Prioritise policies with higher maturity for tax exemption

This approach will minimise your tax liability on traditional policies with lower maturity proceeds

A new circular issued by the income-tax (I-T) department provides greater clarity on the taxability of non-unit-linked (basically, traditional) life insurance policies. Prior to Budget 2023, a payout from any life insurance policy (other than unit-linked insurance plans, or Ulips) was exempt from taxation, provided a few specifications were met.

“According to section 10 (10D), amended in the Finance Act of 2023, there is no tax exemption for life insurance policies issued on or after April 1, 2023, if the premium exceeds Rs 5 lakh.” An additional condition, which has been there for a long time, is that there is no exemption if the premium exceeds 10 percent of the sum insured.

Plugging tax leakage

Under the old rules, the maturity benefits enjoyed tax exemption irrespective of the premium amount. While the goal was to promote insurance penetration, these police ended up becoming a tax-avoidance tool for high-networth individuals (HNIs) who bought high-value policies with hefty premiums. “Affluent individuals were drawn to these plans due to their guaranteed, tax-free maturity benefits coupled with insurance coverage. Observing this, the government introduced these amendments.”

Rules for multiple policies

If the aggregate premium of more than one policy exceeds Rs 5 lakh, only the policies with a combined annual premium of up Rs 5 lakh will be exempt. Investors can choose the policies whose proceeds they want exempted. Narang clarifies that Goods and Services Tax (GST) applied on the premiums will not count towards the Rs 5 lakh limit.

Suppose that a new policy was purchased, on April 1, 2028, after the premium-paying term of an earlier policy had ended. The annual premium of two policies exceeds Rs 5 lakh. Association of Registered Investment Advisors (Aria): “The earlier policy may not have matured. Nonetheless, the maturity benefits received from both will be exempt. The key is that the annual premium paid on multiple policies should be exceeding Rs 5 lakh.”

Term polices don’t make any payout if the insured survives the policy term. The premium of a term policy will not be counted towards the Rs 5 lakh limit. Jain points out that any payout made to the nominee upon the policyholder’s death continues to be tax-exempt. This is regardless of the nature of the plan. How fill tax be calculated in the case of policies where the payout is not exempt? “The premium paid can be deducted from the maturity benefits. However, an indexation benefit is not available.” The net amount shall be taxed as income from other sources.

“These revisions provide lucid directives for claiming exemptions on eligible life insurance policies.”

HNIs to be impacted

The Rs 5lakh threshold is reasonably high, so these changes will mostly affect HNIs. After April 1, 2023, taxpayers should be mindful while investing in traditional policies for tax-free returns. “Make sure you do not cross the Rs 5 lakh premium threshold.” He adds that where the proceeds become taxable, the post-tax returns are likely to be sub-optimal. The pre-tax returns from these plans anyway don’t exceed 4-6 percent. Taxation at slab rate will make their post-tax returns even less attractive.

If you are planning to change your payment frequency, think again. “If an individual’s alters her premium payment frequency within the policy term, such as shifting from annual to semi-annual or quarterly payment, resulting in the premium exceeding Rs 5 lakh, the maturity of the policy will become taxable.”

Experts have always warned against mixing insurance and investment. “Buy term insurance for protection. ”For investment, go with products like fixed deposits, mutual fund, etc. For Ulips, the government had imposed a cap on the premium even earlier. So, ensure that for Ulips purchased on after February 1, 2021, the aggregate annual premium does not exceed Rs 2.5 lakh.

Offer the traditional policies with higher maturity proceeds first for exemption and let the policies with lower maturity proceeds be subject to taxation.

STRATEGY FOR THOSE HOLDING MULTIPLE POLICIES

If the aggregate premium of multiple policies exceeds Rs 5 lakh, only the policies with annual premium up to Rs 5 lakh will be tax-exempt (investor can choose the policies she wants exempted).

Suppose that a policyholder has five policies with annual premium of Rs 1 lakh (A), Rs 1.5 lakh (B), Rs 2 lakh (C), Rs 3 lakh (D) and Rs 4.75 lakh (E).

In this case, the investor may choose policy E for exemption (as premium is below Rs 5 lakh).

