Need for Insurance
What is life insurance?
Life insurance ensures that your family will receive financial support in your absence. Put simply, life insurance provides your family with a sum of money should something happen to you. It protects your family from financial crisis.
In addition to serving as a protective cover, life insurance acts as a flexible money-saving scheme, which empowers you to accumulate wealth-to buy a new car, get your children married and even retire comfortably. Life insurance also triples up as an ideal tax-saving scheme.
Why do I need life insurance?
Who will take care of my family if tomorrow something unfortunate happens to me?” If this question bothers you, then Life Insurance is the answer.
Of course, under any circumstances, the loss of a loved one is a traumatic experience. But, if your family is also left without sufficient money to meet basic living needs or prepare for future goals, they will have to cope with a financial crisis at the same time. A Life Insurance plan ensures that your family is financially secure even if tomorrow you are no longer around to care for them.
Today, there is no shortage of investment options for a person to choose from. Modern day investments include gold, property, fixed income instruments, mutual funds and of course, life insurance. Given the plethora of choices, it becomes imperative to make the right choice when investing your hard-earned money. Life insurance is a unique investment that helps you to meet your dual needs - saving for life's important goals, and protecting your assets.
Let us look at these unique benefits of life insurance in detail.
Asset Protection
From an investor's point of view, an investment can play two roles - asset appreciation or asset protection. While most financial instruments have the underlying benefit of asset appreciation, life insurance is unique in that it gives the customer the reassurance of asset protection, along with a strong element of asset appreciation.
The core benefit of life insurance is that the financial interests of one’s family remain protected from circumstances such as loss of income due to critical illness or death of the policyholder. Simultaneously, insurance products also have a strong inbuilt wealth creation proposition. The customer therefore benefits on two counts and life insurance occupies a unique space in the landscape of investment options available to a customer.
Goal based savings
Each of us has some goals in life for which we need to save. For a young, newly married couple, it could be buying a house. Once, they decide to start a family, the goal changes to planning for the education or marriage of their children. As one grows older, planning for one's retirement will begin to take precedence.
Clearly, as your life stage and therefore your financial goals change, the instrument in which you invest should offer corresponding benefits pertinent to the new life stage.
Life insurance is the only investment option that offers specific products tailormade for different life stages. It thus ensures that the benefits offered to the customer reflect the needs of the customer at that particular life stage, and hence ensures that the financial goals of that life stage are met.
The table below gives a general guide to the plans that are appropriate for different life stages
Life Stage / Primary Need / Life Insurance ProductYoung & Single / Asset creation / Wealth creation plans
Young & Just married / Asset creation & protection / Wealth creationand mortgage protection plans
Married with kids / Children's education, Asset creation and protection / Education insurance, mortgage protection & wealth creation plans
Middle aged with grown up kids / Planning for retirement & asset protection / Retirement solutions& mortgage protection
Across all life-stages / Health plans / Health Insurance& Tax Solutions
How much insurance do I need?
Before buying an insurance policy, it is always important to find out the amount of life insurance cover you need. The following factors should be considered before buying a life insurance policy:
· Your age and number of dependents
· Your annual income and annual expenses
· Your outstanding liabilities like home loan, car loan, etc.
· Your investments / savings
· Your lifestyle expenses
· Monies you would require in future
As a thumb rule, it is suggested that you should have an insurance cover of around 5 to 10 times of your annual income.
Human Life Value
What is your Human Life Value?
Beyond all doubt, your life is invaluable. Yet, there is a certain worth that can be attributed to the financial support you offer your parents, spouse or children. This worth is referred to as Human Life Value (HLV). In the future, if your family does not have the protective blanket of your presence, they will no longer be able to enjoy the benefits of the income you earned. Put simply, Human Life Value is the present value of your future earnings.
Why should you calculate your Human Life Value?
You should calculate your Human Life Value so you can accordingly invest in insurance plans that provide your family with adequate finances and hence security even in your absence.
How do you determine your Human Life Value?
Your Human Life Value is determined by 3 factors:
1. Your age
2. Current and future expenses
3. Current and future income
As a thumb rule, if you are 30 years of age, you should insure yourself for an amount approximately 8 times your annual income. At 35, your investment should be close to 6 times your income. Of course, the exact amount of your investment should be determined by the number of people who depend on you, your existing investments and your life stage. For example, if you are 30 years of age and have two children and parents to provide for, the amount you invest should be reflective of your requirements.
Life stage profiler
All through your life, several significant events the birth of your child, moving to a larger home, his or her education and wedding, buying a new car, retiring from work will occur at various stages and demand your financial commitment. If you plan in advance for these events, you will quite naturally be prepared when they occur.
Life insurance is an effective tool that assists you to plan for your future such that you are financially equipped to meet all your goals.
Our special tool, the Life Stage Profiler, assists you to plan for a secure financial future. Please use the tool, right away!
Which important goals should you plan for in advance?
Your family's protection : so that your loved ones are secure should an unfortunate event happen to you. Buying Life insurance assures that your family receives a lumpsum that safely tides them over any financial crises that might occur in your absence.
Child's education : As parent, your primary responsibility is to ensure your children's future. Our Education Insurance plans ensure your child receives money at key stages of his or her education even in your absence.
