When Aarti and Ajay Naik were deciding on the type of health cover they should buy, tax benefit played a crucial role. Reason: both of them are working and are eligible for a deduction of Rs 15,000 each under Section 80D for health insurance. And they wanted to utilise this well.
"We saw that we had to pay a higher tax with a family floater plan," says Aarti. "Hence we went for separate policies for both of us." Here's how they worked out the math.
They pay Rs 3,283 annually for each of their policies. Their tax liability works out to be Rs 3,515.10 each or a total of Rs 7030.20, as they fall in the highest tax bracket. Bajaj Allianz's Individual Health Guard charges an annual premium of Rs 3,283 for a cover of Rs 2 lakh for those between 26 and 40 years.
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If they had bought a family floater, the policy could be bought by either Aarti or Ajay and only one of them could have got a deduction. As a result, one had to taxed on the entire Rs 15,000 deduction allowed (Rs 4,500). The other one would pay a tax of Rs 3,022.50 after a deduction of the premium of Rs 4,925 for Rs 2 lakh (Bajaj Allianz's Family floater Health Guard) for a family of two (self and spouse). Total tax liability = Rs 7,522.50. Difference = Rs 492.
Suresh Sadagopan, a certified financial planner, says many base their health cover purchase on the tax aspect. However, he advises against it because multiple policies will mean a cumbersome claim procedure. "The difference on the basis of tax is not huge. You'd rather pay the Rs 400 as you are paying Rs 2,000 more as premium in order to save the Rs 400," he says.
The only good part is that with individual cover you don't have to share the sum insured, which you would have to with a family floater. At the same time, family floaters are meant for young families (senior-most member below 45), as the price is based on the age of the senior-most member covered. The higher the age of the oldest family member, the higher will be the payout. Separate covers should be bought for senior citizens.
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However, in dual-income households, many couples want to make the most of tax deductions for which they are eligible. Jamshedpur-based insurance broker J N Sharma has often seen couples split the coverage amongst themselves to claim the deduction. Say, they need a Rs 6 lakh cover, they will buy two family floaters worth Rs 3 lakh each.
If you and your spouse split the premiums, for a family floater plan, you could claim the deduction if you both contribute to the premium, says Homi Mistry, tax partner at Deloitte, Haskins and Sells. "For instance, if you pay by two cheques of your individual accounts, you could claim the deduction. But, if you are paying through a joint account, the first account holder would get preference," adds Mistry.
How if parents or senior citizens require to be covered? Insurance brokers say if it is the wife's parents, she should opt for family floater covering parents or individual cover for the parents, as the case may be, and vice versa. Say the husband's parents need to be covered, he could opt for individual covers for them -- and the wife could buy a family floater covering the couple and their children. This is so because one cannot claim deductions for premiums paid for in-laws. Most family floaters cover self, spouse and dependent children, not parents.
But, there are some health plans that cover the entire family. Like Max Bupa's Family First (a family floater plan) covers up to 13 kin. Here, if your in-laws are also covered you would not get deductions for the premium pertaining to your in-laws. "This is not easy to ascertain and the tax authorities may depend on the insurer to give the details. If not, they will decide on their own," says Mistry. Say, you pay an annual premium of Rs 10,000 for a policy covering your in-laws. The tax authorities may allow you a deduction of Rs 8,000, saying you are paying Rs 2,000 for the in-laws. Here, you could split the premium and claim both of you are covering your parents.