India is a country where social security measures are negligible and penetration of insurance products is low. Hence, its people need incentives to opt for insurance according to their financial capacity.
Investments and insurance have been marketed purely as tax-saving instruments and the terminology such as ‘80C’, ‘80D’ are better understood than the real reason for the insurance is.
“Investment is thus fragmented without proper planning across different categories under section 80C of the Income Tax Act and insurance premium / plan is generally the balancing figure within the ₹1.5 lakh limit for tax purposes,” said Parag Mathur, general counsel and head of compliance, BankBazaar.com, an online financial marketplace. So, “whatever is possible [within those limits] is what people buy or rather, are sold by investment advisors.”
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K.G. Krishnamoorthy Rao, MD and CEO, Future Generali India Insurance said in India, insurance was still considered an expense rather than a necessity to secure financial stability.
With the increase in financial literacy, there is some increase in awareness levels and of late, people are beginning to realise the significance of insurance products, across protection, savings and investment, for themselves and their families. “However, most still don’t know the difference among endowment, ULIPs, term cover or annuity. The new generation is still learning to design its insurance portfolio,” said Mr. Mathur.
Like any other investment option, there is no one-size-fits-all insurance product for all events and life stages. A person will require different insurance products to cover different risk at different life stages which necessitates careful planning and enough scope to buy products.
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Having a separate category for insurance product for tax saving (other than Section 80C) would do justice in promoting the right life-stage planning and purchase of the right product rather than a forced buy for adjustments in the same category as PF, PPF and the like.
Mr. Mathur said the separate ₹50,000 exemption for National Pension Scheme (NPS) investments under Section 80CCD(1) has made people consider retirement planning from the “right perspective.” Over the years, the investment in NPS has grown from ₹231 crore in March 2013 to ₹1,838 crore in September 2016, highlighting how a separate category of investment which is over and above the deduction of Rs 1.5 lakh available under section 80C of Income Tax Act can influence better financial decision-making and planning, he said.
“Doing something similar for insurance can help insurance companies sell need-based insurance and manage life stage needs for covers and savings much better,” Mr. Mathur added.
“With rising inflation over time, it may make sense to increase the limits as also motivate people to insure their lives at an early age — like a separate limit was inserted under section 80CCD to save for retirement under NPS”, said Sudhakar Shanbhag, chief investment officer, Kotak Life Insurance.
Home, health insurance
Two areas where Mr. Rao expects some focus from the government are home insurance and health insurance. This year, various States in India had been flood-stricken. Data on the frequency of floods in the country has revealed significant losses to property, assets and lives.
In India, a concerted effort, including from the Centre, is needed to make home insurance pervasive. To reduce the burden of losses from disasters, there is an urgent need to increase home insurance penetration in the country. It is a well-recognised fact that natural disasters are a major hurdle for economic development of the country.
“Making home insurance mandatory and incentivising homebuyers with income tax benefits for premium paid towards a home insurance policy will encourage people to protect their house,” said Mr. Rao. “It will not only ensure protection against financial losses from natural calamities but also help deepen insurance penetration in the country.”