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 a 24-year-old call centre executive and want to invest in a pension plan to secure my future. At the same time, I would like to know what tax benefits I will get by investing in a pension plan.
It is very encouraging to see that you are concerned about your retirement at such a young age. By investing in a pension plan, you can avail of tax benefits under section 80C/80 CCC (1) and section 10(10A)(3) of the Income-tax Act, 1961, on the premiums that you pay. On maturity, you can decide to take up to one-third of your total accumulated pension fund and this will be tax-free. The remaining two-thirds must be used to buy an annuity. This provides you with a regular income on retirement, on which income tax will be charged as applicable.
Do pension plans also offer a life cover?
Some pension plans do offer life cover. Depending on your need, you can look at pension plans with or without life cover. If your primary need is to build a corpus of funds to take care of your post-retirement needs, then it is recommended the pension plan not have an inbuilt life cover so that the entire premium can go towards building your savings.
Can my policy ever be cancelled due to health or other reasons?
Once a life insurance policy is issued, it cannot be cancelled by the insurance company during the policy period for changes in your health conditions. Any claim under the policy will be settled by the company, provided the required premium payments have been made and the information in the application was not misleading or inaccurate.
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 Bert Paterson, managing director and CEO, Aviva India.