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.
Can you tell me about tax treatment with respect to premature or partial withdrawals in the case of unit-linked insurance plans (Ulips)? If somebody withdraws some money from his Ulip after three years, will it be tax-free?
Please note that if you want to gain tax advantage on withdrawal then you have to have a minimum lock-in period of three years.
Ulips are long-term investment and protection products and should not be taken with a short-term horizon.
However, if you still want to withdraw after three years (the minimum lock-in period), then the withdrawal amount is tax-free under section 80C and section 10 (10D) of the Income-tax Act, 1961.
I am a 30-year-old executive and am working for a multinational company in New Delhi. My annual income is Rs12 lakh. Recently, I have been approached by a financial planning adviser for a pension plan. Do you think I need to invest in a pension plan?
Put simply, everyone needs to provide for their retirement years.
Most of us are less economically active during our retirement years and, although typically our financial needs reduce during retirement, these needs are still considerable.
In addition, longevity has increased considerably and with continued improvement in medical facilities, people tend to live longer.
For all of these reasons, we need to secure a regular income that will be adequate enough to maintain at least our present standard of living. Unless we do this, it is difficult to lead a peaceful retired life.
Our retirement has to be funded during our most economically active years and a good pension plan is the best way to do this.
For pensions, the golden rule is that the earlier you start, the better.
Pension plans help one to ensure a regular income after the active earning period. Ideally, a pension plan should be purchased by the self-employed, businessmen and all individuals not covered by the government pension scheme.
Even for those who are in employment in private or public sector organizations, the final pension may not be sufficient to continue with the same standard of living post-retirement.
Individual pension plans help to supplement the retirement income.
Can a life insurance company construct a customized fund for the policyholder?
An insurance company usually offers a choice of different investment funds and the policyholder may opt to invest his/her contributions among the offered investment funds in any desired proportion, depending on their risk appetite.
So, to the extent that a customer has this freedom and flexibility, he/she can construct a personalized fund.
However, it is not possible to construct truly customized funds for every individual as the individual can only select from within the basket of funds made available by the life insurance company.
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.