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Life Insurance Planning Basics of Life Insurance LIC-Policy Terms
Life Insurance Planning
How To Plan?    
Step 1
Step 2
Step 3
 
Understand the key concepts
  Risk cover versus investment returns
Insurance options range from policies with low premium that offer you almost no returns to those with high premium that effectively offer post-tax returns of around 8% to 9.5% p.a.

These returns are at the lower end of fixed-income returns available today and hence are relatively unattractive.

We recommend you buy an insurance policy skewed towards investment returns only if you are in the high-tax bracket, prefer to invest in low-risk, fixed-income options and have exhausted all the other such investment options available.

See Financial Investment Options and Government Schemes Directory for details of low-risk, fixed-income investment options available.
  Whole life versus limited period
As you grow older, you may not have as many dependents (your children would become self-dependent) or your wealth may reach a level where it can support your dependents’ financial needs in the event of your death.

These possibilities bring us to the interesting question on whether you should insure yourself for whole life or for a limited term. Obviously, the cost of insurance for the latter is lower.

We recommend you insure for whole life only if you never expect your wealth to reach a level where it can support the financial needs of your dependents.
  Tax Planning
The premium paid for an LIC policy also qualifies for tax rebate under Section 88 of the Income Tax Act. The maximum premium amount that can qualify for rebate is Rs60,000 per annum and you get a rebate equivalent to 20% of the premium paid, from your tax liability for the year.
In step 3, we discuss steps in Selecting a life insurance policy.
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