Insurance and Tax all on a Single Sheet

The union budget announced new deduction for people buying insurance. If you are confused about what deductions you are eligible for. Here is cheat sheet on that deductions you can claim.

 Life Insurance Premiums:

Deductions ae available under Section 80 C of the Income Tax Act up to a maximum of Rs. 150,000. Premiums can be paid on policies held by you on yourself, your spouse or your children. No exemption is available on any premiums paid by you on policies held by your parents or in-laws or any other relatives. The amount of premiums, subject to this limit, is deducted from total income to arrive at the taxable income.

Life Insurance policies can be divided into 4 categories for tax purposes.

Policies purchased BEFORE 1^st April 2012 where Premium is LESS than 20% of Sum Assured: Tax Rebate available under Sec 80 C up to a maximum of Rs. 150,000 per annum. Maturity or surrender proceeds exempt from tax under Sec 10 (10) (D). A Death Claim is completely exempt from tax.

Policies purchased BEFORE 1^st April 2012 where Premium is MORE than 20% of Sum Assured: Tax Rebate available under Sec 80 C up to a maximum of Rs. 150,000 per annum up to the portion of premium that falls within 20% of the Sum Assured. Maturity or surrender proceeds NOT exempt from tax under Sec 10 (10) (D). TDS @2% will be deducted by the Insurance Company at the time of maturity claim payout, enabling tax trail for the Income Tax authorities. A Death Claim is completely exempt from tax.

Policies purchased AFTER 1^st April 2012 where Premium is LESS than 10% of Sum Assured: Tax Rebate available under Sec 80 C up to a maximum of Rs. 150,000 per annum. Maturity or surrender proceeds exempt from tax under Sec 10 (10) (D). A Death Claim is completely exempt from tax.

Policies purchased AFTER 1^st April 2012 where Premium is MORE than 10% of Sum Assured: Tax Rebate available under Sec 80 C up to a maximum of Rs. 150,000 per annum up to the portion of premium that falls within 20% of the Sum Assured. Maturity or surrender proceeds NOT exempt from tax under Sec 10 (10) (D). TDS @2% will be deducted by the Insurance Company at the time of maturity claim payout enabling tax trail for the Income Tax authorities. A Death Claim is completely exempt from tax.

Notes:

1.  The provision on tax liability under Sec 10 (10) (D) will not be applicable in cases where the proceeds from a life policy in a year are less than Rs. 1 lakh.
2. Maturity proceeds include any sum allocated by way of bonus.
3.  Where PAN card details are not available, the deduction shall be 20 percent. 
4. Policy loan is not a benefit. It's a repayable obligation. Hence it is not taxable.

Annuity Policies:

Premiums paid to keep in force a contract for annuity plans are eligible for a tax rebate under Sec 80 C and its sub-sections within the same cumulative limit of Rs. 150,000. Any amounts paid out as annuity is subject to tax as per your then income tax slab.

Health Insurance:

Tax exemptions on health insurance premiums are simpler in structure. Premiums up to Rs 25000 per annum are exempt from tax under Sec 80 D.  Premiums can be paid for policies covering self, spouse, dependant parents or dependant children. For Senior citizens, the limit is now Rs.30000. Senior citizens are defined as those who have attained an age of 60 years. The table below will explain these limits.

Item	Rs. Premiums Paid Eligible for Exemption under Section 80 D		Rs. Maximum Deduction Possible under Section 80 D
	Self, Spouse, Dependant Children	Parents (Need Not be Dependant)
All Below Age 60	25000	25000	50000
Purchaser and Family Less than age 60 but Parents are above age 60	25000	30000	55000
Purchaser and his parents are above age 60	30000	30000	60000

Notes:

1. The limits mentioned above for Health Insurance is proposed in the budget presented on 28^th February 2015 and will apply from FY 2015-16 onwards. The current limit is Rs. 15000. For senior citizens the current limit is Rs. 20000.
2. Premiums paid for parents-in-law are not eligible for tax exemption.
3. Premiums must be paid by cheque/net banking. Cash payments are not eligible for exemption.

