INSURANCE PLANNING
Insurance is a very important financial product. It offers you a protective financial
cover against the various contingencies in life. For the many uncertainties that life
throws your way, there are different types of insurance that you can bank on.
Primarily, insurance for individuals is categorised as Life Insurance and General
Insurance.
Life Insurance offers a cover on the life of the policyholder. General Insurance, on the
other hand, comes in many different forms. There’s Motor Insurance for your vehicles,
Home Insurance for your house, and even Travel Insurance for your vacations or
business travels. And most importantly, there’s Health Insurance, which offers you a
bankable cover for medical emergencies.
Life Insurance and Health Insurance, in particular, are very necessary. They’re musthaves in any financial plan. Here’s why.
Why Life Insurance is a must-have in your financial plan
The best Life Insurance plans offer the policyholder’s family adequate coverage in the
event of the death of the policyholder. This, and many other reasons, makes Life
Insurance a must-have. Let’s delve deeper into these reasons.
Life Insurance offers financial security for the survivors
With Life Insurance, you can secure your family’s future and ensure there’s a source
of replacement income for them in the event of your unfortunate demise. With the
death benefits derived from Life Insurance, your survivors can meet any significant
expenses you may have left behind, like debt repayments. It also helps your family
remain on track and achieve their life goals.
It helps with your retirement planning
By purchasing the best Life Insurance plan to meet your long-term goals, you can even
enjoy the benefits of retirement planning. In plans like endowment policies and ULIPs,
you get to enjoy maturity benefits that can serve as a reliable corpus to start your
retirement phase. You can even opt for pension plans that give you the option to
receive lump sum payouts or periodic payments.
It secures your child’s futureLife Insurance helps secure your child’s future. If you
time your policies right, you can meet the expenses required to get your child into a
good university with the benefits obtained from your Life Insurance plan. Policies like
ULIP can help you grow your money adequately, so you can give your child the best
education possible. You can also make use of the benefits from your plan to meet the
expenses for your child’s wedding.
Life Insurance also offers tax benefits
In addition to the above reasons, you also get to enjoy tax benefits from your Life
Insurance plan. As per Section 80C of the Income Tax Act, the premiums you pay for
your plan are deductible from your total income up to Rs 1,50,000. Also, as per Section
10(10D) of the Income Tax Act, the maturity and death benefits received are also
exempt from taxation.
Why Health Insurance is a must-have in your financial plan
Among the different types of insurance in the general category, Health Insurance is
easily one of the most important covers to purchase. Let’s take a look at why Health
Insurance needs to form a part of your portfolio.
Health Insurance covers medical costs
Medical expenses can become overwhelming very quickly, especially given the
rising costs of healthcare. With a Health Insurance plan, you can meet these expenses
without any significant financial stress. Medical insurance generally covers various
costs like hospitalisation expenses, home care expenses, day care procedures and
ambulance charges.
Health Insurance also offers coverage for critical illnesses
Critical illnesses like cancer, kidney problems, and Alzheimer’s disease can affect
anybody. The costs associated with treating these conditions can be extremely steep.
Fortunately, with a good Health Insurance plan, you can be rest assured that these
expenses will be covered, at least to a certain extent.
It gives you additional benefits over and above your employer cover
If you’re a salaried employee, your employer probably has a Group Health Insurance
plan in place. While this is indeed a good financial product to have in your portfolio,
it may not be sufficient. Personal Health Insurance can offer you additional protective
coverage, over and above what your employer may offer. It also gives you a more
customised cover that’s tailor-made for your specific needs.
Health Insurance also offers tax benefits
Like Life Insurance, Health Insurance also offers tax benefits to the policyholder. The
premium you pay is deductible from your total taxable income as per Section 80D of
the Income Tax Act. The limit of deduction is generally Rs 25,000. For senior citizens,
it is Rs 50,000. Additionally, you can also claim deductions for the premiums you pay
on the Health Insurance availed for your parents.
Conclusion
So, you see why Life Insurance and Health Insurance are both important types of
insurance to include in your financial plan? To experience these benefits, you need to
identify the best Life Insurance plan and the ideal Health Insurance plan for your
requirements and include them in your financial plan. This way, you can be rest
assured that your financial future as well as the future of your family are secure.
Below are some of the major categories of insurance which should form part of
everyone’s financial plan:
1. Auto insurance: Auto Insurance protects one from the damage to the
considerable investment in a vehicle from liability for the damage and also
injury sustained by you or others driving your car. It could also help in
covering the expenses you or others in your vehicle might incur due to an
accident with the uninsured motorist. Auto insurance is crucial for people
owning a car. Most of the countries require you to have auto insurance before
you could register your vehicle.
2. Life insurance: Life Insurance is payable on the demise of the insured and it
can provide the insured’s spouse, children, and dependents funds essential
for helping them maintain the standards of living, could help in repaying the
debts, and could also help in funding the education costs of children. The
amount one needs depends on one’s financial situation. A life insurance plan
is also a tax saving tool since the insurance premium that you pay for your
insurance policy is eligible for income tax benefit u/s 80C of the Indian
