The Right Partners

ULIPs Single Premium True facts

2011-01-01T22:29:00.000-08:00

A late, leisurely breakfast of aaloo paranthas is a rare treat. So when the strident doorbell interrupted my feast, I was reluctant to greet the guest. Turns out, there were other, more compelling reasons to be unenthusiastic. For on my door was Uncle K. Relatives can be a painful breed, nosy and pesky.

If one of them turns out to be an insurance agent, the pain quotient shoots up. Uncle K has been an agent all his life, and the only time he visits is to sweet talk me into buying yet another policy. He got down to business right away. “You know, I have this new single-premium unit linked insurance plan. As you must be aware, Ulips are investment plans offered by insurance companies with a dash of life cover,” he began between sips of hot tea.

So the entire premium invested in a single premium Ulip cannot be claimed as a deduction against taxable income,” I countered. “Now what was that? You come up with any gibberish and expect to believe you?” Uncle K said. “These days youngsters think they know everything. Listen to me and you can save a neat packet on taxes,” he said. “Obviously, you won't take my word for it.

Let's assume I invest Rs 1 lakh in this single premium Ulip you are so excited about,” I started and instantly regretted the example as Uncle K's face beamed. “You want to invest Rs 1 lakh. That's great,” he interrupted. “It is an example, don't expect me to invest so much and please don’t interrupt me,” I quickly clarified.

“For this premium, my sum assured must be at least Rs 1.1 lakh because the current regulation makes it mandatory for the minimum cover to be to be 110% of the premium for people less than 45 years old. The single premium of Rs 1 lakh works out to be around 91% of the sum assured of Rs 1.1 lakh,” I said, pausing to take a breath. “You are confusing me with so many numbers,” complained Uncle K.

“Hold on, more data is coming up. As I pointed out, according to sub-section 3 of Section 80 C the premium is tax deductible up to a maximum of 20% of the sum assured. For the single-premium Ulip, it will be Rs 22,000 (20% of Rs 1.1 lakh). This is the amount eligible for deduction. I will end up paying tax on the balance premium of Rs 78,000. My income is in the highest tax bracket, so I will have to cough up Rs 24,102 as tax at the rate of 30.9%.

” By now, Uncle K was looking everywhere except at me, trying to come up with some explanation. “I didn’t know all this. I assumed things will be as they always were. Is there any way out?” he asked sheepishly. “Yes, if one opts for a sum assured at least five times the single premium. Going back to the same example, it means opting for a cover of at least Rs 5 lakh. This way, 20% of the sum assured (Rs 5 lakh) is equal to the premium of Rs 1 lakh which will be entirely deductible,” I said with some flourish.

A thoroughly embarrassed Uncle K muttered: “I will keep this is mind.” Aiming to discourage any future conversations on insurance, I added: “There is one more thing. As per Section 10 (10D(c)), the premium should not exceed 20% of the cover in any year of the policy’s tenure. Only then is the entire amount tax-free at maturity. If not, the maturity is added to the income of that year and taxed.”

Uncle K was silent and I reveled in the idea that for once, he had nothing to say. I celebrated a little too soon. “You know so much about life insurance. Why don’t we team up to sell insurance? With your knowledge, we will make a killing,” he said. What did I say about a relative and insurance agent rolled into one?

Your income is irregular: Self-employed professionals such as doctors, lawyers, consultants and businessmen have lumpy income. A single-premium plan may be a better option than an annual payment.

You lack financial discipline: A missed premium can cause an insurance policy to lapse. Investors who don’t keep track of their finances may find a single-premium option more convenient than paying the premium every year.

You have got a windfall: If you get a huge amount as inheritance or severance pay and can’t decide how to deploy the funds, it might be useful to buy a single-premium policy. It will not get you tax benefits but at least it will give you insurance cover.

Please write to us at therightpartners@hotmail.com for any query

Source: Economic Times

Single-premium insurance plans are suitable if...“The brochure to the policy clearly says that tax benefits as per the prevailing income tax laws,” he added. “Now only if Income Tax Act was as straight forward as that,” I said. “The sub section 3 of Section 80 C of the Income Tax Act 1961 clearly points out that a deduction is available only to so much of the premium, which is not in excess of the 20% of the sum assured [the technical term for the amount of life cover the individual taking the policy opts for] on the policy. “But why are you recommending this plan?” I interrupted eager to wrap up the conversation and get back to my breakfast. “It’s because you need to invest only once and get a tax deduction for it,” was the pat reply. I took a shot at derision: “Do I?” I asked. It failed. “Of course, you know that the premiums of life insurance policies are tax deductible up to Rs 1 lakh,” Uncle K said.

