In a few months' time the taxman will coming knocking on your door. However, he cannot tax you on the following 14 important items of income and receipts, as they are fully exempt from income tax and which a resident individual Indian assessee can use with profit for the purpose of tax planning.
1. Agricultural income
Under the provisions of Section 10(1) of the Income Tax Act, agricultural income is fully exempt from income tax.
However, for individuals or HUFs when agricultural income is in excess of Rs 5,000, it is aggregated with the total income for the purposes of computing tax on the total income in a manner which results into "no" tax on agricultural income but an increased income tax on the other income.
2. Receipts from Hindu undivided family (HUF)
Any sum received by an individual as a member of a Hindu undivided family, where the said sum has been paid out of the income of the family, or, in the case of an impartible estate, where such sum has been paid out of the income of the estate belonging to the family, is completely exempt from income tax in the hands of an individual member of the family under Section 10(2).
3. Allowance for foreign service
Any allowances or perquisites paid or allowed as such outside India by the Government to a citizen of India, rendering service outside India, are completely exempt from tax under Section 10(7).
This provision can be taken advantage of by the citizens of India who are in government service so that they can accumulate tax-free perquisites and allowances received outside India.
4. Gratuities
Under the provisions of Section 10(10) of the IT Act, any death-cum-retirement gratuity of a government servant is completely exempt from income tax.
In respect of private sector employees, however, gratuity received on retirement or on becoming incapacitated or on termination or any gratuity received by his widow, children or dependants on his death is exempt subject to certain conditions.
The maximum amount of exemption is Rs 3,50,000. Of course, this is further subject to certain other limits like the one half-month's salary for each year of completed service, calculated on the basis of average salary for the 10 months immediately preceding the year in which the gratuity is paid or 20 months' salary as calculated. Thus, the least of these items is exempt from income tax under Section 10(10).
5. Commutation of pension
The entire amount of any payment in commutation of pension by a government servant or any payment in commutation of pension from LIC pension fund is exempt from income tax under Section 10(10A) of IT Act.
However, in respect of private sector employees, only the following amount of commuted pension is exempt, namely:
(a) Where the employee received any gratuity, the commuted value of one-third of the pension which he is normally entitled to receive; and
(b) In any other case, the commuted value of half of such pension.
It may be noted here that the monthly pension receivable by a pensioner is liable to full income tax like any other item of salary or income and no standard deduction is now available in respect of pension received by a tax payer.
6. Leave salary of central government employees
Under Section 10(10AA) the maximum amount receivable by the employees of central government as cash equivalent to the leave salary in respect of earned leave at their credit upto 10 months' leave at the time of their retirement, whether on superannuation or otherwise, would be Rs 300,000.
7. Voluntary retirement or separation payment
Under the provisions of Section 10(10C), any amount received by an employee of a public sector company or of any other company or of a local authority or a statutory authority or a cooperative society or university or IIT or IIM at the time of his voluntary retirement (VR) or voluntary separation in accordance with any scheme or schemes of VR as per Rule 2BA, is completely exempt from tax.
The maximum amount of money received at such VR which is so exempt is Rs 500,000. As per Finance (No. 2) Act, 2009 an assessee cannot enjoy both the exemption in respect of VRS upto Rs 500,000 and also a deduction under Section 89.
8. Life insurance receipts
Under Section 10(10D), any sum received under a Life Insurance Policy, including the sum allocated by way of bonus on such policy, other than u/s 80DDA or under a Keyman Insurance Policy, or under an insurance policy issued on or after 1.4.2003 in respect of which the premium payable for any of the years during the term of the policy exceeds 20% of the actual capital sum assured, is fully exempt from tax.
However, all moneys received on death of the insured are fully exempt from tax Thus, generally moneys received from life insurance policies whether from the Life Insurance Corporation or any other private insurance company would be exempt from income tax.
9. Payment received from provident funds
Under the provisions of Sections 10(11), (12) and (13) any payment from a government or recognised provident fund (PF) or approved superannuation fund, or PPF is exempt from income tax.
10. Certain types of interest payment
There are certain types of interest payments which are fully exempt from income tax u/s 10(15). These are described below:
(i) Income by way of interest, premium on redemption or other payment on such securities, bonds, annuity certificates, savings certificates, other certificates issued by the Central Government and deposits as the Central Government may, by notification in the Official Gazette, specify in this behalf.
