5 Investment Options For The Retired - The Economic Times

01/01/2022, 05:25 5 investment options for the retired - The Economic Times
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5 investment options for the retired
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Retirement means the end of earning period for many, unless one chooses to work as a consultant. For SEARCH KEYWORDS
retirees, making the best use of their retirement corpus that would help keep tax liability at bay and NEWSLETTER
provide a regular stream of income is of prime importance. Building a retirement portfolio with a mix of
fixed income and market-linked investments remains a big challenge for many retirees. The challenge is
not to outlive the retirement funds - one retires at 58 or 60, while the life expectancy could be 80.
Here are few investment options for the retired to provide for their monthly household expenses. The
idea is to build a retiree portfolio with a mix of these products.
Senior Citizens' Saving Scheme (SCSS)

Probably the first choice of most retirees, the Senior Citizens' Saving Scheme (SCSS) is a must-have in
their investment portfolios. As the name suggests, the scheme is available only to senior citizens or early
retirees. SCSS can be availed from a post office or a bank by anyone above 60. Early retirees can invest
in SCSS, provided they do so within three months of receiving their retirement funds. SCSS has a five-
year tenure, which can be further extended by three years once the scheme matures.
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Currently, the interest rate in SCSS is 8.6 per cent per annum, payable quarterly and fully taxable. The
rates are set each quarter and linked to the G-sec rates with a spread of 100 basis points. Once invested,
the rates remain fixed for the entire tenure. Currently, SCSS offers the highest post-tax returns among
all comparable fixed income taxable products. The upper investment limit is Rs 15 lakh and one may
open more than one account. The capital invested and the interest payout, which is assured, has
sovereign guarantee. What's more, investment in SCSS is eligible for tax benefits under Section 80C
and the scheme also allows premature withdrawals.
Post Office Monthly Income Scheme (POMIS) Account

POMIS is a five-year investment with a maximum cap of Rs 9 lakh under joint ownership and Rs 4.5 lakh
under single ownership. The interest rate is set each quarter and is currently at 7.8 per cent per annum,
payable monthly. The investment in POMIS doesn't qualify for any tax benefit and the interest is fully
taxable.
Instead of going to the post office each month, the interest can be directly credited to the savings
account of the same post office. Also, one may provide the mandate to automatically transfer the
interest from the savings account into a recurring deposit in the same post office.
Bank fixed deposits (FDs)

A bank fixed deposits (FD) is another popular choice with the retirees. The safety and fixed returns go
well with the retirees, and the ease of operation makes it a reliable avenue. However, interest rate over
the last few years has been falling. Currently, it stands at around 7.25 per cent per annum for tenures
ranging from 1-10 years. Senior citizens get an extra 0.25-0.5 per cent per annum, depending on the
bank. Few banks offer around 7.75 per cent to seniors on deposits with longer tenure.
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Unlike SCSS and POMIS, bank deposits provide flexibility in terms of tenure. Therefore, instead of
locking funds for a particular duration, an investor may spread the amount across different maturities
through 'laddering'. It not only provides liquidity to funds, but also manages the 're-investment risk'.
https://economictimes.indiatimes.com/spotlight/5-investment-options-for-the-retired/tomorrowmakersshow/69426196.cms 1/48
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When the shortest-term FD matures, renew it for the longest duration and continue the process as and
when various FDs get matured. While doing so, ensure that your regular income need is met, and
deposits are spread across various maturities and institutions.
For those looking to save tax, the five-year tax saving bank FD could be a better option. The investment
made here qualifies for Section 80C tax benefit. However, such a deposit will have a lock-in of five years
and early withdrawal is not possible. Even though the interest income is taxable, there is a set-off by the
amount of tax saved at least in the year of investment. Most banks offer a rate which is slightly lower
than the non-tax saver deposit rates. So choose carefully, if you want to go for them.
Mutual funds (MFs)

When one retires and there is a likelihood of the non-earning period extending for another two decades
or more, then investing a portion of the retirement funds in equity-backed products assumes
importance. Remember, retirement income (through interest, dividends, etc.) will be subject to inflation
even during the retired years. Studies have shown that equities deliver higher inflation-adjusted returns
than other assets.
Depending on the risk profile, one may allocate a certain percentage into equity mutual funds (MFs) with
further diversification across large-cap and balanced funds with some exposure even in monthly income
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plans (MIPs). Retirees would be advised to stay away from thematic and sectoral funds, including mid-
and small-caps. The idea is to generate stable returns rather than focus on high but volatile returns.
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Debt MFs can also be a part of a retiree's portfolio. Taxation of debt funds makes it a better choice over
bank deposits, especially for those in the highest tax bracket. While interest on bank deposits is fully
taxable as per the tax bracket (30.9 per cent for highest slab), income from debt funds gets taxed at 20 NEWSLETTER
per cent after indexation, if held for three years or more irrespective of the tax bracket.
A retiree can consider keeping a significant portion in debt funds also because of its easy liquidity.
Tax-free bonds
Tax-free bonds, although not currently available in the primary market, can also feature in a retiree's
portfolio. They are issued primarily by government-backed institutions such as Indian Railway Finance
Corporation Ltd (IRFC), Power Finance Corporation Ltd (PFC), National Highways Authority of India
(NHAI), Housing and Urban Development Corporation Ltd (HUDCO), Rural Electrification Corporation
Ltd (REC), NTPC Ltd and Indian Renewable Energy Development Agency, and most carry the highest
safety ratings. One may, however, buy and sell them on stock exchanges as they are listed securities.
Retirees should keep a note of a few things before investing in tax-free bonds. One, they are long-term
investments and mature after 10, 15, 20 years. Invest in them only if you are sure that you will not
require the funds for such a long period. Second, the interest is tax-free therefore there is no Tax
Deducted at Source (TDS) too. In the last two tax-free bond issues the effective yield, especially for high
tax-bracket investors, compared favourably with taxable investment alternatives available at the same
time. Third, liquidity is low in tax-free bonds. Usually, they are listed on stock exchanges to provide an
exit route to investors but price and volume (quoted at exchanges) may play a spoilsport while off-
loading them. Last, they usually offer annual and not monthly interest payouts hence may not meet a
retiree's regular income requirement.
For example, in a declining interest rate scenario, a tax-free bond (face value Rs 1,000) with a coupon
rate of 8.3 per cent tax free return may be available in a stock exchange at a price of Rs 1,217, with a yield
of about 6.4 per cent, maturing in 2027 if the investor holds it till maturity. Remember, the interest
payouts are at the coupon rate of the bond, i.e., an investor gets 8.3 per cent tax free income on his
investment and the actual return will be 6.4 per cent if the bonds are held till maturity.
Immediate annuities
Retirees could also consider the immediate annuity schemes of life insurance companies. The pension or
the annuity is currently around 5-6 per cent per annum and is entirely taxable. There is, however, no
provision of return of capital to the investor, i.e., the corpus or the amount used to purchase annuity is
non-returnable. There are about 7-10 different pension options, including pension for lifetime for self,
after death to spouse and post that the return of corpus to heirs. The corpus is not returned to the
investor under any pension option. The immediate annuity may not suit an investor who is capable of
selecting and building his own portfolio. So it is better to diversify across different investments rather
than invest in this scheme if you have the wherewithal to manage your own portfolio. This is also
advisable as the returns offered on these immediate annuities are currently on the low side.
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What does the Employee Deposit Linked Insurance (EDLI) scheme
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Why it’s never too late to buy life insurance?

If you are wondering if buying life insurance is relevant for people of your age, here is what you need
to consider.
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The importance of life insurance plans can be felt in more ways than you may realise. From
availing of life insurance tax benefits to enhancing your financial security to helping your legal
heirs pay off any pending debt to putting your children through college - having a life
insurance policy can help you in multiple ways.
Life insurance meaning and importance needs to be understood in this context. What is life
insurance after all - an assurance that gives your dependents a sense of financial security.
Benefits of life insurance

Here are some reasons why buying life insurance is a worthwhile idea:
In the event of your demise, your dependents can meet immediate financial needs such
as medical bills and funeral costs.
If you have a mortgage on your home, your untimely death will not leave your family
members adrift since a life insurance claim will clear the outstanding loan.
It has a low-risk factor that ensures that your investment remains stable and can bring
timely returns.
The policy riders benefit you and your family during tough times of serious illness,
accident, physical disability, hospitalisation, etc.
Not to be overlooked are the tax benefits you get with life insurance. The premium paid
towards your insurance policy is available as a tax deduction under section 80C. The
amount you or your nominee receives as the sum assured, along with the bonus, if any,
is also exempt from income tax under section 10(10d). This includes maturity benefits,
surrender value and death benefits, as applicable.
We just saw why life insurance is important. It is true that you may have to pay a higher
premium as your age increases. But it is never too late to buy a life insurance plan. The
deciding factor should not be your age but the responsibilities you have. Get Insurance
Related: Life Insurance 101 - Everything You Want To Know About Life Insurance
(https://www tomorrowmakers com/life-insurance/life-insurance-101-everything-you-want-
(https://www.tomorrowmakers.com/life-insurance/life-insurance-101-everything-you-want-
know-about-life-insurance-listicle)
Financially dependent children

Change in social behaviour can be seen in the increasing rate of late marriages and delayed
parenthood. Therefore, children may still be financially dependent even though the parents
are in their late forties or even fifties. In such cases, financial assurance is a must.
So, buying an insurance plan even at a higher premium won’t be a bad decision. Death is an
eventuality we all have to accept, and a life insurance term plan is certain to serve the future
needs of your family members.
Late retirement
With the changing work environment and occupational demands in today’s world, retiring at
the age of 55 or 60 is no longer a precondition. A number of individuals are working even 10-
15 years after the traditional retirement age. So, it shouldn’t seem surprising if someone buys a
life insurance plan at the age of 50, although at a higher premium.
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Related: How To Choose The Best Life Insurance Policy? All Your Questions On Life Insurance
Answered (https://www.tomorrowmakers.com/life-insurance/how-choose-best-life-
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insurance-policy-all-your-questions-life-insurance-answered-article)
For those of you who still have time on your side, the best time to buy life insurance is now. If NEWSLETTER
you buy a term plan when still in your 20s or 30s, you can save a considerable amount in
premium and enjoy life cover over a longer time. However, do not forget that the benefits of
life insurance policy remain relevant irrespective of your age.
5 Things To Check Before You Buy Life Insu…

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Partial withdrawal from life insurance policy reduces

sum assured
sum assured
By: Navneet Dubey
You can partially withdraw money from unit-linked life insurance policies, but this will automatically
decrease the sum assured for two years from the date of withdrawal. The sum assured is restored to the CALCULATORS
original level after two years provided no further partial withdrawal is made during those two years.
Therefore, it becomes crucial to use this facility wisely.
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The partial withdrawal facility is only available in case of unit-linked insurance plans (Ulips) and unit-
linked endowment plans. You cannot partially withdraw from traditional insurance policies which are not
unit-linked. NEWSLETTER
New rule for partial withdrawal from life insurance policy

The new Insurance Regulatory and Development Authority of India (IRDAI) rule came into effect on
February 1, 2020 and as per the new guidelines, life insurers will now have to launch revised insurance
plans in the market after withdrawing the current life insurance plans on offer.
There are few terms and conditions that you need to be aware of to partially withdraw from a unit-linked
insurance policy.
As per the change in rule, now, policyholders get the option of partially withdrawing from the fund value
three times during the entire term of the policy.
Rakesh Goyal, Director, Probus Insurance Broker, said that there is a limit on the amount that can be
partially withdrawn. "You can partially withdraw the minimum amount of either Rs 1,000 or Rs 2,000.
This amount varies from policy to policy. On the other hand, the maximum limit for the withdrawal is
around 25 percent of the fund value (the value at the time of withdrawal) and these withdrawals are
linked to certain life events such as the marriage of children, the child's higher studies, and critical illness,
purchasing or building a new property."
Apart from these, there are a few more conditions.
Naval Goel, Founder, PolicyX.com said, "You have to be at least 18 years of age to make a partial
withdrawal. You are allowed to partially withdraw money only after the completion of 5 policy years and
also only if all due premiums have been paid on time and the policy is in force."
Also read: Life insurance policy guidelines set to change from February 1. Here's how it will impact you
How partial withdrawal works