NRI's Guide to Banking, Insurance and Investments

2010-11-27T23:50:00.000-08:00

There are a huge number of Indians who are working abroad or will go abroad one day and work there. Even you might go out of country one day and become an NRI, so here’s a very short, to the point guide for NRI investments.
Today we discuss the most important NRI investment options and we’ll focus on four things – Basic Banking Accounts , Insurance , Mutual Funds and Shares. That’s all. The rules and information here are basic, but further study can be very detailed. Let’s quickly look at some important concepts every person should know. Even if you are not an NRI, you can at least advice your other friends The first step every NRI should take, is to get the correct Banking accounts opened. Here are the options:

What is a NRE account?

NRE bank account is an external savings bank account opened for Non resident Indians and hence called Non-Resident External account. Any money lying in NRE account can be taken outside the country or in other words, the money lying in an NRE account is fully repatriable. This money can be converted into any foreign currency and can be remitted outside the country. For opening these accounts, the funds are required to be remitted to India through any bank from the country of residence of the prospective account holder. The accounts may be maintained in any form e.g. savings, current, recurring or fixed deposit account etc. (How to find best Fixed Deposits in India)

What is a NRO account?

NRO bank account is an ordinary saving bank account opened for Non resident Indians. This is why it is known as Non-Resident Ordinary account. You open an NRO account, when you want to transfer money from your overseas bank account to Indian account in Indian Rupees. The money lying in NRO account cannot be taken outside the country or in other words, the money lying in NRO account isn’t repatriable. This is can be in form of Fixed Deposit accounts also (compare rates)

What is FCNR account ?

A FCNR account is a Fixed Deposit account with maturities of minimum 1 yr to maximum 5 yrs of tenure. FCNR stands for Foreign Currency Non-Resident (Bank) Account. The money in this account is always maintained in foreign currency, so it does not carry a currency risk (your $10,000 is always worth $10,000). The money lying in a FCNR account can be taken outside the country (or in other words, it is repatriable.) Deposits in these accounts can be made by remiting funds from abroad.

Comparison Table

Criteria	NRE	NRO	FCNR
Account type	Saving , Current or Fixed Deposits account	Saving , Current or Fixed Deposits account	Fixed Deposit only
Money maintained in which currenc	Rupees	Rupees	Any of U.S. Dollar , Pound Sterling , Euro , Australian Dollar , Canadian Dollar
Repatriable (can money be taken outside country)	Yes	No	Yes
Money can be Deposited from	From Abroad through Bank account	India or Abroad	From Abroad through Bank account
Tax	Exempt	Taxable	Exempt
Joint Account with Indian Residents	No	Yes	Yes
Suitable for	NRI’s whose income source is only from abroad	NRI’s how have income source from both India as well as Abroad	NRI’s who dont want to want to take currency risk

Can NRI take Insurance ?

Yes, NRIs can buy Insurance in India; however they have to be present in India, while taking the Insurance. They should therefore plan for buying the insurance when they are on a trip to India. One important point, is that the premiums should be paid from NRE account, if the maturity value is to be repatriable, else only the partial amount will be repatriable,(for which premiums were paid from NRE account.) One has to make sure, they have all the necessary documents in place before they come to buy insurance.
Documents are

PAN Card
Income Address proof
Overseas Proof of Address
Proof of Income (Salary slip, Bank Statement or ITR for last 3 yrs)
you will also have to fill a seperate form called NRI Questionnaire-Annexure II

NRI investment in Shares ?

Steps required by NRI’s to start trading in Stock Markets

Apply for a PAN card (you can do it online.) You will get it within a week.
Open a NRE/NRO account. You will require this account to fund money for your stock market transactions. Make sure you choose the account carefully, depending on your requirement (Repatriable/Non-Repatriable basis etc.)
Apply for a general approval for investment in Indian Stock Market through it’s designated bank branch, this is called PIS (Portfolio Investment Scheme) (PIS rules in detail)
Once you have a PAN card, you’ll have to open a Demat account with any bank or a brokerage firm – you will require this for trading.
Finally, you need to have an online stock market trading account for investing in the stock market directly. Generally, you can get a combo Trading + Demat account at the same place.

Note that NRI’s are not allowed to do intra-day trading (can’t buy and sell on the same day)

NRI investment in Mutual Funds

NRIs can invest in all Indian mutual funds, except in funds promoted by Asset Management Companies based in the U.S. (Fidelity, Franklin Templeton and HSBC.) The payment can be made from any of NRE/NRO/FCNR accounts. If they make payments from NRE/FCNR account, then it can be on repatriable basis (They can take the profit and principal out of country.) But, if they make payment from NRO account then it will be on non-repatriable basis. However, the dividends can be on repatriated. No prior or extra permission, needs to be taken from RBI for this. This is allowed by default. There is no tax on dividend income, and long-term capital gains tax is zero in India, when investing in Indian equity mutual funds