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Life Insurance


Life insurance is one of the most popular savings/ investment vehicles in India. Ironically its probably the least understood too. An insurance policy offers much more than just tax planning and investment returns. It offers you the ability to plan for unforeseen events that could affect your family's financial problem adversely.

Roles of Life Insurance

Risks and uncertainties are part of life's great adventure -- accident, illness, theft, natural disaster - they're all built into the working of the Universe, waiting to happen.

Role 1: Life insurance as "Investment"

Insurance is an attractive option for investment. While most people recognize the risk hedging and tax saving potential of insurance, many are not aware of its advantages as an investment option as well. Insurance products yield more compared to regular investment options, and this is besides the added incentives (read bonuses) offered by insurers.

You cannot compare an insurance product with other investment schemes for the simple reason that it offers financial protection from risks, something that is missing in non-insurance products.

In fact, the premium you pay for an insurance policy is an investment against risk. Thus, before comparing with other schemes, you must accept that a part of the total amount invested in life insurance goes towards providing for the risk cover, while the rest is used for savings.

In life insurance, unlike non-life products, you get maturity benefits on survival at the end of the term. In other words, if you take a life insurance policy for 20 years and survive the term, the amount invested as premium in the policy will come back to you with added returns. In the unfortunate event of death within the tenure of the policy, the family of the deceased will receive the sum assured.

Now, let us compare insurance as an investment options. If you invest Rs 10,000 in PPF, your money grows to Rs 10,950 at 9.5 per cent interest over a year. But in this case, the access to your funds will be limited. One can withdraw 50 per cent of the initial deposit only after 4 years.

The same amount of Rs 10,000 can give you an insurance cover of up to approximately Rs 5-12 lakh (depending upon the plan, age and medical condition of the life insured, etc) and this amount can become immediately available to the nominee of the policyholder on death.

Thus insurance is a unique investment avenue that delivers sound returns in addition to protection.

Role 2: Life insurance as "Risk cover"

First and foremost, insurance is about risk cover and protection - financial protection, to be more precise - to help outlast life's unpredictable losses. Designed to safeguard against losses suffered on account of any unforeseen event, insurance provides you with that unique sense of security that no other form of investment provides. By buying life insurance, you buy peace of mind and are prepared to face any financial demand that would hit the family in case of an untimely demise.

To provide such protection, insurance firms collect contributions from many people who face the same risk. A loss claim is paid out of the total premium collected by the insurance companies, who act as trustees to the monies.

Insurance also provides a safeguard in the case of accidents or a drop in income after retirement. An accident or disability can be devastating, and an insurance policy can lend timely support to the family in such times. It also comes as a great help when you retire, in case no untoward incident happens during the term of the policy.

With the entry of private sector players in insurance, you have a wide range of products and services to choose from. Further, many of these can be further customized to fit individual/group specific needs. Considering the amount you have to pay now, it's worth buying some extra sleep.

Role 3: Life insurance as "Tax planning"

Life insurance policies can be useful tax planning tools, because the policy holder is eligible for tax benefits under the Income Tax Act 1961 (Act). Though there are multiple modes for saving tax, life insurance is one of the most effective tax planning instrument. With our unit linked life insurance plans individuals can not only save tax but also look at achieving their long term goals

Life insurance Plans provides several benefits: life cover, investment plans with wealth maximization opportunities, child planning options, retirement planning options and all of them coupled with effective tax saving options.

Here are a few advantages of tax planning using life insurance:

Tax Planning Adv. 1 - Premiums paid under a life insurance policy are eligible for deduction under Section 80C* of the Act, subject to the provisions of the said section.

Tax Planning Adv. 2 - Contributions to a pension plan are eligible for deduction under Section 80CCC* of the Act, subject to the provisions of the said section.

Tax Planning Adv. 3 - The proceeds under a life insurance policy are exempt under Section 10(10D) of the Act, subject to the provisions of the said section.

*As per the prevailing law, the aggregate amount of deduction under section 80C and 80CCC shall not exceed one lakh rupees. Please Note: The above information only provides a general overview of some aspects of the tax laws applicable to life insurance/pension plans. Please consult a tax advisor before taking any action.

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