However, she could select policies C and D for exemption, as the maturity benefit from them is likely to be higher than from E.

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Higher EMI or longer tenure? Go by your financial wherewithal

A floating-rate loan appears to be better bet than its fixed-rate peer at present

On August 18, 2023, the Reserve Bank of India (RBI) issued a circular titled “Reset of floating interest rate on equated monthly instalments (EMIs)-based personal loans”. Experts say that the latest rulings will make the resetting of rates more transparent and allow greater choice to borrowers.

 Give options to borrowers

Earlier, when the repo rate went up, banks would increase the tenure. When the headroom for increasing the EMI. All this would happen automatically. The RBI has now made it mandatory for banks to ask borrowers which of the three options they prefer: higher EMI, longer, tenure, or a combination of the two. “Many borrowers who have the financial wherewithal can now opt for an increase in EMI so that they are able to pay off the loan within the stipulated tenure and save on interest cost.

A higher Emi, however, means less financial flexibility, Indian Mortgage Guarantee Corporation (IMGC), “The higher monthly burden would impact free cash flow and the borrower’s ability to invest for other goals.”

Elongating the tenure means more cash in hand, and greater flexibility to spend or invest, but results in a higher interest cost. Borrowers must look at their financial ability when making a choice.

Options to switch to a fixed-rate loan

RBI has made it mandatory for banks to offer borrowers the option to switch to a fixed-rate loan whenever interest rate is reset. Currently, only a handful of lenders offer fixed-rate loans.  Pricing the risk of a fixed loan over 20-30 year tenure is difficult. To factor in this risk, fixed-rate loans are expensively priced. “Their interest rates are at least 2.5-3 percentage points higher than that of floating-rate loans,”

Fixed-rate loans, though, have their benefits too. “They off peace of mind. Borrowers know that their monthly outgo will remain constant and they will be able to repay the loan by a fixed date,” However, remember that lenders are allowed to charge a prepayment fee in these loans.

Experts currently favour sticking to a floating-rate loan. “Why lock into a fixed-rate loan when interest rates are on the higher side? Moreover, they could start descending in a few months. The fixed-rate option should be examined when interest rates are near the bottom of the cycle. “Even at that point, borrowers should be detailed calculations to see which of the three options is most attractive: staying in the floating-rate loan and prepaying; refinancing and moving to a lower-cost floating- rate loan; or moving to a fixed-rate loan that is 2.5-3 percentage points higher.”

The repo rate has gone up by 250 basis points in the current cycle. While loan rates of existing borrowers have gone up by the same amount, rates on new loans have increased by a lesser amount as several banks have reduced the spread on their loan. Borrowers (especially those on loan linked to older benchmarks) must examine the option to refinance.

Few borrowers allow their loans to run the full 20 year course.” Most prepay within 7-10 years. Therefore, it may not make much sense to pay a much higher rate of interest if you are planning to prepay and pay off the loan early. In the case of a fixed-rate loan, check whether it is fixed for the entire tenure. “Many such loans have a fixed rate for only the first few years.

Make simple account statement available

The RBI has asked banks to make a simple account statement available at the end of each quarter. This statement must include the following information: principal and interest recovered to data, EMI, number of EMIs left, and the annualised rate of interest or the annual percentage rate for the entire loan tenure. “The RBI is basically saying that the key terms and conditions of a loan should not be hidden in the fine print”. Raghaw suggest that borrowers check their statements regularly and stay informed about their loan’s key parameters.

NO PENAL INTEREST TO BE PAID

Suppose a borrower has a EMI of, say, Rs 100, and his interest rate is 8%.

When he defaults the bank levies a fine of Rs 10; this is the penal charge.

Many banks were, in addition, charging a penal interest; in this example, if the penal interest was 100 basis points, the borrower’s interest rate would go from 8 to 9%.

RBI has said that while banks can levy a penal charge, they can’t levy a penal rate of interest.

Banks can also not capitalise the penal charge.

If the penal charge of Rs 10 is not paid and the borrower’s defaults for a second month, the penal charge can increase from Rs 10 to Rs 20, but it can’t be added to the principle (the principal can’t go from Rs 100 to Rs 110).