Let us assume you bought a unit linked life insurance plan whose fund value is Rs 2 lakh after five years
into the policy term. The annual premium of this policy is Rs 30,000 for a sum assured of Rs 5 lakh. As
per the new rules, you can partially withdraw a maximum of 25 percent of your fund value and not more
than that such that at least one year's premium remains in the fund.
So in this case, you can withdraw only 25 percent of Rs 2 lakh, that is, Rs 50,000 subject to the fact that
at least Rs 30,000 remains in the fund. Thus, as soon as you withdraw, not only your fund value but
your sum assured will also decrease by Rs 50,000.
The sum assured will get reduced to Rs 4.5 lakh from the original Rs 5 lakh, for a tenure of two years,
after which it will get restored to Rs 5 lakh automatically. However, the restoration will only happen if
you continue to pay your premium for the next two years. This way you have actually paid the cost of
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risk cover in the policy. Further, it is also subject to a condition that you have not made more withdrawals
in those two years.
However, if insured dies within 2 years of a withdrawal the nominees will not get the original or full sum
assured / death benefit. In such a case the nominee will only get the reduced sum assured (reduced for 2
years after withdrawal) on death of insured or the minimum guaranteed death benefit i.e. 105 percent of
the premiums paid. In this case the sum assured/ fund value does not get restored to original level. The
nominee would get the full death sum assured only if death happens after the sum assured is restored to
original level.
Karthik Raman, CMO and Head-Products, IDBI Federal Life Insurance said, "In case the fund value is
more than the sum assured, for instance, if the fund value is Rs 6 lakh and the sum assured is Rs 5 lakh,
then when there is a partial withdrawal of say Rs 1.5 lakh (25 percent of the fund value), both fund value
and sum assured will again fall by Rs 1.5 lakh. But only sum assured will get restored automatically after
two years. Fund value gets restored to the extent of additional premiums being paid and/or increase in
net asset value (NAV)."
He added, "Earlier, post the age of 60 years, any partial withdrawals done was reduced from the sum
assured permanently and would not get restored. However, there has been a change brought about by
the new regulations. Now, even post the age of 60 years, the sum assured gets restored to the original
amount 2 years after the partial withdrawal."
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Also read: Should you opt for ULIP with minimum sum assured?
Points to note
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No penalty charges are applied on making a partial withdrawal. Also, the policyholder will not be taxed
on partial withdrawal of funds.
NEWSLETTER
Under section 10(10D) of the Income Tax Act, for life insurance policy where the premium payable does
not exceed 10 percent of the sum assured, the amount received on partial withdrawal is exempt from
tax. However, for policies purchased before April 1, 2012, the premium should not exceed 20 percent of
sum assured for the proceeds to be tax-free.
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All You Need to Know About Reinsurance
As the name suggests, reinsurance is the insurance of insurances. It is the insurance that an insurance
company takes to limit their risk exposure and the amount of loss they could suffer in case of any kind of
disaster.
Reinsurance can help an insurance company to limit the amount of risk that it suffers, thereby indirectly Get Insurance
protecting the customers as well. Thus an insurance company shares its risk or passes it on to other
insurers by buying an insurance policy from them. This practice makes sure that no insurance company is
exposed to ‘too much risk’ at any given point of time. In a typical reinsurance transaction, there are two
parties. The insurance company buying the reinsurance policy is called the ceding company or the
cedant. The company issuing the reinsurance policy is called the reinsurance agent or simply the
reinsurer. The ceding company pays a reinsurance premium to the reinsurer and the latter agrees to pay
an agreed portion of the claims made against the ceding company.
Related: Easy ways to buy a term life insurance policy
Different types of reinsurance agreements

In a Facultative coverage, the protection is available to the insurance company against a specific risk
or contract. If the ceding company has multiple risks, then those should be negotiated separately, or
else the reinsurer has the right to deny the agreement.
Reinsurance treaty is applicable for a particular time and the reinsurance agent covers all the risks of
the ceding company that may be liable for a claim during the tenure of the reinsurance treaty.
Proportional reinsurance is one where the reinsurer receives a proportion of the premium received by
the insurance company and when claims are made, the scope of coverage will be up to that agreed
proportion only.
In non-proportional reinsurance, the reinsurer’s duty to cover the claim arises only when the loss of
the ceding company exceeds a certain limit. This limit may be based on a single risk or an entire
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business category.
Excess-of-loss reinsurance is similar to non-proportional reinsurance, except for the fact that it is
specifically used in case of catastrophic events.
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In risk-attaching reinsurance, the reinsurer agrees to cover the claims that are established during the
agreed period. The date of occurrence of the loss is not considered.
Loss-occurring coverage, on the other hand, provides coverage to the insurance company for all NEWSLETTER
losses that occur during a particular period.
Related: What is IDV and Why Insured Declared Value is Important?
Why reinsurance is taken by insurance companies? We look at some of its benefits.

The most basic one is for transferring of the risk. It allows insurance companies to pass on risks greater
than its size. The policyholder stands to get a higher degree of protection due to reinsurance.
Reinsurance also helps the ceding company to absorb larger losses and reduce the amount of capital
required for coverage.
Reinsurance is one of the three things that an insurance company must do when it reaches its loss-
absorbing limit. It has to say ‘no’ to new clients, increase its capital or buy reinsurance.
By going for reinsurance, the ceding company may end up earning some arbitrage as well. This will
happen when they manage to land a reinsurance premium lower than the one that they are charging
for the same risk.
Insurance companies sometimes prefer the services of reinsurers because of their expertise – be it
their knowhow of a particular risk category or their rating ability.
Related: Did you know you can avail a loan against your insurance policy?
How does a Reinsurance policy work?

The clientele of reinsurance firms is almost entirely made up of primary insurers from all classes of
insurance. And unless a claim affects the reinsurance agreement, the reinsurer's claim department
consider day-to-day claims to be the responsibility of the primary insurer only. Reinsurer agrees to
indemnify the insurance company and has no obligations against a customer's claim against the ceding
company.
Let's look at some of the scenarios which can be applicable in a reinsurance agreement.
Let’s assume that an insurance policy provides coverage of Rs.1 crore and has a premium of Rs.1 lakh. The
insurance company enters into an agreement with the reinsurer for 75% of the coverage. Accordingly,
75% of the premium will be passed on to the reinsurer. The reinsurer may pay a ceding commission to
the ceding company to cover the latter’s expenses and acquisition costs. Now, if there is a loss of Rs.50
lakh, the reinsurer will pay 75% of it. This is an example of facultative reinsurance on a pro-rata basis.
In the insurance policy mentioned in the above example, let’s assume that the insurance company also
writes an underlying policy of Rs.1 crore. Now if the treaty retention limit per risk is 1.25 crore, the
insurance company will have to reinsure the remaining 75 lakh which is beyond its retention. This is not a
pro-rata arrangement, instead it is called non-proportional reinsurance, or excess of loss policy -
depending on the nature of the risk covered. The premium, in this case, is not a simple proportional
pass-on. Various formula guidelines, the underwriter’s risk evaluation, primary rates, market conditions Get Insurance
etc. will influence the reinsurance premium.
Related: Industry today needs simple de-jargonized products: Tapan Singhel, Bajaj Allianz General
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Reinsurance and the insurance industry

Reinsurance policies enable insurance companies to limit the loss appearing in their balance sheets and
help them out with solvency. Thanks to reinsurance policies, insurance companies have been able to
honour claims relating to a particular risk through sharing of the risk. Reinsurance has helped insurance
companies not only to manage their risks but also to improve their underwriting practices. Reinsurance is
equipping the insurance industry to face natural calamities and catastrophes in a better way. If the risk is
not spread out enough, insurance companies can go bankrupt in the event of an earthquake or a flood.
Reinsurers share this burden and cushion the blow in force majeure conditions.
In India, non-life insurance companies need to reinsure at least 5% of their portfolio with the General
Insurance Company of India, the state-owned reinsurer. By ceding 5% of their gross written premium,
the insurance company gets insurance against 5% of the risk. This is called obligatory insurance.
Insurance companies also have the option of reinsuring beyond a minimum of 5% or opting to reinsure
with overseas firms. The extent of reinsurance that an Indian insurance company goes for is also decided
by the minimum solvency margin defined by the IRDAI. The IRDAI mandates that the insurer maintains
a specified margin of assets over its liabilities. The agency also advices non-life insurance companies to
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carry out proper due diligence while entering into reinsurance contracts through brokers. Understand the
difference between insurance agent and agent broker here.
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जीवन बीमा उत्पादों के लिए आईआरडीएआई के नए

दिशानिर्देश
पिछले पांच वर्षों में जीवन बीमा उत्पादों में बहुत बदलाव देखने को मिले हैं। आज के ग्राहकों की ज़रूरतों को समझते हुए बीमा
कं पनियों ने उत्पादों में ज़रूरी बदलाव किए हैं।
भारत के बीमा नियामक और विकास प्राधिकरण (आईआरडीएआई)ने बाज़ार के बदलते रूप को देखते हुए लिं क्ड और नॉन-लिं क्ड
जीवन बीमा पॉलिसियों के लिए नए दिशानिर्देश जारी किए हैं। अच्छी ख़बर यह है कि इन प्रस्तावित दिशानिर्देशों से बीमा खरीदने
वालों को बहुत फायदा मिलेगा।
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इस लेख में हमने उन बदलावों के बारे में बताने की कोशिश की है, जिनके बारे में बीमा पॉलिसी खरीदने से पहले आपको जानकारी
होनी चाहिए:
लिं क्‍ड पॉलिसीधारक विशेष परिस्थितियों में आं शिक पैसा निकाल सकें गे
इस दिशानिर्देश से मौजूदा प्रावधानों में व्यापक परिवर्तन हो सकता है। इसके कारण बीमित व्यक्ति पैसे की ज़रूरत होने पर
आं शिक पैसा निकाल सके गा। हालांकि, यह कु छ ख़ास कारणों जैसे गंभीर बिमारी या दुर्घटना के कारण हुई अपंगता आदि पर ही
लागू होगा। इससे यह सुनिश्चित होगा कि स्वास्थ्य से जुड़ी बड़ी समस्या आने पर जीवन बीमा व्यक्ति के उसी तरह काम आ सकता
है जैसे जानलेवा स्थितियों में काम आता है। पैसा निकालने की यह सुविधा जीवन बीमा के बारे में ग्राहकों की सोच को बदल देगी।
बीमा खरीदने के बाद भी समय सीमा में बदलाव संभव

यह दू सरा महत्वपूर्ण बदलाव है जिससे ग्राहकों को फायदा होगा। अधिकतर लोग अपनी उम्र के तीसरे या चौथे दशक में जीवन
बीमा खरीदते हैं। जिसका मतलब है कि वे कम उम्र में ही अगले 20-25 वर्ष का वादा कर रहे हैं। उम्र और तजुर्बा बढ़ने के साथ
उनकी आवश्यकताएं और लक्ष्य भी बदल जाते हैं। हो सकता है कि कम उम्र में खरीदी पॉलिसी उनके भविष्य के लक्ष्यों के हिसाब
से सही ना हो। पॉलिसी के दौरान उसके समय सीमा में परिवर्तन करने की सुविधा मिलने पर ग्राहक अपनी ज़रूरतों और लक्ष्यों के
हिसाब से अपने निवेश का उपयोग कर पाएं गे।
पेंशनधारक किसी भी बीमा कं पनी से पॉलिसी रिन्यू करवा सकें गे

इस दिशानिर्देश से पेंशन पॉलिसी लेने वाले किसी भी बीमा कं पनी से एन्युटी खरीद सकें गे। वर्तमान नियमों के हिसाब से आपको
उसी बीमा कं पनी से रिन्यू करवाना होता था जिसके साथ आपकी पॉलिसी चल रही होती थी। इसके कारण बीमा कं पनी कोई भी
ब्याज़ दर दे आप उसे बदल नहीं सकते थे। नए दिशानिर्दश से गेंद ग्राहकों के पाले में आ जाएगी। अब वे अलग-अलग बीमा
कं पनियों की ब्याज़ दरों और सेवाओं की तुलना करके अपने लिए सही कं पनी चुन सकते हैं। इस क्षेत्र में प्रतिस्पर्धा बढ़ने से ग्राहकों
को बेहतर सेवाएं मिलेंगी।
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सरेंडर करने की सीमा को घटाकर दो वर्ष किया गया

नए प्रस्तावित नियमों के अनुसार नॉन-लिं क्ड पॉलिसी में सरेंडर वैल्यू प्रीमियम चुकाने की समय सीमा पर निर्भर करेगी। 10 वर्ष से E-BOOK
कम समय की पॉलिसी में दो वर्ष तक लगातार प्रीमियम चुकाने पर गारंटीड सरेंडर वैल्यू मिलेगी।10 वर्ष से ज्यादा समय वाली
पॉलिसी में गारंटीड सरेंडर वैल्यू की सुविधा लेने के लिए कम से कम तीन वर्ष तक प्रीमियम चुकाना होगा।
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इसके अलावा, अपनी लैप्स हो चुकी पॉलिसी को फिर से शुरू करने के लिए पॉलिसीधारक को ज़्यादा समय दिया गया है।
पॉलिसी लैप्स होने पर, पॉलिसी के अमान्य होने की तारीख से पांच वर्ष बाद तक उन्हें फिर से शुरू किया जा सके गा। इससे बीमा
पॉलिसी को चलाए रखने के लिए काफी समय मिल जाएगा। अभी यह समय के वल दो वर्ष तक ही है।
दू सरे पेंशन उत्पादों की तरह ही कम्युटेशन लाभ

पेंशन उत्पादों के मामलें में पेंशनधारक बाज़ार मूल्य का 60% पैसा एक बार में निकाल सकता है, जिसे कम्युटेशन कहा जाता है।
बाकि बचे 40% पैसे से एन्युटी प्लान लेना होगा। पहले कम्युटेशन के समय आप कु ल राशि का 1/3 पैसा ही निकाल सकते थे।
सेटलमेंट के लिए लंबा समय देने से ज़्यादा वित्तीय स्थिरता मिलेगी

सेटलमेंट समय को वर्तमान के पांच वर्ष से बढ़ा कर 10 वर्ष किया गया है जिससे पॉलिसी लेने वाले को धीरे-धीरे मृत्यु या मेचुरिटी
लाभ मिलेगा। इसके कारण पॉलिसी लेने वाला लंबे समय में अपने पैसे का बेहतर प्रबंधन कर पाएगा।
युवा पॉलिसीधारकों के लिए मृत्यु लाभ में कमी

दू सरी तरफ, सभी आयु वर्ग में न्यूनतम लाभ का मानकीकरण कर दिया गया है। नियमित प्रीमियम उत्पादों के मामले में यह वार्षि क
आय का सात गुना और एकल प्रीमियम पॉलिसी के मामले में 1.25 गुना होगा। पहले 45 वर्ष से ज़्यादा उम्र के बीमा धारक के लिए
ऊपर बताया अनुपात ही लागू था लेकिन 45 वर्ष से कम उम्र के ग्राहक को 10 गुना लाभ दिया जाता था।
आईआरडीएआई ने सभी प्रस्तावित दिशानिर्देशों को इससे जुड़े हितधारकों के सामने रखा है और उनसे 15 नवम्बर 2108 तक अपने
सुझाव देने को कहा है।
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5 Reasons to buy insurance if you are getting

married this year
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Love and marriage, love and marriage

