Any tax benefits or breaks are likely to increase awareness and consumer willingness to purchase personal accident covers
Personal accident insurance covers are not a priority for most policyholders. Though it is one of the vital insurance covers for most individuals, it is rarely purchased. If the Union Budget 2022 offers tax deduction for the premium paid to purchase personal accident insurance, then it can result in a change in the situation.
The uses of personal accident cover
Personal accident insurance pays a predetermined sum of money in case of death, permanent total disability, or partial disability caused to the insured person. The premium paid for Rs 10 lakh sum assured is around Rs 1000-Rs1200, depending on the variety of cover on offer.
Despite such a small premium charged, many do not purchase it. Many families suffer from financial losses caused by accidents induced deaths and disabilities. Nearly 3.74 lakh individuals died due to accidents in CY2020 as per the statistics released by the National Crime Records Bureau. Deaths of individuals between the age of 18 years and 45 years accounted for 55.9 percent of the total deaths during 2020, highlighting the need of personal accident insurance cover for individuals in productive age groups.
“Personal accident cover is legally mandatory for all vehicle owners. It is a part of the motor third party insurance cover that is required to be bought each time a vehicle is purchased. However, the penetration has always been quite low for this segment,” says Anil Kumar Aggarwal, Managing Director and CEO, Shriram General Insurance. In metro cities, customers tend to take insurance while buying a new vehicle to comply with this law, and generally the trend is that they continue with the policy as long as they can. But, as there isn’t much pressure on compliance in rural areas, consumers do not take it seriously and avoid taking motor insurance, he adds.
Government initiatives such as accidental insurance cover for all Jan Dhan Account holders have led to some awareness among insurance buyers. Online modes of distribution have also helped in taking this cover to insurance buyers. Due to the low ticket size of the insurance premium and resultant low commission payouts compared to the effort, this cover was not a top-of-the-mind offering of individual and corporate agents.
Need for tax breaks like health policies enjoy
In addition to the need to provide for hospitalization expenses, tax-breaks have made many buyers consider of health insurance. “In the case of life and health insurance, tax incentives in addition to increased awareness, have proved effective in driving certain products. Any tax benefits or breaks are likely to increase awareness and consumer willingness to purchase a personal accident cover and subsequently increase penetration levels for the segment,” says Aggarwal. However, this will be subject to the tax incentives for this product being allowed under a separate head other than 80C and 80D deductions, he adds.
M Nagaraja Sarma, Secretary General, General Insurance Council says, “Premiums paid for purchase of non-life insurance covers offering protection to individuals – be they personal accident insurance or home insurance – need to be given dedicated income tax deduction, just like health insurance premium. This will ensure an increase in penetration of these products.”
Though the demand for a separate tax deduction comes from stakeholders in the industry, it will be interesting to see the stance taken by the policymakers. “Generally, a personal accident policy guards an individual against accidental damages and covers disability, loss of life, etc. While life and medical insurance covers have wider applicability, accident cover is more of a contingent event,” says Parizad Sirwalla, Partner and National Head – Tax, Global Mobility Services at KPMG in India. Whether to allow a deduction for the same is hence a policy decision best left for the Government to address, she adds.
More consumers may find it accessible and buy personal accident insurance if the goods and services tax (GST) at 18 percent on premium paid is reduced or done away with. Nilesh Sathe, Former Member- Insurance Regulatory Development Authority says, “The new tax regime aims to do away with deductions that the old tax regime offered. With no tax relief to insurance premium under new tax regime, it is unjustified to charge 18 percent GST on insurance products such as term life, health and personal accident insurance policies.”Sarma concurs, ““Insurance products offering protection to individuals are taxed at the rate of 18 percent. This rate of goods and service tax should be brought down to 5 percent to make these products accessible to a wider audience.”
