Wednesday, August 15, 2012

Proposal to link tax exemption of Life Insurance policies to the term of the cover

The Union finance ministry is considering a proposal to link tax exemption of life insurance policies to the term of the cover, rather than the sum assured.

The suggestion was mooted by government-owned Life Insurance Corporation of India (LIC).
The largest life insurer has sought that premiums be linked with the term of a policy and any of 10 years or more should get the exemption.

Currently, tax relief is linked to the sum assured. Under the present system, insurance policies, except pension plans, would have to offer a cover of at least 10 times the annual premium to be eligible for tax benefits under sections 80C and 10 (10D) of the income tax rules. 

Earlier, insurance policies with a sum assured of five times the annual premium used to get the tax benefit. Section 80C allows exemption up to Rs 1 lakh and 10 (10D) gives exemption in maturity proceeds.

Insurers have been arguing that the present system would raise premiums, particularly for customers in the higher age groups as they opt for lower term policies where the mortality rates are higher.

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