Budget has proposed to increase the sum assured to at least to ten times of premium paid from current regulations of five times on life insurance policies to enjoy tax benefits. With this move several money back life insurance policies, shorter term endowment plans, limited premium payment life insurance plans and single premium plans will not be able to offer tax benefit from next financial year.
If new conditions in the budget are not met from next month then policyholder will not get tax deduction on the premium as well as income from the policy.
The finance bill has proposed to reduce the threshold of the premium payable to 10% of the actual capital sum assured from 20% of the actual capital sum assured in order to enjoy benefits under section 10(10D) and section 80C of the income tax act. The bill has defined capital sum assured as the minimum amount assured under the policy when the insured event takes place at any time during the term of the policy.
At present provisions section 80C allows premium paid towards life insurance policy to qualify for a tax deduction upto Rs 1 lakh. But if the amount of premium paid in a financial year for a life insurance policy is in excess of 20% of the sum assured, then tax deduction is allowed only for premiums paid for up to 20% of the sum assured.
As per the benefits according to the section 10(10D), death benefit in an insurance policy is tax free, but any other benefit such as the maturity proceeds is tax free if the premium is not above the 20% of the sum assured.
Pure Term plans and whole life plans will remain compliant with new regulations as these plans have cover more than ten times of the premium paid. Problem is with money back plans and endowment plans as most of them are not compliant with this requirement and they will need to be refiled.
At present all regular Unit-Linked Insurance Plan (ULIPs) offers the sum assured of at least 10 times of the premium paid for individuals below 45 years of age. For individuals above 45 years of age sum assured offered is seven times of the premium paid.
These regulations will come in effect from first April 2012 hence; insurers will get only two weeks to transit to new regulations. Therefore, they are demanding some more time to adapt to new regulations.
As per insurers not all people buy insurance for just tax benefit, such persons can buy current products that are available without tax benefits because it will take 3-6 months for insurers to launch products complying with new norms, Firstly they have to file products with IRDA for approval. Insurers will have to change all their systems and they have to even train their agents.
If new conditions in the budget are not met from next month then policyholder will not get tax deduction on the premium as well as income from the policy.
The finance bill has proposed to reduce the threshold of the premium payable to 10% of the actual capital sum assured from 20% of the actual capital sum assured in order to enjoy benefits under section 10(10D) and section 80C of the income tax act. The bill has defined capital sum assured as the minimum amount assured under the policy when the insured event takes place at any time during the term of the policy.
At present provisions section 80C allows premium paid towards life insurance policy to qualify for a tax deduction upto Rs 1 lakh. But if the amount of premium paid in a financial year for a life insurance policy is in excess of 20% of the sum assured, then tax deduction is allowed only for premiums paid for up to 20% of the sum assured.
As per the benefits according to the section 10(10D), death benefit in an insurance policy is tax free, but any other benefit such as the maturity proceeds is tax free if the premium is not above the 20% of the sum assured.
Pure Term plans and whole life plans will remain compliant with new regulations as these plans have cover more than ten times of the premium paid. Problem is with money back plans and endowment plans as most of them are not compliant with this requirement and they will need to be refiled.
At present all regular Unit-Linked Insurance Plan (ULIPs) offers the sum assured of at least 10 times of the premium paid for individuals below 45 years of age. For individuals above 45 years of age sum assured offered is seven times of the premium paid.
These regulations will come in effect from first April 2012 hence; insurers will get only two weeks to transit to new regulations. Therefore, they are demanding some more time to adapt to new regulations.
As per insurers not all people buy insurance for just tax benefit, such persons can buy current products that are available without tax benefits because it will take 3-6 months for insurers to launch products complying with new norms, Firstly they have to file products with IRDA for approval. Insurers will have to change all their systems and they have to even train their agents.
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