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 Financial checklists before you go abroad

From bank accounts to insurance, transaction modalities will change

IF YOU PLAN to move abroad either for a job or for higher education, careful financial planning is essential to ensure a smooth transition. Foremost, you must inform your bank about the change in residential status and savings /current accounts should be converted into Non-resident Ordinary (NRO) to manage any future income you earn from investments in India.

The NRO account can receive any income like rent, interest or dividends from stock investments earned in India and will be handy to make local payments when you visit home. You can also open an Non-Resident External (NRE) account, neither the balance, nor the interest earned is taxable and the money in this account is also freely repairable.

For equity and mutual fund portfolio, if you plan to continue with the investments in India, you need to update the KYC details, and link the demat account and mutual fund portfolio to the NRO account. You must also address any outstanding debts or liabilities in India before you move out. You should also opt for adequate insurance cover and decide what to do with the property, vehicles, and other assets in India and do the tax planning. Review any existing retirement accounts, such as Employees Provident Fund or Public Provident Fund and understand how moving abroad may affect them.

It is important to inform the Indian bank about the individual’s plans to move abroad and understanding the formalities for running or closing the account. One should also check on the formalities for transferring funds. “Opening a new bank account in your new country is also crucial for managing your local finances. Be sure to clarify with your bank partners whether you need to maintain any Indian accounts for specific purpose, such as investments or loans,” he advises.

Need for insurance

As protecting health and wealth is crucial, evaluate the life and general insurance coverage and determine whether to modify or purchase new policies. It is vital to understand the terms of the insurance policies held by the person moving abroad and evaluating their applicability in a foreign land. When you move abroad for a job or higher studies, the status of your existing insurance policies may vary. In the case of life insurance policies, they generally remain valid, but it is critical to inform the insurance providers about the change in residency to ensure continued coverage. Health insurance policies may not cover medical expenses to check the policy terms and consider purchasing international insurance.

It is important to review other insurance policies like car insurance or property insurance to determine if any modifications or cancellations are needed based on the change in residency.”Consulting with the insurance provider and understanding the policy terms is essential to make informed decisions.

He recommends that individuals opt for an international health insurance which will provide coverage for medical expenses, hospitalisation, and emergency medical evacuation while living abroad. “It is essential to have comprehensive health insurance that meets the requirements of the destination country.

Personal liability insurance can help protect against legal liabilities arising from accidental damage or injury caused to others. This coverage can provide financial protection in case of any unforeseen incidents or accidents while abroad. Also, if you own property in India, consider property insurance to protect against risks such as fire, theft, or natural disasters. This ensures that your property remains protected even when you live abroad.

Tax laws

Researching the tax laws and regulations of your new country is important to understand your tax obligations as a resident or expatriate. Note that as non-residents are not allowed to hold any agricultural land in India, you will be required to sell any agricultural land holding before moving abroad.

Income tax returns are to be filled after the end of the financial year and in case the person is moving for less than 180 days in the previous year, he will still be considered a resident of India (for tax purposes) for that year and the global income (salary earned abroad) will also be taxable in India.

STATUS UPDATE

Convert existing bank account to NRO account to receive interest, rent or dividends earned here or for local payments

Open an Non-Resident External account to park any foreign earnings

If you are going abroad for less than 180 days, you will still be considered a resident of India for tax purposes.  

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 Missed July 31 ITR deadline? File belated return by Dec 31

But you will have to pay a late fee, interest, and won’t be able to carry forward business and capital losses

The deadline for filing the income-tax return (ITR) for assessment year 2023-24 was July 31 2023. However, for those who missed the deadline, there is still a chance to make amends. The Income-Tax (I-T) Act provides an opportunity to file what is called a belated ITR.

“If an assess who is required to file an ITR under Section 139 of the Act, 1961, misses the deadline, she can file a belated return by December 31, 2023.”

Stay compliant 

Filing a belated return enables you to stay complaint with tax regulations and avoid legal complications. An ITR is required to be filed in order to show the taxpayer’s income and sources of income to the government as proof of being a legitimate taxpayer. “A person’s citizenship as well as business in India is dependent on the taxes and ITR filed by them, as allows them to continue their citizenship or business within India.”

