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Is life insurance part of your tax planning?

Perhaps the first thing you tell your grown-up daughter or son, who's just starting working, is to buy an insurance policy to save money from getting taxed. The idea is simply myopic -- just to save a few thousands we set aside an amount to buy our first and probably the last life insurance policy. The whole noise is so much around investments that one often forgets that a life insurance is still worth it and very much worth its own salt. 

For a youngster, his first job gets new hope and dreams in his life. He dreams of becoming rich and successful in the future and thus starts thinking of ways to invest his savings as smartly as possible to get the best returns. As a result, he gets into stocks, mutual funds (SIPs), fixed deposits and so on. Life Insurance, however, doesn't come up as one of the exciting options simply because it is not really an investment, rather viewed more as a tax saving tool. In earlier days, there use to be much more hassle in obtaining a life insurance, but today life insurance can be bought at a click of a mouse. Other than that, the reluctance to buy a life insurance also stems from the fact that most of the times the employer has a group insurance policy that's running for employees and one thinks that perhaps that is good enough.

The truth is that Life Insurance plans, even the most generic one, has to be looked at with one's income in mind. A group insurance policy might cover you partially, but certainly not in an adequate manner. If you are a 25-year-old and earning 3 lakhs per annum, then your life cover should be purchased keeping this income in mind. Why? What's the need? Well, the need is basic and the need is not going to be met by your mutual fund or fixed deposit. If suddenly you are no more, there is nothing that will help your family other than a life insurance policy. Buy one, keeping your income and number of years you see yourself working in mind. You will end up get the best possible cover for any untoward loss of your life and that cover will be 100% tax-free.  A long-term policy is considered great if one starts early, and one gains the advantage of low premium. Similarly, a child plan should be looked at as a commitment to your child's future and not just for tax saving.

The 80 C tax rebate is perfectly worth it if you've got yourself the correct plan. So think long term and plan right.

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