The first-year premium on your insurance policy may soon get cheaper by up to 3%, thanks to finance minister P Chidambaram’s announcement on Tuesday that the government is considering removal of service tax on first-year premium payments. At present, a life insurance policy holder pays 3% service tax on such premiums.
“If the service tax is removed, the benefit will be directly passed on to customers, making premiums cheaper for new customers,” said Nageswara Rao, managing director and chief executive officer, IDBI Federal Life Insurance. “Any reduction in cost will benefit the sector and will help companies to attract new customers.”The finance minister had said that the government is considering steps to revive the insurance sector including tax breaks for pension schemes, quick approval by of insurance products, allowing banks to sell policies of more than one insurance company.
Insurance companies have been facing slow growth due to a volatile market and slowing economy. First-year premium collections of 24 insurance companies fell 9% to R114,233 crore in 2011-12 against R125,826 crore in the year-ago period.
“Removal or reduction in service tax would encourage people to buy insurance policies because they will be able to get more insurance cover with the same amount of money,” said Deepak Sood, managing director and CEO, Future Generali India Life Insurance. “In India, buying insurance cover is still not in the priority of individuals. Customers need to be encouraged by such steps.”