Points out that even if you missed the original deadline, you can still claim a tax refund if you are eligible for one, by filing a belated return.

Financial consequences

While belated returns come as a saving grace, they carry a cost, “If the income exceeds the basic exemption limit and the ITR is filed after the due date but on or before December 31,2023, a late filing fee of Rs5,000/- is levied. However, for taxpayers whose income does not exceed Rs 5lakh, the late filing fee doesn’t exceed Rs 1,000.” Warns that the assesses will have to pay an interest cost under Section 234A. Interest under Section 234A is charged at the rate of 1 per cent per month or part of a month on the unpaid tax amount.

Narang adds that besides interest under Section 234A, interest under 234B may also continue to apply. “This ultimately increases the assessor’s overall tax liability,” he says. Section 234B pertains to delays in advance tax payments or incomplete payments. Those who file a belated return will also not be eligible for deductions under Part-C of Chapter VI-A. The taxpayer also pays a price in terms of carrying forward losses. “While the assesses can carry forward losses arising from house property, she can’t carry forward business and capital losses.”

Don’t leave it for the last minute 

File a belated return right away and do not make the mistake of leaving this task until the deadline of December 31, 2023.

Ensure all the information you provide in the belated return is accurate to avoid any issues later. “keep all relevant documents ready to support the information in your return as the tax department can ask for verifications.” If you have any outstanding taxes, pay them along with any applicable interest before filing the belated return.

If, after filing your belated ITR, you realise that you made an error, you can revise it. You can revise your tax return onli9ne until the last day (i.e., December 31,2023, on or before midnight)

While furnishing a belated ITR, select the option “Filed under Section 139(4)-after the due date”. Finally, verify your ITR within 30days of filing it.

Singh suggest seeking professional advice to file a belated ITR. “Be extra cautious while filing all the particulars relating to losses and claiming credit for tax deducted at source, tax collected at source and advance tax paid,” he adds.

The I-T Departments offers a customer support service called a co-browsing facility, Here, tax agents help taxpayers file their ITRs. “In the co-browsing facility, an agent connects with the taxpayer on a chat tool. Those taxpayers who require expert help in filing an ITR can avail of it.” If you don’t qualify to file an ITR and missed the return filing deadline, you can do so without any worry. “No penalty will be imposed if the income did not require a mandatory filing of return under Section 139 (1), even though the return is filed after the expiration of the assessment year.”

HOW TO FILE A BELATED RETURN 

The process of filing a belated return is the same as filing the tax return is the same as filing the tax return on or before the due date.

While filing the ITR form, select “Return filed under Section 139 (4).

If you are filing a belated return for FY23 (AY24), then you need to fill the applicable ITRs as notified for FY23.

Co-browsing facility provided by the tax department can be utilised by taxpayers who require technical assistance while filing their belated ITR online.

Support agents can guide users through the e-filing process, helping them navigate the website and complete the necessary steps accurately.

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 Student travel cover: Buy before setting off to study abroad

But ensure that your policy aligns with your foreign university’s requirements

Avantika Singh, 32, will head to the United states (US)  in the last week of August to start a nine-month Masters in Engineering programme at the University of California, Irvine. She is not sure whether she should purchase an insurance cover from India or do so once she lands in the US.

Like Singh, thousands of Indian students are currently gearing up to embark on a life changing journey abroad for higher studies. Experts say they should arm themselves with a comprehensive student travel insurance policy before they leave Indian shores.

Contrary to what its name suggests, this plan is more than just a travel cover. It is a safety not that safeguards students from unexpected financial setbacks due to medical contingencies, travel disruptions, and even legal troubles abroad.

Buy at home or abroad

Most experts favour buying a plan from India. “Indian insurers charge lower premiums compared to their foreign counterparts. Furthermore, having a policy from India means that in case of an emergency, a family member back home can notify the insurer and ensure that the insurance requirements are handled efficiently. This eases the burden on the student who would otherwise have to manage it alone in a foreign land.”

