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Union Budget 2020 must initiate some new measures to make insurance policies more attractive and customer-friendly, insurance players have demanded. In 2018, insurance penetration in India continues to be one of the lowest at 3.70%, according to the annual report by Insurance Regulatory and Development Authority of India (IRDAI).

Union Finance Minister Nirmala Sitharaman will present Budget 2020 on February 1. From an increasing maximum tax exemption to bringing in a separate deduction for premium paid on individual life policies — here are the expectations of insurance industry from the upcoming budget.

The insurance industry wants Nirmala Sitharaman to bridge the gap between taxation of pension policies issued by life insurance companies and pension products under National Pension Scheme (NPS). The Life Insurance Council has proposed additional tax deductions of ₹50,000 over and above the 80C limit on investments made in pension plans.

If one buys a pension plan by life insurance companies, the contribution to the pension fund is deductible under section 80CCC and the overall limit of Section 80CCE of ₹150,000. To encourage investment in NPS, a new sub-section (1B) under Section 80CCD of the Income Tax Act has been introduced that allows an additional deduction of ₹50,000 over and above the ₹1.5 lakh available under Section 80CCE of the Act.

In order to make life insurance policies more than a tax saving tool, central government must extend an additional deduction of ₹50,000 for premium paid (as available for NPS) to pension policies issued by life insurance companies, said S N Bhattacharya, Secretary, Life Insurance Council.

Introducing separate deduction of ₹50,000 for first time life insurance buyers and an additional capping of ₹50,000 for someone purchasing a pure protection (term) plan will put life insurance on fast track, added Kamlesh Rao, MD & CEO, Aditya Birla Sun Life Insurance.

Life insurance policies must meet the the twin needs of providing protection as well as long-term savings. Insurance industry players have also requested Nirmala Sitharaman to consider a separate deduction for premium paid on individual life policies.

"It would be desirable to remove life insurance premiums from under Section 80C and to create a separate category for the same. This would provide policyholders with the flexibility of diversifying their investments across various life insurance policies to meet their life goals while availing tax exemption," Sanjay Tiwari, Director, Strategy, Exide Life Insurance said.

"The government should either consider a separate deduction section or enhance to limit under Section 80C of Income Tax Act, 1961, to ₹3,00,000, since the current limit of ₹1,50,000 is too low to cater to all the contributions it covers," said Tarun Chugh, MD & CEO, Bajaj Allianz Life.

Another important move would be to encourage women to insure their lives and savings. Extra tax benefit for women policyholders will be a significant step.

"Moreover, relaxation of section 10(10)(D), where minimum sum assured is required to be 10 times of annual premium will be a desirable move. These measures will pave the growth path for the LI sector, besides increasing the security net of the nation’s people at a very low cost," Kamlesh Rao, MD & CEO, Aditya Birla Sun Life Insurance mentioned.