Life Insurance Archives -

Avoid These 7 Mistakes While Buying A Life Insurance

Mon, 04 Jul 2022 04:54:02 +0000

The Buyt Desk

Life insurance is a safety net that provides financial security in case things go wrong. It is a must for everyone who has dependents. But not many know how to choose the right insurance.

We start our financial journey with savings and investments to reach our financial goals. Our financial goal should be to have some income till death even when we are not earning (post-retirement). Financially securing your and your family’s future is important while you are earning well. Life Insurance is one thing that will provide your family with financial security when you are not there to provide it. The insurance amount can be used by your family to cover the debts, kid’s education, kid’s marriage, spouse’s health or any other commitment the family has. Insurance has its tax benefit as well. Not many understand the utility of insurance and often realise its importance very late. Many do understand the importance of insurance but do not know what to look for while buying insurance and thus either delay the purchase or ignore it. Here are a few common mistakes you should avoid while deciding on a life insurance plan for yourself.

Avoid these common mistakes while going for Life Insurance

1. Not enough coverage – It is not how many insurance policies you have that matters but the sum insured is what that matters. The sum of all your policy coverage should be able to take care of all your liabilities and financial goals. Life insurance will not be of much help if the cover is small for your needs. Do not buy insurance for the heck of buying or just to get tax benefits. Plan your financial goal well and calculate the cover that you may need. Based on this value decide the life insurance you want to buy.

2. Combining insurance and investments – The life insurance premiums are commitments that will make a major difference to your pockets. Even with this big premium, the cover may not be adequate considering the inflation rate. And if you go for insurance that is a combination of both insurance and investment, the insurance portion will be very less and hence the cover will be very less which will not even cover half of your needs. Also, the investment portion of this plan will be inefficient. So by combining insurance and investment, you are getting either. It is better if you keep both components separate.

3. Buying insurance for the child – You have to purchase Life insurance to provide your family financial security by providing some income and covering liabilities when you are no more. When you buy life insurance for your child or grandchild, you are defeating the purpose of life insurance. Neither you nor your child can reap the benefit of the insurance amount. The amount will be locked in for a very long time and you cannot use it. Only buy life insurance for yourself or your spouse.

4. Idea of no returns on premium paid – The regular premiums you pay will not have any returns instantly but only after maturity or claim. Many think that they are not getting returns on the premium paid and hence it goes waste. This is the wrong approach.

5. Buying insurance very late in life – You may feel that you are too young to buy insurance as nothing will happen to you now. But you need to know that premiums go higher as you age and much higher if you have ailments. So it is good to buy insurance when you are young.

6. Giving wrong information – People give wrong information about them to insurance companies. This coming into the light will make insurance null and void. You will lose the insurance cover.

7. Insurance term shorter than liability term – Few buy insurance for a lesser term than the term of liability. Insurance matures even before liability and needs renewal. If things go wrong before renewal or you are unable to renew insurance then the family will be in trouble as they are not covered. Have adequate terms and cover for insurance so that every liability is covered.

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When is The Maturity Benefit Of Life Insurance Policy Tax-Free?

Fri, 17 Jun 2022 13:58:17 +0000

The Buyt Desk

Many think that the benefit amount received on the life insurance policy is always tax-free. But it is not tax-free all the time. Let us look into it in detail.

A life insurance policy matures when the term of the policy is completed with all premiums paid. When the premiums are paid regularly and on time, be it money back or endowment plan, on completing the term, the policyholder gets the maturity value. A life insurance’s maturity amount includes the sum assured and the total of bonuses accumulated over the years. This maturity amount is not always tax-free. The income tax act has some rules and conditions that when a life insurance policyholder fulfils, he /she will be eligible for tax benefits. Life insurance policies are usually bought for a long term of 15 to 20 years. And in such a long time there will be many amendments to the income tax act. Some tax-related changes happen every year. So the rules for tax paid on maturity amount also keep changing every few years. Before that let us understand maturity proceedings.

How is Life Insurance Maturity Amount calculated?

Generally, the life insurance maturity amount has two components. The amount of sum assured is the first and basic component. The total profit plan and bonuses accumulated over the years are the second components of maturity. For example, if you buy a policy for 15 years and a sum assured of Rs 5 lakhs. You will be paying an annual premium of Rs 33333/-. So at maturity, that is at the end of 15 years your first component of the sum assured will be Rs 5 lakhs and based on the bonus declared by the insurance company, the second component will be a bonus accrued over 15 years and approximately Rs 3.5 lakhs. So on maturity, the total payout you will be receiving is Rs.8.5 lakhs.