(iia) In the case of an individual or a Hindu Undivided Family, interest on such capital investment bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e. 7% Capital Investment Bonds);
(iib) In the case of an individual or a Hindu Undivided Family, interest on such Relief Bonds as the Central Government may, by notification in the Official Gazette, specify in this behalf (i.e., 9% or 8.5% or 8% or 7% Relief Bonds); (iid) Interest on NRI bonds;
(iiia) Interest on securities held by the issue department of the Central Bank of Ceylon constituted under the Ceylon Monetary Law Act, 1949;
(iiib) Interest payable to any bank incorporated in a country outside India and authorised to perform central banking functions in that country on any deposits made by it, with the approval of the Reserve Bank of India or with any scheduled bank;
(iv) Certain interest payable by Government or a local authority on moneys borrowed by it, including hedging charges on currency fluctuation (from the AY 2000-2001), etc.;
(v) Interest on Gold Deposit Bonds;
(vi) Interest on certain deposits are: Bhopal Gas victims;
(vii) Interest on bonds of local authorities as notified, and
(viii) Interest on 6.5% Savings Bonds [Exempt] issued by RBI
(ix) Stipulated new tax free bonds to be notified from time to time.
11. Dividends on shares and units - Section 10(34) & (35)
With effect from the Assessment Year 2004-05, the dividend income and income of units of mutual funds received by the assessee completely exempt from income tax.
12. Long-term capital gains of transfer of securities - Section 10(38)
With effect from FY 2004-05, any income arising to a taxpayer on account of sale of long-term capital asset being securities is completely outside the purview of tax liability especially when the transaction has been subjected to Securities Transaction Tax.
Thus, if the shares of any company listed in the stock exchange are sold after holding it for a minimum period of one year then there will be no liability to payment of capital gains.
This provision would even apply for the old shares which are held by an assessee and are sold after the Finance (No.2) Act, 2004 came into force.
13. Amount received by way of gift, etc - Section 10(39)
As per the Finance (No.2) Act, 2004, gift, etc. received after 1-9-2004 by individual or HUF in cash or by way of credit, etc. is being subjected to tax if the same is not received from relative, etc. However, Section 56(2) provides that the amount received to the extent of Rs 50,000 will, however, be exempt from the purview of income tax.
Similarly, amount received on the occasion of marriage from a non-relative, etc. would also be exempted. It may be noted that the gift from relatives. as mentioned in the Section can be received without any upper limit.
14. Tax exemption regarding reverse mortgage scheme - sections 2(47) and 47(x)
Any transfer of a capital asset in a transaction of reverse mortgage for senior citizens under a scheme made and notified by the Central Government would not be regarded as a transfer and therefore would not attract capital gains tax. The loan amount would also be exempt from tax.
Source: http://business.rediff.com/slide-show/2009/nov/04/slide-show-1-fourteen-tax-free-incomes-for-fy-2009-10.htm
Sunday, November 8, 2009
Opting for insurance? Term plans are the best
Term plans have always received a vote in their favour from individuals who are looking to insure their lives at a lower cost. And with good reason. But with so many life insurance companies vying for a place in the individual’s insurance portfolio, the options merit evaluation. Here, we present a few pointers on how to assess a term plan given the various options available.
Simply put, a term plan is a pure risk cover plan without any maturity benefit. This is because only mortality charges and administration expenses are covered in the premium amount; there is no savings element here. Hence, only in case of an eventuality do the individual’s nominees stand to ‘benefit’ by way of receiving the sum assured.
It is called the intelligent person�s insurance cover. However, term plans are yet to make an impression in the minds of insurance seekers in India. Most of them would prefer expensive endowment polices because they would get �something at the end of it.� Never mind, they may be underinsured thanks to the costlier premium. Still, the cheapest and most effective insurance cover fails to enthuse most of them. �Most people just don�t get it. For them insurance is all about tax breaks and tax-free returns on maturity,� says an insurance advisor with Life Insurance Corporation of India. He says it is difficult to convince customers, as most of them do not like the idea of not getting any money at the end of the term or on maturity. Another reason why term plans remain out of public perception is due to the lower commission rate that insurance agents earn on them.