Income Tax Act. The policy proceeds that you receive from the life insurance
company are also exempt from tax
3. Medical Insurance: If you’re insured against medical emergencies and
critical illness, you’re staying in very advantageous position. Your medical
insurance policy could reimburse all medical expenses during your
hospitalization. You just need to furnish the required documents which prove
that you were under medical supervision. In case you require a cashless
policy, the insurer would directly pay the medical bills to the hospitals.
Sticking to an insurance plan is very crucial part of the financial plan. Annually, you
should also review your insurance and make required adjustments. If you require
any help, consider seeking the assistance of a financial adviser. Having insurance
isn’t enough – it should meet all your needs. Being aware of financial implications
and potential risks is critical. Additionally, it is crucial to understand all the features
and terms and conditions of the insurance policy so you’re aware of exactly what
you’re covered for.
What is Estate Planning?
Estate planning is a type of agreement where a person decides who will
own and manage their assets once the person is deceased or
incapacitated. Estate planning is important, as it eliminates the burden of
legal heirs having to bear the taxes of transferring the assets had the estate
not been planned. In case the beneficiary is a minor, a guardian is
assigned until the minor becomes 18 years old.
Parties Involved in Estate Planning
1. Settlor/Grantor
A settlor is an individual who creates the estate and is the owner of the
assets in the estate planning. They create a trust to hold the assets on
behalf of the beneficiary or legal heirs. The beneficiary can be an
individual or a group of individuals.
2. Trustee
A trustee is appointed by the grantor to look after the assets in the trust.
They are paid for their time and service out of the trust funds. The trusts
are run like a business, where the trustee can make any revenuegenerating decisions in growing the trust.
3. Beneficiaries/Heirs
Beneficiaries are the ones for whom the assets are planned for. It is
stated in the agreement, which is managed by the trustee. If they find the
trustee to be unfit to manage the assets, they have the legal right to
replace them.
Importance of Estate Planning
Plan how the assets are to be segregated
In the absence of an estate trust, governments may decide on the
allocation of assets. It could mean that a friend or a non-family member
could get the assets ahead of the immediate family members. Hence, it is
important to plan the allocation of assets so that the right people who the
grantor of the estate planning deems to be the beneficiaries are
allocated the assets.
2. Proficient and faster transfer of assets
Without a plan, many estates take a long time to settle, as disputes may
arise among the family members on the allocation of the assets. Hence, it
is important to have a plan in advance so that the estate can be
transferred proficiently to the beneficiaries.
3. Plan how assets are managed during their lifetime
Estate planning can also help an individual in deciding who will manage
and own the assets when the grantor is alive but is not in a position to
manage the assets due to an accident or illness.
4. Reduce fees and taxes
As mentioned above, without an estate plan, there can be a lot of fees
and taxes involved in the transfer and segregation of assets. Hence, with
an estate plan, the grantor can reduce fees and taxes, which will help
avoid more money being taken out of the estate to pay the said fees and
taxes.
Types of Estate Planning Trusts
Revocable and irrevocable trusts are two of the most common types of
estate planning trusts.
1. Revocable Trust
A revocable trust, as the name suggests, can be adjusted, revised, or
canceled completely. These types of trusts are beneficial to the grantor,
as it avoids any legal battle. However, the creditors of the grantor can
have access to the estate by getting a court order.
2. Irrevocable Trust
An irrevocable trust cannot be adjusted, revised, or canceled once the
grantor transfers the assets to the trust. However, the grantor can take a
second to die/survivorship life insurance, where the beneficiary gets the
payout only when all the insured parties are dead. Also, since the
beneficiary gets the payout only on the death of the insured, it could lead
to criminal offenses like murder.
Apart from revocable and irrevocable trusts, below are other types of
trusts set up in estate planning:
1. Asset Protection Trust
While in a revocable trust, a creditor can get access to the estate by
court order, an asset protection trust protects the grantor from this type
of risk. After transferring the assets to the trust, the grantor or trust
maker doesn’t become the beneficiary.
Hence, the funds are protected from any creditor attacks. Once the trust
is terminated, the assets are given back to the grantor.
2. Charitable Trust
A charitable trust is beneficial to the trust maker, as it reduces or avoids
paying taxes. It also helps when the trust maker owns very high-value
assets. By putting the high-value assets in the charitable trust, they avoid
paying huge taxes and also receive a huge payout, while a portion of it
goes to charity.
CAPITAL GAINS TAX
What is section 54 of the Income
Tax Act, 1961?
We all know that on selling or transferring a capital asset like property, capital gains
arise which are taxable in the hands of the assessee/ taxpayer. Under Section 54 of
the Income Tax Act, an individual or HUF selling a residential house property can
claim exemption from such capital gains if they invest the proceeds in acquisition
i.e., purchase or construction of another residential property. For claiming this tax
benefit, there are certain prescribed conditions need to be satisfied. Let’s explore
them one-by-one in this guide.
What is a capital asset?
Any kind of property owned by an assessee is known as a capital asset. It may or
may not be connected to business or profession.
Category
Examples
Movable or immovable
Land, building, house property etc.
Tangible or intangible
Vehicles, patents, trademarks, leasehold rights etc.
Fixed or circulating
Machinery, jewellery etc
What are the different types of capital assets under income tax?
For capital gains, the assets are bifurcated in two major sections that are:

