000 as contribution to NPS under the Section 80CCD.


The secret behind making savings on your health insurance policy and taking informed decisions in the future

Feb 02, 2016

Health Insurance in India is one of the many ignored necessities. IRDA's estimate suggests that only 21.62 crore people, i.e. 17% of India's population, were covered by health insurance at the end of March 2014. This number is very depressing because, in a country where diseases are in a rapid rise, only 17% of the population is insured. What could possibly be the reason?

Awareness! There is a lack of awareness about health insurance in India and most people consider Health Insurance as an added financial burden on their scarce livelihood. However, what people fail to understand is that this little investment can save people from a major financial crisis in future. The Hindu states that "Families meet almost 70% of their health expenses out of their own pockets, placing a considerable financial burden on poor households, often pushing them deeper into poverty."

The prime motives behind health insurance are protection against health crisis and savings. A well-informed buyer can save on his health insurance policy. Here are some tips you need to know:

Take Advantage of Your Employment:

If you are not particularly interested in buying a health insurance (and if you have real valid reasons to do so), you can take advantage of the fact that you are working. Never deny insurance from your employer because this is the cheapest way to get insured. Moreover, most organizations offer group health insurance wherein you can cover your children, spouse or parents. This helps you and your immediate family get a decent coverage while not having to pay premiums.

Put a step forward as early as you can:

A basic logic works behind this. The younger you are, the healthier you are considered to be and lesser would be the premium. Insurance premiums increase with age. Get a health insurance plan at a young age while you are still fit. With the progression of age, you are likely to face health issues which might become an obstacle in your insurance plan and the entire protocol of pre-existing diseases comes into play. The eligibility for getting in insurance without hassles declines with age. So better be prompt and begin early to save on health insurance.

Research the market before making a decision:

The typical Indian mentality follows the extremes. It either wants something that is the cheapest or something that is most expensive because we find expensive synonymous with good. However, in case of insurance, the cheapest policy might not be the best nor can the most expensive one guarantee proper protection. There's no ideal health insurance plan. There are only suitable plans. Every individual has different needs and different life conditions. A cost-effective policy is that which gives you a decent coverage in less premium without compromising on the sum insured. To find the most suitable plan, you need to research the market and evaluate various options figuring out the most convenient.

Choose a top up instead of a new policy

If you want to be insured with a critical illness cover apart from the individual policy you own already, go for a top us instead of buying a different cover altogether. This saves your premiums and provides adequate coverage. Moreover, choose for a critical illness cover only if you fall into the category of middle aged because a young individual is not much in need of a critical illness cover.

Insure your family

If you have a family, and you wish to get your family insured, it is advisable to get your family insured with a floater plan instead of choosing individual plans for your family. In a floater policy, the sum insured will be jointly available for every individual of the family in a single premium payment.

Act smart with floater insurance

A floater insurance policy calculates the premium based on the age of the eldest member. If you cover your parents under a floater, you are likely to be paying a higher premium because it will be calculated based on your parent's age. It is advisable to take a separate policy for your parents. It will also help you save taxes on both.

Now that you know the secrets, you are an informed customer. Ask your provider for details before you buy the policy. You can try health insurance online from HDFC Ergo, which is a premier insurance company in India. Also, before choosing a health insurance policy, look out for providers who help you with detailed policy documents and provide customer support to assist you in taking informed decisions about your policy. Go ahead and research to get covered with the most suitable health insurance policy.

(This article has been written by Utkarsh Sahu, who writes for various tech mags and admires technology with paradigm-shifting attributes.)

Source: Business Insider

How to choose a plan to insure yourself against critical illnesses

Feb 01, 2016

In the 2 minutes you will take to read this article, 3 people will die of cancer in India.

By the time the day is over, 900 people under the age of 30 would have succumbed to heart disease.

By the time the year is over, there will have been nearly 50,000 deaths caused by the non-availability of vital organs for major transplants.

Besides the emotional turmoil caused by these life changing critical illnesses, there is financial upheaval as well.

Herceptin, a medicine that treats breast cancer (the largest killer of Indian women in 2014), costs between Rs.75,000 and Rs.1 lakh per vial. A patient usually requires 16 vials.