Simply put, a term plan is a pure risk cover plan without any maturity benefit. This is because only mortality charges and administration expenses are covered in the premium amount; there is no savings element here. Hence, only in case of an eventuality do the individual’s nominees stand to ‘benefit’ by way of receiving the sum assured.
It is called the intelligent person�s insurance cover. However, term plans are yet to make an impression in the minds of insurance seekers in India. Most of them would prefer expensive endowment polices because they would get �something at the end of it.� Never mind, they may be underinsured thanks to the costlier premium. Still, the cheapest and most effective insurance cover fails to enthuse most of them. �Most people just don�t get it. For them insurance is all about tax breaks and tax-free returns on maturity,� says an insurance advisor with Life Insurance Corporation of India. He says it is difficult to convince customers, as most of them do not like the idea of not getting any money at the end of the term or on maturity. Another reason why term plans remain out of public perception is due to the lower commission rate that insurance agents earn on them.
Wednesday, July 15, 2009
Are you insured enough to tackle a crisis?
Are you insured enough to tackle a crisis?
Sunil Dhawan and Deepti Bhaskaran, Outlook Money
Leading life is somewhat similar to driving a car. Driving a car entails preliminary checks to see if every part is working fine: the right pressure in the tyres, adequate coolant, smoothly working clutch and engine parts.
All these, backed by a full fuel tank, imply that one is in control and set for a long drive. Life similarly asks for control over various things so that we can have a good time living it.
What one earns, spends and saves in the present are not the only indicators of how well one is in control of one's financial life. To keep things under control, one should also do a good job of making provisions to meet future financial needs. Insurance is a key part of this planning. We look at provisions like health and life insurance covers in addition to those for house, home loan and car(s).
Health insurance
The right cover. Unlike life insurance, where you can figure out the right sum assured amount by using some thumb rules, arriving at an optimum health cover is usually difficult. Says Deepak Mendiratta, managing director, Health and Insurance Integrated, a health insurance consulting firm: "There are no calculations or thumb rules to arrive at a cover. However, you could look at it in two ways.
"First, check for any hereditary ailment within your family or the kind of ailments your peers or friends usually encounter and cover yourself appropriately.
"Second, see how much money can you put away every year so that a sum insured could be looked at accordingly."
9 questions to check if you are in control
*Is anyone financially dependent on me?
*If yes, then how much life cover should I buy?
*Should I go for a pure term insurance plan?
*Can I manage my investments separately?
*Should I buy a bundled plan like an endowment policy or a Ulip?
*Till what age should I keep myself covered?
*Have I planned for long-term financial goals of my children and myself?
*Is my nominee aware of the covers taken?
*Am I reviewing my coverage needs regularly?
Plugging gaps. You could simply buy another health insurance policy to the first one to increase your total sum insured amount. You can club the two policies to meet the hospitalisation expenses, if the need arises.
However, you can never claim an amount higher than the medical expenses you incur. A family floater is also a good way to bump up your cover. It is bought for the entire family and the sum insured opted for is available to all.
You could also top up your cover by looking at policies with benefits like critical illness plans and hospital cash plans. Since these policies pay in lump sums, they are usually designed to take care of your income stream for the period you are hospitalised.
Life insurance
Get term, get control. Life insurance is meant for those whose financial needs you would like to be met after you are no more. Review your situation periodically to maintain adequate cover.
Plugging gaps. Check on two things to identify any gap in your term insurance. The first is the coverage amount. The most important thing is to estimate your dependents' financial needs in the unfortunate event of your death. Take into account the lifestyle they are accustomed to and the one you would want for them in your absence.
A thumb rule for those early in their career is to have a minimum cover of about eight times their gross annual income. As one ages, it may be trimmed to about five times the gross annual income.
Now, check the duration of the cover. See if there is a period which is not covered. It is not right for a 30-year-old man to buy a term plan for 15 or 20 years. Buying a term plan at around age 50 is costly and there are health issues.
