Skip to main content

Budget 2012 - Insurance policy gets tax benefits

Invest Mutual Funds Online

Download Mutual Fund Application Forms

When this year's budget laid down new rules for life insurance, it was presumed that mis-selling would lose its sting. Far from it, mis-selling has now become more dangerous for your finances. Till 31 March, if someone was missold an unsuitable life insurance policy, the most he would have lost was the liquidity and the opportunity to invest in a more lucrative avenue. But at least he got the tax benefits—tax deduction of the premium under Sec 80C and tax-free income on maturity under Sec 10(10D).


Now, if a buyer is not careful, he may end up buying a policy that won't offer any tax benefits. Even the money received by his nominee in case of death will be taxable if the policy does not cover the buyer for 10 times the annual premium. Individual agents as well as aggregator sites are happily selling insurance policies that are not eligible for tax benefits. Till last week, a prominent insurance portal was hawking Jeevan Vriddhi, a single premium plan from LIC that covers the buyer for five times the premium. Posing as a buyer, ET Wealth called up the portal and was given the assurance that the policy will offer the tax benefits under Section 80C and Section 10(10D).


Insurance agents also have their hands in the till. They are bombarding buyers with attractive benefit illustrations without educating them on the post-budget tax implications. An agent of a private insurance company approached us with an endowment insurance policy that offered a cover of seven times the premium. It is by itself a good plan because it offers the option of a whole life cover as well as term cover and accidental death riders But the five-year option that he was trying to sell is not eligible for any tax benefits and he was oblivious of the fact. When this was pointed out to a senior official, he mumbled that the company will soon be conducting training sessions on the changes in the rules.


The budget has very clearly stated that policies issued after 1 April must meet the 10 times criteria to claim the tax benefits. "The Sec 80C tax de duction is not as important for insurance buyers as the Sec 10(10D) tax exemption," says V. Srinivasan, chief financial officer, Bharti AXA Life Insurance. For a buyer who is not aware of the 10 times norm, there may be a rude shock waiting when the policy matures or when his nominee gets the insured amount after his death.


To ensure that companies don't design products to circumvent the rules, the budget has clarified that the cover shall not include bonuses and other payments made by the company. Only the basic cover will be taken into account The budget has also mentioned that the cover should remain at least 10 times throughout the tenure of the policy. This means that plans in which the cover comes down from the second year onwards will also not make the cut.


If you are planning to invest in a life insurance policy make sure it complies with the new eligibility norms for tax benefits. The base cover offered by the policy should be at least 10 times the annual premium. For instance, if the premium is 12,000 a year, then the cover should be at least 1.2 lakh.


Two weeks back, Finance Minister Pranab Mukherjee had asked the Insurance Regulatory and Development Authority to take strict action against companies that are mis-selling insurance. The truth is, companies don't mis sell—their agents and advisers do. The problem is that companies don't actively dis courage the mis-selling and er rant agents usually get away with a mild rap on the knuckles. Insurers will have to take stricter action against mis-selling. If they do not take cor rective measures now, in a few years Irda will be inundated with mis-selling complaints from taxpayers who have been denied tax deduction and ex emption on their investments in life insurance.

What to check before you buy


• The cover should be at least 10 times the annual premium of the policy.

• The life cover should not fall below the 10 times level even in subsequent years.

• The sum assured should only be the basic cover and should not include bonuses and other payments.

---------------------------------------------

Invest Mutual Funds Online

Transact Mutual Fund Online

 

Download Mutual Fund Application Forms from all AMCs

Download Mutual Fund Application Forms

 

Best Performing Mutual Funds

    1. Largecap Funds:
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    3. Mid and SmallCap Funds
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    4. Small and MicroCap Funds
      1. DSP BlackRock MicroCap Fund
    5. Sector Funds
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    6. Gold Mutual Funds
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

 

Popular posts from this blog

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...
Read more

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...
Read more

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...
Read more

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...
Read more

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now