Insurance Cos freeze top-end policies

MUMBAI: Insurance firms have frozen sales of single-premium bonds and limited-term plans in that aftermath of Budget 2003, which brought in sweeping changes in taxation norms for these schemes. Feeling the pinch are businessmen, traders and high net worth policy holders.
Single-premium bonds are insurance policies where the policy holder pays the entire premium initially — the insurer offers attractive returns on the investments along with the risk cover.For limited term plans, the policy holder pays the premium in a lower frequency than an ordinary policyholder. The fixed-term plan with definite maturity combines savings with life cover.
‘‘What has historically been a huge market for the insurance sector will now wilt away,’’ says a private life insurer. That’s because the Budget has amended tax concessions under Section 10 DD, wherein the returns from the policy will be taxable if the premium payments per year exceed 20 per cent of the sum assured.High net worth individuals have been affected the most as they used to view these products as an alternative to fixed deposit holdings in banks.
‘‘Businessmen, especially traders, have been left without choice in terms of risk cover since they usually prefer these limited term plans where they can pay up when there is cash inflow as part of their businesses,’’ added an analyst. In fact LIC’s Bima Nivesh turned out to be the deathknell for this product as it offered an assured return, which was unsustainable in the falling interest rate scenario.
‘‘LIC used to offer assured returns above market levels and this attracted over Rs 8,000 crore into their schemes in last two years. Now, every life insurer is playing down the product since it has lost its appeal,’’ said the analyst.