6 steps to buy a term plan to be in control
*Identify insurers that offer policies for the longest term
*Also look for policies that have maximum maturity age
*Choose three insurers with the lowest premiums for your age and other parameters
Refer to websites not only to find out the offered premiums, but also compare them
*Go for the annual payment option over the single premium option because, otherwise, if the rates fall in the future, you stand to lose
*Review after every addition (for example, parents becoming financially dependent on you) or deletion (children getting settled) of financial liability
*Unlike endowment plans, premium of term plans rises as its duration increases. However, life is uncertain and you should ideally choose a plan that covers you for long.
*Protect your house
*Opt for a Householder's Package Policy
*Take cover even against technical or mechanical breakdowns
*Buy through brokers or agents
*Term cover can be dropped easily once financial responsibilities are over. Currently, some insurers are offering term plans with coverage till age 75 or a term of 30 years.
*If you have a home loan, you should take a term plan or a loan cover term plan propotionate to the home loan amount. Ideally, the plan should start with the first home loan EMI.
*How to stay in control
*Review insurance plans regularly to accommodate changes in your life
Life cover
Revaluate cover after changes in take-home income, family status, financial liability and after spouse discontinues or resumes work
Health cover
*Buy a basic policy in addition to employer's cover
*You can top it up with floater plans, benefit policies like critical illness plans and hospital cash plans
*Look at exclusion clauses
Auto cover
If you are buying directly from insurer, bargain for best possible price. Bargain with brokers too
Don't compromise on cover for a discount. Always check out what covers you are getting
Insure car on full IDV. Higher discounts might mean a lower IDV. Ask for the exact IDV
Ask insurer if it has tie-ups with dealers of your car model so that you can get cashless claim settlement
Co-payment clause, known as 'excess' or deductible in the policy, makes you bear a portion of the claim. A higher deductible would mean lower premium since the risk shifts from the insurer to you. You could opt for a higher deductible to get more discounts. But, this means that if there is a claim, your liability to share the bill would increase
http://business.rediff.com/special/2009/jul/09/perfin-are-you-insured-enough-to-tackle-a-crisis.htm
Sunil Dhawan and Deepti Bhaskaran, Outlook Money
Leading life is somewhat similar to driving a car. Driving a car entails preliminary checks to see if every part is working fine: the right pressure in the tyres, adequate coolant, smoothly working clutch and engine parts.
All these, backed by a full fuel tank, imply that one is in control and set for a long drive. Life similarly asks for control over various things so that we can have a good time living it.
What one earns, spends and saves in the present are not the only indicators of how well one is in control of one's financial life. To keep things under control, one should also do a good job of making provisions to meet future financial needs. Insurance is a key part of this planning. We look at provisions like health and life insurance covers in addition to those for house, home loan and car(s).
Health insurance
The right cover. Unlike life insurance, where you can figure out the right sum assured amount by using some thumb rules, arriving at an optimum health cover is usually difficult. Says Deepak Mendiratta, managing director, Health and Insurance Integrated, a health insurance consulting firm: "There are no calculations or thumb rules to arrive at a cover. However, you could look at it in two ways.
"First, check for any hereditary ailment within your family or the kind of ailments your peers or friends usually encounter and cover yourself appropriately.
"Second, see how much money can you put away every year so that a sum insured could be looked at accordingly."
9 questions to check if you are in control
*Is anyone financially dependent on me?
*If yes, then how much life cover should I buy?
*Should I go for a pure term insurance plan?
*Can I manage my investments separately?
*Should I buy a bundled plan like an endowment policy or a Ulip?
*Till what age should I keep myself covered?
*Have I planned for long-term financial goals of my children and myself?
*Is my nominee aware of the covers taken?
*Am I reviewing my coverage needs regularly?
Plugging gaps. You could simply buy another health insurance policy to the first one to increase your total sum insured amount. You can club the two policies to meet the hospitalisation expenses, if the need arises.
However, you can never claim an amount higher than the medical expenses you incur. A family floater is also a good way to bump up your cover. It is bought for the entire family and the sum insured opted for is available to all.
You could also top up your cover by looking at policies with benefits like critical illness plans and hospital cash plans. Since these policies pay in lump sums, they are usually designed to take care of your income stream for the period you are hospitalised.
Life insurance
Get term, get control. Life insurance is meant for those whose financial needs you would like to be met after you are no more. Review your situation periodically to maintain adequate cover.
