1. What are Tax free investments?
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
3. How to decide the amount of Life cover I need?
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.
