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Budget 2021: Key Expectations for Life Insurance Industry

dateKnowledge Centre Team dateFebruary 03, 2021 views145 Views
Budget 2021: Key Expectations for Life Insurance Industry

General Details about Union Budget 2021-22

The first-ever digital Union Budget 2021-22 was presented by Union Minister for Finance and Corporate Affairs Smt Nirmala Sitharaman on 1st February 2021. The theme of this year’s union budget largely revolves around COVID-19, economic revival, and growth and aims to meet the demands for political, economical, and strategic changes in the post-Covid world.

The budget was presented on the basis of the six pillars.

1. Health and wellbeing

2. Physical and financial capital and infrastructure

3. Inclusive development for aspirational India

4. Reinvigorating human capital

5. Innovation and R&D

6. Minimum governance and maximum government.

Union Budget 2021-22 reflects a firm commitment of the government to boost economic growth by investing in infrastructure development. This is substantiated by an increase in capital expenditure by 34.5% over BE 2021-22.

Tax, non-tax revenue, and life insurance detailed in union budget 2021-22

No changes in income tax slabs, rates, deductions, and redemptions in 2021-22.


  • Corporate tax rate slashed to make it among the lowest in the world
  • Burden of taxation on small taxpayers eased by increasing rebates
  • Return filers almost doubled to 6.48 in 2020 from 3.31 crore in 204
  • Faceless assessment and faceless appeal introduced.

Relief to senior citizens:

  • Exemption from filing tax returns for senior citizens over 75 years of age and having only pension and interest income; tax to be deducted by paying the bank.

Relaxation to NRIs:

  • Rules to be notified for removing hardships faced by NRIs regarding their foreign retirement accounts.

Incentivising digital economy:

  • Limit of turnover for tax audit increased to Rs. 10 crores from Rs. 5 crores for entities carrying out 95% transactions digitally.

Attracting foreign investment for infrastructure:

  • Infrastructure debt funds made eligible to raise funds by issuing zero-coupon bonds
  • Relaxation of some conditions relating to prohibition on private funding, restricting on commercial activities and direct investment.

Key changes in tax and life insurance

  • No more tax exemption for ULIPs - Unit-Linked Insurance Plans, with an annual premium above Rs. 2.5 lakh
  • Government to introduce life insurance IPO, initial public offering, in 2022.
  • Increasing FDI in the insurance sector
  • No changes in the income tab slabs
  • Two PSBs, an insurer to be disinvested this year


  • No more tax exemption for maturity proceeds of unit-linked insurance plans, with an annual premium above Rs. 2.5 lakh. The rules will apply for Ulips issued on or after 1 February 2021.

However, the amounts received under such ULIP on the death of the policy holder will remain exempt from tax. The death benefit will continue to remain tax-free in case of the unfortunate death of the insured. The implication of this is that the maturity proceeds are going to be taxed as equity mutual funds and so they come on par with mutual funds. This has a further incentive that the budget taxes returns from such ULIPs at 10% above an annual exemption of Rs. 1 lakh, on par with mutual funds.

Context of the same; as per section 10 (10D) of the income tax act, the provision exempts any amount received under a life insurance policy including ULIPs if the sum assured is more than 10 times the annual premium. The exemption includes death benefits, maturity benefits, and accrued bonuses. However, the new provision will apply to ulips only. For instance, there are money-back policies and endowment plans which provide maturity benefit. The tax benefit received under such plans will remain exempted.

  • Life insurance FDI ( foreign direct investment) hiked from 49% to 74% Increasing the FDI limit to 79% from the incumbent 49% is a bold move. it will provide an immediate backstop in terms of capital for growth and improve the insurance and the financial state of the country. An increase in life insurance penetration will pave way for the generations of new employment opportunities, which in turn would help the efforts of the government to revive the economy.
  • Life insurance IPO in 2022

    “We would also bring the IPO (initial public offering) of LIC in 2021-22, for which I am bringing the requisite amendments in this session itself”, Finance Minister Nirmala Sitharaman said in her budget speech.

    The legislative amendments to this effect will be launched in Parliament in the budget session, the finance minister added, as the government will need the approval of the parliament to facilitate the sake of the LIC stake.

    The government has a divergent target of Rs. 1.75 lakh crore for FY22. In FY21, the government had budgeted raising Rs 2.1 lakh crore through divestments, but failed to achieve the target as disinvestments of BPCL and LIC could not be completed during the year.

  • Two PSBs, an insurer to be disinvested this year

    Two public actor banks and one general insurance company are expected to be disinvested this year, this feature also comes under the IPO of the LIC in 2022 and was presented by Finance Minister Nirmala Sitharam during the union budget in Lok Sabha on 1st February 2021. This will be in addition to the disinvestment of the IDBI Bank.

    The Government currently owns 100% of the LIC, while it holds around 46.5% in the IDBI bank. It aims to garner Rs. 90,000 crore from the listing of the LIC and stake dilution in the IDBI bank in the next fiscal out of a total disinvestment target of Rs, 2.10 lakh crore.

    Smt Sihtaram said that the strategic sale of the BPCL, the IDBI bank, Air India, the Shipping Corp, Container Corp, and other disinvestments would be completed in 2021-22 in spite of Covid 19. Indicating that the disinvestment process was in full swing, the minister said that the Niti Aayog had been asked to come up with the list of companies that may be disinvested next.

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Frequently Asked Questions (FAQs) for Life Insurance

The premium is one of the most important factors to consider before buying a policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age:It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chances of contracting diseases is low. Young people also opt for policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender:The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits:The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term:Policy terms are also taken into consideration by insurers while deciding the premium amount. Policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation:The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physicianâ s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence. There are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: An insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the policy, the insurance companies generally pay 80% of the total premiums paid.

Buying life insurance online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. Online insurance policies also offer higher benefits. Customers should, however, buy online policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one policy to increase the cover or avoid claim rejection. In case of multiple policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In the case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy life insurance, the insurance company asks for the nominee details. Only the person named as the nominee in the policy can cash out a life insurance policy in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in the case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term. The family receives the death benefit. In the case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment options are chosen the policy works as a source of regular income.

It is a popular misconception that life insurance is only for accidental deaths. A term life insurance plan like iSelect also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy life insurance in your early 20s because it’s is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy life insurance at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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