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Embedded Value: How buying a life insurance or mediclaim policy can help you save tax

As the end of the fiscal year approaches, people begin to worry about their income tax burden. They look for ways and means to reduce such responsibilities through expenses or savings specified as ‘deductions’ from total taxable income in the Income Tax Act.

However, as a result of ignorance or incorrect advice from incompetent intermediaries, most end up paying more taxes. Some purchase life and health insurance plans that bind them to such expenses for several years. These mistakes push them far away from optimum tax saving planning or maximum protection requirements.

Embedded Value: How buying a life insurance or mediclaim policy

Young people must comprehend the complexities of proper tax planning through insurance products. We will soon be entering the final quarter of the fiscal year 2021-22. Therefore now is the time to perform the necessary computations and transactions.

Income tax deduction

Under Section 80C, premiums paid to obtain or maintain a life insurance policy can be deducted from taxable income. However, the amount deducted cannot exceed 10% of the sum guaranteed in any year. As a result, when purchasing a policy, ensure that the term is at least 10 years or more. The highest deduction allowed under this clause in a calendar year is Rs 1,50,000. However, the ceiling includes a variety of other permissible investments such as NSC, PPF, EPF, and so on. Choose a plan carefully based on the need for family protection during critical life phases and the need for a lump sum of money at retirement or even sooner to meet a variety of societal duties.

Premiums paid through unit-linked insurance plans or annuity plans issued by insurers are also eligible for such deductions. The benefit of purchasing well-planned insurance policies is that the taxpayer does not have to purchase a scheme each year. Thus, Premiums paid each year are tax-deductible.

Premiums paid in respect of a life insurance policy on the life of the spouse or children are tax-deductible, regardless of the children’s age, job, or marital status. Premiums paid for policies on parents’ lives are ineligible.

Income tax act

Tax benefits on health insurance

Section 80D allows a premium paid to obtain health insurance coverage for oneself, one’s spouse, and one’s children to be deducted from one’s total income up to Rs 25000 in a fiscal year. An additional deduction of Rs 25000 is subscribable for the payment of premium on the health insurance policy for parents. If the parents are beyond the age of 60, the maximum limit increases to Rs 50,000.

Individuals can claim a deduction of up to Rs 75,000 per year under this clause. However, if the individual is a senior citizen, the total exemption will be Rs 100,000. Premiums paid under life insurance policies that provide critical illness coverage, for example, are also eligible for Section 80D deductions up to the aggregate limit.

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Online sale of term life insurance products gains traction: Max Life

According to a Max Life Insurance senior official, online sales are gaining traction in the life insurance industry. One out of every five-term contract is purchased directly by customers rather than through agents and advisers.

max life insurance

Max Life Insurance Deputy Managing Director V Viswanand claimed, “Indians purchased 12.5 percent of overall term plans by premium online last financial year. Although saving is still low at less than 1% of total premium via the channel.”

“It’s started to become a substantial channel for some organizations like ours… In FY21, Max Life’s market share was close to 30%. Currently, Max Life has a one-fifth market share in India’s online term purchases. While our offline market share is one-fifth of that,” he said.

Viswanand told PTI that the average age of policyholders purchasing policies online is 36 years old. And the company has implemented various unique programs for online consumers based on their feedback.

“We also pioneered a lot of financial auto underwriting, leveraging credit bureau partnerships.” As a result of our bureau partnerships, we don’t ask for any additional proof from 60% of our e-commerce consumers. Customers have experienced less friction as a result of this,” he said.

He also mentioned that the company offers premium vacations to consumers after a few years, with no questions asked, as well as specific leave choices.

How COVID-19 has affected the Life insurance industry!

According to him, the advent of the COVID-19 pandemic has resulted in increased insurance awareness and the deployment of technology has accelerated at this time.

covid affected life insurances

“In the first wave, we witnessed elderly people being admitted to hospitals and deaths occurring, but in the second wave, we saw that there was no age prejudice. It had no prejudice against co-morbidity. Mortality was common, and I believe individuals realized that they are not infallible when it comes to their own lives. “Just because you’re healthy now doesn’t mean you’ll be healthy tomorrow,” he explained.

The epidemic has raised public awareness, as seen by the large increase in sales of pure protection plans following COVID-19.