They go together like a horse and carriage
So sang Frank Sinatra in days of yore when love was more innocent and marriage was a lifelong event
for most couples.
It’s easy to get carried away when you’re planning your wedding, but the harsh truth is that life is full of
uncertainties. If an emotional or financial setback affects you or your spouse, you wouldn’t want to be in
a situation where money worries become a permanent fixture. A life insurance plan – along with health CALCULATORS
insurance – is more critical than your choice of honeymoon location and must be an integral part of your
annual financial planning.
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So here are 5 good reasons why life insurance should go hand-in-hand with the wedding rings on your
fingers.
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1. Increased expenses
Unfortunately, a lack of awareness about the importance of insurance cover affects a large number of
Indians. The difference between living a single life and being married is significant. Saving for the future
suddenly becomes a real concern, and while many wait until they have a family before thinking about
insurance, bear in mind that you’ve already begun to share your life – and your debts – with another
person.
2. Better be early than be sorry

The cost of life insurance increases with age, as the mortality rate among young adults is lower when
compared to mature or older people. Young people are also less susceptible to lifestyle diseases and
critical illnesses, making them less of a risk for insurance companies. Lower premiums make acquiring
insurance cover – and by extension, financial protection – more affordable.
Related: Financial planning before important milestones: Marriage [Infographic]
3. Debt obligations
A change to your single status also means a change in your relationship with finances. You start thinking
about savings, and perhaps loans for big-ticket items such as car loans, mortgages, or children’s
education. As they say, better safe than sorry. In case of sudden demise or permanent incapacity of one
partner, the entire debt obligation will fall on the other. It will be almost impossible to sustain EMI
payments for long on a single income and to lose your home because you didn’t plan effectively is plain
short-sightedness. The right kind of insurance cover brings you peace of mind from such devastating
eventualities.
Related:
How does a woman's financial situation changes when she gets married? [Infographic]
4. Lifestyle protection
If you or your spouse is struck with a long-term illness or permanent disability and cannot contribute to
the family finances as before, will you still be financially secure? Chances are the answer is ‘no’. In such a
case, while it may seem like you’re tempting fate; any insurance cover you opt for should ideally include
disability cover. Sometimes your employer may offer such a cover, but it is unlikely to be at a level that
covers your monthly expenses, let alone affords your lifestyle, so it is best for you to also opt for private
protection to reduce the stress associated with paying your monthly bills.
Related: How insurance needs change at every life stage
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5. Life insurance for two

Most couples do recognise the importance of insurance protection prior to getting married, but it’s CALCULATORS
usually put off for another day. Life insurance helps in protecting your family via death benefit paid out
to the surviving spouse, and there are two product options for married couples:
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Term plans – These are ideal for starter couples as they offer long-term protection for low premiums for
a fixed period, say 10 or 20 years. If the policyholder is still alive at the end of the plan period, it lapses
with no payments made to the policyholder or the nominee. A payout is only made to the nominee on NEWSLETTER
the demise of the policyholder while the policy is still in force.
While these offer joint cover under a single plan, it is better to opt for individual plans if both of you are
working. Term plans also offer useful riders that can be attached to the base plan for an extra premium.
Traditional plans – Also known as whole life policies, these plans cover an individual's whole life and are
suitable for building savings over time. Such policies can be used to meet short and long-term financial
goals. Although these policies are more expensive than term plans, they offer a guaranteed amount at
the end of the term.
When deciding on the kind of policy to invest in or coverage amount, consider factors like your current
expenses, the rate of inflation, any existing loans you may have, future expenses (new car, child's
education), etc. Add up all your debt – present and anticipated – and then structure a policy that ensures
all these are covered. This assessment must include the cost of raising and educating your children, so it
does not come as a shock to the surviving spouse. To know how much cover would you need to protect
your family after you, use this
life insurance calculator that will give you the result in 3 easy steps.
Related: What your first year of marriage should look like
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Why buy insurance this year?

Apart from extending the scope and scale of healthcare provisions to less advantaged citizens, Finance
Minister Arun Jaitley also extended micro-insurance and pension schemes to Jan Dhan Yojana accounts.
However, the 2018 Budget also introduced long-term capital gains tax (LTCG) on investments in equity
and mutual funds, making unit-linked life insurance products (ULIPs) relatively attractive in the medium
to long-term. With this, life insurance and wealth creation as a by-product should gain a stronger
foothold among existing and future investors and policyholders.
Read More
Ronak knows the difference between term insurance and life insurance.
Do you?
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Eight money tips to help young earners plan their NEWSLETTER
finances
By: Riju Dave
By Riju Dave
Dreams, these days, come with a high price tag. A car for Rs 5 lakh, a house for Rs 50 lakh, several lakhs
for a decent education for kids and crores for a cushy retirement. In fact, seemingly simple needs have
been elevated to dreams due to the high cost associated with them. You require either a large income or
a strategic plan to meet these basic life goals.
While the former may not always be easy for the average salaried person, the latter is certainly within
reach, especially if you begin at the beginning. Make a financial plan the day you start working and you
won’t have to scramble to fund each aspiration.
However, it may not be as easy as it seems. “I just don’t know how much to save and where to invest, so I
don’t budget and end up spending a lot,” says Harshinder Kaur, who started working two years ago as a
probationary officer at a bank in Ganganagar, Rajasthan. She doesn’t know how to formulate a plan for
herself. This is a predicament many youngsters in their mid-20s face. The twin behavioural devils of
ignorance and procrastination push most people into their 30s before they get down to streamlining
their finances. This often results in faulty investment choices, flawed portfolios, unmet goals and
financial insecurity later in life.
“This category is not a cash cow for advisory firms, and as they have no one to turn to, they often get
lost,” says Jayant Pai, CFP and Head, Marketing, PPFAS Mutual Fund. We, at ET Wealth, will try to remedy Get Insurance
this through our cover story this week. In the following pages, we offer the newly employed youth a step
by step guide to plan their finances. We focus on the building blocks they need at this stage: budgeting,
goals, investment, insurance, taxation and salary structure. However, this is merely intended to propel
them into planning and they will need to research and learn continuously throughout their working lives.
Remember, financial freedom is not achieved the day you start working, but the day you get your
finances in working order.
Also Read: Young earner? Five financial mistakes you may regret later
1. MAKE A BUDGET & START SAVING

Budgeting is the simple exercise of reconciling your income with your expenses, and should be your first
step. Note down your monthly spending as per your ease of usage: Excel sheet, simple diary, mobile
app, or desktop. The aim is to know how much you spend under various heads. “I use Excel sheet to keep
track of my spending and know what percentage of my salary goes where,” says 24-year-old Saugata
Palit, who has been working as senior executive in a private firm in Delhi for the past 18 months.
After you have budgeted for 3-4 months, you will realise that your expenses can be sorted into three
categories: essential, discretionary and entertainment. “Tracking of budget is important not only to
identify mandatory and discretionary spends, but also ensure that you don’t overspend,” says Vinit Iyer,
CFP & Founder, Wealth Creators Financial Advisors.
Once you’ve identified the outgoing amount, put away 10-20% of your salary every month before you CALCULATORS
start spending. If you don’t know where to put it, start with your bank account. Try to opt for a sweep-in
account that has a fixed deposit linked to it as it will fetch you a rate higher than 4%, which you get from
your savings account. This will help inculcate a lifelong saving habit and make sure that you money starts E-BOOK
to work for you immediately.
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As financial planner Pankaaj Maalde says, “It’s important that your money does not lie idle.” This is
because with very few liabilities and responsibilities, this is the ideal period to save and take advantage of
the power of compounding. The earlier you start saving, even if it is a small amount, the more time your
money will have to grow.
Even as you start saving, another first is to start educating yourself about every aspect of personal
finance. “Read articles and books to understand concepts like saving, investing, protection, debt,
inflation, compounding, etc, and how these are intertwined,” says Pai. The more informed you are, the
better your decision-making.
Also Read: Do you know your financial personality? Take this quiz!
2. FRAME YOUR FINANCIAL GOALS

You have started saving, but will you have enough to buy a house 10 years down the line, or even a car
five years hence? People tend to save aggressively and invest with extreme vigour, but do so blindly,
jeopardising their goals. This is a mistake common to most investors, irrespective of the age group. The
next step then is to frame your goals.
Don’t just make a mental note of the things you want to finance, but write these down in detail. Split
your goals into three categories: short-, medium- and long-term goals. Then list each one clearly, along
with the number of years to achieve each, and the exact amount you will need. Once you have penned
down your goals, you will be able to determine how much and for how long you will need to invest.
Don’t forget to factor in inflation while calculating the amount since it will shoot up the value of your
goal. If you decide to buy a car that costs Rs 5 lakh today after seven years, it will cost you Rs 8.5 lakh if
you consider 8% inflation. Similarly, the post-tax returns from a fixed deposit that offers 7.5% return
may not be able to beat the rise in prices over the long term.
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CALCULATORS
The twin behavioural devils of ignorance and procrastination push most people into their 30s before they get down to streamlining
their finances.
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While Palit manages to save 29% of his salary each month and has also framed short-term goals, he
hasn’t factored in inflation, nor the corpus he will manage to build. There are other things you need to
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consider while deciding goals. “The nature of your income, earning capacity in the coming years,
dependants, loans and personal priorities must essentially be considered while framing goals,” says Pai.
Also remember that these milestones may alter somewhat with your changing circumstances, say, after
getting married or having children. You will then have to make the necessary adjustments. If you think
you cannot do so on your own, take the help of a financial adviser who takes into account your specific
needs and wants.
Also Read: Young earner? Five financial mistakes you may regret later
3. INVEST IN RIGHT INSTRUMENTS

The biggest dilemma that young earners face is where to invest their money. “To start with, just choose
simple instruments like a recurring or fixed deposit. Once you have prioritised your goals, then think
about converting your savings to investments,” says Maalde. “If you are not familiar with instruments,
pick options that are readily available, say, in a bank, and offer liquidity,” adds Iyer.
Essentially, the investment vehicle should be chosen in line with your goals and time horizon. “If it’s a
short-term goal, keep it in debt; if it’s for the long term, it should be mandatorily equity,” says Kartik
Jhaveri, Director, Transcend Consulting. The medium-term goals should have a mix of debt and equity.
This is because debt will offer you the safety of capital since you need it in the short term, while equity
has historically given the highest returns in the long term.
This is a simple generalisation, but as you have just started earning and are not familiar with the investing
territory, go for it till you are better informed. Then take into consideration other factors like returns,
liquidity and tax liability before choosing an asset class.
For near-term goals, opt for recurring deposit, liquid funds, fixed deposit or short-term debt funds. For
the medium-term, you could choose balanced funds and equitylinked saving schemes. For the long
term, equity mutual funds, NPS, PPF and EPF could be your instruments of choice.
Do not blindly take your parents’ and well-wishers’ advice, but conduct your own research. Bengaluru-
based Siddhartha Nayyar, 23, is learning from experience. “I tried my hand at the stock market recently,
but faced a loss. So I have backed off for now and will conduct proper research on stocks and mutual
funds before trying again,” says the project coordinator with a software firm.
On the other hand, 24-year-old Dharma Teja is learning from observation. “When I saw my father’s
investment go up sharply with mutual funds, I decided to opt for it and am now investing my entire
surplus of Rs 45,000 in equity funds,” says the product manager with a private firm in Mumbai. He is,
however, accumulating funds for short-term goals and should shift it to debt as he approaches the goal.
At the other extreme is Palit, who has a 100% debt portfolio, with investments in recurring deposit, PPF
and gold ETF. He should diversify into equity soon.
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Which investment should you pick?

C id h l i d li idi b f i i h d d
Consider the goal tenure, returns, taxation and liquidity before investing your hard earned money.
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their finances.
Also Read: Should young earners take their parents’ advice while investing?
4. MAXIMISE TAX SAVINGS

Saving tax is not a priority for most new earners because the salary is not too high, nor the knowledge
regarding taxability of instruments. “Do not be obsessed with investing just for saving tax as some
expenditures may be useful,” says Pai.
However, it is important to brush up your tax awareness at the earliest. Start with avenues that offer tax
deduction of Rs 1.5 lakh under Section 80C. Some of these include the EPF, PPF, NPS, 5-year tax-saving
fixed deposits, ELSS, Ulips, life insurance, etc. Then opt for investments that fit in with your goals and
needs, or those that are being made by default.
The latter could include EPF or the NPS. “You could also use insurance and healthcarerelated expenses
for dependants astutely,” says Pai. These would include premium spent on health plans under Section
80D, which is up to Rs 25,000 for self and dependants, and Rs 30,000 for senior parents. “I only have
a working knowledge of tax as it is not need of the hour for me. Still, I am saving tax through investments
in the PPF and gold ETFs,” says Palit.
Another important thing is to calculate the returns from your investments after considering the tax. So CALCULATORS
Palit should undersrand that gold ETFs will invite short-term or longterm capital gains tax. You can also
save tax by negotatiating with your employer for a a taxfriendly salary structure.
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Siddhartha Nayyar, 23 years, Bengaluru

Designation: Project Coordinator
Started work at 21 years
“I’m open to investing in mutual funds, but want to test my learning in the stock market.”
Flying start
1. Has no loans; has repaid vehicle loan.
2. Pays credit card bills in full each month.
3. Working knowledge of taxation on investments.
Take-off troubles
1. Fully invested in debt, no equity.
2. Low savings, high expenses.
3. Only employer’s health cover. No other insurance.
5. OPT FOR THE RIGHT INSURANCE

