What is Policy Term?

The meaning of the policy term is the maximum period the life cover in the policy will remain active. You must decide the policy term for your life insurance cover at the time of buying the policy.

Normally, you cannot change the policy term of a life insurance policy after purchasing. This is why you should choose the policy term of your life insurance plans carefully.

How to Choose your Policy Term?

You may need to choose different policy terms for different policies depending on your life cover and financial needs. The following factors will affect your choice of policy term:

    - The financial goal or need the policy will cover
    - Your retirement age
    - Partial or complete withdrawal rules from the policy
    - Cash flow from the policy
    - Maximum allowed policy term

Follow the tips given below to select your policy terms for different life insurance policies:

Policy Type	Policy Term Recommendations
Term Insurance Plan	Minimum: The policy term for a term insurance policy should be enough to allow the cover until your retirement. Maximum: Maximum allowed policy term for a term insurance plan is up to 99 years of age (iSelect Smart360 Term Plan from Canara HSBC Life Insurance)
Guaranteed Savings Plans & Whole Life Insurance with a guaranteed maturity value	Minimum: Guaranteed savings plans usually offer a minimum policy term of 10 years. Thus, you need to use the policy for appropriate financial goals only. Maximum: Maximum policy term of guaranteed savings plans like whole life insurance policies can continue until 99 years of age (100 years in some policies)
Guaranteed Savings Plans with Moneyback option	Minimum: 10 years, same as guaranteed savings plans (iSelect Guaranteed Future from Canara HSBC Life Insurance) Maximum: Up to 99 years of age. However, the cash flow term may be different. You should align the policy cash flows with your financial needs such as your child’s education fees and your retirement.
Unit Linked Insurance Plans (ULIPs)	Minimum: 5 years Maximum: Up to 99 years of age (Invest 4G ULIP from Canara HSBC Life Insurance). With tax-free withdrawals, it is often useful to have a ULIP plan to continue well after retirement. Once you have an adequate corpus, partial withdrawals build a tax-free pension stream for you.
Pension Plans	Minimum: Immediate Vesting age refers to the age when the annuity starts. Investing a lump sum amount in immediate annuity plans allows you to start receiving a pension after only one month or quarter. Maximum: 10 years. Pension plans with deferred annuity options have a vesting age. The vesting age can range from 40 years to 65 years. Here your maximum policy term decides your entry age for these plans. For example, if you want to start your pension at the age of 60 the minimum age of entry for you would be 50.

Under bonus-adding life insurance policies like saving plans and ULIPs, your choice of policy term also affects your fund value. These policies offer loyalty bonuses and wealth boosters which add to your policy value and investment growth.

The benefits increase with longer policy terms. Thus, the investors who continue in the policy for a longer term can achieve higher fund growth. Since you cannot change the policy term after buying, you should keep this factor in mind while buying the policy.

FAQ

Income tax in India is based on incremental slab rates. The rate of tax is higher on higher income. You can also avail deductions from your taxable income if you invest in eligible instruments like PPF, NPS, ELSS, ULIPs, etc. Starting AY 2020-21 you have two tax regimes – old and new. The old tax regime has all the deductions from gross total income, while the new tax regime offers a lower rate of tax. So, if you are not investing in tax-saving instruments you can file your tax as per the new tax regime.

You can avail additional tax savings under the following sections other than section 80C:

a) Section 80D: Health insurance premium payments for family and parents up to Rs 75,000
b) Section 80CCD(1B): Self-contribution to NPS Tier-I account above 10% of salary or 20% of income if self-employed up to Rs 50,000
c) Section 80E: Education loan interest paid through the year
d) Section 80EE: Home loan interest paid up to Rs 50,000
e) Section 80G: Charitable contributions to non-profit organisations registered under section 12A up to 50% or 100% of the contribution
f) Section 24B: Interest paid on home loan

You have many tax-saving investment options. You can consider the following popular tax-saving schemes to save tax:

a) Term life insurance plan
b) Health and critical illness insurance plan
c) Life insurance plans such as endowment and moneyback plans
d) Pension plans from life insurance companies
e) Public Provident Fund (PPF)
f) National Pension System Tier-I account (NPS)
g) Employee Provident Fund (EPF)
h) Unit Linked Insurance Plans (ULIPs)
i) Equity Linked Savings Scheme (ELSS)
j) Senior Citizen Savings Scheme
k) Sukanya Samriddhi Yojana
l) 5-Year Tax Saving Fixed Deposits
m) National Savings Certificate (NSC)

Deduction of Rs 1.5 or 2 Lakhs under section 80C is available when you make investments or spend money under the heads mentioned in the Chapter VI A of the Income Tax Act, 1961. All tax-saving investments like PPF, NPS, ULIP, ELSS, etc. and all tax-saving expenses like children’s tuition fees, and registration expenses of a house property are part of Chapter VI A.

You will need to pay taxes on the incomes and gains from your investments. For example, your salary income is Rs 10 lakhs in a year, out of which Rs 7.5 lakhs becomes taxable after deducting exempt perquisites. Out of your income of Rs 10 lakhs, you invest Rs 3 lakhs in various options.

Even if none of your investments is eligible for tax saving under section 80C, your taxable income will remain Rs 7.5 lakhs. However, returns from some of these investments will become taxable in the next financial year when you receive them.

Since AY 2020-21 you have two ways to lower your income tax outflow on higher income – tax-saving investments and a new tax regime. You can stick to the old tax regime and invest your savings into eligible tax saving options. Tax-saving investments can give you a deduction of up to Rs 2 lakhs under sections 80C and 80CCD(1B), and additional deductions of up to Rs 2 lakhs under section 24.

Your deductions will be higher with other sections like 80E and 80G. But these are specific outflows which are not investments.

The best way to reduce your tax outflow legally is to use tax-saving investments and plan your future taxes carefully. Tax-saving investments will help you reduce your taxable income in the present financial year. If you invest in options which enjoy tax exemptions on maturity values, you can also reduce your future tax outflow. For example, Invest 4G ULIP from Canara HSBC Life Insurance allows you to stay invested up to the age of 99. This means that you can start investing at 30, build a corpus by 60 and have a tax-free lifetime pension.

Usually, a receipt is a convenient document to produce while claiming your deductions for expenses. However, the following alternatives are available if you lose the receipt:

a) Avail fuel or petrol expenses with number of kilometres
b) Credit card statement for computer items
c) Credit/debit card statement for stationery items
d) Membership documents to show running membership to claim the fees amount

You can claim HRA exemption with your employer and declare the amount in your ITR-1 form while filing your tax return. You will need to submit your house rent receipts with your employer to reduce your TDS. Use the online calculator to estimate your HRA exemption and claim the amount directly in your ITR.

If you are self-employed or do not receive HRA from your employer but have been paying rent for residence, you can claim a deduction of up to Rs 60,000 under section 80GG.

You can calculate your HRA exemption based on the following conditions. The amount of exempt HRA will be the lowest of the three:

a) HRA you have received
b) 50% of salary (basic + DA + Commission paid as % of turnover) if you are staying in a metro city otherwise 40%
c) Rent paid over 10% of your salary (as defined in step 2)

What is Permanent Total Disability Cover

What is Temporary Partial Disability

Tax Savings - Top Selling Plans

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