Policy sales throughout the year point to a lower fiscal impact

Rachel Chitra | TNN

Bangalore: sales of life insurance The policies may not be as affected as feared due to the budget announcement that allows those evaluated to opt for a lower rate of tax by foregoing tax breaks on investments such as insurance . Industry experts say tax breaks for investment under Section 80CCC of the Income Tax Act are no longer the driver and buyers are choosing insurance for protection and tax -free returns on earnings.

One indicator of the dependency on investment tax breaks is the bunching up of purchases around March 31. This has gone down over the years, as investors now have a wider variety of tax -saving investment options available.

In 2015, more than 35% of the premium for the new policies came in the quarter that ended in March. This has been reduced to 27% in 2019, indicating that sales are more spread.

The fourth quarter of 2019 saw sales of Rs 73,089 crore (27%) in the first year premium of the new business of the total premium of Rs 2.67 lakh crore. This compares with the sales of new businesses in the fourth quarter of Rs 44,142 crore (34%) of the total premium of Rs 1.24 lakh crore.

If one looks at the month of March only, the volume of business done has dipped to 14% of total sales in 2019 from 18% in 2015. Tax will not be the only deciding factor, say companies. PolicyBazaar CEO Yashish Dahiya says, “Our insights tell that consumers don’t buy these products for tax benefit alone. This Budget will validate these insights, as we believe it’s time the middle class bought insurance for its real benefit, which is protection.”

There are others, who say they will most likely retain their client base as the old tax regime would prove more beneficial to them. “Our initial analysis suggests that it is beneficial for tax payers to continue investment in life insurance policies for claiming tax exemption under Section 80C as it would be beneficial with less tax outflow in the year in which premiums are paid. Additionally, tax exemptions under section 10(10D) of Income Tax Act would continue against the amounts received from life insurance companies,” says Prashant Tripathy, MD and CEO, .

Tax planners also say it is unlikely millennials would opt of insurance for a few thousand rupees in tax savings. “Most people in their 30s and 40s would already have an ongoing life insurance policy for Rs 20-30 lakh. Some even take Rs 1-crore policies. Now for a tax -saving of Rs 10,000, it is unlikely they will opt out of policies and lose the benefits on them,” says S Neelakandan, a chartered accountant and tax planner.

“People new to insurance might go for the new tax regime. But the majority of the salaried class — whatever else they opt out of (mutual funds, FDs, PPFs) — life insurance they are unlikely to. This is a life risk — and a very personal decision. The money is whatever they are leaving for the family if something happens,” adds Neelakandan.