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Tuesday, April 3, 2012

Things to know before buying policies this fiscal



As we usher in the new financial year, it’s the time to relook at the viability of buying insurance policy in the purview of the tax planning.
Currently, the deduction under section 80 C is available on policies where the premium does not exceed 20% of the Sum Assured.

Lesser is the ‘Annual Premium to Sum-Assured Ratio’, greater is the life cover. Annual premium to Sum-Assured ratio of 20 % indicates a life cover of 5 times.
Earlier, this meant for a cover of Rs.1,00,000 , annual premium should not exceeded Rs. 20,000 (to avail 80 C tax benefits).
‘Annual Premium to Sum-Assured  Ratio’ of 18 % indicates 5.5 times life cover.

But as per FY 2013 budget, ‘Annual Premium to Sum Assured Ratio’ should be 10 (in DTC this was proposed to be 20 ). So for a life cover of Rs. 5,00,000 , annual premium should be at most  Rs. 50,000 to avail the deduction under section 80 C of the Indian IT act.
Insurers too shall have to redesign their plans to cope with this new rule.
So any investor who is going to invest in plans like LIC Jeevam Vriddhi or Dhan Suraksha from Star Union Dai-ichi or similar single-premium plans shall have to wait till these companies re-design these plans in accordance with the budget proposal for tax FY 13 tax planning.Presently these plans are offering 5 times life cover.
Obviously Government is emphasizing on insurance plans with adequate life cover.

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