If you ask simply your friends during the months between Jan and March, you will get one simple answer, trying to file tax or finding methods to save taxes. In fact these are months during which people generally make financial mistakes. You insurance advisor might be the most happiest and the busiest person during the period but you might technically mess up your long term financial plan during this process. People end up buying costly life insurance plans just to get tax exemption under Section 80C and they forget the long term effects. This is a common phenomenon is not just with your friends but if you try doing a survey of policyholders you will find 9 out 10 Indians have done so.
So that you don’t make up all these bad choices try looking into the reasons listed below.
Your insurance requires multi year commitment. Tax investments under Section 80C should also be looked with the same perspective as you do for other investments. Over the year your individual priorities may change, say 2 to 3 years down the line you might end up taking a home loan and the principal that you pay post that would be technically covering the total limit under the tax exemption. In case if you have brought a policy a year before just of save tax the extra premium that you have to pay in the succeeding year without getting any tax benefit may pinch your pocket.
From the return angle, the return from investment is very low and the costs involved are comparatively high. Locking you money into insurance products just to save taxes when there are more effective instruments like ELSS in mutual funds which give better returns and also the investments made do also fall under the exemption of Section 80C. If you really looking for cover to built a protection net around you financial goals then you should just buy a term plan to do so and do not just it to save tax. The cost of the term insurance plan is always very low compared other categories of life insurance.
Tax deduction is not the core. Just buying a life insurance plan from the perspective of just savings a small amount of tax is not at all worth. If you actually have a financial plan in places which have certain pre-decided financial goals and you are only bread earner of your family, you should plan your life insurance plan keeping that into perspective. You should look at the existing liabilities to define the cover of your term
Buying Best Life Insurance Policy always requires a detailed planning and you should always understand the long effects of the money saved through your life insurance policy. Always try to evaluate your goal’s financial value first to understand the cover that you require and not to do things in haste considering only taxation.
When you are looking at buying a term plan the primary objective is towards giving financial security to your dependents when you are not there. Death is something which can’t ever be denied though can be delayed. The emotional loss associated with it which affects your family and relatives is aggravated by the financial loss. You as the single bread earner in the family this emotional loss can plunge your family deep financial crises also. All your financial plans can go out of track.
Looking at the whole list of life insurance plans offered by insurance providers there are specific plans which may be suitable for meeting specific requirements. Considering the whole list term plans seems to be the most apt in term providing the best security at a least cost. The basic premise of the plan is very simple , you pay a simple cost as a premium and you get covered for certain specific time period and in case our demise your nominee or nominees receive the sum assured.
Looking at the basic premise of term insurance Plans you should keep in mind that it is expenditure and not an investment. Other than the basic standard cover it doesn’t have additional benefits and has no surrender value. What it means is that if the policyholder is alive the nominee doesn’t get anything but this doesn’t mean that it’s not worth investing into a term plan. The whole idea of investing into a term plan is to give your family a sense of security and peace of mind when you are not there. Other than this term plan comes with advantage of easy opt in and opt out option compared cash value life insurance plan. The day you stop paying the premium cost your policy terminates but in case of cash value plans where you pay much higher premium compared to term plans for the same amount of cover with a guaranteed surrender value, the insurance company deducts huge money from your investment amount before they return you the surrender value which may sustainability affect your savings objectives.
The easy opt in and opt plans becomes very helpful when you are in a state of financial contingency. A state when paying premium become tough for you here the term plan become more effective for you whereas in of cash value life insurance plans you have to mandatorily pay the premium otherwise the money invested in the past becomes a total loss. Since the term plans don’t have any savings component so the premium is always very low compared to other plans. Though you can claims for tax exemptions on the premium that you pay towards a term plan but since there is no surrender value associated you are not eligible for any tax deduction.
Term plans do come with different options which may be much helpful. There are renewable and convertible term plans. The first option offers easy renewability opportunities without any medical examination which otherwise may increase the cost of premium whereas in the second option provides you with an opportunity to convert it into an endowment plan by paying an extra premium. This option in this way also gives you an option to insure you future cash flow. But one thing that one should keep in mind that term plans are not meant for financial goals like planning for your child’s future or buying your house and they should be always looked for protecting your family from financial emergency when you are not.
Now the question which might come to your mind is that is there any right age to buy a term plan. Definitely like all other life insurance plans the early you plan for it the more savings that you can make but you should always keep in mind the term insurance planning is to be done keeping in perspective of your financial responsibility towards your depends. May when your children are very young at age you financial liability is also the highest or you have huge loan to pay back to your home loan company, in stages like this the buying a term cover is always advisable. But looking at an old age when your children are already earning and they are not dependent on you for financial security investing in a term plan can be a waste of money. In fact at that age you might have always have right savings with you to support where cash value plan with lower cover high savings value can be most suitable option.
