Union Budget: Rs 5 lakh life policy will come at a premium

The Budget has proposed not to provide tax exemption on maturity benefits if the aggregate annual premium paid by an individual is above Rs 5 lakh for life insurance policies issued on or after April 1, 2023. The move makes buying insurance for tax breaks even less attractive for younger people as the new tax regime – without any exemptions – now has greater lustre.
The move will not apply to death benefits under the policy.Also, Ulips will remain unaffected by the change, which will be with prospective effect – that is, it will be applicable for policies issued after March 31, 2023. As the exemptions have been withdrawn for “aggregate premium”, buyers will not be able to break up policies into smaller values to enjoy tax benefits.
The proposal has disappointed insurers as buyers may choose more liquid investments for their savings. “World over, tax benefits go hand in hand with life insurance as people need the nudge to buy life cover. The Rs 5 lakh cap is low, given that inflation is still impacting the middle-class category. Also, it would have been good to exempt renewals from the new rules,” said Vibha Padalkar, MD & CEO, HDFC Life.
Nilesh Sathe, former member IRDAI, described the move as retrograde for the insurance sector and said it would deflect savings from insurance to non-financial instruments.