Claim the premium (up to Rs. 1 lakh)
as a deduction from your taxable income Under
Section 80 C.
* In order to avail the tax
benefits, the premium should be less than 20% of
Let's start off with why
people need Life Insurance in the first place.
An insurance policy is primarily meant to
protect the income of the family's breadwinners.
The idea is if any one or both die, their
dependents continue to live
The circle of life
begins at birth, followed by education, marriage
and eventually, after a lifetime of work, we
look forward to a life of retirement. Our
finances too tend to change as we go through the
various phases of our life. In the first
twenty years of our life, we are
financially and emotionally dependent on our
parents and there are no financial commitments
to be met.
In the next twenty
years, we gain financial independence
and provide for our families. This is also the
stage when our income(s) may be unable to meet
the growing expenses of a young household. In
the following twenty years, as
our children grow and become financially
independent, we see our savings grow, a nest egg
put away for life after
The final twenty
years of life, post retirement, is the
time to reap the rewards of our hard work. It is
important to remember that with time, our needs
and aspirations tend to change and we have to
ensure that we have a suitably dynamic financial
Aspirations - Financial Planning
All of us have goals and
aspirations - for our family and ourselves. The
important difference is in the quantum of the
goal and/or aspiration. One can have a goal to
send his child to an IIT or an IIM twenty years
from now. Another can have a similar goal i.e.
providing high quality education to his/her
child. The difference could be in the aspiration
since he may want to send his child to a
university outside of India. The difference
between the cost of an Indian education and an
education gained outside of India can lead to
two individuals planning their lives differently
even though the goal may be the
Even though all of us may not sit
down with our laptops and open Excel
spreadsheets to do complex financial planning
exercises, in our mind, most of us are always
doing some level of financial planning.
Financial planning helps us forecast our goals
and aspirations (how much do I need and at what
intervals), helps us to think of how much is our
income and expense and at what rate is the
income and expense growing; and finally, are we
saving and is the saving enough to take care of
our future goals and aspirations. Little do we
realize that most of our saving is to meet our
short-term aspirations (annual
holiday/anniversary gift) and the commitment to
long term savings is overlooked.
other important factor to keep in mind is that
not only must we save to meet our future needs
but that the growth of our saving should exceed
the level of inflation. It is inevitable that
the cost of fulfilling our aspiration will go up
and all of us need to save and invest prudently
to ensure that our savings are able to meet out
financial commitments in the future. Nobody
plans to fail but the number of people who fail
to plan prudently will surprise you!
supposedly robust financial plan can get
shattered due to the occurrence of an unforeseen
eventuality. You may have planned to save and
invest your savings year after year to meet your
future obligations. However, what happens if
something happens to you? What happens to your
family when the primary source of income (your
salary) dries up? Who will then take care of
your family's financial commitment? The way we
look at life is - there are two kinds of risks
i.e. the risk of dying too early and the risk of
living too long. A good financial plan needs to
provide the family cover to hedge against both
of these financial risks.
Before you let the
worry get into your head, buy LIFE INSURANCE.
Why? Life Insurance provides protection to your
family - your family gets a specified sum in a
lump sum when they need it the most i.e. when
you are not around. While the emotional loss
cannot be mitigated, the lump sum received from
an insurance company can help take care of your
family's financial future. Life Insurance
policies also offer tax benefits (restricted
after the Union Budget) though tax saving should
NOT be the primary reason an individual should
look at a Life Insurance policy.
Life Insurance contracts allow an individual to
save money in a tax efficient manner and allow
savings to grow to help meet our future
Myths about Life
Insurance in India
Before we get into the
recommended approach to Life Insurance, let us
delve on some of the myths surrounding Life
Insurance in India. These myths will help
explain why the number of individuals insured
and the average amount of insurance cover per
individual is so low in our country.
Most people never do believe that they
can succumb to destiny and that they will live a
long and healthy life. Sadly, that is not always
true. A prudent financial plan needs to build in
the risk of dying too early to ensure that our
family's financial future is protected. There
are financial tools that help us determine the
"risk of dying early" leading to the quantum of
Life Insurance required.
algorithms may be different, conceptually, all
that these tools try and determine is the
present value of your future earnings keeping in
mind your future goals and aspirations. It is
important that each one of us
put some thought into the potential exposure of
our family to the risk of the primary wage
earners risk of dying too early and arrive at
the level of protection required.
I should buy Life Insurance so
that I can save tax before the end of the financial year.
Sad, but true; this is the way Life
Insurance has been largely sold in the country.
Individuals buy "enough" Life Insurance to get
tax breaks just before the financial year ends.
The moot question is - are we buying Life
Insurance to save taxes or are we buying it to
protect our family's financial future? Since
people believe that nothing ever can happen to
them, the decision on quantum of insurance cover
and timing (on when to buy the policy) is made
just before the financial year ends.
question that we should ask ourselves is - do we
believe that destiny will announce its arrival
in our lives? Will destiny always allow you to
complete your tax planning for the year and then
strike? The answer is a resounding 'no'.
However, lack of education has made customers
believe that insurance is a tax planning tool
and the protection element is at best - icing on
and guaranteed returns go hand in
The question we need to ask is - how
much is the guaranteed return that a Life
Insurance contract can give. The answer is, "I
do not know." Unfortunately, individuals expect
life insurance companies to give "high
guaranteed" returns. What most individuals fail
to understand is that life insurance contracts
are long term contracts. The way in which the
contract works is that the premium that each of
us pays gets invested after deducting for the
cost of mortality and other administrative
expenses of the insurance company.
the premium is paid over a period of time
(typically), the investment return that the
insurance company can generate on our savings
depends upon the prevailing investment
opportunities at the time when the premium is
paid. With volatility in interest rates and
capital markets, the level of investment return
that an insurance company can generate can vary
substantially. In such a scenario, where is the
scope for the insurance company to offer a fixed
return to their policy holders but have an
earning stream that is highly volatile and
variable? Interest rates on Government of India
Securities have fallen by over three hundred
basis points in the last three years.
