The premium on your life insurance policy is likely to rise as the finance ministry is likely to levy service tax on the fund management fees or the investment part of your policy. A decision on this issue would be taken in the next few weeks.

Over 50 per cent of the life insurance policy holders in the country use insurance as an investment tool and for various tax saving purposes and about 85 per cent of the consumers prefer policies which provide risk benefits as well as investment opportunities.

Once brought under the tax net, it would boost the government’s revenue kitty significantly. Service tax is already being levied on the risk premium part of life insurance policies. Banking and financial services is estimated to be the second largest contributor to the government’s service tax kitty.

“We are of the view that the investment part of a life insurance policy must be brought under the tax net. There is no reason why the investment component should not be taxed especially when the risk part of the policy is under the tax net,” an official source said adding that a notification to this extent is expected to be issued by month end.

Insurance companies levy fund management fees to meet the expenses arising due to managing funds in unit linked insurance plans (Ulip). The cost is absorbed by the policyholder and is factored in the market value of Ulip. The ministry is already in discussions with various stakeholders including the Insurance Regulatory Development Authority and life insurance companies.

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