Looking To Buy A High-Value Life Insurance Plan? Better Do It Before April 1

Investors considering buying insurance policies with high premiums would do well to purchase the plans before April 1.

According to the budget for 2023–24, payouts on life insurance policies with premiums exceeding Rs 5 lakh or more in a year—either from a single plan or cumulatively for multiple policies—would be taxed after April 1.

This provision excludes payouts in the case of the death of the insured.

The objective is to withdraw tax benefits from high-net-worth individuals and ultra-HNIs. Certain life insurance product offerings by insurance companies that had high premiums—excluding unit-linked insurance products—provided a post-tax internal rate of return of 5–6%.

The announcement will also impact multiple policies owned by an individual if the aggregate premium paid in a year on all policies combined exceeds Rs 5 lakh.

However, clarity on the taxation of the payout on maturity of these cumulative policies is still awaited. The budget had clearly stipulated that the payout taxation would not be applicable to existing policies or new policies bought before April 1.

"For the existing policies, there is clear grandfathering," HDFC Life Insurance Co.'s Chief Executive Officer Vibha Padalkar told BQ Prime in an interview at the time of the announcement.

Payouts on policies sold through March 31 would still be exempt, and the announcement would apply to new sales beginning in April. So, those looking to purchase high-premium insurance policies have a short window to avoid tax till March 31.