Union Budget 2017: Arun Jaitley’s income tax proposals to boost insurance sector; here’s how

This year’s Union Budget will help the insurance industry to grow at a rapid pace as certain proposals will benefit both the life and non-life sectors. There is a strong focus on tax compliance. By providing tax relief to citizens earning up to R5 lakh, the government will be able to increase the number of taxpayers. Life insurers will be able to sell them insurance products, to further reduce their tax burden in future. As many of these people were understating their incomes, they were not able to get adequate insurance cover. Now, it will be easier to compute their Human Life Value and sell the amount of insurance that they actually require.

The Budget has lowered the holding period required to get capital gains tax exemption from real estate to two years. This will enable people to shift their investable surplus from physical assets to financial assets. Post demonetisation, people would prefer to keep their money in formal investment products rather than real estate and gold and a part of it would go into insurance. The Budget has attempted to hasten the implementation of the Digital India initiative. As people in rural areas become more tech savvy, they will use digital channels of insurers to buy policies. Customers will get prompt, transparent and cost-effective services.

The sector can grow only if we can bring a greater number of people under the ambit of insurance. There are a lot of Indians who need insurance cover but cannot afford the conventional life insurance products. What they need is micro insurance. The insurers need to sell micro insurance policies with a lot of flexibility in premium payment options. The insurance regulator is in favour of selling POS policies to them. Such policies will have easy to understand features and the policy contract will be the same for all. The Budget has made provisions for paying huge subsidies in the premiums of Pradhan Mantri Fasal Bima Yojana (PMFBY) and the number of beneficiaries will increase to 50% in the next two years from the present level of 20%.

The insurance cover is on the total estimated value of agricultural produces. Therefore, in case of poor harvest, the insured farmers are always assured of earning their income. As more people are covered under the scheme, there will be more stability and prosperity in rural areas. The consumption pattern of rural India will not be disturbed. This arrangement will not only benefit non-life sector but also the life sector. Growth of some insurers, including LIC of India, depends a lot on the rural business.

If rural India has a stable income, life insurance business is bound to be good for the insurers with reasonable presence in rural India. Normally, rural people shy away from taking good insurance cover because they do not know whether they would be able to pay premiums for a long period. Their policies lapse when they are unable to pay premiums due to low farm incomes caused by natural disasters. PMFBY will ensure that persistency of policies taken by rural people remains high in all circumstances.

The writer is manager (Legal), LIC of India, Asansol Divisional Office. Views expressed here are personal.

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