Life insurance is one of the most important segments of the financial services industry and has contributed immensely to boost various sectors in the economy through its ability to make long term investments, and provide huge employment opportunities. Currently the sector is reeling under tough economic environment and regulatory changes that have been instituted in last couple of years. The industry needs support from the government of India, to help it in further contributing to nation building in the coming years.
As an immediate step, the new government should address the following to boost growth in the life insurance industry:
1. Re-looking at the current investment limits for tax rebates and certain current tax provisions would augur well for the industry. Life insurance is a socio economic instrument. In absence of any strong social security system by the government, at least the investment in life insurance premiums should be given additional limit of at least Rs 1 lakh, instead of clubbing the same with other investments u/s 80C of the Income tax Act, 1961. This will inculcate the habit of systematic and consistent long-term savings among retail investors. The present limit of Rs 1 lakh has not been increased in the past several years.
2. To encourage customers to meet their retirement needs, investment in pension premium should be given separate deduction. Currently, such investments are clubbed with 80C investments. Annuity has been an unpopular investment choice because of its tax disadvantage. The maturity proceeds from Annuity are currently fully taxable as income, which effectively means that income is taxed twice.
3. The current limit of Rs 15,000 in health insurance must be enhanced to at least Rs 50,000. Currently an individual gets a deduction of Rs 15,000 for health insurance premiums paid (apart from a similar deduction on premiums paid on the lives of their parents).
Growing inflation has increased the cost of medical treatment. This has made it necessary for health insurance to be taken by every individual. In order to help the common man in meeting increased medical costs, offering more tax incentives would help in promoting health insurance.
4. The service tax charged to insurance companies has been increased to 12 per cent from the existing 10 per cent and the rate on life insurance policies where entire premium is not toward risk cover increased to 3 per cent for the first year and maintained at 1.5 per cent for subsequent years. At the same time mutual funds are exempted from such tax.
Overall, the change in tax has rendered life insurance at a position of disadvantage vis-a-vis MFs, PPFs, NPS, etc. Revisiting these changes will definitely provide the necessary impetus to help attract funds into long term savings and protection products offered by the life insurance industry.
5. Armed with an absolute majority, the new government is expected to address the long pending insurance bill, which looks to raise the foreign direct investment (FDI) cap in the sector from the current 26 per cent to 49 per cent. FDI relaxation would encourage long-term fund inflow that would both encourage the growth of insurance in India as well as provide the government with access to funds to aid infrastructure growth.
Moreover, insurance industry has seen negative job creation as number of agents and employees have been on the wane. FDI would get in greater investments into the sector and make it an attractive proposition for good talent.
We also expect clarity to emerge on the road map of DTC and GST. This would help the industry better plan in the implementation of the new regulations.
(These are purely personal views of HDFC Life senior executive vice president marketing product, digital & e-commerce Sanjay Tripathy and indiantelevision.com does not subscribe to these views.)