From October 2013, Life Insurance Corporation of India (LIC) policies will cost more. LIC, which accounts for 83% of the market share, will levy service tax of around 3% on all non-Unit-Linked Products beginning from first October 2013.
This means if the annual premium for your money-back policy from LIC is Rs 10 lakh, you will have to pay an additional Rs 30,000.
While private insurers add a service tax component to the premium paid by customers, LIC has not been levying the tax on its endowment and money-back plans.
From October 2013, however, all LIC policies will attract separate tax.
In a recent announcement, the Insurance Regulatory and Development Authority (Irda) mandated that service tax should not be included in the contractual premium, but should be collected separately from policyholders.
Currently, LIC will be absorbing the service tax as part of the policyholder’s funds, as the share capital of the government (which is its owner) is just around Rs 100 crores.
When service tax is charged separately, LIC may be able to pay higher bonuses on the policies.
All along LIC had been paying service tax from the money in the policyholder’s fund (which holds the premium collected and income from investments). It is the surplus in this account that is declared as bonus on traditional plans.
Customers may, however, see this move only as an additional burden.
LIC agents say that the service tax was a deterrent particularly for immediate annuity plans and single premium plans where the premium is usually large.
However, LIC may lose the advantage over other traditional plans from private life insurers now, and though this may come as shock to customers initially, they will slowly get accustomed to the new norm.
This means if the annual premium for your money-back policy from LIC is Rs 10 lakh, you will have to pay an additional Rs 30,000.
While private insurers add a service tax component to the premium paid by customers, LIC has not been levying the tax on its endowment and money-back plans.
From October 2013, however, all LIC policies will attract separate tax.
In a recent announcement, the Insurance Regulatory and Development Authority (Irda) mandated that service tax should not be included in the contractual premium, but should be collected separately from policyholders.
Currently, LIC will be absorbing the service tax as part of the policyholder’s funds, as the share capital of the government (which is its owner) is just around Rs 100 crores.
When service tax is charged separately, LIC may be able to pay higher bonuses on the policies.
All along LIC had been paying service tax from the money in the policyholder’s fund (which holds the premium collected and income from investments). It is the surplus in this account that is declared as bonus on traditional plans.
Customers may, however, see this move only as an additional burden.
LIC agents say that the service tax was a deterrent particularly for immediate annuity plans and single premium plans where the premium is usually large.
However, LIC may lose the advantage over other traditional plans from private life insurers now, and though this may come as shock to customers initially, they will slowly get accustomed to the new norm.
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