Readers' Corner: Planning to retire? Some options for regular pension

Life insurance policy: There are different types of annuities available in the market

I had purchased a term policy a few years ago. It has a sum assured of Rs 2.5 million. I feel that I should increase it to Rs 10 million. I am also told that premium rates have come down, so I could get a new policy at a lower price. I am 46 years old. Will insurers be willing to enhance my cover?

Generally, it is difficult to increase the cover of a term policy after its issuance, however, you may check with your insurer as policies differ from product to product. Currently, the term plan rates have been revised and have come down. In case your current policy cover cannot be increased, you can opt for a new term insurance plan with an in-built feature of increasing cover to avoid this condition in future. Such plans automatically increase your sum assured annually by a fixed percentage ensuring that you are covered adequately.

My father had purchased an endowment plan for me a few years ago. The sum assured is Rs 700,000 and the annual premium is around Rs 25,000. The policy has a term of 30 years. I have purchased a term insurance cover. I also have a health insurance and invest in PPF and mutual funds. I am told that the returns on endowment plans are low. What should I do with this plan — surrender it, continue with it for the entire span, or make it paid up?

It is essential to know that every financial instrument is tailor-made to cater to different and unique needs of customers. Therefore, it is prudent for you to evaluate your financial dreams and goals, age and income before deciding on the financial solutions. Endowment plans are a popular choice for goal-based savings, and offer tax benefits and risk-free long-term maturity benefits. It is a combination of insurance and investment offering the best of both worlds. While the plan offers a sum assured on maturity it also provides a death benefit. Therefore, you should consider all the above factors, including the features of your current endowment policy, and then decide.

I am planning to invest in a single premium plan. I want to know whether the entire premium amount will be eligible for the tax deduction or only a limited sum. Also, will the entire sum of money that I get at maturity be tax-free?

In case of a single premium plan, if the premium paid for a policy issued after April 1, 2012, exceeds 10 per cent of the sum assured, the tax deduction is restricted to 10 per cent of the sum assured (subject to a maximum tax deduction of Rs 150,000 under Section 80C). Also, you will not get tax deduction on the balance premium. Now, concerning the maturity proceeds, if the premium paid for any of the years during the life cycle of the policy exceeds 10 per cent of the sum assured then the entire maturity proceeds will be taxable. However, maturity proceeds received in the event of the death of the insured will be tax-free.

Can you explain what determines the interest rate on an annuity plan and what is the current range of interest on offer if I choose pension for my wife and me until one of us is alive? I will retire in two years. I am exploring options for a regular pension.

There are different types of annuities available in the market and their interest rates are determined after considering the longest term of government security bonds as a benchmark allowing for the reinvestment risk. The current range differs from plan to plan and also depends on the age of the insured. You can opt for a joint life last survivor annuity option which will continue to offer pension until one of you is surviving. Presuming that you will retire at 60 and you are currently 58 years old, while your spouse is 55, for opting a joint life with last survivor option with a purchase price of Rs 10 lakh (including GST), an annuity amount of around Rs 62,000 shall be payable annually.

The writer is MD & CEO – BSLI & Dy. CE – ABFSG. The views expressed are the expert’s own. Send your queries to yourmoney@bsmail.in.