The insurance business in India isn’t just growing, but also becoming more sophisticated in terms of product offerings. To help readers keep ahead of developments in this business, Mint features a Q&A on insurance every Monday.
I am 28 and I want to invest in a pension plan. However, after speaking to a couple of advisers, I found out that the maturity benefits are taxable. In this case, does it make more sense for me to accumulate funds for my retirement years through an endowment plan rather than a pension plan?
If ensuring a regular income on retirement is the prime objective, then our recommendation would be to invest in a pension plan; these provide annuity (regular pension amount) on maturity. The annuity ensures a regular income for the policyholder during retirement. Also, the entire maturity amount is not taxable. There are other options such as joint life annuity, which provide for your spouse’s expenses even if you are not around.
In contrast, returns from an endowment plan will come to you as a lump sum and not as a regular monthly income. Also, pension plans without life cover ensure that the entire premium goes towards building a corpus for retirement, while in an endowment plan, there are mortality charges, which affect the corpus. To make up for the life cover in a pension plan, you can invest in a low-cost term plan.
What is IRR in an insurance policy and how is it calculated?
Internal rate of return (IRR) may broadly be termed as the return to the customer after deduction of all charges and fees. Calculation of IRR depends on the market returns, charges deducted and amount invested, and may vary from plan to plan.
I had invested in a unit-linked insurance plans, three years ago. I want to discontinue paying the premiums. Am I still eligible for tax rebate?
Tax rebate on insurance premiums is applicable only till the time premiums are being paid. Once you stop paying the premium, you will not get a tax rebate.
Readers are welcome to write in with their queries to firstname.lastname@example.org. The questions will be answered by senior executives from leading insurance firms.
This week’s expert is T.R. Ramachandran, managing director and CEO, Aviva India.