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Sorting out the premiums on life

Sorting out the premiums on life
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First Published: Mon, May 14 2007. 03 10 AM IST
Updated: Mon, May 14 2007. 03 10 AM IST
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.
What happens if there is a default on making premium payment?
In most cases, if you miss a premium payment, you have a 30-day grace period to pay the premium with no interest charged. However, if you are unable to pay, you can declare the policy “paid-up” for that year, provided that at least three years’ premium has been paid. The company will then keep withdrawing the regular maintenance charges from your policy’s cash value to keep the policy. This process continues until the cash value comes down to the equivalent of one year’s premium. Then the policy is terminated and the one-year premium returned. In some flexible-premium policies, premiums may be reduced or skipped as long as sufficient cash values remain. But this will mean lower cash values and less coverage period.
Is the cash value of life insurance taxable?
All life insurance plans get tax benefits under Section 80C and Section 10 (10D) of the Income-Tax Act. The cash value of an insurance policy payable at death is not taxable.
In any year, if the premium of policyholder exceeds 20% of the sum assured, the cash value purchased by this excess premium is taxable on maturity under Section 10 (10D).
How can I estimate the correct amount of life insurance for me?
Many experts recommend that one should purchase insurance worth five to 10 times the current annual income. This is an old thumb rule that does not take into consideration current assets and any special needs customers or their families may have.
We at Aviva have a need-based sales approach through the “Financial Health Check” (FHC). Depending on the life stage and earnings, the FHC recommends the right insurance product.
What type of medical examination is required to buy life insurance?
In most cases, a simple medical report from a doctor is enough. For higher risk cover or an increased age, detailed pathological reports are required. There are also some policies which just require a Declaration of Good Health by the customer.
This week’s expert is Bert Paterson, managing director, Aviva India.
Readers are welcome to write in with their queries to askmint@livemint.com. The questions will be answered by senior executives from leading insurance firms.
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First Published: Mon, May 14 2007. 03 10 AM IST
More Topics: Money Matters | Personal Finance |