Insurance: Get income tax return benefit only if premium is paid for immediate family

Can I buy personal accident cover for my driver? If I pay the premium can I claim tax deduction on it? -M A Khanna

No, you can’t claim tax deduction on premiums paid for your driver’s policy. Tax deduction is only applicable if you pay premiums for your immediate family members like your spouse, children and parents.

My husband has an endowment policy with a yearly premium of Rs 24,500 and sum assured of Rs 6,10,000. He is paying premium since April 2004. Should we continue with the policy? -Rita Kumar

You have not communicated the full policy term. My view is that as you have already paid for 14 years and if the policy term is 20-25 years you have already completed considerable portion of the policy term hence it’s advisable to continue the policy till maturity. Endowment policies offer terminal bonus at maturity which is usually a sizable amount. You will also be eligible for this. So, my advice would be for you to continue the policy till maturity. You have only provided details of the premium and sum assured. Other details like policy term, policy features, bonus accrued into the policy over the expired term, etc, are not available and hence, it is challenging for me to guide you accurately. Yet, you would have bought this policy to fulfil some financial goal. If the said policy can fulfil that goal, you should continue with it. Please do remember, that unless there is a compelling reason, it is not advisable to surrender an insurance policy.

The bank from where I am planning to take a home loan asked me to take a life insurance policy. Is it mandatory to take life insurance while taking a home loan? Since I already have insurance wont that be enough? -Rehan Mirza

While it is not mandatory for you to take life insurance policy along with a home loan, it is advisable to do so. The existing life insurance policies that you have are meant to be the source of financial income for your family in case something untowardly were to happen to you. The policy that’s embedded with your housing loan will cover the outstanding portion of your loan. The simple question to be answered is - would you want your family to inherit a home or a loan?

I am paying premium for my life insurance policy every month. Can I change it to annual payment? -Vikrant Prabhu

Yes, in most life insurance policies, changing the premium frequency from monthly to annual and / or vice versa is allowed.

I usually buy single premium policies every year for tax exemption. But a financial advisor told me single premium policies are more expensive than regular premium. Is this true? Sagar Sharma

A single premium policy usually has a relatively lower cost structure than a regular premium policy. If the intent of buying a policy is to save tax, you can continue with the single premium option. Just ensure that the Life Insurance cover is a minimum of 10 times the premium paid for all the tax benefits to accrue. If the intent of buying a policy is to foster systematic, long term savings (in addition to tax exemptions), then I would recommend that you opt for a regular premium policy.

Rishabh Gandhi, Deputy CEO IndiaFirstLife Insurance
Source: DNA Money