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Life insurance: Upward trend in premium growth of private players

Individual annualized premium equivalent (APE) growth has been gradually improving over the last few months; with August 2021 up 39% y-o-y, July 2021 up 31% y-o-y, and June 2021 up 16% y-o-y. All this growth comes from a low base of 6% y-o-y decline in August 2020 and a 7% y-o-y decline in each of July 2020 and June 2020.

As a result, high growth is supported by a low base and improved month-over-month (m-o-m) trends. Individual APE CAGR grew to 14 percent in August 2021 from 10% in July 2021 and 4% in June 2021; reflecting better month-over-month trends. Unit-linked insurance plans (Ulips) are reviving, thanks to buoyant capital markets, and non-par savin continues to gain traction.

As the base impact fades, y-o-y growth is expected to slow slightly. However high demand for certain products is expected to keep premium growth strong in the coming months. As a result, overall growth trends are still positive. For private players, Group APE was down 1% year over year in August 2021.

Life insurers' performance

In August 2021, the overall individual APE of LIC fell 5% y-o-y (down 4 percent y-o-y in July 2021 and up 1 percent y-o-y in June 2021). However, the base is higher than that of private players. Individual APE CAGR over two years was -2 percent, compared to 14 percent for private counterparts. However, despite a strong 18 percent y-o-y increase in group APE, overall APE grew only 2% y-o-y.

premium growth

Despite its large base, HDFC Life stands up admirably. It reported a 17 percent year-over-year increase in overall APE. Helm by a robust 27 percent year-over-year increase in individual APE, despite a 32 percent year-over-year decrease in group APE. Individual APE CAGR over two years was 20%, which was higher than the average of private peers’ CAGR of 14%. The sharp drop in group APE is most likely due to a conservative approach to the group term business.

The recovery of ICICI Prudential Life is on pace, with a 36 percent year-on-year increase in overall APE. Helm by 34 percent year-on-year rise in individual APE and 59 percent year-on-year growth in group APE. Due to lower volumes in FY2021, the two-year individual APE CAGR was -2 percent (-10 percent to -11 percent y-o-y decline over the past two months and 15 percent decline in Q1FY22).

Max Life reported a moderate 9% year-over-year increase in individual APE; 10 percent two-year individual growth for August 2021 and 6% for July 2021 is lower than the private peer average of 14 percent and 10%, respectively. Even though Max Life has excelled in the sector in terms of growth since the outbreak began, it appears to have slowed in the last three months. For more such updates, keep watching this space!

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₹1 crore term plan premiums compared! Check out current offers from 20 insurers

Your life insurance policy plan should ideally cover your remaining long-term debts and other critical financial goals of your family members. There are many life insurances available in the market, although choosing the right one for you and your family needs some research. In this article, we will compare various ₹1 crore term plan premiums available in India.

premium plans

The ongoing Covid-19 pandemic has shown to all of us that life could be highly uncertain. And the fact is, that we might not be able to predict what lies ahead. However, we can take the steps necessary to minimize the impact of life’s vagaries on our family’s finances.

One such step that helps in the protection of our family’s finances is to get adequate life insurance protection. This will help in the management of our family’s finances in case something untoward unexpectedly happens to us.

But, why term life insurance policy might be a better idea instead of a traditional policy or an endowment plan? Because the term insurance policy gives a much larger sum assured, at more affordable premiums. Especially if you start the policy at a young age.

How to determine the ideal term insurance coverage level for your family’s future financial requirements?

Your life policy should ideally cover all your remaining long-term debts like existing home loans, education loans, etc. It should also cover other critical financial goals of your family members. As per a popular rule of thumb, the ideal sum assured of your life insurance plan should be 10 – 20 times your current annual income.

It is important to not only focus on the premium obligations but also the insurer’s claim settlement ratio, policy features, and benefits while finalizing your decision. The premiums applicable to you vary depending on your age, income, gender, policy features, or any other terms and conditions of your chosen insurer.

Comparison of the cost of 1 crore term plan

1 crore term insurance plan

Let’s discuss the cost of a Term Plan with a Sum Assured of ₹1 Crore with a case study of a 30-year-old, salaried, non-smoker male (unmarried), residing in Bengaluru, earning ₹5 lakh annually. If he takes term insurance cover of ₹1 crore for a 30-year term. Then the cost of such a term policy plan is represented in the table below.


The table is not exhaustive as it doesn’t cover many other companies that don’t disclose data on their website. The table mentions data as of July 20, 2021.

For more such updates, keep watching this space!