Plugging gaps. Check on two things to identify any gap in your term insurance. The first is the coverage amount. The most important thing is to estimate your dependents' financial needs in the unfortunate event of your death. Take into account the lifestyle they are accustomed to and the one you would want for them in your absence.
A thumb rule for those early in their career is to have a minimum cover of about eight times their gross annual income. As one ages, it may be trimmed to about five times the gross annual income.
Now, check the duration of the cover. See if there is a period which is not covered. It is not right for a 30-year-old man to buy a term plan for 15 or 20 years. Buying a term plan at around age 50 is costly and there are health issues.
6 steps to buy a term plan to be in control
*Identify insurers that offer policies for the longest term
*Also look for policies that have maximum maturity age
*Choose three insurers with the lowest premiums for your age and other parameters
Refer to websites not only to find out the offered premiums, but also compare them
*Go for the annual payment option over the single premium option because, otherwise, if the rates fall in the future, you stand to lose
*Review after every addition (for example, parents becoming financially dependent on you) or deletion (children getting settled) of financial liability
*Unlike endowment plans, premium of term plans rises as its duration increases. However, life is uncertain and you should ideally choose a plan that covers you for long.
*Protect your house
*Opt for a Householder's Package Policy
*Take cover even against technical or mechanical breakdowns
*Buy through brokers or agents
*Term cover can be dropped easily once financial responsibilities are over. Currently, some insurers are offering term plans with coverage till age 75 or a term of 30 years.
*If you have a home loan, you should take a term plan or a loan cover term plan propotionate to the home loan amount. Ideally, the plan should start with the first home loan EMI.
*How to stay in control
*Review insurance plans regularly to accommodate changes in your life
Life cover
Revaluate cover after changes in take-home income, family status, financial liability and after spouse discontinues or resumes work
Health cover
*Buy a basic policy in addition to employer's cover
*You can top it up with floater plans, benefit policies like critical illness plans and hospital cash plans
*Look at exclusion clauses
Auto cover
If you are buying directly from insurer, bargain for best possible price. Bargain with brokers too
Don't compromise on cover for a discount. Always check out what covers you are getting
Insure car on full IDV. Higher discounts might mean a lower IDV. Ask for the exact IDV
Ask insurer if it has tie-ups with dealers of your car model so that you can get cashless claim settlement
Co-payment clause, known as 'excess' or deductible in the policy, makes you bear a portion of the claim. A higher deductible would mean lower premium since the risk shifts from the insurer to you. You could opt for a higher deductible to get more discounts. But, this means that if there is a claim, your liability to share the bill would increase
http://business.rediff.com/special/2009/jul/09/perfin-are-you-insured-enough-to-tackle-a-crisis.htm
Saturday, April 18, 2009
FAMILY FLOATER HEALTH PLAN
Dear Friends,
It’s best to be prepared for the worst so that it doesn’t take you by surprise. Our FAMILY FLOATER HEALTH PLAN eliminates all your worries and financial burdens when it comes to medical expenses. Just take a look at all the benefits of the plan:
*India\'s first Exclusive Health Insurance Company
*Premium and One Policy for Entire Family
*Cashless Hospitalization Facility
*Large Hospital Network of more than 4000 Hospitals Fast & Efficient Settlement of Claims
*You don’t need to take a medical test upto 50 years of Age
*Tax Benefits under Section 80 - D
To prepare yourself, just Call for details
Thanks & Regards,
Vivek Patwal,
PH:9811511501,
http://www.vivekpatwal.blogspot.com
It’s best to be prepared for the worst so that it doesn’t take you by surprise. Our FAMILY FLOATER HEALTH PLAN eliminates all your worries and financial burdens when it comes to medical expenses. Just take a look at all the benefits of the plan:
*India\'s first Exclusive Health Insurance Company
*Premium and One Policy for Entire Family
*Cashless Hospitalization Facility
*Large Hospital Network of more than 4000 Hospitals Fast & Efficient Settlement of Claims
*You don’t need to take a medical test upto 50 years of Age
*Tax Benefits under Section 80 - D
To prepare yourself, just Call for details
Thanks & Regards,
Vivek Patwal,
PH:9811511501,
http://www.vivekpatwal.blogspot.com
Thursday, March 26, 2009
Term Insurance-A Reality check,
Term insurance vs ULIPs: A reality check
In recent days it has become fashionable to discourage investors from buying unit linked insurance plans, ULIPs.