Indian policies are also more comprehensive. ”A health insurance plan purchased from a foreign university will not cover the student during travels to and from India, as Indian policies will. Plans bought in India also cover a contingency visit by a family member if the student fails ill abroad. These policies also provide personal liability cover. And they also cover the student on visits to other countries during holidays.”

Buying a cover in India may also be the more prudent choice. “The student could face difficulties in obtaining in obtaining a cover abroad, given the varied terms and conditions that prevail in foreign countries.” A student who decides to purchase a policy in India must, however, ensure that it meets her university’s coverage criteria.

Sum insured: Meet univ norms, and then buy a little more

Students should first check the sum insured required by their university. That should be the baseline cover they should buy. Beyond that, they can afford. Buying a higher cover is especially crucial for students heading to the US or the Canada, where health care costs are exorbitant. “If the student is going abroad for a short term exchange programme of one week to three months, then a cover of $50,000 or $ 1 lakh may suffice. But if she is going for a one-to two-year programme, then a cover ranging from $2.5 lakh to $5 lakh is ideal.”
Sharma recommends a sum insured of $10 lakh for students heading to the US for a year.

How much is the premium?

Premium costs vary depending on the sum insured, policy features, and countries covered. According to Kapoor, the cover usually costs around 1-2 percent of the tuition fee. Mishra informs that a cover of $1 lakh for one year is likely to cost around Rs18, 500-20,000.

Sharma estimates that a $10 lakh cover would cost anywhere between Rs 30,000 and Rs 50,000 with premium being lower if coverage in the US and Canada is excluded.

Must-have features

Student travel insurance plans offer a wide menu of features. On the medical side, they cover hospitalisation, outpatient department (OPD) and dental treatment, medical evacuation, and repatriation of remains.

They also cover travel-related incidents such as loss of baggage; lost electronic items, passport and driving license; and flight delay or trip cancellation. Legal covers include personal liability (in case the student causes harm to someone or their property) and bail bond cover (in case the student gets arrested).

Study-related covers include study interruption and sponsor protection (if the persons funding the student’s studies pass away, the plan makes a payout).

Watch out for exclusions 

Standard plan usually do not cover pre-existing diseases, non-prescription, drugs, diseases arising from alcohol and drug consumption, experimental or non-standard treatments, and cosmetic surgery. Other exclusions might include adventure sports, HIV-AIDS related illnesses, war, etc. However, students can buy coverage for some of these exclusions, such as pre-existing disease, as an add-on.

Will settlement be cashless?

Indian insurers partner with international assistance companies for efficient claim settlement. For example, “These partnerships enable cashless treatment for students, especially when hospitalisation is for more than 24 hours and treatment takes place in a network hospital. Study-related benefits, he adds, are offered in the form of reimbursement.

Mistakes to avoid 

Mishra suggests students buy this cover well in advance and not leave the decision to the last moment.

Sharma suggests comparing the coverage’s and premiums offered by various insurers. Make sure that the policy suits the duration of your course and provides adequate geographical coverage based on your needs. A student studying in Canada, for instance, might want to include coverage for the US, as she is likely to visit that country during her study period.

STUDENT TRAVEL INSUARNCE COMPARE PREMIUMS

Company & plan	Premium (RS)*
Care-Student Explore	24,146 for sum insured (SI) of $300,000
Tata AIG-Student Travel Guard	37,098 for SI of $250,000
Bajaj Allianz Travel Prime Student Silver	22,844 for SI of $300,000
Niva Bupa-Student Travel Assure	22,834 for SI of $250,000

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 Navigate last-minute tax filing with this handy manual

Missing the deadline can result in penalties and interest charges

The deadline for filing income-tax return (ITR) ends today (July 31). To expect the Income-Tax (I-T) Department to extend the deadline is futile. Filing your ITR on time is crucial to avoid penalties and interest charges. As we approach the finish line, here’s a detailed checklist of the documents you need to file your return, followed by a step-by-step guide to help you accomplish task without making mistakes.

Gaither all essential documents

Begin by collecting all the required documents. Some of the essential ones include Permanent Account Number (PAN) card, Aadhaar Card, Form 16, 16A, 16B, 16C, 26AS, Annual Information Statement (AIS), and Taxpayer Information Summary (TIS).  Furthermore, keep your salary slips, banks statements, investment proofs, interests’ income, and other interest certificates handy. Also gather information on capital gains from the sale of property, mutual fund and shares; dividend income received; and any income from foreign sources.

