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Is the income up to Rs. 5,00,000 exempt as per the interim budget 2019?

The income tax rebate has been revised by Budget 2019 and there is no tax on income up to Rs. 5,00,000.  However, this benefit is available to only those whose income is equal to or less than Rs. 5,00,000.

This benefit is provided through the rebate available under section 87  A and not by amending the tax slab rates. It means if your total tax payable is lower than Rs.12,500, the amount will eligible for a rebate under Sec.87A.

Refer our Article Income-tax slab rates for Individuals for FY 2019-20 (AY 2020-21)

A summary of the Revised Income tax slab rates for FY 2019-20 (AY 2020-21)

Income slabs Individual aged (Aged below 60 years) Senior citizens (Aged 60 years and above but below 80 years) Super senior citizens (Aged 80 years and above)
Up to 2,50,000 Nil Nil Nil
From 2,50,000 to 3,00,000 5% Nil Nil
From 3,00,000 to 5,00,000 5% 5% Nil
From 5,00,000 to 10,00,000 20% 20% 20%
Above 10,00,000 30% 30% 30%

Please note that there is no change in the income-tax slab rates, if your income is higher than 5,00,000, then tax will be levied on income from between Rs. 2,50,000 to Rs. 5,00,000.However, if your income is Rs. 5,00,000 and less, only then your tax liability is zero.

Let’s explain you with an example

Tax Rates and Slabs Income of 5,00,000 Income of 7,00,000
Up to Rs. 2,50,000 Nil Nil
2,50,000 to 5,00,000 (5%) 12,500 12,500
Above, 5,00,000(20%) Nil 40,000
Rebate u/s 87A (12,500) Nil
Total Tax Payable Nil 52,500

You may notice that up to Rs.5,00,000, even though there is tax liability, due to revised limits of Sec.87A, your tax liability becomes zero.

However, if your total income is more than Rs.5,00,000 then you are not eligible to claim the deduction under Sec.87A. Hence, there will not be any benefit for those who are under higher tax bracket.

Points to note

  • Individuals with income up to Rs. 5,00,000 will have no taxable income, however, tds will be deducted and you will have to claim a refund.
  • To claim a refund and use the benefit it is compulsory to file the income-tax return.
  • Do remember that the rebate should be applied to the total tax before adding the education cess (4%).

For other Budget Updates, read our Article Budget 2019 Highlights - 6 things you must know.

 

Salary / Tax - 02/05/2019
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Pradhan Mantri Shram Yogi Maan-Dhan - Eligibility and Criteria

Pradhan Mantri Shram Yogi Maan - Dhan (PMSYM) is a pension scheme launched by the government on 15th February 2019. It is a new pension scheme for the unorganized   sector. Some of its features are similar to Atal Pension Yojana (APY). However, it is important to note the important features and the eligibility criteria of this scheme.

Such schemes are very welcomed in India, given that there is no proper pension plan being managed by the government.

Eligibility of PMSYM

  • Monthly income should be Rs.15,000 or less than that.
  • Age should be between 18 years to 40 years.
  • They should not be covered under the schemes like the New Pension Scheme (NPS), Employees’ State Insurance Corporation (ESIC) scheme or Employees’ Provident Fund Organisation (EPFO).
  • They should not be Income Tax Payer.
  • Their profession is like home-based workers, street vendors, mid-day meal workers, head loaders, brick kiln workers, cobblers, rag pickers, domestic workers, washermen, rickshaw pullers, landless laborers, own account workers, agricultural workers, construction workers, beedi workers, handloom workers, leather workers, audio-visual workers.

Features of PMSYM

1. Minimum Pension– Each subscriber under the PM-SYM, shall receive the minimum assured pension of Rs.3000/- per month after attaining the age of 60 years.

2. Family Pension– During the receipt of the pension, if the subscriber dies, the spouse of the beneficiary shall be entitled to receive 50% of the pension received by the beneficiary as a family pension. Family pension is applicable only to a spouse.

If a beneficiary has given a regular contribution and died due to any cause (before age of 60 years), his/her spouse will be entitled to join and continue the scheme subsequently by payment of regular contribution or exit the scheme as per provisions of exit and withdrawal.

3. A default of Contributions-If a subscriber has not paid the contribution continuously he/she will be allowed to regularize his contribution by paying entire outstanding dues, along with penalty charges, if any, decided by the Government.

