Benefits of Life Insurance
19 Dec 2019
Life insurance is a must in today’s world. Modern living is an expensive business, and people have to bear the burden of huge costs like children’s education, EMIs on home loans, healthcare and so on. So it is important for every earning member to have a life insurance policy to protect the financial interests of his or her family. There are many benefits of life insurance policy, which we will look at in this article.
Features of life insurance
Let’s look at the features and advantages of life insurance policy:
- Protection: The first and foremost objective of a life insurance policy is to ensure the financial protection of your family, and this could include dependent parents, spouse, children or siblings. The demise of the sole earning member could put dependents to considerable hardship, especially since cost of living is very high these days. Life insurance gives you the assurance that your family members will be looked after in the event of your untimely demise.
- Contract: Life insurance is basically a contract between the insurers and the individual who takes out the policy. You pay premiums every quarterly/half yearly/yearly to the company. In return, the insurer will give a lump sum to your family in the event of your demise.
- Premiums: Premiums are paid quarterly / half yearly which you need to pay to get life insurance. The amount will vary from person to person, depending on the tenure of the policy, age of the policyholder, health and type of policy.
- Affordable: Life insurance is an affordable way of ensuring the financial well-being of your family. Premiums on policies, particularly term insurance, are quite low and worth your while for the protection they offer.
- Easy to buy: Buying insurance from company is quite easy. Insurance companies have specified persons, who will visit you at your home or office and help you with options and paperwork. You can also do it online at your convenience.
- Tax benefits: Another one of the benefits of life insurance policy is that you can deduct the premiums you have paid from your taxable income. Under Section 80C of the Income Tax Act.
- Savings: There are some life insurance products that combine savings and insurance. This can be a good way of saving for the future and protecting your family at the same time
Types of life insurance
Now that we’ve seen the essential features of life insurance policy, let’s look at the types:
Term insurance
This is the most basic, and most popular, of life insurance policies. You purchase a policy for a certain period for which you pay premiums. For example, if a policyholder wants a policy till the age of 60, he or she can take one. And if the policyholder passes away before 60, the nominee is paid the death benefits.
Unit-linked Insurance Plan
A Unit-Linked Insurance Plan (ULIP) combines investment with insurance. At the end of the policy, the policyholder gets a certain sum. This is unlike a term plan where the payout is made only on the death of the policyholder. Part of the premium is paid for life insurance, while the remainder is invested in either stocks or bonds, depending on the investor’s risk appetite and investment goals. The investments yield returns which are then given to the policyholder after the end of the policy period
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All you need to know about the Senior Citizen Savings Scheme
Old age often brings uncertainty. Senior citizens face questions about their physical, emotional and financial health. The Government of India recognises the importance of financial security for the senior citizens and has started the Senior Citizen Savings Scheme (SCSS). Apart from providing financial security to senior citizens, it is one of the best tax saving options for senior citizens.
Who is eligible for the SCSS?
An Indian resident aged 60 years or above.
Indian resident above 55 years but below 60 years who have retired under the Voluntary Retirement Scheme rules or have appropriate superannuation. Under this, the SCSS account needs to be opened within a month of receipt of retirement benefits.
Retired defence personnel (excluding defence civilians) meeting particular terms and conditions can also avail the scheme on attaining the age of 50 years.
Non-Resident Indians, Person of Indian Origin, and members of a Hindu Undivided Family are not eligible for the SCSS.
Where can one avail the SCSS?
An eligible individual can avail the scheme through a private or public sector bank or the Indian Post Office. Since SCSS is a Central Government scheme, the rules and regulations of the scheme are standard across these institutions.
What is the interest rate on the SCSS?
The interest rate on the SCSS changes every quarter. The amount is calculated and credited every quarter, too. For the last financial quarter of 2019-20 i.e. January- March 2020, the interest rate is 8.6%.
What is the minimum and maximum deposit limits?