What are Life Insurance Tax Rules and Conditions?

Section 10(10D) of the Income Tax Act says that the sum assured is completely tax-free when received on maturity or on surrender of the policy or upon the insured’s death. And even the bonuses received with a sum assured under these conditions are tax exempted under Section 10(10D). But it has a condition to be met to avail of the tax benefit under section 10(10D). And that condition is a specific limit of the ratio of premium to sum assured and this limit is set by the Indian income tax department. And this ratio limit has been altered many times over the years. Currently, only 2 conditions are applicable based on the policy purchase date, before or after 1 April 2012.

Let us look into the condition in detail. If the policy is brought after 1 April 2012 and the policy premium paid is 10% or less of the sum assured, the maturity amount of a life insurance policy received including bonus is completely tax-free under Section 10(10D) of the income tax act else it will be taxed as per the income tax slab. In short, the maturity amount will be tax-free when the sum assured is at least 10 times the premium for policies issued after 1 April 2012.

If the policy is brought between after 1 April 2003 and 1 April 2012, and the policy premium paid is 20% or less of the sum assured, the maturity amount of a life insurance policy received including bonus is completely tax-free under Section 10(10D) of income tax act else it will be taxed as per the income tax slab. In short, for policies issued before 1 April 2012, the sum assured must be at least 20 times the premium for the maturity amount to be tax-free.

What are the tax liabilities of single premium insurance policies?

Maybe the taxpayer is not sure as to how the single premium insurance policy should be treated. Single premium insurance policies do not have their premium below 10% or 20% of the sum assured as the policyholder will be paying a single lump-sum premium. So the maturity amount received by the policyholder is taxable. Under section 10(10D) of the Income Tax Act, Single premium insurance policies do not get tax exemption.

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Unhappy With Your Life Insurance Policy? This Is What You Can Do

Thu, 22 Jul 2021 09:26:14 +0000

The BuyT Desk

Have you purchased a life insurance policy only to find that you disagree with the terms and conditions in the fine print? You feel deceived. You see the policy as a liability rather than a saviour. In this case, health insurance policies are better because they have a Free Look period. If you disagree with the terms of the policy, you can return it without a loss during this period.

Nonetheless, not all hope is lost if you have issues with your life insurance policy. According to the Insurance Regulatory and Development Authority of India (IRDA) guidelines, you can cancel a life insurance policy within 15 days from the date of receipt. If you bought the policy online then the cancellation period extends to 30 days from the date of receipt. You can cancel your policy by following three easy rules. Understand these rules in the following paragraphs.

How to return the policy?

You are convinced that the purchased life insurance policy does not satisfy your purpose. The first step is to write to the insurance company stating your objections. In some cases, the company may have a prescribed format. Do mention the date of receipt, policy number and other details, reason(s) for cancellation, and agent details in your application. The insurance company will try to resolve your issues. If still unconvinced, you can cancel the policy. Remember, you have the onus of proving the date of receipt of the policy.

What will the insurance company refund and deduct?

According to the IRDA guidelines, the insurance company will refund the premium you paid. However, instead of receiving the premium in full, there will be deductions. The insurance company is entitled to deduct the following charges before cancelling your policy:

Stamp duty charges
Expenses for medical examination of the policyholder
A pro-rata risk premium for the period on cover

What will the insurance company refund in the case of a ULIP?

ULIP is a market-linked policy. Hence, the insurer will refund the premium considering the value of the units on the date of policy cancellation. Also, they will deduct the mandatory charges first.

Before policy cancellation, you may ask for alterations in the policy like mode of payment, premium redirection, policy term, and an increase in the sum insured. ULIPs provide you with rights to partial withdrawal and switch funds.

Bottom Line

Do not be upset about buying a life insurance policy with disagreeable terms and conditions. Follow simple IRDA guidelines to cancel the policy in 15 days from the date of receipt.

Send a cancellation request mentioning the reasons for objection to the insurer.
Expect a refund of the premium paid after mandatory deduction of certain charges.
In the case of a ULIP, the refund will depend on the market value on that day.

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