4. Pension Pay out-Once the beneficiary joins the scheme at the entry age of 18-40 years, the beneficiary has to contribute till 60 years of age. On attaining the age of 60 years, the subscriber will get the assured monthly pension of Rs.3000/- with a benefit of a family pension, as the case may be.

5. Matching contribution by the Central Government – PM-SYM is a voluntary and contributory pension scheme on a 50:50 basis where prescribed age-specific contribution shall be made by the beneficiary and the matching contribution by the Central Government as per the chart. For example, if a person enters the scheme at an age of 29 years, he is required to contribute Rs 100/ – per month till the age of 60 years. An equal amount of Rs 100/- will be contributed by the Central Government.

How to enroll in PMSYM?

The subscriber will be required to have a mobile phone, savings bank account, and Aadhaar number. The eligible subscriber may visit the nearest Community Service Centre (CSC)s and get enrolled for PM-SYM using Aadhaar number and savings bank account/ Jan-Dhan account number on a self-certification basis.

Later, the facility will be provided where the subscriber can also visit the PM-SYM web portal or can download the mobile app and self-register using Aadhar number/ savings bank account/ Jan-Dhan account number on self-certification basis.

The enrolment will be carried out by all the Community Service Centers (CSCs).  The unorganized workers may visit their nearest CSCs along with their Aadhar Card and Savings Bank account passbook/Jandhan account and get registered themselves for the Scheme.  Contribution amount for the first month shall be paid in cash for which they will be provided with a receipt.

All the branch offices of LIC, the offices of ESIC/EPFO and all Labour offices of Central and State Governments will facilitate the unorganized workers about the Scheme, its benefits and the procedure to be followed, at their respective centers.

How to exit or withdraw from Pradhan Mantri Shram Yogi Maan-Dhan?

Considering the hardships and erratic nature of employability of these workers, the exit provisions of the scheme have been kept flexible. Exit provisions are as under:

  • In case subscriber exits the scheme within a period of less than 10 years, the beneficiary’s share of contribution only will be returned to him with savings bank interest rate.
  • If subscriber exits after a period of 10 years or more but before superannuation age i.e. 60 years of age, the beneficiary’s share of contribution along with accumulated interest as actually earned by the fund or at the savings bank interest rate whichever is higher.
  • If a beneficiary has given regular contributions and died due to any cause, his/ her spouse will be entitled to continue the scheme subsequently by payment of regular contribution or exit by receiving the beneficiary’s contribution along with accumulated interest as actually earned by the fund or at the savings bank interest rate whichever is higher.
  • If a beneficiary has given regular contributions and become permanently disabled due to any cause before the superannuation age, i.e. 60 years, and unable to continue to contribute under the scheme, his/ her spouse will be entitled to continue the scheme subsequently by payment of regular contribution or exit the scheme by receiving the beneficiary’s contribution with interest as actually earned by fund or at the savings bank interest rate whichever is higher.
  • After the death of the subscriber as well as his/her spouse, the entire corpus will be credited back to the fund.
  • Any other exit provision, as may be decided by the Government on the advice of NSSB.

Who will manage the Pradhan Mantri Shram Yogi Maan-Dhan Fund?

PM-SYM will be a Central Sector Scheme administered by the Ministry of Labour and Employment and implemented through Life Insurance Corporation of India and CSCs. LIC will be the Pension Fund Manager and responsible for Pension payout.  The amount collected under PM-SYM pension scheme shall be invested as per the investment pattern specified by the Government of India.

Wealth Cafe tip - PMSYM is another pension scheme for the unorganized sector similar to Atal Pension Yojana (APY)  and NPS scheme. Instead of investing in 2 different pension schemes, it is advisable to stick to one pension scheme.

You can also check for other benefits provided by the government:

  1. Sukanya Samriddhi Yojana
  2. Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)
  3. Pradhan Mantri Shram Yogi Maan-Dhan

 

Alternative Assets - 02/01/2019
How-to-calculate-Pension-under-EPS

How to calculate Pension under EPS

We have discussed everything about EPS in our series of Articles on EPS.