The basic purpose of insurance is to cover risks in your life, not offer returns. Still, most people confuse it
with investment because of the products in the market that offer both. While you may not feel much
need for any kind of cover when you are young, it’s best to know about the various types at the start of
your financial life. “The lure of tax saving and the urgency to get tax planning components in place at the Get Insurance
end of financial year can push one to make unwise choices,” says Antony Jacob, CEO, Apollo Munich
Health Insurance.
Life insurance
The term plan offers a big cover for a small premium, but you do not get any returns. Then, there are
traditional plans, which include endowment and moneyback policies. These offer small covers for a high
premium, and low rates of return. Finally, there are Ulips, which are marketlinked insurance plans with a
lockin period of five years and provide a low cover for a high premium, but offer market-linked returns.
The last two are typically used The last two are typically used as a wealth creation tool because of
returns, but remember that in case of traditional plans, the rate is low, usually 5-6%, and you can earn
higher returns by investing in other instruments. Teja is paying a premium of Rs 25,000 a year for an
endowment plan that was bought for him by his father even though he doesn’t need it.
At this point, the only life cover you may need is a term plan, but this too, only if you have financial
dependants or large liabilities in the form of debt. Teja has a Rs 75 lakh term plan though he has no
dependants or liabilities yet. Harshinder, on the other hand, has not bought any cover. “Since I am single
and don’t have any dependants or debt, I didn’t think I needed any life cover,” she says.
Health insurance
The broader categorisation includes the basic indemnity plan, which covers hospitalisation expenses, for
an individual, and the family floater plan, which includes your entire family in a single cover. “Growing CALCULATORS
incidence of lifestyle diseases and rising medical costs make it essential to have a health insurance,” says
Ashish Mehrotra, CEO & MD, Max Bupa Health Insurance. “Also, a health plan provided by an employer
may not be enough to hedge one against the rising cost of healthcare services,” says Jacob.
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You should have Rs 3-5 lakh basic health plan at this stage, depending on whether you stay in a metro or
a tier II/III city. So if your company insures you for Rs 2 lakh, buy an independent top-up plan for Rs 3 NEWSLETTER
lakh as it will be cheaper than a regular policy. Consider a family floater plan only when you are married
and have kids; don’t include your parents because the premium is determined by the age of the oldest
member. Also, don’t just consider low premium as a criterion. Look at the claim settlement ratio, hospital
network, inclusions and benefits before buying a plan.
Critical illness plan

“This provides a lump-sum benefit in case of certain pre-decided ailments and pays the costs associated
with longterm care and loss of income due to prolonged recovery period,” says Jacob. It is available both
as a standalone policy or as an add-on with life and health insurance. Typically a standalone plan will
offer a higher cover and more flexibility. You can avoid buying it at this stage, but consider it in your 30s
given the higher incidence of such diseases at lower ages.
Accident disability plans

This is a plan you should buy when you start working because of the sheer unpredictability of life. It
covers you against mishaps that can result in complete or temporary loss of income due to partial or
total disability. Buy a cover for Rs 20-25 lakh or one in accordance with your income and nature of job.
Home contents plan

Though you are unlikely to have a house at this stage, buy a policy for the contents if you are in another
city, not with your parents. The premium for a Rs 5 lakh cover can be Rs 3,000 and will cover jewellery,
home appliances, furniture, etc, against theft, fire and natural disasters.
Do you know which cover you need?
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their finances.
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Harshinder Kaur 27 years, Ganganagar (Rajasthan)

Designation: Banker
Flying start
1. Complete clarity on goals.
2. Has health and critical illness insurance plans.
3. Clued in about insurance, taxation.
Take-off troubles
1. Has no budget.
2. Has no equity investment except in the NPS.
3. High investment in tax inefficient fixed deposits.
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6. IMPROVE YOUR SALARY STRUCTURE
You may have had the best package in campus placement, but the salary would still seem less compared
to that of your seniors at work. This is something beyond your control. What is in your hands is making
to that of your seniors at work. This is something beyond your control. What is in your hands is making
the most of what the company is offering you.
The government does not recognise the concept of CTC in computing for statutory heads, such as
Employee Provident Fund (EPF), Employees’ State Insurance, gratuity and bonus, where the rules
prescribe minimum contributions, there are no set rules on structuring the CTC. The salary break-up is
mostly the company’s prerogative. There are broad norms, such as the basic pay being 30-40% of the
salary, and house rent allowance (HRA) and other retiral benefits like the EPF being a percentage of the
basic. However, these too are not written in stone.
Moreover, what constitutes the CTC will vary from company to company. All CTC structures include
three main components—basic, retiral benefits, allowances and reimbursements. Other components
vary. Companies may or may not include variable payouts, such as performance bonus and gratuity in
the ‘total target remuneration’.
Also, benefits given in kind, for in-wages. This means that except stance, house, furniture and car, are
sometimes part of the total pay. Some companies even include premium paid for group benefits such as
health and accident insurance in your CTC. So, unless you see the salary break-up and do the math, you
cannot be sure about what you’ll get in hand.
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You need to make sure that you are not losing out because of lazy salary structuring by some HR
personnel. So customise your CTC according to your needs.
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Restructure the basic pay
The basic, probably the chunk of your salary, includes basic pay, HRA and often dearness (DA) and
special allowance. Apart from HRA, every component is fully taxable. An easy way to reduce tax liability NEWSLETTER
is to cut basic pay and adjust it as perks or long-term benefits. If you have a special allowance
component, adjust it as a tax-free component.
However, you need to weigh the pros and cons before tinkering with your basic. Your HRA (usually, 40-
50% of the basic) and EPF (12% of the basic) are directly linked to the basic. Also, if you want to apply
for, say, a car or home loan in the short term, you may not want the basic pay to be too low.
A higher basic would mean a higher HRA, DA and provident fund contributions. The DA will be taxable
and the PF contributions are tax-free, but it will reduce your take-home salary. On the other hand,
reducing the basic pay will mean a lower contribution towards retiral benefits, which may not be good in
the long run. Also, if you live in a rented house, recalculate your tax benefits on HRA before lowering the
basic.
The idea, is to have an HRA as close to the actual rent you pay, which should ideally be a figure close to
the HRA you receive plus 10% of you basic (see HRA calculations). Choose one of the following two
ways to restructure the salary with maximum tax benefits.
Increase in-hand salary

Benefits such as leave travel allowance (LTA), medical and conveyance allowances serve two purposes.
One, they increase the net takehome salary. Two, they make the salary structure more tax-efficient.
However, the limitation is that there are caps on most of these perks. For instance, you can claim up to a
maximum of Rs 15,000 every year for medical reimbursements, Rs 26,400 for food coupons, Rs 5,000
as annual gifts and Rs 19,200 as travel allowance on a yearly basis.
Also, keep in mind that you will have to produce original bills and receipts to claim some of these
expenses. So, make sure they are within the claimable limit. Take advantage of perquisites if you are
planning to buy a car or join a professional course while working. Rather than taking a loan, if your
employer funds the expense and includes it as a part of your CTC, your tax outgo can reduce
significantly.
This is because you are taxed only on the perk value. For instance, if you plan to buy a Rs 6 lakh car on
loan, you will have to pay roughly a monthly EMI of Rs 13,000 for five years, which will be a post-tax
expense. The tax outgo over five years on Rs 7.8 lakh will be slightly more than Rs 2 lakh.
However, if the company shows it as a perk, you are taxed only for the perk value of the car, which is
between Rs 1,800 a month (for cars of up to 1600 cc) and Rs 2,400 a month (for cars bigger than 1600
cc). The only disadvantage is that, legally, you don’t own the car. But when you quit, you may request the
company to allow you to buy the vehicle at depreciated cost.
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This rule holds true for other big ticket expenses like laptop, gadgets, except in case of rented
accomodation. When it comes to a ‘company leased house versus selfrented accommodation’, HRA
wins. This is because rather than getting a tax-exemption for HRA, a prerequisite value (rent paid or 15%
wins. This is because rather than getting a tax exemption for HRA, a prerequisite value (rent paid or 15%
of the basic, whichever is lower) will get added to your taxable income, which would mean a higher tax
bill.
Optimise long-term savings

If you want to keep your basic intact but do not mind a slightly lesser takehome pay, reduce your
allowance and increase your retiral benefits to reduce your tax liability. The employer’s contribution to PF
is linked to your basic (12%) and unalterable. However, you can increase yours using the voluntary
provident fund (VPF) route. VPF is even better than PPF because while both earn similar returns, PPF has
a lock-in period of 15 years.
Your EPF contributions can be withdrawn without any tax implication after five years of service. If tax
liability is not nil after exhausting the Section 80C investment limit of Rs 1.5 lakh, contribute towards
NPS to claim an additional Rs 50,000 deduction under the new Section 80CCD (1b). “An employee’s
contribution is also considered as a self-contribution and therefore eligible for deduction under Section
80CCD (1b). One can first maximise his claims under Section 80C and then claim any residual under the
new section,” says Archit Gupta, founder and CEO, ClearTax.in. NPS, however, does not enjoy as high a
liquidity as PF. Withdrawal is only allowed at retirement or under special circumstances.
Not all long-term benefits are tax-efficient, and you may want to get rid of a few as well. For instance, CALCULATORS
gratuity, another common long-term benefit is tax-free up to 15 days of basic pay or Rs 10 lakh,
whichever is lesser. However, it is payable only after five years of service. So, it is redundant if you do not
plan to stick around for so long. Although not a very big component, you should try and adjust the E-BOOK
money under some other head.
Tax and tweaks NEWSLETTER

A quick checklist of tax rules for major components and how to tweak them to get maximum benefits.
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CALCULATORS
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their finances.
Investing the savings

If you have an education loan running, paying it back should be your priority. You get a tax benefit under
Section 80E for paying the interest back. Also, financial planners suggest prepaying a loan after the
moratorium period rather than investing as there will be no prepayment charges. “If this your first job
and your basic is higher than Rs 15,000, you may even consider opting out of the EPF and instead pay
back the loan,” says Vaibhav Sankla, Director, H&R Block India.
“It is better better to pay back a loan where you are paying 12-13% interest than invest in an instrument
that fetches you 8.7% returns,” he adds. Prepaying in the earlier years is a tax-efficient strategy as well,
when the interest component is higher. This is because there is no cap on how much you can claim
under Section 80E. However, you have a time limit of eight years to claim this benefit.
Another benefit that people living with family miss on is HRA. Even if you are living with parents, you can
claim a deduction for house rent, provided your parents own the house. They will be taxed on this, but
can claim a flat 30% of the annual rent as deduction for maintenance expenses such as repairs, Get Insurance
insurance, etc., irrespective of the actual incurred expenditure. So, if you pay Rs 12,000 a month, your
parents will have to pay tax on only Rs 1 lakh. Even if this earning is above the the basic Rs 2.5 lakh
li i (R 3 l kh if h b 60 d R 5 l kh if b 80 f ) k
exempt limit (Rs 3 lakh if they are above 60 and up to Rs 5 lakh if above 80 years of age), you can make
it tax-free.
“The amount above the basic exemption limit can be invested in their name under tax-free Section 80C
options” says Sudhir Kaushik, Co-Founder & CFO, Taxspanner.com.
CALCULATORS
Then:
1. If HRA = Rent paid (Rs 12,000), the maximum deduction you can claim is Rs 9,600 (rent paid less 10% E-BOOK
of basic). So, you pay tax on Rs 2,400.
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2. If HRA > Rent paid (Rs 10,000), the maximum deduction you can claim is Rs 7,600 (rent paid less
10% of basic). Here, the tax liability is even higher. You pay tax on Rs 4,400.
3. If HRA< Rent paid (Rs 15,000), the maximum deduction you can claim is Rs 12,000 (actual HRA).
Here you are paying a higher rent (Rs 3,000) than actual HRA and therefore losing on tax benefits.
4. If HRA < Rent paid (HRA+10% of basic is equal to Rs 14,400), the maximum deduction you can claim
is Rs 12,000 (actual HRA). This is ideal.
**How young earners can grow their salary with their career**
7. SAVE FOR AN EMERGENCY

Caught in the thrill of making money, the urgency to buy things and eagerness to save for bigger goals
like a house and a car, the new earners typically forget the preparation for financial emergencies. Be it
the sudden loss of job, medical eventuality or sudden financial support required by a family member,
you will need to be ready for contingencies.
So the first thing to do, even before you start saving for smaller, short-term goals, is to build an
emergency corpus. This should be equal to 3-6 months of your household expenses, and should also
include any loan repayments and insurance premium obligations. This amount should be invested in
such an avenue that it is easily accessible and is not subject to market fluctuations.
“The best option is to put it in a short-term debt fund, liquid fund or a sweep-in bank account. This will
ensure easy availability and higher rate of interest for your money,” says Maalde.
Some people also prefer to use credit cards to tide over financial emergencies, but remember that these
are useful only if you restrict the credit to one month. Otherwise, the cost of loan will be prohibitively
high and defeat the purpose. So, before you go on a spending spree with your pay cheque, save the
amount for a rainy day.
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Saugata Palit, 24 years, Delhi

Designation: Senior executive
Flying start
CALCULATORS
1. Budgets using Excel sheet. Has short-term goals.
2. Has adequate health insurance.
3. Has high credit score.
E-BOOK
Take-off troubles
1. Fully invested in debt.
2. Has included parents in a family floater plan.
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3. Low exposure on investment tools.
Also Read: How young earners can grow their salary with their career
8. AVOID DEBT TRAPS

You are probably the most vulnerable when it comes to debt traps as you start working. With few
responsibilities and the new-found power of money and credit card, it’s difficult to curb the consumerist
urges. As Pai says, “You should understand the difference between needs, wants and greed.” Credit card
is not the only path to debt hell. Here are the various ways you can plunge into liabilities when you start
working:
If you roll over credit card dues

“When I started earning, I had a card with a limit of Rs 40,000, but I got so carried away that once I
spent Rs 45,000 in a month. That was a wake-up call. I repaid the amount and stopped using the credit
card,” says Palit. He hasn’t carried out a single credit card transaction in the past six months.
Nayyar, on the other hand, has avoided this situation with discipline and smart usage. “I use a mix of
credit and debit cards. The credit card is used only to earn and redeem points,” says Nayyar. He also
makes sure to pay the entire bill every month and has never rolled over the due amount.
This is a cardinal rule for credit card usage. Do not roll over the due amount and repay in full because the
cards charge a very high interest of nearly 3% a month. So if you get a bill of Rs 10,000 and pay only
the minimum due amount of 5%, you will have to pay an extra Rs 21,978 after a year. “Fix a spending
limit for yourself, say, 20% of your income. But if you can’t discipline yourself, use a debit card,” advises
Jhaveri.
“There are so many lucrative offers on cards that people don’t think twice about taking these up. Avoid
buying expensive gadgets on loan even if these comes with 0% interest offers. These will add up and
impact your other investments,” says Iyer.
If you take too many loans

