Right Plan

How do I choose and decide on the right insurance plan?

 

Once you have identified the need to take life insurance you should know about getting some basic steps right to select the right insurance policy.

Select the right insurance plan in 3 easy steps

·         Engage an insurance advisor

While this may seem trivial, engaging a reliable and competent insurance advisor at the initial stage in your quest for life insurance is critical. Most individuals are not capacitated to take a decision by themselves and need the expertise of an insurance advisor.

·         Calculate the life cover

The insurance advisor will help you calculate the amount of life cover – or the sum assured. He will assess sources of your income, number of your dependents, your debts and liabilities and your expenses based on your lifestyle and arrive at a life cover. He will also decide the best plan, be it a term plan, endowment plan, unit-link plan or a combination of plans, to help provide you with an optimum life cover.

Likewise, if you have other needs like planning for your child’s education or marriage, pension for your retirement, a woman’s insurance plan for women, trust your advisor to do the math and come up with an ideal solution.

·         Compare insurance plans

Since there are many insurance companies in the market offering a variety of plans, you need to be sure you select the most suitable one. The insurance advisor will do the homework by comparing plans from various insurers across relevant parameters recommending the most apt plan based on your needs.

How to make your money work for you?

Making money and making your money work for you are two separate things and each can be as challenging as the other. Often individuals are so caught up making money that they never get down to making it work for them.

Remember this - money has one purpose only - to work for you. When your money works for you, your dreams turn into reality. Your financial goals, be it retirement planning, children's education, saving for a house or a car appear a lot more achievable.

This is 4-step guide to making your money for you

·         Stick to your budget

Nothing will aid you in your quest to achieve your financial goals as much as frugality or to put simply - living within your means. Buying the latest and most expensive gadget, garments, motorbikes will not only prove expensive financially, but could also cost you the ability to achieve your financial goals. A minor adjustment in your lifestyle could solve this problem - only buy what you can afford to pay and if you are paying through credit card, buy it only if you can pay the entire card bill next month. Banish debt, unless it's for an all-important purpose like buying a home and you will find there is more money to put in your retirement kitty or your child's education fund.

·         Put some money in the bank

No matter how much you earn, make it a point to set aside a portion of your salary/earnings in a savings account. There is no point working so hard if you don't have money for yourself. Put aside a fixed sum every month and consider it as a payment to yourself.

It is no secret that it is more convenient to build your savings through automatic/forced deductions made directly to your savings account. This will help you achieve your financial goals a lot more easily than if you have to save an amount arbitrarily by trying a different cost-saving ruse every month.

·         Invest your savings

The money in the savings bank account ultimately needs to work for you. Invest the money in long-term investments like a savings and investment plan that will grow over time and build a corpus for retirement, your house or your child's education. Invest in long-term investments because these are long-term objectives and need long-term investment solutions like equities for instance. In this way, your money works 24 hours a day, seven days a week accumulating more money with the money you already have.

Why do I need Savings & Investment Plans?

Why do I need Savings & Investment Plans?

You have always given your family the very best. And there is no reason why they shouldn't get the very best in the future too. As a judicious family man, your priority is to secure the well-being of those who depend on you, not just for today, but also in the long term. More importantly, you have to ensure that your family's future expenses are taken care, even if something unfortunate were to happen to you.

A big factor that you need to consider while building your wealth is inflation. It has a dual impact on your hard-earned savings. Inflation not only erodes your current purchasing power but also magnifies your monetary requirements for the future. Sample this: A 35 Year individual needs to invest Rs. 36,000/- per year with 8% returns to build a corpus of Rs. 10,00,000/- by the age of 50 Years.

Investment planning

Investment planning

How to evaluate risk of investment planning?

Talk of investment planning and you can be sure that the risks associated with the investment are likely to get minimal attention from investors. This is a mistake as underestimating risk has brought about the downfall of many a portfolio. 

While there are several types of risks involved in investing, the ones investor should familiarize himself with include 

Credit risk

This is the risk that a company will default on payment of the bond or debenture proceeds or a bank or financial institution will default on a deposit.

·         Liquidity risk

This is the risk of being saddled with an investment for lack of transactions in the market either due to quality or pricing issues. For instance, there might not be enough transactions in a particular stock due to lower number of tradable shares. Or there might not be many transactions in the real estate market as prices are sticky at higher levels making investors adopt a wait and watch stand.

·         Inflation risk

This is the risk that an investment will not generate desired returns due to higher level of prices. Higher inflation brings down, what is known as, real returns of the investment.

The individual must identify investments that are well-placed to negotiate the risks. For instance, take life insurance. An insurance plan that invests primarily in AAA rated paper nullifies credit risk to a large extent. This also takes care of liquidity risk as AAA rated paper is widely traded in the market. Of course, it might be too much to expect individuals to accurately interpret the risks associated with their life insurance plans. That is why it is a good idea to ask pointed questions to your insurance advisor or the company agent before investing in the plan.

Section 80C

Demystifying Section 80C

To the taxpayer, Section 80C is the most important provision / section of the Income Tax. It allows you to make specific investments and exempts that amount from being included in total taxable income.

What is Section 80C?

Under the Income Tax Act, Section 80C defines a series of investments and expenses to help the taxpayer reduce his tax outgo.

Does Section 80C have a limit?

Yes, the section defines an annual limit of Rs one lakh and fifty thousand (Rs 1,50,000) across the investments and expenses. The limit has been raised from Rs 1,00,000 to Rs 1,50,000 in the Union Budget 2014.

What are the eligible investments under the section?

The key investments defined by the section include:

·        Life insurance – this includes all forms of life insurance plans like endowment, term plans, money back

·        ULIPs or unit-linked insurance plans – another form of life insurance where investments are linked to markets

·        Tax-saving mutual funds or equity-linked saving schemes (ELSS)

·        PPF or Public Provident Fund

·        NPS or New Pension Scheme

·        National Savings Certificate (NSC)

·        Fixed deposits of 5-Yr term

How Section 80C works – an illustration

Let’s take Rahul – who has gross income of Rs 600,000 (Rs 6 lakhs). He invests in various instruments with Section 80C benefits. He maximizes the available investment limit of Rs 150,000.

This is how his income is impacted:

Gross Total Income (Rs)	600,000
Deductions under Section 80C (Rs)	150,000
Net Taxable Income (Rs)	450,000
Tax on Total Income (Rs)	20,000
Less: Rebate under Section 87A(Rs)	2,000
Add: 3% education cess (Rs)	540
Total tax payable (Rs)	18,540

Rahul’s income has revised lower from Rs 600,000 to Rs 450,000 thanks to the deductions under Section 80C. His tax outgo is Rs 18,540.

Had Rahul not invested in the Section 80C related options, he would have been taxed at the Gross Total Income of Rs 600,000. His tax outgo (inclusive of education cess) would have been Rs 46,350.

Effectively, Rahul’s tax liability has reduced from Rs 46,350 to Rs 18,540 thanks to Section 80C.

Is Section 80C all about tax-saving?

Tax-saving and more. The section offers individuals the opportunity to invest towards financial goals and claim a tax benefit in the process. It allows them to marry tax-planning with financial planning, something that no other section can claim to achieve.