Owing to the uncertainties of life, getting insurance cover is an utmost important exercise to ensure a secured future. However, few are aware of the intricacies of the insurance policies

First, life insurance is ideal for people who are married, have children, own assets, need business protection, or have asset-planning needs. Term life insurance, can be for durations of 10, 15, 20, or 30 years. It's great for people who are looking for a low, affordable premium. Whole life insurance is a permanent life insurance that insures you until you reach age. The other premiums are more expensive compared to term life insurance, but it does build cash value.

Second, health insurance is a necessity these days and can provide you with peace of mind in the event of an unforeseen illnesses or accident as the life is so uncertain these days. New diseases come every year which are difficult to cope up with. Any pre-existing conditions will leave you without health coverage on an individual plan, but you would be eligible for health coverage under a group plan. Health insurance should be a top priority. However, this is not always a possibility since premiums can be very expensive.

On the contrary, health coverage for seniors is much more attainable compared to the rest of the population. Most seniors who turn 60, are eligible for Mediclaim, which is health insurance provided by the insurance companies. They are entitled to hospital expenses. Nonetheless, Medicare only covers 80% of these costs. By and large, obtaining complete health coverage for seniors is very important .Additionally, disability insurance is better suited for people who are self employed or are the sole earning member of their household. It provides extra protection in the event an accident or illness leaves you unable to work. Above all, alternative investment vehicles for retirement benefits should be considered in the case of low returns.

Have a covered tomorrow.

Tax Planning: Claiming Income tax benefit

The end of the financial year is here. Tax planning can be a simple exercise for the salaried person.

As the financial year comes to an end, it is time for the salaried section to put in place the tax-saving investments. While the remaining two months can be used for making the investments, it gets a lot easier if the employer is provided with all details as it will do away with the task of waiting for refunds. Since most employers expect employees to provide proof of tax saving by the end of January or February, check 5 out if you have completed the tasks.

Rent receipt details
The house rent allowance can turn taxing if employees don't provide details of their rental expenditure. Hence, provide details of rent paid for the past months so that HRA does not become a taxable income.

Details of all tax-saving investments
Signing up for long-term tax-saving instruments like insurance or pension plans is meaningless if the details are not provided for tax relief. While the task of providing details becomes easy when you opt for salary deduction, the trouble comes when you make these investments on an annual or half-yearly basis. When insurance payments are made through ECS, it is still mandatory to provide the receipt or statement to the employer to get the tax relief.

Keep track of changing guidelines
Income tax regulations, as you are aware, are subject to change. Hence, you need to assess the past investments at regular intervals. A classic example is investments in pension plans which were earlier covered under Section 88CCC. Now they have been brought under Section 80C and the upper limit too has been raised to Rs 1 lakh from Rs 10,000.

Similarly, there have been changes on the health insurance front too with additional relief being provided for premium paid on behalf of senior citizen parents.

Reducing burden from LTA

Leave travel allowance is always a tricky component for young professionals. Since the allowance needs to be claimed (some companies do provide without request), it can skip the attention of many professionals. There are a couple of factors associated with LTA. As the name indicates, the allowance is provided to enable the professional to travel on leave once a year to his native place. Hence, the individual is required to provide details of the travel to claim it.

The other part of the allowance is with respect to income tax. The allowance, as per the IT Act, is tax-free once in two years or twice in a block of four years. So, it is important for the salaried segment to keep track of the year while claiming the tax benefit as it need not be taxed alternate years or twice in a block of four years.

During the remaining two years, the allowance is taxable.

Medical reimbursement

Another expenditure which is not taxed from the point of employee is medical expenditure, up to a limit of Rs 15,000 per annum. Some employers do provide the money if not claimed but then it will become an allowance and hence taxable. Instead, employees can reduce the tax burden by claiming the allowance with the help of medical bills on a monthly or annual basis.

Leave Travel Allowance

What is Leave Travel Allowance?

Leave Travel Allowance (LTA) is the part of the remuneration granted to employees by the employer to provide for personal travel expenses incurred during the year. Apart from the employee, it covers travelling expenses of spouse, children as well as dependent parents and siblings. Further, the exemption is restricted to two children born on or after October 1, 1998. There is no restriction on the number of children born before this date.

How does LTA save on tax outgo?

