Insurance
Policy is the best tax saving or investment option…?
In these days, we are discussing more
about tax saving as the financial year 2013-14 approaching towards end. The
whole insurance agents are doing hard work to push their life insurance products
and want to increase their income on the expense of investor’s premium.
I agree
that the life insurance is the vital part of any financial planning for face
any unwanted events in the life. There are many pure or term insurance plans
available in the market which need very less premium compare with other famous
insurance plan. The investor also purchase these costly policies in the hurry
on the name of tax saving and investment. The two type of policies are very
famous among the investors and agents. One is endowment plan and other is money
back plan. We will analyze here these type of plans today.
Endowment Plan: It is life insurance plan which
deduct one part of the premium which you pay for insurance cover and the other
part invest in different available financial products according to the
particular policy plan. Investor get the amount at the time of maturity and pay
the premium either till maturity or according to the mentioned year on policy.
Money Back Plan: This plan
is very popular among the investors. In this plan, policy holders get some part
of money like 20% to 25% of the sum assured as survival benefit in regular
interval. This regular interval varies according to the plan 3 year, 5 year
etc. The premium of these plans high compare with endowment plan. Except
receiving money in regular interval all other features same as endowment plan.
Let us
take one example for better understanding. A 30 year old person decide for
insurance plan, risk cover 20 year and sum assured 10 lakh. The approximate
premium for endowment plan would be Rs
48,000 and on the approximate maturity amount would be 19 lakh. The premium for
money back plan would be approximate Rs 64,000 and he will receive Rs 2 lakh in
every 5 years. The maturity value would
be approximate Rs 12.3 lakh. Investor feel very happy when would receive amount
2 lakh in every year but ignore the high premium.
For above
mentioned example, the term insurance premium would be approx Rs 3000 annual
which is much lower compare with other plan’s premium.
If we
calculate the internal rate of return of the above mentioned plan, the return
of endowment plan would be 6% and 5 % for money back plan. You can easily
understand the difference now. Would you still like to go with such types of
plans which provide you with 5% - 6% during 20 year investment? In fact the
return do not beat to inflation even which is at present in 8% to 9% range. We are
not showing entire calculation here due to space and it would be too lengthy
for 20 year calculation. If you want to see the entire calculation we can
provide you.
Many people consider LIC product due to safety. If safety is your most priority
there is one product which is more safer called PPF which also give return 8-9%
and lock in period 15 years. It also qualify for tax saving under section 80C
as equal insurance premium. For insurance cover you can consider term insurance
plan which have more cheaper premium.
For more detail and any other query
related investment, you can contact me through my email.
Warm regards,
Arvind Trivedi
Certified
Financial Planner
Agreed. But will I be able to claim tax benefits if I stop paying premiums on my Life Insurance or pension policies?
ReplyDeleteYes, You will get tax benefit for the maturity or surrender amount.
DeleteNice information Arvind, please tell me that this tax benefit applies on term insurance also and how much benefit will i get with the same.
ReplyDeleteYou will get the tax benefit under section 80(c) within the limit of Rs 1.5 lakh including all investment eligible for section 80(c).
DeleteThanks for this helpful blog...but can you please brief me about term insurance
ReplyDeleteIn term insurance, your nominee will get sum assured if any unfortunate thing happen and on paid premium you can claim section 80(c) benefit.
Delete