Everyone
looks for convenience and easy way out when it comes to complex matters such as
claiming tax deduction through life insurance plans. Abhishek Raizada, 38, was
no exception. As a sales and marketing director in a multinational company he
was earning over 25 lakh a year.
In order
to save on tax, he bought a life insurance policy with a premium liability of Rs
1 lakh and ever since he got hold of it, he was paying the premium every year
religiously. A year ago, the government raised the tax exemption limit for life
insurance premium payment to Rs 1.50 lakh. So, he bought another life insurance
policy of Rs 50,000.
Do you think that Abhishek was
following the right approach?
More often high-flying professionals are so busy with their work
that they hardly get time to think dedicatedly about their investment. Thanks
to the exemption under Section 80C of the Income Tax Act that every corporate
employee is asked to declare his investment in life insurance products. And
everyone takes it very seriously. After all, one can save sizeable tax in the
range of 10-30 per cent on his taxable income.
But
there is more to it. If you act wisely, you can generate much more from your
investment in life insurance
plans. Traditionally, life insurance policies are known for their low
but secured returns. This is due to the long standing monopoly of public sector
life insurance companies which promoted life insurance plans more as a risk
coverage tool than return generating investment instruments.
Most
people carry this mindset even today – that expecting returns from a life insurance policy is not right and one should just focus on the
kind of security it provides to family, and things like that. It is definitely
true that the primary objective of a life insurance plan is to cover risk of
loss of life. At the same time, it is far from any rationale to not expect
returns your investments deserve.
Professionals in the age group of 20 and 45 years should aim for
superior returns and not restrict themselves to traditional low yield insurance
plans. This is the age when you can generate more income and thus save more. If
you invest your savings wisely, you can achieve financial freedom and secure a
good life for yourself and your family.
If you are willing to invest Rs 1.50 lakh in life insurance
every year, then it is advisable that you go for a combination of various life
insurance policies. You can consider 2-5 life insurance policies.
What are the benefits of having
multiple life insurance plans?
Well, there are many. You must have heard how companies follow
diversification strategy in order to spread their business risks and generate
better returns. In fact, many of you must be recommending and working on such
plans in their employer organisations. So, why not to follow this approach as
an individual, for your own benefit?
Of course, this helps in spreading risks of low returns from low
performing companies. You can buy multiple policies from multiple companies.
Thus, if one life insurance company is not able to generate good returns, the
other one may get you something better.
Also,
never stick to one type of life
insurance in india plan. Develop a portfolio with Unit Linked Insurance Plans (ULIPs) andE quity Linked Savings Scheme (ELSS). In the mid to long term horizon of
3-10 years, these plans can bring you much better returns than conventional
endowment life insurance plans.
If you research on these plans, the top performing ULIP and ELSS
plans have pumped returns of over 20 per cent a year than 5-8 per cent of
conventional plans. Further, when we compound the returns over a period of
time, the implications are much larger and deeper.
Thus,
put your money to the best use and generate wealth from each bit of it. At the end,
it is a win-win situation for you. In order to shortlist the best-possible life
insurance plans, visit insurance comparison portals such as www.policyx.com and make decisions that may turn out to be
the most prudent decisions of your life.
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