Life insurance industry is well-positioned to deliver high growth rates in next five years. New products with low costs on the back of customer-friendly regulatory framework make it a win-win situation for both the insurance buyers and insurers. While the government ensures a phase of high economic growth in the economy, insurance companies offer means to individuals to participate in the high growth phase by purchasing protection and investing at low cost. In an interview with Moneycontrol.com, Sanjay Tripathy, senior executive vice president of HDFC Life discusses various benefits life insurance buyers get when they buy new-age life insurance products.
1. How does an insurance buyer save tax when he buys a life insurance product? Life insurance policies can be useful tax planning tools, because the policy holder is eligible for tax benefits under the Income Tax Act 1961 (Act). Any Individual may avail this deduction for premiums paid or deposited to keep the insurance policy in-force on life of self, spouse and children. RELEVANT INCOME TAX SECTIONS FOR LIFE & Health INSURANCE PRODUCT- Sec 80C - Deduction for Life Insurance Premium(up to Rs 1,50,000)- Sec 80CCC - Deduction for Pension Premiums(up to Rs 1,00,000 proposed to be enhanced to Rs.1,50,000/- by the Finance Bill, 2015)- Sec 80CCE – Overall Limit of deduction under Sec 80C, 80CCC & 80CCD (1)-. Rs 1,50,000- Sec 80D - For individuals, the maximum deduction is Rs.15,000 and for senior citizen parents, additional deduction is available for Rs. 20,000( proposed to be enhanced to Rs.25,000/- and Rs.30,000/- by the Finance Bill,2015)Any sums received under Life Insurance Policies are exempt under Sec 10(10D) of the Income Tax Act,1961, subject to conditions specified in that section.2. How much tax one can save by buying life insurance products?One can save up to Rs. 63,345/-on investment of Rs. 1,50,000 under Life Insurance Products and on investment of Rs.55,000 towards Health Insurance Products for you and your family*. The same is explained below with an example:
| Salary | Rs 20,00,000 | |
Insurance Premium (under Sec 80C) | Nil | Rs 1,50,000 |
Mediclaim Premium for self, spouse and parents (under Sec 80D) | Nil | Rs 55,000 |
Taxable Income | Rs 20,00,000 | Rs 17,95,000 |
Upto Rs 2,50,000 | Nil | Nil |
Rs 2,50,001 – Rs 5,00,000 (@10%) | Rs 25,000 | Rs 25,000 |
Rs 5,00,001 – Rs 10,00,000 (@20%) | Rs 1,00,000 | Rs 1,00,000 |
Rs 10,00,001 (@30%) | Rs 3,00,000 | Rs 2,38,500 |
Total Tax Payable inclusive of Education Cess + Surcharge (30.90%) | Rs 3,74,405/- | |
| Tax Savings (@30% Bracket) | - | Rs 63,305/- |
3. Why one should look at recently launched low cost ULIP? How do they stand on returns and tax benefits as compared to other investment options?
Post regulation changes in 2010 wherein the charges in the ULIPs were capped, ULIPs have become a very attractive proposition in the current market. Moreover, the Indian Equity market which has recently crossed 30,000 index and is expected to grow further in next few years is providing the required impetus.
Switching facility in ULIPs allows the policyholder to switch from equity to debt, and vice versa, based on his reading of the market. The process is fairly simple. Online access has made it even easier. ULIPs not only provide a great platform for systematic investment in Equity market, but also provide protection to your family in case of unfortunate demise of the life assured.
For instance HDFC Life offers HDFC Life Click 2 Invest, a unique low cost ULIP with just 1.35% FMC . The only other deduction is mortality charge for the life cover. Since there is no premium allocation charge the entire premium is allocated to the funds, also regular policy admin charge is not charged. This minimal charge structure in the products helps the customer to optimize his returns.
Financial investment options such as Bank FD’s / PPF / VPF and NSC offers a return of around 8.25% - 9.00%, without any life cover. And with the decreasing interest rate, the returns are expected to go down in the coming years. Also, if you look at the tax implications on these financial instruments, ULIPs provide better value for money along with the flexibility to get access to funds through partial withdrawals after 5 policy years. None of the other Financial Instruments provide tax free, lump sum payout in the hands of nominee in case of exigencies.
Due to lack of marketing, NPS is slow to attract mass investors. However, those who are NPS customers are completely satisfied with the lowest in the financial product charge structure which enhances their retirement corpus substantially. Also the diversified investment opportunity due to the exposure of Equity and Debt makes it less risky then a pure equity investment. However, equity being capped to 50% is too conservative, especially for the young people who want to stay invested for longer periods and prefer a higher exposure to equity.
4. How is the response to the health saving plans launched by you? What are the benefits these schemes offer in addition to the life insurance plans?Health Insurance has been primarily dominated by General Insurance players. Mediclaim plans, offered by General Insurers come with 1 or 2 year policy term. However, life insurance companies have the obligation to provide long term Mediclaim, and ensure that the premium is guaranteed for at least 3 years.
We at HDFC Life are focussing to grow its Health Portfolio by developing a basket of Health Products, which provides the opportunity to the customers to choose as per his /her requirements. Currently we are covering around 3000 lives per month and are expected to grow by next year.
Health Assure Plan, is a simple mediclaim plan, which offers a Premium guarantee for 3 years along with Guaranteed Lifetime Renewability.
Health Assure provides reimbursement to the life assured and/or his family members in case of Hospitalization, Pre and Post Hospitalization, Maternity Benefit and Hospital Cash Benefit to ensure the coverage is comprehensive. We also offer 200 Day Care Procedures, which helps insured to get the benefits without staying in hospital for a period of 24 hrs. We also provide additional benefits to the customers to choose from. Additional Benefit includes Room Rent Enhancement which eliminates the sub-limit on room rent whereas Restore Benefit helps to restore the Sum Insured to original level if basic Sum Insured & multiplier benefit is exhausted due to claims.
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