You can read them

http://www.wealthcafe.in/basics-of-employee-pension-scheme-eps/

http://www.wealthcafe.in/forms-of-eps/

http://www.wealthcafe.in/is-the-monthly-pension-paid-under-eps-just/

Monthly pension calculation (Employed after 16/11/1995)

The pension amount for those employed after 16th November 1995 is calculated as follows:

Pension amount = (Pensionable salary * Service period)/70

In order to calculate the monthly pension, in this case, the following points need to be kept in mind:

  • Pensionable salary is the average income of the preceding 60 months. Most employers have a restriction on pension contribution to either Rs.1,250 or 8.33%, whichever is minimum. In these scenarios, the maximum pensionable salary would be Rs.15,000.
  • Only the basic pay and dearness allowance are considered a salary.
  • If an employee has completed over 20 years of service, then two years should be added as a bonus in the equation. According to the rules, the bonus can be also applied for the service before 16/11/1995.
  • The new rules make it mandatory for the pension to be more than Rs.1,000 per month.
  • An employee is eligible for a pension after completion of 10 years of service.

2.      Monthly Pension Calculation for a member who joined EPF before 15.11.1995 have 3 components in the Pension calculation

a) Procedure for calculating the Past Service Pension

  • The pension is calculated twice based on the period of employment.
  • Once before 16/11/1995 and once after 16/11/1995.
  • For calculation of pension before 16/11/1995, the following table can be used. In this table, the pension is fixed based on the pay and period of service.
Years of past service Up to Rs.2,500 (Salary) Above Rs.2,500 (Salary)
Below 11 years 80 85
Between 11 to 15 years 95 105
Between 15 to 20 years 120 135
More than 20 years 150 170
  • Find out the period that had elapsed between 16.11.1995 and the date of exit and based on this period locates the corresponding Table ‘B’ Factor. Date of Exit is Date of attaining 58 years for superannuation/early pension, Date of Death for widow pension and Date of Disablement for Disablement Pension.
  • Multiply the Past Service Benefit and the Table B factor, which gives the Past.

b) Procedure for calculation of Pensionable Service Pension–

  • Find out the Category of the member as to whether he belongs to X, Y or Z Category.
  • X – Date of commencement of pension is between 16.11.1995 and 15.11.2000 Y – Date of commencement of pension is between 16.11.2000 and 15.11.2005 Z – Date of commencement of pension on or after 16.11.2005.
  • Find out the Pensionable Service and Pensionable Salary of the member and substitute the same in the formula given as below.

(Average Salary X Service)/70

  • If the formula pension calculated is less than 335/438/635 respectively, for X, Y, Z categories, then only that minimum pension is to be given.

c) Procedure for the calculation of Total Pension-Add the Past Service Pension and the Formula Pension.

  • Add the Past Service Pension and the Formula Pension.
  • If the total pension is less than 500/600/800 respectively, for X, Y, Z categories, then that minimum pension shall be the total pension.
  • But this total pension is for an eligible service of 24 years or more, and if the eligible service is less than 24 years, then this total pension has to be proportionately reduced subject to a minimum of 265/325/450 depending on X, Y, Z categories (only when the minimum pension is given).
  • If the total pension itself is more than the minimum, then the proportionate reduction need not be made even if the eligible service is less than 24 years.

Wealth Cafe Tip - We tend to accept EPF the way it is displayed in our passbooks. There is always a scope of error and one should verify every return and investment they are making.

Alternative Assets / Salary - 02/01/2019
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6 things to note before buying a Health Insurance

Health Insurance is one of the most important insurance products to own. In fact, it is a mandatory financial product to own after-term insurance to achieve your financial well-being.

We have listed below the things to note before buying health insurance.

1) Decide the Sum Insured from the Long-Term perspective

The biggest mistake one makes when buying Health Insurance, is to consider the expenses that you may incur today. However, in reality, health insurance is bought for 20-25 years from now.

Hospitalization costs today would be ranging from 50,000 INR to 300,000 INR. Assuming you are 30 today, at modest average healthcare inflation of 7.5% for the next 20 years, single hospitalization bills will range at around Rs. 13 Lakhs when you are 50 years old.

It is very important to think in the long term while deciding on the cover of the policy and hence, you must take a higher cover.

2) Know about the things that you must ignore and consider.

There are many features in a health insurance policy. You must have read the same in the insurance brochures and pamphlets. It is important to be able to distinguish between the features that must be considered versus the add-on features which should not be your deciding factor.

Features like Ambulance, Daily Hospital Cash, Domiciliary, and any other benefits that don’t get used often, have low consequences in your health planning. These should be overlooked so that you could focus on the main features like the network of hospitals, fees for a doctor consultations, Room rent Limit, and ICU charges. Check if they are paying for medicines or not and these kinds of expenses make the major part of your overall bill.

Things like Ambulance charges are not more than Rs 2,000, if you have to pay it from your own pocket, even that it's totally fine. Why choose a policy based on this feature? It's always a bonus advantage and nothing else.

