With March approaching, tax-payers will have to ensure that they buy adequate insurance to claim benefits under Section 80C and 80D. But it does not necessarily mean that the entire limits should be used up, just to take tax advantage.
Medical insurance premiums up to Rs 15,000 come under Section 80D. And life insurance premiums up to Rs l lakh get benefits under Section 80C.
A proper mix of cover that gets tax advantage is essential to ensure that there is adequate insurance. But first, you need to identify the needs. And they will keep on changing, according to your age, dependents and other factors. Here’s some help:
Between 25 and 35 years: A person, who is just starting his career, may not have many dependents. So, often there is no need to have a really big life insurance cover.
But the main benefit of this stage is that the premiums are very low. Hence, the best thing that people should do is to start their policies at this life stage.
However, medical insurance is important because the rising cost of healthcare can be unaffordable, in case of an accident. Also, buying the cover at a young age ensures that there would be a good track record over time, which could be helpful at a later age. That is, there would be an accumulation of no claim bonus. And with portability of medical insurance policies starting from April next year this is a helpful feature.
The ideal cover limit should be Rs 5 lakh. This would ensure that most requirements are taken care of.
If you want to purchase life insurance, opt for a term plan because it is the cheapest form of insurance. The cover should ideally depend upon your yearly salary. In case, you get married during this stage increase the cover substantially and also, take some cover for the spouse.
Between 35 and 45 years: This is a time when there will be further hikes in the salary, but responsibilities, in terms of children and ageing parents may increase. Obviously, that implies further strengthening of the insurance cover, according to the financial position of the individual and the family.
Since this time also concurs with increased ability to pay premiums, use it to the fullest. During this time period, select a whole life policy as this will ensure that there is a payout on the policy in the event of death. Obviously, the premiums are higher for such policies. But it could make sense to purchase such policies during this life stage.
The other type of insurance policy that is advisable during this time period is a pension policy. Starting it at this stage is good because there will be adequate time available for the accumulation of funds. And the benefits will be witnessed on retirement. Medical insurance for the entire family should be continued.
45 years and above: Insurance planning should also be done with an eye on the future, especially in the latter years. One disadvantage of this time period is that purchasing any new policy means that the premium will go up substantially due to the age.
It is important to concentrate on the time period, when buying insurance during middle stage (35 and 45 years). This will ensure that insurance policies that are already in existence when you are well into retirement.
But if you have to purchase a new policy, opt for single premium policies that offer guaranteed returns. There are several such policies that are currently in the market and they keep appearing at time intervals.
Buying such a policy will ensure that there is insurance cover as well as decent tax-free returns.
Medical insurance has to continue and the charges will be quite high, but given that you are more prone to falling ill makes it imperative that a substantial insurance policy is there. This is, of course, considering that you have not built up a corpus to that is big enough to manage the medical expenses.
In case it has been done, don't buy any medical insurance. The premiums are simply too high.
The writer is a certified financial planner
