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Tune in on 17th July for the Small Business Virtual Summit with Cisco. Register now!
Last Updated : Feb 10, 2020 02:07 PM IST | Source: Moneycontrol.com

Insurance is always important, with or without the tax breaks

Review your insurance portfolio from a financial protection standpoint

Union budgets will come and go, taking care of larger financial priorities of the nation. As an individual, it is important to move away from the distraction and get your financial priorities right. After all, financially resilient families do play a huge role in building a financially resilient nation.

The alternative tax regime for individuals

While the existing tax regime continues, the union budget announced an alternative tax regime for individuals, which reduces tax rates, but at the same time removes several deductions with respect to insurance – such as sections 80C and 80D. Does this make the insurance cover you already hold or plan to buy suddenly irrelevant, even in case you bought them initially for the tax deductions?

Close

The reason you should take insurance is for the significant and cost-efficient financial protection it gives to your family, and not for the additional benefit of tax deductions. In fact, it is time you review your insurance portfolio from a financial protection standpoint, rather than looking at these policies as mere documents that help you save tax.

With a sluggish economy, it’s important to have smarter financial strategies that ensure you are financially protected at all times. Review the following four key covers irrespective of the government providing tax benefits or not.

Loss of income

Every year, around 1.2 million are diagnosed with cancer. The number of people suffering from serious heart diseases is even larger. Diagnosis of critical illnesses has been reported as a major reason for separation from a high-paying job, substantially reducing the family income. If you are in your late 30s, you and your spouse must buy a comprehensive critical illness plan, in addition to health insurance.

Death of the primary earning member

With or without the tax breaks, a term life insurance cover for the primary earning members, of at least 10 times their annual income is critical for protecting their families, their lifestyle and aspirations in case of a sudden death. Enough has already been said about this.

Accidental Disability

Earning members in the family travel frequently within and outside their cities, exposing them to the risk of accidents. A serious disability with lifelong expenses can cripple the finances of a household. It is therefore very important to explore buying a comprehensive disability policy that covers at least the earning members of the household from all kinds of disability risks – permanent, partial, total and temporary.

Large healthcare expenses

Finally, decide to review and increase your health insurance cover. If you factor healthcare inflation, the minimum health insurance cover that a young family of four will need in 10 years is around Rs 15 lakh.  If you are more than 30, you must take a minimum cover of Rs 25 lakh, through a base policy of Rs 10 lakh and a super top-up cover of at least Rs 15 lakh.

LIC’s listing

LIC’s listing on the bourses will require adherence to disclosure requirements of listed companies, bringing in better transparency and governance. As a policyholder, this will result in better returns on LIC policies in the long run. LIC’s capital allocation, investments becoming transparent will come under the scanner; it won’t be the bailout cash cow for the government. This is good for LIC customers, as LIC will be able to use its funds in a more efficient manner and invest in better avenues. LIC invested Rs 21,000 crore in IDBI Bank last year and also bought significant stakes in government companies that are trading way below their issue prices.

With the listing, LIC will lose the sovereign guarantee it enjoyed for the last 64 years. LIC, with its market share and brand equity, has a market share of over 70 per cent in the life insurance industry. Policyholders do not have anything to worry about, as the insurance company will be governed by the solvency norms of the insurance regulator, IRDAI, and very soon by the governance norms of listed entities in the country.

(The writer is Chief Business Officer, Health, Life and Strategic Initiatives, Coverfox.com.)
First Published on Feb 5, 2020 03:58 pm
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