Given such an economic environment, it
is foolhardy to expect that the "high guaranteed
return" policies can continue for very long. The
classic example is Japan where with interest
rates at sub zero levels, insurance companies
that offered guaranteed return policies to their
policyholders are going under! Again, if you are
buying Life Insurance for the "high guaranteed
return" the policy offers, please think again.
Your insurance company may not be able to pay
you the promised return when your family needs
the money the most!
I should always buy money back
policies - this way at least I will get something back in
Lack of customer education leads
customers to buy what their agent(s) sell. Think
about this - when we buy insurance for our
homes, we buy to protect our home against fire
and theft. When we buy insurance on our car, we
buy insurance to protect ourselves against third
party liabilities and damages. In the event that
we do not claim from the insurance company, the
premium paid is an expense. We buy peace of mind
and protect our assets. Has anyone thought about
what the most important asset for our family is?
Could the most important asset be the primary
wage earner for the family? Has anyone thought
about buying protection for this important
Agents sell policies that maximise
premium generated since agents are paid
commissions on the premium generated. Since the
intent is to maximise premium generated, the
agent tends to sell money back/endowment
policies where the premiums are higher than
selling pure risk policies where the premiums
are lower. If you can buy the same level of
insurance cover but pay one tenth of what you
pay today to buy "money back" policies, you may
wonder how! Pure risk term insurance policies
have never been sold in this country. However,
such policies provide the best possible
protection to your family against the risk of
dying too early for the lowest amount of
premium. Ask your agent for a term insurance
policy quote the next time he comes selling a
more expensive money back plan.
Types of Life
Term insurance is the cheapest form of
Life Insurance available. Since a term insurance
contract only pays in the event of an
eventuality, the life cover comes at low premium
rates. Term insurance is a useful tool to
purchase against risk of early death and/or
protection of an asset (housing loan).
plans are savings and protection plan(s) that
provide a dual benefit of protection as well as
savings. Endowment plans pay a death benefit in
the event of an eventuality; should the customer
survive the benefit period, a maturity benefit
is paid to the life insured.
of Life Plans
A Whole of
Life plan provides Life Insurance cover to an
individual up to a specified age (85 or 100). A
whole of life plan is suitable for an individual
who is looking for an extended Life Insurance
cover and/or wants to pay premium over as long a
tenure as possible, to reduce the amount of up
front premium payment.
Premium plans are investment plans offered by a
Life Insurance company. The insurance company
generally pays a guaranteed interest rate on the
single premium investment. Returns from single
premium plans are tax free in the hands of the
allow an individual to save in a tax-deferred
manner. An individual can either contribute
through regular premiums or make a single
premium investment. Savings accumulate over the
deferment period. Once the contract reaches the
vesting age, the individual has the option of
choosing an annuity plan from a Life Insurance
company. An annuity is paid till the life time
of the insured or a pre-determined period
depending upon the annuity option chosen by the
Insurance products are obligations only of the Insurance company. They are not bank deposits or obligations of or guaranteed by Citibank, N.A, Citigroup, Inc or any of its affiliates or subsidiaries or any Governmental agency. All Claims under the policy will be solely decided upon by the Insurance Company. Citibank, Citigroup or any of their affiliates and group entities hold no warranty and do not make any representation about the insurance, the quality of claims processing and shall not be responsible for claims, recovery of claims, or for processing of or clearing of claims, in any manner whatsoever. Insurance is the subject matter of solicitation. This document does not constitute the distribution of any information or the making of any offer or solicitation by anyone in any jurisdiction in which such distribution or offer is not authorised or to any person to whom it is unlawful to distribute such a document or make such an offer or solicitation. Investment products are not available to US persons and may not be available in all jurisdictions.
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IRS Circular 230 Disclosure: Citigroup, Inc., its affiliates, and its employees are not in the business of providing tax or legal advice to any taxpayer outside of Citigroup, Inc. and its affiliates. This webpage and any attachments are not intended or written to be used, and cannot be used or relied upon, by any such taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.
Tax benefits are subject to changes in the tax laws.
Citibank is a licensed Corporate Agent of Birla Sun Life Insurance Company Limited and Royal Sundaram Alliance Insurance Company Limited under the composite license number 1137144.
This policy is underwritten by Birla Birla Sun Life Insurance Company Limited with its registered office at 6th Floor, Vaman Centre, Makhwana Road, Off Andheri-Kurla Road, Nera Marol Naka, Andheri (E), Mumbai 400 059. All guaranteed benefits are payable only when all premiums are paid when due. For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding the sale.
Investment risk in the investment portfolio is borne by the Policy Holder. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of the fund and factors influencing the capital market and the insured is responsible for his or her decision. Birla Sun Life is only the name of the Insurance Company and the funds offered are only the names of the funds and does not in any way indicate the quality of the contract, its future prospects or returns.
SECTION 41 OF THE INSURANCE ACT 1938 PROHIBITION OF REBATES
1) No person shall allow or offer to allow either directly or indirectly as an inducement to any person to take out or renew or continue an Insurance in respect of any kind of risk relating to lives or property in India any rebate of the whole or part of the commission payable or any rebate of the premium shown on the policy nor shall any person taking out or renewing or continuing the Policy accept any rebate except such rebate as may be allowed in accordance with the published prospectus or tables of the Insurer.
2) If any person fails to comply with the above regulation, he shall be liable to payment of a fine, which may extend to five hundred rupees.