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Union Budget 2021 - How it will Impact Insurance Industry in India?

dateKnowledge Centre Team dateFebruary 03, 2021 views135 Views
Union Budget 2021 - How it will Impact Insurance Industry in India?

The first-ever digital annual financial Budget was presented by Finance Minister Nirmala Sitharaman on February 1st 2021. The expected predictions relating to the annual financial budget carried the heavyweight of citizens' anticipations originating from the financial downfall in the economy that was prompted by the continuing global pandemic. While India has managed to handle this pandemic relatively well considering its population and medical infrastructure that was not in a good state even prior to this prevailing pandemic. Now, the most significant hurdle lies in sustaining the country's economy which was anyway explicating indications of slowdown even prior to the Covid-19.

In the year 2020, the government of India proclaimed a multitude of incentive packages to help falling industries and their workforce. However, the continuing global pandemic has stressed on the significance of health and life insurance as a mode of monetary safeguard for oneself and its family, restating the uncertainty of life-changing events. While there has been an enhanced recognition of insurance sector offerings amidst customers and citizens, especially for health and term life insurance. Various notable advances are made in this industry in relation to public consciousness and public assent of insurance industries that will continue to remain a potential sector in our Country.

How Union Budget 2021 will impact the insurance industry?

Recognizing the significance of various kinds of insurance to the infrastructure sector and the entire economy, the insurance sector was assured that various benefits will be granted in the annual financial budget. True to their hopes and assumptions, the Finance Ministry of India has made certain reforms, which the insurance sector will get assisted in generating a higher penetration and involvement from the citizens impacting the sector in a better way.

Hike in FDI limits

At the beginning of the Annual Budget speech in the year 2019, the finance minister had stressed on the Indian government’s intention to improve the Foreign Direct Investments (FDI) limit in the insurance sector. Although, there was no announcement made by the government thereafter on this matter. However, in the Union Budget 2021, there was a prolonged discussion on the liberalisation of Foreign Direct Investment in the insurance sector. It was further stated that the insurance companies should be granted the highest priority and this must be executed in this year’s annual Budget. Considering the present economic slowdown and uncertainty, the government has decided to raise the Foreign Direct Investment limit in the insurance industry to 74 per cent without emphasising on the condition of that insurance company being Indian regulated as this will assist in inducing more reliable technological expertise, modification and increasing insurance penetration, thereby expanding the attempts of the Indian government to strengthen the present sluggish economy.

Discrete tax deduction on the payment of life insurance premium

In the previous year's Union Budget, the finance minister proclaimed a novel arbitrary tax routine for the individual taxpayers wherein a more economical tax rates were proposed, and the taxpayers were expected to relinquish their claim of the reduction provided to them under section 80C of the Income-tax Act, 1961. Presently, under the tax slab of section 80C of the Income-tax Act, amidst other reductions such as remittance made against employee’s provident fund and many other deductions of this sort, the taxpayer can demand a deduction of life insurance premium with an all-inclusive limit Rs 1,50,000.

It is a well-known phenomenon that numerous individual taxpayers in the country acquire life insurance policies to claim a write-off under the Income-tax Act. Furthermore, the global pandemic has bolstered the requirement for adequate health as well as life insurance protection proffered the uncertainty of life. Hence, a discrete deduction of the health insurance premium is expected to be allowed by the government in the annual budget and the same can be claimed under the section 80D of the Income-tax Act. This deduction is further allowed to taxpayers even under the new optional tax administration. Acknowledging the expensive cost of health insurance premiums, the government will further revisit the limits that are presently available for demanding deduction of premium under section 80D of the Income-tax Act and update the same as per the prevailing market conditions.

Reduction in tax on earnings and gains

The earnings and profits from the life insurance sector are imputable to tax at the rate of 12.5 per cent per annum, As per section 115B of the Income-tax Act. This tax percentage of 12.5 per cent was prefaced in the year 1976 when the corporate tax percentages varied from 45 per cent to 65 per cent. In the year 2019, the government of India decreased the head corporate tax rate and brought it down to 22 per cent per annum (excluding cess and surcharge) for national companies and 15 per cent (excluding cess and surcharge) for upcoming or newly established manufacturing industries, subject to specific stipulations. In the present year 2021, the government of India has decided to revisit the corporate tax rates for the life insurance sector and reduce the same as it will hold a peremptory influence on profitability and cash flows of life insurance organisations.

To take on this prevalent flow there are certain modifications in the annual budget. The dominance and penetration of the insurance sector would progress further, particularly in Tier 2 and Tier 3 cities. Here are some major modifications that will impact the insurance industry.

1. Rise in Section 80C limit - This anticipation has continued to remain a much-demanded point since the previous few budgets. So, this year there is a lot of speculation that considering the economic effect of the global pandemic, the limit granted in the section 80C of the Income-tax act might be improved and that would for sure provide a stimulus to the life and health insurance sector and also the overall insurance industry.

2. Increase in the limit under Section 80D - Although the limit under this section 80D was improved to Rs. 50,000 in the previous budget, the increase was only for senior citizens. It is anticipated that this Union budget 2021 will enhance the limit of Rs 25000 under the section 80D of the Income-tax Act for regular taxpayers as well.

3. Incorporation of pension plans under Section 80CCD - The National Pension System (NPS) scheme relishes an added deduction of Rs. 50,000 under Section 80CCD (1B) of the Income-tax Act. This deduction has swayed the popularity of life insurance pension plans which are only covered under the Section 80C with a limit of Rs. 1.5 lakhs. In this year's annual budget, it is anticipated that the specific deduction under Section 80CCD(1B) of the IT Act would be extended to incorporate Life Insurance pension plans too and further raise their prevalence.

  • Elongated carry forward for business losses

    It is a widely regarded fact that insurance companies and particularly life insurance companies include a more extended maturity period vis-à-vis numerous distinct firms and still several of them remain to bear losses even after 10 years of their existence in the industry. Furthermore, the global pandemic has additionally worsened the monetary status of insurance and especially the life insurance sector. Taking all this into consideration, this year is the perfect time when the Indian government can concede an extended term of 12 years for the take forward of losses sustained by the insurance companies.

  • Improvements for the non-life insurance industry

    In the past year, non-life insurance organisations embraced the motion concerning the allowance of reduction for outstanding statutory accountabilities under section 43B of the Income-tax Act in the year of payment. But, non-life insurance companies were also anticipating a related measure concerning the allowability of expenditure in the present year for compliance with the delaying tax stipulations, excluding repudiation of the provision in the year of credit to profit and loss account which was previously disapproved. Non-life insurance corporations have anticipated that Budget 2021 would cater to such a measure and convey some clarity in their assessment mechanism.

    The Indian branch of foreign reinsurers is probable that the Union Budget,2021 will own a Distinctive code of taxation, that is legitimate and unambiguous. Along with that, the method of receiving blanket NIL withholding tax certificates would be vindicated on comparable lines as currently applicable to Indian subsidiaries of international banks as mentioned in the Budget 2020.

    While the concern linked to the process of receiving the blanket Nil withholding tax certificate has been settled in September 2020, the incertitude still prevails as to how such reinsurance subsidiaries would be taxable in India.

    The Finance Minister Nirmala Sitharaman has recently presented a Union Budget like never before in the year 2021. This annual budget has brought in the much-required reforms that will further boost the Indian economy. The insurance industry can further receive a tax deduction on health insurance products by 5-6 per cent as this will assist in promoting the insurance coverage rate. It will further play a significant role in boosting the demand for insurance policies.

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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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