1. What are Tax free investments?
3. How to decide the amount of Life cover I need?
Indian Government currently allows income tax exemptions under different heads if we invest in certain financial instruments:
- Section 80C – Section 80C of the Income Tax Act allows tax exemption on up to 1.5 Lac of your income if invested in select instruments.
- Section 80CCC - Under this section, you get tax exemption on up to 1.5 Lac of your income if invested in select pension products.
- Section 80D - Premium paid on health insurance policies: Under this section, premium payment towards medical insurance is exempted up to 25,000/ for self/ family and also up to 30,000/- for health/medical insurance in respect of parent/ parents of the assesse.
- Sec 10 (10 D) - Maturity proceeds from Life Insurance policies are exempt u/s 10(10D) subject to specified conditions
There is no hard and fast rule that can help you decide the amount of life cover you require. Nevertheless, by considering these factors, you can arrive at a rough estimate about the life insurance coverage required-
- Current Income Level
- Buying an insurance policy at a younger age can provide more coverage at lower costs
- Calculate the daily minimum needs taking into account the current lifestyle, loans, and other liabilities as well as factor inflation in daily expenses.
- The income rule can be used as thumb rule to estimate the amount of coverage required as per your income. According to this rule, a person’s individual insurance cover should be at least around eight to ten times his gross annual income depending on his age.
- While deciding the amount of life insurance cover it is imperative to consider all the debts, including home loan, vehicle loan, other personal loans, long-term fixed rate mortgage payoffs, and credit card bills.