3) Know about the Sub-limits in your health insurance.

Many Health Insurance policies have room rent capping, which means you are eligible to claim expenses of the room renting up to the decided cap limit. In case you opt for a room above this cap, you will have to bear the additional proportionate expenses on your own. Let me give you an example

Let's say, as per your policy you are room rent limit is Rs 4,000 per day. Now if you get hospitalized and you choose a room that has room rent of Rs 10,000. You might think that you will just get 4,000 per day for room rent from the insurance company and other charges you will get as per the limit. But that's not true.

Other hospital expenses such as doctor's consulting fees, medicines, reports, scanning fees, etc are also dependent upon the room that you opt for. If you select a room that is higher than the room cap set. The expenses based on the room rent cap will be reimbursed not on an actual basis but based on the cap set. Other expenses are also proportionate to the room capping

Hence, your preference for health insurance should be in the following order:

  • Policies with Private Room eligibility.
  • Policies with No Room Rent capping.
  • Policies with Room Rent capping.

4) Check for the cost-sharing issue or the co-pay

Many private health insurance companies have a co-pay policy where you have to bear 10%-20% of your health bills. With a big surgery or a huge expense, this amount can also be huge and you may not be in a position to bear it when the time comes. Hence, ensure that all the major expenses of your health bill are covered in your insurance.

5) Tax deduction under section 80 DD of the Act

Ensure that your children, spouse, and parents are also covered by appropriate health insurance. Anyone can suffer from any health issue and insuring them will reduce your personal financial burden. The benefits of getting your family covered do not end at the level of security rather it offers great tax benefits as anyone paying premiums for parents, apart from themselves, spouse, and children can claim deductions up to INR 55,000, according to Section 80D.

6) Don't be late in buying a health insurance

We always advise that term insurance and health insurance should be bought at the earliest possible. These financial products are obtained when you are in good health and young age to reduce the cost of them, After you have developed any health issue it will be very difficult to obtain a health insurance policy without co-pay criteria.

To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

 

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    Insurance / Tax - 01/11/2019
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    Reduce taxes without investing any money

