Budget’s impact on insurance policies

Manish wrote about the budget a few days ago, and he mentioned about a less publicized aspect which affects the way insurance policies are treated. Point 7 in his post is about a new provision that disallows tax benefits to insurance policies that don’t have a sum assured of at least 10 times the premium.

So, things like LIC’s Jeevan Vriddhi which only insures 5 times the premium will not be eligible for any 80C tax deductions or 10(10d) deductions, which means you can’t reduce the amount invested in this policy from your taxable income under Section 80C, and then the money you get at maturity is taxable as well.

Deepak Shenoy wrote about this today emphasizing two key things. First, that this is applicable only to policies that will be bought after April 1 2012, and your existing policies aren’t affected.

Second, for policies that have varying sums assured throughout the tenure (something I didn’t know existed) the minimum sum assured will be considered while deciding if they’re eligible for deductions or not.

I missed including this clause in the budget infographic I made earlier since I didn’t go through the memorandum and only the budget speech, but this is an important change and should have been mentioned.

I’m only writing about this today since RRK left a comment about how this has not been picked up by most of the media and needs to be communicated to a wide audience. He has written a post on the repercussions of this and that’s a good read as well.

My thought on this change can be simply summed up by two words – good riddance!

One thought on “Budget’s impact on insurance policies”

  1. Manshu,
    Economic Times has picked up this story today and published it.
    Link:
    http://economictimes.indiatimes.com/personal-finance/insurance/analysis/budget-2012-impact-on-insurance-not-all-policies-will-get-you-tax-break-now/articleshow/12347537.cms

    Today, One of my friend (ICICI insurance agent) received an SMS from the company urging him to make use of this “opportunity” to sell as much insurance policies as possible before March 31. They are losing minimum 5 plans.

    I am not sure how many wickets LIC lost in this deal.

    I think all insurance companies also would be pushing their agents to “sell” (missell ?) as much as they can in next 10 days.

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