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Life Insurance

Life Insurance

What is Life Insurance?

 

Life Insurance is a contract between a person and a life insurance company to reimburse his/her beneficiary (usually a spouse or child) at the time of his/her demise. The reimbursement amount is pre-decided based on the terms of the policy.

Why is Life Insurance useful?
Life Insurance is useful to provide your family with financial security in case circumstance throws you into a situation where you cannot earn or in the case of your premature demise. It helps keep your family in a position to enjoy financial security even after your demise. Life insurance policies also offer you the ability to save, which helps provide financial stability.

Is Life Insurance necessary?
Life Insurance is not necessary but is a smart investment to make, especially if you have a dependent spouse and children. It offers your family the benefit of financial support even after your death. In addition to this, it offers a number of advantages and provides a lot of flexibility on your investment. For example, you can add a critical illness rider to cover the cost of expenses for surgeries and operations; you can withdraw a part of your maturity benefit in case of an emergency or for your child’s education or marriage, etc. Life Insurance policies come with a lot of flexibility.

How do I decide on the amount of life insurance I need?
The amount that you receive on maturity depends on the amount of premium you pay. The maturity benefit you need depends on your standard of living, income, spending habits, etc. You should aim to receive a maturity amount equal to 8 to 10 times your annual salary.

Life Insurance Cost

How much does life insurance cost?

 

The cost of life insurance depends on the type of policy you take, the amount of premium you pay, the sum insured, your age and the benefits you expect to receive when your policy matures.

Do I have different options to pay my premium?
Yes, there are options available to you to pay your premium. You can pay your premium monthly, quarterly, half-yearly or yearly. You can also pay it in one lump sum. However, a monthly premium is the most common because the amount is relatively small and it is easier to monitor and be prepared for a more frequent premium payment.

What if I don’t pay my premium on time?
You usually get a grace period, up to 30 days, to pay your premium once it falls overdue. If you still don’t pay your premium after the grace period your policy stands defunct and you cannot claim any benefits from your policy. However, you can revive your policy once you pay all your overdue premiums and you will again start receiving the benefits of the policy.

Tax Benefits

What about tax benefits on medical insurance premiums?

 

In calculating your (individual or HUF) total income, any sum paid by you, other than in cash, out of your income that is chargeable to tax to effect or to keep in force insurance for your health or the health of your spouse or children and to effect or to keep in force an insurance on the health of your parent or parents up to Rs. 15,000 for each person mentioned in (i) and (ii) in the previous year and in case the person is a senior citizen up to Rs. 20,000 for each person mentioned in (i) and (ii) in the previous year shall be allowed a deduction.

Can I claim tax benefit on the interest on a loan taken against an insurance policy for the purchase or construction of a house?
Interest on loans taken against an insurance policy is allowed as a deduction from income chargeable under the head “Income from house property” provided the amount of loan is used by the policyholder to acquire, to construct, to re-construct, to repair or to renew any property.

What are the Tax Benefits in case I opt for a Pension Plan?
ou can claim tax benefits for a Pension Plan under Section 80CCC if you have paid premiums. You will receive a pension from a fund referred to in Section 10(23AAB). You will be able to get a deduction of up to Rs. 100,000 on your total annual income.

Life Insurance Policy Matures

What happens when my life insurance policy matures?

 

When your policy matures you will receive the accumulated amount. This amount will include the total of all your premiums paid, plus any bonuses you have received on the part of your premium that has been invested by the insurance company on your behalf (for eg, ULIPs). The amount you receive will be quite substantial because the premiums you pay will accumulate and get compounded every year until the maturity of your policy.

Will I have to pay tax on my maturity benefit?
No, you will have to pay no tax on the maturity proceeds of a life insurance policy. In fact, under a pension plan you can even withdraw up to one-third of the total maturity amount in cash and that too will be tax-free. All this is provided that you have paid all your premiums and you have not let your policy lapse.

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