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Term Insurance Investment after Budget 2017

The Budget 2017 was presented amidst difficult local and global circumstances. Fortunately, it had something for everyone and did not bloat government finances. More importantly, there were no surprises that were seen by the surge in the stock market after the Budget announcement.

The rural, agriculture and allied sectors received a push in the Budget. The allocation was increased by 24% to INR 187,223 crores. The rural housing also saw higher apportionment to INR 23,000 crores.

Personal income tax rate was reduced to 5% for individuals with an income of INR 2 to 2.5 lakh per annum. All other taxpayers will receive tax benefits of INR 12,500 after the Budget 2017. This reduction of taxes would increase the amount available for savings, which is expected to be invested in financial instruments and life insurance.

Pradhan Mantri Fasal Beema Yojana (PMFBY)

The new crop insurance scheme was launched last year and received an enhanced apportionment of INR 13,240 crores. Furthermore, crop coverage under this scheme would also be enhanced to 40% in 2017 – 18 and to 50% the following year. This coverage was capped at 30% in 2016 – 17. This will result in increased revenues and improved penetration for insurance companies.  The increase in the coverage under PMFBY would enhance premiums by 15% to 20% during the next fiscal year. Online insurance and other technologies need to be given an impetus to provide innovation and hassle-free claim process to acquire farmers’ trust.

Strong crop insurance framework is important to achieve food security in the country. It is also crucial for the financial stability of the farming community.

Increased digitalization

Greater insurance coverage is important to reduce the gap in the economy. The focus on rural areas is expected to stimulate demand from the rural population and encourage them to buy insurance coverage. The Budget 2017 also focuses on moving to a cashless economy and increasing digitalization. This will provide individuals more options to use online payment gateways to pay insurance premiums. The primary objective of the “Digi-gaon” initiative is to connect over 150,000 gram panchayats during 2017 – 18. This will help insurance companies reach the remotest locations in the country and provide coverage to the rural population. Currently, approximately INR 300 crores are spent as a premium to buy insurance online, which is about 3% to 5% of the total industry sales.

Foreign reinsurers operations

One of the largest reinsurers in the world has received final clearance from the Insurance Regulatory and Development Authority of India (IRDAI) and has commenced operations. Five additional foreign reinsurers are also awaiting clearances. The opening of branches by leading foreign reinsurance companies will boost the insurance industry.

The Budget 2017 is in continuation to the Government’s agenda of pursuing an inclusive development of the country in the long-term. It is focusing on the core sectors, such as digitalization, infrastructure, and rural development. The various initiatives for the salaried and businesses with less than INR 50 crores per annum turnover along with rural sector will help growth in the term insurance sector.

About Vikas Agarwal

Vikas Agarwal is an IIT-Varanasi graduate in Chemical Engineering. He is the Founder and CEO of Finaacle.com - an investment advisory website. He is a Business Development Professional but a Value Investor at heart. He writes articles on Finaacle, which focus on simplifying the art of investing and the causes of human misjudgment when it comes to investing. He also shares his experiences as an investor and lessons from some of the greatest investors of all time.

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