Short term capital assets-Capital assets which are held by the individual for not
more than 36 months are called short term capital assets. The gains from the sale of
these assets are called short term capital gains.

Long term capital assets-Capital assets that are held by the assessee for more than
36 months are called long term capital assets. The gains from selling these assets is
called long term capital gains.
What is the amount of capital gain exemption available
under section 54?
Section 54 of the Income Tax Act allows the lower of the two as exemption amount for
a taxpayer:

Amount of capital gains on transfer of residential property, or

The investment made for constructing or purchasing new residential property
The balance amount (if any) will be taxable as per the income tax act.
For example: Mr Anand sells his house property and earns the capital gain of Rs.
35,00,000. With the amount of sale he purchased a new house property for Rs
20,00,000. The exemption under section 54 will be the lower amount among both
that is Rs 20,00,000. The capital gains that is liable for taxation will be the balance of
both that is Rs 15,00,000 ( 35,00,000-20,00,000).
Which are the mandatory conditions for availing
exemptions u/s Section 54?
The taxpayer requires us to fulfil various conditions to avail the exemptions under
section 54. They are as follows:

After the sale of the old house property the assessee must purchase new residential
property or construct new house property to get benefit from this exemption.

The new residential property must be purchased either one year before the sale of
the old property or two years after the sale of the house property or constructed
within three years of the date of transfer or sale.

Only one house property can be constructed or purchased by the individual to claim
the benefit.

If the individual fails to construct or purchase new house property within the
stipulated period, he or she can deposit the capital gains proceeds in Capital gains
Account Scheme in any public sector bank and avail the exemption from this section.
DIVIDEND TAX
Source of dividend
You can receive dividends from the following sources –

From a domestic company in whose shares you have invested

From a foreign company in whose shares you have invested

From equity mutual funds if you have chosen the dividend option

From debt mutual funds if you have chosen the dividend option
Recent Changes, Updates in Tax on
Dividend Income
Previously i.e, up to Assessment Year 2020-21, if a shareholder gets dividend from a
domestic company then he shall not be liable to pay any tax on such dividend as it is
exempt from tax under section 10(34) of the Act subject to Section 115BBDA which
provides for taxability of dividend in excess of Rs. 10 lakh. However, in such cases,
the domestic company is liable to pay a Dividend Distribution Tax (DDT) under
section 115-O.
The Finance Act, 2020 has abolished the DDT and moved to the classical system of
taxation wherein dividends are taxed in the hands of the investors. So now, dividend
income will become taxable in the hands of taxpayers irrespective of the amount
received at applicable income tax slab rates.
Tax on Dividend Income
Taxability of dividend will depend upon whether dividend receiver deals in
securities either as a trader or as an investor. The income earned by the person from
the trading activities is taxable under the head business income. Thus, if shares are
held for trading purposes then the dividend income shall be taxable under the head
income from business or profession. Whereas, if shares are held as an investment
then income arising in the nature of dividend shall be taxable under the head of
income from other sources.
TDS on Dividend Income
As per Section 194, TDS shall be applicable to dividends distributed, declared or
paid on or after 01-04-2020, an Indian company shall deduct tax at the rate of 10%
from dividend distributed to the resident shareholders if the aggregate amount of
dividend distributed or paid during the financial year to a shareholder exceeds Rs.
5,000. However, no tax shall be required to be deducted from the dividend paid or
payable to Life Insurance Corporation of India (LIC), General Insurance Corporation
of India (GIC) or any other insurer in respect of any shares owned by it or in which it
has full beneficial interest.