Budget 2013: Insurance buyers must look beyond tax benefits

Tapan Singhel

Budgets are usually preceded by intense speculation over various proposals, and this year is no different. While most industry forums and companies suggest measures relating to indirect taxes, the financial services industry also draws up a wishlist of direct tax proposals. The insurance industry, for instance, is always concerned about the tax benefits available to policyholders and is looking for higher deduction limits for the premium paid.

This focus on tax benefits makes the buyer miss the woods for the trees. One of the reasons that the life insurance industry has seen a drop in new sales is that protection was sold as an investment, not as a tool to cover risk. Who is to blame for this? While the Indian buyer is overly concerned about saving tax, even the industry must share the blame.

The general insurance industry, too, is guilty of garbling the communication with talk of tax benefits. The largest selling products are those that are either mandatory, such as car insurance, or help bring down your tax, such as health insurance. Home insurance protects your costliest asset, but it is bought only if the home loan company insists on it. Besides, very few people buy personal accident insurance even though young people are at greater risk of accidental death or disability.

Unfortunately, the way insurance is sold moulds the perception of the buyer. We seem to have lost the essence of selling insurance for protection. The message to the policyholder has become garbled.

How can this be changed? To begin with, the tone of the selling pitch must be altered. The buyer should be convinced that he needs protection, not tax cuts. The tax deduction on the premium is a bonus, not the core benefit offered by an insurance policy. Will a term plan that covers a person for five times his annual income become irrelevant if the tax benefits under Section 80C are taken away? Will health insurance become useless if there was no Section 80D?

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