Protection in focus

The life insurance industry plans to sell more term products even as the alternative tax structure takes away exemptions

- SUBRATA PANDA & SHREEPAD SAUTE

Insurance has historically been a “push product” and despite the best efforts of the regulator and the various life insurance companies, it has failed to see pull from customers. One of the biggest incentives for buying insurance has been the tax exemption under section 80C of the Income Tax Act. In the Union Budget 2020, the Finance Minister introduced an alternative lower taxation regime wherein a taxpayer can choose a lower tax rate but will have to forgo most of the deductions they enjoy under the existing tax regime.

This has sparked a debate in the life insurance industry. One side believes that removal of exemptions will not have a detrimental impact on the insurance business in general as the customer has evolved over the years and understands that life insurance is mainly meant for protection and not as a tax-saving option.

The other side puts forth the argument that incentives in the form of tax exemptions have worked in driving up the penetration levels and the removal of it will have an impact on consumers. This is because the attractiveness of a life insurance policy will somewhat be diluted and the policyholders will have to be educated to make them aware of the importance of protection.