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Life Insurance

Practical Matters

Some Must-know Points About an Insurance Account 


IRDAI has allowed the facility of holding life / health and general insurance policies in demat form just like you hold shares, bonds and mutual funds online in electronic format. So, you can now keep your E-policy in an E-Insurance account maintained by insurance repositories like CAMSRep, Karvy Rep and avoid the hassles associated with physical policy bonds.


Having an E-Insurance account has many benefits like one-time KYC submission, safety and security, easy premium payments and easy tracking of multiple policies across different insurance companies, A user can have only one such E-Insurance account.


As per the IRDAI (Issuance of e-Insurance Policies) Regulations 2016, electronic insurance is a must for anyone wherein sum assured is  ₹10 lakhs or more OR if the annual premium amounts to more than  ₹10,000 in life insurance policies.


Different types of returns for life insurance policies


Generally, life insurance companies in India show the IRR (Internal Rate of Return) of their policies, but IRR is annualized return and does not consider the time value of money and as such the return is faulty and does not show the true picture.


Smart investors should know that if they use XIRR (Extended Internal Rate of Return) function in MS-Excel, they come to know the actual real rate of return which will accrue to them at the end of tenure. 


XIRR is a more sophisticated method of calculating returns and is almost like compounding returns making it a better choice for calculating policy returns. This is because XIRR uses the actual dates of cash outflow and inflow thus considering time value of money.


Taxation of different policies at different stages


1. Payment stage


i. Tax deductions on Premiums Paid for a Life Insurance Policy under Section 80C

Tax deduction under Section 80C of the Income Tax Act, 1961, allows exemption up to ₹1.5 lakh per annum on premiums paid. Deductions available for premiums paid towards life insurance policies of self, spouse and dependent children.


ii. Life Insurance issued before 31st March 2012 

The tax deduction is applicable only for the total premium amounting to a maximum of 20% of the sum assured.


iii. Life Insurance issued on or after 1st April 2012 

The tax deduction is applicable only for the total premium amounting to a maximum of 10% of the sum assured.

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