The Finance Minister of the country, every year announces the budget and it would not be wrong to say that this is the most awaited announcement from him. The budget has an effect on each individual of the country in one way or the other and also every sector of the economy. Budget 2018 was no different but this year it was a landmark budget for the insurance industry. Many announcements were made which will affect the whole sector but also the clients and individuals.
The main announcements of the Budget were:
– A cover of Rs. 5 lakhs was announced for 10 crore families under the Ayushman Bharat scheme.
– This scheme, which is popularly known as Modicare, will be launched on 15th August or 2nd October 2018
-Long Term Capital Tax has been introduced on mutual funds
– Dividend on equity mutual fund is taxable
– Exemption limit on section 80(D) increased to Rs. 50,000 from Rs. 30,000 for senior citizens
– Merging of the three public sector insurance companies
Let us see how these changes will affect us.
Ayushman Bharat Scheme
The Ayushman Bharat Scheme or the National Health Protection Scheme (NHPS) is offering a cover of Rs. 5 lakhs for 10 crore families. This will greatly benefit the poor and rural population of the country as this will not only give them access to better medical facilities but will also show them how insurance works. Insurance needs more penetration in the country as the people in the villages do not understand the importance. When this neglected population will understand the advantages of insurance, they will consider it for other things too like vehicles and home.
The insurance companies and agents would affect positively from the budget policies as this will give them more opportunity to increase their business. More insurance companies will get business when 10 crore families will be insured. Apart from that and more importantly, most of these policies will encourage more and more people to opt for insurance which will increase the penetration of insurance in the economy, thus enhancing the business as a whole.
80(D) Exemption Limit Change
Section 80(D) of income tax provides tax exemption for payments towards health insurance premiums. Keeping in mind the rising costs of health insurance especially for the elderly, the exemption limit under section 80(D) for premium paid to buy insurance for senior citizens has been increased to Rs. 50,000 from Rs. 30,000. So senior citizens buying policy for themselves as well as their children paying for the senior citizen’s policy can benefit to a larger extent than before.
Tax Benefit to ULIPs versus Mutual Funds
As the government has now levied a long-term capital gain tax on mutual funds and ELSS as well as dividend on equity funds becoming taxable, it is expected that more and more people will shift to Unit Linked Insurance Plans i.e. ULIPS. Till now lot of people were investing in mutual funds as the returns were tax free and also the stock markets were performing well giving them good returns. Though, it is not advisable to mix insurance and investments, but the not so sophisticated investor will shift from mutual funds to ULIPs, giving more business to the insurance companies, agents and financial advisors. Also, the increase in the deduction for senior citizens in health insurance premium, will surely give them an incentive to opt for higher medical coverage generating more premium for companies. Thus, these steps taken by the Government in the Budget 2018, will help the insurance companies to increase their business, thus boosting their revenues.
Lastly with the proposed merger of three public sector giants, there would be less competition and more economies of scale. This would also have a positive impact on the private insurance companies and their agents. The overall profitability of the insurance companies should go up with this strategic move.
In the Budget of 2018, Mr Arun Jaitely has announced some very important moves for the insurance sector which will affect each one associated with it. The success of most of these policies will depend on how effectively they are implemented. A lot has been promised but is yet to be delivered. So, if the government holds true to its promise especially with the implementation of the Modicare/Ayushman Bharat Scheme, there will be a very positive impact on the insurance sector of the country for sure!
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