A single valve replacement surgery for heart disease costs between Rs.1 lakh and Rs.3.5 lakh.

A transplant needed to treat kidney disease, the 12th leading cause of death in the world, costs Rs.4 lakh.

Critical illnesses are not a distant possibility, but a daunting reality. Treatment and care for these diseases is not easy to arrange, and therefore, it is essential that you properly insure yourself against them.

To find yourself the most suitable plan, sequentially answer each of the questions below:

1. I have a Mediclaim policy. Isn’t that enough?

Not necessarily. Within the non-life segment of insurance, health (mediclaim) and critical illnesses fall under different categories.

Health insurance is an ‘indemnity’ based insurance wherein your insurance company reimburses you for the actual cost of hospitalisation you have incurred. This is usually the type of health insurance employers offer their employees.

By contrast, critical illness (CI) insurance is a ‘fixed benefit’ based insurance which does not depend on hospitalisation bills to compensate policy holders. Upon diagnosis of any of the critical illnesses covered by your policy at a specified severity, you receive a lump sum pay-out.

In case you are diagnosed with a critical illness, it is likely that you may be unable to work for a while. Thus, a generous critical illness (CI) rider (on a life insurance policy) can function as an effective income replacement option offering a lump sum critical illness benefit with continuing coverage of the death benefit component. Investing the lump sum payout will ensure your financial foresight results in guaranteed monthly income despite suffering from a critical illness, as well as enough funds for other obligations like the education of your children or paying off loans.

Thus, while there is definitely space for a Mediclaim plan in your insurance portfolio, it cannot replace the need for protection against critical illness.

2. I’m convinced. What are my options for protection against critical illnesses?

There are usually two options available:

i. A standalone critical illness policy

The major advantage of this option is that you can choose the cover according to the illnesses you are prone to contract, based on your lifestyle and family’s medical history. The major disadvantage is that with a CI policy, every few years—usually three—the premium may be revised based on medical check-ups the insurers may ask you to undergo. If your health has taken a downturn, your premium may shoot up.

ii. A critical illness rider with a life insurance policy

The major advantage here is that it is much more cost effective and convenient as it comes attached with a life insurance policy and does not demand high premiums. Additionally, the premium remains the same throughout the policy. The disadvantage used to be that the cover was not as comprehensive as a standalone policy, but there are now a lot of plans available in the market that are even more extensive than most standalone policies, and also cheaper.

3. Tell me more about a comprehensive life insurance policy.

A number of life insurance products offers a CI benefit or rider, but none as comprehensively and cost effectively as a term plan. Buying a term insurance policy is the simplest and cheapest way to secure your family’s finances against unfortunate eventualities like death, disability, or critical illnesses. Buying the policy at a young age can help you secure coverage of crores of rupees for less than Rs.55 per day.

4. I’m convinced. Which term plan would best protect me against critical illnesses?

Choosing the perfect term plan to give you and your family 360° protection isn’t a decision one should take lightly. Additionally, it’s not an easy decision as there are a number of factors you must consider before you decide. However, it is prudent to look beyond the premium when making this decision. After all, paying more today will be worth it if the policy offers assured financial and emotional security to you and your family.

Make sure you consider every one of the criteria explained below:

• Coverage options

Almost all insurance companies offer flexible coverage options that include riders for terminal illnesses, permanent disability, accidental death, and critical illnesses. However, most insurers restrict the CI rider to very few illnesses/conditions. Thus, you need to opt for a plan that is more extensive and covers a wide range of critical illnesses. You should aim to get cover against heart and artery diseases, brain and nervous system complications, as well as major organ care.

Additionally, with women matching men in all aspects of life, a one-size-fits-all plan may leave the family at risk in the event of unfortunate demise of the woman of the house. You thus need a plan that offers women specific benefits. Ideally, it should cover female organ cancers such as breast cancer and cervical cancer, and should also offer special/discounted premium rates to women.

• No increase in premium

Very often, with long term life insurance plans and health insurance plans alike, insurers revise premiums periodically, increasing it slowly but steadily throughout the policy period. This can be detrimental down the line when the premium shoots up suddenly following a medical check-up, so ensure that the policy you choose does not review premium at any point during the period of the policy. This ensures that the only thing increasing is your income, and not your insurance premium.

