Money Wise: Your Insurance Premiums Are Set To Get Cheaper But...

There’s been a flurry of activity from the Indian government to reform the indirect tax structure under the overarching Goods and Services Tax regime. The big headline over the weekend was the intention to move to a two-slab structure – a significant simplification.

The latest update is that the group of ministers that met on Wednesday and Thursday are in favour of moving all items to the 5% and 18% slabs. The next step is for the GST Council to clear the recommendations. Once implemented, the move is set to bolster consumption. Amidst this wider reform, a key point of discussion for the group of ministers on Wednesday was the treatment of premiums paid by individuals on health and life insurance. They favoured an exemption from tax in a bid to promote greater adoption of protection.

These premiums currently fall under the 18% slab. The key question that arises is, how much will premiums go down by? It isn’t a simple calculation, unfortunately. And a variety of calculations are doing the rounds. Put simply, because premiums are set to become exempt from GST, insurers will no longer be able to avail of input tax credit. This means that they’re likely to pass on the cost to customers in the form of a higher premium. So, while the premiums will fall, they could fall anywhere between 5% and 15%, according to various estimates.

This is good news for you. But it shouldn’t make you consider deferring your purchase of an insurance policy. One expert told me, the best time to buy protection was yesterday. Medical costs are rising dramatically, making a health insurance cover essential. It is no longer a good idea to only depend on your corporate policy if you’re employed. Life insurance—and here I’m talking about pure term insurance—is not something everyone needs.

Think about whether someone is depending on your income. If the answer is yes, then you need to calculate what they would need starting today if you were no longer able to provide that income. That’s the amount of cover you need. Experts say, this is a question you should ask yourself every few years. Now, if you don’t have financial dependents, you obviously don’t need a life insurance policy. And you certainly don’t need a life insurance policy disguised as a savings product that so many bank employees try to sell you.

While we’re on the subject of insurance, let’s also talk about how to protect your car engine. This is something you should care about particularly if you live in cities (Mumbai) that are prone to flooding. Your base motor insurance policy does not cover engine damage. Instead, you’ll have to buy an engine protection add-on. It will raise your cost, but it’s well worth it.

Do remember that there could be situations where your claims could be rejected even if you have this add-on. For example, if your car splutters to a stop in a flood and you crank the ignition to get it started. Here’s a story you can read to understand all the modalities.

We have a few interesting stories on the site that you should consider reading:

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HDFC Bank To Suspend Select Services On Aug. 22-23—Check Details

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⁠SBI Raises Home Loan Interest Rates By 25 Basis Points: How Do They Compare With Other Banks?

Until next week, happy reading!

Alex