The easy option of buying on credit can be your downfall if you do not set limits. Taking a personal loan
while running loans for a car and a home can strain your finances, making it difficult to invest or save. As
a rule, do not spend more than 40-45% of your income on loan repayments. Of this, 25-35% should be
for home loan repayment and the rest for other forms of debt, including car and credit card loan.
If you take personal loan for spending

Given the ease of securing a personal loan with pre-approved amounts, it is easy to give in to the urge.
Know that personal loan is one of the most expensive forms of loan after credit cards and charges 20-
24% interest per annum. Avoid these at all cost.
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If you buy a house with high EMI

Buying a house is a dream for most new earners, but consider several factors before taking the big
decision. “Know the difference between fixed and floating rate loans and understand how EMIs are
calculated,” says Pai.
Understand that the EMIs for a home loan are big and a long-term commitment. So you need to be sure
of your earning capacity on a sustained basis, otherwise it will turn into a liability that will impact all your
other goals.
If you sign on as a guarantor for a loan

When you are single and employed and have friends you can’t refuse, you can be an easy target for a
debt trap. If you sign on as a guarantor for a friend’s loan, understand that if he cannot repay the loan,
you will be asked to do so. The guarantee amount will show as outstanding liability in your credit card
and affect your loan eligibility. So think twice before agreeing to such an arrangement.
If you don’t budget

If you fail to keep track of your expenses on a monthly basis, there is a good chance that you will run out
of funds before the month ends. You may then have to consider loans to fulfil your needs.
(With inputs from Chandralekha Mukerji)

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mean for private sector employees?
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Are you financially literate? Find out how clear you

are about investing
By Narendra Nathan
Though the financial services industry claims that it is spreading investor awareness, a significant
percentage of educated Indians remain financially illiterate. An online survey conducted by ET Wealth
last month throws up worrying figures. Nearly two out of five respondents (37%) have not heard of
direct plans of mutual funds, and one out of five (21%) believes that SIPs make investments in equity
funds risk free. Direct plans, launched more than three years ago in January 2013, have lower charges and Get Insurance
therefore, offer higher returns to investors. And SIPs help reduce, but not completely remove, the risk of
equity investments.
While ignorance about investment opportunities and the risks they entail can hurt, lack of knowledge
can also put the individual on the wrong side of the law. Two out of three respondents (64.7%) were not
aware that interest from fixed and recurring deposits was fully taxable. Not mentioning this income in
returns or ignoring tax on it could fetch a tax notice.
Though the survey had 865 respondents, the sample was bedevilled by the usual biases. An
overwhelming 91% were males, and 68% of the respondents were below 40. However, the respondents
were evenly spread out when it came to income levels.
At the first level, financial literacy is basic knowledge of money. Since all respondents were graduates
and above, we assumed they were literate at the first level. At the secondary level, financial literacy is
how an individual applies the information he has for monetary gain. For example, an investor is
financially literate if he is able to compare two financial products and choose the one that suits him
more. Financial literacy is also the ability to understand new products, such as the NPS and direct plans
of mutual funds.
Our survey gauges the financial literacy at the second level. We tested knowledge of four widely known
investment products— mutual funds, PPF, NPS and tax-free bonds. We left out bank FD and RDs
because most educated Indians know how they work. Insurance was also kept out of the survey because CALCULATORS
it is not strictly an investment product.
We have also looked at how awareness varies across age groups and income levels. This is important E-BOOK
because each age group and income level is a separate subset. The first age group (below 30) has just
started working while the last group (above 50) is nearing retirement. Similarly, an investor’s need for
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financial products depends on his income level. Why should one bother about tax saving instruments if
his income is not too high?
Knowledge of MFs
Most people know of them, but few really understand.
Almost everybody knows about mutual funds, and only a small segment (8.7%) of respondents said
they were unaware. However, even those who know about mutual funds have grave misconceptions
about what these instruments really are. “Some investors think all mutual funds are alike. They do not
understand that there are several types of schemes, each catering to a different need,” says Suresh
Sadagopan, Founder, Ladder7 Financial Advisories.
There is also a small segment of investors (4.6%) who believe that mutual funds are a scam. These must
be people (or their friends and relatives) who invested when the benchmark indices were at their peak
and sold when panic gripped the market. Some of these investors might also have lost money in mutual
fund schemes due to mis-selling (fund houses were pushing tech schemes in 2000 and infra funds in
2007). The industry needs to make extra efforts to win back the confidence of this disgruntled segment
and make them invest again.
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Direct plans
Direct plans of mutual funds were launched more than three years ago, but two out of five respondents
don’t know about them. As mentioned earlier, these direct plans have lower costs because they are sold
directly to the investor without an intermediary. The difference in the charges can be as high as 100-125
basis points in case of equity funds and 25-50 basis points in case of debt funds. Lower charges mean
these funds offer higher returns to investors than regular plans.
In the long term, a 100 bps higher return can translate into a big difference. “My colleagues from IITs and
IIMs in the finance sector didn’t know about direct plans. When I first told them, they just couldn’t
believe it,” says Sharad Singh, Founder and CEO of Invezta, a portal dedicated to direct plans.
Why are 37% of educated investors unaware of instruments that promise them higher returns? “Fund
houses have not made a significant effort to educate investors about direct plans and their benefits. I
have not seen a single ad for direct plans,” says Singh. The illiteracy about direct plans is more
pronounced in case of low income groups.
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Corporate investors and HNIs have already shifted to direct plans. Younger investors are also not as
aware of these schemes as older investors. This could be because their mutual fund portfolios are
smaller and the benefit of shifting to direct plans is marginal. Nearly 21% of the respondents know about
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direct plans, but prefer to continue with regular plans. Singh believes this is because people do not
understand the impact of commissions on total costs. “There is a misconception about mutual fund
commission. Many investors think that it is a one-time affair and not an annual charge,” he says.
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The benefits of SIPs

The other big misconception relates to systematic investment plans (SIPs). Most respondents (91.8%)
have heard of them, but do not understand them. “Some investors think of SIPs as a separate
investment product. They don’t understand that it is just a mode of investing in mutual funds,” says
Gajendra Kothari, MD & CEO, Etica Wealth Management. Secondly, investors think SIPs are synonymous
with investments in equity funds. This is because the industry has always talked of SIPs in equity funds in
its communication. “Mutual funds talk about equity SIPs and rarely have ad about SIPs in debt funds,”
says Sadagopan.
But these are harmless misconceptions. The big problem is many investors believe that SIPs are a sure
shot success formula. More than 21% of the respondents said SIPs make investments in equity funds risk
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free. This is a fallacy. SIPs only reduce the risk by diversifying across time, but do not completely remove
the risk of investing in equities.
PPF, NPS, tax-free bonds

Not many understand benefits of NPS and tax-free bonds.
The PPF is a widely known instrument and almost two of every three respondents invest in it. Only a
small segment of respondents (5.4%) did not know about it, while the remaining 30% said it didn’t suit
their needs. However, the NPS does not enjoy such a widespread appeal as the PPF. Despite continued
efforts by the government, more than 13% of educated Indians still don’t know about NPS while over
61% say it does not suit them.
Many of those who say the NPS is unsuitable may change their views if they were told about its benefits.
The scheme has the lowest fund management charges among all market-linked investments. Mutual CALCULATORS
funds and new online Ulips charge Rs 1,500-2,500 a year for managing a corpus of Rs 1 lakh. NPS funds
charge only Rs 10.
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The ultra-low costs of the NPS have become a hurdle in spreading awareness about it. “Since pension
funds are not making money, they can’t spend on investor awareness activities. Even if the fund
management charges are raised to 0.25% per year, NPS will remain the cheapest investment product. It NEWSLETTER
will be a win-win for all,” says Sumit Shukla, CEO of HDFC Pension Funds.
The low commission paid to distributors is another hurdle. A distributor gets only a onetime 0.25%
commission for fresh investments, unlike in case of mutual funds which keep paying a trail commission
to the distributor till the amount remains invested. There is, therefore, hardly any incentive for a
distributor to push the product or suggest it to a client. This is despite the tax benefits heaped on the
NPS in successive budgets. The 2015 Budget gave an exclusive Rs 50,000 deduction for NPS while the
2016 Budget has proposed that 40% of the corpus will be tax-free.
Tax-free bonds suffer from the same problem. There is practically no push from the issuers so it is not a
surprise that over 22% of the respondents don’t know about tax-free bonds. “While insurers and fund
houses spread awareness about their products, NPS and tax-free bonds get left behind because of the
lack of push,” says Dinesh Rohira, Founder & CEO, 5nance.com.
How interest compounds

Two out of five respondents did not know.
The impact of compounding is important and investors must have basic knowledge of this concept to
assess the returns from various instruments. Yet, two out of five respondents don’t know how
compounding works. If a bank offers 8% interest compounded quarterly (or 2% per quarter) on its 10-
year deposit, an investment of Rs 1 lakh will grow to Rs 2.2 lakh in 10 years. However, banks often project
this as an effective yield of 12%. “Banks and financial institutions presents the maturity amounts in such
a way that the investor gets taken in,” says Rohira.
Salesmen, especially life insurance agents, use this illiteracy to push financial products. They tom-tom a
very huge maturity amount to make an investment look very attractive. A monthly investment of Rs
5,000 growing to Rs 25 lakh in 20 years may sound lucrative but the returns are only 6.8%.
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Investors also get misled by various power of compounding calculators. Mutual fund salesmen usually
assume a compounded return of 15% to showcase very large final value. “But the compounding NEWSLETTER
calculators show a straight-line increase and don’t capture the possible downside during the investment
period,” says Rohira. If the possibility of volatile returns is not explained upfront, it amounts to
miscommunication and could create problem later.
The power of compounding works not just in investments but in other financial products as well. The
credit card company may charge only 3% interest per month on the balance he rolls over, but the power
of compounding makes it 42.6% annually. Interestingly, the illiteracy is highest among respondents aged
30-40 years. People younger than 30 and older than 40 were more informed.
Awareness of tax rules

Even high income earners harbour misconceptions.
Apart from investment products and calculation of returns, investors should also be aware of tax rules.
Surprisingly, only one out of three respondents know that the interest received on fixed deposits and
recurring deposits is fully taxable. A lot of investors think that since TDS has been deducted on the
interest from their fixed deposits, they need not pay any more tax. “Many people don’t understand that
TDS and final tax liability are separate issues,” says Adhil Shetty, CEO, BankBazaar.
Tax-saving fixed deposits is another cause for confusion. Investors think that since these are tax saving
deposits, the income is also tax-free. Though the taxpayer is eligible to claim deduction for the amount
invested in the tax saving deposit under Section 80C, the interest earned on the deposit is fully taxable.
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The infrastructure bonds issued five years ago offered tax deduction under Section 80CCF, but the
income from them has to be reported and tax has to paid on it. It’s worrisome to note that this illiteracy
exists even among high income earners. More than 60% of the respondents who earn more than Rs 25
lakh a year believe that the interest from bank FDs is not taxable. These investors may get into trouble
because the income tax infrastructure is getting into shape in India and banks are reporting the interest
paid with PAN details.
Even if TDS has been deducted, the taxpayer may have to pay additional tax. TDS is only 10% and if he
earns Rs 5-10 lakh a year, he will have to pay 10% more. If income is more than Rs 10 lakh a year, he will
have to shell out 30% in tax. To be sure, this is more a literacy issue and not a deliberate attempt to
evade tax. Even so, if he has not paid tax on fixed deposit interest, the taxpayer may get a tax notice and
may have to pay a penalty for non-payment of tax.
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Need for diversification
Too few stocks and too many mutual funds may not be of much use.
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Diversification helps reduce risk by spreading the portfolio—across sectors, across a basket of securities
or even across asset classes. However, not many respondents understood the meaning or impact of
diversification. A majority (54%) believed that diversification will not reduce risk. Even some of those NEWSLETTER
who said that diversification reduces risk have not fully understood the concept.
About 15-25 stocks and around five mutual funds schemes are enough for reasonable diversification of
the portfolio. While a majority of the respondents got this right, a good 31% said that five stocks are
enough to diversify the portfolio. Five stocks will certainly not diversify.
On the other hand, most respondents (75%) were aware that five mutual funds were enough to give a
reasonable level of diversification to the portfolio. Even so, one out of four respondents believes that
you need 10-25 schemes to diversify the portfolio. Such a large number of funds will not diversify but
add to the investor’s paperwork. Most schemes in a category follow the same benchmark indices and
therefore, have nearly the same portfolios. Holding 10-15 schemes that hold the same stocks is a
meaningless exercise.
Understanding the concept of inflation is critical in financial planning. “Everyone experiences inflation.
They understand it too, but don’t consider its impact while planning for the future,” says Jitendra Solanki,
Registered Investment Adviser. They try to attain future goals based on current costs. A 4-year
engineering degree costs around Rs 8 lakh now, but in 10 years the cost would have escalated to around
Rs 30-35 lakh. Barely 44% of respondents understood the full impact of inflation.
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How to go for householder’s insurance
By Sanjeev Sinha.
CALCULATORS
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If you thought that you have ensured your peace of mind by opting for householder’s insurance, which
will take care of the most valuable possession of your life – your house -- better do a reality check.
Chances are that you may not get compensated adequately (or in some cases not at all) in the event of
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any mishappening, particularly if you just missed out something before signing on the dotted lines.
This has already happened in many cases. Still consumers are not getting any wiser. They still think that
getting one’s house and valuables insured is as simple as buying a life insurance cover or taking a money
back policy for one’s kid. Sadly, however, that’s not the case. According to experts, there are lots of
precautions which need to be taken while opting for householder’s insurance. Here they go:
1) Insure on a reinstatement basis
In householder’s insurance, the most important thing to consider is the valuation of one’s property and
valuables. For instance, one should not insure one’s home at the market value which really reflects the
cost of land not of construction, or at the price one bought it, say, ten years ago, as the price of
construction materials like cement has gone up considerably. Instead building and FFF (furniture, fixtures
and fittings) should be insured on a reinstatement basis because in the event of a loss, both would have
to be replaced at today’s cost of construction or replacement. This way, in case of any mishappening, you
would be able to replace your loss fully without bearing any depreciation.
Pavanjit Singh Dhingra, CEO, Prudent Insurance Brokers, says, “Many people incorrectly insure their
homes, and even their offices or factories, either on the market value or the book value -- the price they
originally paid for it. In the first instance, they end up taking a higher sum insured, while in the second,
they underinsure their property, resulting in claims being paid as per the average of the underinsurance.”
You should, therefore, avoid doing that.
2) Insuring on a ‘per sq ft’ basis
One of the easiest ways to insure the structure is on a ‘per square foot’ basis. For example, if one has a
2,000 sq ft home and the replacement cost of a new house is about Rs 1,000 per sq ft, then one must
insure the house for Rs 20 lakh. The cost of land must not be taken into the sum insured. For this, one
need not have a professional valuation done or justify the sum insured. In any case, adequacy of sum
insured is only measured against replacement cost on the date of loss.
3) Insuring household goods
Household goods should not be insured at the purchase (book) price, as adjustment for depreciation
would result in very little claim being paid. It is also not always easy to know the replacement cost. So
one may have to use approximations and also keep a list of contents separately (not in the home) so
that if there is a major loss, one knows what all the items at home were. One should also make sure that
the RIV (reinstatement value) Clause is written into the policy so that the paid claim is adequate to
rebuild and refurnish one’s home.
4) Insuring electronic items