All the questions discussed above are diverse and should be answered as your specific requirements to build the right financial plan so it is always advised to compare Term Insurance plans online from different insurers before you buy one.
Term Insurance is a proactive tool in making your financial plan more robust. The whole idea behind is, when you build your financial plan you try to allocate some savings towards every financial goals be it long or short term so that you reach your target amount of money at the end of the period but what if the you as primary income source for your family is not there to support the savings necessary for attaining the financial goals. This is where the term insurance adds value to your plan. You can plan for your cover as per target future goal amount and if you are not there the claims that come to your family or dependent in case of your unfortunate death or disability will act as savings for your financial goals.
Though during building a financial plan people try to skip an unfortunate scenario like that because it involves paying an extra cost as premium and the policyholders generally don’t get anything at the end of term in case the nothing happens. Looking at the cost involved one should plan things in a way so you can pay less and get a larger amount of cover and these are technically the smart ways by which you can control your term insurance premium
Trying planning at an early age, when you are young healthy and hearty you insurance provider not charge an higher cost .Though at an younger you can’t get heavily insured for the rest of your life’s need but you can possibly start doing it. Once you grow old the premium costs would increase considerably so if you start you planning at an early age also help you plan your life’s expense in a better way but also your chances of get out of budget will always be less.
Build healthy habits, the premium that you would pay for definitive amount of cover would depend on your family’s medical history which you can’t control but if yourself follow an healthy lifestyle and have the right amount of health insurance cover to support you in case of emergencies, your term insurance premium would always be considerably and would not affect your pocket.
Prefer buying your term policy online, few years back insurance providers came with different term plans for customer’s buying online insurance. The whole idea behind that was how your insurance provider evaluates risk associated with insuring you. Insurance risk works on the theory of profiling policyholders based upon the fact how risky they are. Online customers as per insurance companies are belief to less risky as they have access to better health care and knowledge. Based on the above theory Insurance companies do charge less amount of premium for people buying term insurance plans online.
Other than the factors listed above which can give you a considerable savings in your term insurance premium but before buying do have clear idea of what is the amount of cover that you require based upon the monetary value of your financial objective and prefer online doing online comparison with premium calculator available on various websites like Myinsurancebazaar.com to evaluate various term Insurance plans from different insurers to understand things better and you can help you gain considerable control on your term insurance premium
Going by the literal definition Bonus is always an attractive offer everybody would be interested in. When defined in terms of your life insurance policy, it is the extra amount of money which gets accumulated in any insurance policy on a yearly basis and which will be paid to the policyholders as a maturity benefit at the end of policy term or in case of death of the policy holder. Maturity benefit is primarily the sum assured of the policy and bonus is always in addition to it.
Over the years Life Insurance Corporation of India has one the most popular insurance provider who has been issuing bonuses to its policyholders in their traditional life insurance plans. In fact recently LIC announced a onetime bonus for policies in force as of March 31, 2016 and existing on or after September 1, 2016 .The bonus ranged from Rs5 to Rs.60 for every Rs.1000 of sum assured depending on the term of the policy. So in case if you have policy with Rs.4 lacs as it sum assured then as per the newly announced bonus the amount works out to be Rs.2000 or Rs. 24000 respectively which would be added to the sum assured value of the policy and the benefits of which would be enjoyed by the policyholder after completion of the policy term.
The way by which these bonuses works in your life insurance plan they are reversionary in nature, which means the amount get accrued to the policy till the maturity of the policy or till the policyholder’s death. The reversionary nature of the bonuses can be in simple or compounded format. In case of simple reversionary bonuses, the bonus get added to each policy year is fixed whereas in case compounded the previous years outstanding is also considered while calculating the bonus for each policy year. Other than the regular bonuses insurance providers also issue terminal bonuses which are always paid at the end of the policy term. Though all the bonuses issued during the policy term make a policy very attractive, as it might increase the IRR of the policy by at least 2% but it shouldn’t be the factor while buying a life insurance policy. Few things to look into in case of bonuses:
Keeping all these things in mind bonus is really an effective tool to increase the internal rate of your policy. Once a bonus is declared the corresponding revival cost of the policy also increases. But one thing that need to be kept in mind is that the amount of bonus by a policy in previous year should not be considered as benchmark for future bonuses and you should not make your policy buying judgment based upon it.