There are three choices of policy term offered to the investor depending on their age and requirements — 9, 12 and 15 years, among which the applicant must choose at the time of application. The minimum sum assured varies as the term of the policy. Also, the applicant must keep in mind that the amount assured must be a multiple of Rs After all, not every life insurance plan is synonymous with each other.
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It is a single premium plan. Moreover, since the plan is a participating plan, you can get a reasonable estimate of returns using certain assumptions. Not as crisp as non-participating plans. This time, I will save the homework and leave it to you.
However, you can expect returns to be low as with other traditional life insurance plans. I want to discuss another important aspect i. Do you purchase life insurance to save taxes? Most of us purchase life insurance plans to save on income tax under Section 80C.
However, unfortunate that may sound, it is a reality. What does the Income Tax Act say? Not completely true. There is minor exception in case of differently-abled persons or those suffering from specified ailments. Suppose your life insurance plan has an annual premium of Rs 1.
In this case, tax benefit under Section 80C will be capped at Rs 80, Moreover, any proceeds from such life insurance plans are taxable. Now, there is TDS deducted for such policies. So, there is no way you can fly under the tax radar. One aspect that I am not sure about is whether you get adjustment for the premium paid before you calculate tax liability.
However, I have read about adjustment at many places. A good Chartered Accountant can answer this better. What about Death Benefits? Do note proceeds from a life insurance policy in the event of death of the policy holder are exempt from income tax irrespective of what is mentioned above.
What do Insurance Companies do? However, these rules can be a problem with insurance and investment combo products. IRDA regulations also ensure this to some extent. However, single premium insurance plans are likely to run into trouble. Because you are paying the entire premium upfront for all the years. It is quite likely that the Sum Assured will be a much lower multiple of premium.
What do you expect? The premium for a 30 year old for Sum Assured of Rs 10 lacs for policy term of 15 years is Rs 7. Clearly, the premium is too high for the product to qualify as Therefore, if you have purchased the plan, be prepared to shell out income tax on any benefits received from the insurance plan.
Quite possible you were never informed. You assumed that the payout will be exempt from income tax. Any taxes will further bring down already low returns from this traditional plan. Would you have invested if you knew the maturity proceeds or any other benefits from the insurance plan were taxable? Perhaps, no. If you are planning to invest in this product from LIC, do consider this aspect.
New Bima Bachat (Plan No. – 816)
Benefits from LIC New Bima Bachat Plan are taxable