The insurance business in India isn’t just growing, but also becoming moresophisticated 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 want to invest in a unit-linked insurance policy (Ulip) product but I am quite confused about various hidden charges such as administration charges, allocation of units, and so on. Could you please help me understand such charges and fund charges etc. while buying a Ulip?
While buying a Ulip, it is important that you go through the product brochure as this should provide a clear indication of all of the charges that are levied. You can also
visit the life insurer’s website, which should carry the same information. As per the regulator’s guidelines, all charges must be clearly mentioned in product brochures. In addition to that, you can also ask for an illustration before actually making a decision. This will state the various charges under the policy. Finally, it is advisable to seek help and clarification from a financial planning adviser and to read the offer document carefully before investing.
Is it possible to buy a life insurance policy for my minor non-resident Indian daughter in Indian currency in India? I am an Indian citizen, and both my daughter and I are living in India currently. Is the income taxable or tax free?
Yes, you can buy an insurance policy for your daughter. However, there are certain requirements which should be met in such cases. For example, irrespective of residential status, the person should be of Indian origin. As far as tax benefits are concerned, the repayments received from the insurance company are totally tax free under section 10((10) D) of the Income-tax Act. This applies as long as the premium does not exceed 20% of the sum assured in any policy year during the entire term of the policy. This clause will not be applicable in case of a death claim, in which case the proceeds received by the nominee will be tax free.
I already have sufficient insurance cover. Could you advise me on which is the better option for tax planning, Ulips or equity-linked savings scheme (ELSS)?
Every year, with the rise in income and financial liabilities, one’s need for insurance also increases. Therefore, one has to look at the short-term and long-term financial goals and accordingly opt for a suitable product. For tax planning, both Ulips and ELSS are good options.
Ulips offer you the convenience of market returns as well as life cover and tax benefits, while an ELSS will offer you only market-related returns and tax benefits. It is advisable to consult a financial planning adviser and choose a product that suits your needs.
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.