The life insurance penetration in the country has fallen to 3.3% of the Gross Domestic Product (GDP), the same level as it was in FY’06 when it was just 3.14%. It has fallen from the peak of 5.2% in FY’10.
Experts say that high inflation is stifling savings and unattractive tax benefits also discourage investors to invest into insurance products. The first year individual premium collection has been falling steeply as fewer people are reaching out to investors with insurance as an investment tool.
Insurance behemoth, Life Insurance Corporation of India (LIC) in a presentation to a parliamentary committee has suggested that favourable tax policies will go a long way in increasing the insurance acceptability.
For insurance products, maturity proceeds after excluding the premiums are taxable, while equity schemes are exempt for deduction under 80C for notified schemes. Other products like Public Provident Fund (PPF) and National Pension Products are also exempt.
LIC has also sought for exemptions to be allowed on the basis of the term of the policy rather than the current practice of exemption being allowed for life insurance policies with premium not exceeding 10% of the sum assured. The rationale for this is because in a life insurance policy, the premium amount is locked for the policy term.
LIC said that policyholders of advanced age or of sub-standard health are adversely affected due to this provision. Policyholders having no regular income but willing to pay single premium are also adversely affected.
Experts also said that coverage can be increased through low-ticket size policies and incentives to these segments be given in the form of tax benefit.
vinay mohanty
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