Home Insurance: There is no exemption available on any premiums paid towards home insurance.

Group Insurance: Premiums paid by your employer on your behalf for group health insurance for you and your family is tax exempt.

Service Tax: Before we conclude, one additional point is to be remembered. It is proposed to raise Service tax 12.36% to 14%. This will impact all premiums that are paid.

Car Insurance: No claims bonus – All you wanted to know

If you are a safe driver do you must be wondering if you deserve a break on your car insurance premium? If you think that way you would be right. Insurers give you a discount if you haven’t made a claim in the preceding years. This is called No Claims Bonus (NCB) in insurance parlance and can lead to substantial savings.

How much do you get?

The table below describes the discount you get on your own Damage (OD) premium.

Number of Preceding years with No Claims	Percentage Discount on own Damage (OD)  Premium
1 Yeas	20%
2 Years	25%
3 Years	35%
4 Years	45%
5  or more Years	50%

The discount is on the own damage premium. There is no discount on the third party portion of the premium. Even then the discounts are quite hefty and rewards for good driving are huge.

Can you carry it to another insurers?

What is more is that you can carry your NCB from one insurer to another should you decide to switch insurers. All you have to do is to ask your current insurer for your no claims bonus (NCB) certificate. Present you certificate to the new insurer and you can get a discount with the new insurer as well. Most insurer will also give you couple of months to present the NCB certificate.

Can I transfer my NCB to my new car?

Here is an even better news that most people don’t know about. While most people know that they can carry their NCB to a new insurers, what most people don’t know is that you transfer your NCB to a new car you buy. As the premiums for new cars tend to be high, this is a lot of saving in premium.  What you need to make sure is that the policyholder on the old car and the new car. NCB follows the fortune of the policyholder.

How can I protect my NCB?

There are generally two ways to protect your NCB. If you a damage that requires only a small amount to rectify then consider if it is worth while paying for it yourself. Compare the amount insurers will pay for the claim with the amount you will save in no claims bonus before taking that decision.  Repair costs can add up very quickly so be very careful before deciding not to file a claim.

Off late some insurers have been providing an option to protect your NCB from one accident a year. You will need to pay an additional premium to avail this benefit. 

Car Insurance: What you must pay in case of claims.

When it comes to insurance people assume that the insurance company will pay for all the expense that the insured incurs.  This causes lots of consternation and heartache. It is always helpful to know beforehand what will paid by the insurer and what you have to incur on your own. Furthermore what are the ways to minimize your out of pocket expenses?

Mandatory Deductible

In case of Car insurance, there is mandatory deductible that you must pay before Insurers will pay a single paisa. The mandatory deductible depends on the type of car you own.

Cubic Capacity	Mandatory Deductible
<1500 cc	Rs. 1000
1500 cc or higher	Rs. 2000

There is no way you can avoid this cost. Mandatory deductible is there so that insurance company is not burdened with lots of small claims that the owners can afford themselves

Depreciation

This is probably one cost that catches out most people.  Insurers take into account aging of the car while paying for replacement parts. While you will get a new part to replace a damaged part, the insurers will pay only a depreciated value instead of the full cost of the replacement.  The depreciation for car parts is as follows:

Age	Percentage Depreciation
6         to 12 Months	5%
1 – 2 Years	10%
2 – 3 Years	15%
3 – 4 Years	25%
4 – 5 Years	35%
5- 10 Year	45%
More than 10 Years	50%

Some insurers offer the pay full replacement value for the parts in lieu of an additional premium. This additional cover is known as Zero or Nil depreciation cover. This is typically available on selected models and for vehicles which are less than three years old.

Towing Charges

While towing charges are generally not payable, Insurers will often include limited towing charges as part of the insurance policy. The towing is often limited to say 10 kms and Rs 1500. Anything more than that is incurred by the owner.

Loss of Use

When your car is in the garage, you have to arrange for alternate means of transport. Insurers will typically not pay for these expenses under normal course. Some insurers however pay you a daily cash amount while the car is undergoing repair. The amount that you are paid is typically capped. You will need to shell out additional premium to get this facility.

