Insurance In India

CA Manish K Dhoot (CA, B. Com, NCFM, CPCM) (5015 Points)

12 August 2010

Insurance In India

Every asset has a value and the business of general insurance is related to the protection of economic value of assets. Assets would have been created through the efforts of owner, which can be in the form of building, vehicles, machinery and other tangible properties. Since tangible property has a physical shape and consistency, it is subject to many risks ranging from fire, allied perils to theft and robbery.

Concepts of insurance have been extended beyond the coverage of tangible asset. Now the risk of losses due to sudden changes in currency exchange rates, political disturbance, negligence and liability for the damages can also be covered.

But if a person judiciously invests in insurance for his property prior to any unexpected contingency then he will be suitably compensated for his loss as soon as the extent of damage is ascertained.

Insurance

Insurance is a form of risk management that is primarily used to hedge the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed and known small loss to prevent a large, possibly devastating loss.

An insurer is a company that sells insurance; insured or the policyholder is a person or entity buying the insurance. The insurance rate is a factor that is used to determine the amount which is to be charged for a certain amount of insurance coverage, and is called the premium

Insurance in India

Insurance has been a federal subject in India. The insurance sector has gone through many phases and changes. Since 1999, when the government started with the insurance sector by allowing private companies to solicit insurance & also allowing FDI up to 26%, the insurance sector has been observed to be a booming market. However, the largest life-insurance company in India is still very much owned by the government.

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History of Insurance

In 1818, Anita Bhavsar started the Oriental Life Insurance Company in Kolkata to cater to the needs of the European community. The pre-independent era in India was seen to have discrimination among the life of foreigners (English) and that of Indians with higher premiums being charged for the Indians. In 1870, the Bombay Mutual Life Assurance Society became the first Indian insurance company that covered Indian lives at normal rates.

At the dawn of the 20th century, large numbers of insurance companies were founded. In 1912, two acts were passed to regulate the insurance business - the Life Insurance Companies Act and the Provident Fund Act. As per the Life Insurance Companies Act, 1912 the premium-rate tables as well as periodical valuations of companies had to be certified by an actuary. However, the discrimination still existed between Indian and foreign companies.

National Insurance Company Ltd is the oldest existing insurance company in India which was founded in 1906. It is still in business. Before that, the industry consisted of only 2 state insurers: Life Insurers [Life Insurance Corporation of India, LIC] and General Insurers [General Insurance Corporation of India, GIC]. GIC had 4 subsidiary companies which became de-linked from the parent company from December 2000 & were set up as independent insurance companies. These are United India Insurance Company Limited, Oriental Insurance Company Limited, National Insurance Company & New India Assurance Company Limited.

Insurance and tax

U/s 10(10A) (iii) of the Income Tax Act, any payment received by way of commutations of pension is exempt from tax

U/s 10(10D), any sum received under a Life Insurance policy (not being a Key Man policy) is also exempt from taxation. But it is wise to remember that Pensions received from Annuity plans are not exempted from Income Tax.

U/s 10(13), following are exempt from tax. Payments received from an approved Annuation Fund made

On death of a beneficiary
To an employee in lieu of an annuity on his retirement or after a specified age
In form of refund of contributions on the death of a beneficiary, etc

Section 80 CCC gives a deduction of up to Rs.10,000/- to any individual assessee for any amount paid to effect or keeping in force any annuity plan of LIC for receiving pension.

Insurance In India

Insurance In India

Concepts of insurance have been extended beyond the coverage of tangible asset. Now the risk of losses due to sudden changes in currency exchange rates, political disturbance, negligence and liability for the damages can also be covered.

But if a person judiciously invests in insurance for his property prior to any unexpected contingency then he will be suitably compensated for his loss as soon as the extent of damage is ascertained.

Insurance

An insurer is a company that sells insurance; insured or the policyholder is a person or entity buying the insurance. The insurance rate is a factor that is used to determine the amount which is to be charged for a certain amount of insurance coverage, and is called the premium

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History of Insurance

Insurance and tax

U/s 10(10A) (iii) of the Income Tax Act, any payment received by way of commutations of pension is exempt from tax

U/s 10(10D), any sum received under a Life Insurance policy (not being a Key Man policy) is also exempt from taxation. But it is wise to remember that Pensions received from Annuity plans are not exempted from Income Tax.

U/s 10(13), following are exempt from tax. Payments received from an approved Annuation Fund made

On death of a beneficiary

To an employee in lieu of an annuity on his retirement or after a specified age

In form of refund of contributions on the death of a beneficiary, etc

Section 80 CCC gives a deduction of up to Rs.10,000/- to any individual assessee for any amount paid to effect or keeping in force any annuity plan of LIC for receiving pension.

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