The reason: High administrative, mortality and fixed annual charges. Instead, term insurance plans offer better insurance to the life covered, so goes the argument.
While each and every insurance product has its advantages and disadvantages compared to other such similar products, insurance buyers must understand their need for insurance before buying any insurance product.
The current article dwells on the advantages that a ULIP has over term insurance plan. Or rather, it tries to remove some misconceptions about ULIPs.
To understand this better, let us go through a conversation between two friends.
Conversation:
Friend one: I am thinking of buying an insurance plan to cover my life. Not sure whether to go in for a term plan or a ULIP.
Friend two: Don't think twice. Go for a term insurance plan. They are the best way to cover a life
Friend one: But I have heard that in term plans no returns are available at the end of the plan period if I survive?
Friend Two: Yes. But why do you need returns from an insurance plan? You know my friend never mix investments with insurance. Keep them separate. You can always become rich by investing in mutual funds or equities. Take my word, go in for a term plan.
Friend One: You may be right. Hey, do you have any workings or illustrations, which I may go through before I decide on this?
Friend Two: Arrey yaar, why do you need workings? Don't you read newspapers? Don't you read the columns written by experts? All of them say that term plans are the best. If they are saying that term plans are good, they must be good. Anyways, who has the time to go through workings and all? I trust these free advices totally. I suggest you do the same too.
Friend One: But I don't know anything about investing in mutual funds or equities. What do I do?
Friend Two: Don't worry about that. There are financial planners who will plan everything for you. Just leave everything to them. They will help you out.
A real life example
One of our clients, let us call him Amit, wanted to take a life insurance cover. He had taken a home loan of Rs 45,00,000. He wanted a matching life cover to ensure that in the event anything happens to him, the maturity proceeds from the insurance could be used to repay the housing loan. He had two options before him.
Either buy a term plan or go in for a ULIP. We looked around for a number of options for a term plan. Given below are the quotes from various insurance companies for a life cover of Rs 45,00,000 for a person aged 32 years. The term of the cover is 25 years.
Life insurance company
ING Vysya Life Life cover (Rs)
45,00,000 Premium per annum (Rs) 15,298, Term (In years) 25
LIC of India 45,00,000 16,110 25
ICICI Prudential 45.00,000 15,496 25
Tata AIG Life 45,00,000 16,609 25
Om Kotak 45,00,000 16,482 25
Met Life 45,00,000 15,994 25
Max Newyork Life 45,00,000 15,795 25
Several comments are made against the insurance companies and advisors in general. Please understand that different products are structured to suit different individual needs of the customers. If endowment products have worked well since the last 50 years, it is not only due to the mis-selling by advisors.
Give credit to the product also which has enabled thousands of families to save regularly over a period of time and given them returns when they needed it the most.
Similarly if ULIPs are working well now it indicates the success of the product in tapping the latent demand existing in the market.
At the end of the day if you are convinced, for good or bad, buy what you want. But do take care to properly analyse the products and their pros and cons.
In recent days it has become fashionable to discourage investors from buying unit linked insurance plans, ULIPs.
The reason: High administrative, mortality and fixed annual charges. Instead, term insurance plans offer better insurance to the life covered, so goes the argument.
While each and every insurance product has its advantages and disadvantages compared to other such similar products, insurance buyers must understand their need for insurance before buying any insurance product.
The current article dwells on the advantages that a ULIP has over term insurance plan. Or rather, it tries to remove some misconceptions about ULIPs.
To understand this better, let us go through a conversation between two friends.
Conversation:
Friend one: I am thinking of buying an insurance plan to cover my life. Not sure whether to go in for a term plan or a ULIP.
Friend two: Don't think twice. Go for a term insurance plan. They are the best way to cover a life
Friend one: But I have heard that in term plans no returns are available at the end of the plan period if I survive?
Friend Two: Yes. But why do you need returns from an insurance plan? You know my friend never mix investments with insurance. Keep them separate. You can always become rich by investing in mutual funds or equities. Take my word, go in for a term plan.
Friend One: You may be right. Hey, do you have any workings or illustrations, which I may go through before I decide on this?
