Are debt Ulips a better option than debt mutual funds? What are the tax implications?
? RT Venkataraman
The two platforms are different with regards their explicit purpose and horizon of investment. Insurance products combine protection with returns for the disciplined investor who has a long-term investing horizon. Insurance products are designed to deliver over the longer term, so your investment horizon must be long to unlock maximum value out of any insurance product.
Investments in insurance are eligible for tax breaks under Section 80C of the Income-Tax Act, 1961. Also, as long as the base plan is tax-compliant as per Section 10 (10D), maturity payouts are not taxable. Gains from debt mutual funds are treated as capital gains and have differential tax treatment based on the holding period.
What is the maximum age till I can apply for a term
plan? How much should be the sum assured?
? Rahul Padiyath
There are term plans in the market that offer cover even up to 80-85 years, some of which are targeted specifically at senior citizens. But these normally tend to place a ceiling on the maximum sum assured.
How can I buy annuity and how will the monthly payout be protected against inflation?
? Sudeep Roy
You could go to any life insurance company to purchase an annuity product. There are several options available with regards to payout and term, depending on the customer?s requirement. Based on your need, you may want to go for a plan that offers lifetime annuity with progressively increasing annual payouts. They certainly do offer a cushion against it. Research your options and select a plan that offers the best annual percentage increase in payout.
Will I get any guaranteed amount after my retirement if I start investing in an insurance pension product?
? Raju Ramanathan
As per the current norms, a policyholder is guaranteed a non-zero rate of return on premiums paid. Some plans could also guarantee an absolute amount up front, as long as this results in a non-zero return. However, the earlier you invest, the greater will be your benefit due to the power of compounding.
Since I have taken a single premium policy that protects my home loan, should I consider it to be a term policy also?
? Gurdeep Singh
No. Your current policy covers your liability only for the duration of your home loan and to the extent of principal outstanding. In that sense, it secures the lender?s interest in case of any unforeseen eventuality that befalls the borrower. A term plan, on the other hand, is meant to secure the policyholder?s family?s life cycle needs in case any unforeseen eventuality specified in the plan such as death or critical illness befalls the policyholder. An ideal term cover should be between 10 and 15 times the current annual income.
*The author is executive vice-president, Kotak Mahindra Old Mutual Life Insurance