Individuals availing the SCSS can make lump sum deposits into their account. The minimum deposit stands at Rs.1000 while the maximum amount is Rs. 15, 00, 000. Any deposit greater than Rs.1000 will have to be made in multiples of Rs.1000.
When will the scheme mature?
The deposited amount matures 5 years after the date of account opening. The account holder can extend the account once, by a period of 3 years. However, the application for maturity extension needs to be made within one year of account maturity.
What is the interest on senior citizen scheme taxability?
There is SCSS tax exemption under Section 80C of the Income Tax Act, 1961. However, SCSS tax benefit is capped at Rs. 1, 50, 000.
In case of interest amounting to more than Rs. 50, 000, for a fiscal year, TDS is applicable starting FY 20-21.
What are the different benefits of the SCSS?
Being a government initiative, the depositor is protected by the facts associated with government schemes. This means, the depositor will not be affected by the economy.
The Senior Citizen Saving Scheme tax benefit serves as a good way of saving money as the SCSS tax is deductible under the Section 80C of the Income Tax Act, 1961.
In case of financial emergencies, the depositor can prematurely withdraw the amount with applicable penalties.
Now that you know how SCSS works, you can understand if it is the best financial option for you.
PPF Tax Benefits & Features you must Know About
A popular investment and tax saving instrument for Indians since it was first introduced in 1968 by the Central Government, the Public Provident Fund is a great tool to boost small savings by every individual across India. One of the biggest reasons thousands open opt for PPF is the PPF tax benefits.
The following are the features of a PPF for your comprehensive understanding:
Tenure
The PPF is a long-term investment with a minimum tenure of 15 years. PPF holder can extend the tenure by a period of 5 years every time.
Rate of interest
The rate of interest is determined by the Ministry of Finance every quarter. The compound interest is paid out at the end of the financial year i.e. on March 31. The interest is determined based on the balance between the closing of the 5th day and last day of each month.
Limits on investment
PPF is appealing to every section of society with different income levels. The minimum deposit every financial year is Rs.500 while the maximum amount is Rs.1, 50, 000. You can deposit the amount in lumpsum or in instalments in a financial year.
Opening Balance
You need to have at least Rs.500 to begin with when you open the account. Maximum amount upto Rs.1,50,000 can be invested every year and is eligible for exemption under section 80C of IT Act.
Mode of deposit
There is limited restriction on how you can deposit money into your PPF account. You can transfer funds online, deposit cash, cheque or pay through a demand draft.
Frequency of deposit
The account holder needs to make a deposit at least once a year for 15 years.
Nomination
The account holder may nominate one or more people (maximum 4) who will receive the amount in the PPF in case of the account holder’s death. The amount that each nominee will receive can also be determined by the account holder during nomination.
Joint account
One individual can hold only one PPF account at any given point of time. No joint account is allowed.
Risk-free
The PPF is backed by the government and offers complete protection of investment regardless of market conditions.
Loan
You are eligible to take loan against your PPF provided it is between its 3rd-6th Financial year. The loan amount is capped at 25% of the balance in the 2nd year preceding the year in which you applied for the loan.
Eligibility
You need to be an Indian citizen residing in India. Members of HUF cannot open a PPF account. One eligible individual can hold only one PPF account. However, an individual can hold another PPF account on behalf of a minor.
Can one withdraw from their PPF before maturity?
A PPF account can be closed only when it completes 15 years. However, if the account holder needs to withdraw money from their PPF account due to a financial emergency, they can do so only from the 7th year onwards. These withdrawals can be made only once in a fiscal year.
What are the tax benefits offered with a Public Provident Fund? Is PPF maturity taxable?
A PPF is categorised as EEE which stands for Exempt-Exempt-Exempt. This means that the principal amount can be deducted under Section 80C of the Income Tax Act, 1961.
Furthermore, there is no PPF maturity tax i.e. the account holder does not have to pay tax on the interest accumulated on maturity of the PPF or the total amount post maturity.
A simple enough tax saving instrument with good rate of interest, you can start a PPF for yourself or your child with Bank of Baroda.
