The impact of changes in the Budget and the new directives of the Insurance Regulatory and Development Authority (IRDA) will lead to fresh challenges in the newfinancial year.
Here are the key issues that will affect insurance companies and the public.
Financial YearSum Assured: The sum assured has to be 10 times the premium for tax savings on entry and exit under Section 80C and 10(10D), respectively. Many existing traditional and single-premium products will become obsolete and require product revision and approval from IRDA. The policy term will increase to make the policyholder qualify for tax savings. The current trend of short-term policies will soon end.
Budget Deficit
People in the older age group may find it difficult to qualify for tax savings as higher mortality rates will increase the premium for the same sum assured. These arguments are valid for insurance-cum-savings products like endowment, money-back, whole-life and ULIPs (unit-linked insurance policies). Term plans, which are the best insurance plans, should not have any problems as the sum assured is easily more than 10 times the premium and there is no concept of maturity value; hence, section 10(10D) does not apply.
Service Tax: The increase of service tax from 10.3% to 12.36% on the policy charges will increase the premium amount for policyholders; it also means a lower rate of return on investments. Traditional products, which don’t give a break-up of charges, used to charge service tax at 1.545% of the premium. This rate will now increase to 3.09% for the first year.
Financial YearPension Products: There has been no pension product in the market after IRDA insisted on explicit definition of assured benefit that is applicable on death, on surrender and on vesting (end of accumulation phase) which have to be disclosed at the time of sale. Immediate Annuity: The pension guidelines mandate that the same insurance company that was involved in the accumulation phase of the pension product must complete the annuity phase. It is important for insurance companies to offer competitive annuity rates. New immediate annuity products like Star Union Dai-ichi (SUD) Life Insurance’s Immediate Annuity Plan and SBI Life’s Annuity Plus have started coming into the market, to compete with the immediate annuity product of Life Insurance Corporation of India (LIC). There is an expectation that more companies will come up with competitive rates.
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