    ‘People in my office were suggesting me as to how I should make a fixed deposit from now itself to save my taxes at the end of the financial year.’ ‘Do I have an LIC policy? Do you think that would be enough to avoid taxes on my payslip?’ ‘I do not have money at the end of the year to invest to reduce taxes.’ I am sure most of us have either said such statements or heard people  make them. Irrespective of the above, most of us do wonder why our salary is being taxed and we want to know how to avoid paying taxes or pay the least possible taxes ever. I have mentioned ways to reduce your taxes without making any investments i.e. just by understanding your salary structure and its components. It is very important to know that the entire CTC amount of an individual is not taxed at the same rate but various components in the salary structure affect your taxability differently. This is the main reason why we are not paid an X amount as salary but the same is divided into the components. We have discussed the compensation structure in our Article - Understand your salary structure As discussed earlier, salary can be divided into 4 basic components and we shall discuss the taxability with respect to each component now
                                                 Running away from your tax queries is not the solution to reduce your taxes.
    Reimbursements and allowance: You can reduce your taxes on the reimbursements and allowances by submitting proper bills and other required documents/forms withing the due dates provided by your employer.
    • Leave Travel Allowance (LTA) – Did you know that the annual leaves and holiday that you were taking would actually help you to reduce your taxes? LTA lets you do just that. LTA remunerates employees for their travel within the country. The amount of LTA would be mentioned in your salary structure. Where you submit appropriate and eligible bills of your travel to your employer, the amount shall be paid to you and will be considered tax-free. There are a few conditions/rules which are to be followed while claiming for your tax-free. We have mentioned the same in our article How to save taxes through LTA.
    • House Rent Allowance (HRA) – Your Company pays for your rent and when you submit appropriate rent receipts, no taxes are charged on the same. This benefit is available only to those employees who are staying on rent. Given that in metro cities, many of us are living on rent, it is a great benefit to save taxes. As always, there are certain rules based on which this becomes tax-free, we have mentioned the rules in our Article How to save taxes through HRA.
    • Standard deduction towards medical and conveyance: From April 2018, a standard deduction of INR 40,000 is available towards medical and conveyance expenses of the employees. You are not required to submit any bills to claim this benefit. INR 40,000 would be directly deducted from your gross salary to compute the taxable salary numbers. Ensure that the same is deducted when you receive your Form 16.
    • Food, telephone, internet and other reimbursements – Some employees have other reimbursement items such as food, telephone, internet, uniform, newspaper etc. which are reimbursable and no taxes will be deducted on these if you submit bills as required by your employer.
                                                                         Taxability of various salary components
    Contributions – Payments made by the employer on behalf of their employees towards EPF, NPS, insurance or gratuity for the retirement benefits or otherwise
    • Employee’s provident fund (EPF) - Contributions made by the employer and employee (which are deducted from the CTC) is tax-free. The same is not included as a part of your taxable salary. Please refer to our Article – Taxability of EPF to understand the same in detail.
    • National Pension Scheme (NPS) – Deductions made from your salary each month towards NPS and your employers’ contribution is tax-free. In fact, NPS provides additional tax benefits to the employees. We have discussed the same in detail in our Article – Taxability of NPS.
    • Gratuity – Gratuity is only received when on resignation (after completion of 5 years of service), death or retirement. A part of the gratuity amount received is exempt based on the formula specified under the Income-tax Act. We have discussed the same in detail in our Article – Taxability of Gratuity.
    • Insurance - Any premium paid by your employer towards your health insurance, life and others which is included in your CTC is tax-free and the same is not included in your total taxable salary.
    Variable salary i.e. Bonus paid in any form is taxable. Bonus is added to your total taxable salary and taxed based on the slab rate you fall under after the receipt of the bonus. Fixed Salary Components: This includes the basic salary, special allowance, Dearness allowance etc. They are generally fully taxable.
    • Basic salary is generally is 40% - 50% of the CTC amount.
    • Dearness allowance is not paid by many private companies; it is generally paid by government companies.
    • Special allowances are the balancing number in your CTC. Whatever may be the amount, it is fully taxable.
    Professional Tax - Professional tax is the tax levied by Governments of certain states on salaried employees. The states where professional tax is applicable are Karnataka, Bihar, West Bengal, Andhra Pradesh, Telangana, Maharashtra, Tamil Nadu, Gujarat, Assam, Chhattisgarh, Kerala, Meghalaya, Odisha, Tripura, Madhya Pradesh, and Sikkim. The amount of profession Tax that is deducted varies from state to state where they are applicable. You get a credit of the professional tax paid while computing your income-tax liability. From this article,  you would have understood the simple ways (if applied) that can reduce the taxes without making any additional insurance or investments. These ways are inbuilt in your salary components and not many people know how to make most of it. Understand your salary structure and work on reducing your taxes. It is the first step towards a healthy financial life. In our salary series of articles, we have discussed the taxability of each component.
    Salary / Tax - 01/07/2019
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    Should you switch from the traditional endowment plan to a mutual fund?

    In spite of being a financial planner and helping people invest and understand investments, it took me a long time to convince my husband to stop paying his endowment plan and invest the equal amount in the term-insurance and good equity oriented mutual fund.

    It is just not him, 9 out of 10 people own an endowment insurance plan rather than a term insurance plan. The only reason for the same is to get their invested money in return.

    Further, even after knowing that the endowment plan is not a wise investment choice, they are not convinced to surrender the insurance policy because they do not want to bear the loss on surrender.

    We have tried to make your decision of switching much easier by calculating the actual loss that you might incur on surrendering the insurance policy versus the benefit of investing the premium amounts in the mutual funds.

    To make it easier for you, I have tabulated below the gains that one would receive in both the scenarios to help you take a smart decision.

    Scenario 1 – You continue to invest in the endowment plans such as Jeevan Labh or Jeevan Anand from LIC. (this is purely for an example purpose)

    Total Premium over 35                            8,40,700
    Maturity value after 35 years                         12,20,000
    Total Gains from Insurance                            3,79,300
    CAGR 1.1%

    Scenario 2 – You withdraw the insurance premium amount and invest the same into mutual funds. You would also incur an additional cost of buying a term Insurance which would give you a cover of 1 Crore for INR 1200 per month.

    Total Investments      8,13,551
    Value at the end of the term   41,06,447
    Total Gains from Mutual Funds    32,92,896
    CAGR 5.5%

    For detailed working of the above 2 tables and how we arrived at those numbers, refer to surrender of an endowment plan vs investing in mutual funds (working).

    We have attached the excel sheet here for your own calculation. Just change the numbers in the boxes highlighted in pink, the sheet would compute the gains value and CAGR in each scenario. The same shall help you take a decision of whether you should stay invested in an endowment plan or move out your money and invest in an equity mutual fund.

