High-value life insurance policy sales fail to pick up in Feb-March

This is despite a new tax being introduced from April 1

Life insurers have so far not seen any serious pick up in high-value non-par policy sales after the Centre decided to tax proceeds of such policies sold from April 1, 2023. 

Experts had predicted a sales pick up before the tax regime came into effect.

The policy was announced in the Budget, wherein the government said it will tax proceeds from high-value life insurance policies (non-ULIPs).

This move may help plug the arbitrage that high-net-worth individuals (HNIs) use to get tax-free returns on their insurance policies through Section 10(10D) of the Income-Tax Act.

Following the Budget announcement, analysts at various brokerages had reckoned that high-value non-par guaranteed products could see fire sales over the next two months (February and March). This was to avail tax benefits, which only goes away from April 1.

While February did not see much of an increase in sales of such policies in the aftermath of the government decision, insurers expected March to be much better. However, with less than a fortnight left in the month, insurers are still saying that they have not seen any extraordinary growth in sales.

Vighnesh Shahane, managing director (MD) and chief executive officer (CEO), Ageas Federal Life Insurance, said, “We have not seen extraordinary growth in sale of high-value non-ULIP life insurance policies. This is because of the government’s decision to tax such policies. However, there has been some growth but that is mostly because the January–March quarter is generally busy for life insurers. Also, we have launched an attractive non-par product and that has also contributed to the slight increase we are seeing. Hence, we have not seen a huge pick up in sales as a direct consequence of the government decision.”

Echoing his views, another private sector life insurer’s CEO said, “The enquiries have certainly gone up and we are hoping that some of it would translate into sales. This, in turn, would push up the March numbers. We have not seen any material increase in sales of high-value policies as a consequence of the government’s decision.”

“We have not seen a great pick up in sales of high-value policies. We will know about March as the month gets over,” said another CEO of a private company.

February was a dampener for life insurance companies as new business premiums (NBP) of the industry dropped by 17 per cent.

This is mainly because of a sharp contraction in Life Insurance Corporation’s (LIC) premiums and private insurers seeing muted growth.

On an annualised premium equivalent (APE) basis, the insurance industry posted muted retail APE growth of 10.5 per cent YoY for February. The private sector grew at 18.2 per cent, largely driven by ticket-size growth.

Analysts said the ticket-size growth may be seen in the context of a likely pre-booking for these high-value insurance products to escape the impact of taxation change.
 

Rushabh Gandhi, deputy CEO, IndiaFirst Life Insurance, said, “With the new norms coming into effect from April, March is seeing a meaningful increase in the sale of big-ticket non-ULIP & non-pension products. At IndiaFirst Life, this book has contributed to over 10 per cent of the March business. This is a 3x jump over the previous 11 months.”