Friend Two: Arrey yaar, why do you need workings? Don't you read newspapers? Don't you read the columns written by experts? All of them say that term plans are the best. If they are saying that term plans are good, they must be good. Anyways, who has the time to go through workings and all? I trust these free advices totally. I suggest you do the same too.
Friend One: But I don't know anything about investing in mutual funds or equities. What do I do?
Friend Two: Don't worry about that. There are financial planners who will plan everything for you. Just leave everything to them. They will help you out.
A real life example
One of our clients, let us call him Amit, wanted to take a life insurance cover. He had taken a home loan of Rs 45,00,000. He wanted a matching life cover to ensure that in the event anything happens to him, the maturity proceeds from the insurance could be used to repay the housing loan. He had two options before him.
Either buy a term plan or go in for a ULIP. We looked around for a number of options for a term plan. Given below are the quotes from various insurance companies for a life cover of Rs 45,00,000 for a person aged 32 years. The term of the cover is 25 years.
Life insurance company
ING Vysya Life Life cover (Rs)
45,00,000 Premium per annum (Rs) 15,298, Term (In years) 25
LIC of India 45,00,000 16,110 25
ICICI Prudential 45.00,000 15,496 25
Tata AIG Life 45,00,000 16,609 25
Om Kotak 45,00,000 16,482 25
Met Life 45,00,000 15,994 25
Max Newyork Life 45,00,000 15,795 25
Several comments are made against the insurance companies and advisors in general. Please understand that different products are structured to suit different individual needs of the customers. If endowment products have worked well since the last 50 years, it is not only due to the mis-selling by advisors.
Give credit to the product also which has enabled thousands of families to save regularly over a period of time and given them returns when they needed it the most.
Similarly if ULIPs are working well now it indicates the success of the product in tapping the latent demand existing in the market.
At the end of the day if you are convinced, for good or bad, buy what you want. But do take care to properly analyse the products and their pros and cons.
Friday, January 2, 2009
Term Insurance
Term Insurance
The cheapest and the most basic, this is a no-frills life cover that should be one of your first financial instruments. Being a pure insurance cover, it does not return your money if you survive the policy term.
If you don't, the sum assured is paid to your dependants. So, buy only if you have financial dependants, or you expect to have dependants in the future. If you expect to have dependants till a later stage of your life, look for a plan that has a high maturity age.
Most term plans provide cover till 60-65 years of age. Few even offer plans till age 75.
As there is no surrender or maturity value in these, you should settle for the one with the lowest premium and the longest term.
Since they are simple, term plans can be easily compared on the basis of price and the cover period. Search for a quote from at least four to five companies before buying one.
Recently, a few variants have been introduced in term insurance.
ING Vysya Life Insurance has launched limited premium paying term (PPT) plans. In these, you have to pay a higher premium in the initial years to cover the premiums for the entire term, after which you stop paying altogether. If you think, you can afford higher premiums only for a few years, this plan will make sense for you.
However, it has its drawbacks. In the event of death in the initial years, you would end up paying much more than what you would have paid till that time under a normal plan.
Also, if at any point you want to discontinue the plan in the absence of dependants, you would have paid for the entire term in any case. Switching to a lower cost plan would also be hindered.
DLF Pramerica's Family Income Plan has come up with another innovation. Unlike a conventional protection plan, where the dependants receive a lumpsum, the plan allows you to choose the monthly financial support system.
Under this, your dependants would be paid on a monthly basis till the end of the plan term.
Important
Keep the highest possible term
Keep the maturity age as long as possible
Talk to 4-5 insurers or visit their websites to get premium rates
Choose the plan that has the lowest premium at your parameters
Undergo medical tests, if required
Keep the nominees informed
Pay premiums every year
The cheapest and the most basic, this is a no-frills life cover that should be one of your first financial instruments. Being a pure insurance cover, it does not return your money if you survive the policy term.
If you don't, the sum assured is paid to your dependants. So, buy only if you have financial dependants, or you expect to have dependants in the future. If you expect to have dependants till a later stage of your life, look for a plan that has a high maturity age.
Most term plans provide cover till 60-65 years of age. Few even offer plans till age 75.
As there is no surrender or maturity value in these, you should settle for the one with the lowest premium and the longest term.