• The clincher - tax savings

One of the added advantages of getting a term plan with a CI rider is that it reduces your tax liability.

For example, say you buy a standalone critical illness policy, you get tax benefits only u/s 80(D) wherein the maximum limit is Rs.25,000 + Rs.5,000 extra for senior citizens.

However, let’s say you buy a term plan with a critical illness rider. In this case you get tax benefits u/s 80 (C) for the term plan since it’s a life insurance product, for which the deduction limit is Rs.1.5 lakh and you get benefits u/s 80 (D) up to Rs.25,000 for the critical illness rider. So if you are paying a premium of Rs.50,000 for the term plan, it gets deducted u/s 80(C) and Rs.25,000 for the CI rider which gets deducted u/s 80(D), thus reducing your tax liability even further.

5. But, what if I already have a term plan?

As per an IRDAI report, penetration of life insurance in India fell from 3.40 in 2011 to 3.17 in 2012. So even if you do have a term plan, chances are you are underinsured and don’t know it. Also, as explained above, unless you have a critical illness rider, or a standalone critical illness policy, you are still vulnerable to the financial mayhem such situations can cause.

So, do a check. The sum assured for a robust term insurance plan should be at least 15 times your current annual salary.

Let’s say your salary is Rs.10 lakh per annum. In this case, you should be covered up to at least Rs.1.5 crore. If your policy covers you for just Rs.1 crore, it’s essential you immediately buy a term plan for the difference amount, i.e. Rs.50 lakh with a critical illness rider. This will ensure that your family is comprehensively protected.


Thus, the ideal term plan would be one that combines the benefit of a standalone life insurance policy (comprehensive cover) with the benefit of a CI rider (affordability and convenience). You should also look for an insurance company with a high claim settlement ratio so you are assured that your future and that of your family is in good hands.


What does the insurance industry expect from Budget 2016?

Jan 29, 2016

Insurance companies hope the finance minister will be more generous in Budget 2016, than he was last year. And while tax exemptions remain their biggest priority, this year's wish list includes more measures to support and promote the government's pet insurance schemes.

India has immense potential as an insurance market. But it needs some serious support from the government if that potential is to be achieved, starting with more tax incentives for buying personal insurance policies. That's the crux of the insurance sector's wish list for Budget 2016.

Global reinsurance giant Swiss Re points out that insurance penetration in India in FY15 was just 3.3 percent, significantly lower than the global average of 6.2 percent.

Now this number could increase, thanks to Prime Minister Narendra Modi's insurance schemes, the Pradhan Mantri Suraksha Bima Yojana and the Pradhan Mantri Jeevan Jyoti Bima Yojana. But, players launching a scheme is not enough.

"See we have been telling the government that personal lines of business need a push and the tax breaks have always helped the Indian customers to go in a particular direction in the case of life insurance policies," says G Srinivasan, CMD, New India Assurance.

"So we have asked for a very small exemption. We have said that if this exemption is given, a lot of people will go for householder's policies, personal accident policies, which is today necessary for every individual," Srinivasan adds.

Currently, life insurance premiums are eligible for exemption under Section 80C of the Income Tax Act. Insurers like HDFC Standard Life feel life insurance needs a separate exemption, similar to that given to contributions made to the New Pension Scheme (NPS). Remember, 2015 saw an exemption of 50,000 rupees being provided to NPS contributions, over and above the Rs 1.5 lakh deduction limit allowed under the Income Tax Act.

Amitabh Chaudhry, MD & CEO, HDFC Standard Life Insurance says, "while last year he (the finance minister) made a major move in terms of giving a different category for NPS from a tax-saving perspective, we do believe that it is important that he, maybe, needs to carve out something similar for life insurance."

This is because, Chaudhry says, right now, the life insurance category is all mixed up and a lot of other things are allowed in it. So, separate provisions for life and pension schemes would be very helpful.

In addition, players feel the government must aggressively push its two insurance schemes to improve penetration. And one way to do this would be to enhance the insurance cover provided under these schemes from the current Rs 2 lakh. Service tax levied on life insurance products is also another sore area.


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