The Insurance Regulatory and Development Authority (IRDA) is looking at making insurance policies more investor-friendly by introducing tax exemptions on insurance policies.
While IRDA is still considering a proposal by Life Insurance Corp to link tax relief to the term of the life insurance policy, Â reports suggest IRDA has backed a move to introduce separate tax exemption limit on life insurance policies.
Recent reports said that since life insurers have been seeking a separate income-tax exemption limit of Rs 50,000 for  premiums, the latest move will help promote insurance plans as tax-saving instruments.
Presently, investments in instruments like insurance policies, pension plans, provident fund, National Savings Certificates  are eligible for combined deduction of Rs 1 lakh.
The budget proposed that all 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 section 80C and 10 (10D).
LIC Chairman D K Mehrotra had earlier told Business Standard: “We have recommended that rather than linking it to the sum assured, link it to the term of the policy. You can always say a tax relief is given to a proposal where the term is more than 10 years.†He had added this would help the continuous flow of premium and the persistency will also go up. Other sector players including HDFC Life Insurance have said the LIC proposal should be considered.
Insurance industry players have said that though insurance policies offer low returns in comparison to other products, both the regulator and the finance ministry is trying to make it more investor-friendly by allowing tax exemptions.
But, insurers explained protection was the first goal of an insurance policy and investment came later.
“Hence individuals need to be clear about what they want. If they want pure investment, then what needs to be kept in mind is that insurance may not be the best bet for them,†said the chief executive officer of a private life insurance company.
The executive, however, added the new proposal for introducing new tax exemptions separately for life insurance policies, the ministry and the regulator would certainly help in increasing the penetration of life insurance in the country.
