If you have been thinking about insurance from tax saving point of view, it’s high time that you need to change your view. The reason is that insurance is not a means to cut on tax payment, but to combat the situation of any eventuality. So, before thinking as a tax payer, think from the point of view of your dependants and then decide on any insurance.
Placing the secondary benefit at first place, while not paying much attention to the primary and most important aspect of insurance is a huge mistake both from the side of insurance agents and companies as well as the person seeking insurance. Looking for maximum tax benefit will rather be a huge hindrance in the path of finding the right insurance for you and your dependants.
You must understand that insurance means taking care of your dependants in your absence. While you may opt of a policy that offers maximum tax benefits, you will rob off your dependants from the actual benefits of insurance policy. So, do not make tax savings as a priority. Be wise and take right decision.
The procedure you need to follow to access the Best Life Insurance Plans to Buy in India is quite simple. First of all, see the tenure that suits you. Then, add the liabilities like education, loans, routine expenses, medical expenses etc. This will let you know about the approximate expenses that your dependent may need to take care of in your absence. This estimated sum is known as Human Life Value or HLV generally. Once you know this, then look for an insurance policy that best suits your requirements.
Term plans are highly cost-effective. However, keep a note that if the policy holder is alive after the tenure of policy is over, in that case, no maturity benefits or return will be made to the holder. However, if anything happens to the holder, the entire policy amount will be surely given to the benefactor.
The major advantage of term plan is that you can buy insurance of 25 to 50 lakhs (lacs) or more for less than 1/10 of premium compared to other plans.
Endowment plans, on other hand, assure maturity benefit as well as any profits even if the holder is alive or dead. However, they are costly as compared to term-plans.
Finally, ULIPs or Unit-linked Insurance Plans combine two important things: investment and insurance. The returns, however, are linked to market and hence, could be daily-fluctuation affected. The tenure in this case may be ten to twenty years. Also, they are expensive.
Out of these three plans, ULIPs are strictly “NO-NO” as the only person benefits the most from such plan is the insurance agent/advisor. A major part of your instalment goes to the agent every year.
The best option will be to buy a term plan and SIP in equity diversified Mutual fund like HDFC Prudence. This is because These 2 combined, out shine the other plans… See an example:-
A 30 year old man can buy life insurance cover of 1 crore for a premium of Rs. 11500 approx ( as in year 2010) from ICICI http://www.iciciprulife.com/public/BuyOnline/iProtect/iProtect.htm
Buying same type of cover with endowment policy or ULIP will cost fortune and will be unaffordable.
Money Appreciation / return on investment:-
Insurance agents selling ULIPs will give you illustrations with returns of 25% or 30%. Ask the agent to make a calculations on a 6% or 10% returns as per IRDA norms. Or ask them to show you the returns given by a ULIP (including Administrative charges and the Mortality Charges) along with proof. Just don’t believe their words. As for proof on company letter head.
The truth is that no ULIP or endowment plan has or can beat the returns given by (term insurance + SIP in mutual fund).
So, if you are paying Rs. 15000 per year for 4 lakh insurance cover and getting only 7 to 10% return then just stop that policy and instead buy a 1 crore life cover for Rs 11000 and invest Rs 2000 every quater ( 4 times a year) in equity diversified mutual fund. This plan will ensure meaningful protection for your family and also give better returns!