Life Insurance

Why do you need Life Insurance?

Life is full of uncertainties & you can’t really presume that your future is devoid of risks, so to be safe one has to get himself insured so that his dependents are offered with financial help in any unforeseen event.
Life Insurance caters to your following requirements :

• Financial Security to your family
• Investment & saving options
• Protection of your home mortgage
• Saving options for Retirement through Pension plans
• Saving options for Children through Children Insurance Plans

Life Insurance Policies at a glance

Term Insurance : The Term Insurance policy is a Plain Vanilla Insurance Plan which offers financial help to the family in case of Insured’s demise only during a limited term/tenure of the plan. As & when the policy expires, you don’t receive any benefits at the maturity. One of the most striking features of this plan is its Premium rates which are very low along with the maximum sum assured. Now Insurance Companies have brought in Premium Back Term Plans wherein you get benefits at the maturity of the term even if you don’t make any claims, however this feature tends to increase the overall Premium amount

Endowment plans: The Endowment Plans are basically saving plans which offer Insurance against the Insured’s death during the term of the plan, simultaneously acting as a saving tool. Unlike Term Plans which don’t offer maturity benefits Endowment Plans provide benefits when the policy expires. In the case of the Insured’s death his family receives the sum assured/stipulated coverage along with the accumulated profits/bonus. When the Insured survives the term period he receives the life coverage plus the profits & bonuses

Whole Life Insurance : The Whole Life Insurance Plans are Permanent Insurance Plans which run as long as the Policy Holder is alive. The Insured pays the premium amount throughout his life time. The beneficiary of the policy receives the coverage amount plus the interest & accumulated bonus only at the time of Insured’s death.

Retirement Plans : These are basically called savings or annuity plans wherein the Policy holder saves for his retirement by accumulating a corpus which is received at the time of the retirement. The policy holder either pays in lump sums or at regular intervals over a certain period of time.
There are two types of annuity Plans in the market – the Immediate Annuity & the Deferred Annuity, the former is normally for those whose retirement is imminent wherein one invests a lump sum amount & start receiving the annuity immediately. On the other hand in the Deferred Annuity, you can start saving for retirement at the young age & accumulating your corpus with regular premium payments over a period of time called deferment period, post that you can start your annuities as per the policy.

Children Insurance Plans : These plans act as an important saving vehicle for your child’s future helping your child at important milestones of his/her life such as Graduation, higher studies, MBA & at your daughter’s wedding. The Child Plans by Insurance Companies play a monetary shield in such time when you want your child’s dream come into a reality & help them prove their talents & excel in their career. In a nutshell these plans offer financial security to children in the form of savings combined with life insurance by paying at regular intervals so that the money available to your child at pre-determined stages.

Unit Linked Insurance Plans (ULIPs) : ULIP is an investment vehicle combined with the feature of life insurance coverage & tax benefits. Thus offering twin benefit of risk cover & investing in the market-linked instruments, however the policyholder has to borne the risk related with stock markets. You have the option of spending in numerous funds varying from 100% Debt Funds to 100% Equity Funds.

Tax Benefits in Life Insurance

Premiums paid for Life Insurance holds benefits of tax deduction under section-80C of Income Tax Act 1961 subjecting to an upper limit of Rs. 1, 00, 000 in each financial year. Amount deductible from your taxable is equal to 100% of investment or Rs. 100,000 whichever is lower.

Tax Benefits in Pension Plans : Under Section-80CCC Premiums paid for Pension Plans enjoy a tax benefit of Rs. 1, 000, 00, this limit falls under the same limit of Section-80C.

Taxability of Maturity Proceeds : Any sum received from Life insurance policy as maturity proceeds, death benefits is tax-free. In the Pension Plans one-third of the value at vesting date would be tax-free & annuity can be purchased with the rest two-third amount, cash received from this will be considered as part of your income & taxed accordingly.

Riders in Life Insurance

Riders are one of the important ingredients’ of life insurance acting as ADD-ON Covers to your Insurance Policy which are otherwise payable if taken as a separate plan, however these riders increase the overall premium of the policy. They can be customized according to the policy you buy matching your present & future needs & giving you an extended cover/protection against certain risks of life.

Following are the common riders offered by Life Insurance Players:

Critical Illness or Dread Disease Rider : This is a very common rider wherein the insured is paid the sum assured in case he suffers from the critical/dreaded diseases like Cancer, Stroke, attack etc and survives the illness for a period of 30 days from the date of diagnosis. The diseases covered under this rider differ across Insurance Providers; you must check the exclusivity clause & the number of diseases covered before buying an insurance plan. Also the premium paid for the rider is eligible for tax deduction under section 80D of the Income Tax Act.

Accidental Death & Disability Rider : Insurers cover the Insured in the case of accidental death or if they become disabled either partially or permanently owing to the accident. There are certain exclusions to the riders such as suicide etc. which must be checked before buying.

Waiver of Premium Rider : This rider has a unique feature wherein you can ceased to pay your premium in case of any unforeseen event like acute illness of the policy holder or accident, however the policy continues to stay alive.

Term Rider : This rider adds to your risk cover/life coverage providing for payment of the coverage face amount in event of death of the life insured with lower cost. Insurers have a limit to the maximum sum assured in this rider.
Life Insurance Plans for women In today’s modern world where the women have now surpassed men in every field, they are not just home-makers but are independent, working & earning their livelihood. Insurers have now brought in insurance plans specially designed for women considering their requirements.