What will never be paid?

In addition to this insurers will never pay for regular wear and tear due to normal operations. Examples of these are replacement of tyres or brake pads. Insurers will also not pay for any existing damages that were there before you took insurance.

Did you know?

There is one aspect of Car insurance that is not widely known. In addition to mandatory deductible, one can opt for a voluntary deductible. Voluntary deductible can significantly reduce your premium. However the insurer will pay only if the claims cost exceed the total of mandatory and voluntary deductible.

Voluntary deductible	Reduction in own Damage  premium
2500	20% subject to a maximum of Rs 750.
5000	25% subject to a maximum of Rs 1500.
7500	30% subject to a maximum of Rs 2000.
1500	35% subject to a maximum of Rs 2500.

You can find the best Car insurance Quotes for your car at Polictlitmus.com.

Reviewing your Car Insurance - 3 simple steps

You probably spend a lot of time picking out your new car, visited a number of Car dealer, asked your friends and experts about their opinion and finally settled on your dream car. When you were just about to get the Car keys your dealer reminded you that you need insurance to drive the car out of the gate. But worry not, the dealer can arrange car insurance for you, complete all the paper work and have you covered in no time. Insurance is last thing on your mind and you go with dealer. What you probably don’t know is that the dealer made a hefty sum on your premium and you ended up with a bad deal on the Insurance. What you negotiated on the car value you lost in insurance.

Past is past, when the time comes to renew your car insurance give the dealer a miss. Here are 3 simple steps that you should follow to get the best insurance deal.

1.   Compare rates and shop around

Car insurance rates vary widely from insurer to insurer. Insurers frequently change their rates. The plan that was cost effective last month may not be same today. Comparing insurance and then choosing the right one can save you up to 50% on your car insurance. Compare car insurance rates to bring out the coverages offered by various plans, the cost effectiveness of each plan and the help you arrive at a right decision.

2.   Evaluate your coverage needs

Every car insurance plan has a number of options. You need to figure out the options that are relevant to you. If you have a car costing over 10 lakhs, you may want to go in for zero depreciation cover. Don’t forget to get personal accident protection for your passengers. Accidents can happen because of no fault of yours. Irrespective of your fault your NCB may go away. You have want a coverage to protect your NCB. Here is a list of coverage that you may want to consider:

a.      Personal accident for passengers

b.      Cover for accessories: Things like A/C and music system are not covered in the normal course. You may need this cover if you want to insure them.

c.       Zero Depreciation: Get your insurer to pay the entire claims with no deduction for depreciation.

3.   Investigate the Insurers

Not all insurers are same when it comes to claims and service. First and foremost check out the cashless garage list of the insurer in your city. Pay special attention to the garages for the manufacturer of your car. Car these garages manufacturer authorized? It is also important that you find out what the claims and service performance of insurers are. How quickly do does the insurer settle the claims. How many complaints does the insurer has? Visit the insurer’s home page to find out or check out the insurer’s performance of policylitmus.com

One last thing. Before renewing the insurance, check out what you must pay from your own pocket in case of claims and if there are ways to minimize the same.

So when it is time to renew your car insurance, don’t just send out the premium check to your existing insurer, compare and evaluate to get the best deal. 

Why are Surrender Values for life Insurance So Low

Background: 

If you have ever surrendered a policy, you would have been shocked at the meager amount you received. It would have been much lesser than the amounts paid by you. Let us try and explain why this was so.  

Insurance is a long term contract. Your obligation is to pay the premium on a regular basis. The insurer is obliged to provide cover against the insured event. Contracts can be terminated by either party usually by paying a penalty. Insurers rarely terminate a contract unless the policyholder has committed a breach of his obligations. In rare cases if an insurer goes out of business or winds up his business he may opt to pre-maturely terminate the policy. On the other hand, if you voluntarily terminate the contract before you pay all the premiums, and intimate the company that you are not going to continue, and seek a refund of premium, you have indicated a desire to surrender the policy. The entire premium is almost never refunded. The difference is the penalty for early termination and is called the surrender charge. These charges can be quite steep and is the reason why surrender values are so low.  