Take into account ESOPs

Many companies, especially in their early days, compensate employees through employee stock options (ESOPs), “Sometimes, these options are issued by a foreign holding company to the Indian employees of its subsidiary company. Those employees must report their ESOPs as foreign assets in their ITR,

Factor in interest income 

Interest income earned by taxpayers on savings account or an investments instruments such as term deposits, bonds, debentures, etc, needs to be disclosed under the heading “Income from other sources”

“Any deduction to be claimed against such interest should be provided in the deductions under Chapter VI-A. For instance, taxpayers can claim deduction up to Rs 10,000/- (senior citizens can claims Rs 50,000/-)”

Any interest income that is exempt from taxation (such as interest from Public Provident Fund) should be mentioned in the Exempt Income (EI) Schedule. The section under which the income is exempt from tax should be specified. “Reporting all exempt income in Schedule EI of ITR forms is mandatory,”

Choose the correct form

The significance of choosing the correct ITR form can’t be overstated. “Using the wrong from may render the ITR defective. The taxpayer would then be liable to receive a notice under Section 139 (9) of the I-T Act. The taxpayer could be asked to file her ITR again. If she fails to do so within the stipulated timeline, the ITR is treated as “not filed”

If you have switched jobs 

Sometimes an employee who has switched jobs may neglect to declare her salary income from the previous employer. Consequently, the new employer ends up deducting lower tax deducted at source (TDS). “Employees should transparently declare their past salary income to the new employer. This will ensure accurate TDS calculation by the new employer. Failure to do so could lead to interest levies under Section 234B and Section 234C, deputy general manager at Taxmann, an online source for research on taxes.

Crosscheck information in Form 16

The information provided in Form 16 can at times be incorrect. “Corroborate the information given therein with the actual document one holds.” The interest on home loan, for instance, is provided on a provisional basis in Form 16. While filing the return, the taxpayer should fill in the actual interest on a home loan paid by her.

Sometimes, employees don’t receive Form 16. “If the previous employer doesn’t provide Form 16, request it. If you still don’t receive it, file ITR using payslips for salary breakup and deductions, and 26AS for TDS, and pay the tax due.

Refer to TDS, Form 26AS and AIS

Form 26AS is a consolidated statement that reflects all tax-related information, including TDS, tax refunds, and more, linked to your PAN. Check Form 26AS regularly to ensure that the TDS deducted by various deductor matches the actual tax liability. Do so while filing the ITR at the last minute, too.

“If you find any discrepancies, take prompt action to rectify them with the relevant authorities,”

AIS is a tax passbook of the assesses that provides information about prepaid taxes and prescribed financial transaction entered into during the relevant previous year. ”Match information in AIS/TIS with that in Form 26AS to claim TDS appropriately in the ITR form.  

Pay your tax due

Before you file your ITR, determine your final tax liability. Surana says you need to claim credit for TDS paid at this stage. This can be done by subtracting the total TDS amount from the total tax liability. If there is a balance, it must be paid. If taxes already deducted exceed your tax liability, you will receive a refund from the department once your ITR has been processed.

Consequences of missing deadline for filing ITR can have consequences. “Taxpayers may face penalties ranging from Rs 5,000/- to 10,000/- depending on their income. An interest charge of one per cent per months or part thereof on the unpaid tax amount must be paid under Section 234A. Delayed filing can also result in additional penalties under Section 271H for non-compliance with tax collected of source or TDS filing obligations, which could range from Rs 10,000/- to Rs 1 lakh.

WHICH ITR FORM IS RIGHT FOR YOU?

ITR-1: Appropriate for individuals with income under Rs 50 lakh who don’t own more than one house property

ITR-2: Suited for individuals or Hindu Undivided Families (HUF) with income comprising salary/pension, house property, unlisted equities, capital gain and foreign income.

ITR-3: Used when there’s income from a proprietary business, or individual is engaged in a profession.

