Benefits of Including Insurance in Your Financial Portfolio

Benefits of Including Insurance in Your Financial Portfolio

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Insurance is important because it acts as a safeguard against any unprecedented event. However well we plan, there are times when planning and execution fails. It is at this critical juncture that insurance policies play a vital role. Critical illness, natural and accidental death, loss of job or personal propertycannot be controlled. Insurance covers you against these unforeseen financial issues. Along with providing all these benefits, most insurance investmentsfall under the EXEMPT-EXEMPT-EXEMPT (i.e. EEE) category when it comes to tax planning. This principle states that the insurance premiums, the profits earned on the insurance policy,and the sum assured,are completely tax free. It is beneficial to include insurance in your financial portfolio because as per Section 80 C of the Income Tax Act, it can reduce your taxable income by up to Rs. 1.5 lacs and your tax liability by up to Rs. 45,000.

Investing in the following insurance options stated under section 80C can save a substantial amount of your income from going towards taxes:

Term Plans

Term Plans are amongst the purest form of insurance. These plans cater to your need for protection of your family in your absence. A Term insurance requires you to pay small amounts as premium every yearfor a fixed term and provides risk coverage forthat specified term. In case of your demise during the policy term, the decided cover amount is paid to your nominee.

Term Plans not only provide you financial security but also help you claim deductions from your taxable income upto the amount you pay as premiums.Also, the sum assured you receive after the policy term is completely exempted from taxes. However, to avail these tax benefits, make sure that the annual premium of your plan does not exceed 1/10th of the cover amount.

The table given below represents a few amongst the range of options available at policybazaar.com.

NOTE: Data as per a 25-year old, non-smoking male

 

COMPANY

TOTAL PAYOUT

COVER FOR

ANNUAL PREMIUM (RS.)

FEATURES

POLICY TERM

HDFC Life

1 Crore

65 years

9,099

  • Accidental death
  • Accidental disability

40 years

AEGON Life

1 Crore

70 years

7,980

  • Accidental death
  • Accidental disability
  • Terminal illness
  • Waiver of premium

50 years

Edelweiss Tokio

1 Crore

70 years

9,240

  • Accidental death
  • Accidental disability
  • Critical illness
  • Waiver of premium

55 years

 

Medical Insurance and Critical Illness

Being insured against medical emergencies and critical illness is as important ashaving life insurance. A medical insurance plan reimburses you for the expenses incurred due to your hospitalization or domiciliary care. However, it requires you to submit some necessary proofs and is limited up to the amount mentioned in the policy. It also enables cashless hospitalization as the insurer directly pays your bills to the hospital.

Along with all these benefits, having a mediclaim policy can help you claim deductions from your taxable income and substantially reduce your tax liability. Money spent onmedical expenses for self or dependent family member up to Rs. 25,000 is eligible for a deduction under section 80D of the Income Tax Act. One can also claim for the health expenses incurred for dependent parents. However, this claim is restricted to Rs. 30,000 if the parents are senior citizens and Rs. 25,000 if they are not.These tax benefits (under section 80D) are over and above thesection 80C deductions.

There are 4 kinds of health insurance plans that you could choose from:

  • Medical insuranceplan – Covers expenses incurred over a hospital visit of more than 24hours. Money spent is reimbursed, based on certain terms and conditions.
  • Hospitalization plan –This is inclusive of cashless health insurance plans. The health insurance company directly settles the bill with hospitals and therefore, reduces financial burden on the insured person at the time of hospitalization
  • Critical insurance plan – This plan ensures protection against terminal illnesses like neurological disorders, cancer and tumor
  • Super top-up plan –These are designed to provide additional health insurance coverage, over and above your existing health plan. They can be used to upgrade the sum assured of your base plan. Top-Up plan is an alternative to opting for additional health policy, which is usually an expensive option.

The table below shows a few amongst the numerous health insurance options available at policybazaar.com:

NOTE: Data as per a 25-year old, single male earning 5 to 7 lacs per annum

 

COMPANY

SUM INSURED

ANNUAL PREMIUM (RS.)

FEATURES

Royal Sundaram

5 Lacs

5,095

  • Critical illness coverage
  • Free health checkup
  • Restoration benefits
  • Daily cash allowance

Max Bupa

2 Lacs

3,791

  • Domiciliary hospitalization
  • Critical illness coverage
  • Free health checkup
  • Restoration benefit

Apollo Munich

15 Lacs

11,871

  • Critical illness coverage
  • Restoration benefits
  • Domiciliary hospitalization

 

Child Plans

Child plans are essential in order to ensure a secure career and future for your child/children. Insurers offer plans such as children's endowment or money back, which entitles you to a pre-decided amount post maturity.In case of death of the parents, the child would receive the sum assured on maturity and the remaining premiums would be waived off.

Along with financial stability, child plans are amongst the top investment options for tax planning. Besides tax benefits, child plans ensure a future return for your child which will be a non-taxable income. As per section 80C, you can claim up to Rs. 1.5 lacs of premium paid towards child plans as deductions from your taxable income.

The table given below contains some amongst the array of child plan options that you can compare and buy at policybazaar.com

NOTE: Data as per 30-year old male who has a year old child

 

COMPANY

 

Plan

MARURITY VALUE (Rs.)

YEARLY INVESTMENT (Rs.)

YOU WILL PAY FOR

YOU WILL RECIVE MONEY IN

Edelweiss Tokio

Wealth Builder

18.1 Lac

72,000

10 years

20 years

Reliance Life

Super Endowment

15.5 Lac

72,000

10 years

20 years

HDFC Life

Sanchay

14.3 Lac

72,000

10 years

20 years

 

Retirement or Pension Plans

It is good to start planning for your retirement as soon as you start earning; because the early you start, the less you pay towards premium. Retirement plans by life insurance companies offer benefits of both insurance and investment. They usually have two phases:

The accumulation phase

During this phase you pay the premium and the money accumulates through tenure of the plan. This amount is usually invested in securities approved by the IRDA.

The vesting phase:

During the vesting phase, you start receiving the pension whenever decided by you. Ideally, it should be between 40 to 70 years.

As per Section 80CCC of the Income Tax Act,you can avail a deduction of up to Rs.1.5 lacs on the premium paid and one-third of the amount withdrawn on maturity will also be tax free.

The following table will help you compare a few amongst the range of retirement plan options you can buy from policybazaar.com

NOTE: Data as per a 25-year old male

 

COMPANY

PLAN

MATURITY VALUE (Rs.)

YEARLY INVESTMENT (Rs.)

YOU WILL PAY FOR

YOU WILL RECEIVE MONEY IN

Edelweiss Tokio

Wealth Builder

13.4 lacs

54,000

10 years

20 years

Reliance Life

Super Endowment

13 lacs

60,000

10 years

20 years

HDFC Life

Sanchay

10 lacs

50,000

10 years

20 years

 

 

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