It’s that time of the year again for the Union Budget ‘2016 to be unveiled. As the nation speculates on what’s in it for them, one clearly remembers the array of benefits the previous Union Budget ‘2015 provided for the insurance industry - enhanced tax deduction limit in the health insurance segment, benefits for pensioners, and introduction of personal accident insurance schemes being the significant ones.
As these benefits gave a boost to the insurance sector thereby inducing people to buy insurance yet there is a demand for more exemption benefits this year, so that more people would be encouraged to buy insurance. As the Indian insurance market has tremendous growth potential, it is the government’s prerogative to introduce more reforms and schemes to increase the penetration.
Here’s my Union Budget ‘2016 wish list.
- During the last budget, the government increased tax exemption limit on health insurance premium from Rs.15000 to Rs.25000. For senior citizens, this limit was revised from Rs.20000 to Rs.30000. While this move was beneficial for certain section of population, it remains inadequate for others, including senior citizens and those who with higher health insurance coverage. For instance, a 52yr old man with a family of 4, will have to pay more than Rs.30000 as premium for Rs.10lacs coverage. If you look at it, Rs.10lacs is not sufficient to meet health-related requirement of 4 people and if he were to enhance health insurance coverage, he will have to pay higher premium. The current tax limit wouldn’t suffice for him anymore. Hence, it makes sense for the government to consider increasing tax benefits in favour of health insurance buyers.
- With insurance companies planning to introduce long term health insurance, it only makes sense for the government to increase tax exemption limit, given that policyholders will be paying premium for more than 2yrs in one go. Just to give you an example, a 35 year old, non-smoker male, pays a premium of Rs. 15000 p.a. for a sum assured of Rs. 8 lakhs. Now, if one considers it as a long-term plan, he would have to shell Rs. 45000 in the first year (premium for 3 years); and with the current tax exemption limit standing at Rs. 25000, he stands more to lose than gain.
- Home is one of our costliest assets, but the irony is that few people consider insuring their home and contents against natural disasters and unforeseen events. Even though the Uttarakhand and Chennai floods and the Nepal earthquake were an awakening, yet people still kept on procrastinating on the thought of insuring their homes. A home insurance not only safeguards your home but also its contents as well when disaster strikes. Therefore, in order to encourage homeowners to protect their valuable investment, the government must take the step of introducing tax exemptions on home insurance premiums. This move would draw people’s attention towards home insurance.
- While buying insurance online may be a seamless process, the same does not hold true for those buying it offline. As per KYC norms, they have to go through endless paperwork for buying a single plan; and should they buy more policies from the same insurer, they would again have to go through rigorous paperwork for each. All this may discourage one from purchasing insurance in the offline mode. Here, uniformity in KYC and e-claims requires urgent attention and the government must take the onus to initiate reforms, whether it is purchased in the online or offline mode.
- As per Section 80C, mutual funds, pension plans, PPF, etc. which are saving instruments, are eligible for a deduction of up to Rs. 1.5 lacs. The government should pass a reform of creating a separate tax exemption limit of Rs. 1.5 lakh for life insurance premiums and pension plans each. Doing so will give rise to consistent and efficient long term savings, which is, currently, the need of the hour.
Honorable FM should take necessary steps to increase penetration in the insurance sector, with a particular focus on Life and Health insurance. Introducing reforms in this segment through tax incentives would not only encourage people to buy insurance plan, it would also lead to considerable decrease in the number of underinsured population in India.
- by Alok Bansal – Co-founder & CEO, Policybazaar.com