Under section 10 (5) of the Income-Tax Act, if an employee who is in receipt of LTA undertakes a journey within the country, s/he can claim the value of the allowance exempt from income tax. For the purpose, the individual should have been on leave for the period during which the journey was undertaken.

Can you claim it every year?

No. The exemption can be claimed only twice in a block of four calendar years. The current block has started from January 1, 2010, and will last until December 31, 2013. The previous one ended on December 31, 2009. If you do not avail of the concession in any particular block or undertake just one journey, you become entitled to carry forward one journey to the next block. However, this has to be utilised in the first year of the new block. For instance, if you availed of the concession just once instead of twice between January 1, 2006 and December 31, 2009, then you are allowed to carry forward the unused one into the subsequent block (2010-2013), provided you undertake the journey in 2010 itself. A point to be noted here is that even if you don't avail of the concession at all during a particular block, you can carry forward only one entitlement to the next block.

Can the entire amount be claimed as an exemption?

The exemption will depend on certain criteria specified. Firstly, it is the lower of the actual expenses incurred and the allowance granted by your employer. Let's assume your LTA is Rs 10,000, but you end up spending Rs 15,000 on travelling. In such a case, the exemption will be allowed to the extent of Rs 10,000. Conversely, if your LTA stands at Rs 15,000 and your actual expenses amount to Rs 10,000, you will still be entitled to a deduction of only Rs 10,000.

Other parameters that decide the extent of exemption?

If you have opted to fly to the destination, an amount not exceeding the economy class airfare of the national carrier by the shortest route to that city would be admissible as deduction. In case you are travelling by road or rail, the cost of first class air-conditioned ticket to the destination by the shortest route would constitute the benchmark. Besides, if your travel plan entails visiting multiple places during the trip, the destination farthest from your place of residence would be taken into account for determining the exemption amount.

What if the travel bills are not submitted before the deadline?

If you fail to submit your travel bills pertaining to LTA claim with your employer within the time prescribed, your employer would consider the amount of LTA paid as taxable and deduct income tax at the rate applicable to you. However, you can claim LTA exemption at the time of filing your income tax return.

How much tax we can save from now on?

THE finance minister has put more money in the hands of a large section of tax-payers. There are also some additional tax breaks in the form of investments made into infrastructure bonds and health insurance. Our Personal Finance team speaks to experts on the best way to manage the additional income depending on your age group.

IF YOU EARN BETWEEN RS 1,60,000- 5,00,000

Assuming you earn Rs 5 lakhs per annum, you would end up saving Rs 20,601 a year as taxes, which translates into a monthly saving of Rs 17,17 a month.

For working men and women
When seen as the incremental earning for the month the amount may appear small. However, even a small hike can lead to large savings.
This is extra money coming your way and you would do well to invest it, rather than spend it. According to him, if you are under insured, this is the time to ensure that you adequately cover yourself, with the extra amount you have for yourself.

Once that is done, assuming you want to invest Rs 1.2 lakhs (Rs 1 lakh under section 80C and Rs 20,000 under infrastructure bonds), go for a for a debt: equity ratio of 50:50 between equity and debt. Invest Rs 60,000 in your employers Provident fund or PPF, infrastructure bonds and your insurance plans,. The balance Rs60,000 should be invested in ELSS schemes, thereby helping you to achieve your growth objective saving taxes .

IF YOU EARN BETWEEN RS 5,00,000-8,00,000

There is a bonanza for tax payers in this bracket as the percentage amount of tax they save would be highest among all brackets. Everyone in this bracket will now pay tax at 20%, plus education cess of 3%. The increase in annual disposable income would vary between Rs 20,000-51,000.

For working men and women

1) The additional amount left in their bank account could be utilised to prepay a part of their home loan this year. This is important in the light of the Direct Tax Code - which could do away with tax benefits on interest paid on home loan – coming into force from April 1, 2011.

2) The surplus could also be used to buy or enhance your health insurance cover. A lot of taxpayers do not exhaust the deduction of Rs 15,000 on health insurance premium paid (under section 80 D), as they simply do not have any surplus to do so.

3) The Budget also offers an additional deduction of up to Rs 20,000 – over an above the deductions allowed under section 80 C of up to Rs 1 lakh – for investing in infrastructure bonds to be notified by the central government. This is approximately the amount that someone earning Rs 5 lakh would save due to change in slabs, which could be directed to these instruments.

