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This is what the health & life insurance sector wants in the Budget

Amitabh Tiwari
·3-min read

Budget 2021 is all about revival after survival in 2020. India has recovered remarkably from the lockdown blues and most agencies have reduced the GDP contraction estimates for this financial year.

The insurance sector has assumed significance in the post pandemic world. Many people contracted with the virus had to incur heavy hospital bills, while unlucky ones had to face the wrath of the disease and leave the world.

The medical exigency created by the pandemic has led to an increase in the enquiries and sales of insurance products primarily health / medical and life insurance.

Insurance penetration in India is quite low. In terms of the premium paid it is 3.76 percent of the GDP, whereas the global average stands at 7.23 percent of GDP as of March 2019.

There is immense scope for the industry. Medical insurance protects an individual / family from hospitalisation expenses while life insurance plans provide social security and long term savings options.

Health insurance is not compulsory in India and there is no government owned universal healthcare system like one in the European countries or Americas. Government has introduced Ayushman Bharat which covers 50 crore families with a health cover of Rs 5 lakh.

80 crore Indians are not covered in this scheme. Further as we have seen during COVID-19, Rs 5 lakh limit is very less considering the high medical costs.

Currently, health insurance premium of Rs 25,000 per year is allowed as a deduction from income. No separate deduction for life insurance premium is available and it is clubbed under the 80C limit with other investment plans.

The deduction for premium paid for health insurance is very low considering average family size in India is around five. The annual premium for a family floater health policy of Rs 15 lakh for a 35-year-old individual, spouse and 2 kids comes to Rs 26,000-28,000. This should be doubled to at least Rs 50,000.

For senior citizens, the limit is Rs 50,000. This too is low considering the costs of health insurance shoot up after the age of 60. To encourage companies to offer cost effective plans for senior citizens as well as senior citizens to buy a health cover, the cap should be removed and deduction should be allowed on an actual premium paid basis.

A separate deduction of minimum Rs 50,000 should be allowed for payment of life insurance premium for first time buyers.

The 80C limit should be doubled to Rs 3 lakh with a sub-limit of Rs 1.5 lakh for premium / contribution to life insurance plans.

Term plans are the most cost effective insurance plans. With a low premium, one can get a big cover, however it is not an investment plan. The GST on term plans and unit-linked insurance plans are currently high at 18%. GST should be reduced to increase penetration and boost adoption among consumers.

Similarly, GST on health insurance policies should be reduced from the current 18% to either 12% or 5%.

Pension plans offer regular income to retired persons and build secured long term savings. While investment in the National Pension Scheme offers additional tax deductions of Rs 50,000 under Section 80CCD, a life insurer’s pension plans do not enjoy this benefit.

The Finance Minister should end this disparity between products offered by life insurers and the NPS. It should include contributions in pension plans of life insurers also as deduction under Section 80CCD.

To sum up, like other industries, the insurance industry is also expecting positive tax and regulatory changes which would increase penetration and build a structure that cajoles people to adequately cover their health and life risks.