Budget 2024 – Exploring new frontiers in life insurance

2023 was not just another year in the archives of the life insurance industry; it was a year of groundbreaking achievements. The industry, leveraging the power of Artificial Intelligence (AI) and other advanced technologies, transformed insurance from a complex necessity to a simple, accessible solution tailored to the diverse needs of the Indian populace.

Partly triggered by COVID, the Indian population has also become more aware of the need and urgency of buying a life insurance policy. Life insurance companies have thus been growing steadily and contributing to the Indian economy. Tech innovations fuelled this growth and will sustain it in the years to come.

Innovations Unlimited

The adoption of facial analytics and account aggregator models represents technological advancements leading to more empathetic and customer-focused insurance services, while also expanding the industry’s reach. The IRDAI’s expansion of the ‘Use and File’ scope has further empowered us to innovate, offering tailor-made products that cater to individual needs and preferences.

Empowering Communities through Bima Vahaks

The IRDAI’s Bima Vahaks initiative is set to make insurance knowledge more accessible. This women-driven distribution force promises to bridge the gap between insurance and the masses through personal interactions and localized understanding. Bima Vahaks, together with Bima Sugam (the one-stop-shop insurance platform) and Bima Vistaar (an affordable composite insurance product) promise to lead the path towards insurance for all.

Budget Wishlist

Our journey towards ‘Insurance for All by 2047’ is marked by strategic steps, and certain recommendations for the upcoming Budget could pave the way for growth and accessibility in the Life Insurance Sector:

1. No Taxation for Annuity Plans to Benefit Both Retirees and the Industry:

Many Indians don’t save enough for retirement, and the gap between needed and available retirement funds is expected to reach $85 trillion by 2050. To help close this gap, consider these steps:

Investing in pension and annuity products is crucial for income after retirement. Making taxes simpler or removing them for these products will encourage more people to invest in these important financial protections.

Pension policies, like the NPS, provide a steady income in retirement. It’s important to lessen the tax load for people receiving pensions from the National Pension System (NPS), as the retirement fund gap is expected to increase a lot. The current ₹50,000 tax exemption for NPS under Section 80CCD(1B) should also apply to pension and annuity plans to encourage more people to use them.

2. Improving Tax Benefits to Increase Insurance Coverage:

India faces a severe issue with inadequate insurance. When a family’s primary earner passes away, the money left for the survivors to live and settle debts is usually less than nine percent of what’s actually needed.

• Separating Savings for Life and Health: Changing tax sections 80C and 80D to provide separate tax breaks for the life-threatening risk part of life and health insurance payments, as well as for fixed-term insurance plans, could help close the gap in death risk coverage and enhance social security.
• Complete Deduction for Life Insurance Premiums: Permitting individuals to deduct the entire amount paid for life insurance premiums from their taxable income, as stated in Section 56, without any decrease due to claims made under other sections such as 80C, will encourage more people to buy insurance. This means they get the full tax benefit for their insurance premiums, making insurance more financially appealing.

3. GST Reforms for Wider Reach: Lowering the Goods and Services Tax (GST) on term life insurance and applying a ‘Zero rating’ –which means setting the tax rate to 0%— for certain essential policies like the Pradhanmantri Jeevan Jyoti Bima Yojana, smaller insurance policies covering up to ₹2 lakh, and annuity products for National Pension Scheme subscribers. By effectively removing the tax without sacrificing tax benefits for businesses, this policy aims to enhance financial security for more citizens.

A Collaborative Future Ahead

As we progress, the collective efforts of the life insurance industry, including Aegon Life, are crucial in shaping a more secure financial future for individuals across the nation. With data enablement as the driving force behind this insurtech revolution, we can expect many more innovations soon. Databases such as Aadhaar, Income Tax Portal, and Account Aggregator Network is already helping insurers with digital underwriting. The Ayushman Bharat Health Account (ABHA) can also be a significant enabler for life insurance companies.

With ongoing support from regulatory bodies and anticipated policy reforms, insurers are committed to extending their reach and impact, making insurance a fundamental part of every Indian household’s financial plan. Together, we’re not just insuring lives; we’re securing futures and building a new world.