In what could turn out to be a 'game-changer' for the life insurance industry, Finance Minister P Chidambaram on Monday urged the income-tax department to lower tax rates on life insurance policies and the insurance regulator to speed up approval for products.

Life insurers will now be able to invest in securities of infrastructure companies that don't have top rating, enabling builders of roads and airports to access long-term funds.

The recommendations, when notified, will translate into higher sales for life insurance companies, which have been hurt by tight rules in the past two years, and lower premiums for buyers. The restriction on banks on selling policies of more than one company will also be removed.

Income-tax relief on investment in pension funds may be considered beyond the overall 1 lakh exemption limit for investment products, and service tax may be imposed upon realisation of the policy instead of accrual, said a statement from the finance minister.

The proposals, which follow the minister's meeting with Insurance Regulatory and Development Authority Chairman J Hari Narayan last week, include a 15-day and 30-day deadline for approving products, and reduction of service tax on policies at least in the first year.

"A number of steps that would be necessary and desirable to give a fillip to the life insurance industry and expand the spread and penetration of life insurance were identified and agreed upon," Chidambaram said in a statement. "It is proposed to schedule, shortly, a similar meeting with the general insurance sector."

"The various issues relating to direct taxes and service tax on which the finance ministry assured further examination by CBDT and CBEC will be of particular interest to the insurance industry and may well prove to be a game changer," said Narayan.

Life insurers have been lobbying for an easier regulatory regime after the slash in distributor commissions almost sounded the death knell for unit-linked insurance policies. To bump up sales, some insurers designed products in such a way that they resembled mutual funds more than insurance policies that look at long-term investing. "These are truly comprehensive transformational guidelines and we could not have asked for anything better," said Sandeep Bakshi, MD and CEO of ICICI Prudential Life Insurance. "Customers will have the simplicity of products."

The Central Board of Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC), the two administrative bodies responsible for most taxes, will have to revert to the suggestions by October 10, the minister said.

Companies are relieved about new product launches as the regulator will introduce the use and file system for certain yet-to-be-defined standard products, and products will be approved if they comply with the standard product guidelines. (Economic Times)