The removal of GST on Individual Life and Health lnsurance Premiums

The impact of a nil GST on Individual life and Health insurance premiums is a significant reform that primarily benefits policyholders by making insurance more affordable, while creating both challenges and opportunities for insurance companies and agents. The reform is a major step toward increasing insurance penetration in India.

For Policyholders: A Direct Benefit

For policyholders, the most immediate and tangible impact is the reduction in the cost of premiums. Previously, an 18% GST was applied to life and health insurance premiums. With the GST rate now at nil, this tax burden is completely removed. This makes policies more affordable, especially for the middle class and first-time buyers who may have found the previous costs prohibitive. For example, a policy that cost ₹11,800 (including ₹1,800 GST) will now cost just ₹10,000. This is expected to:

 * Increase affordability and encourage more individuals to buy insurance.

 * Widen the protection gap, especially for critical segments like term and health insurance.

 * Enable higher coverage, as policyholders can now afford a greater sum insured for the same outlay.

For Insurance Companies: 

Navigating a Mixed Bag while the move is a boon for consumers, insurance companies face a more complex situation. Their primary challenge is the loss of Input Tax Credit (ITC). Under the previous tax regime, insurers could claim ITC on GST paid for their operational expenses, such as agent commissions, rent, and marketing. Since premiums are now GST-exempt, they lose the ability to offset these costs.

 * Increased Operational Costs: The GST paid on these inputs becomes a direct cost for the company, potentially leading to short-term margin pressure.

 * Pricing Adjustments: Insurers may need to slightly adjust their base premium rates to account for the lost ITC. However, even with these adjustments, the final premium amount is still expected to be lower for the consumer.

 * Long-Term Growth: In the long run, the reform is anticipated to boost insurance penetration and sales volume. This increased demand could lead to economies of scale, helping companies offset the initial cost pressures and achieve sustainable growth.

For Insurance Agents: 

A Boost in Business Insurance agents and brokers are set to benefit from the policy change. The increased affordability of policies is expected to drive higher demand, leading to a surge in sales volume.

 * Higher Sales and Commissions: With policies becoming easier to sell, agents can expect an increase in the number of policies sold, which will directly translate to higher commission earnings.

 * Easier Sales Pitch: The removal of the 18% tax component makes the product more attractive, simplifying the sales pitch and helping agents acquire and retain customers more effectively.

Regards,

Ritesh Sheth CWM®

(Chartered Wealth Manager)

Registered Insurance Agent With LIC OF INDIA AND Bajaj Allianz general insurance co Ltd.

Disclaimer: *Views are Personal!* 

Insurance is a subject matter of solicitation

Be careful while buying that ‘cheap’ health insurance policy

Be careful while buying that ‘cheap’ health insurance policy offered by your bank

Apart from bancassurance, banks also take group insurance cover for its staff and customers, which may be availed by account holders by paying a nominal premium.

Almost all general insurance companies and standalone health insurance companies have tie-ups with one or more banks to promote their products. Apart from bancassurance, banks also take group insurance cover for its staff and customers, which may be availed by account holders by paying a nominal premium – much less than the premium amount of personal health insurance policies.

Not only lower premium, but such group health insurance policies also offer some additional benefits like maternity cover, lower or no waiting period etc. So, definitely such group policies look lucrative in comparison to a personal health insurance cover.

But wait, inspect the terms and conditions carefully before you rush to replace your personal health insurance cover with the cheaper group policy offered by your banker.

This is because, the group health covers have the following demerits over personal health insurance cover:

Not a permanent cover

You may avail the benefits of such a group insurance cover as long as you are a customer of the bank. If you change your bank, you will lose the cover. Even if the bank ends contract with the insurer, you will lose your cover.

No claim bonus not available

Unlike personal health insurance policy, where you get a bonus either in the form of lower premium or as an additional cover over the basic sum insured for every claim-free year, there will be no such benefits for group cover. The enhanced bonus cover acquired during the disease-free years may prove very beneficial at the time of hospitalisation, when you fall sick.

No life-long renewal

The greatest demerit of the group health cover provided by the banks is that almost all such covers may be renewed up to a certain age, say 80 years. So, during the old age, when you would need the medical care most, you may be left out in the cold with no health insurance cover.

Moreover, at old age, you may get only limited cover and that too with several clauses that would enhance your out-of-pocket expenses even if the cost of hospitalisation is within the limit of insurance cover.

So, don’t go for the cheaper premium, but evaluate the usefulness of the health cover when you need it the most.

You may take the group cover along with your personal health insurance policy as an additional cover to enjoy the extra benefits like maternity cover without much waiting period, if needed. But you can’t completely depend on such group cover and taking personal health insurance policy for yourself and your family is a must.

    

 

 

 

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Diversify Your Insurance Portfolio

Insurance is a tool people use to transfer financial risks to an insurance company. Someone who purchases insurance to reduce his financial risks should logically then go one more step to further reduce the chance of an unlikely event causing him financial troubles.

Thus, it is worth diversifying one’s insurance portfolio where practical. Placing insurance policies with different insurers ensure that a person’s entire financial portfolio is not in jeopardy should one insurer collapses. While there are regulatory measures in place to protect policy owners in such an event, they are still under tweaking and remain untested. It is still prudent that one takes necessary caution not to put all of his insurance policies with a single insurer.

