In Budget 2012, initially there was no significant declaration for the insurance sector. But there are some alterations which may change the whole scenario of insurance policies.
Except for pension plans, all regular-premium life insurance policies issued after April 1 will have to offer a minimum protection cover of 10 times the annual premium, else it will not be eligible for tax benefits under Section 80C and 10 (10D). This mandated cover amount was 5 times the annual premium till now. According to norms of Section 80C, life insurance premium up to 
1 lakh is eligible for tax deduction and Section 10 (10D) exempts maturity proceeds from tax.
Due to this change, Unit-Linked Insurance Plan (ULIPS) and Endowment Plans both will be affected. However, expert says that most term plans will fulfill the new requirement. “This is a welcome move as it will ensure minimum life cover to the policyholders. The new requirement will ensure that they have some protection over a longer period of time”, says an expert.
Change in Plans
It is clear that the government is pushing individuals to buy life insurance policies in its true term rather than the insurance-cum-investment plans such as ULIPS and endowment, which are more popular. Due to mandatory higher life cover, higher premiums will be diminished, as ULIPS and endowment insurers will be left with a relatively small amount for investment.
“A person not looking for a pure protection cover need not buy a life policy at all. Instead, if their objective is wealth-creation, they can direct their funds to instruments like public provident fund (PPF), tax-free infra bonds and highly-rated non-convertible debentures (NCDs). In terms of equity, depending on their risk appetite, they can invest either directly in stocks or through mutual funds. Based on their risk-taking ability they can choose from large-, mid- and small-cap funds,” advises a Certified Financial Planner.
Prevention Could be the Cure
There is again a small but significant change in the deduction for spending up to 5,000 on preventive medical checkups. CEO of ICICI Lombard says, “Providing this tax exemption to individuals is a step in the right direction… it will help in bringing a greater focus on preventive health care. Most progressive health insurance companies have already started focusing on this space.”
“You can undergo a preventive health check-up at a diagnostic centre and submit the bill along with your investment declaration to your employer,” says the Director of H&R Block
Senior Citizens
From now on Section 80D will allow a tax relief of up to 15,000 on health insurance premium paid for self, spouse and children. This small change will help the elderly to claim higher deductions on health insurance premium.
Under Section 80DDB, the tax benefit on medical treatment, for senior citizens with disabilities is 60,000. For others, the limit in up to 40,000
Bonus will Not Count as Cover
Pranab Mukherjee, Finance Minister, has also altered the definition of insurance cover. While computing the sum assured for claiming deductions, premiums will be returned to the insurer and bonus will not be taken into account.
The Budget states, “This amendment has been proposed to ensure that the life insurance products are not designed to circumvent the prescribed limits by varying the capital sum assured from year to year”.
This simply means “Focus on life cover, and not on the Investment Component.”
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