Life insurance companies have indicated that they may consider launching unit linked insurance plans (Ulips) with life cover of 20 times the annual premium to make them tax saving instruments because current Ulips will lose their tax advantage when the Direct Taxes Code comes into effect on April 1, 2012.

According to the DTC bill introduced in Lok Sabha, insurance products will not qualify for the Rs 1 lakh tax deduction (under 80 C).

However, insurance products will be eligible for a maximum deduction of Rs 50,000 if the life cover is 20 times the annual premium under Section 70 of the DTC. The section also includes tuition fees and health insurance premium.

As per the Insurance Regulatory & Development Authority (Irda) guidelines, effective September 1, 2010, only Ulips with a minimum life cover of 10 times the annual premium will be eligible for tax deduction.

CFO of Bharti Axa Life Insurance V Srinivasan said, “The capital sum assured (life cover) in the DTC bill has been defined as money payable on the insured event happening that need not be death only. The capital sum assured has to be 20 times the annual premium and the equity component has to be less than 65 per cent. We would like to introduce Ulips that are compliant with these conditions to make them eligible as tax saving instruments.”

Managing director and CEO of ING Vysya Life Insurance Kshitij Jain said, “We already have Ulips where we offer policyholders the option to choose life cover that is 20 times the annual premium. This product is doing well.”

J Hari Narayan, chairman of Irda, said, “We had suggested to the government to make it 10 times the annual premium but it didn’t happen. However, there is a possibility that insurers may further increase the sum assured to 20 times the annual premium to make Ulips eligible for tax savings. Nothing prevents them from doing it.”

falaknaazsyed

@mydigitalfc.com