Savings : Savings plans allow you to steadily save towards a pre-decided goal in a secure manner. These plans provide you with a host of benefits. You can choose the premium, the underlying fund in which you want to invest your money, the ratio between protection and investment as per your requirements.
Retirement : Retirement plans help you secure regular income for your retired life. During the Accumulation phase, you systematically save while you are working. When you retire, the Payout stage of the plan begins. You then purchase an annuity, which will serve as a steady stream of income, for the rest of your life.
Health : An integral part for financial planning is protecting oneself against any medical emergencies as well. Hence, a very prudent decision would be to choose a combination of plans that look after your finances and offer you a protective health cover to ensure your financial planning is in track despite any major illnesses. ICICI Prudential offers 3 comprehensive benefit-based products that cover major critical illnesses.
Tax Benefits
What are the tax benefits available?
Life Insurance as a tax saving tool, offers savings under various sections of the income tax act. Some of the key tax benefits offered are as follows:
· Our life insurance plans are eligible for tax deduction under Sec. 80C.
· Our Pension plans are eligible for a tax deduction under Sec. 80CCC.
· Our health insurance plans/riders are eligible for tax deduction under Sec. 80D.
· The proceeds or withdrawals of our life insurance policies are exempt under Sec 10(10D),subject to norms prescribed in that section.
Invest in ICICI Prudential Life insurance and retirement plans and avail of these tax planning services to save tax at your year end tax planning!
Explanation of Tax Benefits
Premiums paid for Life insurance - Deduction under Section 80C
· Category of assesses allowed deduction: Individual assessee and Hindu Undivided Family assessee.
· Eligible Savings: Premiums paid or deposited by assessee to effect or to keep in force insurance on the life of following persons:
o In case of individual assessee – Himself/Herself, spouse, children of such individual
o In case of HUF assessee – any member
· 20% limit: If the amount of premium paid in a financial year for a policy is in excess of 20% of the actual capital sum assured, then deduction will be allowed only for premiums upto 20% of the sum assured.
· Limit on amount of deduction: Deduction will be restricted to investments upto Rs 100,000 in savings specified under Section 80C (including life insurance premiums). The limit of deduction under Section 80C will be part of the overall limit prescribed under Section 80CCE.
· Disallowance: This benefit will be reversed if the policy is terminated/cease to be inforce within 2 years after the date of commencement of policy.
Premiums paid for Pension plans - Section 80CCC
· Permitted Deduction: Section 80CCC allows for deduction of premiums paid under a pension scheme. As per this Section, the whole of amount paid or deposited (excluding interest or bonus accrued or credited to the assessee’s account, if any) as does not exceed the amount of Rs 100,000 is eligible for deduction from the total income.
· Receipt under Policy: Amounts received on surrender (whole/part) of annuity plan, amounts received as Pension is taxed as income.
· Limit: The limit of deduction under Section 80CCC will be part of the overall limit prescribed under Section 80CCE.
Overall deduction limit - Section 80CCE
As per this section, the maximum amount of deduction that an assessee can claim under Sections 80C, 80CCC and 80CCD will be limited to Rs 100,000.
Premiums paid for medical insurance - Section 80D
· Category of assesses allowed deduction: Individual assessee and Hindu Undivided Family assessee.
· Eligible premiums: Premiums paid by assessee by any mode other than cash out of his taxable income to effect or to keep in force an insurance on the health of following persons:
o In case of individual assessee – Himself/Herself, spouse, dependent children and parent or parents. The condition of dependency of parent has been removed from FY 2008-09. In other words, even if the parent is independent, the individual can pay the premium and claim the deduction.In case of HUF assessee – any member of HUF
Deduction and upper limit: The qualifying amounts under Section 80D for self, spouse and dependent children is upto Rs. 15,000/- and additional deduction upto Rs. 15,000/- for the parents. However, a higher amount of upto Rs 20,000/- is permitted if the person, for whose health insurance the premium was paid, was aged 65 years or more at any time during the financial year in which the premium was paid. Such amounts of premium paid would be allowed as deduction from the total income of the assessee.
Benefits under insurance policy - Section 10(10D)
As per Section 10(10D) of Income tax Act, 1961, any sum received under a life insurance policy, including the sum allocated by way of bonus on such policy is exempt from tax.
However, this rule does not apply to following amounts:
· sum received under Section 80DD(3), or
· any sum received under a Key man Insurance Policy, or
· any sum received other than as death benefit under an insurance policy which has been issued on or after April 1 2003 and if the premium paid in any of the years during the term of the policy is more than 20% of the sum assured.
Tax Rates for Individuals
The rates of income-tax for FY 2010-11
Total Income (Rs.) / Rate of TaxSenior Citizen / Women below 65 years / Others
Upto Rs. 160,000 / Nil / Nil / Nil
Rs. 160,000 to Rs. 190,000 / Nil / Nil / 10%
Rs. 190,000 to Rs. 240,000 / Nil / 10% / 10%
Rs. 240,000 to Rs. 500,000 / 10% / 10% / 10%
Rs. 500,000 to Rs. 800,000 / 20% / 20% / 20%
Above Rs. 800,000 / 30% / 30% / 30%
Surcharge on Income Tax:No surcharge on Income Tax for the Financial Year 2010-11 for Individuals.
Education Cess on Income Tax: Edcuation Cess @2% will be payable on the amount of income tax (including surcharge).