Budget 2025: Separate Tax Benefit for Term Insurance, Increased Health Premium Deduction, Say Insurance Expert

Top insurance executives are urging Finance Minister Nirmala Sitharaman to bolster the life and health insurance sectors in the upcoming Budget 2025 on February 1. Key demands include increasing the Section 80D deduction limit for health insurance premiums and introducing a separate tax benefit for term insurance premiums.

Given the escalating healthcare inflation, estimated at 12-15%, a health insurance cover is essential. Anup Rau, MD & CEO of Future Generali India Insurance, suggests linking the medical insurance deduction limit to inflation for automatic revisions. He emphasises extending benefits to the new tax regime to boost health insurance penetration.

Enhancing Life Insurance Penetration

To highlight the importance of adequate life insurance coverage, officials propose a separate deduction for term insurance premiums. Sandip Goenka, CEO of ACKO Life Insurance, states that increasing tax deduction limits under Section 80C or introducing exclusive limits for term insurance can significantly enhance life insurance penetration. Implementing mandatory basic term life coverage for formal employment could ensure financial security for dependents.

Many senior citizens face challenges due to premium hikes from elevated inflation. Srikanth Kandikonda, CFO of ManipalCigna Health Insurance, recommends reducing tax burdens by raising Section 80D limits to Rs 50,000 for all and Rs 1 lakh for seniors.

Boosting Retirement Planning

The abolition of taxes on annuity or pension income remains a long-standing demand from life insurers. Jude Gomes, MD and CEO of Ageas Federal Life Insurance, highlights that simplifying or removing taxes on annuity products will encourage more participation in retirement planning. With a projected $85 trillion retirement savings gap by 2050, this change is crucial.

Insurance companies also advocate extending the additional Rs 50,000 tax exemption for NPS contributions to pension plans from life insurers. This move could further incentivise individuals to invest in their retirement through various channels.

The last enhancement in the deduction limit occurred in 2015-16. Linking it to inflation would ensure timely updates. The government should consider these changes to support both current and future policyholders effectively.