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Changes in TDS for Life Insurance Payouts Prompt Mixed Reactions
The decrease in Tax Deduction at Source (TDS) for life insurance payouts has generated a range of reactions within the industry. The Union Budget for 2024-25 proposes lowering the TDS from 5 percent to 2 percent on life insurance payouts, effective October 1, 2024. This change has sparked different viewpoints: some stakeholders anticipate that it will boost policy sales, while others are uncertain about its overall impact.
Experts believe this reduction will enhance net payouts for policyholders, improving their cash flow and potentially driving an increase in insurance policy sales.
Analysts at HDFC Securities suggest that lower TDS rates will make life insurance policies more attractive. Manish Pahwa, Chief Compliance Officer at Future Generali India Life Insurance, commented, “This change positively impacts the overall customer experience for life insurance companies. By offering higher net payouts, insurers can build greater trust and satisfaction among clients, which is crucial for fostering long-term relationships.”
Pahwa further explained that the improved customer experience could lead to higher retention rates and increased referrals, ultimately boosting sector growth. The more favorable payout structure is expected to drive greater demand for life insurance products and encourage more people to purchase policies.
Some life insurers view the tax reduction as advantageous for policyholders but expect minimal effect on their business operations. Niraj Shah, Executive Director and Chief Financial Officer of HDFC Life, commented, ‘We do not foresee a significant impact on our business due to the adjustment in TDS payouts for policyholders, as it mainly influences operational aspects.’ He further noted that the change benefits policyholders by offering a temporary boost to their cash flow.
New India Assurance Increases Health Insurance Premiums by 10%
New India Assurance, the largest general insurer in India, is raising premiums on certain health insurance products by 10%, effective November 11, 2024. This adjustment comes in response to recent changes introduced by the Insurance Regulatory and Development Authority of India (Irdai) in the health insurance sector. The insurer has adjusted its premiums to comply with Irdai’s new regulations, which involve expanding coverage and raising the expected claims. “The premium increase is largely due to the additional exposure resulting from the Irdai circular, which has expanded benefits for policyholders,” a source familiar with the matter stated. Irdai’s new master circular has made several revisions, such as reducing the waiting period for pre-existing diseases from 48 months to 36 months and shortening the moratorium period from 8 years to 5 years. As of June 2024, New India Assurance holds approximately 18.8% of the industry’s health portfolio, with its health portfolio valued at about Rs 5649.86 crore, representing around 53% of the total. In addition, amid rising medical inflation, other insurers are also increasing their health insurance premiums. “This trend is driven by medical inflation, which often outpaces general inflation, and the need to adjust premiums to ensure the sustainability of insurance products,” noted an insurance distributor. An inquiry sent to New India Assurance for comment has yet to receive a response.
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