Insurance contracts can range from a few days to many years. As a general rule: 

• The shorter the contract the lesser the chances of getting any refund via surrender. 
• Pure risk policies have no surrender values (i.e. entire premiums paid is confiscated). 
• Indemnity policies have little or no surrender value. 
• The longer the duration of the policy, the greater the surrender value the policyholder will get.  

In India long term contracts are usually life insurance contracts and surrender is a provision in most of these provided they are savings policies. Pure Term policies have no surrender value. 

So why is Surrender Value Low? 

Unlike other products and services insurance is bought in installments: however the insurer is fully liable from day 1. Further, insurers spend a lot of money in the initial years for acquiring the policy, pay large distribution expenses and keep aside reserves for claims. These amounts are recovered by them over a period of time from the subsequent premiums paid by the policyholder. Thus if a policyholder breaks the contract by surrendering, the insurer will remain out-of-pocket. These are the amounts recovered by the insurer as surrender charge. 

We are not debating if the charges are justified or can be reduced. The fact is that surrender charges will always exist. Our advice is that one should always aim to continue a contract till the stipulated date. A roundabout way of minimizing loss is by splitting the policy at purchase such that the entire policy need not be surrendered if there is an urgent need for money. Insurers try and restrict this by offering rebates if the premium is large enough. As always, you can count on us to help you solve any questions you have on this issue. 

We at www.policylitmus.com try to offer the best possible advice and options for customers of insurance. Visit our website to find out more. 

Insurance Application Forms: The Truth, the Whole Truth and Nothing but the Truth

I like to read what I sign. So, when my agent asked me to put my signature next to the “x” on a printed form while buying a life insurance policy, I balked. I wanted to fill it up myself, I said.

The first thing that struck me was that the form ran into 5 pages of really small font. After the usual stuff regarding my name and address and phone number, I entered tortuous territory. My height (umm…5 feet 11?), my weight (78 according to the weighing machine in my gym, 75 according to what I tell my friends, 80 is what it really is), my chest size in centimetres (no clue), waist size in centimetres (10 centimetres more than what I would like it to be) and so on.

Still more difficult questions were coming.

No one seems to have told the insurance company that I do not understand their language. They use words that have no meaning for me. For example, have I ever lapsed a policy? What on earth is a lapsed policy? I could not find an explanation, so I said “no”. Have I ever been declined insurance? Wait a minute: I am paying money to you, what is going on? They also wanted to know if I will bungee jump, join a circus as a trapeze artist, drive a race car in my spare time, or jump off a mountain without wings? Most assuredly not I said. Do I suffer from a 100 diseases that I had never heard of? I travel to work by the Mumbai local train and that qualifies me as fit for the Olympics. 

Even if I did I would not know it, and I calmly answered in the negative. Do I drink (alcohol) or smoke (cigarettes, beedis, cigars), or chew (tobacco, gutkha)? Do I drug myself senseless? Have I ever seen a doctor? (I wish I had never).Do I have all my teeth? The only thing they did not ask me was if I kicked the neighbour’s cat on a daily basis. The last page was 30 lines of fine print that assured me that if I ever mentioned anything that was untrue, the most horrible consequences would visit me.

Most of us do not go through this exercise. We just sign next to the “x” and our agent fills up the form. When we get the policy, we dutifully file it, again without reading any of it.

What is it with insurance application forms that make them complicated and unfillable? Well insurance contracts are unequal in nature with the company knowing far less about you than you know about the company. Hence the company needs to know as much detail as it can. A word of warning to the wise: it is in our interest to fill up the form as truthfully as possible. Claims are settled based on the answers filled out.

Fine print and jargon are second nature to an insurance company because they need to protect themselves against fraud. Maybe they need to remember that most customers are honest and processes must be designed to help the good guys.

But you can trust www.policylitmus.com to make things clear to the insurance buying public. No fine print, just crystal clear unbiased information. Compare over 1000 policies and 50 insurance companies, without having to reveal your contact details.