Since they are simple, term plans can be easily compared on the basis of price and the cover period. Search for a quote from at least four to five companies before buying one.
Recently, a few variants have been introduced in term insurance.
ING Vysya Life Insurance has launched limited premium paying term (PPT) plans. In these, you have to pay a higher premium in the initial years to cover the premiums for the entire term, after which you stop paying altogether. If you think, you can afford higher premiums only for a few years, this plan will make sense for you.
However, it has its drawbacks. In the event of death in the initial years, you would end up paying much more than what you would have paid till that time under a normal plan.
Also, if at any point you want to discontinue the plan in the absence of dependants, you would have paid for the entire term in any case. Switching to a lower cost plan would also be hindered.
DLF Pramerica's Family Income Plan has come up with another innovation. Unlike a conventional protection plan, where the dependants receive a lumpsum, the plan allows you to choose the monthly financial support system.
Under this, your dependants would be paid on a monthly basis till the end of the plan term.
Important
Keep the highest possible term
Keep the maturity age as long as possible
Talk to 4-5 insurers or visit their websites to get premium rates
Choose the plan that has the lowest premium at your parameters
Undergo medical tests, if required
Keep the nominees informed
Pay premiums every year
How to make an insurance claim
How to make an insurance claim
It is important for both the insured and the nominee to know the process of insurance claim settlement. A false step can lead to denial of the benefit for which life cover is bought.
What is a claim?
A life insurance policy is a contract between the insurance company and the insured in which the insurer agrees to pay a pre-defined sum upon the death of the insured. This sum is claimed by the nominee of the policy -- the person designated to make a claim in the event of the death of the insured.
Making a claim
In order to make a claim, the nominee needs to submit a claim form that is issued by the insurer. The nominee is also required to submit documents like the original policy papers, the death certificate of the insured and his death summary in case he died due to an illness. If death was accidental, these documents need to be supported by an FIR and a post-mortem report. In addition to these documents, the claimant also needs to provide an identity proof to establish that he is the nominee of the policy. The identity proof can be anything bearing the nominee's photograph and signature. That makes the PAN card, driving licence and passport eligible as identity proofs. The process of claim settlement begins once the insurer verifies these documents.
How long does take?
It usually takes a week to 10 days to settle a claim after all the relevant documents are verified by the insurer.
The Insurance Regulatory and Development Authority (Irda), the insurance regulator, has stipulated that claims should be settled within 30 days of receipt of all the relevant documents. The insurer can ask for clarifications or supporting evidence if he is dissatisfied with the documents. If this happens, a deadline of six months from the date of intimation of the claim is laid down for its settlement. If the insurer fails to meet the deadline, he has to pay an interest on the sum assured. The nominee can approach the insurance ombudsman if the insurer fails to pay the claim on time.
It is important for both the insured and the nominee to know the process of insurance claim settlement. A false step can lead to denial of the benefit for which life cover is bought.
What is a claim?
A life insurance policy is a contract between the insurance company and the insured in which the insurer agrees to pay a pre-defined sum upon the death of the insured. This sum is claimed by the nominee of the policy -- the person designated to make a claim in the event of the death of the insured.
Making a claim
In order to make a claim, the nominee needs to submit a claim form that is issued by the insurer. The nominee is also required to submit documents like the original policy papers, the death certificate of the insured and his death summary in case he died due to an illness. If death was accidental, these documents need to be supported by an FIR and a post-mortem report. In addition to these documents, the claimant also needs to provide an identity proof to establish that he is the nominee of the policy. The identity proof can be anything bearing the nominee's photograph and signature. That makes the PAN card, driving licence and passport eligible as identity proofs. The process of claim settlement begins once the insurer verifies these documents.
How long does take?
It usually takes a week to 10 days to settle a claim after all the relevant documents are verified by the insurer.
The Insurance Regulatory and Development Authority (Irda), the insurance regulator, has stipulated that claims should be settled within 30 days of receipt of all the relevant documents. The insurer can ask for clarifications or supporting evidence if he is dissatisfied with the documents. If this happens, a deadline of six months from the date of intimation of the claim is laid down for its settlement. If the insurer fails to meet the deadline, he has to pay an interest on the sum assured. The nominee can approach the insurance ombudsman if the insurer fails to pay the claim on time.
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