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Today, with many homeowners owning expensive PCs, plasma TVs, DVD players, music systems, home
theatre systems and other electronic gadgets, it makes sense to consider insuring these items for
breakdowns. For this the EEI (Electronic Equipment Insurance) cover can be taken under a separate
section in home insurance policy by listing the electronic items required to be covered and paying the
necessary premium.
The sum insured should be the present day replacement value. EEI, in fact, is an ‘all risk’ cover as it covers
electrical and mechanical breakdown, fire, accidental damages, water damage, etc. and can be taken for
electronic equipment up to five years old. One point, thus, to be noted here is that it does not make
sense to insure electronic equipment which are more than five-year old!
5) Description of the items covered
While covering durables and other electronic and electrical appliances, it is important that description of
the items covered, such as make, model and serial numbers, is mentioned in the policy. For instance,
instead of mentioning ‘refrigerator’, mention ‘Samsung Refrigerator, 175 ltrs, Sr. No. DL-6958E0Z’.
6) Getting jewellery/precious stones insured
Jewellery/precious stones are covered under a separate section against all risk coverage. For instance, if
you are getting your jewellery insured, the detailed description of the jewelry should be clearly CALCULATORS
mentioned in the policy. “The insured should get the valuation of the items covered done and should
submit to the insurer. Photographs of the jewellery should also be made a part of the policy,” says Rahul
Aggarwal, CEO, Optima Insurance Brokers.
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If these steps are taken, the original receipts of the jewellery, if they have been lost, will not be required.
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Otherwise, you will have to submit the same at the time of making any claim. Also, if there is any cash or
jewellery to be insured beyond value of Rs 10,000, the same needs to be specifically declared and
incorporated in the policy.
7) Insure entire apartment complex
In apartment complexes, where there are many owners, it does not make sense for individual owners to
insure their homes. In this case, the society or association should insure the entire complex at the
reinstatement value – i.e. the present cost of constructing the same building. For example, if a building
was constructed 12 years ago at Rs 500 per sq ft, its book value would be Rs 500 per sq ft less
depreciation. Many people, however, erroneously believe this is the value at which it should be insured.
The present cost of constructing the same building – the RIV -- could be, say, Rs 1,000 per sq ft, leading
to significant under insurance at the time of a claim.
An apartment complex not only includes flats, but also substantial common areas and amenities. These
also need protection. Besides, group discount can be given in case of insurance for the entire apartment
complex which can reduce the premium.
8) Rented accommodation
In the case of rented accommodation, the tenant may be required to insure the property if it is part of
his lease agreement (contractual requirement). Otherwise, the house may be insured only against the
contents as well as leasehold improvements such as additions of false ceilings, partition walls,
renovations to the bathroom, etc, as these are expenses borne by the lessee. If one gives a list of items
insured, then one must be aware that only the items listed are covered. Alternately, one can give a lump
sum value of the sum insured without disclosing the sum insured of each item.
9) Stand-alone structures
For stand-alone structures -- such as properties purchased more for long-term investment than as a
place of residence -- long-term policies of 10 years can be purchased either at significant discounts or
with a provision for an inbuilt annual increase in sum insured. Premium rate is less than Rs 2 per day for a
house with an RIV of Rs 10 lakh for fire and burglary risk.
10) Additions and Alterations add-on cover
Those who may be making significant additions and alterations to their homes during the term of the
policy can take an omission to include Additions and Alterations add-on cover, which can be up to 5 per Get Insurance
cent of the sum insured. If no additions or alterations are made during the policy term, the amount paid
for this cover is refunded.
11) Workman Compensation Insurance
Usually, most home owners do not think of taking Workman Compensation (Employer's Liability) policy,
because they don’t know they can be held liable for the accidental death of or bodily injury to a domestic
servant. HNI and foreigners employing domestics are at higher risk from their servants and their families.
Workman Compensation Insurance is inexpensive and provides cover for liability under the Workman's
Compensation Act, the Fatal Accident Act, and common law.
12) Burglary insurance
These days burglary has become an unpleasant reality of urban living, even in residential complexes
which provide security. With higher incomes and greater travel, both for work and pleasure, homes are
often unoccupied for long periods of time. While we all need to take precautions, burglary insurance can
indemnify us when our valuables are burgled.
Under this cover, however, there is a policy condition that the home must not be unoccupied for more
than one month. So ensure that a servant or family member occupies your home in your extended
absence. However, better be aware that if an employee or family member is the burglar, the claim will
get rejected!
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FAQs about life insurance coverage during

pandemic times
Here are some answers to some common queries a life insurance policy holder might have about
coronavirus.
Life Insurance arrived in India with the Europeans in 1870 and since then has grown in leaps
and bounds to cover the natives of India. Life insurance has since covered all aspects of death,
including the new pandemic-coronavirus COVID-19. A few pointers have been given below on
helping understand the extent of coverage against COVID-19. Read on... Get Insurance
1. Do life insurance policies provide coverage against coronavirus?

Yes, they do. The WHO has declared COVID-19 to be a ‘controllable pandemic’. So, all
nominees or claimants will get their dues as per the claim. Logically COVID-19 is just another
disease, so if someone happens to die from it, their nominees get the ‘assured sum’ or claim
amount as mentioned in the policy. Insurance companies the world over, including India, are
honouring such claims. To be doubly sure, request a confirmation document from your agent
or insurance company stating that you are eligible for all claims as per the policy, irrespective
of whether COVID-19 is involved.
Related: Does your life insurance policy cover death due to COVID-19?
(https://www.tomorrowmakers.com/life-insurance/does-your-life-insurance-policy-cover-
death-due-covid-19-article)
2. Can I buy a life insurance policy without undergoing a corona test?

Since we are smack in the middle of a pandemic, you cannot purchase a policy without a
mandatory check-up. The fact is that life insurance companies need to be in business and
hence have to provide all the benefits the nominees or claimants are eligible for upon the
death of the policyholder (or the ‘assured amount’ if the insurance is more than 40 years,
whichever is later). If someone buys a life insurance and ends up with COVID-19 within 15 days
and dies, it would mean a loss for the insurance company. So, if you express a wish to buy a CALCULATORS
policy, you will be asked to undergo a COVID-19 test. If you test positive, there will be a
‘cooling off’ period of 15-30 days, after which the sale of the insurance policy is formalised,
and comes into effect after a month of paying the first premium. E-BOOK
Do not skip any questions your agent or company may ask. Answer them with due diligence
and honesty. So, if and when a real claim has to be made and the company finds out that you NEWSLETTER
have dodged a check-up or been dishonest with your answers, the claim process would get
unnecessarily prolonged. So, when you buy life insurance, complete all mandatory blood tests
to get assured peace of mind. If you do this, your loved ones won’t face any trouble when
you’re gone; they can continue to enjoy the standard of life they are used to.
Related: FAQs about coronavirus insurance settlement

(https://www.tomorrowmakers.com/health-insurance/faqs-about-coronavirus-insurance-
settlement-article)
3. Will I be eligible for a claim for coronavirus treatment if I have not updated my life
insurance policy to include COVID-19?
Your life insurance policy is not a health insurance policy. So for treatment you would need a
COVID-19 insurance policy or Corona Kavach Insurance Policy or a health insurance policy that
covers all diseases including COVID-19. One must remember that coronavirus is fairly new,
and standardising coverage across insurance companies could take time. Do not take things
for granted; read the terms and conditions of the health insurance policy carefully before you
buy it. Please note that the Government of India has standardised a COVID-19 insurance
policy to be provided by all health insurance companies, where the premium is not too high
(around Rs 3000 for 9 months) and covers COVID-19 treatment.
Related: Are unprecedented pandemics covered under health insurance?

(https://www.tomorrowmakers.com/health-insurance/are-unprecedented-pandemics-
covered-under-health-insurance-article)
4. Will I need to pay more premium for coronavirus coverage?

If you are an existing life insurance policy holder, you don’t need to pay an extra premium. Life
insurance covers all diseases, including coronavirus. All you need is a confirmation from your
life insurance provider that the policy covers COVID-19. However, if you are buying a new
policy, the insurance company will make you undergo a series of health check-ups and
provide a questionnaire related to COVID-19. Once the tests confirm that you are corona-free,
your policy comes into effect after one month of the first premium payment . T here is a cost
factor involved in treatment for COVID-19, so the premium amounts of most insurance
companies have naturally gone up.
5. Will my nominees or claimants get a full claim after my death if it is discovered that I had
corona?
Yes, they will. So don’t worry; continue paying your premiums and feel happy that you have an
insurance cover that will cover COVID-19, just like other non-communicable diseases such as Get Insurance
diabetes or arthritis.
Last words
COVID-19 or coronavirus is here to stay for a while, and the world is gradually preparing for
the ‘new normal’. It is important that we realise the high cost of medical treatment in India
and ensure that every family member has an insurance shield. Above all, don’t forget to wear a
face mask while in public and maintain safe social distancing at all times.
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CALCULATORS
ET Wealth ratings: Comparison of 10 tax-saving E-BOOK
investments under Section 80C

NEWSLETTER
A colleague has advised Rohan Vinayak to invest in ELSS funds to save tax. His bank manager says an
insurance policy is a better idea. Vinayak’s father wants him to go for the time-tested PPF. The
Bengaluru-based software professional is confused, but he can’t afford to lose time. “I have to show
proof of my tax-saving investments by the end of this week or my company will deduct a very high tax,”
he says.
ET Wealth’s annual ranking of tax-saving instruments can resolve Vinayak’s dilemma. We have assessed
10 tax-saving instruments on eight key parameters—returns, safety, flexibility, liquidity, costs,
transparency, ease of investment and taxability of income. Each parameter is given equal weightage and
the composite scores of the various options determine their rank.
Our cover story tells Vinayak why he should junk his banker’s advice. Insurance policies are definitely the
worst way to save tax. They have consistently ranked lowest since the ET Wealth ranking was started
four years ago. However, though insurance plans give very low returns of 4-5%, they also inculcate a
saving discipline that is so essential for building long-term wealth. Policyholders diligently pay the
premium for 20-25 years to keep their policies in force and reap a huge corpus on maturity. It’s no
surprise then that insurance policies have helped people build property, pay for their children’s education
and marriage and live comfortably in retirement.
In contrast, ELSS funds have given terrific returns in recent years, but very few investors stay put for the
long term. Amfi data shows that almost 35% of investments in equity funds by small investors are
redeemed within a year. Another 17% are redeemed within two years, and only 48% are held for more
than two years. So, while ELSS funds can give very good returns, they will not make wealth for you if you
plan to exit after the three-year lock-in.
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1. ELSS Funds
Returns: 13.62% (Last three years)
Our rating: 5 star
Our rating: 5 star
Equities had a terrific 2017, and the rally has continued into the new year. The average ELSS fund rose
36% during 2017, and even the long-term performance is fairly decent. The category has given 18%
compounded returns in the past five years. Investors have seen their wealth double in a little over four
years. What’s more, the returns are tax free because long-term capital gains from equity funds are
exempt from tax.
While ELSS funds look attractive, the elephant in the room is the all-time high level of the market. The
Nifty is trading at a PE of almost 27 and many analysts have advised investors to be cautious. Others say
that expectations of returns from equities need to be toned down. Given the high levels of the markets
right now, don’t expect equity funds to repeat the performance of the past 1-2 years in 2018.
Some investors have stopped their SIPs in ELSS funds because markets are high. “I will restart SIPs when
markets correct,” says Mumbai-based Abhishek Tewari. We believe stopping SIPs for a few months will
not make a significant difference to his overall returns. Tewari should continue his SIPs regardless of
market levels.
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In Pic: Abhishek Tewari 28 Years, Mumbai NEWSLETTER
An aggressive investor, he invests in ELSS funds to save tax. But he is also a careful investor and invests
through SIPs of Rs 5,000 per month.
Smart tip: Avoid investing large sums in ELSS at one go. Take the SIP route for best results.
At the same time, investors like Vinayak should avoid putting a large amount in ELSS at one go. He
needs to invest Rs 1.16 lakh in taxsaving options this week and putting the entire sum in ELSS funds at
one go can be risky. Ideally, he should stagger his investments over the next 2-3 months. But he does
not have the luxury of time and should, therefore, opt for some other tax-saving option this year instead
of ELSS. Here are a few other things that ELSS investors should keep in mind.
Though they offer the same tax benefits, not all ELSS funds are the same. Some are more adventurous
and invest a larger portion of their corpus in small- and midcap stocks. This can be risky in the short and
medium term but also rewarding in the long term. Others are relatively more conservative and line their
portfolios with stable large-cap stocks. We have classified ELSS funds into three broad sub-categories
(see tables). Choose the one that best suits your risk appetite.
The Best ELSS Funds
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Don’t base your choice on a fund’s shortterm performance. The stability of returns is more important
than the quantum of gain. Look at the 3-year and 5-year performance of the scheme before you make a
choice. Small investors often treat ELSS funds as short-term investments and exit after the three-year
lock in period. Look at ELSS funds as regular equity funds that should be held for the long term.
If you are investing for the long term, don’t go for the dividend option. Dividends are just another way of
booking profits because the amount received gets deducted from the NAV. The dividend reinvestment
option is even worse. Every time the fund gives out a dividend and reinvests the money into your
account, the three-year lock in period starts all over again. In effect, you are locked in for perpetuity.
CALCULATORS
2. Public Provident Fund