It is notable that different insurers usually excel in different policy types, i.e. Company A may have a very competitive hospitalisation policy whereas Company B provides the best term rates. Thus, it is fortunate that a financial portfolio designed to contain best-of-class financial products from different insurers already serves to diversify one’s insurance portfolio.

Even within a single class of coverage, it may be worthwhile splitting up a large policy into smaller ones. For example, Ritesh may require a sizeable Rs.20000000 of death coverage to provide for his wife and children should he pass away prematurely, or perhaps Rs.2000000 in critical illness coverage in the event he suffers a major illness. Instead of purchasing a single policy which covers this relatively big amount, he can opt to split it into multiple policies with different insurers to diversify his risks.

This gives him a few practical advantages.

While insurers in india share the same definitions of critical illnesses, they only cover 30 to 32 out of the 37 defined critical illnesses. What this means is that an insurance policy may not cover certain critical illnesses. Thus, for a greater peace of mind and more comprehensive coverage against critical illnesses, Ritesh should split his insurance coverage between at least two companies.

Furthermore, while insurers pay out upon the definition of the critical illness being diagnosed in the insured, there can be situations whereby the insured may not fully satisfy the criteria. Whether or not a payout will happen depends on the insurer’s discretion and goodwill. By placing all his coverage with one company, Ritesh places his fate in a single insurer’s hands and runs the risk of getting no payout. Diversifying his policies reduces the chance that he gets nothing at all – some insurers do pay a claim ex gratia despite not having a legal obligation to do so. Hypothetically, the insurer which does not pay Ritesh might feel compelled to do so if Ritesh manages to receive a payout from a competing insurer for the sake of reputation. Such is the importance of not letting a single insurer gain too much power over yourself.

In fact, applying for insurance cover with multiple insurers benefits Ritesh right from the start. If he is not in the best of health, he is able to apply for insurance with different insurers and see which companies offer the best terms, thereafter placing his business with insurers that give him the most favourable terms.

The downside is that diversifying comes with a little added cost as insurers usually give a slight discount for larger single policies. One has to weigh this added bit of cost into consideration when doing so. It also means a little more work which is nothing compared to the grief one might suffer if he places all his insurance with one company and it does not work out well. Besides, sorting out this work is part of what you are paying your financial adviser for.

An important function of purchasing insurance is not just for transferring one’s risk, but also for a peace of mind. There is no peace of mind to be said if all of one’s insurance is with a single insurer, no matter how large or supposedly stable that company is. In light of few events in past, it is clear that even big corporations are not infallible. Do the wise thing and play it safe.

Don't shift to online plans to save costs

Don't shift to online plans to save costs

While the savings on premium is as high as 50%, things could get tricky if your health condition has worsened

With significantly low costs and a sales pitch of almost no medical tests (for sum assured up to Rs 50 lakh), online term plans have become quite a rage.
Almost all companies offer such plans. The latest to jump on the bandwagon is Life Insurance Corporation of India (LIC), the largest in the segment. Compared to offline plans, which are sold through agents and banks, online plans have lower premia (30-50 per cent lower).

If you have purchased an offline term plan, should you shift to an online one? You should, provided your health hasn’t deteriorated during this period. In case you had purchased a term plan at, say, 40, five years ago and have a heart ailment now, you might not get a new plan. “In such a case, it makes sense to hold on to the existing plan,”

Offline term plans are more expensive and these aren’t pushed by agents. Typically, people buy policies with a lower sum assured, say Rs 20 lakh, when they are young. When they have dependents, they might seek to increase the life cover significantly. Such people can buy an online term plan, while paying lower premia. “The savings can be significant, even if you are purchasing an online plan of a higher sum assured after five years,” Dahiya says. If someone aged 25 buys a life cover of Rs 1 crore for a period of 30 years and a premium of Rs 12,000 and wants to shift after five years, the premium will be only Rs 8,000, provided there are no changes in his health conditions, habits, occupation risks, etc.

Offline plans offer the advantage of an intermediary---an agent or an advisor. These entities act as a one-stop shop for all customer queries, service requirements and policy updates. In addition to being cheaper, online plans offer hassle-free purchase and faster application process. Today, insurance companies also offer real-time customer service support and educate customers about product features and benefits, while they make purchases online.
“Wherever there is good service from advisors and the assurance of ‘face-to-face’ interaction, it works as a big comfort factor for customers purchasing offline plans. However, with e-commerce picking up exponentially, the online insurance sector, too, is seeing a paradigm shift and customers might shift to online plans that offer the same benefits as their offline counterparts, but at a much cheaper price. With more customers realising the savings advantage with online plans, we expect more shifts,” says Rishi Piparaiya, director (marketing and direct sales), Aviva Life Insurance.

One should never surrender an old plan or allow it to lapse before securing a new one, cautions Deepak Yohannan, chief executive of MyInsuranceClub.com.
“The underwriting might be stronger or more stringent in online plans, as these are very cheap. So, companies might not want to take the risk and you might be rejected, even with minor, non-critical illnesses. So, policyholders should be careful that they first get a new plan before giving up the old one,'' he says.