    These decisions are very case specific and factors such as risk-taking ability play a huge rule in deciding the movement. Never forget the following base rules before making the switch:

    • Understand your risk taking capacity.
    • An equity mutual fund is very volatile in short-term, investments in them are made from a long-term goal of 10+ years for the best results.
    • Where you cannot bear the risk, it is best to consult your financial advisor, who shall guide you in the same.

    This transition is easier and profitable in the first few years of insurance premium has been paid. If you plan to move after 10-12 years of paying insurance premium it will generally not be profitable. The premium amount lost on surrendering the policy would be higher as compared to what you can receive in the balance tenure in mutual fund investments.

    Please note the assumptions and explanations provided in the excel sheet for the computation of gain numbers and do your analysis accordingly.

    Insurance / Money tips - 12/07/2018
    term-Insurance

    Why should I buy a term Insurance, even when I am not getting anything in return

    I bought my first life insurance which was an endowment plan with a premium of INR 36,000 per annum. I had this very trusted, family Insurance uncle, who helped me buy the so-called life insurance. I believed that buying this insurance was a right investment decision and I just made everyone financially secure in my family.

    The Policy was as under:

    Type of Policy Endowment Plan
    Premium Per annum 36,000
    Total Period of Policy 15 years
    Amount Paid for 15 years 540,000
    On Maturity 810,000
    Gains made 270,000
    Gains in % 5%
    On Death 2,000,000

     

    Like most of us, I did not calculate the exact return I would get from the policy. I had to invest only INR 3000 per month and it gave me a life cover of around 20 Lakhs.

    Eventually, as I started reading about financial planning and Insurance I had the following questions in my mind.

    • If I die after 15 years, my policy will expire within 15 years and then I will not get any death benefit. Hence, is it enough to hold a policy for 15 years?
    • On my death, my dependents would only get INR 20 Lakhs, is that amount enough for them?
    • Won’t I have more dependents as I get older, spouse, children and parents? Will this one life insurance policy enough?
    • The biggest question of all was, if I invest this INR 36,000 into any mutual fund for the next 15 years, I would get a return of 8 – 12% as compared to the return of 5% in this endowment plan. Why should I invest in endowment plan?

    The obvious answer was to let go this endowment plan and obtain a term insurance which would cater to all of my insurance needs. I spoke to my very trusted insurance uncle.

    He told me why I need a term Insurance; I will not get anything in return. It is all your premium amount wasted.

    I was confused; I tried explaining him the mutual funds v/s endowment plan concept. He was just not ready to sell me a term insurance. I had by then done enough reading to know why term insurance is better and I must own it.

    Brief of my term Insurance plan

    Type of Policy Term Plan
    Premium Per annum 7,000
    Total Period of Policy 35 years
    Amount Paid for 15 years 245,000
    On Death 1,00,00,000 (1 crore)
    Gains made Dependent’s future
    Gains in % Dependent’s future
    On Maturity (if you survive) Nil

     

    Here are my reasons for the same:

    1. Term Insurance is a pure life insurance product. It means if you die during the policy period, then your nominee will receive the entire sum assured.
    2. If you survive till the end of the policy period, then you will not receive any maturity amount, the premium paid is very minimum and it’s the cost that you incur to insure your own life and secure your family’s future.
    3. The policy costs you very less and covers a large amount of life risk. I have a policy with a cover of 1 crore and I pay a premium of 583 per month (lesser than my travel expenses per month) On my death, my financial dependent, whom I nominate, shall receive the life cover amount. However, it is very important to get the term insurance of the right amount. We have discussed the same in Points to note before while buying term insurance.
    4. If you think, you will never have anyone who will be financially dependent on you in the future (in case you do not have anyone now), you must definitely revisit this thought. Finances and money are one of the most unpredictable subjects and the best is to insure such volatility. Term Insurance if bought at the right age will cost you less and can be obtained without any medical tests.  We have discussed the same in  Points to note while buying a term insurance.
    5. It covers the FINANCIAL RISK OF YOUR LIFE.
    6. However, nowadays there are so many variants in Term Life Insurance. For example, the return of premium, Term Life Insurance up to 100 years of age and many other riders. If you do not want any financial hassles for your dependents, stick to simpler financial products.
    7. It is super easy to buy the term insurance online. Refer our Article –Myth about buying term insurance online.
    8. The brokerage that agents get on term insurance is also low and thus, they do not sell it as much as the other insurance products.

