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The general view of investing in Endowment Policy



Endowment Policy

The endowment policy is a type of life insurance policy that designed to pay a lump sum at a certain time or if the person dies an endowment policy may mature at ten, fifteen, or twenty years and some of these policies may also provide money if there is a serious illness. Endowment policies are generally the traditional with-profits or unit-linked and with unitised with-profits funds.


Surrender Value and Adjusted Market Value

Endowments can sometimes be chased early or surrendered early and the policy holder receives the amount of the surrender value determined by the insurance company. How much is received is going to depend on how long the endowment policy has been in effect and the amount paid in to it. Under bad investment conditions the encashment or surrender value may be reduced by a market value adjuster to squeeze out some cash during the time when investment conditions are not good and this means the investor will received only the surrender value minus the adjusted market value.

Service Tax on Life Insurance Policies Increased


by Lyju Kuruvilla on  November 21, 2011 at 12:59 PM
Article from Med India

The government has increased the service tax on life insurance policies from 1% to 1.5%. This move would increase the premium cost for policyholders. It is being provided that tax shall be charged in the portion of the premium. The composition rate is also being increased from 1% to 1.5%.

The service tax rate has been increased from 1.03% to 1.545% in case of traditional endowment plans. “Although the increase is marginal, there could be some increase in premium or returns might be lowered," Max New York Life Insurance CEO & Managing Director, Rajesh Sud said. 

In the traditional endowment life insurance products where it is not possible to segregate the mortality premium and the premium attributable to investment, service tax is payable at a gross rate of 1% of the total premium. The proposed service tax will make traditional policies costly for policyholders. 

However, the life insurance industry, which was demanding special treatment for increasing investment in insurance policies, is unhappy with the move. "This is not in line with our request for fiscally supporting long-term savings contracts such as life insurance," Sud said. 

However, Mr. Ashvin Parekh, head of the global consultancy firm Ernst & Young's, feels that the extension of service tax to services provided by life insurance companies in the areas of investment and health check-up or treatment will not have a substantial impact. The changes will extend comprehensive service tax coverage to all the services provided by life insurers and hospitals for health insurance. 

Traditional insurance policies invest at least 65% of the funds in Government Securities and Infrastructure Bonds, and provide fixed benefit to policyholders. 

The taxable service which was previously restricted in relation to only "risk cover" in life insurance products has been extended to all services. The burden of service tax on the policyholder is bound to increase and will result in lower returns to the policyholder. 

However, under the general insurance service, there is a Service Tax exemption to Rashtriya Swasthya Bima Yojana.

Article from Med India