IRDA eases short tenor life insurance norms: What it means

In an interview to CNBC-TV18, Gaurav Mashruwala, Certified Financial Planner shared his views on shorter tenor life insurance products and how will insurance regulator IRDA's recent move on these products will impact small investors.

Below is the verbatim transcript of Mashruwala's interview with CNBC-TV18.

Q: We believe Insurance Regulatory and Development Authority (IRDA) have relaxed the minimum sum assured on shorter tenor life insurance products. Does this have any material significance for a small investor?

A: Normally the sum assured should be ten times a premium that one has paid. If a person is paying Rs 1 lakh premium then sum assured should be more than Rs 10 lakh. For shorter tenure, government is saying that ten times rule is not required. However, if somebody is putting in money and he has a short-term requirement to cover himself and he was investing, from tax implication's perspective as of now since there is no clarification from Central Board of Direct Taxes (CBDT) then the money that he is paying towards premium, he cannot get section 80C benefit and the maturity proceeds that come to him may not be tax free.

This guideline from IRDA has come recently, so one need to wait and watch if income tax department is making changes and if it is not then from common man's perspective tax benefits may not be available as of now for the shorter tenure policy.

Q: As of now the insured amount is ten times then does one get tax benefits on that that?

A: Yes, as of now. Therefore, routine policies which are there where the sum assured is ten times the premium that one is paying then he does get 80C benefit and at a time of maturity whatever proceeds come in, he gets tax benefit. This is the current provision.

The shorter tenure is a newer version. We have not seen any products as of now because IRDA has just announced. So, those developments have to be seen and then we would know for shorter tenure also same tax benefits are available or not.

Caller Q: Is property gifted to wife exempt under Married Woman Property (MWP) Act?

A: If you are saying that there is property, which is under MWP Act and upon your death, will there be any liabilities. No, that's general MWP Act. Having said that the government would always have first recourse to property if there are defaults also if you are doing this from the perspective of avoiding liabilities and taxes then there could be litigation. However, if it is a simple wish that the property that you have under the MWP Act is normally used for life insurance policies. So, with a simple wish that you want to transfer it to your wife and endorse it into MWP Act then there may not be liability but the entire detail needs to be seen. It cannot be a blanket situation whereby anything that you transfer to wife and if it is endorsed under MWP Act then there is no liability.