Returns: 7.6% (For Jan-March 2018) E-BOOK
Our rating: 4 star

Small savings rates are linked to the government bond yields in the secondary market. PPF rates have
NEWSLETTER
progressively come down in the past two years, mirroring the decline in bond yields. The PPF rate was
cut recently by 20 basis points and could fall further in the coming months. Despite the rate cut,
advisers say the PPF remains a good bet because the interest is tax free. The tax-free status of the PPF
gives it a distinct advantage over fixed deposits. The interest from fixed deposits is fully taxable, which
brings down the returns to barely 5% in the highest bracket.
PPF rates have steadily come down in past few years
On the other hand, since consumer inflation is below 4%, the PPF offers a healthy real return of more
than 3%. “This is quite impressive for an option that offers assured returns,” says Amol Joshi, Founder,
PlanRupee Investment Service. “Investors should continue to take advantage of this long-term tax-free
product,” he adds.
Besides the returns and taxability, the PPF scores high on safety, flexibility and ease of investment. An
account can be opened in a Post Office branch or designated branches of PSU banks. Some private
banks also offer the facility to invest in the PPF. Opt for a bank that allows online access to the PPF
account. Deposits can be made throughout the year, but an investor must deposit at least Rs 500 in a
year.
However, there is a better alternative available to salaried taxpayers covered by the Employees’
Provident Fund. Although an individual’s contribution to the EPF is linked to the salary, one can opt for
the Voluntary Provident Fund (VPF). The VPF offers a higher rate (8.65% for 2016-17) compared to the
PPF and contributions are eligible for the same tax benefits. But this option can be exercised only at the
beginning of the financial year or in October.
Smart tip: Invest through a bank that allows online access and investment in the PPF account.
3. Senior Citizens’ Saving Scheme Get Insurance

Returns: 8.3% (For Jan-March 2018)
Our rating: 4 star
Small savings rates have been cut, but the Senior Citizens’ Savings Scheme has been spared. At 8.3%,
this is the best option for retirees looking for regular income in their golden years. The highest rate
offered to senior citizens by banks is 7.7%. The tenure of the scheme is five years, which is extendable by
another three years. However, there is a Rs 15 lakh overall investment limit per individual. Also, the
scheme is open only to investors above 60. In some cases, where the investor has opted for voluntary
retirement and has not taken up another job, the minimum age is relaxed to 58 years. There is also no
age bar for defence personnel. There is also a clause allowing premature exits. If closed before two years,
the investor has to pay 1.5% of the balance in the account. After two years, the penalty is lowered to 1%
of the balance.
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In Pic: Rajiv Mathur 62 Years, Delhi
The Senior Citizens’ Saving Scheme is a good option for retirees looking for regular and assured income E-BOOK
in their golden years.
Smart tip: Stagger investments across several financial years to create a ladder of deposits and optimise
NEWSLETTER
tax benefits.
4. Sukanya Samriddhi Yojana

Returns 8.1% (For Jan-March 2018)
Our rating: 4 star
For taxpayers with a daughter below 10 years, the Sukanya Samriddhi Yojana is a good way to save.
Although the interest rate has been reduced to 8.1%, it is still higher than what the PPF offers. Just like
the PPF, the interest earned is tax free and there is an annual cap of Rs 1.5 lakh on the investment.
Accounts can be opened in any post office or designated banks with a minimum investment of Rs
1,000. A parent can open an account for a maximum of two daughters, but the combined investment in
the two accounts cannot exceed Rs 1.5 lakh in a year.
Some experts argue that the debt-based Sukanya scheme is not the best way to save for a long-term
goal. This is true, because equity-based options can deliver higher returns. This is why experts advise that
the SSY should be used in combination with other investments, such as equity funds, for saving for a
child's future goals. The good part is that the girl child tag lends a sense of purpose to the investment.
The maturity proceeds of other investments are often squandered. On the other hand, the Sukanya
scheme helps a family save the daughter's education and marriage.
In Pic: Saurav Kumar 32 Years, Bengaluru
He puts Rs 25,000 every year in the Sukanya scheme for the education of his 2-year-old daughter. The
scheme offers higher returns than PPF.
Smart tip: Open a Sukanya account in a nationalised bank to make it easier to transfer to the child.
5. National Pension Scheme

Returns: 9.5% (Past three years)
Our rating: 3 star
The NPS can help save tax under three different sections. Firstly, contributions of up to Rs 1.5 lakh can be
claimed as a deduction under the overall Sec 80C. Secondly, there is an additional deduction of up to Rs
50,000 under Sec 80CCD(1b). Thirdly, if the employer puts up to 10% of the basic salary of the
individual in the NPS, that amount will not be taxable.
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The trinity of tax benefits has attracted a lot of investors to the pension scheme. However, many are still
put off by the fact that NPS is not completely tax free Only 40% of the corpus is tax free on maturity
put off by the fact that NPS is not completely tax free. Only 40% of the corpus is tax free on maturity.
Also, on maturity, the NPS forces the investor to put 40% of the corpus in an annuity to earn a monthly
pension. This pension is treated as income and is fully taxable.
For young investors like Vinayak, the long lock-in period is also a deal breaker. NPS investments cannot
be withdrawn before retirement, except in some exceptional circumstances and for specific needs.
However, experts say the long lock-in period is a blessing in disguise. “When the purpose is to save for
old age, it is necessary to discourage early withdrawals,” says Kulin Patel, Head of Retirement, South Asia,
Willis Towers Watson.
The twin rallies in equities and bonds have helped the NPS churn out good returns in the past few years.
Aggressive investors who put the maximum 50% in equity funds have earned the highest returns. But
this performance may not sustain in the coming months. NPS funds have lined their portfolios with
long-term bonds which have not given good returns in recent months. And equity markets are looking
overvalued. Even so, investors can expect better returns from NPS than pure debt products.
Rewarded by the markets

The stock market rally has boosted returns of aggressive investors who bet on equities
CALCULATORS
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In Pic: Gauri and Mukul Pandit 30 and 31 Years, Delhi
Both invest Rs 50,000 in the NPS to save tax beyond Sec 80C. They have opted for the lifecycle fund
option that reduces equity exposure as the individual grows older.
Smart tip: Don't be too conservative when investing for the long term. A balanced exposure to all
categories works best.
Also Read: Your tax-saving guide for FY17-18
6. ULIPs
Returns: 9.9-11.9% (Past five years)
Our rating: 3 star
Despite attempts by distributors and insurance companies, the perception about Ulips has not changed
much. Investors still consider them very costly and financial advisers continue to hold them in contempt.
But it is time to bury the shady past of Ulips. New Ulips launched by insurance companies are low on
costs, which translates into better returns for investors.
Morningstar data shows that aggressive Ulip plans earned over 20% in the past one year. That may not
appear impressive compared to the 30-35% that equity mutual funds earned for investors. The 11.96%
returns from Ulips in the past five years are not even a patch on what equity funds have earned since
2012. Besides, some of the charges of the Ulip are not deducted from the NAV so the actual returns for
the investors may be even lower.
But Ulips have one distinct advantage over mutual funds. Switching from equity to debt or vice versa
does not have any tax implications. Being insurance policies, the income and capital gains from these
plans is tax free under Section 10(10D). This makes a Ulip a convenient rebalancing tool for investors
who reset their portfolio’s asset allocation every year.
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They will also be useful for investors wanting to put money in debt funds but are deterred by the
taxation of short-term gains. The minimum period for long-term capital gains from debt and debt-
oriented funds has been increased from one year to three years. If held for less than three years, the
gains are added to your income and taxed at the normal rate. But there is no tax on short-term gains
from Ulips.
You can also park short-term money in the liquid fund of your Ulip using the top-up facility.
How Ulips fared
Smart tip: If investing large sum, opt for liquid or debt fund of the Ulip and gradually shift the money to
CALCULATORS
equity funds.
What to see in a Ulip

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CHARGES: The most important consideration. Some charges are built into the NAV while others are
levied by deducting units. Look up all charges mentioned in the brochure.
FUND OPTIONS: Look at the various fund options available. There are three basic funds: equity, debt
NEWSLETTER
and liquid, but some insurers offer hybrid funds and other options.
SWITCHING: Know how much the Ulip will charge for switching from one option to another. Normally
3-4 switches a year are free, though some offer up to 12 free switches.
WITHDRAWALS AND TOP UPS: Find out rules relating to top up investments and withdrawals from
policy.
COVER: Be sure whether your Ulip will pay only the sum assured or also the fund value in case of a
mishappening. Some Ulips pay only the sum assured, though their premium is also lower.
7. NSCs
Returns: 7.6% (For Jan-March 2018)
Our rating: 3 star
The interest rate of the NSCs has been reduced to 7.6%, but are still more than what bank fixed deposits
offer. The NSCs also have a sovereign backing. NSCs fell out of favour when bank rates were higher at 9-
9.5% a few years ago. But deposit rates have now fallen to 6.5-7%, though senior citizens get higher
rates. This makes the NSCs more attractive than bank deposits.
What’s more, the interest earned on the NSC is also eligible for deduction under Section 80C in the
following years. Here’s how this works. Suppose an investor buys Rs 50,000 worth of NSCs in January
2018. One year later, the investment would have earned an interest of about Rs 3,800. The investor can
claim deduction for this Rs 3,800 for the year 2018-19. The next year, the investment would earn about
Rs 4,100 in interest. This can be claimed as a deduction in 2019-20.
This is especially useful for investors in the 5% tax bracket who are not able to fully exhaust the Rs 1.5
lakh investment limit under Sec 80C. The tax deduction available on the interest effectively makes it tax
free for such investors.
There have been some changes in the rules for non-resident Indians investing in small savings schemes
lately. NRIs are no longer allowed to invest in these instruments. The PPF account of an individual will be
deemed closed from the date he becomes an NRI and he would get only 4% interest from that date
onwards. Similarly, NSCs will be deemed to be encashed by the holder on the day he becomes an NRI.
Smart tip: Create a ladder of NSCs so that after they mature the proceeds can be reinvested to earn
benefi ts.
8. Pension Plans
Returns: 7-10% (For past one year)
Our rating: 2 star
The emergence of the NPS has pushed pension plans from insurance companies into oblivion. Unlike
the new Ulips where charges have come down significantly, the pension plans from insurance
companies continue to have high charges. Interestingly, these pension plans are more lenient than the Get Insurance
NPS when it comes to deploying the maturity proceeds. NPS investors have to compulsorily put 40% of
the corpus in an annuity. Some pension plans don’t have such restrictions, while some others require
only 25% to be put in annuities. But on the other hand, only 33% of the corpus is tax free on maturity,
compared with 40% in case of the NPS.
According to a recent RBI report, the population of Indians above 65 years old is expected to grow by
75%. The report also points out that only a small fraction of this age group has saved in private pension
plans and a large segment of the total population has not actively taken steps to ensure adequate
financial coverage during retirement.
Insurance companies believe that the tax treatment of annuities and pension income is one of the main
reasons why people don’t invest in pension plans. “There might be several reasons for people not saving
for retirement but the taxability of pension plans is certainly one of them,” contends Tarun Chugh, CEO
and Managing Director of Bajaj Allianz Life Insurance.
Right now, if an investor does not buy an annuity on maturity, 66% of the corpus of the pension plan is
taxed. Even the pension from the annuity is treated as income and taxed accordingly. “Both these tax
rules should be relaxed as far as possible in the coming Budget which will give a boost to the entire
pension space and encourage Indians to plan for a worry-free retirement,” adds Chugh.
Smart tip: Rebalance pension plan portfolio periodically to restore original asset allocation, thus reducing
risk.
CALCULATORS
9. Bank FDs
Returns: 7 to 7.7%
E-BOOK
Our rating: 2 star
Their interest rates have fallen significantly and the income is fully taxable. Yet tax-saving bank fixed
deposits are a good choice for the Rip Van Winkles who left their tax planning for the last minute and are
NEWSLETTER
now running around to beat the deadline. Vinayak has to show the proof of investment under Sec 80C
by the end of this week or his company will deduct a very high tax from his January salary.
For such taxpayers, the Netbanking facility is a godsend. Even if the bank branch has closed for the day,
his tax planning can be done in a matter of minutes. All he has to do is open a tax-saving fixed deposit
and show the proof of investment to your company.
We are suggesting bank fixed deposits for the simple reason that he cannot go wrong in these
instruments. Sure, the income is taxable and the post-tax returns will be barely 5.5%. But at least
Vinayak won’t end up buying a low-yield life insurance policy or an unsuitable pension plan.
These fixed deposits are also suitable for senior citizens who might already have hit the Rs 15 lakh ceiling
in the Senior Citizens’ Saving Scheme and don’t want to lock in money for the long term in a PPF
account. Though NSCs offer higher rates than most banks, they still require the investor to visit the post
office. Bank deposits can be done online.
Keep in mind that the interest from such deposits has to be reported in the tax return next year. Many
investors have the misconception that up to Rs 10,000 earned on bank deposits is tax free. The
exemption under Sec 80TTA applies to savings bank interest only. Income from fixed deposits is fully
taxable and should be mentioned in the income tax return of the individual.
The best tax-saving FDs

