Life insurance tips

Insurance Purchase Tips

Decide the amount you need to be covered for: This is the most important step in buying a life insurance cover. Find out what is the amount of cover right for you. If your cover is insufficient to meet your present liabilities, your dependents will have a hard time to make their ends [...]

Nowadays, life insurance is not just a security and investment tool. It has some attractive tax benefits attached to it.

* Under Section 80C of the Income Tax Act, premiums paid on a life insurance policy are deductible from your taxable income up to a limit of Rs. 1,00,000 per annum. However, the amount of premium should not exceed 20% of the sum assured.
* Additionally, under Section 80DD premiums paid on plans exclusively for physically-handicapped people are deductible up to a limit of Rs. 50,000 per annum. In case of a severe disability certified by the proper medical authority, this figure is Rs. 75,000 per annum.

Now that you have a fair idea about the different types of policies, let’s look at how you can determine who in your family should be insured and for what amount. Need for life insurance depends on factors such as age, income, number of dependants, expectations and so on.

* Let’s take the case of an individual who is 25 years old, single and has no dependants. No one will be affected financially as a result of his untimely death. So, he may not really need life insurance at this stage. However, it still makes sense to go for it because he may require it later in life. It would also be advantageous to go for it now because he’ll need to pay a lower premium since he’s still young.

What is a ULIP ?

ULIP stands for Unit Linked Insurance Policy. It is a unique product which aims to incorporate insurance as well as investment requirements. Its structure is similar to that of a mutual fund. This is how it works:

* You pay a periodic premium to the insurance company.
* A part of the premium is used to provide you with an insurance cover.
* The remainder amount goes towards purchasing units of a fund, of your choice, being operated by the company.
* In the event of death, nominees are paid the sum assured or the total value of the accumulated fund units, whichever is higher.

Ways to Smarter Insurance planning

Insurance is a very vital part of the overall financial plan for any individual. Ensuring that there is the right amount of insurance is important for the achievement of several financial objectives. This calls for specific attention to several features related to insurance, which are as under:

Make effective use of insurance

Insurance is a route that helps you achieve several financial objectives. One of them is to provide support for your dependants in times of need. The other is the tax benefit that one gets on the premium paid on insurance. At the same time, insurance can provide money in old age when the requirement for funds is high. By making effective use of insurance you can achieve either of the objectives.