What the insurance tax will mean to my premium

Other insurance products that have a savings components suffer less. The equity-linked products, that are currently a rage among life insurance customers, can see a very marginal increase in service charges as of the entire premium a significant portion goes for investments in stock markets. For example, for every Rs 7,500 paid on an insurance policy, Rs 5,000 goes for covering the risk while Rs 2,500 will be invested on behalf of the consumer by the insurance firm. The service tax will be levied only on the Rs 5,000 which a customer is paying for covering the risk. Says Sam Ghosh, CEO of Allianz Bajaj Life Insurance, “The increase in service tax would dampen the demand for life insurance. However, the increase may only be partial as it is only on the risk component of the premium.” The service tax will also come down as the policy matures , as in the last few years the saving component goes up while the risk cover goes down

So, what should be your strategy? Analysts say a customers should continue to use insurance for primarily protection irrespective of the service tax component. However, they should also find out from their agents about the hike in their existing policy on account of service tax.