ITR-4: Relevant when income includes presumptive income under Section 44AD, 44AE, 44ADA and salary up to Rs 50 lakh.

ITR-5: Intended for firms, limited liability partnerships, association of persons, body of individuals, artificial juridical persons, estate of deceased or insolvent, business trusts and investment funds.

ITR-6: For companies.

ITR-7: For persons required to submit returns under Section 139 (4A) to 139 (4F). 

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 Critical illness policy must cover ailments relevant to your policy family

Owing to rising pollution levels, sedentary lifestyles, and changing food habits, the incidence of critical illness has skyrocketed. Yet, very few people buy a critical illness cover that can offer them protection against these finically ruinous ailments. A study by PolicyX.com found that of every 100 policies purchased on its platform over the past year, only two were critical illness covers (89 were hospitalisation plans, seven were senior citizens plans, and one was an accidental cover)

How do they work?

Critical illness policies cover diseases like cancer, kidney failure, heart attack, coma, stroke, organ transplant, bone marrow transplant, paralysis, major burns, and others listed in the policy. “These policies cover a broad spectrum of life-threatening diseases and pay a lump sum amount if one is detected after the policy has commenced.

Reasonable premiums

Critical illness policies usually come with a high sum insured, as the cost of treating these illnesses is very high. An Rs 10 lakh cover costs approximately Rs 3,500-5000, depending on the number of ailments covered.

Two variants of these policies are available. CEO and whole-time director, Liberty General Insurance, “First is the bundled plan which covers a range of critical illnesses. Typically, the bundles cover nine, 25, or 43 conditions. Second are the disease-specific policies, which cover one particular condition such as cancer, kidney failure, etc.”Both offer similar benefits.

Compensate for loss of income

The lump-sum payouts act as a replacement for loss of income and can also be utilised for costs that are not covered by a normal health insurance (hospitalisation) cover. “The receipt of a lump sum allows the policyholder to focus on recovery without worrying about medical expenses.”

Parthnil Ghosh, president, retail business, HDFC ERGO General Insurance Company, points out that a critical insurance policy offers coverage even if the policyholder avails treatment abroad. They also offer tax deduction on the premium paid.

Only listed ailments covered

One drawback of these policies is that they only cover the illnesses specified in the policy. “Many policies have waiting periods before certain illness are covered.”

Be aware of exclusions 

The exclusion very from one insurer to another. “Critical illness policies do not cover dental care, cosmetic surgeries, illnesses not listed in the policies, maternity and infertility treatments, critical illness arising due to a congenital disorder, etc.”

A claim under this policy cannot be sought during situations of war or natural calamities like earthquake, tsunami, etc. “Claims will be rejected if the insured participates in or is involved in naval, military, or air force operations, racing, diving, parachuting, hang-gliding, rock climbing, or mountain climbing.”

Points to keep in hand

Review the list of critical ailments covered by the policy and see whether those relevant to your family’s medical history are included. “Before deciding the sum insured, asses your current health status and lifestyle habits and then determine an appropriate coverage amount that will be adequate to handle medical expenses, loss of income, and financial obligations during a critical illness.”

Check the total tenure. “Some insures put a cap on the maximum age of renewal. Check the particular ceiling before buying a plan.” It is advisable to go with plans that offer lifelong renewal. Ghosh suggest checking the claim settlement ratio of the insurers. These policies come with a survival period condition.

“The insured needs to survive for a specific number of days after being diagnosed with a listed ailment to make a claim.”The lower this period, the better. Making a claim under this policy is simple. All a policyholder needs to do is submit the diagnosed reports for the listed ailment.

Finally, Goel suggest that if you have a family history of a critical illness or work in a risky and polluted environment, then you must purchase this plan.

KEY FEATURES TO LOOK FOR

Go for a policy with minimum waiting period.

Also select one with the minima condition regarding survival after diagnosis.

Select a policy that offers lifetime renewal.

Some policies allow you to pay the premium for up to three years: some discount is available if you pay for a longer tenure in one go.

Many policies offer additional benefits, such as cancer reconstructive surgery, cardiac nursing, dialysis care, physiotherapy, etc. (three may be caps on these benefits).

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