    An honest financial advisor will always ask people to first own a term insurance before advising on other investment products. If your financial advisor is telling you not to buy the term insurance or is against it, you should revisit the same.

    To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

     

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      Insurance - 12/06/2018
      5-Myths-about-buying-insurance-online

      5 Myths about buying insurance online

      Nowadays, people are buying houses and booking vacations across the world online but are skeptical about buying an insurance product online. People are not very comfortable to go online and purchase insurance. This is not your mistake; the community of offline insurance agents in India is huge and strong, that it is very difficult to get past them to take a decision for your own good. In this article, we have discussed buying insurance only directly through the insurance companies' website. In my article 'What are the insurance aggregators and are they really helping you?', please read about my reasons to avoid them generally. To help you do the same, we have listed below a few lies/myths which are often told to you and thus, you believe in them while buying insurance online. They are as under:

      You can read details about term insurance in our article http://www.wealthcafe.in/things-to-note-before-buying-a-term-insurance/

      Myth 1 - Buying policy online is too difficult. There are many complicated terms that you will not understand Buying policy online does not involve too many steps anymore and there is an explanation for each step. If that does not help you, there is a chat box or help guide on each website which shall answer most of your questions making it a very simple process for you to buy the policy online. There are features like premium calculator, payment of premium monthly, some discounts etc, which are generally not offered to you by your offline agents as that would reduce their commissions.

      Myth 2 - You will not be able to cancel your policy if you buy it online. The terms and conditions of a policy document remain constant whether you buy it online or offline. You will always get a free-look period of 30 days to decide whether you want to cancel the policy or not. You can use it irrespective of the mode of purchase of the policy. We have specified about the same in our article - Free-look period in Insurance.

      Myth 3 -  If you are buying online, your claim will not be settled. Recently, when I was hospitalized, my agent did not help me with anything for the claim adjustment but gave me the number of my relationship manager (who is an employee of the insurance company) who helped me file my claim and go through the entire process of claim settlement. Thus, there is no guarantee that your agent will be able to do anything extra for your claims. Most of the insurance companies have a very robust customer care service nowadays. Where your claim is genuine and you have all the required documents, it should not be a great problem to claim your money from the insurance companies.

      Myth 4 - My personal information and payment details are not secured. When you are booking international hotels, expensive electronics, even your house through the internet and not worry about the payment so much. then why such worry for buying insurance online. All the insurance companies also have a reputation and clientele base to maintain, they cannot risk developing an insecure online platform for the purchase of insurance.

      Myth 5 - There is no guidance on which policy is apt for you Our blogs have enough content to guide you on which insurance policy you need and how much cover is apt for you. Refer to our Article. If required, consult a financial advisor to understand the same. An insurance agent is not an advisor and he/she may not sell you what is apt for you but what will get them a higher commission. This is why insurance agents do not sell Term plans but are always selling endowment plans. At least when you buy online, you do some research yourself and then take a decision on what is good for you but are not influenced by marketers. Buying an insurance product is so easy and it does not take much time. In fact, some insurance companies, give additional discounts when the insurance is bought online (as they do not have pay commission to anyone on the same). All your bank details get verified easily, you don't have to go through the hassle of giving a cheque, sign so many documents or the worry of incorrect details going anywhere. Next time when you are renewing your premium, or are planning to buy insurance, take that plunge and purchase it online to experience the benefit of the same.

      Insurance - 11/30/2018
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      10 things to note before buying a Term Insurance

      Term Insurance is a financial product that each of us must-have. It is a cost-effective financial product that covers the risk of our financial life. It is a very simple product, you pay premiums per annum and your life is insured, on your death within the term of the insurance and on regular payments of premium, your financial depends would get the sum assured amount. The cost i.e. premiums is not very high where the insurance is taken at an early age and in good health. Irrespective, term insurance premium amounts are very low as compared to other insurance products. However, there are times when in spite of taking term insurance, the sum assured i.e. the cover amount is not sufficient, the tenure of the insurance is less, incorrect details are provided due to which claim is rejected etc. In such situations, in spite of paying for an insurance product, your life is not insured enough. Hence, it is very important that you buy the right insurance product.  I have listed below 10 things that you must keep in mind before buying term insurance.

      1. Amount of cover: It is very important to have a cover of an adequate amount based on your respective situation. If the cover is less, owning insurance will not serve the purpose. We have discussed in detail the adequate amount of term insurance cover in our Article How much term insurance cover is enough. If you want a basic formula, then a cover of 10 to 12 times your annual income should be fine. It is better to put in the extra 10 minutes and read our detailed article before you finalize term insurance cover.

