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Ask Mint | Limited-term premium payment is an option

Ask Mint | Limited-term premium payment is an option

I want to save some money for the future. However, I will have to take a loan after five years for my sister’s wedding, after which I may not be able to pay premiums. Can I pay premiums only for a limited period and not for the entire duration of the plan?

There are insurance plans in the market that offer you the option of limited premium payment term. You can opt for any such plan and choose to pay premium for a term of your choice, which can be as low as three-five years.

What is a paid-up policy? When can I make my policy paid-up? Do I need to pay any charges to make my policy paid-up?

Any traditional life insurance policy can be declared paid-up from the commencement of the fourth year, subject to the caveat that all regular premiums have been paid for the first three years. After a policy becomes paid-up, even if you stop paying the premium, your policy continues. No charges are deducted for declaring the policy as paid-up.

How will service tax be relevant to my insurance policy? Why do I have to pay service tax?

As per the Budget Announcement 2005 and subsequent amendments in the Finance Act, the life insurance business has come under the domain of service tax. Under the current provision, service tax and education cess at the rate of 10.3% are levied on all charges applicable under the policy.

How do I select the best term plan available in the market? Are there any specific benefits I can look at?

A term plan can be compared on the basis of the premium applicable for the target insurance cover. For example, if you want a cover of Rs10 lakh, you should look at the premium applicable for this cover across all available products and choose the product best suited to you.

There are additional benefits associated with plans, such as riders for additional protection and discount on the higher sum assured. Some insurance companies also offer preferred rates for women.

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.

This week’s expert is T.R. Ramachandran, managing director and CEO, Aviva India.

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