There is a famous saying by Paul Leroy, “Taxes are simply contributions demanded of citizens as their share of the expenses of government.” Now you got a new tax….GST….The Goods and Services Tax, popularly known as GST….The Goods and Service Tax bill was recently cleared in the Rajya Sabha. Handshakes all around….Pats on the back…..GST is here. But, GST is going to make your insurance plan costly. Yes….your insurance premiums are going UP. Your life insurance, auto insurance and health insurance premiums are going to rise, from April 2017. Why is this so? The Goods and Services Tax would most probably be fixed at 18%. The service tax is currently 15%. You’re talking a 3% increase in tax. Your insurance premium has to go up.
So why is the middle class troubled? Before answering this question…try this one….Why do you avail life insurance? It has to be for protection against risk. The best policy to protect you from risk….The term life insurance plan. By choosing a term life insurance plan, you can guarantee that your family is protected in case of your untimely death. Your family will get money called the death benefit, which will help them lead the same lifestyle, they currently enjoy. But there’s a small problem. You get nothing if you survive the term of the plan. Now the middle class believes this is a waste of money. They avail an endowment life insurance plan which is an insurance + savings, plan. They might also avail ULIP, which is an insurance + investment, plan. The middle class in our country never avails life insurance for protection against risk. Life insurance is almost always availed for savings or investment. Financial Products are mostly sold in India but not bought. Just 2% of the citizens in our country invest in equity. Guess what, in a country which boosts one of the largest middle classes in the World….this is close to nothing. So the middle class doesn’t invest in stocks. Where does the middle class invest their hard earned money? Real estate…gold and of course….endowment life insurance plans and ULIPs.
Now GST is going to make life insurance costly…Worse…The premiums on the term life insurance plans are going up. Why is this so? Service tax is levied on the protection part of the life insurance plans. The term life insurance plan is a pure protection plan (protection from risk). Service tax of 18% will be levied (charged) on the premium of your term life insurance plan, instead of 15%. This would make your term life insurance plan costly.
Endowment life plan is Insurance + Savings
ULIP is Insurance + Investment
A service tax of 3.5% is currently charged, on the protection part of your endowment life insurance plan and ULIP. This is in the first year of the plan. In the second year of the endowment life insurance plan and the ULIP, a service tax of 1.75% is charged. Now, expect a service tax of 4.5%, in the first year of your endowment life insurance plan and ULIP. In the second year of the endowment life insurance plan and ULIP, a service tax of 2.25% is charged. This would make your endowment life insurance plan and ULIP a bit costly.
A service tax of 15%, which is going to be increased to 18% after GST, will make health insurance, motor insurance and other general insurance plans, costly. India’s Insurance penetration is less than 6%. Life insurance penetration in the year 2016, was a mere 2.6%. Life insurance penetration was 4.6% in the year 2009. Something needs to be done to increase life insurance penetration in the country. Raising taxes on life insurance surely will not help…..
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