      Refer to our Article http://www.wealthcafe.in/how-much-cover-is-required-for-term-insurance/

      2. Buy the term insurance policy till your retirement age: There was a time when I felt if term insurance is for my life, then why is there a need for tenure, it should be available till the age of 100. However, that is not the case. General term insurance is for a maximum period of 40 years. Accordingly, if start a policy at 25, you are insuring your life till the age of 65 and if you die after 65, no money shall be received by your financial dependents. However, will you have any financial dependents post you retire? The fact that you have retired means you have enough to take care of any financial dependents that might be then? Term Insurance is generally bought for a period until you retire. There are a few insurance companies who are giving insurance for 99+ years. Please do a cost-benefit analysis before finalizing the same.

      3. The premium of the term plan never increases: The earlier you buy term insurance, the cheaper it will be. The life insurance companies calculate your premium depending on your health, responsibilities, income and other factors. Given that at a young age, one has lesser medical issues, the term insurance premium is less. If you continue to pay your premium regularly and not cancel your term plan, your premium at the age of 40 would be the same as it was at the age of 25 (when you bought the term insurance in the first place).

      4. You should avoid delayed premium payments: You should avoid delaying your premium amounts as that would lead to levy of penalty charges from the insurance companies. A delayed premium payment generally does not lead to a lapse of term insurance. However, it is important to know the grace period available for your term insurance to avoid any unforeseen errors. If you delay posting the grace period as well, there is a chance that the term insurance may lapse.

      5. Do not skip your premium amounts: If you miss the grace period for the premium payments, your term insurance will lapse. Even where you have been regularly paying your premium for 10 years and skipped paying for the 11th year and your grace period of the premium payment has also lapsed, and then your term insurance will lapse. After a certain age, it is very difficult to get a new term insurance. Even if you do, the premium amount would be too high. Hence, you should always pay your premium amounts and never let the insurance policy lapse.

      6. Do not rely on Tele-medical examination i.e. Take MEDICAL TESTS You should go for proper medical tests as this will reduce any chances of the claim being denied in the future (on medical grounds), especially since you have disclosed all facts. It is better to pay an additional premium for a small health condition (say obesity) rather than the family facing problems with the claim on the grounds that all facts were not disclosed. Some people go for medical tests over the telephone, to avoid the hassles of a medical test. However, this thing may cost your family the coverage amount.

      7. Don’t buy term insurance with RIDERS: Never combine your term insurance with any riders or additional covers such as accidental death or disability arising from accidents etc. These are available separately on a standalone basis from the general insurance providers. They would be cheaper and better if bought separately. The insurance provider may sell money back cover with your term plan to lure you by saying you won't get anything back in a term plan. Please do not fall for the same. Term plan is to ensure your life, your family will get a good amount of money if anything was to happen to you and that is what matters.

      8. Buy the insurance product ONLINE: Term insurance is the easiest to buy online directly from the insurance companies website. It hardly takes 10 minutes to fill all your details and then upload the scan copy of your documents online. If anything is missing, you receive an email with the requirements and you have to submit the same to the insurance company. On receipt of the same, they schedule your medical tests post which you receive your insurance document. When you are buying it online yourself, it is cheaper, easier and accurate and thus, the chances of negligent errors are a bare minimum.

      9. Review your life insurance cover every  5 years: The cover amount requirement that you would have calculated at age of 30 when you first bought your term insurance may not be the same when you are 40. As you grow older, your financial responsibility increases along with the increase in your income and investments. Thus, it is important to review your cover amount and your overall insurance needs every 5 years.

      10. Disclose EVERYTHING: Tell the insurance company if you smoke or drink. Do not hide these facts just to save on the extra premiums. You are actually breaching the contract with the company and almost always your claim will be rejected at the end. Disclose all the information correctly in your policy forms and verify it properly before submitting the same. Do not rely on your agents to fill your forms correctly. Inform about all the health problems that you are facing currently or in the past, family health history and any other information with respect to your health correctly. The above-mentioned list of things may seem very exhaustive but it is not very difficult to follow the same while buying your term insurance. Many people keep pushing their purchase of term insurance, thinking they have a lot of time to buy one. One of the most important things that you can do to secure yourself and your financial dependents is buying a term insurance plan at an earliest.

      To learn more - you can check our course - NM 102: Build a Safety Net. Use code SAVE20 for 20% off.

       

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        Insurance / Making Money - 11/27/2018

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