A reduction in demand as high value insurance policies are brought under taxation

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MUMBAI: The growth rate of high value insurance policies remained sluggish in the first half of the current financial year. In this budget, high value insurance policies were brought under taxation. However, there has been an increase in the purchase of policies with a premium of less than Rs 5 lakh during this period. This growth has mainly come from smaller cities.

Finance Minister Nirmala Sitharaman announced in this Budget that insurance policies (other than Unit Linked Insurance Schemes or ULIPs) with a total premium of Rs. 5 lakhs will not be exempted from tax on maturity. This rule came into effect on policies dated April 1, 2023.

Life insurance company sources said business for policies with premiums above 5 lakh has slowed down but is still a significant contributor. On the other hand, the contribution for policies worth less than Rs 5 lakh is 90 per cent and has increased by 18 per cent. Growth in this segment has offset the adverse impact of larger policy sizes.

The growth of policies below Rs.5 lakh was 21 percent. A total of Rs. Policies with a premium of Rs 5 lakh are increasing but less than last year. However, some companies even speculated that there may be a shift from these policies to ULIP plan-based policies. Because policies based on ULIP plans are tax exempt.

Due to the imposition of tax on policies with premiums above 5 lakh, their business is declining in big cities but growing rapidly in medium and small towns.

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