UNIT LINK INSURANCE PLAN

I want to invest Rs 30,000 annually in a unit-linked insurance plan (Ulip). How should I choose a good plan?
A Ulip would be good for you only if it fulfills your requirement and gives you the kind of return you want. Your risk appetite should be the deciding criterion in choosing the plan. For instance, if you have a high risk appetite, an aggressive investment option with a higher equity component is more suitable for you. Compare products offered by various insurance companies on parameters like expenses, premium payments, lock-in period, among others. Compare the Ulips’ performance: find out how the debt, equity and balanced schemes are performing. Also study the portfolios of various plans. Expenses are a major factor in Ulips, hence assess this parameter as well.
Ask about the top-up facility offered by Ulips. This option enables policyholders to increase premium amounts, providing an opportunity to gainfully invest any surplus funds available. Find out about the number of times you can make free switches (changes in the asset allocation of your Ulip account) from one investment plan to another. Some insurance companies offer multiple free switches every year while others do so only after a stipulated period. After assessing all these factors, you can make your choice.

TAXABILITY OF PENSION PLANS

Please explain the taxability of pension plans—with life cover and without life cover. If I have not claimed any deduction from my total income under Section 80CCC at the time of depositing the premium amount, will either of my pension or withdrawal be considered as tax-free?

The ‘with cover’ pension plans offer an assured life cover in case of an eventuality, even if the corpus built till the date of death happens to be below that amount. Under the ‘without cover’ pension plan, the corpus built till the date of death (net of deductions like expenses and premiums unpaid) is given out to the nominees in case of an eventuality, with no sum assured. The taxability of a pension plan is determined in two stages. The first is at the time of making annual premium payments. For life insurance plans, the premium which is paid is eligible for deduction under Section 80C. On the other hand, Premium payments towards pension plans are eligible for deduction under Section 80CCC. The overall limit for deduction under Sections 80C and CCC is Rs 1 lakh. In other words, one is eligible for same tax deduction for the premium amount paid for; with or without life cover pension plans.
At the time of maturity, the commuted value of the pension which is received from a life insurance plan is tax-free. However, the monthly pension amounts are fully taxable, irrespective of whether or not the plan holder claimed the deduction under Section 80C or CCC at the time of payment of premium.

HEALTH INSURANCE

How is health insurance premium decided? Why do different people have different premiums?
The amount of premium for medical insurance depends on numerous factors and is calculated on the extent and nature of the cover you want. The rate of premium is directly related to the amount of sum insured. Also, if the insured is at a higher risk, he will be charged more premiums. For example, an older person will have to pay a higher premium for health insurance for the same sum insured. Further, two people with similar profiles may have to pay different premiums as their medical conditions may differ. Insurance companies also take into account the medical condition of the insured in the previous years and the number of claims filed by a person in last one year. All these conditions impact the premium amount for the future years.

RENEWAL OF POLICY

How to renew a life insurance policy online. Is it mandatory to have a Visa card for that? What are the other methods?

First, check with the insurance company if they have the option of online payment of renewal premium. Most insurance companies today have their own websites, through which anyone can pay premium online, provided he has a valid Master or a Visa debit/credit card. Another way of making premium payments is by using Net banking accounts of authorised banks. Once you click on the bank with which you have a Net banking I.D., you are directed to the online page of your banker, where you type in your bank login I.D. and password. On logging in, the total amount to be paid to the insurer is displayed. After the transaction is successfully completed, a digitally signed e-receipt is generated for your record.

DOUBLE BENEFIT

I am planning to buy a house jointly with my wife and take a joint home loan. Can we both claim benefit in income tax?

If your wife is working and has a separate source of income, both of you can claim separate deductions in your income tax returns. For claiming income deduction regarding the housing loan, the equated monthly instalment (EMI) amount is divided into the principal and interest components.
The repayment of principal amount of the loan can be claimed as a deduction under Section 80C of the Income Tax Act up to a maximum amount of Rs 1 lakh individually by each co-owner. The repayment of the interest portion of the EMI is also allowed as a deduction under Section 24 under the head ‘income from house property’.
In cases where the house is owned by more than one person and is also self occupied by each co-owner, each co-owner shall be entitled to the deduction individually on account of interest on borrowed money up to a maximum amount of Rs 1.5 lakh. If the house is given on rent, there is
no restriction on this amount and both co-owners can claim deduction in the ratio of ownership.

WHICH IS BETTER

I am a 24-year-old and have a term plan for a sum assured of Rs 5 lakh cover for 20 years. The plan will return 15 per cent return of my premium. Should I take another policy with a higher sum assured? Which is better—a pure term plan or a term plan with return of premium (ROP plan) in which premium doubles?
The need for insurance depends on numerous factors like the financial needs of your dependants, your income and the existing savings. A term plan with ROP is a term plan that returns all the premiums paid to the individual if he survives the tenure. This is unlike a regular term plan that has no maturity value. Since an ROP plan returns the amount invested, it charges higher annual premium than a pure term plan. Just like any other (endowment type) life insurance plans, ROP plans, too, have to invest a certain portion of the premium to generate returns to pay up the individual at the end of the term, apart from factoring in expenses like mortality charges and administration expenses (including agent commissions). A pure term plan still remains the cheapest form of insurance. The decision should be based on your risk-taking ability, the capacity to pay premiums and the ability to put balance funds into systematic investment funds.

ONE PLAN FOR ALL NEEDS

Is it not advisable to take one plan covering all your needs instead of taking multiple plans? Is there any restriction on the number of policies that a person can take?
Insurance companies come up with various insurance plans considering the different needs of various people. The need of insurance keeps changing with one’s age and family circumstances. If a single plan covers all your insurance needs at a particular time, it is beneficial to take a single plan to avoid confusion of payment of different policies at different times. But as the needs change, it is better to go for another policy rather than give up on an old policy and look for a plan that shall cover the changed need. There is no restriction on the number of polices one can take. The insurers will not have any problem in selling a policy to you if your financial condition
supports the payment.