Mutual Fund

What are Mutual Funds ?

A Mutual Fund is a trust that pools together the savings of a number of investors who share a common financial goal. The fund manager invests this pool of money in securities -- ranging from shares and debentures to money market instruments or in a mixture of equity and debt, depending upon the objectives of the scheme.

Why choose Mutual Funds ?

Investing in Mutual Funds offers several benefits:

• Professional expertise : Fund managers are professionals who track the market on an on-going basis. With their mix of professional qualification and market knowledge, they are better placed than the average investor to understand the markets
• Diversification : Since a Mutual Fund scheme invests in number of stocks and/or debentures, the associated risks are greatly reduced.
• Relatively less expensive : When compared to direct investments in the capital market, Mutual Funds cost less. This is due to savings in brokerage costs, demat costs, depository costs etc.
• Liquidity : Investments in Mutual Funds are completely liquid and can be redeemed at their Net Assets Value-related price on any working day.
• Transparency : You will always have access to up-to-date information on the value of your investment in addition to the complete portfolio of investments, the proportion allocated to different assets and the fund manager’s investment strategy.
• Flexibility : Through features such as Systematic Investment Plans, Systematic Withdrawal Plans and Dividend Investment Plans, you can systematically invest or withdraw funds according to your needs and convenience.
• SEBI regulated market : All Mutual Funds are registered with SEBI and function within the provisions and regulations that protect the interests of investors. AMFI is the supervisory body of the Mutual Funds industry.

Types of Funds

There are a wide variety of Mutual Fund schemes that cater to your needs, whatever your age, financial position, risk tolerance and return expectation. Whether as the foundation of your investment program or as a supplement, Mutual Fund schemes can help you meet your financial goals. The different types of Mutual Funds are as follows:

Diversified Equity Mutual Fund Scheme

A mutual fund scheme that achieves the benefits of diversification by investing in the stocks of companies across a large number of sectors. As a result, it minimizes the risk of exposure to a single company or sector.

Sectoral Equity Mutual Fund Scheme

A mutual fund scheme which focuses on investments in the equity of companies across a limited number of sectors -- usually one to three.

Index Funds

These funds invest in the stocks of companies, which comprise major indices such as the BSE Sensex or the S&P CNX Nifty in the same weightage as the respective indice.

Equity Linked Tax Saving Schemes (ELSS)

Mutual Fund schemes investing predominantly in equity, and offering tax deduction to investors under section 80 C of the Income Tax Act. Currently rebate u/s 80C can be availed up to a maximum investment of Rs 1,00,000. A lock-in of 3 years is mandatory.

Monthly Income Plan Scheme

A mutual fund scheme which aims at providing regular income (not necessarily monthly, don't get misled by the name) to the unitholder, usually by way of dividend, with investments predominantly in debt securities (upto 95%) of corporates and the government, to ensure regularity of returns, and having a smaller component of equity investments (5% to 15%)to ensure higher return.

Income schemes

Debt oriented schemes investing in fixed income securities such as bonds, corporate debentures, Government securities and money market instruments.

Floating-Rate Debt Fund

A fund comprising of bonds for which the interest rate is adjusted periodically according to a predetermined formula, usually linked to an index.

Gilt Funds - These funds invest exclusively in government securities.

Balanced Funds

The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. They generally invest 40-60% in equity and debt instruments.

Fund of Funds

A Fund of Funds (FoF) is a mutual fund scheme that invests in other mutual fund schemes. Just as fund invests in stocks or bonds on your behalf, a FoF invests in other mutual fund schemes.

Points to Remember

• Do not speculate: Always evaluate risk-taking capacity.
• Do not chase returns: Because what goes up must come down.
• Do not put all eggs in one basket: Diversification reduces the risk.
• Do not stop working on Mutual Funds: Continuous evaluation of funds is a must.
• Do not time the market: Every time is good for investments.
• Mutual Funds are subject to market risks and there is no assurance that the fund objective will be achieved.
• NAVs fluctuate depending on forces affecting the Capital market.
• Past performance may or may not be sustained in the future

Fixed Deposits

Fixed Deposits in companies that earn a fixed rate of return over a period of time are called Company Fixed Deposits. Financial institutions and Non-Banking Finance Companies (NBFCs) also accept such deposits. Deposits thus mobilised are governed by the Companies Act under Section 58A. These deposits are unsecured, i.e., if the company defaults, the investor cannot sell the documents to recover his capital, thus making them a risky investment option.

Benefits of investing in Company Fixed Deposits

• High interest.
• Short-term deposits.
• Lock-in period is only 6 months.
• No Income Tax is deducted at source if the interest income is up to Rs 5,000 in one financial year
• Investment can be spread in more than one company, so that interest from one company does not exceed Rs. 5,000

Here are some of the points that investors should keep in mind.

Spread your risk
The deposits should be spread over a large number of companies engaged in different industries. This way, you'll be able to diversify your risk among various industries/companies. Try not to put more than 10% of your total investments in one particular company.

Choose the right period of deposit
Ideally, the investment should be for 1 to 3 years depending upon the rate of interest.

Periodic review
The performance of the companies should be reviewed at maturity. This will help you decide whether to renew or reshuffle the deposit. It is also wise to keep a track of these companies by checking their share prices, annual reports and other details reported in newspapers.