4) Make sure that you invest to fufill your financial planning requirements, and not merely to save on taxes. For instance, if someone earning Rs 6,00,000 invests Rs 20,000 in the proposed infrastructure bonds in 2010-11, he/she would save Rs 4,000 in taxes that year. If the amount is not redeemed for five years, it could grow to Rs 30,000 (assuming the bonds will carry an interest of 8% per annum). However, the gain of Rs 10,000 could be taxable in the hands of investor (clarification from the government is awaited on this aspect). The return would barely beat inflation. If the same amount is directed to equities or equity mutual funds, the investment could be worth Rs 40,000 after five years, assuming a return of 15% CAGR. Therefore, those falling in this tax bracket should ascertain if they would want to lock in their money for say five years merely from the short term viewpoint of obtaining tax incentives.

What is Life Insurance?

Human life is subject to risks of death and disability due to natural and accidental causes. When human life is lost or a person is disabled permanently or temporarily, there is a loss of income to the household. The family is put to hardship. Sometimes, survival itself is at stake for the dependants. Risks are unpredictable. Death/disability may occur when one least expects it. An individual can protect himself or herself against such contingencies through life insurance.

Life insurance is insurance on human beings. Though Human life cannot be valued, a monetary sum could be determined which is based on loss of income in future years. Hence in life insurance, the Sum Assured (or the amount guaranteed to be paid in the event of a loss) is by way of a ‘benefit’ in the case of life insurance. Life insurance products provide a definite amount of money to the dependants of the insured in case the life insured dies during his active income earning period or becomes disabled on account of an accident causing reduction/complete loss in his income earnings.

An individual can also protect his old age when he ceases to earn and has no other means of income – by purchasing an annuity product. There are a number of life insurance products which offer protection and also coupled with savings.

A term insurance product provides a fixed amount of money on death during the period of contract.
A whole life insurance product provides a fixed amount of money on death.

An Endowment Assurance product provided a fixed amount of money either on death during the period of contract or at the expiry of contract if life assured is alive.

A money back assurance product provides not only fixed amounts which are payable on specified dates during the period of contract, but also the full amount of money assured on death during the period of contract.

An annuity product provides a series of monthly payments on stipulated dates provided that the life assured is alive on the stipulated dates.

A linked product provides not only a fixed amount of money on death but also sums of money which are linked with the underlying value of assets on the desired dates.

There are a variety of life insurance products to suit to the needs of various categories of people—children, youth, women, middle-aged persons, old people; and also rural people, film actors and unorganized labourers.

Life insurance products could be purchased from registered life insurers notified by the IRDA. Insurers appoint insurance agents to sell their products. Public who are interested to buy life insurance products should receive proper advice from insurance agents/insurer so that a right product could be chosen to suit particular financial needs.

Thus life insurance policies offer protection and security to families and provide happiness to society.

Some leading Life Insurance companies are LIC,ICICI,BirlaSunLife etc.

What is Insurance?

The first thing which comes to our mind when we even start thinking of Insurance as a subject is what really is Insurance all about? Is it something related to security or is it some fixed scheme by some commercial organization? What is it? Lets start our journey of Insurance:

Insurance in its basic form is defined as “ A contract between two parties whereby one party called insurer undertakes in exchange for a fixed sum called premiums, to pay the other party called insured a fixed amount of money on the happening of a certain event."

So as we can see there are two parties involved: Insured and the Insurer. They are trying to reach an agreement by virtue of which the Insurer promises to protect the Insured in case of an occurence of certain event. This even is what in Insurance terminology is called Risk.

Insurance is basically a protection against a financial loss which can arise on the happening of an unexpected event. Insurance companies collect premiums to provide for this protection. By paying a very small sum of money a person can safeguard himself and his family financially from an unfortunate event.

For Example if a person buys a Life Insurance Policy by paying a premium to the Insurance company , the family members of insured person receive a fixed compensation in case of any unfortunate event like death.

There are different kinds of Insurance Products available such as Life Insurance , Vehicle Insurance, Home Insurance, Travel Insurance, Health or Mediclaim Insurance etc.

In my next series we will explore some other aspects of Insurance which we as common people should be aware of.

My Insurance Tutorial

Hello !

This is a place where you will get all your doubts cleared related to Insurance. I will be trying to put together a fairly simple understanding of the subject and its implementation in practical life for us. Enjoy the learning.