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Win some, lose some for insurance plans

Calcutta, March 1: The good news first: the premium for your unit-linked life insurance plan may come down in the next financial year. The bad news is that you may have to pay more if you want the cashless facility under a medical insurance plan.

Finance minister Pranab Mukherjee has proposed to levy service tax on payments for the treatment or health check-up of a medical insurance policyholder if it is made directly to the hospital or multi-speciality clinic by the insurer.

So far, the income tax department was collecting the tax from third party administrators (TPAs). But on the complaints of TPAs that they work as a mere conduit to make the payment on behalf of the insurer to hospitals or clinics by way of settlements, insurers will have to pay the service tax now.

“The proposal to impose a service tax on payments made to hospitals under health insurance schemes would push up costs for end-customers,” said Bhargav Dasgupta, managing director and chief executive officer of ICICI Lombard General Insurance Company.

General insurance companies pay upwards of Rs 6,000 crore each year to healthcare service providers such as hospitals, nursing homes and medical clinics as settlement of claims under the cashless facility provided to medical insurance policyholders.

However, if you opt for the reimbursement facility (where policyholders pay the cost of treatment out of their pockets and then claim reimbursements from insurers), the premium cost will remain unchanged.

A mediclaim policyholder already pays service tax at the time of buying the policy and again while paying the renewal premium each year.

In life insurance, finance minister Pranab Mukherjee has proposed to levy service tax only on fund management charges for unit-linked life insurance plans (Ulips).

In 2007-08, the then finance minister P. Chidambaram widened the service tax net by including several other charges such as premium allocation charge, policy administration charge and so on under Ulips. Since then life insurers have been demanding the removal of service tax from Ulip costs other than mortality and fund management charges to provide them with a level-playing field vis-à-vis mutual funds.

The Finance Bill 2010-11 clarifies that for the purpose of levying service tax, “the gross amount charged by the insurer shall be equal to the maximum amount fixed by the IRDA as fund management charges for Ulip or the actual amount charged for the said purpose by the insurer, whichever is higher”.

In July 22 last year, the IRDA (Insurance Regulatory and Development Authority) issued a circular capping various charges under Ulips. The circular said for insurance contracts less than or equal to 10 years, the total cost shall not exceed 300 basis points, (100 basis points is one percentage point), of which fund management charges shall not exceed 150 basis points.

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