More than 50% of their corpus is in mid and small-cap stocks. Expect good growth.
Smart tip: Opt for the quarterly or yearly interest payout option if you don't want to lock up your money
for five years.
Get Insurance
10. Insurance
Returns: 4.5-5%
Our rating: 1 star
It is no surprise that life insurance policies are at tenth place in our ranking of tax-saving options. Life
insurance is the bulwark of a financial plan because it safeguards all the goals of the individual even if he
is not around. But this purpose is best served by a pure protection term insurance plan rather than a
costly traditional policy that gives back money at periodic intervals or provides a huge corpus on
maturity.
Traditional policies yield barely 4-5% returns but investors are attracted to them because the agent
quotes a very high maturity figure. Buyers don’t realize that there is a time value of money. If an
insurance policy will give Rs 40 lakh in 20 years, even 6% inflation would pare down its value to less
than Rs 12 lakh.
Manoj Srinivas is not able to save for other goals because he pays a very high insurance premium for a
policy that covers him for less than his annual income. He should surrender this policy or turn it into a
paid up plan. This will free up Rs 1 lakh a year, which can be put to good use elsewhere. A term cover of
Rs 1 crore will cost him around Rs 10,000-14,000.
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NEWSLETTER
In Pic: Manoj Srinivas 32 Years, Hyderabad
He pays Rs 1 lakh premium for a cover of Rs 5 lakh, though a term plan can cover him for Rs 1 crore at a
cost of only Rs 12,000-14,000 a year. The high premium outgo prevents him from investing for other
goals.
Smart tip: A pure protection term insurance plan can provide a large cover at a very low cost.
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Life insurance: Understand survival benefit,

maturity benefit and death benefit
An account of life insurance benefits on survival, maturity, and death, and how to select a policy
that’s right for you.
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Those who seek peace of mind and wish to be prepared for any unforeseen eventuality should avail of a life
insurance policy. The Insurance Regulatory and Development Authority of India (IRDAI) has mandated that all
insurance companies in India give customers an illustration of the annual returns. This allows them to be better
prepared as they can know the approximate rate of returns at the time of buying the policy.
The illustrations specify two scenarios:
1. An approximate lower limit of interest (6%)

2. A higher limit of interest (10%)
However, the rate of returns is not guaranteed.
Choose your premium and payment method
The illustrations explain the interest the customer earns from the first year through to the final year, or on
maturity of the policy.

The premium can be paid monthly (deducted directly from your monthly salary), bi-monthly, quarterly, half-
yearly or annually, as per the choice of the policyholder.

At the time of buying life insurance, one can choose a plan that best suits their needs.
They can decide on the correct premium based on their earnings.
CALCULATORS
The 3 types of benefits
Survival benefit: Maturity of the policy in 40 years or the policyholder attaining the age

of 80 years, whichever is later. The sums are paid in intervals to the policyholder. If the E-BOOK
policyholder dies during the plan tenure, after receiving survival benefits, the full
benefits are handed over to the nominees.
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Maturity benefit: The policyholder enjoys the full benefit of the insurance on attaining
maturity, depending on the term mentioned, for example 80 years of age, or 40 years
from the commencement of the policy, whichever is earlier. The duration of the maturity
term varies and depends on what the insurance company offers. The benefits of the
policy for the nominees or survivors remain the same as mentioned at the time of
buying the insurance.
Death benefit: In this case, the survivors/next of kin or the nominees receive the
emoluments due to the demise of the policyholder, from the time the policy
commences. The sum assured plus all the bonuses are paid in a lump sum to the
nominees.
Related: Maturity benefits: what you need to know when buying insurance (https://www.tomorrowmakers.com/life-
insurance/maturity-benefits-what-you-need-know-when-buying-insurance-article)
Bonuses
LIC declares a bonus at the end of a financial year based on the profits the business earns, a portion of which is
passed on to the policyholder. A bonus once declared forms a guaranteed return for that year. An additional
bonus may be declared as a reward if the premiums have been periodically paid over a certain period of time.
Additional benefits
These need to be bought in addition to the base insurance, such as burial cost or accident and dismemberment
cost. They add utility and extra benefits to an insurance policy .
Guaranteed surrender value
The guaranteed surrender value is the amount guaranteed to the policyholder in the event that the policy is
surrendered prior to maturity. The penalties are specified for surrendering.
Related: Do not skip Accidental Death Benefit rider (https://www.tomorrowmakers.com/life-insurance/do-not-skip-
accidental-death-benefit-rider-article)
5-point insurance checklist
1. Research before buying the right policy, then call an agent or speak to customer service to discuss the salient
features of your chosen plan.
2. Thoroughly read the terms and conditions and make sure you are aware of the expenses you will have
to make to service the policy.
3. One has 15 days to study and decide whether their purchase is ideal. A change is allowed if the customer is
not comfortable with their current purchase, or is allowed a cancellation.
4. Decide on the most suitable premium paying options (monthly, bi-monthly, annually) before settling for one.
5. Don’t hide personal information like medical history, as making a claim can be difficult if this comes to
light later. Be honest in filling out the medical criteria thoroughly.
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Related: Why is Life Insurance one of the most preferred Investments with benefits
(https://www.tomorrowmakers.com/life-insurance/why-life-insurance-one-most-preferred-investments-benefits-
ti l )
article)
Last words
Life insurance is no doubt a necessity today. We need to ponder at length on what kind of insurance we need to
buy. Make sure you read about the different insurance policies available before buying one that’s ideally suited
for you Life insurance types simplified (https://www tomorrowmakers com/life-insurance/life-insurance-types-
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Eight health insurance myths debunked CALCULATORS
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NEWSLETTER
By Sunil Dhawan
Even before one starts investing for long-term goals, it is important to get health insurance cover for
oneself and family members. A hospital exigency may result in breaking (through surrendering or
exiting) one’s existing investments to meet the expenses. This can be avoided if there is a health
insurance cover.
At the same time, there are certain myths around health insurance which might deter one from taking an
informed decision. Here are some common myths busted:
1. I am young and healthy. I don’t need health insurance.
In fact, the right time to buy a health insurance cover is when you are in the pink of health and leading a
fit life. At times, certain ailments remain unknown to us until their symptoms are visible. As per
regulations, such pre-existing ailments are covered after at least 48 months of holding a health policy.
Therefore, buying early, before one develops any diseases, would help ensure that one’s health is insured
without any such exclusions..
By and large, a health insurance policy bought at an early age and renewed regularly for several years
without any claim should lead to a better claim experience as and when it arises.
Further, health insurance is not just about illnesses and diseases. It is a universal truth that accidents may
happen any time and at any age. A health cover would come in handy in case of such an event.
2. The cheapest policy is the best policy
While buying a term life insurance plan which is low-cost and high-cover may be recommended in
many cases, an attempt to find o the cheapest health plan may not be the right approach. It is
improbable that one would find two plans with similar features to make a comparison based on
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premium. The low-cost plans may not include all features or may have restricted features.
Most health insurance plans nowadays go above the basic version While the basic version caters to the
Most health insurance plans nowadays go above the basic version. While the basic version caters to the
more essential aspects of hospitalization, enhanced versions (termed as premium, exclusive, elite etc)
usually come with added benefits. So while comparing them, ensure that you are comparing similar
versions. The premium should be the last factor to consider while choosing a plan.
3. I have a group insurance cover, so I don’t need a separate policy
If your employer provides an option for group health coverage, grab it even if you have to pay a portion
of the premium. The coverage amount may be restrictive so check if it is sufficient. Also, remember,
especially if you are in the private sector that this group cover will continue only as long as you are in the
job. The period between switching jobs may leave you unprotected. Moreover, few insurers are calling
off their contract with employers and thus leaving several employees stranded without any coverage at
all. Therefore, having your own health insurance policy helps.
4. All benefits are lost if I don’t renew on due date
It is important that you don’t break the continuity of the insurance contract and keep renewing the
policy. This will ensure that there is no period in which there is no coverage. Even if a health insurance
policy is not renewed on the due date, one may do so within 15 days of the policy expiry date. This
allows the insured person to be treated as ‘continuously covered’ in terms of continuity benefits such as CALCULATORS
waiting periods and coverage of pre-existing diseases. However, remember claim for any treatment
during this period will not be accepted till policy is renewed by paying the due premium. This means that
even if the policy is renewed 10 days after the due date claim for any treatment taken during these 10 E-BOOK
days will not be accepted even after renewal of the policy.
5. Benefits from health plan start flowing from day one NEWSLETTER
A common grouse among most policyholders is that insurers decline claims on flimsy grounds citing
non-coverage of certain medical events. In reality, the claims may be declined because of non-coverage
due to ‘waiting periods’, which are always disclosed in the policy document. Being aware of these may
help in a better claim experience. Every health insurance policy will have a ‘waiting period’, before which
the claim against specific ailments will not be paid.
No diseases get covered during the first 30 days from the commencement of any policy. Only
accidental hospitalization gets coverage from day one. Further, some diseases are covered only after the
expiry of a specified period. There are 1-year, 2-year, 3-year and 4-year exclusions for certain diseases.
Pre-existing illnesses are mostly covered after the expiry of four claim-free years.
6. I don’t need to track hospital bills because the entire cost will get reimbursed
Defined benefit health insurance such as Mediclaim policies are supposed to reimburse the actual
expenses incurred during hospitalization. However, in practice, often partial claim is paid by the insurer.
Knowing the reasons for this may help avoid out-of-pocket expenses.
One, the policy may have it own sub-limits. For example, room rent may be capped at 1 per cent of the
sum insured. The amount in excess of that has to be paid by the insured. Similarly, a policy may have
such sub-limits on various other expenses. Further, certain medical expenses like specific medicine bills
might not get reimbursed if they fall under non-admissible list of expenses. This is also a part of the
policy document that policyholders receive after buying a policy. Further, there could be several
incidental and other out-of-pocket expenses that one might have to incur.
7. One needs 24 hours of hospitalization for claim
Normally, the most important requirement for a health insurance claim is the minimum hospitalization
of 24 hours. However, with technological advancements, certain surgeries and procedures require less
time. Therefore, many health insurance plans have started covering claims for day-care expenses such as
dialysis, chemotherapy, eye surgery and lithotripsy, among others.
Generally, up to 140 such surgeries are covered by most insurers, with or without any restrictions. Certain
hospital procedures, such as dental care, neither fall under day-care nor do they require 24-hour
hospitalization. They are referred to as out-patient procedures and few plans have started offering claim
on out-patient expenses as well, but with restrictions.
8. Even if I don’t disclose, all pre-existing ailments are covered after 48 months.
All health insurance plans cover pre-existing ailments but after a period of 48 months. Some plans cover
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pre-existing ailments even after 36 months or less.
This coverage of pre-existing diseases is conditional upon the buyer honestly making all medical
This coverage of pre existing diseases is conditional upon the buyer honestly making all medical
disclosures at the time of buying the policy. This means that in case a person actually suffers from a
disease at the time of buying the policy but is unaware of the fact and therefore declares himself as
medically fit, then the insurance company would honour the pre-existing disease related claim after 48
months.
However, in case the insurer suspects that the buyer was aware of the pre-existing disease at the time of
buying the policy then the company may refuse to honour the claim. This is the reason why it is
important to disclose any pre-existing ailment at the time of buying, for a smooth claims settlement
process later on.
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01/01/2022, 05:25 5 investment options for the retired - The Economic Times

FINANCIAL MUTUAL SAVVY

Home > Insurance > Life Insurance

Safecity Founder &

Senior Citizens' Saving Scheme (SCSS)

HAVE YOU READ THIS

Post Office Monthly Income Scheme (POMIS) Account

Bank fixed deposits (FDs)

Mutual funds (MFs)

Health Insurance Insurance Save Tax Tax Slabs Income Tax

Why it’s never too late to buy life insurance?

Benefits of life insurance

Financially dependent children

5 Things To Check Before You Buy Life Insu…

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Partial withdrawal from life insurance policy reduces

New rule for partial withdrawal from life insurance policy

Apart from these, there are a few more conditions.

How partial withdrawal works

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All You Need to Know About Reinsurance

Related: Easy ways to buy a term life insurance policy

Different types of reinsurance agreements

Related: What is IDV and Why Insured Declared Value is Important?

Why reinsurance is taken by insurance companies? We look at some of its benefits.

How does a Reinsurance policy work?

Reinsurance and the insurance industry

Health Insurance Insurance Save Tax Tax Slabs Income Tax

जीवन बीमा उत्पादों के लिए आईआरडीएआई के नए

बीमा खरीदने के बाद भी समय सीमा में बदलाव संभव

पेंशनधारक किसी भी बीमा कं पनी से पॉलिसी रिन्यू करवा सकें गे

सरेंडर करने की सीमा को घटाकर दो वर्ष किया गया

दू सरे पेंशन उत्पादों की तरह ही कम्युटेशन लाभ

सेटलमेंट के लिए लंबा समय देने से ज़्यादा वित्तीय स्थिरता मिलेगी

युवा पॉलिसीधारकों के लिए मृत्यु लाभ में कमी

Health Insurance Insurance Save Tax Tax Slabs Income Tax

5 Reasons to buy insurance if you are getting

Love and marriage, love and marriage

2. Better be early than be sorry

Related: Financial planning before important milestones: Marriage [Infographic]

Related: How insurance needs change at every life stage

5. Life insurance for two

Related: What your first year of marriage should look like

Why buy insurance this year?

Health Insurance Insurance Save Tax Tax Slabs Income Tax

NEXT STORY E-BOOK

Eight money tips to help young earners plan their NEWSLETTER

1. MAKE A BUDGET & START SAVING

to work for you immediately.

2. FRAME YOUR FINANCIAL GOALS

3. INVEST IN RIGHT INSTRUMENTS

Which investment should you pick?

4. MAXIMISE TAX SAVINGS

Siddhartha Nayyar, 23 years, Bengaluru

3. Only employer’s health cover. No other insurance.

5. OPT FOR THE RIGHT INSURANCE

Critical illness plan

Accident disability plans

Home contents plan

Do you know which cover you need?

Harshinder Kaur 27 years, Ganganagar (Rajasthan)

Increase in-hand salary